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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1998
REGISTRATION NO. 333-42411 & 333-42411-01
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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GLENOIT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2257 13-3862561
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
GLENOIT ASSET CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2257 51-0343206
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
111 WEST 40TH STREET
NEW YORK, NEW YORK 10018
TELEPHONE: (212) 391-3915
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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THOMAS J. O'GORMAN
GLENOIT CORPORATION
111 WEST 40TH STREET
NEW YORK, NEW YORK 10018
TELEPHONE: (212) 391-3915
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
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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. [_]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 NOR +
+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 SECURITIES LAWS OF ANY +
+SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 17, 1998
PRELIMINARY PROSPECTUS
OFFER FOR ALL OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE
FOR 11% SENIOR SUBORDINATED NOTES DUE 2007 OF
GLENOIT CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
GLENOIT CORPORATION (the "Company"), a wholly owned subsidiary of Glenoit
Universal, Inc. ("Holdings"), together with its wholly owned subsidiary,
Glenoit Asset Corporation ("GAC"), hereby offers to exchange an aggregate
principal amount of up to $100,000,000 of its 11% Senior Subordinated Notes due
2007 (the "New Notes") for a like principal amount of its 11% Senior
Subordinated Notes due 2007 (the "Old Notes") outstanding on the date hereof
upon the terms and subject to the conditions set forth in this Prospectus and
in the accompanying Letter of Transmittal (which together constitute the
"Exchange Offer"). ALTHOUGH THE NEW NOTES ARE TITLED "SENIOR"; (A) THE COMPANY
HAS NOT ISSUED, AND DOES NOT HAVE ANY CURRENT FIRM ARRANGEMENTS TO ISSUE, ANY
SIGNIFICANT ADDITIONAL INDEBTEDNESS TO WHICH THE NEW NOTES WOULD BE SENIOR IN
RIGHT OF PAYMENT, AND (B) THE NEW NOTES ALSO WILL BE EFFECTIVELY SUBORDINATE TO
ESSENTIALLY ALL OF THE OUTSTANDING INDEBTEDNESS OF THE COMPANY AND THE
SUBSIDIARY GUARANTORS. The New Notes and the Old Notes are collectively
hereafter referred to as the "Notes." The terms of the New Notes are identical
in all material respects to those of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes. The New Notes
will evidence the same debt as the Old Notes and will be issued pursuant to,
and entitled to the benefits of the Indenture governing the Old Notes dated
April 1, 1997 (the "Indenture"). The New Notes will be general unsecured
obligations of the Company subordinated in right of payment to all present and
future Senior Indebtedness (as defined) of the Company and will rank senior in
right of payment to all of the Company's present and future Subordinated
Obligations (as defined). The Notes will be fully and unconditionally
guaranteed (the "Subsidiary Guaranties") on an unsecured, senior subordinated
basis by GAC and each future Domestic Restricted Subsidiary (as defined) of the
Company (collectively, the "Subsidiary Guarantors"). The Subsidiary Guarantor
is a guarantor of the New Credit Facility (as defined), which ranks senior to
the New Notes, and the obligations of the New Credit Facility are secured by
substantially all of the assets of the Company and the Subsidiary Guarantor. As
of October 4, 1997, (i) Senior Indebtedness of the Company and the Subsidiary
Guarantor is approximately $8.1 million (excluding trade payables, accrued
liabilities and unused commitments under the New Credit Facility) and, (ii) the
Company and its Subsidiaries have no Senior Subordinated Indebtedness
outstanding other than these Notes and no Indebtedness outstanding that is
subordinate in right of payment to these Notes. See "Description of Notes--
Subordination." The terms of the Indenture permits the Company and Subsidiary
Guarantors to incur additional indebtedness, including Senior Indebtedness and
Indebtedness that will rank pari passu with the New Notes, although the Company
has not issued, and does not have any current firm arrangements to issue, any
significant Indebtedness to which the New Notes would rank Senior or pari passu
in right of payment. Other than increases in working capital in the ordinary
course of business, the Company has no current or pending arrangements or
agreements to incur any additional significant indebtedness to which the New
Notes would be subordinate or rank pari passu in right of payment.
Upon a Change of Control, each holder of the Notes may require the Company to
repurchase such holder's Notes at a stated price. See "Description of Notes--
Change of Control." The New Credit Facility will prohibit the purchase of
outstanding Notes prior to repayment of borrowings thereunder. Thus, there can
be no assurance that in the event of a Change of Control, the Company will have
sufficient funds to repurchase any of the Notes or will be permitted under the
terms of its other indebtedness to repurchase or redeem the Notes. See
"Description of New Credit Facility."
The Company will accept for exchange any and all Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless
extended by the Company in its sole discretion (the "Expiration Date").
Notwithstanding the foregoing, the Company will not extend the Expiration Date
beyond , 1998. Tenders of Notes may be withdrawn at any time prior to
5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain
customary conditions. The Notes were sold by the Company on March 26, 1997 to
the Initial Purchasers (as defined) in a transaction (the "Initial Offering")
not registered under the Securities Act in reliance upon an exemption under the
Securities
(continued on next page)
SEE "RISK FACTORS" COMMENCING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
(continued from previous page)
Act. The Initial Purchasers subsequently placed the Notes with qualified
institutional buyers in reliance upon Rule 144A under the Securities Act.
Accordingly, the Notes may not be reoffered, resold or otherwise transferred
in the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act
is available. The New Notes are being offered hereunder in order to satisfy
certain obligations of the Company and the Subsidiary Guarantor contained in
the Registration Agreement dated March 26, 1997 (the "Registration Rights
Agreement"), among the Company, the Subsidiary Guarantor and Salomon Brothers,
Inc. and CIBC Wood Gundy Securities Corp. (the "Initial Purchasers"), with
respect to the Initial Offering. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company or its subsidiaries within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Notes are acquired in the ordinary course of such holder's
business and such holder has no arrangement or understanding with any person
to participate in the distribution of such Notes. If a holder of Notes is not
a broker-dealer, the holder must represent that it is not engaged in and does
not intend to engage in a distribution of the New Notes. See "The Exchange
Offer--Purpose and Effect of the Exchange Offer" and "The Exchange Offer--
Resale of the New Notes." Each broker-dealer (a "Participating Broker-Dealer")
that receives New Notes for its own account pursuant to the Exchange Offer
must acknowledge that it will deliver a prospectus in connection with any
resale of the New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a Participating Broker-Dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer in connection with
resales of New Notes received in exchange for Old Notes where such Old Notes
were acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any
such resale. See "Plan of Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indentures and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
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Prior to the Exchange Offer, there has been no public market for the Old
Notes. If a market for the New Notes should develop, such New Notes could
trade at a discount from their principal amount. The Company currently does
not intend to list the New Notes on any securities exchange or to seek
approval for quotation through any automated quotation system and no active
public market for the New Notes is currently anticipated. There can be no
assurance that any public market for the New Notes will develop. The Exchange
Offer is not conditioned on any minimum principal amount of Old Notes being
tendered for exchange pursuant to the Exchange Offer. See "Risk Factors--
Absence of a Public Market." Moreover, to the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Notes could be adversely affected.
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AVAILABLE INFORMATION
The Company and the Subsidiary Guarantor have filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-4
(the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the New Notes being offered hereby. This Prospectus does not contain all the
information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Company, the Subsidiary Guarantor and
the Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Exchange Offer Registration Statement, reference is
made to the exhibit for a more complete description of the document or matter
involved, and each such Statement shall be deemed qualified in its entirety by
such reference. The Exchange Offer Registration Statement, including the
exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven
World Trade Center, Suite 1300, New York, New York 10048 and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
the Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such Web site is:
http://www.sec.gov.
As a result of the Exchange Offer, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. In the event the
Company ceases to be subject to the informational requirements of the Exchange
Act, the Company will be required under the Indenture to continue to file with
the Commission the annual and quarterly reports, information, documents or
other reports, including, without limitation, reports on Forms 10-K, 10-Q and
8-K, which would be required pursuant to the information requirements of the
Exchange Act. The Company will also furnish such other reports as may be
required by law.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE
"PROSPECTUS SUMMARY," "THE COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED
ELSEWHERE HEREIN REGARDING THE COMPANY'S FINANCIAL POSITION AND BUSINESS
STRATEGY, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS
ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO
HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE
DISCLOSED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH
THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK
FACTORS." ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. ALL
SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS.
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SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
Prospective investors are urged to read this Prospectus in its entirety. Unless
the context otherwise requires, references in this Prospectus to (i) the
"Company" or "Glenoit" are to Glenoit Corporation (the issuer of the New Notes)
and its consolidated subsidiaries, and (ii) "Holdings" are to Glenoit
Universal, Ltd., the sole shareholder of the Company. See "--Corporate
Organization." References to fiscal 1994, fiscal 1995 and fiscal 1996 are to
the Company's fiscal years ended December 31, 1994, December 30, 1995 and
January 4, 1997, respectively.
THE COMPANY
OVERVIEW
Glenoit, founded in 1954, is a domestic manufacturer and marketer of
specialty fabrics known as "sliver-knit" pile fabrics and a domestic
manufacturer of printed rugs for the home. Through its Fabric Division, the
Company produces an extensive line of sliver (pronounced "sly-ver") knit pile
fabrics, principally made from acrylic, which are used in the manufacture of
performance-oriented outerwear, sportswear, coats, accessories, home textiles,
automotive interiors, military uniforms, toys and a variety of other end-use
products. The Company principally manufactures fabrics on a made-to-order basis
and currently has over 1,100 customers. Sliver-knit pile fabrics are produced
through a specialized process in which fabric is manufactured directly from
loose fibers, in contrast to the more traditional knitting process in which
fibers are first spun into yarn and then knit into fabric. Through its Consumer
Products Division, the Company manufactures a wide variety of printed kitchen
rugs, welcome mats, bath rugs and children's area rugs sold primarily through
national discount retailers. The Company also manufactures rugs designed
specifically for use in the kitchen. The Fabric Division and Consumer Products
Division accounted for approximately 65% and 35%, respectively, of the
Company's net sales of $121.7 million in fiscal 1996.
The Company has experienced rapid growth in sales, operating income and
earnings before interest, taxes, depreciation and amortization ("EBITDA") over
the past five years. In connection with this growth, the Company has incurred
significant debt. As of October 4, 1997, the Company has outstanding
Indebtedness of $108.1 million (excluding trade payables, accrued liabilities
and unused commitments under the New Credit Facility.) From fiscal 1992 to
fiscal 1996, the Company's net sales have grown from $56.4 million to $121.7
million, representing a compound annual growth rate ("CAGR") of 21.2%,
operating income has grown from $8.1 million to $17.2 million, representing a
CAGR of 20.9%, and EBITDA has grown from $9.3 million to $19.7 million,
representing a CAGR of 20.6%. This growth has principally occurred in the
Fabric Division and is attributable to the Company's development and
introduction of branded, performance-oriented sliver-knit fabrics. These
fabrics were developed to target the increasing consumer preference towards
more casual and comfortable dress and a growing emphasis on outdoor activities
and styling related to outdoor activities. Beginning with Glenaura(TM) in 1993,
the Company has introduced a series of branded, performance-oriented fabrics
which have transformed the Company's Fabric Division from a traditional deep-
pile fabric manufacturer dependent upon the coat market into a diversified
fabric producer serving a broader range of faster growing end-use markets.
Today, the Company's performance-oriented fabrics are principally manufactured
from acrylic micro-fiber and are marketed under the brand names Berber by
Glenoit(TM), Glenaura(TM), Zendura(TM)and GlenPile(TM).
The Company believes that its performance-oriented sliver-knit fabrics offer
apparel manufacturers greater design flexibility and superior performance
characteristics in comparison with competing fleece fabrics. These qualities
include the enhanced design and color capability of "Jacquard" knitting (which
allows the fabrics to have intricate and colorful designs knitted into the
fabric rather than printed onto the surface), added versatility
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in texture and feel and greater warmth-to-weight ratios and the ability to
promote the evaporation of perspiration, thereby providing greater warmth to
the wearer. These performance-oriented fabrics have been introduced by the
Company's customers into sportswear lines marketed under brand names such as
Liz Claiborne, Jones New York, Ralph Lauren and Anne Klein; outerwear lines
marketed under brand names such as L.L. Bean, Lands' End, Columbia, Woolrich
and Bogner; and private label programs for retailers such as Saks Fifth Avenue,
Nordstrom, Lord & Taylor, Banana Republic, Victoria's Secret and The Gap.
In addition to performance-oriented sliver-knit fabrics, the Company is a
manufacturer and marketer of faux furs in the United States. Faux fur
synthetically replicates animal fur such as mink, beaver and leopard and is
typically used in women's and children's coats. The Company also manufactures
fabrics used to cover audio speakers in certain models of General Motors cars,
fireproof fabric marketed under the Glentec(TM) name used by the United States
Navy, and a wide variety of other fabrics used in the manufacture of toys, golf
club head covers, powder puffs, case linings and other end-use products.
The Company believes that it is currently the principal domestic manufacturer
of sliver-knit fabrics made from micro-fiber. The Company's ability to produce
these fabrics is a result of its (i) manufacturing expertise in the sliver-
knitting process which is more complex and difficult to utilize than
traditional knitting, (ii) state-of-the-art sliver-knitting equipment with
proprietary manufacturing enhancements, (iii) experienced sliver-knitting
workforce and (iv) exclusive supply agreement for Microsupreme (R) acrylic
micro-fiber with Sterling Fibers, Inc. Over the last six years, the Company has
replaced or substantially upgraded all of its knitting equipment. In addition,
in September 1995 the Company acquired a 140,000 square-foot sliver- knitting
manufacturing facility through its acquisition of the Borg Textile Corporation
(the "Borg Acquisition") which the Company successfully upgraded and converted
to produce higher-margin micro-fiber fabrics. In addition, effective August 30,
1997 the Company, through its wholly-owned subsidiary, Glenoit Corporation of
Canada ("GCC"), acquired certain assets and liabilities of Collins & Aikman
Canada, Inc.
The Consumer Products Division manufactures a wide variety of printed kitchen
rugs, welcome mats, bath rugs and children's area rugs which are sold to
national discount retailers including Wal-Mart, Kmart and Target, which
typically sell such rugs at retail prices ranging from $3.99 to $9.99. The
Company's kitchen rugs are manufactured under an exclusive licensing agreement
with Barth and Dreyfuss of California, Inc. ("B&D"), a major manufacturer of
kitchen textiles such as towels and potholders. Under the licensing agreement,
the Company has the exclusive right to use B&D's designs on the Company's
kitchen rugs, which are marketed jointly with B&D's kitchen textile products.
The Company believes that its vertically integrated, state-of-the-art
manufacturing and design operations provide the Consumer Products Division with
efficient design capabilities, a low-cost, high-quality product line, and the
ability to manufacture and ship large orders in a short time period. The
Company's technology allows it to take a customer's design and produce numerous
rug samples in as little as two hours, without incurring the expense and the
one month time delay associated with full scale production. The Company's heat
transfer and screen printing capabilities allow it to produce printed rugs that
have an appearance similar to that of woven rugs but cost significantly less to
produce. The Company has the ability to produce over 500,000 rugs per week and
generally ships rugs within five business days after receiving an order.
BUSINESS STRATEGY
Principal elements of the Company's strategy are:
Capitalize on Trend Towards Performance Outerwear and Sportswear. In each
of the last four years, the Company has successfully introduced new
performance-oriented fabrics designed to target the consumer trend toward
more casual and comfortable dress and the greater emphasis on physical
fitness and the outdoors. With its current line of performance-oriented
fabrics, the Company believes that it is well positioned to continue to
capitalize on this trend and will seek to continue to penetrate additional
outerwear and sportswear lines. Furthermore, the Company plans to
capitalize on the demand for performance-oriented
5
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fabrics in international markets such as Japan and Europe through its
distribution agreements with third party sales organizations in these
regions.
Build Brand Awareness. The Company has been building brand awareness for
its performance-oriented fabrics by promoting Glenoit's brand names through
garment hang-tags, a print advertising campaign undertaken jointly with its
supplier of acrylic micro-fiber and designers' advertisements and
retailers' catalogs which mention the Company's fabric by name.
Increase Penetration of Home Textile Market with Innovative New
Products. The Company plans to continue to develop innovative fabric
products for the home textile market, a relatively small but fast growing
segment of the Fabric Division. The Company believes that its micro-fiber
fabrics are well suited for use in products for the home textile market,
and the Company recently began selling its micro-fiber fabrics for use in
throws, covered pillows and comforters.
Leverage Existing Distribution Channels. The Company seeks to utilize its
strong distribution relationships with large national discount retailers
such as Wal-Mart, Kmart and Target to expand distribution of consumer
products. Today, the Company primarily sells kitchen rugs through this
distribution channel; however, the Company is planning to expand its
distribution of welcome mats through this channel. In addition, the Company
seeks to expand distribution of its rugs through other channels such as
hardware and specialty retail stores.
Make Selective Acquisitions. The Company intends to pursue selective
strategic acquisitions in order to increase fabric manufacturing capacity
and broaden fabric and consumer product offerings. The Company believes
that the Borg Acquisition demonstrates its ability to re-train personnel
and upgrade an existing manufacturing operation to produce higher margin
micro-fiber products.
CORPORATE ORGANIZATION
The Company is a wholly-owned subsidiary of Holdings. On August 8, 1997, the
Company merged (the "Internal Merger") with its principal operating subsidiary,
Glenoit Mills ("Mills"), with Glenoit Corporation as the surviving entity. In
addition, the Company formed Glenoit Corporation of Canada ("GCC") as its
wholly-owned subsidiary. Effective August 30, 1997, GCC acquired certain assets
and liabilities of Collins & Aikman Canada, Inc. As a result of this
restructuring, the Company now consists of Glenoit Corporation and its two
principal subsidiaries, Glenoit Asset Corporation ("GAC") and GCC. The Company
does not anticipate that the Internal Merger will impact its business in any
material respect.
In December 1995, the Company consummated a leveraged recapitalization (the
"Recapitalization") pursuant to which, among other things, (i) Holdings
redeemed a portion of its common stock from Stirling Investment Holdings, Inc.
(the "Seller") for consideration consisting of cash, notes (the "Seller Notes")
and the right to receive additional notes (the "Earn-Out Note") and (ii)
Citicorp Venture Capital, Ltd. ("CVC"), certain members of senior management of
CVC and the Company and certain related investors acquired common stock and
junior subordinated pay-in-kind notes of Holdings. For a description of the
Seller Notes, see "Description of Capital Stock and Indebtedness of Holdings--
Seller Notes." The Earn-Out Note has been issued by the Company in satisfaction
of the earn-out obligation of Holdings and such note was repaid with a portion
of the proceeds of the Initial Offering. For information regarding the
ownership of securities of Holdings, see "Principal Stockholders."
The Company is incorporated under the laws of the State of Delaware. The
Company's principal executive offices are located at 111 West 40th Street, New
York, New York 10018, and its telephone number is (212) 391-3915.
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THE REFINANCING
On March 26, 1997, the Company completed the Initial Offering pursuant to
which the Company issued $100,000,000 aggregate principal amount 11% Senior
Subordinated Notes due 2007. The net proceeds of the Initial Offering (after
deducting the discount to the Initial Purchasers and expenses in connection
with the Initial Offering and certain related transactions) were $95.4 million.
Such proceeds were used as follows: (i) $26.8 million was used by the Company
to prepay all outstanding Tranche A term loans under the Company's existing
revolving credit and term loan facility (the "Old Credit Facility"), including
accrued and unpaid interest thereon; (ii) $25.0 million was used to prepay all
outstanding Tranche B term loans under the Old Credit Facility, including
accrued and unpaid interest thereon, (iii) $16.6 million was used by the
Company to prepay its 12 1/2% Senior Subordinated Note due December 13, 2003
(the "Equitable Note"), including a prepayment penalty and accrued and unpaid
interest thereon; (iv) $5.7 million was used by the Company to prepay the Earn-
Out Note, including accrued and unpaid interest thereon; (v) $0.8 million was
used to pay fees and expenses in connection with the New Credit Facility; and
(vi) $20.5 million was used to prepay outstanding revolving credit borrowings
under the Old Credit Facility.
Concurrently with the Initial Offering, the Company entered into a $70
million senior credit facility (the "New Credit Facility") with a syndicate of
lenders led by Banque Nationale de Paris ("BNP"), pursuant to which the Company
has available (i) up to $45 million for working capital and general corporate
purposes, subject to a Borrowing Base (as defined in the New Credit Facility),
and (ii) up to $25 million for acquisitions. See "Description of New Credit
Facility." As of October 4, 1997, there is $7.1 million indebtedness and $55.3
million of available borrowing capacity under the New Credit Facility.
Additionally, borrowing under the New Credit Facility is limited under the
terms of the Indenture. See "Description of Notes--Certain Covenants--
Limitation on Indebtedness."
THE INITIAL OFFERING
NOTES..................... $100,000,000 aggregate principal amount of 11%
Senior Subordinated Notes due 2007 (the "Old
Notes") were sold by the Company on March 26, 1997
(the "Initial Offering") to Salomon Brothers, Inc.
and CIBC Wood Gundy Securities Corp. (the "Initial
Purchaser") pursuant to a Purchase Agreement dated
March 26, 1997 (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Notes to
qualified institutional buyers pursuant to Rule
144A under the Securities Act and to a limited
number of institutional accredited investors who
agreed to comply with certain transfer restrictions
and other conditions.
REGISTRATION RIGHTS Pursuant to the Purchase Agreement, the Company and
AGREEMENT................ the Initial Purchaser entered into a Registration
Agreement dated March 26, 1997 (the "Registration
Rights Agreement"), which granted the holder of the
Notes certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
rights which shall then terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED........ Up to $100,000,000 aggregate principal amount of
11% Senior Subordinated Notes due 2007 (the "New
Notes"). The terms of the New Notes and the Old
Notes are identical in all material respects,
7
<PAGE>
except for certain transfer restrictions and
registration rights relating to the Old Notes.
THE EXCHANGE OFFER........ The New Notes are being offered in exchange for a
like principal amount of Old Notes. Old Notes may
be exchanged only in integral multiples of $1,000.
The issuance of the New Notes is intended to
satisfy obligations of the Company contained in the
Registration Rights Agreement.
The Company will issue the New Notes to holders on
or promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such New Notes.
If a holder of Notes is not a broker-dealer, the
holder must represent that it is not engaged in and
does not intend to engage in a distribution of the
New Notes. See "The Exchange Offer--Certain
Conditions to the Exchange Offer."
Each Participating Broker-Dealer that receives the
New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. The
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New
Notes received in exchange for Old Notes where such
Notes were acquired by such Participating Broker-
Dealer as a result of market-making activities or
other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration
Date, it will make the Prospectus available to any
Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the New Notes
may not be offered for sale unless they have been
registered or qualified for sale in such
jurisdiction or an exemption from registration or
qualification is available and is complied with.
The Company has agreed, pursuant to the
Registration Rights Agreement and subject to
certain specified limitations therein, to register
or qualify the New Notes for offer or sale under
the securities of blue sky laws of such
jurisdictions as any holder of the
8
<PAGE>
Notes reasonably requests in writing. If a holder
of Old Notes does not exchange such Old Notes for
New Notes pursuant to the Exchange Offer, such Old
Notes will continue to be subject to the
restrictions on transfer contained in the legend
thereon. In general, the Old Notes may not be
offered for sale, unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. Holders of Old Notes do not have any
appraisal or dissenters' rights under the Delaware
General Corporation Law in connection with the
Exchange Offer. See "The Exchange Offer--
Consequences of Failure to Exchange; Resales of New
Notes."
The Old Notes are currently eligible for trading in
Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") market. Following
commencement of the Exchange Offer but prior to its
consummation, the Old Notes may continue to be
traded in the PORTAL market. Following consummation
of the Exchange Offer, the New Notes will not be
eligible for PORTAL trading.
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the New Notes
could not rely on the position of the staff of the
Commission enunciated in no-action letters and, in
the absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale transaction. Failure to comply with
such requirements in such instance may result in
such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
EXPIRATION DATE........... 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE Each New Note will bear interest from its issuance
NOTES.................... date. Holders of Old Notes that are accepted for
exchange will receive, in cash, accrued interest
thereon to, but not including, the issuance date of
the New Notes. Such interest will be paid with the
first interest payment on the New Notes. Interest
on the Old Notes accepted for exchange will cease
to accrue upon issuance of the New Notes.
CONDITIONS TO THE The Exchange Offer is subject to certain customary
EXCHANGE OFFER........... conditions, which may be waived by the Company.
Such conditions include the Company's ability to
terminate the Exchange Offer if the Company
determines that it violates applicable law or if a
stop order has been issued or threatened with
respect to the Registration Statement of which this
Prospectus constitutes a part or the qualification
of the Indenture under the Trust Indenture Act of
1939, as amended. See "The Exchange Offer--
Conditions."
9
<PAGE>
PROCEDURES FOR TENDERING
NOTES.................... Each holder of 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 Notes and any other required documentation
to the Exchange Agent (as defined) at the address
set forth herein. By executing the Letter of
Transmittal, each holder will represent to the
Company that, among other things, the New Notes
acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the
person receiving such Notes, whether or not such
person is the holder, and that neither the holder
nor any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act, of
the Company. If a holder of Notes is not a broker-
dealer, the holder must also represent that it is
not engaged in and does not intend to engage in a
distribution of the New Notes, nor has any
arrangement with any person to participate in such
a distribution. See "The Exchange Offer--Purpose
and Effect of the Exchange Offer" and "--Procedures
for Tendering."
UNTENDERED NOTES.......... Following the consummation of the Exchange Offer,
holders of Notes eligible to participate but who do
not tender their Notes will not have any further
exchange rights and such Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such
Notes could be adversely affected.
CONSEQUENCES OF FAILURE
TO EXCHANGE.............. The Notes that are not exchanged pursuant to the
Exchange Offer will remain restricted securities.
Accordingly, such Notes may be resold only (i) to
the Company, (ii) pursuant to Rule 144A or Rule 144
under the Securities Act or pursuant to some other
exemption under the Securities Act, (iii) outside
the United States to a foreign person pursuant to
the requirements of Rule 904 under the Securities
Act or (iv) pursuant to an effective registration
statement under the Securities Act. See "The
Exchange Offer--Consequences of Failure to
Exchange."
SHELF REGISTRATION
STATEMENT................ If any holder of the Notes (other than any such
holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) is not eligible under applicable securities
laws to participate in the Exchange Offer, and such
holder has provided information regarding such
holder and the distribution of such holder's Notes
to the Company for use therein, the Company has
agreed to register the Notes on a shelf
registration statement (the "Shelf Registration
Statement") and use its best efforts to cause it to
be declared effective by the Commission as promptly
as practical on or after the consummation of the
Exchange Offer. The Company has agreed to maintain
the effectiveness of the Shelf Registration
Statement for, under certain circumstances, a
maximum of two years, to cover resales of the Notes
held by any such holders.
10
<PAGE>
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose Notes are registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Notes, either make appropriate
arrangements to register ownership of the 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.
The Company will keep the Exchange Offer open for
not less than twenty days in order to provide for
the transfer of registered ownership.
GUARANTEED DELIVERY
PROCEDURES............... Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their 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
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
See "The Exchange Offer--Withdrawal of Tenders."
ACCEPTANCE OF NOTES AND
DELIVERY OF NEW NOTES....
The Company will accept for exchange any and all
Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The New Notes issued pursuant
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
USE OF PROCEEDS........... There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
EXCHANGE AGENT............ The United States Trust Company of New York is
serving as the Exchange Agent in connection with
the Exchange Offer.
FEDERAL INCOME TAX
CONSEQUENCES............. The exchange of Notes pursuant to the Exchange
Offer will not be a taxable event for federal
income tax purposes. See "Certain Federal Income
Tax Considerations."
THE NEW NOTES
GENERAL................... The form and terms of the New Notes are the same as
the form and terms of the Old Notes (which they
replace) except that (i) the New Notes have been
registered under the Securities Act and, therefore,
will not bear legends restricting the transfer
thereof and (ii) the holders of New Notes will not
be entitled to certain rights under the
Registration
11
<PAGE>
Rights Agreement, including the provisions
providing for an increase in the interest rate on
the Old Notes in certain circumstances relating to
the timing of the Exchange Offer, which rights will
terminate as a general matter when the Exchange
Offer is consummated. See "The Exchange Offer--
Purpose and Effect of the Exchange Offer." The New
Notes will evidence the same debt as the Notes and
will be entitled to the benefits of the Indenture.
See "Description of the Notes."
ISSUER.................... Glenoit Corporation
SECURITIES OFFERED........ $100,000,000 aggregate principal amount of 11%
Senior Subordinated Notes due 2007.
MATURITY DATE............. April 15, 2007
INTEREST PAYMENT DATES.... April 15 and October 15 of each year.
SUBORDINATION OF NOTES
AND SUBSIDIARY
GUARANTIES............... The New Notes will be general unsecured senior
subordinated obligations of the Company
subordinated in right of payment to the prior
payment in full of all present and future Senior
Indebtedness, pari passu with all present and
future Senior Subordinated Indebtedness and senior
to all present and future subordinated indebtedness
of the Company. The Notes will be fully and
unconditionally guaranteed on an unsecured, senior
subordinated basis by the Subsidiary Guarantors
under the Subsidiary Guaranties. As of October 4,
1997, after the application of the net proceeds of
the Initial Offering thereof, (i) Senior
Indebtedness of the Company and the Subsidiary
Guarantors is approximately $8.1 million (excluding
trade payables, accrued liabilities and unused
commitments under the New Credit Facility) and (ii)
the Company and its subsidiaries have no Senior
Subordinated Indebtedness outstanding (other than
the Notes) and no Indebtedness outstanding that was
subordinate in right of payment to the Notes. See
"Description of Notes--Subordination." ALTHOUGH THE
NEW NOTES ARE TITLED "SENIOR", (A) THE COMPANY HAS
NOT ISSUED, AND DOES NOT HAVE ANY CURRENT FIRM
ARRANGEMENTS TO ISSUE, ANY SIGNIFICANT ADDITIONAL
INDEBTEDNESS TO WHICH THE NEW NOTES WOULD BE SENIOR
IN RIGHT OF PAYMENT, AND (B) THE NEW NOTES ALSO
WILL BE EFFECTIVELY SUBORDINATE TO ESSENTIALLY ALL
OF THE OUTSTANDING INDEBTEDNESS OF THE COMPANY AND
THE SUBSIDIARY GUARANTORS.
OPTIONAL REDEMPTION....... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after April 15, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest to
the redemption date. In addition, at any time and
from time to time prior to April 15, 2000, the
Company may redeem in aggregate up to 25% of the
original principal amount of the Notes at a
redemption price of 110% of the principal amount
thereof, plus accrued and unpaid interest, if any,
to the redemption date, with the proceeds of one or
more Public
12
<PAGE>
Equity Offerings following which there is a Public
Market; provided, however, that at least 75% of the
original principal amount of the Notes remains
outstanding immediately after any such redemption.
CHANGE OF CONTROL......... Upon a Change of Control, each holder of the Notes
may require the Company to repurchase such holder's
Notes, in whole or in part, at a purchase price in
cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the
purchase date. See "Description of Notes--Change of
Control." There are significant restrictions,
however, on the Company's ability to repurchase the
Notes upon a Change of Control. The occurrence of
certain of the events which would constitute a
Change of Control, for example, would constitute a
default under the New Credit Facility. Moreover,
the New Credit Facility will prohibit the purchase
of outstanding Notes prior to repayment of the
borrowings thereunder. Thus, in the event of a
Change of Control, there can be no assurance that
the Company will have sufficient funds to
repurchase any of the Notes or be permitted under
the terms of its other indebtedness to repurchase
or redeem the Notes. See "Description of New Credit
Facility."
CERTAIN COVENANTS......... The Indenture (as defined) contains certain
covenants that, among other things, limit the
ability of the Company and its Restricted
Subsidiaries to incur additional Indebtedness; make
certain Restricted Payments and Investments; create
Liens; enter into certain transactions with
Affiliates; consummate certain merger,
consolidation or similar transactions; sell assets;
issue or sell capital stock; or incur Indebtedness
which is both subordinated to Senior Indebtedness
and senior to the Notes. In addition, in certain
circumstances, the Company is required to offer to
purchase Notes at a purchase price equal to 100% of
the principal amount thereof with the net proceeds
of certain asset sales. These covenants are subject
to a number of significant exceptions and
qualifications. See "Description of Notes--Certain
Covenants."
TRANSFER RESTRICTIONS;
ABSENCE OF A PUBLIC
MARKET FOR THE NOTES
COVENANTS................ The New Notes are new securities and there is
currently no established market for the New Notes.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the New
Notes. The Initial Purchasers have advised the
Company that they currently intend to make a market
in the New Notes. However, they are not obligated
to do so, and any market-making with respect to the
New Notes may be discontinued without notice. The
Company does not intend to apply for listing of the
New Notes on any national securities exchange or
for their quotation through the National
Association of Securities Dealers Automated
Quotation System. See "Risk Factors--Transfer
Restrictions; Absence of Public Market."
For additional information regarding the New Notes, see "Description of
Notes."
The address for the Company is 111 West 40th Street, New York, New York 10018
and the telephone number is (212)391-3915.
RISK FACTORS
Holders of Old Notes should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" beginning on page 16 for risks in connection with
the Exchange Offer. Such Risk Factors include, but are not limited to, the
following: Substantial Leverage; Subordination of the Notes and Subsidiary
Guaranties; Restrictive Loan Covenants; Customer Concentration; Controlling
Shareholders; Change of Control; Stringent Environmental Safety and Health
Regulation; Absence of Public Market and Competition.
13
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND
PRO FORMA FINANCIAL DATA
Set forth below are summary historical consolidated financial data and
certain pro forma ratios of the Company for the periods indicated. The
historical consolidated financial data of the Company prior to December 13,
1995 reflect the historical results of Mills. The summary historical financial
data of the Company as of and for the years ended December 30, 1995 and January
4, 1997 have been derived from the Consolidated Financial Statements of the
Company included elsewhere herein, which have been audited by Coopers & Lybrand
L.L.P., independent accountants. The summary historical financial data of the
Company as of and for the year ended December 31, 1994 have been derived from
the Consolidated Financial Statements of the Company included elsewhere herein,
which have been audited by BDO Seidman, LLP, independent accountants. The
summary historical financial data of the Company as of and for the years ended
January 2, 1993 and January 1, 1994 have been derived from the Consolidated
Financial Statements of the Company not included herein, which have been
audited by BDO Seidman, LLP. The information for the nine month periods ended
September 28, 1996 and October 4, 1997 is unaudited, but, in the opinion of the
Company's management, includes all adjustments (consisting only of normal
recurring accruals) necessary for the fair statement of the results for the
periods presented. The results for the nine month period ended October 4, 1997
are not necessarily indicative of the results for the entire year since the
Company's business is seasonal with historically better results in the second
and third quarters. The summary historical and pro forma financial data set
forth below should be read in conjunction with "Selected Historical
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Unaudited Pro Forma Financial
Data--Pro Forma Consolidated Statement of Income," and the Consolidated
Financial Statements of the Company and related notes thereto included
elsewhere in this Registration Statement.
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
------------------------------------------------ ------------------------
SEPTEMBER 28, OCTOBER 4,
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $56,443 $62,527 $72,469 $93,840 $121,751 $95,633 $120,822
Cost of sales........... 39,319 43,035 49,594 67,249 86,525 66,450 77,959
------- ------- ------- ------- -------- ------- --------
Gross profit............ 17,124 19,492 22,875 26,591 35,226 29,183 42,863
Operating expenses...... 9,070 13,691(a) 12,550 16,235 18,045 13,146 17,859
------- ------- ------- ------- -------- ------- --------
Income from operations.. 8,054 5,801 10,325 10,356 17,181 16,037 25,004
Interest expense, net... 1,007 973 2,208 3,745 9,125 6,858 8,094
Other expense (income).. 120 (171) 83 166 589 605 586
Income tax expense...... 2,550 2,050 2,850 3,083 3,354 3,605 6,542
------- ------- ------- ------- -------- ------- --------
Income before
extraordinary loss..... 4,377 2,949 5,184 3,362 4,113 4,969 9,782
Extraordinary loss, net
of tax benefit......... -- -- -- 2,407(b) -- -- 2,857(c)
------- ------- ------- ------- -------- ------- --------
Net Income.............. $ 4,377 $ 2,949 $ 5,184 $ 955 $ 4,113 $ 4,969 $ 6,925
======= ======= ======= ======= ======== ======= ========
OTHER DATA:
Depreciation and
amortization........... $ 1,368 $ 1,124 $ 1,491 $ 1,946 $ 3,097 $ 2,262 $ 2,617
Capital expenditures.... 706 838 1,394 5,239 1,679 1,284 13,315
Cash flows from
operating activities... 4,377 7,013 142 181 6,429 (514) 11,714
Cash flows used in
investing activities... (976) (838) (1,201) (13,076) (1,388) (1,083) (21,302)
Cash flow from financing
activities............. (3,179) (6,259) 1,247 13,533 (6,014) 2,366 10,426
EBITDA(d)............... 9,302 7,096 11,733 12,136 19,689 17,693 27,035
Adjusted EBITDA(e)...... 9,302 10,532 11,733 12,136 20,990 17,693 27,035
Ratio of earnings to
fixed charges(f)....... 5.24x 3.84x 3.21x 2.30x 1.68x 2.03x 2.71x
PRO FORMA RATIOS:
Ratio of Adjusted EBITDA
to pro forma interest
expense(g)............. 1.79x 2.99x
Ratio of pro forma net
debt to Adjusted
EBITDA................. 4.56x(h) 3.98x(i)
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 279 $ 196 $ 384 $ 1,023 $ 49 $ 1,792 $ 887
Working capital(j)...... 540 2,844 5,925 17,735 13,340 24,926 26,473
Total assets............ 15,909 14,860 21,317 50,946 49,497 70,269 90,306
Total debt(k)........... 7,804 5,906 27,547 97,857 92,295 112,211 133,410
Stockholder's equity
(deficit).............. 8,105 8,954 (6,231) (46,911) (42,798) (41,942) (43,104)
</TABLE>
14
<PAGE>
- --------
(a) Included in "Operating expenses" during fiscal 1993 is a one time charge of
$3,436,000 relating to the charge-off of a product supply agreement with a
related party and an investment in a related party. BDO Seidman, LLP issued
a qualified opinion related to the Company's financial statements as of and
for the period ended January 2, 1993 relating to the carrying value of the
product supply agreement.
(b) During fiscal 1995, the Company recognized an extraordinary loss, net of
income tax benefit of $1,240,000, as a result of the early retirement of
the Company's debt obligations. See Notes 4 and 7 to the Consolidated
Financial Statements.
(c) During April 1997, the Company recognized an extraordinary loss, net of
income tax benefit of $1,527,000, as a result of the refinancing of the
Company's debt in connection with the Initial Offering. See Note 7 of the
Consolidated Financial Statements.
(d) EBITDA represents income before extraordinary loss plus income tax
expenses, interest expense (net), depreciation and amortization. The
Company believes that EBITDA provides useful information regarding the
Company's ability to service its debt; however, EBITDA does not represent
cash flow from operations as defined by generally accepted accounting
principles and should not be considered as a substitute for net income as
an indicator of the Company's operating performance or cash flow as a
measure of liquidity. The definition of EBITDA presented herein differs
from the definition of EBITDA in the Indenture. EBITDA has not been
adjusted to reflect certain costs and expenses payable to related parties
prior to fiscal 1996, which were substantially reduced as a result of the
Recapitalization. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Notes--Certain
Definitions."
(e) Adjusted EBITDA represents EBITDA (See Note (d) above), plus (i) for fiscal
1993, a one time charge of $3,436,000 relating to the charge-off of a
product supply agreement with a related party and an investment in a
related party (See Note (a) above) and (ii) for fiscal 1996, (A) moving
expenses of approximately $320,000 incurred to relocate the Company's
Consumers Products Division and (B) fees of approximately $980,000 for a
consulting project related to process improvement and cash flow management.
Adjusted EBITDA is presented because the Company believes that it provides
useful information regarding the Company's ability to incur and service
debt; however, Adjusted EBITDA does not represent cash flow from operations
as defined by generally accepted accounting principles and should not be
considered as a substitute for net income as an indicator of the Company's
operating performance or cash flow as a measure of liquidity.
(f) For purposes of computing the ratio of earnings to fixed charges, earnings
include income before income taxes and extraordinary loss, plus fixed
charges. Fixed charges consist of interest expense, amortization of debt
issuance costs, and the portion of rental expense which the Company
believes is representative of the interest component of rental expense.
(g) Represents Adjusted EBITDA divided by pro forma interest expense (excluding
pro forma amortization of deferred loan cost of $600,000 and $419,000 for
the periods ending January 4, 1997 and October 4, 1997, respectively). See
"Unaudited Pro Forma Financial Data--Pro Forma Consolidated Statement of
Income."
(h) Represents pro forma net debt of $95,617,000 divided by Adjusted EBITDA.
Pro forma net debt represents total debt and capital lease obligations,
less cash and cash equivalents, on a pro forma basis as of January 4, 1997,
after giving effect to the Initial Offering and the application of the
proceeds thereof.
(i) Represents net debt of $107,189,000 as of October 4, 1997 divided by
Adjusted EBITDA. Net debt represents the sum of long term debt, the line of
credit, and capital lease obligations, less cash and cash equivalents.
(j) Working capital represents consolidated current assets less consolidated
current liabilities.
(k) The Company's fiscal 1994 balance sheet includes indebtedness of Holdings
which has been accounted for as indebtedness of the Company under the
"push-down" method of accounting. This debt was paid off on December 13,
1995. The "push-down" method requires that debt of Holdings, which was
guaranteed and collateralized by the assets of the Company, be treated for
accounting purposes as debt of the Company. See Note 1 to the Consolidated
Financial Statements.
15
<PAGE>
RISK FACTORS
Holders of Old Notes should carefully consider the following factors in
addition to the other information set forth in this Prospectus in connection
with the Exchange Offer. The risk factors set forth below are generally
applicable to the Old Notes as well as the New Notes.
SUBSTANTIAL LEVERAGE
The Company has incurred significant debt in connection with the Initial
Offering. As of October 4, 1997, the Company has outstanding Indebtedness of
$108.1 million (excluding trade payables, accrued liabilities and unused
commitments under the New Credit Facility). The Company's leveraged financial
position poses substantial consequences to holders of the Notes, including the
risks that: (i) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of interest on the Notes and the
payment of principal and interest under other Indebtedness; (ii) the Company's
highly leveraged position may impede its ability to obtain financing in the
future for working capital, capital expenditures and general corporate
purposes, including acquisitions; (iii) the Company's highly leveraged
financial position may make it more vulnerable to economic downturns and may
limit its ability to withstand competitive pressures; (iv) to the extent that
the Company incurs additional Indebtedness under the New Credit Facility,
which Indebtedness will be at variable rates, the Company may be vulnerable to
increases in interest rates; and (v) the Company's flexibility in planning for
or reacting to changes in market conditions may be limited. There can be no
assurance, however, that the future cash flow of the Company will be
sufficient to meet the Company's obligations and commitments. If the Company
is unable to generate sufficient cash flow from operations in the future to
service its Indebtedness and to meet its other commitments, the Company will
be required to adopt one or more alternatives, such as refinancing or
restructuring its Indebtedness, selling material assets or operations or
seeking to raise additional debt or equity capital. There can be no assurance
that any of these actions could be effected on a timely basis or on
satisfactory terms or that these actions would enable the Company to continue
to satisfy its capital requirements. In addition, the terms of existing or
future debt agreements, including the Indenture and the New Credit Facility,
may prohibit the Company from adopting any of these alternatives. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," "Description of Notes" and
"Description of New Credit Facility."
SUBORDINATION OF THE NOTES AND THE SUBSIDIARY GUARANTIES; COMPANY STRUCTURE
The Notes will be subordinated in right of payment to all present and future
Senior Indebtedness of the Company, including the principal, premium (if any)
and interest with respect to the Senior Indebtedness of the Company under the
New Credit Facility. The Notes will rank pari passu with all present and
future Senior Subordinated Indebtedness of the Company and will rank senior to
all other subordinated indebtedness of the Company. In addition, the
Subsidiary Guaranties will be subordinated in right of payment to all existing
and future Senior Indebtedness of the Subsidiary Guarantors, will rank pari
passu with all existing and future Senior Subordinated Indebtedness of the
Subsidiary Guarantors and will rank senior to all other subordinated
indebtedness of the Subsidiary Guarantors. Consequently, in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to the Company or any Subsidiary Guarantor, assets of the Company
or such Subsidiary Guarantor will be available to pay obligations of the Notes
only after all Senior Indebtedness of the Company or such Subsidiary Guarantor
has been paid in full, and there can be no assurance that there will be
sufficient assets to pay amounts due on all or any of the Notes. See
"Description of Notes--Subordination."
The Notes are also unsecured and will be effectively subordinated to any
Secured Indebtedness of the Company. The Indebtedness outstanding under the
New Credit Facility will be secured by liens on substantially all of the
assets of the Company. The ability of the Company to comply with the
provisions of the New Credit Facility may be affected by events beyond the
Company's control. The breach of any such provisions could result
16
<PAGE>
in a default under the New Credit Facility, in which case, depending on the
actions taken by the lenders thereunder or their successors or assignees, such
lenders could elect to declare all amounts borrowed under the New Credit
Facility, together with accrued interest, to be due and payable, and the
Company could be prohibited from making payments of interest and principal on
the Notes until the default is cured or all Senior Indebtedness is paid or
satisfied in full. If the Company were unable to repay such borrowings, such
lenders could proceed against the collateral. If the Indebtedness under the
New Credit Facility were accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay in full such Indebtedness
and the other Indebtedness of the Company, including the Notes. See
"Description of New Credit Facility" and "Description of Notes--
Subordination."
The Company is an operating company which derives a portion of its operating
income from its subsidiaries. The holders of the Notes will have no direct
claim against such subsidiaries other than the claim created by the Subsidiary
Guaranties, which may be subject to legal challenge. See "--Risk of Fraudulent
Transfer." If such a challenge were upheld, the Subsidiary Guaranties could be
invalidated and unenforceable. To the extent that any Subsidiary Guaranty is
not enforceable, the rights of holders of the Notes to participate in any
distribution of assets of the applicable Subsidiary Guarantor upon
liquidation, bankruptcy, reorganization or otherwise would, as is the case
with other creditors of the Company, be subject to prior claims of creditors
of that Subsidiary Guarantor. The ability of the Company's subsidiaries to pay
dividends and make other payments may be or become subject to certain
statutory, contractual and other restrictions.
Although the terms of the Indenture will restrict dividends and
distributions to Holdings, the Company will be permitted to make certain
payments to Holdings, including payments (i) in respect of principal and
interest on the Seller Notes; (ii) to cover certain administrative and
operating expenses of Holdings, and (iii) to cover certain tax liabilities
allocable to the Company, subject in each case to certain conditions. The
Indenture does not restrict Holdings or its activities. See "Description of
Notes--Certain Covenants--Limitation on Restricted Payments."
As of October 4, 1997, (i) Senior Indebtedness of the Company and the
Subsidiary Guarantors is approximately $8.1 million (excluding trade payables,
accrued liabilities and unused commitments under the New Credit Facility) and
(ii) the Company and its subsidiaries have no Senior Subordinated Indebtedness
outstanding (other than the Notes) and no indebtedness outstanding that was
subordinate in right of payment to the Old Notes. The Subsidiaries have other
liabilities, including contingent liabilities, which could be substantial.
RESTRICTIVE LOAN COVENANTS
The New Credit Facility includes certain covenants that, among other things,
restrict the Company's ability to: (i) pay dividends and make certain other
restricted payments; (ii) incur additional indebtedness; (iii) grant liens,
other than liens created pursuant to the New Credit Facility and certain
permitted liens; and (iv) sell material assets. The New Credit Facility also
requires the Company to maintain certain financial ratios, including leverage,
interest coverage, fixed charge coverage and minimum net worth. There can be
no assurance that these requirements will be met in the future. If they are
not, the holders of the indebtedness under the New Credit Facility would be
entitled to declare such Indebtedness immediately due and payable. See
"Description of New Credit Facility."
CUSTOMER CONCENTRATION
Approximately 20% of the Company's total net sales (57% of the Consumer
Products Division's net sales) in fiscal 1996 were to three national discount
retailers: Wal-Mart, Kmart and Target. The loss of any of these customers or a
significant reduction in the amount of their business with the Company would
have a material adverse effect on the Company's business, financial condition
and results of operations.
RISKS OF ACQUISITIONS
The Company's strategy contemplates the pursuit of additional acquisition
opportunities, and the Company is currently pursuing several acquisition
opportunities. See "Business--Business Strategy." Each of these
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<PAGE>
acquisition opportunities will require the devotion of substantial management
resources and may require significant capital investment. Furthermore, such
acquisitions will be subject to the many risks inherent in the integration of
new business enterprises into the Company's existing operations. There can be
no assurance that any of these acquisition opportunities will be consummated.
Moreover, the Company may incur significant costs and expenses in connection
with such projects. There can be no assurance that these expenditures will
ultimately result in the integration of profitable operations with the
Company's existing operations.
COMPETITION
The textile industry is highly competitive and no single company is
dominant. The Company's products compete with products offered by large,
vertically integrated textile companies which have greater financial resources
than the Company. The Company also competes with numerous smaller companies
specializing in limited segments of the market. The primary competitive
factors in the textile industry are price, product styling and
differentiation, quality, manufacturing flexibility, delivery time and
customer service. The importance of these factors is determined by the needs
of particular customers and the characteristics of particular products. There
could be a material adverse effect on the Company's business to the extent
that one or more of the Company's competitors gains an advantage with respect
to any key competitive factor. See "Business--Competition." In addition,
imports of foreign-made textile and apparel products are a significant source
of competition for many domestic textile manufacturers. The Company believes
that its United States manufacturing presence and its emphasis on shortening
production and lead times allows the Company to respond more quickly than
foreign producers to changing fashion trends and to its domestic customers'
requirement that suppliers meet tight production schedules and provide rapid
delivery. The Company's continued success, however, will be affected by the
ability of certain of the Company's customers to remain competitive, which may
be affected by the level of imports.
The extent of import protection afforded by the United States government to
domestic textile producers has been, and is likely to remain, subject to
considerable domestic and international political deliberation. In view of the
labor cost advantages and the number of foreign producers of textile products
that compete with certain of the Company's products, substantial elimination
of import protection for domestic textile manufacturers could have a material
adverse effect on the Company's business. In January 1995, a new multilateral
trade organization, the World Trade Organization ("WTO"), was formed by the
members of the General Agreement on Tariffs and Trade ("GATT") to replace
GATT. This new body has set forth the mechanisms by which world trade in
textiles and clothing will be progressively liberalized with the elimination
of quotas and the reduction of duties. The implementation began in January
1995 with the phasing-out of quotas and the reduction of duties to take place
over a 10-year period. The selection of products at each phase is made by each
importing country and must be drawn from each of the four main textile groups:
yarns, fabrics, made-up textiles and apparel. As it implements the WTO
mechanisms, the United States government is negotiating bilateral trade
agreements with developing countries (which are generally exporters of textile
products) that are members of the WTO to get them to reduce their tariffs on
imports of textiles and apparel. The elimination of quotas and the reduction
of tariffs under the WTO may result in increased imports of certain textile
products and apparel into North America. These factors could make the
Company's products less competitive against low cost imports from third world
countries. See "Business--Competition."
The North American Free Trade Agreement ("NAFTA") among Canada, Mexico and
the United States, which became effective on January 1, 1994, has created the
world's largest free-trade zone. NAFTA will phase out all trade restrictions
and tariffs on textiles and apparel among the three countries. There can be no
assurance that the removal of these barriers to trade will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
IMPORTANCE OF B&D LICENSE AGREEMENT; CVC'S INTEREST IN B&D; POSSIBLE SALE OF
B&D
A substantial majority of the products sold by the Consumer Products
Division are manufactured, marketed and sold under a license agreement with
B&D. See "Business--Licenses and Trademarks." Although the Company has the
right to perpetually renew the license agreement for successive one-year terms
(subject to
18
<PAGE>
certain conditions), the loss of this license or a deterioration in B&D's
business could have a material adverse effect on the Company's business,
financial condition and results of operations.
Citicorp Venture Capital, Ltd. ("CVC"), the Company's largest shareholder,
has an interest in B&D as a result of CVC's purchase in 1991 of certain notes
of Papercraft Corporation ("Papercraft"), the then-parent company of B&D,
while Papercraft was the subject of a bankruptcy proceeding in the Western
District of Pennsylvania. During the bankruptcy proceeding, a committee of
certain other creditors of Papercraft (the "Committee") sought to have CVC's
claim equitably subordinated to the claims of other creditors. In October
1995, the bankruptcy court denied the Committee's request for equitable
subordination, but limited CVC's claim to the purchase price of the Papercraft
notes (resulting in CVC receiving an 11% interest in the reorganized entity,
which emerged from bankruptcy as BDK Holdings Inc. ("BDK")), rather than the
face value of the notes (which would result in CVC receiving a 41% interest in
BDK). CVC has appealed the bankruptcy court's decision, asserting that the
court erred in establishing and applying a new and previously unrecognized
rule which prohibited CVC from purchasing the notes without first disclosing
to the sellers and the other creditors that it intended to purchase the notes
and that it had a representative on the Papercraft board. The Committee has
also filed an appeal contesting the bankruptcy court's decision not to
equitably subordinate CVC's claim. In addition, CVC believes that the board of
directors of BDK may be seeking to sell the company and has filed a complaint
with the bankruptcy court seeking to prohibit any sale of the disputed
interest in BDK until all appeals of the bankruptcy court's decision have been
exhausted.
PRICE AND UNAVAILABILITY OF RAW MATERIALS
The Company's principal raw materials are acrylic and polyester, which the
Company purchases from several large chemical companies. The Company's largest
supplier is Sterling Fibers, Inc., which is the exclusive supplier of acrylic
micro-fiber used in the Company's fabrics. The Company seeks to purchase
sufficient amounts of acrylic and polyester to cover existing order
commitments. The Company does not speculate on the price of raw materials. Any
shortage or interruption in the supply, variations in the quality or
fluctuations in the cost of raw materials could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business--Raw Materials and Suppliers."
CYCLICAL NATURE OF TEXTILE INDUSTRY
Like all manufacturers of textile and textile-related products, the
Company's financial performance tends to fluctuate with the general economic
cycle and respond to market influences such as fashion trends. Reflecting the
cyclical nature of the textile industry, many textile producers tend to
increase capacity during years in which sales are strong. Such increases in
capacity tend to accelerate a general economic downturn in the Company's
textile markets. Any future increases in the capacity to manufacture pile and
other competing fabrics could have a material adverse effect on the Company's
business, financial condition and results of operations.
The popularity and demand for particular textiles and textile-related
products may vary significantly from year to year based on prevailing fashion
trends which cannot be predicted. Due to the highly competitive nature of the
industry, any failure by the Company to rapidly respond to changing fashion
trends could have a material adverse effect on the Company's business,
financial condition and results of operations.
CONTROLLING STOCKHOLDERS
CVC and certain members of senior management of the Company and CVC
beneficially own a majority of the outstanding common stock of Holdings and,
as a result, collectively control the affairs and policies of the Company.
Circumstances may occur in which the interests of these stockholders could be
in conflict with the interests of the holders of the Notes. In addition, these
stockholders may have an interest in pursuing acquisitions, divestitures or
other transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve risks to the holders
of the Notes. See "--Importance of B&D Licensing Agreement; CVC's Interest in
B&D; Possible Sale of B&D," "Principal Stockholders" and "Certain
Relationships and Related Transactions."
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<PAGE>
CHANGE OF CONTROL
In the event of a Change of Control, each holder of the Notes will have the
right to require the Company to make an offer for cash to repurchase all or
any part of such holder's Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the date
of repurchase. A Change of Control will result in an event of default under
the New Credit Facility and may result in a default under other indebtedness
of the Company that may be incurred in the future. The New Credit Facility
will prohibit the purchase of outstanding Notes prior to repayment of the
borrowings under the New Credit Facility. Finally, there can be no assurance
that the Company will have the financial resources necessary to repurchase the
Notes upon a Change of Control. See "Description of Notes--Change of Control."
RISK OF FRAUDULENT TRANSFER
Under applicable provisions of the United States Bankruptcy Code and
comparable provisions of state fraudulent transfer or conveyance laws, if the
Company, at the time it issued the Notes, (i) incurred such indebtedness with
intent to hinder, delay or defraud creditors, or (ii)(a) received less than
reasonably equivalent value or fair consideration for incurring such
indebtedness and (b)(1) was insolvent at the time of incurrence, (2) was
rendered insolvent by reason of such incurrence (and the application of the
proceeds thereof), (3) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Company constituted
unreasonably small capital to carry on its businesses, or (4) intended to
incur, or believed that it would incur, debts beyond its ability to pay such
debts as they mature, then, in each case, a court of competent jurisdiction
could void, in whole or in part, the Notes, or, in the alternative,
subordinate the Notes to existing and future indebtedness of the Company. The
measure of insolvency for purposes of the foregoing will vary depending upon
the law applied in such case. Generally, however, the Company would be
considered insolvent if the sum of its debts, including contingent
liabilities, was greater than all of its assets at fair valuation or if the
present fair saleable value of its assets was less than the amount that would
be required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured. The Company
believes that, for purposes of all such insolvency, bankruptcy and fraudulent
transfer or conveyance laws, the Notes are being issued without the intent to
hinder, delay or defraud creditors and for fair value and that the Company,
after the issuance of the Notes and the application of the proceeds thereof,
will be solvent, will have sufficient capital for carrying on its business and
will be able to pay its debts as they mature. There can be no assurance,
however, that a court passing on such questions would agree with the Company's
view.
In addition, the Subsidiary Guaranties may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
any of the Subsidiary Guarantors. In such a case, the analysis set forth above
would generally apply, except that the Subsidiary Guaranties could also be
subject to the claim that, since the Subsidiary Guaranty was incurred for the
benefit of the Company (and only indirectly for the benefit of the Subsidiary
Guarantors), the obligations of the Subsidiary Guarantor thereunder was
incurred for less than reasonably equivalent value or fair consideration. A
court could void a Subsidiary Guarantor's obligation under the Subsidiary
Guaranties, subordinate the Subsidiary Guaranties to other indebtedness of a
Subsidiary Guarantor or take other action detrimental to the holders of the
Notes.
STRINGENT ENVIRONMENTAL, SAFETY AND HEALTH REGULATION
The Company's operations are subject to increasingly stringent federal,
state and local laws and regulations governing environmental, health and
safety matters. Pursuant to these requirements, the Company's facilities
maintain environmental operating permits that are subject to revocation,
modification and renewal. Violations of such permit requirements could give
rise to substantial fines and/or civil or criminal sanctions. In addition, the
Company may be liable under environmental laws for the cleanup of
contamination that occurs on or from the Company's properties, including
contamination that occurred prior to the Company's ownership or operation of
the properties, or for clean-up of contamination on any off-site location to
which the Company shipped hazardous substances for disposal. There can be no
assurance that the Company is at all times in full compliance with
20
<PAGE>
applicable environmental, safety and health requirements or that the costs or
liabilities related to such requirements that may be imposed in the future
will not result in a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Environmental,
Safety and Health Regulation."
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
Prior to the Exchange Offer, there has not been any public market for the
Notes. The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchange for New Notes by holders who are entitled to participate in this
Exchange Offer. The holders of Old Notes (other than any such holder that is
an "affiliate"of the Company within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the Exchange Offer are
entitled to certain registration rights, and the Company is required to file a
Shelf Registration Statement with respect to such Notes. The New Notes will
constitute a new issue of securities with no established trading market. The
Company does not intend to list the New Notes on any national securities
exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Initial
Purchaser has advised the Company that it currently intends to make a market
in the New Notes, but it is not obligated to do so and may discontinue such
market making at any time. In addition, such market making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act and
may be limited during the Exchange Offer and the pendency of the Shelf
Registration Statements. Accordingly, no assurance can be given that an active
public market or other market will develop for the New Notes or as to the
liquidity of the trading market for the New Notes. If a trading market does
not develop or is not maintained, holders of the New Notes may experience
difficulty in reselling the New Notes or may be unable to sell them at all. If
a market for the New Notes develops, any such market may be discontinued at
any time.
If a public trading market develops for the New Notes, future trading prices
of the New Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Company, the New Notes may trade at a discount from their principal amount.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including,
in particular, the likelihood of the Company's success in developing and
expanding its business. These statements are based upon a number of
assumptions and estimates which are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company, and reflect future business decisions which are subject to change.
The foregoing description of risk factors specifies the principal
contingencies and uncertainties to which the Company believes it is subject.
Some of these assumptions inevitably will not materialize, and unanticipated
events will occur which will affect the Company's results.
EXCHANGE OFFER PROCEDURES
Issuance of New Notes in exchange for the Old Notes pursuant to the Exchange
Offer will be made only after a timely receipt by the Company of the Old
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Old Notes desiring to
tender such Notes in exchange for New Notes should allow sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to the tenders of Notes for exchange.
Notes that are not tendered or are tendered but not accepted will, following
the consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof and, upon consummation of the Exchange
Offer, certain registration rights under the Registration Rights Agreement
will terminate. In addition, any holder of Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the New Notes
21
<PAGE>
may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transactions. Each
Participating Broker-Dealer that receives New Notes for its own account in
exchange for Old Notes, where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the New Notes. See "Plan of Distribution." To the extent
that Notes are tendered and accepted in the Exchange Offer, the trading market
for untendered and tendered but unaccepted Notes could be adversely affected.
See "The Exchange Offer."
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes in the Exchange
Offer. The net proceeds of the Initial Offering (after deducting the discount
to the Initial Purchasers and expenses in connection with the Initial Offering
and certain related transactions) were $95.4 million. Such proceeds were used
as follows: (i) $26.8 million was used by the Company to prepay all
outstanding Tranche A term loans under the Company's existing revolving credit
and term loan facility (the "Old Credit Facility"), including accrued and
unpaid interest thereon; (ii) $25.0 million was used to prepay all outstanding
Tranche B term loans under the Old Credit Facility, including accrued and
unpaid interest thereon, (iii) $16.6 million was used by the Company to prepay
its 12 1/2% Senior Subordinated Note due December 13, 2003 (the "Equitable
Note"), including a prepayment penalty and accrued and unpaid interest
thereon; (iv) $5.7 million was used by the Company to prepay the Earn-Out
Note, including accrued and unpaid interest thereon; (v) $0.8 million was used
to pay fees and expenses in connection with the New Credit Facility; and (vi)
$20.5 million was used to prepay outstanding revolving credit borrowings under
the Old Credit Facility. See "The Refinancing."
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<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Set forth below are selected historical consolidated financial data of the
Company for the periods indicated. The historical consolidated financial data
of the Company prior to December 13, 1995 reflect the historical results of
Mills. The selected historical financial data of the Company as of and for the
years ended December 30, 1995 and January 4, 1997 has been derived from the
Consolidated Financial Statements of the Company included elsewhere herein,
which have been audited by Coopers & Lybrand L.L.P., independent accountants.
The selected historical financial data of the Company as of and for the year
ended December 31, 1994 has been derived from the Consolidated Financial
Statements of the Company included elsewhere herein, which have been audited
by BDO Seidman, LLP, independent accountants. The selected historical
financial data of the Company as of and for the years ended January 2, 1993
and January 1, 1994 has been derived from the Consolidated Financial
Statements of the Company not included herein, which have been audited by BDO
Seidman, LLP. The information for the nine month periods ended September 28,
1996 and October 4, 1997 is unaudited, but, in the opinion of the Company's
management, includes all adjustments (consisting only of normal recurring
accruals) necessary for the fair statement of the results for the periods
presented. The results for the nine month period ended October 4, 1997 are not
necessarily indicative of the results for the entire year, since the Company's
business is seasonal with historically better results in the second and third
quarters. The selected consolidated financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and related notes thereto included elsewhere in this
Registration Statement.
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
------------------------------------------------- ------------------------
SEPTEMBER 28, OCTOBER 4,
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- -------- -------- ------------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $56,443 $62,527 $72,469 $ 93,840 $121,751 $ 95,633 $120,822
Cost of sales........... 39,319 43,035 49,594 67,249 86,525 66,450 77,959
------- ------- ------- -------- -------- -------- --------
Gross profit............ 17,124 19,492 22,875 26,591 35,226 29,183 42,863
Operating expenses...... 9,070 13,691(a) 12,550 16,235 18,045 13,146 17,859
------- ------- ------- -------- -------- -------- --------
Income from operations.. 8,054 5,801 10,325 10,356 17,181 16,037 25,004
Interest expense, net... 1,007 973 2,208 3,745 9,125 6,858 8,094
Other expense (income).. 120 (171) 83 166 589 605 586
Income tax expense...... 2,550 2,050 2,850 3,083 3,354 3,605 6,542
------- ------- ------- -------- -------- -------- --------
Income before
extraordinary loss..... 4,377 2,949 5,184 3,362 4,113 4,969 9,782
Extraordinary loss, net
of tax benefit......... -- -- -- 2,407(b) -- -- 2,857(c)
------- ------- ------- -------- -------- -------- --------
Net income.............. $ 4,377 $ 2,949 $ 5,184 $ 955 $ 4,113 $ 4,969 $ 6,925
======= ======= ======= ======== ======== ======== ========
OTHER DATA:
Depreciation and
amortization........... $ 1,368 $ 1,124 $ 1,491 $ 1,946 $ 3,097 $ 2,262 $ 2,617
Capital expenditures.... 706 838 1,394 5,239 1,679 1,284 13,315
Cash flows from
operating activities... 4,377 7,013 142 181 6,429 (514) 11,714
Cash flows from
investing activities... (976) (838) (1,201) (13,076) (1,388) (1,083) (21,302)
Cash flow from financing
activities............. (3,179) (6,259) 1,247 13,533 (6,014) 2,366 10,426
EBITDA(d)............... 9,302 7,096 11,733 12,136 19,689 17,693 27,035
Adjusted EBITDA(e)...... 9,302 10,532 11,733 12,136 20,990 17,693 27,035
Ratio of earnings to
fixed charges(f)....... 5.24x 3.84x 3.21x 2.30x 1.68x 2.03x 2.71x
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 279 $ 196 $ 384 $ 1,023 $ 49 $ 1,792 $ 887
Working capital(g)...... 540 2,844 5,925 17,735 13,340 24,926 26,473
Total assets............ 15,909 14,860 21,317 50,946 49,497 70,269 90,306
Total debt(h)........... 7,804 5,906 27,547 97,857 92,295 112,211 133,410
Stockholder's equity
(deficit).............. 8,105 8,954 (6,231) (46,911) (42,798) (41,942) (43,104)
</TABLE>
- --------
(a) Included in "Operating expenses" during fiscal 1993 is a one time charge
of $3,436,000 relating to the charge-off of a product supply agreement
with a related party and an investment in a related party. BDO Seidman,
LLP issued a qualified opinion related to the Company's financial
statements as of and for the period ended January 2, 1993 relating to the
carrying value of the product supply agreement.
(b) During fiscal 1995, the Company recognized an extraordinary loss, net of
income tax benefit of $1,240,000, as a result of the early retirement of
the Company's debt obligations. See Notes 4 and 7 to the Consolidated
Financial Statements.
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<PAGE>
(c) During April 1997, the Company recognized an extraordinary loss, net of
income tax benefit of $1,527,000, as a result of the refinancing of the
Company's debt in connection with the Initial Offering. See Note 7 to the
Consolidated Financial Statements.
(d) EBITDA represents income before extraordinary loss plus income tax
expense, interest expense (net), depreciation and amortization. The
Company believes that EBITDA provides useful information regarding the
Company's ability to service its debt; however, EBITDA does not represent
cash flow from operations, as defined by generally accepted accounting
principles and should not be considered as a substitute for net income as
an indicator of the Company's operating performance or cash flow as a
measure of liquidity. The definition of EBITDA presented herein differs
from the definition of EBITDA in the Indenture. EBITDA has not been
adjusted to reflect certain costs and expenses payable to related parties
prior to fiscal 1996, which were substantially reduced as a result of the
Recapitalization. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Notes--Certain
Definitions."
(e) Adjusted EBITDA represents EBITDA (See Note (d) above), plus (i) for
fiscal 1993, a one time charge of $3,436,000 relating to the charge-off
of a product supply agreement with a related party and an investment in a
related party (See Note (a) above) and (ii) for fiscal 1996, (A) moving
expenses of approximately $320,000 incurred to relocate the Company's
Consumers Product Division and (B) fees of approximately $980,000 for a
consulting project related to process improvement and cash flow
management. Adjusted EBITDA is presented because the Company believes
that it provides useful information regarding the Company's ability to
incur and service debt; however, Adjusted EBITDA does not represent cash
flow from operations as defined by generally accepted accounting
principles and should not be considered as a substitute for net income as
an indicator of the Company's operating performance or cash flow as a
measure of liquidity.
(f) For purposes of computing the ratio of earnings to fixed charges,
earnings include income before income taxes and extraordinary loss, plus
fixed charges. Fixed charges consist of interest expense, amortization of
debt issuance costs, and the portion of rental expense which the Company
believes is representative of the interest component of rental expense.
(g) Working capital represents consolidated current assets less consolidated
current liabilities.
(h) The Company's fiscal 1994 balance sheet includes indebtedness of Holdings
which has been accounted for as indebtedness of the Company under the
"push-down" method of accounting. This debt was paid off on December 13,
1995. The "push-down" method requires that debt of Holdings, which was
guaranteed and collateralized by the assets of the Company, be treated
for accounting purposes as debt of the Company. See Note 1 to the
Consolidated Financial Statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's net sales grew from $72.5 million in fiscal 1994 to $121.7
million in fiscal 1996 primarily as a result of rapidly growing demand for the
Company's performance-oriented pile fabrics, which were first introduced in
1993. This demand has been driven by a growing emphasis on outdoor activities
and styling related to outdoor activities. The Company has responded by
developing a line of performance-oriented micro-fiber fabrics, which the
Company believes offer superior performance characteristics in comparison to
competing fleece fabrics. The Company has also invested heavily to upgrade its
fabric manufacturing facilities and increase capacity. In September 1995, the
Company increased manufacturing capacity by 140,000 square feet with the
addition of the Jacksboro, Tennessee facility acquired in the Borg
Acquisition, which the Company upgraded and converted to produce higher margin
micro-fiber products. This facility generated net sales of $24.1 million in
fiscal 1996 and $5.7 million in fiscal 1995. In addition, effective August 30,
1997 the Company, through its wholly-owned subsidiary, Glenoit Corporation of
Canada ("GCC"), acquired certain assets and liabilities of Collins & Aikman
Canada, Inc.
RESULTS OF OPERATIONS
The following table sets forth selected results of operations expressed in
millions of dollars and as a percentage of total net sales for fiscal years
1994, 1995 and 1996 and the nine month periods ended September 28, 1996 and
October 4, 1997.
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
-------------------------------------- ---------------------------
SEPTEMBER 28, OCTOBER 4,
1994 1995 1996 1996 1997
----------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Fabric Division........ $32.3 44.6% $50.2 53.5% $ 79.4 65.2% $ 62.7 65.6% $ 89.9 74.4%
Consumer Products
Division.............. 40.2 55.4 43.6 46.5 42.3 34.8 32.9 34.4 30.9 25.6
----- ----- ----- ----- ------ ----- ------ ------ ------ -----
Total net sales........ 72.5 100.0 93.8 100.0 121.7 100.0 95.6 100.0 120.8 100.0
Cost of sales........... 49.6 68.4 67.2 71.7 86.5 71.1 66.4 69.5 77.9 64.5
----- ----- ----- ----- ------ ----- ------ ------ ------ -----
Gross profit........... 22.9 31.6 26.6 28.3 35.2 28.9 29.2 30.5 42.9 35.5
Operating expenses...... 12.6 17.3 16.2 17.3 18.0 14.8 13.2 13.7 17.9 14.8
----- ----- ----- ----- ------ ----- ------ ------ ------ -----
Income from
operations............ 10.3 14.3 10.4 11.0 17.2 14.1 16.0 16.8 25.0 20.7
Interest expense, net... 2.2 3.1 3.7 4.0 9.1 7.5 6.8 7.2 8.1 6.7
Other expense........... 0.1 0.1 0.2 0.1 0.6 0.5 0.6 0.6 0.6 0.5
Income tax expense...... 2.8 3.9 3.1 3.3 3.4 2.7 3.6 3.8 6.5 5.4
----- ----- ----- ----- ------ ----- ------ ------ ------ -----
Income before
extraordinary loss..... 5.2 7.2 3.4 3.6 4.1 3.4 5.0 5.2 9.8 8.1
Extraordinary loss...... -- -- 2.4 2.6 -- -- -- -- 2.9 2.4
----- ----- ----- ----- ------ ----- ------ ------ ------ -----
Net income............. $ 5.2 7.2% $ 1.0 1.0% $ 4.1 3.4% $ 5.0 5.2% $ 6.9 5.7%
===== ===== ===== ===== ====== ===== ====== ====== ====== =====
</TABLE>
NINE MONTHS ENDED OCTOBER 4, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 28,
1996
Net sales to date through October 4, 1997 increased to $120.8 million or
26.3% compared to $95.6 million for the first nine months of the prior year.
Fabric Division sales increased significantly due to both increased unit
volume and an improved average selling price which reflects an improved sales
mix over the prior year. Sales in the Fabric Division were also positively
impacted by the acquisition made by GCC which generated sales of $1.7 million
from the acquisition date through October 4, 1997. Fabric Division sales
offset a decline in sales in the Consumer Products Division which occurred
primarily in the second quarter as a result of a unit volume shortfall. Open
orders for the Company at October 4 were $15.0 million compared to $13.5
million at the same time last year.
Gross profit year to date through October 4, 1997 was $42.9 million or 35.5%
of net sales compared with $29.2 million or 30.5% of net sales for the first
nine months of the prior year. This increase of $13.7 million or
25
<PAGE>
46.9% resulted from increased unit volume and higher average selling prices in
the Fabric Division. The improved results in the Fabric Division were
partially offset by the margin effect of a second quarter decline in sales
volume and a third quarter promotional mix in the Consumer Products Division.
Operating expenses year to date through October 4, 1997 were $17.9 million
or 14.8% of net sales compared to $13.1 million or 13.7% of net sales. Dollar
increases over the prior year were primarily in sales related categories such
as commissions and credit collection expense. Accruals for pension,
professional fees, and profit related compensation plans increased over the
prior year.
Operating income was $25.0 million for the nine months ended October 4, 1997
compared to $16.0 million in the prior year. This increase, resulting from the
factors described above, represents an increase of $9.0 million or 55.9%.
Interest expense for the nine months ended October 4, 1997 was $8.1 million
compared to $6.9 million for the same period last year. Interest expense has
increased due to higher levels of debt and a higher effective borrowing rate
as a result of the Initial Offering.
Net income for the nine months ended October 4, 1997 was $9.8 million
(excluding the effect of an extraordinary loss on early extinguishment of debt
of $2.9 million, net of an income tax benefit, related to the refinancing of
the company's debt which took place at April 1, 1997) compared to $5.0 million
for the first nine months of the prior year.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net sales for fiscal 1996 were $121.7 million, an increase of $27.9 million
or 29.7% over 1995. This sales growth resulted from increased sales in the
Fabric Division which was partially offset by a small sales decline in the
Consumer Products Division. Fabric Division sales increased by $29.2 million,
or 58.2%, primarily driven by increased unit sales of the Company's
performance-oriented fabrics in sportswear, outerwear, accessories and home
textile products, as well as increased unit sales of faux fur fabrics for the
women's and children's coat markets. In addition, the Fabric Division's
average sales price increased as higher-priced performance fabrics became a
larger portion of the sales mix. The addition of the Jacksboro facility for a
full year provided the Company with the capacity for an additional $18.4
million of fabric sales over 1995. In the Consumer Products Division, unit
volume remained stable but unit average sales prices declined slightly due to
increased sales of promotional items by certain of the Company's major
customers.
Gross profit for fiscal 1996 was $35.2 million, an increase of $8.6 million
or 32.5% over 1995. As a percent of net sales, gross profit was 28.9% compared
with 28.3% in the prior year. The Company derived benefits from lower raw
material prices and increased sales volume. Additionally, the Company's
purchase of a facility in Tarboro, North Carolina (which was formerly leased
from a related party) in connection with the Recapitalization resulted in net
lease cost savings of approximately $0.4 million in fiscal 1996. These factors
more than offset the costs of integrating the Jacksboro facility and moving
the operations of the Consumer Products Division into a separate facility in
Tarboro. The cost of this move was approximately $0.3 million.
Operating expenses for fiscal 1996 were $18.0 million, an increase of $1.8
million or 11.1% over fiscal 1995. Operating expenses as a percent of net
sales declined from 17.3% in fiscal 1995 to 14.8% in fiscal 1996. The dollar
increase in operating expenses resulted from growth in sales-related expenses
(primarily commissions), increased research and development expenditures in
the Consumer Products Division, and costs of approximately $1.0 million for
consulting services. Operating expenses declined as a percent of net sales
primarily due to the reduction of certain costs following the
Recapitalization. These costs primarily consisted of management fees and
consulting fees to related parties and associated travel and other expenses of
approximately $1.4 million in fiscal 1995 which were not incurred in fiscal
1996.
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<PAGE>
Income from operations for fiscal 1996 was $17.2 million, an increase of
$6.8 million over fiscal 1995. Income from operations as a percent of net
sales was 14.1% in fiscal 1996 compared with 11.0% in fiscal 1995. The
increase in operating income as a percent of net sales was attributable to the
factors resulting in the increase in gross margin and the decrease in
operating expenses as a percent of net sales discussed above.
Net interest expense for fiscal 1996 was $9.1 million compared with $3.7
million in fiscal 1995. The increase of $5.4 million resulted from increased
borrowing incurred in connection with the Recapitalization.
Net income for fiscal 1996 was $4.1 million, an increase of $3.2 million
over fiscal 1995. Net income in 1995 was reduced by an extraordinary loss of
$2.4 million, net of taxes, related to early extinguishment of debt as a part
of the Recapitalization.
Comparison of Fiscal Year 1995 Compared to Fiscal Year 1994
Net sales for fiscal 1995 were $93.8 million, an increase of $21.4 million
or 29.5% over fiscal 1994. The majority of the increase came from the Fabric
Division where sales increased by $17.9 million or 55.4%. Fabric sales grew
primarily as a result of increased unit sales and average sales price for the
Company's higher-priced performance-oriented fabrics. The addition of the
Jacksboro facility for the last three months of the year provided the Company
with the capacity for an additional $5.7 million of fabric sales. Sales in the
Consumer Products Division increased by $3.4 million due to increased unit
sales of both kitchen rugs and welcome mats with stable average unit prices.
Gross profit for fiscal 1995 was $26.6 million, an increase of $3.7 million
or 16.2% over the prior year. As a percent of net sales, gross profit in
fiscal 1995 was 28.3% compared to 31.6% for fiscal 1994. The decrease in gross
margin resulted from significant raw material price increases for polyester
fiber and, to a lesser extent, acrylic fiber, which was partially offset by
production efficiencies associated with increased sales.
Operating expenses for fiscal 1995 were $16.2 million, an increase of $3.7
million or 29.4% over the prior year. As a percent of net sales, operating
expenses were 17.3% in fiscal 1995 which was unchanged from fiscal 1994. The
dollar increases in operating expenses resulted mainly from sales-related
expenditures, primarily commissions.
Income from operations for fiscal 1995 was $10.4 million, a slight increase
over the prior year. As a percent of net sales, income from operations in
fiscal 1995 was 11.0% compared to 14.3% in fiscal 1994. The decrease in
operating income as a percent of net sales was attributable to the factors
resulting in the decrease in gross margin discussed above.
Interest expense for fiscal 1995 was $3.7 million compared to $2.2 million
for fiscal 1994. The increase in interest expense was due primarily to
additional borrowings in support of increased working capital requirements as
a result of the higher level of sales, as well as significant capital
expenditures to upgrade the Jacksboro facility acquired in the Borg
Acquisition.
Net income for fiscal 1995 was $1.0 million, a decrease of $4.2 million
compared to fiscal 1994. Net income in fiscal 1995 was reduced by an
extraordinary loss of $2.4 million, net of taxes, related to early
extinguishment of debt as part of the Recapitalization.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on internally generated cash flow from operations,
supplemented by borrowings under its senior credit facility and vendor
financing to meet its debt service requirements, capital expenditures and
working capital needs. The Company is highly leveraged.
On April 1, 1997, the Company issued $100 million of senior subordinated
notes (the "Initial Offering"). Concurrently with the Initial Offering, the
Company entered into the New Credit Facility with a syndicate of
27
<PAGE>
lenders led by BNP, pursuant to which the Company obtained available credit
(i) up to $45.0 million for working capital and general corporate purposes,
subject to a Borrowing Base, and (ii) up to $25.0 million for acquisitions.
The Company also prepaid all outstanding indebtedness under the Old Credit
Facility. At October 4, 1997, there were borrowings of $7.1 million under the
senior credit facility and approximately $55.3 million available to borrow
subject of the terms of the senior credit agreement. A detailed description of
the senior subordinated notes and the senior credit agreement may be found in
the notes to consolidated financial statements.
Principal and interest payments in respect of the Notes and the New Credit
Facility will represent significant liquidity requirements for the Company. In
addition, the Company will be permitted (but will not be obligated) to make
certain payments to Holdings, including payments (i) in respect of principal
and interest of the Seller Notes, (ii) to cover certain administrative and
operating expenses of Holdings and (iii) to cover certain tax liabilities
allocable to the Company, subject in each case to certain conditions as
described under "Description of Notes--Certain Covenants--Limitation on
Restricted Payments."
The Company believes that cash generated from operations, together with
vendor financing and amounts available under the New Credit Facility, will be
adequate to meet its debt service requirements, capital expenditures and
working capital needs for the foreseeable future, although no assurance can be
given in this regard. The Company's future operating performance and ability
to service or refinance the Notes and to extend or refinance its other
indebtedness will be subject to future economic conditions and to financial,
business and other factors beyond the Company's control.
The Company's Parent is a holding company and as a result does not have any
substantive assets or operations that generate revenues or cashflows.
Accordingly, the Company's Parent relies on the Company's distribution of
dividends to fund its operations and meet its obligations, including interest
and principal payments. As of October 4, 1997, the Company's Parent has
obligations with a face amount of $24 million, bearing interest at stated
rates between 5% to 12.5%, to shareholders with principal due in 2004 and
2005. For further discussion, see Note 8 of the Consolidated Financial
Statements.
During the nine months ending October 4, 1997, net cash provided by
operating activities was $11.7 million. Operating assets increased resulting
in a use of $17.6 million for working capital needs to support seasonal
growth. Accounts receivable increased by $17.1 million, inventories and other
current assets increased by $530,000. Accrued liabilities increased by $10.5
million, due primarily to accrued interest on senior subordinated notes and
accrued taxes. Accounts payable increased by $4.6 million.
On March 5, 1997, the Company declared a dividend and issued a note in the
amount of approximately $5.8 million (the "Note") to a shareholder of the
Company's Parent in satisfaction of a contingent earnout obligation of the
Company's Parent related to the Recapitalization discussed in the January 4,
1997 financial statements. Additionally, on June 14, 1997, the Company paid a
dividend in the amount of $1.6 million to enable its parent to exercise an
option to repurchase stock and to retire a related note due to the shareholder
from whom the stock was repurchased. This transaction took place pursuant to a
leveraged recapitalization agreement consummated in December 1995 and was
anticipated in both the bond indenture and the senior credit agreement now in
effect.
During fiscal 1996, cash provided by operating activities was $6.4 million.
Changes in operating assets resulted in a use of $0.5 million. Increases in
receivables and a decrease in payables required $2.3 million and $3.0 million,
respectively. Cash was provided by changes in accrued expenses of $1.3
million, changes in inventories and prepaid expenses totaling $1.0 million and
a change in the amount due to/from parent of $2.6 million.
During fiscal 1995 net cash provided by operating activities was $0.2
million. Changes in operating assets resulted in a use of $6.6 million which
consisted of increases in inventory of $2.1 million, increases in receivables
of $3.2 million, and increases in prepaid expenses and receivables due from
parent of $2.4 million. These were offset by increases in accounts payable and
accrued expenses of $1.1 million.
During fiscal 1994 net cash provided by operating activities was $0.1
million. Changes in operating assets resulted in a use of $7.4 million
consisting of an increase of $6.2 million in receivables, an increase in
inventory of $1.2 million, and an increase of $0.7 million in prepaid
expenses, offset by an increase of $0.7 million in accounts payable and
accrued expenses.
28
<PAGE>
Capital Improvements
Capital expenditures for the nine month period ended October 4, 1997 were
$13.3 million. These additions were primarily in the Fabric Division for
additions of knitting and blending equipment to increase capacity.
Expenditures were also made for upgrades to management information systems.
During fiscal 1994, 1995 and 1996, the Company's capital expenditures were
$1.4 million, $5.2 million and $1.7 million, respectively. In fiscal 1994
through 1996, the Company made total capital additions of approximately $18.3
million (including the estimated fair market value of leased equipment). These
additions included upgrading equipment in the Fabric Division (including the
Jacksboro, Tennessee facility acquired in the Borg Acquisition) to accommodate
the growth in micro-fiber products, as well as upgrading plant and equipment
in the Consumer Products Division. Minimum future lease payments under
capitalized and operating leases for equipment under leases at January 4, 1997
were as follows: 1997--$4.4 million, 1998--$4.4 million, 1999--$3.6 million,
2000--$3.3 million, and thereafter--$6.7 million.
SEASONALITY
The Company's business is seasonal in nature. Generally, there is increased
retail demand for garments and rugs during the fall (back-to-school) and
December holiday selling seasons. Consequently, demand for the Company's
products is generally higher during the Company's second and third fiscal
quarters when such products are produced for these selling seasons.
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for the three fiscal years ended January 4, 1997 and the
nine months ended October 4, 1997 due to the relatively low rates of inflation
during this period.
29
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BUSINESS
GENERAL
Glenoit, founded in 1954, is the leading domestic manufacturer and marketer
of specialty fabrics known as "sliver-knit" pile fabrics and a leading
domestic manufacturer of printed rugs for the home. Through its Fabric
Division, the Company produces an extensive line of sliver (pronounced "sly-
ver") knit pile fabrics, principally made from acrylic, which are used in the
manufacture of performance-oriented outerwear, sportswear, coats, accessories,
home textiles, automotive interiors, military uniforms, toys and a variety of
other end-use products. The Company principally manufactures fabrics on a
made-to-order basis and currently has over 1,100 customers. Sliver-knit pile
fabrics are produced through a specialized process in which fabric is
manufactured directly from loose fibers, in contrast to the more traditional
knitting process in which fibers are first spun into yarn and then knit into
fabric. Through its Consumer Products Division, the Company manufactures a
wide variety of printed kitchen rugs, welcome mats, bath rugs and children's
area rugs sold primarily through national discount retailers. The Company
believes that it is the largest producer in the United States of rugs designed
specifically for use in the kitchen. The Fabric Division and Consumer Products
Division accounted for approximately 65% and 35%, respectively, of the
Company's net sales of $121.7 million in fiscal 1996.
The Company has experienced rapid growth in sales, operating income and
earnings before interest, taxes, depreciation and amortization ("EBITDA") over
the past five years. In connection with this growth, the Company has incurred
significant debt. As of October 4, 1997, the Company has outstanding
indebtedness of $108.1 million (excluding trade payables, accrued liabilities
and unused commitments under the New Credit Facility). From fiscal 1992 to
fiscal 1996, the Company's net sales have grown from $56.4 million to $121.7
million, representing a compound annual growth rate ("CAGR") of 21.2%,
operating income has grown from $8.1 million to $17.2 million, representing a
CAGR of 20.9%) and EBITDA has grown from $9.3 million to $19.7 million,
representing a CAGR of 20.6%. This growth has principally occurred in the
Fabric Division and is attributable to the Company's development and
introduction of branded, performance-oriented sliver-knit fabrics. These
fabrics were developed to target the increasing consumer preference towards
more casual and comfortable dress and a growing emphasis on outdoor activities
and styling related to outdoor activities. Beginning with Glenaura(TM) in
1993, the Company has introduced a series of branded, performance-oriented
fabrics which have transformed the Company's Fabric Division from a
traditional deep-pile fabric manufacturer dependent upon the coat market into
a diversified fabric producer serving a broader range of faster growing end-
use markets. Today, the Company's performance-oriented fabrics are principally
manufactured from acrylic micro-fiber and are marketed under the brand names
Berber by Glenoit(TM), Glenaura(TM), Zendura(TM)and GlenPile(TM).
The Company believes that its performance-oriented sliver-knit fabrics offer
apparel manufacturers greater design flexibility and superior performance
characteristics in comparison with competing fleece fabrics. These qualities
include the enhanced design and color capability of "Jacquard" knitting (which
allows the fabrics to have intricate and colorful designs knitted into the
fabric rather than printed onto the surface), added versatility in texture and
feel and greater warmth-to-weight ratios and moisture wickability. These
performance-oriented fabrics have been introduced by the Company's customers
into sportswear lines marketed under brand names such as Liz Claiborne, Jones
New York, Ralph Lauren and Anne Klein; outerwear lines marketed under brand
names such as L.L. Bean, Lands' End, Columbia, Woolrich and Bogner; and
private label programs for retailers such as Saks Fifth Avenue, Nordstrom,
Lord & Taylor, Banana Republic, Victoria's Secret and The Gap.
In addition to performance-oriented sliver-knit fabrics, the Company
believes that it is also the leading manufacturer and marketer of faux furs in
the United States. Faux fur synthetically replicates animal fur such as mink,
beaver and leopard and is typically used in women's and children's coats. The
Company also manufactures fabrics used to cover audio speakers in certain
models of General Motors cars, fireproof fabric marketed under the Glentec(TM)
name used by the United States Navy, and a wide variety of other fabrics used
in the manufacture of toys, golf club head covers, powder puffs, case linings
and other end-use products.
The Company believes that it is currently the principal domestic
manufacturer of sliver-knit fabrics made from micro-fiber (which is defined as
fiber having a diameter of less than one denier). The Company's ability to
produce these fabrics is a result of its (i) manufacturing expertise in the
sliver-knitting process which is more complex and difficult to utilize than
traditional knitting, (ii) state-of-the-art sliver-knitting equipment with
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<PAGE>
proprietary manufacturing enhancements, (iii) experienced sliver-knitting
workforce and (iv) exclusive supply agreement for Microsupreme(R) acrylic
micro-fiber with Sterling Fibers, Inc. Over the last six years, the Company
has replaced or substantially upgraded all of its knitting equipment. In
addition, in September 1995 the Company acquired a 140,000 square-foot sliver-
knitting manufacturing facility through its acquisition of the Borg Textile
Corporation (the "Borg Acquisition") which the Company successfully upgraded
and converted to produce higher-margin micro-fiber fabrics.
The Consumer Products Division manufactures a wide variety of printed
kitchen rugs, welcome mats, bath rugs and children's area rugs which are sold
to national discount retailers including Wal-Mart, Kmart and Target, which
typically sell such rugs at retail prices ranging from $3.99 to $9.99. The
Company's kitchen rugs are manufactured under an exclusive licensing agreement
with Barth and Dreyfuss of California, Inc. ("B&D"), a major manufacturer of
kitchen textiles such as towels and potholders. Under the licensing agreement,
the Company has the exclusive right to use B&D's designs on the Company's
kitchen rugs, which are marketed jointly with B&D's kitchen textile products.
The Company believes that its vertically integrated, state-of-the-art
manufacturing and design operations provide the Consumer Products Division
with efficient design capabilities, a low-cost, high-quality product line, and
the ability to manufacture and ship large orders in a short time period. The
Company's technology allows it to take a customer's design and produce
numerous rug samples in as little as two hours, without incurring the expense
and the one month time delay associated with full scale production. The
Company's heat transfer and screen printing capabilities allow it to produce
printed rugs that have an appearance similar to that of woven rugs but cost
significantly less to produce. The Company has the ability to produce over
500,000 rugs per week and generally ships rugs within five business days after
receiving an order.
BUSINESS STRATEGY
Principal elements of the Company's strategy are:
Capitalize on Trend Towards Performance Outerwear and Sportswear. In each of
the last four years, the Company has successfully introduced new performance-
oriented fabrics designed to target the consumer trend toward more casual and
comfortable dress and the greater emphasis on physical fitness and the
outdoors. With its current line of performance-oriented fabrics, the Company
believes that it is well positioned to continue to capitalize on this trend
and will seek to continue to penetrate additional outerwear and sportswear
lines. Furthermore, the Company plans to capitalize on the demand for
performance-oriented fabrics in international markets such as Japan and Europe
through its distribution agreements with third party sales organizations in
these regions.
Build Brand Awareness. The Company has been building brand awareness for its
performance-oriented fabrics by promoting Glenoit's brand names through
garment hang-tags, a print advertising campaign undertaken jointly with its
supplier of acrylic micro-fiber and designers' advertisements and retailers'
catalogs which mention the Company's fabric by name.
Increase Penetration of Home Textile Market with Innovative New
Products. The Company plans to continue to develop innovative fabric products
for the home textile market, a relatively small but fast growing segment of
the Fabric Division. The Company believes that its micro-fiber fabrics are
well suited for use in products for the home textile market, and the Company
recently began selling its micro-fiber fabrics for use in throws, covered
pillows and comforters.
Leverage Existing Distribution Channels. The Company seeks to utilize its
strong distribution relationships with large national discount retailers such
as Wal-Mart, Kmart and Target to expand distribution of consumer products.
Today, the Company primarily sells kitchen rugs through this distribution
channel; however, the Company is planning to expand its distribution of
welcome mats through this channel. In addition, the Company seeks to expand
distribution of its rugs through other channels such as hardware and specialty
retail stores.
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Make Selective Acquisitions. The Company intends to pursue selective
strategic acquisitions in order to increase fabric manufacturing capacity and
broaden fabric and consumer product offerings. The Company believes that the
Borg Acquisition demonstrates its ability to re-train personnel and upgrade an
existing manufacturing operation to produce higher margin micro-fiber
products.
PRODUCTS
Fabric Division
The Fabric Division manufactures a diverse line of sliver-knit pile fabrics
used in the manufacture of performance-oriented outerwear, sportswear, coats,
accessories, home textiles, automotive interiors, military clothing and other
products. The Fabric Division's largest and fastest growing segment is a line
of performance-oriented micro-fiber fabrics which are principally made from
Microsupreme(R) micro-fiber produced by Sterling Fibers, Inc. In 1993, the
Company introduced the first of its performance-oriented fabrics,
Glenaura(TM), and has since introduced Berber by Glenoit(TM) (1994),
Zendura(TM) (1995) and GlenPile(TM) (1996). These fabrics are primarily used
in the manufacture of outerwear, sportswear, and accessories, including coats,
pullovers, heavy shirts, hats, gloves, scarves, robes and slippers, and are
sold to manufacturers of sportswear marketed under brand names such as Liz
Claiborne, Jones New York, Ralph Lauren and Anne Klein; manufacturers of
outerwear marketed under brand names such as L.L. Bean, Lands' End, Columbia,
Woolrich and Bogner; and private label programs for retailers such as Saks
Fifth Avenue, Nordstrom, Lord & Taylor, Banana Republic, Victoria's Secret and
The Gap. In addition, the Company sells micro-fiber fabrics in the home
textile market for use in throws, covered pillows and comforters manufactured
and marketed by Revman Industries Inc. under the brand name Indoor
Outfitters(TM).
The Fabric Division's second largest product category is faux fur which is
composed of fabrics with a heavier, deeper pile than performance-oriented
fabrics and is used in women's and children's coats and linings, which was the
Fabric Division's principal business prior to 1993. Faux fur is typically used
to replicate traditional animal fur such as mink, beaver, seal and leopard.
The Company believes that it is the leading domestic supplier of faux fur and
sells its fabrics to manufacturers of garments that are sold through retailers
such as Saks Fifth Avenue, Bloomingdale's, Nordstrom, Neiman Marcus, Kmart and
JC Penney.
In the automotive market, the Company's fabrics, which allow for greater
sound penetration than other knit or woven fabrics, are used to cover audio
speakers in the interiors of automobiles produced by the Cadillac, Buick and
Oldsmobile divisions of General Motors Corporation. The Company also sells
fabric to the U.S. Government, including a fireproof fabric marketed under the
brand name Glentec(TM), which is used by the United States Navy. In addition,
the Company's fabrics are used in the manufacture of toys, golf club head
covers, powder puffs, linings for golf bags and musical instrument cases and
other end-use products.
Consumer Products Division
The Consumer Products Division produces a wide variety of printed kitchen
rugs, welcome mats, bath rugs and children's area rugs which are typically
two-feet by three-feet in size. The Consumer Product Division's largest
product category is kitchen rugs, which accounted for a substantial majority
of its fiscal 1996 net sales. The Company's kitchen rugs are manufactured
under an exclusive license agreement with B&D. Under this agreement, the
Company has the exclusive right to use B&D copyrighted designs to produce
kitchen rugs that are coordinated with B&D's towels, pot holders and other
kitchen textiles. These products are marketed jointly to retailers as a
coordinated package. In the children's area rug category, the Company produces
rugs decorated with licensed cartoon characters for Couristan, Inc., a major
manufacturer and distributor of area rugs. The Company's rugs have various
surface textures and are made primarily from polyester. The Company also
produces cotton and polypropylene rugs. The Consumer Products Division sells
its rugs directly to national discount retailers such as Wal-Mart, Kmart and
Target, which typically sell such rugs at retail prices ranging from $3.99 to
$9.99.
32
<PAGE>
SALES AND MARKETING
Fabric Division
The Fabric Division's marketing efforts are handled by an in-house sales
force supported by a customer service department. The Fabric Division
supplements its sales coverage with several experienced commissioned, outside
sales organizations specializing in certain markets. The Fabric Division
maintains a showroom at the Company's headquarters in New York. The Fabric
Division has its own design and research and development departments that
develop exclusive designs for the Company and certain of the Company's
customers. No single customer accounted for more than 4% of the Fabric
Division's net sales in fiscal 1996, reflecting the diversity of its customer
base.
The Fabric Division principally manufactures fabrics on a made-to-order
basis, thereby minimizing its inventory. The Company's performance-oriented
fabrics are marketed principally under the brand names Berber by Glenoit(TM),
Glenaura(TM), Zendura(TM) and GlenPile(TM), and are being increasingly
promoted through garment hang-tags and through a print advertising campaign
undertaken jointly with the Company's supplier of Microsupreme micro-fiber. As
a result of growing consumer recognition of the Company's branded fabrics,
designers and retailers are increasingly using the Company's brand names in
their advertising and catalogs.
Consumer Products Division
The B&D sales force, supervised by the Consumer Products Division's
marketing management, acts as representative agents for substantially all of
the Consumer Products Division's products. In return, the Company pays B&D a
variable royalty on the sale of all rugs printed with B&D designs and also
contributes to the compensation of the B&D sales force. The Consumer Products
Division's marketing management maintains active relationships with key
customers, and marketing calls to these customers are made jointly by the
Company and B&D employees. The Consumer Products Division markets its products
primarily to national discount retailers such as Wal-Mart, Kmart and Target,
which collectively accounted for approximately 57% of the Consumer Products
Division's net sales in fiscal 1996. The Consumer Products Division has
recently entered into strategic marketing relationships in order to increase
distribution of the Company's rugs through hardware stores and specialty
retail gift shops.
In order to support its sales force and respond promptly to the delivery
requirements of its customers, the Consumer Products Division utilizes
Electronic Data Interchange ("EDI") with most of its principal customers. EDI
minimizes the lead time for customer orders, permits a more efficient,
targeted manufacturing schedule, and improves communication, planning and
processing times at each stage of the production cycle. EDI, combined with the
Company's manufacturing capabilities, allows the customer to place an order on
Monday and in most cases have the products shipped by Friday. This rapid order
turn-around has resulted in an expanded relationship with Wal-Mart, Kmart,
Target and other major customers.
MANUFACTURING FACILITIES AND OPERATIONS
The Company operates two manufacturing facilities located in Tarboro, North
Carolina, one manufacturing facility located in Jacksboro, Tennessee, and one
manufacturing facility located in Elmira, Ontario, Canada. The North Carolina
and Canadian facilities are owned by the Company. The Tennessee facility is
leased with an expiration date in September 2005, and an annual rental cost of
approximately $340,000. The Company also maintains a 10,000-square-foot
administrative office and sales showroom at 111 West 40th Street in New York
City's garment district, providing easy access to the Company's major
customers. The lease on the New York office expires on July 31, 2005, and has
an annual rental cost of approximately $296,000. The Company is currently in
the process of increasing its capacity in the Fabric Division through a plant
expansion and installation of new manufacturing equipment at its three fabric
facilities. In the opinion of management, with the completion of this
expansion, the Company's manufacturing capacity is sufficient to meet the
Company's requirements for the foreseeable future. The following table sets
forth certain information relating to the Company's facilities:
<TABLE>
<CAPTION>
LOCATION APPROXIMATE SQUARE FEET USE
-------- ----------------------- ---
<S> <C> <C>
Tarboro, North Carolina
Plant #1................... 427,000 Fabric Division
Plant #2................... 281,000 Consumer Products Division
Jacksboro, Tennessee......... 140,000 Fabric Division
Elmira, Ontario.............. 135,000 Fabric Division
New York, New York........... 10,000 Headquarters and Showroom
</TABLE>
33
<PAGE>
Fabric Division
The Company is a vertically integrated manufacturer involved in all aspects
of the sliver-knitting process including dyeing, carding, knitting and
finishing. Sliver-knit fabrics are produced using a process in which the
fabric is knit directly from loose fibers, in contrast with the more
traditional knitting process in which fibers are first spun into yarn before
being knit into fabric. In the sliver-knitting process, pile is constructed by
attaching loose fibers to a lightweight knit backing. Tufts of fibers are
caught in the tight loops of the knit, allowing their loose ends to stand free
from the backing to form the pile. Because the fibers are added individually,
various colors and types of fiber can be mixed. This allows for versatility in
fabric texture, appearance and technical features. In addition, the Company's
computer controlled sliver-knitting machines have the capability of creating
intricate "Jacquard" patterns by mixing various fibers and colors. The
Company's equipment also performs a number of finishing processes that create
different surface textures from sheared and velvet-like to curled "sherpa" to
"hi-low" patterns with a subtle embossed look. With the Company's state-of-
the-art equipment and experienced research and production personnel, the
Company manufactures a wide variety of fabrics that can be used in a range of
end-use products.
The sliver-knitting process begins with loose fibers that have been selected
for the aesthetic and technical qualities they will lend to the finished
fabric. Most of the fibers used by the Company are pre-dyed by the supplier
and then mixed to create the required shade. The loose fibers are blown
together in air chambers mixing their color and fiber type. The mixed fibers
are subsequently sent through a series of carding machines that aligns them in
the same direction, producing a soft rope called "roving" or "sliver." The
sliver is fed into the sliver- knitting machine where portions of the fibers
are blown by small air jets into the high speed needles. As the needles knit
the lightweight but strong knit backing, the fibers are caught securely into
each of the loops. The high-speed, computerized needles can be programmed to
knit a large variety of patterns using multiple slivers simultaneously. After
knitting, the pile fabric is sent to the finishing area and sheared to the
desired height. The fabric is subsequently placed through a series of
technical finishing processes developed by the Company to control the weight,
thickness and surface texture of the final fabric.
Since 1991, under a new management team, the Company has replaced or
upgraded substantially all of its knitting machines, including those from the
Jacksboro facility acquired in the Borg Acquisition. In addition, the Company
has replaced or upgraded its blending and carding machines and made
modifications to its dyeing and finishing equipment.
Consumer Products Division
The Consumer Products Division's rug manufacturing operations are vertically
integrated. The rug manufacturing process begins with fabric formation
(although the Company purchases certain pre-formed fabrics on the open
market). The fabric is then coated with a durable textured backing. Next, the
fabric is printed with a design and cut into individual rugs. After cutting,
the rugs are "serged" and inspected for quality. The customer's unique price
tag and bar code are attached, and the rugs are packaged for shipment.
The Company's technology allows it to take a customer's design and produce
numerous rug samples in as little as two hours without incurring the expense
and one month delay associated with full scale production. Accordingly, the
Company commences full production only after it has received confirmed orders
from its customers. The Company has the ability to produce over 500,000 rugs
per week and generally ships rugs within five business days after receiving an
order. The Company believes that its production capabilities are an important
competitive advantage.
The Company uses a high-speed, continuous heat transfer printing process
that results in deep and permanent colors which will withstand machine washing
and drying. In addition, heat transfer printed rugs have an appearance similar
to that of rugs woven from dyed yarn, yet can be produced at a substantially
lower cost than woven rugs. In 1995, the Company added screen printing to its
manufacturing capabilities to enable the printing of designs on cotton and
polypropylene rugs as well as to facilitate shorter production runs.
34
<PAGE>
LICENSES AND TRADEMARKS
The Company's principal trademarks are Glenoit(TM), Berber by Glenoit(TM),
Glenaura(TM), Zendura(TM), GlenPile(TM) and Glentec(TM).
Under an agreement with B&D, the Company has the exclusive right to use B&D
copyrighted designs on its printed kitchen rugs in all countries worldwide
except Canada. Under the licensing agreement, the Company is required to pay
B&D a variable royalty (subject to a $250,000 annual minimum) on all products
utilizing B&D designs. This agreement terminates in November 1998 and may be
extended indefinitely at the Company's option in successive one-year periods
by giving written notice to B&D at least 90 days before the expiration of each
term. Under this agreement, the Company is required to maintain a high level
of quality and style and to comply with certain reporting obligations. B&D can
terminate the agreement in the event of a material default by the Company
(including a failure to pay the $250,000 minimum annual royalty).
RAW MATERIALS AND SUPPLIERS
The Company's principal raw materials are acrylic and polyester, which the
Company purchases from several large chemical companies. The Company's largest
supplier is Sterling Fibers, Inc., which is the exclusive supplier of acrylic
micro-fiber used in the Company's fabrics. The Company seeks to purchase
sufficient amounts of acrylic and polyester to cover existing order
commitments. The Company does not speculate on the price of raw materials.
Although the Company has always been able to obtain sufficient supplies of raw
materials, any shortage or interruption in the supply, variations in the
quality or fluctuations in the cost of raw materials could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Risk Factors--Price and Availability of Raw Materials."
The Company has entered into a supply agreement dated February 1, 1997 by
and between the Company and Sterling Fibers, Inc. (the "Sterling Agreement"),
pursuant to which the Company has the exclusive right to purchase from
Sterling (and the Company has agreed not to purchase from any other supplier)
colored micro-fiber for the purpose of manufacturing pile knits (other than
pile knits based on stretchable yarns such as spandex) in the United States,
Mexico and Canada, subject to the terms and conditions of the Sterling
Agreement. Under the Sterling Agreement, the Company has agreed to purchase
from Sterling certain minimum quantities of Sterling's Microsupreme(R) micro-
fiber, and Sterling and the Company have agreed to promote and advertise
micro-fiber and micro-fiber products. The Sterling Agreement has an initial
term expiring on February 1, 2000, but will be automatically extended for
successive one-year periods unless either party gives written notice to other
party at least one year before the expiration of the current term. Either
party may terminate the Sterling Agreement in the event of a default by the
other party which is not cured within 30 days after notice.
COMPETITION
The textile industry is highly competitive, with no one company dominating
the industry. The Company's competitors range from large vertically integrated
textile companies producing a variety of goods to numerous smaller companies
which direct their efforts at particular niches in the textile markets. Each
of these competitors seeks to set or anticipate fashion trends and respond
quickly to changes in styles with new products. The primary competitive
factors in the textile industry are price, product styling and
differentiation, quality, manufacturing flexibility, delivery time and
customer service. In addition, imports of foreign-made textile and apparel
products are a significant source of competition for many domestic textile
manufacturers. The Company believes that its manufacturing presence in the
United States and its emphasis on shortening production and lead times allows
the Company to respond more quickly than foreign producers to changing fashion
trends and to its domestic customers' requirement that suppliers meet tight
production schedules and provide rapid delivery. The Company's continued
success, however, will be affected by the ability of certain of the Company's
customers to remain competitive, which may be affected by the level of
imports. The Company's continued success will also depend upon the Company's
ability to maintain its manufacturing flexibility and capacity and, most
importantly, its ability to continue to produce innovative, quality products
to satisfy specific customer needs. See "Risk Factors--Competition."
35
<PAGE>
The Fabric Division competes directly with several smaller manufacturers of
sliver-knit pile fabrics, including Monterey Mills, Inc., Tex-Tenn
Corporation, Draper Knitting Company, Inc. and Roller Fabrics Inc. The Company
also competes with manufacturers of competing non-sliver-knit natural and
synthetic fabrics such as high-end fleece. Such manufacturers include Malden
Mills Distributors Corp., Dyersberg Corporation and Menra Mills Corporation.
The Consumer Products Division competes with various manufacturers of rugs
for the home, including foreign rug producers. The Consumer Products
Division's principal competitors are Bacoua Guild Ltd., a subsidiary of
Burlington Industries, Inc., and American Rug Craftsmen, Inc., a subsidiary of
Mohawk Industries, Inc.
EMPLOYEES
The Company benefits from an experienced work force with which it maintains
good working relationships. As of October 4, 1997, the Company employed 1,420
employees, of whom 1,240 were hourly and 180 were salaried.
Of the Company's hourly employees, approximately 448 are represented by the
Union of Needletrades, Industrial Textile Employees and are located in
Jacksboro, Tennessee and Elmira, Ontario. The Tennessee agreement with this
union expires on February 21, 1999. The Canadian agreement expires December
25, 1999. The Company's other facilities are non-unionized.
BACKLOG
The Fabric Division's order backlog was approximately $15.0 million at
October 4, 1997 as compared to approximately $13.5 million at September 28,
1996. Substantially all of the orders outstanding at October 4, 1997 are
expected to be filled within three months of that date. Orders on hand are not
necessarily indicative of total future sales.
No significant order backlog exists for the Consumer Products Division as
most customers order on a weekly basis.
ENVIRONMENTAL, SAFETY AND HEALTH REGULATION
The Company is subject to increasingly stringent federal, state and local
laws and regulations governing, among other things, the management of
hazardous substances, discharges to air and water, and occupational health and
safety. Such laws include the Federal Water Pollution Control Act, the Clean
Air Act and the Resource Conservation and Recovery Act. The Company's
operations, particularly its dyeing and finishing processes, result in the
discharge of substantial quantities of wastewater and hazardous air emissions.
Operating permits establishing discharge and emission limits for these
processes are subject to revocation, modification or renewal, and violations
of such permits may result in substantial fines and/or civil or criminal
sanctions.
The Company may be subject to the requirements of the 1990 Amendments to the
Federal Clean Air Act, including those relating to emissions of hazardous air
pollutants. The Company believes that it will be able to achieve compliance
with such requirements at a cost which will not be material. However, the
Company cannot currently estimate with certainty the impact of future
emissions limitations or enforcement practices upon its operations.
The Company's operations also are governed by certain requirements under the
Occupational Safety and Health Act relating to workplace safety and worker
health which, among other things, establish permissible exposure limits for
cotton dust, formaldehyde, asbestos and noise. In addition, the Company may be
liable under environmental laws, particularly the Federal Comprehensive
Environmental Response, Compensation and Liability Act, for the cleanup of
contamination that occurs on or from the Company's properties, including
contamination that occurred prior to the Company's ownership or operation of
the properties, or for cleanup of contamination on any off-site location to
which the Company shipped hazardous substances for disposal.
36
<PAGE>
The Company believes that it is in compliance in all material respects with
all applicable environmental, health and safety requirements. However, there
can be no assurance that the costs or liabilities related to such requirements
that may be imposed in the future will not result in a material adverse effect
on the Company's business, financial condition and results of operations. See
"Risk Factors--Stringent Environmental, Safety and Health Regulation."
LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the
conduct of its business. The Company does not believe that the outcome of any
of the matters in which it is currently involved will have a material adverse
effect on the Company's business, financial condition or results of
operations.
The Company's and Holding's federal income tax returns for January 1, 1994
and December 31, 1994, have been examined by the Internal Revenue Service
("IRS"). The IRS has assessed taxes, penalties and interest of approximately
$2.7 million relating to the deductibility of certain expenses claimed as
deductions by the Company. The Company is currently in the process of
responding to the IRS. In the opinion of management, adequate provision has
been made in the accompanying financial statements for its income tax
obligations; however, should the Company be responsible for all taxes,
penalties and interest assessed by the IRS, the Company would be required to
pay an additional amount of approximately $1.6 million over amounts currently
accrued. The Company believes that the proposed adjustments by the IRS are
inappropriate and intends to vigorously contest these assessments.
The Company's state income tax returns for the years ended January 1, 1994
and December 31, 1994, have been examined by the New York Department of
Finance, which in April 1997, assessed taxes and interest in the amount of
approximately $130,000. The Company is currently in the process of responding
to the New York Department of Finance, as it believes that the proposed
adjustments made by the New York Department of Finance are inappropriate and
intends to vigorously contest these assessments.
Pursuant to the Recapitalization, the Seller has agreed to indemnify
Holdings against any tax liability of Holdings, the Company or its
subsidiaries incurred prior to the Recapitalization. The term of such
indemnity extends to the applicable statute of limitations for assessing any
such tax. Any claims under the tax indemnity are required to be reduced by any
tax benefit received by Holdings, the Company or its subsidiaries that arise
in connection with the event giving rise to the indemnity claim and may be
satisfied only by offset against the amounts owed by Holdings to the Seller
under the terms of the Seller Notes.
37
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages as of October 4, 1997, and a
brief account of the business experience of each director and executive
officer of the Company. Under the terms of the Stockholders Agreement (as
defined), the board of directors of Holdings will be the same as the board of
directors of the Company. See "Certain Relationships and Related
Transactions--Stockholders Agreement." The Company's By-laws, provide that
each director shall hold office for a term of one (1) year or until his or her
successor is elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas J. O'Gorman.... 63 President, Chief Executive Officer and Director
Larry Levine.......... 64 President and Chief Operating Officer--Fabric
Division
Robert B. Dale(1)..... 49 President and Chief Operating Officer--Consumer
Products Division
Lester D. Sears....... 48 Executive Vice President and Chief Financial Officer
John Mowbray O'Mara... 69 Director
Saleem Muqaddam....... 50 Director
Isaac Shapira......... 44 Director
Joseph M. Silvestri... 35 Director
</TABLE>
- --------
(1) Mr. Dale resigned from the Company effective as of July 1, 1997.
Thomas J. O'Gorman. Mr. O'Gorman has served as the President, Chief
Executive Officer and a Director of the Company since 1991. Mr. O'Gorman has
been in the textile industry since 1956 and has served as the General Manager
of the Menswear Business of Milliken & Co.; President of Knit-Away; and
President of the Denim, Corduroy and Blended Fabrics Divisions of Burlington
Industries, Inc., and Burlington's International Denim operations
headquartered in London. Subsequently, Mr. O'Gorman was the President and a
Director of Greenwood Mills Marketing Company, Inc. Mr. O'Gorman has served on
the Market Committee of the American Textile Manufacturers Institute and as a
member of the Steering Committee of Crafted With Pride in the U.S.A. Council.
Larry Levine. Mr. Levine joined the Company in 1991 as Vice President of
Marketing for the Company's Fabric Division and was promoted to President of
the Fabric Division in 1996. Mr. Levine previously served as the President of
Fabric View Ltd., a textile and marketing company, and was a Vice President
and a founder of Monterey Mills, Inc.
Robert B. Dale. Prior to joining the Company in August 1995 as President and
Chief Operating Officer of the Consumer Products Division, Mr. Dale served 25
years in the textile industry in various capacities, including
President/Corporate Officer of the Bedding Division at Fieldcrest Canon Inc.
("Fieldcrest"); President of Fieldcrest's St. Mary's Brand Division; Executive
Vice President of Fieldcrest's Karastan Bigelow Carpet Division; and
Fieldcrest Brand National Sales Manager. Mr. Dale is currently on the Board of
Directors of the Home Products Fashion Association. Mr. Dale resigned from the
Company effective as of July 1, 1997.
Lester D. Sears. Mr. Sears joined the Company in 1996 as Executive Vice
President and Chief Financial Officer. From 1989 to 1996, Mr. Sears was the
Executive Vice President, Chief Financial Officer and an equity owner of
Perfect Fit Industries, Inc., a privately held company. Prior to 1989, Mr.
Sears was employed in various positions including as Controller of the
Consumer Products Division of Springs Industries, Inc.; Vice President and
Controller of Mill Fabrics, Inc.; and as a certified public accountant for
Deloitte, Haskins and Sells.
John Mowbray O'Mara. Mr. O'Mara has been a management consultant and
private investor since January 1990. From July 1990 to May 1993, he served as
Chairman of the Executive Committee of Quality Care
38
<PAGE>
Systems, Inc., a provider of computer-based "expert" medical cost containment
systems. From August 1988 through December 1989, Mr. O'Mara served as Chairman
of the Board and Chief Executive Officer of Global Natural Resources, Inc.
Prior to serving as Chairman of Global Natural Resources, Inc., Mr. O'Mara
spent 22 years as an investment banker, serving most recently as Managing
Director for Chase Securities Inc., a subsidiary of The Chase Manhattan Bank.
Mr. O'Mara is a director of Baldwin & Lyons, Inc., Plantronics, Inc. and The
Midland Company.
Saleem Muqaddam. Mr. Muqaddam has served as a Vice President of CVC and its
affiliated investment companies since 1989. Previously he spent 15 years with
Citibank, N.A. and its affiliates in senior management positions. Mr. Muqaddam
is a director of Pamida Holdings Corporation, Plantronics, Inc., Chromcraft
Remington Inc. and Fairwood Corporation.
Isaac Shapira. Mr. Shapira has served as a director of Stirling Investment
Holdings, Inc. since December 1994. In addition, Mr. Shapira is the President
of Glenoit (U.K.) Limited, and has been in this position for over 15 years.
Joseph M. Silvestri. Mr. Silvestri has been a director of the Company since
his appointment by CVC in 1994. Mr. Silvestri has been employed by CVC since
1990 and has been a Vice President since 1995. Mr. Silvestri served as
Assistant Vice President of CVC from 1990 to 1995. Mr. Silvestri serves on the
Board of Directors of International Media Group, Triumph Group, Polyfibron
Technologies, Inc., Frozen Specialties, Inc. and Euramax International, Inc.
COMPENSATION OF DIRECTORS
The Company's Board of Directors receive no compensation for their service
as directors. Directors are reimbursed for their out-of-pocket expenses in
connection with their travel to and attendance at meetings of the Board of
Directors or committees thereof.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the fiscal year ended
January 4, 1997, concerning cash and non-cash compensation earned by the Chief
Executive Officer and the three other most highly compensated executive
officers of the Company whose combined salary and bonus exceeded $100,000
during such year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- OTHER ANNUAL
NAME PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) COMPENSATION($)
---- ---------------------------- ----------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Thomas J. O'Gorman...... Chief Executive Officer 1996 $406,250 $615,271 $106,250(1)
Larry Levine............ President & Chief Operating 1996 204,846 213,100 --
Officer--Fabric Division
Robert B. Dale(4)....... President & Chief Operating 1996 305,769 37,120 --
Officer--Consumer Products
Division
Lester D. Sears(2)...... Executive Vice President & 1996 69,808 50,000 35,000(3)
Chief Financial Officer
</TABLE>
- --------
(1) Amount shown reflects deferred compensation from 1992 through 1995 which
Mr. O'Gorman elected to receive in 1996.
(2) Employed as of August 5, 1996.
(3) Amount shown reflects a signing bonus under the employment agreement with
Mr. Sears. See "--Employment Agreements."
(4) Mr. Dale resigned from the Company effective as of July 1, 1997.
39
<PAGE>
DEFINED BENEFIT PLAN
The Company's retirement benefit provides a maximum monthly benefit
regardless of the employees compensation level of $2,000. The normal
retirement benefit is 45% of the average final compensation of the employee,
reduced pro rata for each year of service less than 25 years.
EMPLOYMENT AGREEMENTS
Mr. O'Gorman has an employment agreement (the "O'Gorman Agreement") with the
Company dated as of October 28, 1997, as amended, which expires on January 1,
2001. The O'Gorman Agreement provides for Mr. O'Gorman's employment as Chief
Executive Officer and President or Chairman, if so elected, of Holdings and
the Company at an annual salary of $400,000 and a bonus based on the financial
performance of the Company. Mr. O'Gorman's employment may be terminated by him
on 12-months' notice to the Company. In the event the Company were to
terminate Mr. O'Gorman for other than "Cause" (as defined therein), Mr.
O'Gorman would be entitled to severance payments consisting of a pro-rated
portion of his annual bonus for the year of termination and his annual salary
and other benefits for 12 months following the date of such termination. The
O'Gorman Agreement also provides that he will not compete with the Company
during the employment term and for a period of 18 months following
termination.
Mr. Sears has an employment agreement (the "Sears Agreement") dated as of
August 5, 1996 which expires on December 31, 1999, subject to one year
renewals thereafter unless either party elects not to renew at least six
months prior to the termination date. The Sears Agreement provides for Mr.
Sears' employment as Executive Vice President and Chief Financial Officer of
the Company at an annual salary of $165,000 and a bonus of $50,000 for the
year ended December 31, 1996. The salary is subject to a minimum increase each
year of 5% and future minimum bonus payments will be the lesser of (x) 66.7%
of Mr. Sear's base salary and (y) a fixed percentage of the Company's EBITDA.
The fixed percentage is calculated by dividing $50,000 by the Company's EBITDA
for the fiscal year ending December 31, 1995. In addition to the payments
provided therein, Mr. Sears received an initial cash payment of $35,000. Mr.
Sears' employment may be terminated by him or the Company at any time. In the
event Mr. Sears' employment is terminated other than for "Cause" (as defined
therein) or Mr. Sears terminates his employment for "Good Reason" (as defined
therein), Mr. Sears will receive as a severance payment a cash lump sum in the
amount of (A) the base salary at its then current annual rate and (B) the
highest annual bonus paid to or accrued by the Company for the term of the
agreement.
40
<PAGE>
PRINCIPAL STOCKHOLDERS
Holdings owns 100% of the Company's common stock. The following table sets
forth, as of December 16, 1997, certain information with respect to each class
of Holdings Common Stock (as defined) beneficially owned by each director of
the Company, all officers and directors of the Company as a group, and each
person known to the Company to own beneficially more than 5% of Holdings
Common Stock of any such class. Unless otherwise noted, the individuals have
sole voting and investment power. As described under "Description of Capital
Stock and Indebtedness of Holdings," certain classes of Holdings Common Stock
are convertible into other classes of Holdings Common Stock. Except as noted
in the footnotes to the table, the information in the table assumes no such
conversion.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D CLASS E
-------------- -------------- ---------- ---------- ------------
NAME AND ADDRESS SHARES % SHARES % SHARES % SHARES % SHARES %
---------------- ------ ---- ------ ---- ------ --- ------ --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Citicorp Venture 5,649 46.5% 17,026 78.5% -- -- -- -- -- --
Capital, Ltd. .........
399 Park Avenue
New York, New York
10043
Isaac Shapira(a)........ 1,826 15.0% -- -- 3,579 100% -- -- -- --
c/o Gratch Jacobs &
Brozman
950 Third Avenue
New York, New York
10022
Thomas J. O'Gorman...... 3,112 25.6% -- -- -- -- -- -- -- --
111 West 40th Street
New York, New York
10018
The Equitable Life
Assurance Society of 2,412(b) 16.6% -- -- -- -- -- -- 2,412(b) 100%
the United States......
c/o Alliance Corporate
Finance
Group Incorporated
1345 Avenue of the
Americas
New York, New York
10105
Banque Nationale de 1,715(c) 12.4% 1,715(c) 7.3 -- -- -- -- -- --
Paris..................
499 Park Avenue
New York, New York
10022-1245
CCT Partners II, 997 8.2% 3,005 13.8 -- -- -- -- -- --
L.P.(d)................
399 Park Avenue
New York, New York
10043
Saleem Muqaddam(e)...... 55 * 167 * -- -- -- -- -- --
c/o Citicorp Venture
Capital, Ltd.
399 Park Avenue
New York, New York
10043
Joseph Silvestri(e)..... 1 * 3 * -- -- -- -- -- --
c/o Citicorp Venture
Capital, Ltd.
399 Park Avenue
New York, New York
10043
John Mowbry O'Mara...... -- -- -- -- -- -- 20 100 -- --
623 Lake Avenue
Greenwich, Connecticut
06830
All officers and 4,994 41.1% 170 * 3,579 100% 20 100% -- --
directors as a group(e)
(5 persons)............
</TABLE>
- --------
* Represents less than 1%
(a) Includes shares held by Stirling Investment Holdings, Inc., a British
Virgin Islands corporation (the "Seller"). Under Rule 13d-3 under the
Exchange Act, Mr. Shapira is deemed to beneficially own shares held by the
Seller.
(b) Includes a warrant to purchase 2,412 shares of Class A or Class E Stock
with an exercise price of $0.01 per share and an expiration date of
December 14, 2003.
(c) Includes a warrant to purchase 1,715 shares of Class A or Class B Stock
with an exercise price of $0.01 per share and an expiration date of
December 14, 2003.
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<PAGE>
(d) CCT Partners II, L.P. is a Delaware limited partnership, the limited
partners of which are employees of CVC.
(e) Does not include shares held by CVC or CCT Partners II, L.P. that may be
deemed to be beneficially owned by Messrs. Muqaddam and Silvestri. Messrs.
Muqaddam and Silvestri disclaim beneficial ownership of shares held by CVC
and CCT Partners II, L.P.
Certain stockholders of the Company have entered into the Stockholders
Agreement, which contains certain agreements relating to the composition of
the board of directors of Holdings and its subsidiaries. See "Certain
Relationships and Related Transactions--Stockholders Agreement."
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT
In connection with the O'Gorman Agreement, Mr. O'Gorman received a loan in
the amount of $300,000 from the Company. Pursuant to the O'Gorman Agreement,
the loan bears a simple interest rate equal to the lowest rate in effect
pursuant to the Treasury Regulations so as to preclude the loan from bearing
imputed interest. The loan shall be due on the last day of the Employment
Period (as defined therein) or shall be forgiven if Mr. O'Gorman is still
employed by the Company on December 31, 2003.
STOCKHOLDERS AGREEMENT
Holdings is a party to a stockholders agreement dated December 14, 1995 (the
"Stockholders Agreement") by and among Holdings, CVC, John Mowbry O'Mara
("O'Mara"), BNP, The Equitable Life Assurance Society of the United States
("Equitable"), the Seller, Soannes Investment Corp. ("Soannes"), Thomas J.
O'Gorman and certain other parties thereto (collectively, the "Stockholders"),
which contains certain agreements among the Stockholders relating to the
composition of the board of directors of Holdings and its subsidiaries and
limiting the manner and terms by which the Stockholders may transfer their
shares of Holdings Common Stock or warrants to purchase Holdings Common Stock.
Pursuant to the Stockholders Agreement, the Board of Directors of Holdings
will be composed at all times of five directors as follows: the Chief
Executive Officer of Holdings; two directors appointed by CVC; one director
appointed by O'Mara or the party that then holds the Holdings Common Stock
owned by O'Mara on the date of the execution of the Stockholders Agreement;
one director appointed by the Seller until such time as the Seller and Soannes
together own less than 9.9% of the outstanding Holdings Common Stock, at which
time the remaining director shall be appointed by the holders of a majority of
the shares of Holdings Common Stock owned by the original parties to the
Stockholders Agreement. The composition of the boards of directors of the
Company and its subsidiaries shall be the same as the composition of the board
of directors of Holdings.
Rights Offering. The Stockholders Agreement provides the stockholders with
the right to participate ratably, in accordance with their fully-diluted
common equity ownership, in all additional offerings of Holdings Common Stock
or preferred stock, if any, or of securities exercisable, convertible or
exchangeable for or into Holdings Common Stock (other than certain offerings
permitted by the Stockholders Agreement relating primarily to then outstanding
options and warrants and a public offering of Holdings Common Stock having an
aggregate value of at least $20 million).
Right of First Offer. If a Stockholder wishes to transfer any Holdings
Common Stock or if BNP or Equitable wish to transfer their warrants, Holdings
must first be given the opportunity to purchase all of Holdings Common Stock
or warrants offered (but not less than all) at the same price and on the same
terms as those proposed by the Stockholder transferee. Each other Stockholder
may elect to purchase its pro rata share (but not less than all of its pro
rata share) of Holdings Common Stock or warrants at the same price and on the
same terms, but only in the event that Holdings does not exercise its right to
purchase such Common Stock or warrants.
Tag Along Rights. In the event that CVC proposes to sell Holdings Common
Stock which would result in CVC, O'Gorman and certain related investors
collectively owning less than 50% of the then outstanding Holdings Common
Stock (other than in a registered public offering or other permitted
transaction), the other Stockholders will have the option to participate in
the proposed sale on the same terms and conditions as CVC, with the
participating Stockholders each selling a pro rata number of shares.
Sale of Holdings. If the board of directors of Holdings and holders of a
majority of the Holdings Common Stock then outstanding approve the sale of
Holdings (an "Approved Sale"), each Stockholder has agreed to (i) consent to
such sale and raise no objections against it, (ii) waive any dissenter's
rights and other similar rights and (iii) if such Approved Sale includes the
sale of Holdings Common Stock, each Stockholder will sell all of such
Stockholder's Holdings Common Stock on the terms and conditions approved by
the board of directors of Holdings and holders of the majority of the Holdings
Common Stock then outstanding.
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
Holdings is a party to a registration rights agreement (the "Holdings
Registration Rights Agreement") by and among Holdings and the Stockholders.
Pursuant to the terms of the Holdings Registration Rights Agreement CVC, BNP
and Equitable have the right to require Holdings, at the sole expense of
Holdings and subject to certain limitations, to register under the Securities
Act all or part of the shares of Holdings Common Stock (the "Registrable
Securities") held by them. CVC is entitled to demand three long-form
registrations and unlimited short-form registrations, while BNP and Equitable
are entitled to demand one long-form registration and unlimited short-form
registrations; provided, however, that no registration may be demanded within
six months of the effective date of a previous demand registration.
Additionally, CVC is entitled to demand one shelf registration.
All Stockholders are entitled to an unlimited number of "piggyback"
registrations, with Holdings paying all expenses of the offering, whenever
Holdings proposes to register its Common Stock under the Securities Act
(except in the case of an initial public offering).
Pursuant to the Holdings Registration Rights Agreement, Holdings has agreed
to indemnify all holders of Registrable Securities against certain
liabilities, including liabilities under the Securities Act.
TAX SHARING AGREEMENT
Holdings, the Company and GAC will be included in the consolidated United
States federal income tax return of Holdings. Holdings, the Company and GAC
have entered into a Tax Sharing Agreement whereby the Company and GAC will pay
Holdings their respective pro rata share of the total consolidated tax
liability, as set forth in the Tax Sharing Agreement. Under the Tax Sharing
Agreement the Company and GAC are treated as separate tax groups for purposes
of the agreement. The Tax Sharing Agreement provides that if the Company or
GAC has losses that are absorbed by the rest of the consolidated tax group,
the Company, as the case may be, cannot carry those losses forward to offset
its own future taxable income. In the event that the Company and its
subsidiaries are included in a joint, combined, consolidated or unitary state
or local income or franchise tax return with Holdings, the Company will make
payments to Holdings in a manner consistent with that described above for
federal tax purposes. Under the Indenture, the Company will be permitted to
make payments to Holdings under the Tax Sharing Agreement; provided, however,
that certain amendments to the Tax Sharing Agreement will be required if more
than a nominal amount of gross income is generated by Holdings or any
subsidiary of Holdings (other than Mills). See "Description of Notes--Certain
Covenants."
IMPORTANCE OF B&D LICENSE AGREEMENT; CVC'S INTEREST IN B&D; POSSIBLE SALE OF
B&D
A substantial majority of the products sold by the Consumer Products
Division are manufactured, marketed and sold under a license agreement with
B&D. See "Business--Licenses and Trademarks." Although the Company has the
right to perpetually renew the license agreement for successive one-year terms
(subject to certain conditions), the loss of this license or a deterioration
in B&D's business could have a material adverse effect on the Company's
business, financial condition and results of operations.
CVC, the Company's largest shareholder, has an interest in B&D as a result
of CVC's purchase in 1991 of certain notes of Papercraft Corporation
("Papercraft"), the then-parent company of B&D, while Papercraft was the
subject of a bankruptcy proceeding in the Western District of Pennsylvania.
During the bankruptcy proceeding, a committee of certain other creditors of
Papercraft (the "Committee") sought to have CVC's claim equitably subordinated
to the claims of other creditors. In October 1995, the bankruptcy court denied
the Committee's request for equitable subordination, but limited CVC's claim
to the purchase price of the Papercraft notes (resulting in CVC receiving an
11% interest in the reorganized entity, which emerged from bankruptcy as BDK
Holdings Inc. ("BDK")), rather than the face value of the notes (which would
result in CVC receiving a 41% interest in BDK). CVC has appealed the
bankruptcy court's decision, asserting that the court erred in establishing
and applying a new and previously unrecognized rule which prohibited CVC from
purchasing the
44
<PAGE>
notes without first disclosing to the sellers and the other creditors that it
intended to purchase the notes and that it had a representative on the
Papercraft board. The Committee has also filed an appeal contesting the
bankruptcy court's decision not to equitably subordinate CVC's claim. In
addition, CVC believes that the board of directors of BDK may be seeking to
sell the company and has filed a complaint with the bankruptcy court seeking
to prohibit any sale of the disputed interest in BDK until all appeals of the
bankruptcy court's decision have been exhausted.
The Company believes that its relationship with B&D is excellent and has no
reason to believe that the matters relating to CVC's interest in BDK or any
sale of BDK will have a material adverse effect on the Company's business,
financial condition or results of operations.
45
<PAGE>
DESCRIPTION OF CAPITAL STOCK AND INDEBTEDNESS OF HOLDINGS
AUTHORIZED CAPITAL STOCK
Holdings' Certificate of Incorporation ("Certificate") provides that
Holdings may issue 126,598.85 shares of Common Stock ("Holdings Common
Stock"), divided into five classes consisting of 49,000 shares of Class A
Common Stock, par value $.001 per share ("Class A Stock"), 25,000 shares of
Class B Common Stock, par value $.001 per share ("Class B Stock"), 3,578.85
shares of Class C Common Stock, par value $.001 per share ("Class C Stock"),
20 shares of Class D Common Stock, par value $.001 per share ("Class D Stock")
and 49,000 shares of Class E Common Stock, par value $.001 per share ("Class E
Stock").
Holders of Class A Stock and Class C Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders.
The holders of Class D Stock are entitled to 100 votes for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Class B Stock and Class E Stock have no right to vote on any matters submitted
to a vote of the stockholders, other than in the case of certain mergers in
which holders of Class B Stock or Class E Stock are being treated differently
from holders of Class A Stock, Class C Stock or Class D Stock. The holders of
all classes of stock receive dividends and participate in liquidations pro
rata at the same rate per share of each class of Common Stock.
Holders of Class B Stock can convert their shares into the same number of
shares of Class A Stock at any time. Holders of Class C Stock can convert
their shares at any time into shares of Class A Stock at the then-applicable
conversion rate as described in the Certificate (currently 1.0 to 1.0).
Holdings can at its option and at any time convert shares of Class C Stock
into shares of Class A Stock at the same applicable conversion rate. Upon the
transfer of ownership of Class E Stock from the original record owner, the
shares will automatically convert into the same number of shares of Class A
Stock. Upon the transfer of any shares other than Class E Stock to the holder
of Class E Stock, such transferred shares automatically will be converted into
the same number of shares of Class E Stock.
SELLER NOTES
In connection with the Recapitalization, Holdings issued the following
Seller Notes:
.Split-Pay Subordinated Note due December 14, 2004. This note was issued at
a discount from its face amount of approximately $2.9 million and the
principal amount accretes at an annual rate of 5% until December 14, 1998.
Thereafter, interest will be payable in cash at an annual rate of 7% or,
if Available Excess Cash Flow (as defined in the note) is not sufficient
to pay such interest in cash, interest will be payable in kind at an
annual rate of 10%. Mandatory prepayments are required upon the occurrence
of certain mergers, public offerings or a Change of Control (as defined in
the note). This note may be prepaid at any time without penalty and is
subordinated to all Senior Indebtedness (as defined in the note).
.PIK Subordinated Note due December 14, 2004. This note has a face amount
of approximately $1.0 million. Interest is payable in kind at an annual
rate of 5% until December 14, 1998 and 10% thereafter. Mandatory
prepayments are required upon the occurrence of certain mergers, public
offerings or a Change of Control (as defined in the note). This note may
be prepaid at any time without penalty and is subordinated to all Senior
Indebtedness (as defined in the note).
.Split-Pay Subordinated Note due December 14, 2004. This note was issued at
a discount from its face amount of approximately $5.7 million and the
principal amount accretes at an annual rate of 5% until December 14, 1998.
Thereafter, interest will be payable in cash at an annual rate of 7% or,
if Available Excess Cash Flow (as defined in the note) is not sufficient
to pay such interest in cash, interest will be payable in kind at an
annual rate of 10%. Mandatory prepayments are required upon the occurrence
of certain mergers, public offerings or a Change of Control (as defined in
the note). This note may be prepaid at any time without penalty and is
subordinated to all Senior Indebtedness (as defined in the note).
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<PAGE>
. Deferred Redemption Price Subordinated Note due December 14, 2004. This
note was issued at a discount from its face amount of $1.4 million and the
principal amount accretes at an annual rate of 5% until December 14, 1997.
Thereafter, interest will be payable in kind at an annual rate of 7% until
December 14, 1998 and 10% thereafter. Mandatory prepayments are required
upon the occurrence of certain mergers, public offerings, a Change of
Control (as defined in the note) or upon the exercise by Holdings of its
right to repurchase the shares of Class A Stock owned by the Seller for a
purchase price of $200,000. This note may be prepaid at any time without
penalty and is subordinated to all Senior Indebtedness (as defined in the
note). Holdings repaid the Deferred Redemption Price Subordinated Note on
June 14, 1997.
JUNIOR SUBORDINATED NOTES
In connection with the Recapitalization, Holdings issued a Junior PIK
Subordinated Note (the "CVC Note") with an aggregate principal amount of $12.0
million to CVC. In addition, Holdings issued to an affiliate of the Seller
Junior PIK Subordinated Notes in an aggregate principal amount of $1.6 million
(the "Seller Junior Subordinated Notes" and, together with the CVC Note, the
"Junior Subordinated Notes"). Interest on the Junior Subordinated Notes is
payable in kind at an annual rate of 12.5% and such notes mature on December
14, 2005. The Junior Subordinated Notes may be prepaid at any time without
penalty. There are no mandatory prepayment provisions and no put rights
associated with the Junior Subordinated Notes. The Junior Subordinated Notes
are subordinated in right of payment to all Senior Indebtedness (as defined in
the Junior Subordinated Notes). Concurrently with the Initial Offering, Mr.
O'Gorman exercised his right to purchase from the Seller a Junior Subordinated
PIK Note in a principal amount of $800,000.
DESCRIPTION OF NEW CREDIT FACILITY
In connection with the Initial Offering, the Company entered into the New
Credit Facility with a syndicate of financial institutions for which BNP will
act as agent (the "Agent"). The New Credit Facility provides up to a maximum
aggregate amount of $70.0 million of revolving credit financing. The following
is a summary of the material terms and conditions of the New Credit Facility
and is subject to the detailed provisions of the credit agreement (the "Credit
Agreement") and various related documents to be entered into in connection
with the New Credit Facility.
General. The New Credit Facility consists of a $70.0 million revolving
credit facility, of which up to $45.0 million consists of a senior secured
working capital revolving facility (the "Working Capital Revolver") and of
which up to $25.0 million consists of a senior secured acquisition facility
(the "Acquisition Revolver" and together with the Working Capital Revolver,
the "Revolver"). Proceeds of the Revolver will be used to finance the working
capital and general corporate requirements of the Company and its subsidiaries
and to provide financing in connection with certain acquisitions by the
Company and its subsidiaries. The Working Capital Revolver shall be available
in multiple drawings from time to time to finance the working capital and
general corporate requirements of the Company and its subsidiaries. Amounts
borrowed and repaid may be reborrowed. Availability under the Working Capital
Revolver shall be limited to an amount equal to the lesser of the Borrowing
Base and the Working Capital Revolver commitment. "Borrowing Base" means the
sum of (i) 85% of Eligible Receivables (as defined in the Credit Agreement)
and (ii) 50% of Eligible Inventory (as defined in the Credit Agreement). The
above percentages may be revised from time to time subject to the reasonable
discretion of the Agent. The Acquisition Revolver shall be available in
multiple drawings from time to time following the closing of the Offering and
until December 31, 1999 (the "Acquisition Revolver Term Loan Date"), solely to
provide financing in connection with the acquisition of any Consumer Textile
Business (as defined in the Credit Agreement). Prior to the Acquisition
Revolver Term Loan Date, amounts borrowed and repaid may be reborrowed and
thereafter, amounts borrowed and repaid or prepaid may not be reborrowed.
Interest Rates; Fees. The New Credit Facility may be maintained from time to
time, at the Company's option, as (a) Base Rate Loans (as defined in the
Credit Agreement) which bear interest at the Base Rate (defined
47
<PAGE>
in the Credit Agreement as the higher of (i) the rate of interest announced
publicly by BNP in New York as its prime rate and (ii) a rate equal to 1/2 of
1% per annum above (x) the rate published by the Telerate service on page five
of its daily report as the "New York Offered Rate" as of 10:00 a.m. New York
City time for such day (or, if such day is not a business day, for the
immediately preceding business day), or (y) if the Telerate service shall
cease to publish or otherwise shall not publish such rates for any day that is
a business day, to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day (or, if such day is not a
business day, for the immediately preceding business day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
that is a business day, the average of the quotations for such day for such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it), plus the "Applicable Margin" (as defined
below) or (b) Eurodollar Loans (as defined in the Credit Agreement) bearing
interest at the Eurodollar Rate (adjusted for reserves) as determined by the
Agent for the applicable interest period, plus the Applicable Margin.
"Applicable Margin" means a per annum rate equal to, in the case of the
Working Capital Revolver, 2.00% for Eurodollar Loans and 0.50% for Base Rate
Loans, and in the case of the Acquisition Revolver, 2.50% for Eurodollar Loans
and 1.00% for Base Rate Loans.
Interest on Base Rate Loans will be payable quarterly in arrears on the last
business day of each quarter. Eurodollar Loans may have 1, 2, 3 or 6 month
interest periods. Interest on Eurodollar Loans will be payable in arrears at
the earlier of the end of the applicable interest period and the date which is
three months following the commencement of such interest period.
During the occurrence and during the continuance of a financial covenant
default or a payment default under the New Credit Facility, the Applicable
Margin shall increase by 2% per annum.
The Company has paid a commitment fee calculated at a rate of 0.5% per annum
of the unutilized commitments of the Working Capital Revolver and 0.625% per
annum of the unutilized commitments of the Acquisition Revolver. This fee will
accrue from the date of consummation of the Initial Offering to and including
the date of termination of the New Credit Facility, and will be payable
quarterly in arrears. In addition, the Company will pay a letter of credit fee
on all outstanding letters of credit at the rate of 2% per annum.
Maturity; Optional Prepayments. The Revolver will mature on December 31,
2001 (the "Final Maturity Date"). Amounts outstanding under the Working
Capital Revolver shall be due in full and such commitment shall expire on the
Final Maturity Date. Borrowings under the Acquisition Revolver shall be paid
on a quarterly basis, commencing March 31, 2000, in an amount equal to 5% of
the aggregate outstandings of the Acquisition Revolver on the Acquisition
Revolver Term Loan Date. All outstandings under the Acquisition Revolver shall
be due in full and such commitment shall expire on the Final Maturity Date.
The Company may, upon at least three business days' notice, terminate in whole
or reduce in part the unused portion of the commitments under the New Credit
Facility without premium or penalty. Subject to certain exceptions, the
Company may, upon at least one business day's notice in the case of Base Rate
borrowings and three business days' notice in the case of Eurodollar Rate
borrowings, prepay all or a portion of the New Credit Facility without premium
or penalty, together with accrued interest. Each such prepayment of any
Acquisition Revolver borrowing on or after the Acquisition Revolver Term Loan
Date shall be applied to the scheduled amortization payments thereof ratably.
Mandatory Prepayments. All net cash proceeds from (i) the sale of assets of
the Company and its subsidiaries (excluding Permitted Asset Sales (as defined
in the Credit Agreement)), (ii) the issuance by the Company of additional
indebtedness (other than Permitted Indebtedness (as defined in the Credit
Agreement)) or equity (other than management stock options or any common stock
issued in connection with the acquisition of a Consumer Textile Business), and
(iii) Extraordinary Receipts (as defined in the Credit Agreement) received by
the Company and its subsidiaries are to be applied to repay first, outstanding
borrowings and commitments under the Acquisition Revolver and, second,
outstanding borrowings and commitments under the Working Capital Revolver.
48
<PAGE>
Collateral. All amounts owing under the New Credit Facility will be secured
by a first priority (subject to permitted liens and encumbrances) perfected
security interest in the present and future assets and property of the Company
and its present and future subsidiaries, including, without limitation,
accounts receivable, inventory, property, plant and equipment, intangibles,
intercompany notes and other personal, intellectual and real property and the
stock of the Company and its present and future subsidiaries.
Covenants. The obligations of the lenders under the New Credit Facility will
be subject to the satisfaction of certain conditions precedent customary in
acquisition credit facilities or otherwise appropriate under the
circumstances. The Company and each of its subsidiaries will be subject to
certain affirmative and negative covenants contained in the New Credit
Facility, including without limitation covenants that restrict, subject to
specified exceptions, (i) the incurrence of additional indebtedness and other
obligations and the granting of additional liens, (ii) mergers, acquisitions,
investments and acquisitions and dispositions of assets, (iii) the incurrence
of capitalized lease obligations, (iv) dividends, (v) prepayments or
repurchase of other indebtedness and amendments to certain agreements
governing indebtedness, including the Indenture and the Notes, (vi) engaging
in transactions with affiliates and formation of subsidiaries, (vii) capital
expenditures, (viii) the use of proceeds and (ix) changes in the Company's or
its subsidiary's lines of business. There are also covenants relating to
compliance with ERISA and environmental and other laws, payment of taxes,
maintenance of corporate existence and rights, maintenance of insurance and
financial reporting. Certain of these covenants are more restrictive than
those set forth in the Indenture. In addition, the New Credit Facility will
require the Company to maintain compliance with certain specified financial
covenants, including covenants relating to maximum leverage ratios, minimum
interest coverage ratios, minimum fixed charge coverage ratios and minimum net
worth.
Events of Default. The New Credit Facility also includes events of default
including, without limitation, non-payment of principal, interest or fees;
violation of covenants; inaccuracy of representations or warranties; cross-
defaults to certain other indebtedness; bankruptcy; and Change of Control (as
defined in the Credit Agreement). The occurrence of any of such events of
default could result in payment blockage of the Notes or in acceleration of
the Company's obligations under the New Credit Facility and foreclosure on the
collateral securing such obligations.
DESCRIPTION OF NOTES
The 11% Senior Subordinated Notes due 2007 (the "New Notes") are to be
issued pursuant to the Indenture, dated as of April 1, 1997 (as defined),
among Glenoit Corporation, Glenoit Asset Corporation and United States Trust
Company of New York as trustee (the "Trustee"). The following is a summary of
the material provisions of the Indenture. This summary does not purport to be
complete and is subject to and is qualified in its entirety by reference to
all the provisions of the Notes and the Indenture (including provisions made
part of the Indentures by reference to the Trust Indenture Act of 1939, as
amended), including the definitions therein of terms not defined herein.
Certain terms used herein are defined below under "--Certain Definitions."
Copies of the forms of the Indenture and Registration Rights Agreement are
available as set forth under "Available Information." For purposes of this
section, references to the "Notes" include the Old and New Notes.
GENERAL
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes will have been registered under
the Securities Act and thus will not bear legends restricting their transfer
pursuant to the Securities Act and (ii) holders of New Notes will not be
entitled to certain rights of holders of the Old Notes under the Registration
Rights Agreement which will terminate upon the consummation of the Exchange
Offer. The Old Notes have been, and the New Notes are to be, issued under an
Indenture, dated as of April 1, 1997 (the "Indenture"), among the Company, the
Subsidiary Guarantor and the United States Trust Company of New York, as
Trustee (the "Trustee").
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The following is a summary of certain provisions of the Indenture and the
Notes, copies of which are available upon request to the Company at the
address set forth under "Available Information". The following summary of
certain provisions of the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of
1939, as amended. Capitalized terms used herein and not otherwise defined have
the meanings set forth in the section "--Certain Definitions".
The Indenture provides for the issuance of up to $100,000,000 of Notes and
additional notes or additional series of notes in aggregate principal amounts
not less than $10,000,000 per issuance and not to exceed $30,000,000 in the
aggregate (the New Notes, the Old Notes and any additional series of notes
issued under the Indenture are collectively referred to herein as the
"Notes"). All the Notes will be identical in all respects other than interest
rates and issuance dates.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially
shall be the corporate trust office of the Trustee in New York, New York),
except that, at the option of the Company, payment of interest may be made by
check mailed to the address of the Holders as such address appears in the Note
register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes are unsecured senior subordinated obligations of the Company,
limited to $130,000,000 aggregate principal amount, and will mature on April
15, 2007. The Old Notes were issued in an aggregate principal amount of
$100,000,000. Interest on the Notes will bear interest at the rate per annum
shown on the cover page hereof from April 1,1997, or from the most recent date
to which interest has been paid or provided for, payable semiannually to
Holders of record at the close of business on the April 1 or October 1
immediately preceding the interest payment date on April 15 and October 15 of
each year. Interest on the Old Notes commenced October 15, 1997. The Company
will pay interest on overdue principal at 1% per annum in excess of such rate,
and it will pay interest on overdue installments of interest at such higher
rate to the extent lawful.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to April 15, 2002. Thereafter,
the Notes will be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each Holder's registered address,
at the following redemption prices (expressed in percentages of principal
amount), plus accrued and unpaid interest to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date), if redeemed during the 12-month
period commencing on April 15 of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ ----------------
<S> <C>
2002..................................................... 105.500%
2003..................................................... 103.667%
2004..................................................... 101.833%
2005 and thereafter...................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to April 15, 2000, the
Company may redeem in the aggregate up to 25% of the original principal amount
of the Notes with the proceeds of one or more Public Equity
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<PAGE>
Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount) of 110% plus accrued and
unpaid interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that at least 75% of the
original aggregate principal amount of the Notes must remain outstanding after
each such redemption.
SELECTION
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating 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.
SUBSIDIARY GUARANTIES
The Company's Domestic Restricted Subsidiary, Glenoit Asset Corporation (the
"Initial Guarantor," and together with all future issuers of Subsidiary
Guaranties, the "Subsidiary Guarantors") as primary obligors and not merely as
sureties, will irrevocably and unconditionally Guarantee on an unsecured
senior subordinated basis the performance and punctual payment when due,
whether at Stated Maturity, by acceleration or otherwise, of all obligations
of the Company under the Indenture and the Notes, whether for payment of
principal of or interest on the Notes, expenses, indemnification or otherwise
(all such obligations guaranteed by the Subsidiary Guarantors being herein
called the "Guaranteed Obligations"). The Subsidiary Guarantors will agree to
pay, in addition to the amount stated above, any and all expenses (including
reasonable counsel fees and expenses) incurred by the Trustee or the Holders
in enforcing any rights under the Subsidiary Guaranties. Each Subsidiary
Guaranty will be limited in amount to an amount not to exceed the maximum
amount that can be Guaranteed by the applicable Subsidiary Guarantor without
rendering such Subsidiary Guaranty voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. On or after the Issue Date, the Company will
cause each Domestic Restricted Subsidiary to execute and deliver to the
Trustee a supplemental indenture pursuant to which such Domestic Restricted
Subsidiary will guarantee payment of the Notes. See "Certain Covenants--Future
Subsidiary Guarantors" below.
Each Subsidiary Guaranty is a continuing Guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(b) be binding upon each Subsidiary Guarantor and (c) enure to the benefit of
and be enforceable by the Trustee, the Holders and their successors,
transferees and assigns.
A Subsidiary Guaranty will be released upon the sale of all the capital
stock, or all or substantially all of the assets, of the applicable Subsidiary
Guarantor if such sale is made in compliance with the Indenture.
SUBORDINATION
The Indebtedness evidenced by the Notes and the Subsidiary Guaranties will
be senior subordinated obligations of the Company and the Subsidiary
Guarantors, as the case may be. The payment of the principal of, premium (if
any) and interest on the Notes and the payment of any Subsidiary Guaranty is
subordinate in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Indebtedness of the Company or the relevant
Subsidiary Guarantor, as the case may be, whether outstanding on the Issue
Date or thereafter incurred, including the obligations of the Company and such
Subsidiary Guarantor under the New Credit Facility. The Notes and the
Subsidiary Guaranties will also be effectively subordinated to any Secured
Indebtedness of the Company and the Subsidiary Guarantors (even if such
Secured Indebtedness is not Senior Indebtedness) to the extent of the value of
the assets securing such Indebtedness and the Notes will be effectively
subordinated to any liabilities of Subsidiaries other than the Subsidiary
Guarantors.
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<PAGE>
As of October 4, 1997, after the application of the net proceeds from the
Initial Offering, (i) Senior Indebtedness of the Company and the Subsidiary
Guarantors is approximately $8.1 million (excluding trade payables, accrued
liabilities and unused commitments under the New Credit Facility) and (ii) the
Company and its subsidiaries have no Senior Subordinated Indebtedness
outstanding (other than the Notes) and no indebtedness outstanding that was
subordinate in right of payment to the Notes. Although the Indenture contains
limitations on the amount of additional Indebtedness that the Company and its
Restricted Subsidiaries may incur, under certain circumstances the amount of
such Indebtedness could be substantial and, in any case, such Indebtedness may
be Senior Indebtedness. See "Certain Covenants--Limitation on Indebtedness."
Only Senior Indebtedness of the Company or a Subsidiary Guarantor will rank
senior to the Notes and the relevant Subsidiary Guaranty in accordance with
the provisions of the Indenture. The Notes and each Subsidiary Guaranty will
in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively. The Company and each Subsidiary Guarantor has agreed in the
Indenture that it will not Incur, directly or indirectly, any Indebtedness
that is subordinate or junior in ranking in right of payment to its Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or
is expressly subordinated in right of payment to Senior Subordinated
Indebtedness. Unsecured Indebtedness is not deemed to be subordinated or
junior to Secured Indebtedness merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under "--
Defeasance" below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any Senior Indebtedness is not paid
when due or (ii) any other default on any such Senior Indebtedness occurs and
the maturity of such Senior Indebtedness is accelerated in accordance with its
terms unless, in either case, the default has been cured or waived and any
such acceleration has been rescinded or such Senior Indebtedness has been paid
in full. However, the Company may pay the Notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative of the Senior Indebtedness with respect to
which either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of
any default (other than a default described in clause (i) or (ii) of the
second preceding sentence) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, the Company
may not pay the Notes for a period (a "Payment Blockage Period") commencing
upon the receipt by the Trustee (with a copy to the Company) of written notice
(a "Blockage Notice") of such default from the Representative of the holders
of such Designated Senior Indebtedness specifying an election to effect a
Payment Blockage Period and ending 179 days thereafter (or earlier if such
Payment Blockage Period is terminated (i) by written notice to the Trustee and
the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer
continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full). Notwithstanding the provisions described in the immediately
preceding sentence, unless the holders of such Designated Senior Indebtedness
or the Representative of such holders has accelerated the maturity of such
Designated Senior Indebtedness, the Company may resume payments on the Notes
after the end of such Payment Blockage Period. The Notes shall not be subject
to more than one Payment Blockage Period in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar
proceeding relating to the Company or its property, the holders of Senior
Indebtedness will be entitled to receive payment in full of such Senior
Indebtedness before the Noteholders are entitled to receive any payment, and,
until the Senior Indebtedness is paid in full, any payment or distribution to
which Noteholders would be entitled but for the subordination provisions of
the Indenture will be made to holders of such Senior Indebtedness as their
interests may appear. If a payment or distribution is made to Noteholders
that, due to the subordination provisions, should not have been made to them,
such Noteholders are required to hold it in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear. Senior
Indebtedness will not be deemed to be paid in full unless all outstanding
commitments thereunder have been terminated.
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<PAGE>
If an Event of Default occurs (other than as a result of certain events of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary), the Trustee or the Holders electing to accelerate the Notes shall
give the holders of all Designated Senior Indebtedness or the Representative
of such holders five business days' prior written notice before accelerating
the Notes; provided, however, that the Trustee or the Holders may so
accelerate the Notes immediately without such notice if at such time payment
of any Designated Senior Indebtedness shall have been accelerated. If payment
of the Notes is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of Designated Senior Indebtedness or
the Representative of such holders of the acceleration and, thereafter, the
Company and the Subsidiary Guarantors may pay the Notes only if the Indenture
otherwise permits payment at that time.
The obligations of a Subsidiary Guarantor under its Subsidiary Guaranty are
senior subordinated obligations. As such, the rights of Noteholders to receive
payment by a Subsidiary Guarantor pursuant to its Subsidiary Guaranty will be
subordinated in right of payment to the rights of holders of Senior
Indebtedness of such Subsidiary Guarantor. The terms of the subordination
provisions described above with respect to the Company's obligations under the
Notes apply equally to a Subsidiary Guarantor and the obligations of such
Subsidiary Guarantor under its Subsidiary Guaranty.
By reason of the subordination provisions contained in the Indenture, in the
event of insolvency, creditors of the Company or a Subsidiary Guarantor who
are holders of Senior Indebtedness of the Company or a Subsidiary Guarantor,
as the case may be, may recover more, ratably, than the Noteholders, and
creditors of the Company who are not holders of Senior Indebtedness may
recover less, ratably, than holders of Senior Indebtedness and may recover
more, ratably, than the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in
trust by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the right
to require that the Company repurchase such Holder's Notes at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date), in accordance with the provisions of the next
paragraph.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase (subject to the right of Holders of record on the relevant
record date to receive interest on the relevant interest payment date); (2)
the circumstances and relevant facts and relevant financial information
regarding such Change of Control; (3) the repurchase date (which shall be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (4) the instructions determined by the Company, consistent with
the covenant described hereunder, that a Holder must follow in order to have
its Notes repurchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
53
<PAGE>
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit
ratings. The Indenture contains no provisions to protect Holders of Notes in
the event of a highly leveraged transaction or other transaction involving the
Company that may adversely affect them except to the extent that the negative
covenants may impact the Company's ability to incur debt and make restricted
payments. (See "Description of Notes--Certain Covenants"). The Company has no
outstanding securities or liabilities that rank pari passu with the Notes and
also contain Change of Control repayment provisions.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the New Credit Facility. Future
Senior Indebtedness of the Company may contain prohibitions of certain events
which would constitute a Change of Control or require such Senior Indebtedness
to be repurchased upon a Change of Control. Moreover, the exercise by the
Holders of their right to require the Company to repurchase the Notes could
cause a default under such Senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the Holders upon a
repurchase may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when
necessary to make any repurchases required in connection with a Change of
Control. The Company's failure to purchase the Notes in connection with a
Change in Control would result in a default under the Indenture which would,
in turn, constitute a default under the New Credit Facility. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payment to the Holders of the Notes.
Neither the Board of Directors nor the Trustee may waive the provisions
under the Indenture relative to the Company's obligations to make an offer to
repurchase the Notes as a result of a Change of Control. For any waiver or
modification of such provisions to occur, the approval of 100% of the Holders
of Notes is required.
Holders of Notes should be aware that a Change of Control can occur upon the
"sale of all or substantially all the assets" of the Company. In the event of
such a transaction, Holders of Notes may face uncertainty in filing a claim
under the Indenture due to the lack of a precise definition for the phrase
"all or substantially all the assets."
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes sold will be issued in
the form of one or more Global Notes. The Global Notes will be deposited with,
or on behalf of, the Depository and registered in the name of the Depository
or its nominee. Except as set forth below, a Global Note may be transferred,
in whole and not in part, only to the Depository or another nominee of the
Depository. Investors may hold their beneficial interests in a Global Note
directly through the Depository if they have an account with the Depository or
indirectly through organizations which have accounts with the Depository.
Notes that are (i) originally issued to institutional "accredited investors"
(as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who
are not qualified institutional buyers ("QIBs") or (ii) issued as described
below under "--Certificated Notes" will be issued in definitive form. Upon the
transfer to a QIB of a Note in definitive form, such Note will, unless the
Global Notes have previously been exchanged for Notes in definitive form, be
exchanged for an interest in the Global Notes representing the principal
amount of Notes being transferred.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934 (the "Exchange
54
<PAGE>
Act"). The Depository was created to hold securities of institutions that have
accounts with the Depository ("participants") and to facilitate the clearance
and settlement of securities transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. The Depository's participants include securities brokers and
dealers (which may include the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations. Access to the
Depository's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
Upon the issuance of a Global Note, the Depository will credit, on its book-
entry registration and transfer system, the principal amount of the Notes
represented by such Global Note to the accounts of participants. The accounts
to be credited shall be designated by the Initial Purchasers of such Notes.
Ownership of beneficial interests in a Global Note will be limited to
participants or persons that may hold interests through participants.
Ownership of beneficial interests in such Global Note will be shown on, and
the transfer of those ownership interests will be effected only through,
records maintained by the Depository (with respect to participants' interest)
and such participants (with respect to the owners of beneficial interests in
the Global Note other than participants). The laws of some jurisdictions may
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and laws may impair the ability to
transfer or pledge beneficial interests in a Global Note.
So long as the Depository, or its nominee, is the registered Holder and
owner of a Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and Holder of the related Notes for
all purposes of such Notes and the Indenture. Except as set forth below,
owners of beneficial interests in a Global Note will not be entitled to have
the Notes represented by such Global Note registered in their names, will not
receive or be entitled to receive physical delivery of certificated Notes in
definitive form and will not be considered to be the owners or Holders of any
Notes under such Global Note. The Company understands that under existing
industry practice, in the event an owner of a beneficial interest in a Global
Note desires to take any action that the Depository, as the Holder of such
Global Note, is entitled to take, the Depository would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or
would otherwise act upon the instructions of beneficial owners owning through
them.
Payment of principal of and interest on Notes represented by a Global Note
registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and Holder of such Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on a Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of the Depository or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in a
Global Note held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants. The Company will not have any responsibility or liability for
any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in a Global Note for any Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for any other aspect of the relationship between the
Depository and its participants or the relationship between such participants
and the owners of beneficial interests in such Global Note owning through such
participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, a Global Note may not be transferred except as a whole by
the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
55
<PAGE>
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in Global Notes among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by
the Depository or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
The Notes represented by a Global Note are exchangeable for certificated
Notes in definitive form of like tenor as such Notes in denominations of
U.S.$1,000 and integral multiples thereof if (i) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for such
Global Note or if at any time the Depository ceases to be a clearing agency
registered under the Exchange Act, (ii) the Company in its discretion at any
time determines not to have all of the Notes represented by such Global Note
or (iii) a default entitling the Holders of the Notes to accelerate the
maturity thereof has occurred and is continuing. Any Note that is exchangeable
pursuant to the preceding sentence is exchangeable for certificated Notes
issuable in authorized denominations and registered in such names as the
Depository shall direct. Subject to the foregoing, a Global Note is not
exchangeable, except for a Global Note of the same aggregate denomination to
be registered in the name of the Depository or its nominee. In addition, such
certificates will bear the legend referred to under "Notice to Investors"
(unless the Company determines otherwise in accordance with applicable law)
subject, with respect to such Notes, to the provisions of such legend.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness
unless, on the date of such Incurrence, the Consolidated Coverage Ratio
exceeds 2.0 to 1 if such Indebtedness is Incurred prior to April 15, 2000, or
2.25 to 1 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (1) Indebtedness
Incurred pursuant to the New Credit Facility or any Permitted Receivables
Financing; provided, however, that, after giving effect to any such
Incurrence, the aggregate principal amount of such Indebtedness then
outstanding does not exceed the sum of (x) 60% of the book value of the
inventory of the Company and its Restricted Subsidiaries and (y) 85% of the
book value of the accounts receivable of the Company and its Restricted
Subsidiaries, in each case determined in accordance with GAAP; (2)
Indebtedness of the Company owed to and held by any Wholly Owned Subsidiary or
Indebtedness of a Restricted Subsidiary owed to and held by the Company or a
Wholly Owned Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer
of such Indebtedness (other than to the Company or a Wholly Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness of the issuer thereof; (3) Indebtedness represented by the
Offered Notes and the Subsidiary Guaranties; (4) Indebtedness outstanding on
the Issue Date (other than Indebtedness described in clause (1) or (2) of this
covenant); (5) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3) or (4) or this clause (5);
(6) Indebtedness in respect of performance bonds, bankers' acceptances,
letters of credit and surety or appeal bonds entered into by the Company and
the Restricted Subsidiaries in the ordinary course of their business; (7)
Hedging Obligations consisting of Interest Rate Agreements and Currency
Agreements entered into in the ordinary course of business and not for the
purpose of speculation; provided, however, that, in the case of Currency
Agreements and Interest Rate Agreements, such Currency Agreements and Interest
Rate Agreements do not increase the Indebtedness of the Company outstanding at
any time other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and compensation
payable thereunder; (8) Purchase Money Indebtedness and Capital Lease
Obligations Incurred to finance the acquisition by the Company or a Restricted
Subsidiary of any assets in the ordinary course of business
56
<PAGE>
and which do not exceed $10 million in the aggregate at any time outstanding;
(9) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft of similar instrument inadvertently (except in
the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business, provided that such Indebtedness is extinguished
within five business days of Incurrence; (10) Indebtedness of the Company and
its Restricted Subsidiaries, to the extent the proceeds thereof are
immediately used after the Incurrence thereof to purchase Notes tendered in an
offer to purchase made as a result of a Change of Control; (11) Indebtedness
of the Company and its Restricted Subsidiaries arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, in any case Incurred in connection with the disposition of any
assets of the Company or any Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
assets for the purpose of financing such acquisition), in a principal amount
not to exceed the gross proceeds actually received by the Company or any
Restricted Subsidiary in connection with such disposition; and (12)
Indebtedness in an aggregate principal amount which, together with all other
Indebtedness of the Company and Restricted Subsidiaries outstanding on the
date of such Incurrence (other than Indebtedness permitted by clauses (1)
through (11) above or paragraph (a)) does not exceed $30 million.
(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance (i) any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Notes and the Subsidiary Guaranties,
as applicable, to at least the same extent as such Subordinated Obligations or
(ii) any Senior Subordinated Indebtedness unless such Indebtedness shall be
Senior Subordinated Indebtedness or shall be subordinated to the Notes and the
Subsidiary Guaranties, as applicable.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses
and (ii) an item of Indebtedness may be divided and classified in more than
one of the types of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not, and
shall not permit any Subsidiary Guarantor to, Incur (i) any Indebtedness if
such Indebtedness is subordinate or junior in ranking in any respect to any
Senior Indebtedness of the Company or such Subsidiary Guarantor, as
applicable, unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness
or (ii) any Secured Indebtedness that is not Senior Indebtedness of the
Company or such Subsidiary Guarantor, as applicable, unless contemporaneously
therewith effective provision is made to secure the Notes or the Subsidiary
Guaranty, as applicable, equally and ratably with such Secured Indebtedness
for so long as such Secured Indebtedness is secured by a Lien.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described
under "--Limitation on Indebtedness"; or (3) the aggregate amount of such
Restricted Payment together with all other Restricted Payments (the amount of
any payments made in property other than in cash to be valued at the fair
market value of such property, as determined in good faith by the Board of
Directors) declared or made since the Issue Date would exceed the sum of: (A)
50% of the Consolidated Net Income accrued during the period (treated as one
accounting period) from April 1, 1997 to the end of the most recent fiscal
quarter ending at least 45 days (or, if less, the number of days after the end
of such fiscal quarter as the consolidated financial statements of the Company
shall be provided to the Noteholders pursuant to the Indenture) prior to the
date of such Restricted Payment (or, in case such Consolidated Net Income
accrued during such period (treated as one accounting period) shall be a
deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds
received by the Company from the issuance or sale of its Capital Stock (other
than Disqualified Stock) subsequent to the Issue Date (other than an issuance
or sale to a Subsidiary of the Company and other than an issuance or sale to
an employee stock ownership plan or to a trust established by the Company
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or any of its Subsidiaries for the benefit of their employees to the extent
that the purchase by such plan or trust is financed by Indebtedness of such
plan or trust to the Company or any Subsidiary or for which the Company or any
Subsidiary is liable, directly or indirectly, as a guarantor or otherwise
(including by the making of cash contributions to such plan or trust which are
used to pay interest or principal on such Indebtedness)); (C) the amount by
which Indebtedness of the Company or its Restricted Subsidiaries is reduced on
the Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date, of any Indebtedness
of the Company or its Restricted Subsidiaries convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company (less the amount
of any cash, or the fair value of any other property, distributed by the
Company or any Restricted Subsidiary upon such conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of loans or
advances or other transfers of assets by any Unrestricted Subsidiary to the
Company or any Restricted Subsidiary, or the receipt of proceeds by the
Company or any Restricted Subsidiary from the sale or other disposition of any
portion of the Capital Stock of any Unrestricted Subsidiary, in each case
occurring subsequent to the Issue Date, and (ii) the portion (proportionate to
the Company's equity interest in such Subsidiary) of the fair market value of
the net assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary,
the amount of Investments previously made (and treated as a Restricted
Payment) by the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company or any Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or sold to
a Subsidiary of the Company or an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit of their
employees to the extent that the purchase by such plan or trust is financed by
Indebtedness of such plan or trust to the Company or any Subsidiary or for
which the Company or any Subsidiary is liable, directly or indirectly, as a
guarantor or otherwise (including by the making of cash contributions to such
plan or trust which are used to pay interest or principal on such
Indebtedness)); provided, however, that (A) such purchase or redemption shall
be excluded from the calculation of the amount of Restricted Payments and (B)
the Net Cash Proceeds from such sale shall be excluded from the calculation of
amounts under clause (3)(B) of paragraph (a) above; (ii) any purchase or
redemption of (A) Subordinated Obligations of the Company made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to
paragraphs (b) and (c) of the covenant described under "--Limitation on
Indebtedness" or (B) Subordinated Obligations of a Restricted Subsidiary made
by exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of such Restricted Subsidiary or the Company which is
permitted to be Incurred pursuant to paragraphs (b) and (c) of the covenant
described under "--Limitation on Indebtedness"; provided, however, that such
purchase or redemption shall be excluded from the calculation of the amount of
Restricted Payments; (iii) any purchase or redemption of (A) Disqualified
Stock of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Disqualified Stock of the Company or (B)
Disqualified Stock of a Restricted Subsidiary made by exchange for, or out of
the proceeds of the substantially concurrent sale of, Disqualified Stock of
such Restricted Subsidiary or the Company; provided, however, that (1) at the
time of such exchange, no Default or Event of Default shall have occurred and
be continuing or would result therefrom and (2) such purchase or redemption
will be excluded from the calculation of the amount of Restricted Payments;
(iv) cash payments to Holdings (A) in an aggregate amount not to exceed $1.6
million to enable Holdings to (1) prepay the Deferred Redemption Price Note
and (2) purchase 3,651.15 shares of Class A Stock of Holdings held by the
Seller and (B) in an aggregate principal amount not to exceed $5.0 million to
enable Holdings to prepay the Seller Notes; provided, however, that (I) in the
case of subclause (B) of this clause (iv) only, at the time of such payment or
prepayment, the Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under "--
Limitation on Indebtedness" after giving pro forma effect to such Restricted
Payment and (II) at the time of such payment or prepayment, no Default shall
have occurred and be continuing (or would result therefrom); provided further,
however, that such payments will be included in the calculation of the amount
of Restricted Payments; (v) cash
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payments to Holdings to enable Holdings to pay cash interest on the Split-Pay
Notes, as and when the same shall become due and payable; provided, however,
that (1) Holdings shall not have the right to pay such interest in-kind
(including, without limitation, in the form of additional notes) or otherwise
defer the payment of such interest in cash, (2) the aggregate amount of such
payments shall not exceed $300,000 in any six-month period, (3) at the time of
such payment, no Default shall have occurred and be continuing (or would
result therefrom) and (4) such payments will be included in the calculation of
the amount of Restricted Payments; (vi) Permitted Operating Expense Payments
and payments to Holdings that are required to be made pursuant to the Tax
Sharing Agreement; provided, however, that such payments will be excluded from
the calculation of the amount of Restricted Payments; (vii) upon the
occurrence of a Change of Control and within 60 days after the completion of
the offer to repurchase the Notes pursuant to the covenant described under "--
Change of Control" above (including the purchase of all Notes tendered), any
purchase or redemption of Subordinated Obligations of the Company required
pursuant to the terms thereof as a result of such Change of Control at a
purchase or redemption price not to exceed the outstanding principal amount
thereof, plus accrued and unpaid interest thereon, if any; provided, however,
that (A) at the time of such purchase or redemption, no Default shall have
occurred and be continuing (or would result therefrom), (B) the Company would
be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
of the covenant described under "--Limitation on Indebtedness" after giving
pro forma effect to such Restricted Payment, (C) such purchase or redemption
is not made, directly or indirectly, from the proceeds of (or made in
anticipation of) any Issuance of Indebtedness by the Company or any Subsidiary
and (D) such purchase or redemption will be included in the calculation of the
amount of Restricted Payments; (viii) dividends paid within 60 days after the
date of declaration thereof if at such date of declaration such dividend would
have complied with this covenant; provided, however, that (A) at the time of
payment of such dividend, no other Default shall have occurred and be
continuing (or would result therefrom) and (B) such dividend shall be included
in the calculation of the amount of Restricted Payments; or (ix) the
repurchase of, or payments to Holdings to enable Holdings to repurchase,
shares of, or options to purchase shares of, common stock of the Company,
Holdings or any of the Subsidiaries from employees, former employees,
directors or former directors of the Company, Holdings or any of the
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved by
the Board of Directors or the board of directors of Holdings, as the case may
be, under which such individuals purchase or sell or are granted the option to
purchase or sell, shares of such common stock; provided, however, that (A) the
aggregate amount of such repurchases shall not exceed the sum of (1) $1
million and (2) the aggregate amount of cash received by the Company after the
Issue Date from the sale of such shares to, or the exercise of options to
purchase such shares by, employees or directors of the Company, Holdings or
any of the Subsidiaries and (B) such repurchases will be included in the
calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or consensual restriction on the ability
of any Restricted Subsidiary (a) to pay dividends or make any other
distributions on its Capital Stock to the Company or a Restricted Subsidiary
or pay any Indebtedness owed to the Company, (b) to make any loans or advances
to the Company or (c) transfer any of its property or assets to the Company,
except: (i) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date; (ii) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary which was entered into on
or prior to the date on which such Restricted Subsidiary was acquired by the
Company (other than as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or series
of related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on such
date; (iii) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (i) or (ii) of this covenant (or effecting a Refinancing of such
Refinancing Indebtedness pursuant to this clause (iii)) or contained in any
amendment to an agreement referred to in clause (i) or (ii) of this covenant
or this clause (iii); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any such
refinancing agreement or amendment are no more restrictive in any material
respect than
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the encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (iv) any such encumbrance or restriction
consisting of customary non-assignment provisions in leases governing
leasehold interests to the extent such provisions restrict the transfer of the
lease or the property leased thereunder; (v) in the case of clause (c) above,
restrictions contained in security agreements or mortgages securing
Indebtedness of a Restricted Subsidiary to the extent such restrictions
restrict the transfer of the property subject to such security agreements or
mortgages; (vi) any restriction with respect to a Restricted Subsidiary
imposed pursuant to an agreement entered into for the sale or disposition of
all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition; and (vii) any
encumbrance or restriction with respect to any Receivables Subsidiary pursuant
to an agreement related to Indebtedness of the Receivables Subsidiary which is
permitted under the covenant described under "--Limitation on Indebtedness" or
pursuant to any agreement relating to a Financing Disposition to or by the
Receivables Subsidiary.
Limitation on Sales of Assets and Subsidiary Stock. The Company shall not,
and shall not permit any Restricted Subsidiary to consummate any Asset
Disposition unless the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value (including as to the value of all non-cash consideration), as
determined in good faith by the Board of Directors, of the shares and assets
subject to such Asset Disposition and at least 75% (or 100% in the case of
lease payments) of the consideration thereof received by the Company or such
Restricted Subsidiary is in the form of cash or cash equivalents. In the event
and to the extent that the Net Available Cash received by the Company or any
Restricted Subsidiary from one or more Asset Dispositions occurring on or
after the Issue Date exceeds $5 million, then the Company or such Restricted
Subsidiary shall (i) within 360 days after the date such Net Available Cash so
received exceeds $5 million and to the extent the Company or such Restricted
Subsidiary elects (or is required by the terms of any Senior Indebtedness) to
(A) apply an amount equal to such excess Net Available Cash to prepay, repay
or purchase Senior Indebtedness of the Company or such Restricted Subsidiary,
in each case owing to a Person other than the Company or any Affiliate of the
Company or (B) invest (or enter into a binding commitment to invest, provided
that such commitment shall be subject only to customary conditions (other than
financing) and such investment shall be consummated within 180 days after the
end of such 360-day period) an equal amount, or the amount not so applied
pursuant to clause (A), in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary) and (ii) apply
such excess Net Available Cash (to the extent not applied pursuant to clause
(i)) as provided in the following paragraphs of the covenant described
hereunder; provided, however, that in connection with any prepayment,
repayment or purchase of Senior Indebtedness pursuant to clause (A) above, the
Company or such Restricted Subsidiary shall retire such Senior Indebtedness
and shall cause the related loan commitment (if any) to be permanently reduced
in an amount equal to the principal amount so prepaid, repaid or purchased.
The amount of such excess Net Available Cash required to be applied pursuant
to clause (ii) above and not theretofore so applied shall constitute "Excess
Proceeds." Pending application of Net Available Cash pursuant to this
provision, such Net Available Cash shall be invested in Temporary Cash
Investments.
If at any time the aggregate amount of Excess Proceeds not theretofore
subject to an Excess Proceeds Offer (as defined below) totals at least $5
million, the Company shall, not later than 30 days after the end of the period
during which the Company is required to apply such Excess Proceeds pursuant to
clause (i) of the immediately preceding paragraph (or, if the Company so
elects, at any time within such period), make an offer (an "Excess Proceeds
Offer") to purchase from the Holders on a pro rata basis an aggregate
principal amount of Notes equal to the Excess Proceeds (rounded down to the
nearest multiple of $1,000) on such date, at a purchase price equal to 100% of
the principal amount of such Notes, plus, in each case, accrued interest (if
any) to the date of purchase (the "Excess Proceeds Payment"). Upon completion
of an Excess Proceeds Offer, the amount of Excess Proceeds remaining after
application pursuant to such Excess Proceeds Offer (including payment of the
purchase price for Notes duly tendered) may be used by the Company for any
corporate purpose (to the extent not otherwise prohibited by the Indenture).
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption of Senior Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted
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Subsidiary from all liability on such Indebtedness in connection with such
Asset Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
thereunder in the event that such Excess Proceeds are received by the Company
under the covenant described hereunder and the Company is required to
repurchase Notes as described above. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate, (2) if such Affiliate
Transaction involves an amount in excess of $1 million, (i) are set forth in
writing, (ii) comply with clause (1) and (iii) have been approved by a
majority of the disinterested members of the Board of Directors and (3) if
such Affiliate Transaction involves an amount in excess of $5 million, (i)
comply with clause (2) and (ii) have been determined by a nationally
recognized investment banking firm to be fair, from a financial standpoint, to
the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described
under "--Limitation on Restricted Payments", (ii) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans in the ordinary course of business and approved by the Board
of Directors, (iii) the grant of stock options or similar rights to employees
and directors of the Company in the ordinary course of business and pursuant
to plans approved by the Board of Directors, (iv) loans or advances to
employees in the ordinary course of business of the Company or its Restricted
Subsidiaries, but in any event not to exceed $1 million in the aggregate
outstanding at any time, (v) fees, compensation or employee benefit
arrangements paid to and indemnity provided for the benefit of directors,
officers or employees of Holdings, the Company or any Subsidiary in the
ordinary course of business, subject, in the case of Holdings, to the
limitation set forth in clause (vi) of paragraph (b) of the covenant described
under "--Limitation on Restricted Payments", (vi) the payment of principal,
interest and other amounts under the Junior Subordinated Notes when due in
accordance with the terms thereof, (vii) any Affiliate Transaction between the
Company and a Restricted Subsidiary or between Restricted Subsidiaries in the
ordinary course of business (so long as the other stockholders of any
participating Restricted Subsidiaries which are not Wholly Owned Subsidiaries
are not themselves Affiliates of the Company), (viii) transactions with B&D
pursuant to the B&D Licensing Agreement or (ix) transactions with a
Receivables Subsidiary pursuant to any Permitted Receivables Financing.
Limitation on the Issuance or Sale of Capital Stock of Restricted
Subsidiaries. The Company shall not (i) sell, pledge, hypothecate or otherwise
dispose of any shares of Capital Stock of a Restricted Subsidiary (other than
pledges of Capital Stock securing Designated Senior Indebtedness) or (ii)
permit any Restricted Subsidiary, directly or indirectly, to issue or sell or
otherwise dispose of any shares of its Capital Stock other than (A) to the
Company or a Wholly Owned Subsidiary or (B) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary. The proceeds of any sale of such Capital
Stock permitted hereby will be treated as Net Available Cash from an Asset
Disposition and must be applied in accordance with the terms of the covenant
described under "--Limitation on Sales of Assets and Subsidiary Stock."
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any property of the Company or any
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Restricted Subsidiary (including Capital Stock of a Restricted Subsidiary),
whether owned at the Issue Date or thereafter acquired, which secures
Indebtedness that ranks pari passu with or subordinated to the Notes or the
Subsidiary Guaranty unless (i) if such Lien secures Indebtedness that ranks
pari passu with the Notes and the Subsidiary Guaranty, the Notes are secured
on an equal and ratable basis with the obligations so secured until such time
as such obligation is no longer secured by a Lien or (ii) if such Lien secures
Indebtedness that is subordinated to the Notes and the Subsidiary Guaranty,
such Lien shall be subordinated to a Lien granted to the holders of the Notes
in the same collateral as that securing such Lien to the same extent as such
subordinated Indebtedness is subordinated to the Note and the Subsidiary
Guaranty.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall
be a Person organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and the Successor
Company (if not the Company) shall expressly assume, by an indenture
supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Notes and the Indenture; (ii) immediately after giving effect to such
transaction (and treating any Indebtedness which becomes an obligation of the
Successor Company or any Subsidiary as a result of such transaction as having
been Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing, (iii) except
in the case of a merger the sole purpose of which is to change the Company's
jurisdiction of incorporation, immediately after giving effect to such
transaction, the Successor Company would be able to Incur an additional $1.00
of Indebtedness pursuant to paragraph (a) of the covenant described under "--
Limitation on Indebtedness, (iv) immediately after giving effect to such
transaction, the Successor Company shall have Consolidated Net Worth in an
amount that is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; and (v) the Company shall have
delivered to the Trustee an Officers' Certificate, stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture. Notwithstanding the foregoing clauses (ii), (iii)
and (iv), any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or another
Wholly Owned Subsidiary.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
The Company shall not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a
series of transactions, all or substantially all its assets to, any Person,
unless: (i) the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not such Subsidiary) shall expressly assume, by a
supplemental indenture, in form satisfactory to the Trustee, all the
obligations of such Subsidiary under its Subsidiary Guaranty, (ii) immediately
after giving effect to such transaction on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been Incurred by
such Person at the time of such transaction), no Default shall have occurred
and be continuing, and (iii) the Company shall have delivered to the Trustee
an Officers' Certificate, stating that such consolidation, merger or transfer
and such supplemental indenture (if any) comply with the Indenture. The
provisions of clauses (i) and (iii) above shall not apply to any transactions
which constitute an Asset Disposition if the Company has complied with the
provisions of the covenant described under""--Limitation on Sales of Assets
and Subsidiary Stock" above.
Future Guarantors. The Company shall cause each Domestic Restricted
Subsidiary to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee payment of the
Notes on the same terms and conditions as those set forth in the Indenture.
Each Subsidiary Guaranty will be
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limited in amount to an amount not to exceed the maximum amount that can be
Guaranteed by the applicable Subsidiary Guarantor without rendering such
Subsidiary Guaranty voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally.
Tax Sharing Agreement. In the event that, at any time after the Issue Date,
it is expected that more than a nominal amount of gross income will arise in
Holdings, the Company or any other member of Holdings' Federal consolidated
tax group (the "Holdings Group") other than Mills and its subsidiaries, then
the Tax Sharing Agreement will be amended to provide that (a) the Company and
all its subsidiaries in the Holdings Group (including Mills and its
subsidiaries) will be treated as the "Glenoit Group" for purposes of such
Agreement, (b) any interest expense of Holdings (whether or not paid directly
or indirectly by the Company or any of its subsidiaries), and any other
expense of Holdings that is directly or indirectly paid by the Company or any
of its subsidiaries, shall be treated as a deduction of such Glenoit Group,
and (c) such Glenoit Group will be compensated on a current basis to the
extent that its net operating loss deductions or similar items provide a tax
benefit to other members of the Holdings Group.
SEC Reports. Until such time as the Company shall become subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, (a) the
Company shall provide the Trustee, the Initial Purchasers, the Noteholders and
prospective Noteholders (upon request) with such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a United States corporation
subject to such Sections, such information, documents and other reports to be
so provided at the times specified for the filing of such information,
documents and reports under such Sections and (b) not later than 45 days after
the end of each fiscal quarter of the Company, the Company shall issue a press
release setting forth a summary of the results of operations of the Company
for such fiscal quarter and shall publish such press release on one of the
following national business and financial wire services: Dow Jones News
Service, Reuters Financial Service, Bloomberg News, PR Newswire or Business
Wire. Thereafter, notwithstanding that the Company may not be required to
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the SEC and provide the Trustee and
Noteholders and prospective Noteholders (upon request) with such annual
reports and such information, documents and other reports as are specified in
such Sections and applicable to a United States corporation subject to such
Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections; provided, however, that the Company shall not
be required to file any report, document or other information with the SEC if
the SEC does not permit such filing.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due (whether or not such payment is
prohibited by the provisions described under "Subordination" above), continued
for 30 days, (ii) a default in the payment of principal of any Note when due
at its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise (whether or not such payment is prohibited by
the provisions described under "Subordination" above), (iii) the failure by
the Company to comply with its obligations under "Certain Covenants--Merger
and Consolidation" above, (iv) the failure by the Company to comply for 30
days after notice with any of its obligations under the covenants described
above under "--Change of Control" or "--Certain Covenants" (other than a
failure to purchase Notes), (v) the failure by the Company to comply for 30
days after notice with its other agreements contained in the Indenture, (vi)
the failure by the Company or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default, if the total amount of such Indebtedness unpaid or accelerated
exceeds $5 million and such failure continues for 10 days after notice (the
"cross acceleration provision"), (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or a Significant Subsidiary (the
"bankruptcy provisions"), (viii) the rendering of any judgment or decree for
the payment of money in excess of $5 million against the Company or a
Significant Subsidiary, if such judgment or decree remains outstanding for a
period of 60 days and is not discharged, waived or stayed within 10 days after
notice (the "judgment default provision") or (ix) a Subsidiary Guaranty ceases
to be in full force and effect (other than in accordance with the terms of
such Subsidiary
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Guaranty) or a Subsidiary Guarantor denies or disaffirms its obligations under
its Subsidiary Guaranty and such Default continues for 10 days. However, a
default under clause (iv) or (v) will not constitute an Event of Default until
the Trustee or the Holders of 25% in aggregate principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified in clauses (iv) and (v) hereof
after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of the outstanding Notes may
declare the principal of and accrued but unpaid interest on all the Notes to
be due and payable. Upon such a declaration, such principal and interest shall
be due and payable immediately. If an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company occurs and
is continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders of the Notes. Under certain
circumstances, the Holders of a majority in aggregate principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders of the Notes
unless such Holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right
to receive payment of principal, premium (if any) or interest when due, no
Holder of a Note may pursue any remedy with respect to the Indenture or the
Notes unless (i) such Holder has previously given the Trustee notice that an
Event of Default is continuing, (ii) Holders of at least 25% in aggregate
principal amount of the outstanding Notes have requested the Trustee to pursue
the remedy, (iii) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the Trustee has not
complied with such request within 60 days after the receipt thereof and the
offer of security or indemnity and (v) the Holders of a majority in aggregate
principal amount of the outstanding Notes have not given the Trustee a
direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the Holders of a majority in aggregate principal amount
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder of the Notes notice
of the Default within 30 days after it is known to a Trust Officer or written
notice of it is received by the Trustee. Except in the case of a Default in
the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the Holders of the Notes.
In addition, the Company is required to deliver to the Trustee, within 120
days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default that occurred during the previous year.
The Company also is required to deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any event which would constitute
certain Defaults, their status and what action the Company is taking or
proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in aggregate principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the Holders of a majority in aggregate
principal amount of the Notes then outstanding. However, without the consent
of each Holder of an outstanding Note affected thereby, no amendment may,
among other things, (i) reduce the amount of Notes whose Holders must consent
to an amendment, (ii) reduce the rate of or extend the time for payment of
interest on any Note, (iii) reduce the principal of or extend the
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Stated Maturity of any Note, (iv) reduce the premium payable upon the
redemption of any Note or change the time at which any Note may be redeemed as
described under "--Optional Redemption" above, (v) make any Note payable in
money other than that stated in the Note, (vi) impair the right of any Holder
of the Notes to receive payment of principal of and interest on such Holder's
Notes or any Subsidiary Guaranty on or after the due date therefor or to
institute suit for the enforcement of any payment on or with respect to such
Holder's Notes or any Subsidiary Guaranty or (vii) make any change in the
amendment provisions which require each Holder's consent or in the waiver
provisions or (viii) make any change to the subordination provisions of the
Indenture that would adversely affect the Noteholders.
Without the consent of any Holder of the Notes, the Company and Trustee may
amend the Indenture to cure any ambiguity, omission, defect or inconsistency,
to provide for the assumption by a successor corporation of the obligations of
the Company under the Indenture, to provide for uncertificated Notes in
addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to add guarantees with respect
to the Notes, to release Subsidiary Guarantors when permitted by the
Indenture, to secure the Notes, to add to the covenants of the Company for the
benefit of the Holders of the Notes or to surrender any right or power
conferred upon the Company, to make any change that does not adversely affect
the rights of any Holder of the Notes or to comply with any requirement of the
SEC in connection with the qualification of the Indenture under the Trust
Indenture Act. However, no amendment may be made to the subordination
provisions of the Indenture that adversely affects the rights of any Holder of
Senior Indebtedness then outstanding unless the Holders of such Senior
Indebtedness (or their Representative) consent to such change.
The consent of the Holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all Holders of the
Notes, or any defect therein, will not impair or affect the validity of the
amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of
transfer. The Company may require payment of a sum sufficient to cover any
tax, assessment or other governmental charge payable in connection with
certain transfers and exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "--Change
of Control" and under the covenants described under "--Certain Covenants"
(other than the covenant described under "--Merger and Consolidation"), the
operation of the cross acceleration provision, the bankruptcy provisions with
respect to Significant Subsidiaries and the judgment default provision
described under "--Defaults" above and the limitations contained in clauses
(iii) and (iv) under "Certain Covenants--Merger and Consolidation" above
("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (iv), (vi), (vii) (with
respect only to Significant Subsidiaries) or (viii) under "--Defaults" above
or because of the failure of
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the Company to comply with clause (iii) or (iv) under "Certain Covenants--
Merger and Consolidation" above. If the Company exercises its legal defeasance
option or its covenant defeasance option, each Subsidiary Guarantor will be
released from all of its obligations with respect to its Subsidiary Guaranty.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes
to redemption or maturity, as the case may be, and must comply with certain
other conditions, including delivery to the Trustee of an Opinion of Counsel
to the effect that Holders of the Notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal
Revenue Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
United States Trust Company of New York is to be the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
The Holders of a majority in aggregate principal amount of the 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, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and is not cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man 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 and then only to the extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or another Restricted
Subsidiary or (iii) Capital Stock constituting a minority interest in any
Person that at such time is a Restricted Subsidiary; provided, however, that
any such Restricted Subsidiary described in clauses (ii) or (iii) above is
primarily engaged in a Related Business.
"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 the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the provisions described under "Certain Covenants--
Limitation on Affiliate Transactions" and "Certain Covenants--Limitations on
Sales of Assets and Subsidiary Stock" and the definition of the term
"Restricted Payment" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
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"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of
this definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares and, to the
extent required by local ownership laws in foreign countries, shares owned by
foreign shareholders), (ii) all or substantially all the assets of any
division, business segment or comparable line of business of the Company or
any Restricted Subsidiary or (iii) any other assets of the Company or any
Restricted Subsidiary having a fair market value (as determined in good faith
by the Board of Directors) in excess of $250,000 disposed of in a single
transaction or series of related transactions outside of the ordinary course
of business of the Company or such Restricted Subsidiary (other than, in the
case of (i), (ii) and (iii) above, (y) a disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary to a
Wholly Owned Subsidiary and (z) for purposes of the covenant described under
"Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only,
a disposition that constitutes a Permitted Investment or a Restricted Payment
permitted by the covenant described under "Certain Covenants--Limitation on
Restricted Payments").
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"B&D Licensing Agreement" means the Licensing Agreement dated April 21,
1988, between the Company and B&D, as amended on November 21, 1988 and January
23, 1992 (including any extension thereof in accordance with its terms).
"Bank Indebtedness" means any and all amounts payable under or in respect of
the New Credit Facility and the other Loan Documents (as defined in the New
Credit Facility), including principal, premium (if any), interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for post-filing
interest is allowed in such proceedings), fees, charges, expenses,
reimbursement obligations, Guarantees and all other amounts payable thereunder
or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented
by such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP; and the Stated Maturity thereof shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
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"Change of Control" means the occurrence of any of the following events:
(i) prior to the first public offering of common stock of the Company or
Holdings, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of Holdings, whether as a result of issuance of securities of
Holdings, any merger, consolidation, liquidation or dissolution of
Holdings, any direct or indirect transfer of securities by the Permitted
Holders or otherwise (for purposes of this clause (i), the Permitted
Holders shall be deemed to beneficially own any Voting Stock of any entity
(the "specified entity") held by any other entity (the "parent entity") so
long as the Permitted Holders beneficially own (as so defined), directly or
indirectly, in the aggregate a majority of the voting power of the Voting
Stock of the parent entity);
(ii) prior to the first public offering of common stock of the Company,
Holdings shall cease to own, directly or through one or more wholly owned
subsidiaries, 100% of the issued and outstanding Voting Stock of the
Company, whether as a result of the issuance of securities, any merger,
consolidation, liquidation or dissolution of the Company, any direct or
indirect transfer of securities by Holdings or otherwise;
(iii) after the first public offering of common stock of the Company or
Holdings, any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in clause (i) above, except that for
purposes of this clause (iii) such person shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 40% of the total
voting power of the Voting Stock of the Company or Holdings; provided,
however, that the Permitted Holders beneficially own (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser percentage of
the total voting power of the Voting Stock of the Company or Holdings, as
the case may be, than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Board of Directors or the board of directors of
Holdings, as the case may be (for the purposes of this clause (iii), such
other person shall be deemed to beneficially own any Voting Stock of a
specified entity held by a parent entity, if such other person is the
beneficial owner (as defined in this clause (iii)), directly or indirectly,
of more than 40% of the voting power of the Voting Stock of such parent
entity and the Permitted Holders beneficially own (as defined in clause
(i)), directly or indirectly, in the aggregate a lesser percentage of the
voting power of the Voting Stock of such parent entity and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
entity);
(iv) after the first public offering of common stock of the Company or
Holdings, (A) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors or the
board of directors of Holdings, as the case may be (together with any new
directors whose election by such board of directors or whose nomination for
election by the shareholders of the Company or Holdings, as the case may
be, was approved by a vote of a majority of the directors of the Company or
Holdings, as the case may be, then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the Board of Directors or the board of directors of Holdings,
as the case may be, then in office and (B) at any time during such period,
the Permitted Holders cease to be the beneficial owners (as defined in
clause (i) above), directly or indirectly, of a majority of the total
voting power of the Voting Stock of the Company or Holdings, as the case
may be; or
(v) after the first public offering of common stock of the Company or
Holdings, the merger or consolidation of the Company or Holdings with or
into another Person or the merger of another Person with or into the
Company or Holdings, or the sale of all or substantially all the assets of
Holdings or the Company to another Person (other than a Person that is
controlled by the Permitted Holders), and, in the case of any such merger
or consolidation, the securities of the Company or Holdings that are
outstanding immediately prior to such transaction and which represent 100%
of the aggregate voting power of the Voting Stock of the Company or
Holdings are changed into or exchanged for cash, securities or property,
unless pursuant to
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such transaction such securities are changed into or exchanged for, in
addition to any other consideration, securities of the surviving
corporation that represent immediately after such transaction, at least a
majority of the aggregate voting power of the Voting Stock of the surviving
corporation;
provided, however, that a Change of Control shall not be deemed to occur as a
result of a merger of the Company with or into Holdings in compliance with the
covenant described under "Certain Covenants--Mergers and Consolidation" so
long as a Change of Control has not occurred pursuant to clauses (i), (iii),
(iv) or (v) above with respect to the Successor Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days (or, if less, the
number of days after the end of such fiscal quarter as the consolidated
financial statements of the Company shall be provided to the Noteholders
pursuant to the Indenture) prior to the date of such determination to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period (except that, in the case of
Indebtedness used to finance working capital needs incurred under a revolving
credit or similar arrangement, the amount thereof shall be deemed to be the
average daily balance of such Indebtedness during such four-fiscal-quarter
period), (2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the EBITDA (if
negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased, assumed by
a third person (to the extent the Company and its Restricted Subsidiaries are
no longer liable for such Indebtedness) or otherwise discharged with respect
to the Company and its continuing Restricted Subsidiaries in connection with
such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale), (3) if since the
beginning of such period the Company or Holdings shall have consummated a
Public Equity Offering following which there is a Public Market, Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its Restricted
Subsidiaries in connection with such Public Equity Offering for such period,
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of assets, which acquisition constitutes all or substantially
all of an operating unit of a business, including any such Investment or
acquisition occurring in connection with a transaction requiring a calculation
to be made hereunder, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition occurred
on the first day of such period and (5) if since the beginning of such period
any Person (that subsequently became a Restricted Subsidiary or was merged
with or into the Company or any Restricted Subsidiary since the beginning of
such period) shall have made any Asset Disposition, any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (3) or (4) above if made by the Company or a Restricted Subsidiary
during such period, EBITDA and Consolidated Interest Expense for such
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period shall be calculated after giving pro forma effect thereto as if such
Asset Disposition, Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations
shall be determined in good faith by a responsible financial or accounting
officer of the Company in accordance with Article 11 of Regulation S-X. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest of such Indebtedness shall be calculated as if the rate
in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in
excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, (a)
to the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount,
(iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends
in respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, (viii) interest incurred in connection with
Investments in discontinued operations, (ix) interest actually paid on any
Indebtedness of any other Person that is Guaranteed by the Company or any
Restricted Subsidiary and (x) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the
Company or any Wholly Owned Subsidiary) in connection with Indebtedness
Incurred by such plan or trust, minus, (b) to the extent included in such
total interest expense, amortization of deferred financing costs, fees and
expenses.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (or loss)
of any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the exclusion contained in clause (iv) below, the Company's equity
in the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income; (ii) for
purposes of subclause (a)(3)(a) of the covenant described under "Certain
Covenants--Limitation on Restricted Payments" only, any net income (or loss)
of any Person acquired by the Company or a Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by such Restricted Subsidiary consistent with such
restriction during such period to the Company or another Restricted Subsidiary
as a dividend or other distribution (subject, in the case of a dividend or
other distribution paid to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any
such Restricted Subsidiary for such period shall be included in determining
such Consolidated Net Income; (iv) any gain (or loss) realized upon the sale
or other disposition of any assets of the Company or its consolidated
Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which
is not sold or otherwise disposed of in the ordinary course of business and
any gain (or loss) realized upon the sale or other disposition of any Capital
Stock of any Person; (v) extraordinary gains or losses; and (vi) the
cumulative effect of a change in accounting principles. Notwithstanding the
foregoing, for the purposes of the covenant described under "Certain
Covenants--Limitation on Restricted Payments" only, there shall be excluded
from Consolidated Net Income any dividends, repayments of loans or advances or
other transfers of assets from Unrestricted Subsidiaries to the Company or a
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Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of
any action for the purpose of which the determination is being made, as (i)
the par or stated value of all outstanding Capital Stock of the Company plus
(ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Currency Agreement" means, with respect to any Person, any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"CVC Investor" means (i) CVC, (ii) Citicorp, N.A. and (iii) any officer,
employee or director of CVC so long as such person shall be an officer,
employee or director of CVC.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Deferred Redemption Price Note" means the Deferred Redemption Price Note
due December 14, 2004, issued by Holdings to the Seller pursuant to the
Redemption Agreement, in an aggregate principal amount of $1,400,000.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness, and (ii)
any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to lend
up to, at least $10 million and is specifically designated by the Company in
the instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable, at the option of
the holder thereof, for Indebtedness or Disqualified Stock or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the first anniversary of the Stated Maturity of the Notes.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of the
Company other than a Foreign Restricted Subsidiary.
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus, without duplication, the following to the
extent deducted in calculating such Consolidated Net Income: (a) income tax
expense, (b) depreciation expense, (c) amortization expense and (d) all other
non-cash items reducing Consolidated Net Income (other than items that will
require cash payments and for which an accrual or reserve is, or is required
by GAAP to be, made), less all non-cash items increasing Consolidated Net
Income, in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation
and amortization of, a Subsidiary of the Company shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Financing Disposition" means any sale of any accounts receivable, or
interest therein, by the Company or any Subsidiary to any Receivables
Subsidiary, or by the Receivables Subsidiary, pursuant to a Permitted
Receivables Financing.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
Company which is not organized under the laws of the United States of America
or any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board and (iii) such
other statements by such other entity as approved by a significant segment of
the accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of
any Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such Person
(whether arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay
or to maintain financial statement conditions or otherwise) or (ii) entered
into for the purpose of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided,
however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean
any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Holdings" means Glenoit Universal, Ltd., a Delaware corporation.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by
such Subsidiary at the time it becomes a Subsidiary; provided further,
however, that in the case of a discount security, neither the accrual of
interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness, but the entire face amount of such security shall
be deemed Incurred upon the issuance of such security. The term "Incurrence"
when used as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person and all Attributable Debt in
respect of Sale/Leaseback Transactions entered into by such Person; (iii) all
obligations of such Person issued or assumed as the deferred purchase price of
property or services, all conditional sale obligations of such Person and all
obligations of such Person under any title retention agreement (but excluding
trade accounts payables arising in the ordinary course of business), which
purchase price or obligation is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services (provided that, in the case of obligations of an
acquired Person assumed in connection with an acquisition of such Person, such
obligations would constitute Indebtedness of such Person); (iv) all
obligations of such Person for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of
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credit are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the tenth Business Day following receipt by such
Person of a demand for reimbursement following payment on the letter of
credit); (v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person, any Preferred Stock (but excluding,
in each case, any accrued dividends); (vi) all obligations of the type
referred to in clauses (i) through (v) of other Persons and all dividends of
other Persons for the payment of which, in either case, such Person is
responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any Guarantee; (vii) all obligations of the
type referred to in clauses (i) through (vi) of other Persons secured by any
Lien on any property or asset of such Person (whether or not such obligation
is assumed by such Person), the amount of such obligation being deemed to be
the lesser of the value of such property or assets or the amount of the
obligation so secured and (viii) to the extent not otherwise included in this
definition, Hedging Obligations of such Person. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon
the occurrence of the contingency giving rise to the obligation, of any
contingent obligations as described above at such date.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person. For purposes of the
definition of "Unrestricted Subsidiary", the definition of "Restricted
Payment" and the covenant described under "Certain Covenants--Limitation on
Restricted Payments", (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the
fair market value of the net assets of any Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount equal to (x) the
Company's "Investment" in such Subsidiary at the time of such redesignation
less (y) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at
the time of such redesignation, but in no event shall such Investment be
reduced below zero; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time
of such transfer, in each case as determined in good faith by the Board of
Directors.
"Issue Date" means the date on which the Offered Notes are originally
issued.
"Junior Subordinated Notes" means the 12.50% Junior PIK Subordinated Notes
due December 14, 2005 of Holdings, issued to CVC and Soannes Investment Corp.,
in an original aggregate principal amount of $13,600,000.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Investors" means each of the officers, employees and directors
of the Company or Holdings who own Voting Stock (or options to acquire Voting
Stock) of Holdings on the Issue Date, in each case so long as such person
shall remain an officer, employee or director of Holdings or the Company.
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"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form) in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by
its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be, repaid out of the proceeds from such
Asset Disposition, (iii) all distributions and other payments required to be
made to minority interest Holders in Subsidiaries or joint ventures as a
result of such Asset Disposition and (iv) the deduction of appropriate amounts
provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the property or other assets disposed in such
Asset Disposition and retained by the Company or any Restricted Subsidiary
after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"New Credit Facility" means the revolving credit facility made available
pursuant to the Second Amended and Restated Credit Agreement dated as of the
Issue Date, among the Company, as borrower, Holdings and certain Subsidiaries,
as guarantors, and BNP, as agent and issuing bank for the lenders from time to
time, as the same may be amended, waived, modified, Refinanced or replaced
from time to time (including any successive amendments, modifications,
Refinancings or replacements that increase the aggregate amount of borrowings
outstanding or the aggregate commitments of the lenders thereunder), except to
the extent that any such amendment, waiver, modification, replacement or
Refinancing would be prohibited by the terms of the Indenture) (or, in the
case of any such increase, except to the extent that such increased amount of
borrowings or commitments shall exceed the total amount of such borrowings or
commitments permitted under the terms of the Indenture).
"Permitted Holders" means the CVC Investors, the Management Investors and
their respective Permitted Transferees; provided, however, that in no event
shall the Management Investors and the CVC Investors (other than CVC and
Citicorp, N.A.), collectively, be deemed "Permitted Holders" with respect to
more than 30% of the total voting power of all classes of Voting Stock of the
Company.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, (ii) a Restricted Subsidiary or a Person that
will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted Subsidiary is
a Related Business; (iii) another Person if as a result of such Investment
such other Person is merged or consolidated with or into, or transfers or
conveys all or substantially all its assets to, the Company or a Restricted
Subsidiary; provided, however, that such Person's primary business is a
Related Business; (iv) Temporary Cash Investments; (v) receivables owing to
the Company or any Restricted Subsidiary if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms may include
such concessionary trade terms as the Company or any such Restricted
Subsidiary deems reasonable under the circumstances; (vi) payroll, travel and
similar advances to cover matters that are expected at the time of such
advances ultimately to be treated as expenses for accounting purposes and that
are made in the ordinary course of business; (vii) loans or advances to
employees made in the ordinary course of business consistent with past
practices of the Company or such Restricted Subsidiary and not exceeding $1
million in the aggregate outstanding at any time; (viii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; and (ix) any Person to the extent such Investment
represents the non-cash portion of the consideration
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received for an Asset Disposition as permitted pursuant to the covenant
described under "Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock".
"Permitted Operating Expense Payments" means payments to Holdings to enable
Holdings to pay its operating and administrative expenses incurred in the
ordinary course of business in an aggregate amount not to exceed $250,000 in
any year; provided, however, that (i) such payments shall not exceed the sum
of (A) the amount of such costs that are directly related to the business of
the Company and its Restricted Subsidiaries and not to any other business,
subsidiary or investment of Holdings and (B) the Company's allocable share (as
reasonably determined in good faith by the Board of Directors) of such costs
that are not directly related to the business of the Company and its
Restricted Subsidiaries or to any other business, subsidiary or investment of
Holdings (including, without limitation, directors' fees, legal and audit
expenses and corporate franchise taxes), and (ii) such payments are used by
Holdings for such purpose within 10 days of the receipt of such payments.
"Permitted Receivables Financing" means any financing pursuant to which the
Company or any Restricted Subsidiary may sell, convey or otherwise transfer to
a Receivables Subsidiary or any other Person (in the case of a transfer by a
Receivables Subsidiary), or grant a security interest in, any accounts
receivable (and related assets) of the Company or any Restricted Subsidiary;
provided, however, that (i) the covenants, events of default and other
provisions applicable to such financing shall be customary for such
transactions and shall be on market terms (as determined in good faith by the
Board of Directors) at the time such financing is entered into, (ii) the
interest rate applicable to such financing shall be a market interest rate (as
determined in good faith by the Board of Directors) at the time such financing
is entered into and (iii) such financing shall be non-recourse to the Company
and its Subsidiaries (other than the Receivables Subsidiary) except to a
limited extent customary for such transactions.
"Permitted Transferee" means (a) with respect to any CVC Investor who is an
employee, officer or director of CVC, any spouse or lineal descendant
(including by adoption) of such CVC Investor so long as such CVC Investor
shall be an employee, officer or director of CVC and (b) with respect to any
Management Investor, any spouse or lineal descendant (including by adoption)
of such Management Investor so long as such Management Investor shall be an
employee, officer or director of the Company or Holdings.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"PIK Subordinated Note" means the PIK Subordinated Note due December 14,
2004, issued by Holdings to the Seller pursuant to the Redemption Agreement,
in an aggregate principal amount of $1,008,884.01.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company or Holdings pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (i) a Public Equity Offering has been
consummated and (ii) at least 15% of the total issued and outstanding common
stock of the Company or Holdings has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Purchase Money Indebtedness" mean Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement, other purchase money
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obligations and obligations in respect of industrial revenue bonds or similar
Indebtedness, in each case where the maturity of such Indebtedness does not
exceed the anticipated useful life of the asset being financed, and (ii)
incurred to finance the acquisition by the Company or a Restricted Subsidiary
of such asset (including Additional Assets), including additions and
improvements; provided, however, that any Lien arising in connection with any
such Indebtedness shall be limited to the specified asset being financed or,
in the case of real property or fixtures, including additions and
improvements, the real property on which such asset is attached; and provided
further, however, that such Indebtedness is Incurred within 90 days after such
acquisition of such asset by the Company or Restricted Subsidiary.
"Receivables Subsidiary" means a bankruptcy-remote, special-purpose Wholly
Owned Subsidiary formed in connection with a Permitted Receivables Financing.
"Redemption Agreement" means the Redemption Agreement dated October 23,
1995, between Holdings and the Seller as in effect on the Issue Date.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture; provided, however, that (i)
such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced, (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or
if Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company or (y) Indebtedness of
the Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary.
"Related Business" means the business of the Company and its Restricted
Subsidiaries on the Issue Date or any business related, ancillary or
complementary (as determined in good faith by the Board of Directors) to the
businesses of the Company and the Restricted Subsidiaries on the Issue Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" means, with respect to any Person, (i) the declaration
or payment of any dividends or any other distributions on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the holders of its
Capital Stock, except dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and except dividends or distributions
payable solely to the Company or a Restricted Subsidiary (and, in the case of
dividends or distributions by a Restricted Subsidiary which is not wholly
owned, to its other shareholders on a pro rata basis or on a basis that
results in the receipt by the Company or a Restricted Subsidiary of dividends
or distributions of greater value than it would receive on a pro rata basis),
(ii) the purchase, redemption or other acquisition or retirement for value of
any Capital Stock of the Company held by any Person or of any Capital Stock of
a Restricted Subsidiary held by any Affiliate of the Company (other than a
Restricted Subsidiary), including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in
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anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition),
(iv) the payment of any amount pursuant to any agreement with Holdings or any
officer, director or employee of Holdings or (v) the making of any Investment
in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of any Subsidiary Guarantor has a correlative
meaning.
"Seller" means Stirling Investment Holdings, Inc., a British Virgin Islands
corporation.
"Seller Notes" means (i) the Split-Pay Notes, the PIK Subordinated Note and
the Deferred Redemption Price Note, in an aggregate principal amount of
$10,980,312.58, and (ii) any additional notes issued in payment of interest on
any notes described in clause (i).
"Senior Indebtedness" of the Company means (i) Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter Incurred, and all Bank
Indebtedness, and (ii) accrued and unpaid interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for post-filing
interest is allowed in such proceeding) in respect of (A) indebtedness of the
Company for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which the
Company is responsible or liable unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are subordinate in right of payment to the
Notes; provided, however, that Senior Indebtedness shall not include (1) any
obligation of the Company to any Subsidiary, (2) any liability for Federal,
state, local or other taxes owed or owing by the Company, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course
of business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of the Company (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect
(other than as a result of the Indebtedness being unsecured) to any other
Indebtedness or other obligation of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations, (5) any
obligations with respect to any Capital Stock or (6) that portion of any
Indebtedness which at the time of Incurrence is Incurred in violation of the
Indenture. "Senior Indebtedness" of any Subsidiary Guarantor has a correlative
meaning.
"Senior Subordinated Indebtedness" of the Company means the Notes and any
other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Notes in right of payment and is
not subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness; provided, however,
that "Senior Subordinated Indebtedness" shall specifically include the Seller
Notes (and any Senior Subordinated Indebtedness Incurred to Refinance such
notes). "Senior Subordinated Indebtedness" of any Subsidiary Guarantor has a
correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Split-Pay Notes" means (i) the Split-Pay Subordinated Note due December 14,
2004, issued by Holdings to the Seller pursuant to the Redemption Agreement,
in an aggregate principal amount of $2,888,930.82, and (ii) the Split-Pay
Subordinated Note due December 14, 2004, issued by Holdings to Iris Holdings,
Inc. pursuant to the Redemption Agreement, in an aggregate principal amount of
$5,682,497.75.
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"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to
that effect. "Subordinated Obligation" of any Subsidiary Guarantor has a
correlative meaning.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total
voting power of shares of Capital Stock or other interests (including
partnership interests) 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 (i)
such Person, (ii) such Person and one or more Subsidiaries of such Person or
(iii) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary designated as such on the
signature pages of the Indenture and any other Subsidiary that has issued a
Subsidiary Guaranty.
"Subsidiary Guaranty" means the Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated as of December
14, 1995, among Holdings, the Company and Glenoit Assets Corp., as in effect
on the Issue Date and as the same shall be amended in accordance with the
covenant described under "Certain Covenants--Tax Sharing Agreement."
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by an registered broker
dealer or mutual fund distributor, (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above, (iv) investments in commercial paper, maturing not more
than 90 days after the date of acquisition, issued by a corporation (other
than an Affiliate of the Company) organized and in existence under the laws of
the United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard and Poor's Ratings Group, and (v)
investments in securities with maturities of six months or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings
Group or "A" by Moody's Investors Service, Inc.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien
on any property of, the Company or any other Subsidiary of the Company that is
not a Subsidiary of the Subsidiary to
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be so designated; provided, however, that either (A) the Subsidiary to be so
designated has total assets of $1,000 or less or (B) if such Subsidiary has
assets greater than $1,000, such designation would be permitted under the
covenant described under "Certain Covenants--Limitation on Restricted
Payments". The Board of Directors may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; provided, however, that immediately after giving
effect to such designation (x) the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "Certain
Covenants--Limitation on Indebtedness" and (y) no Default shall have occurred
and be continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
board resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the payment
of which the full faith and credit of the United States of America is pledged
and which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding
and normally entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the
Company and/or one or more Wholly Owned Subsidiaries.
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration date" means 5:00 P.M.,
New York City time, on , 1998; provided, however, that if the Company has
extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer
is extended.
As of the date of this Prospectus, $100.0 million aggregate principal amount
of the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1998 to all holders of Old
Notes known to the Company. The Company's obligation to accept Old Notes for
exchange pursuant to the Exchange offer is subject to certain conditions as
set forth under "--Certain Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for any exchange of any Old Notes, by giving notice
of such extension to the holders thereof. During any such extension, all Old
Notes previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "--Certain Conditions to the Exchange Offer." The
Company will give notice of any extension, amendment, non-acceptance or
termination to the holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued no later than 9:00 A.M., New
York City time, on the next business day after the previously scheduled
Expiration Date.
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PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to
tender Old Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to United States Trust
Company of New York (the "Exchange Agent") at one of the addresses set forth
below under "Exchange Agent" on or prior to the Expiration Date. In addition
either (i) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal or (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange
Agent prior to the Expiration Date, or the holder must comply with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD
NOTES, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER, IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures are
required to be guaranteed, such guarantees must be by a firm that is a member
or participant in the Securities Transfer Agents Medallion Program, the New
York Stock Exchange Medallion Signature Program or the Stock Exchange
Medallion Program or by an "eligible guarantor institution" within the meaning
of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than
a signer of the Letter of Transmittal, the Old Notes surrendered for exchange
must be endorsed by or be accompanied by a written instrument or instruments
of transfer or exchange, in satisfactory form as determined by the Company in
its sole discretion, duly executed by, the registered holder with the
signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Old Notes either before or after the Expiration Date. The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Notes for exchange must be cured within such
reasonable period of time as the Company shall determine. Neither the Company,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Old
Notes for exchange, nor shall any of them incur any liability for failure to
give such notification. The Exchange Offer is subject to certain customary
conditions relating to compliance with any applicable law, or any applicable
interpretation by any staff of the Commission, or any order of any
governmental agency or court of law. See "--Certain Conditions to the Exchange
Offer."
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or
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representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to do so must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the holder and any beneficial
holder, that neither the holder nor any such beneficial holder has an
arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the holder nor any such person
is an "affiliate," as defined under Rule 405 of the Securities Act of the
Company. If the holder is a broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer, it must acknowledge that it acquired
the Old Notes for its own account as the result of market-making activities or
other trading activities, and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such New Notes. If a holder of Notes is not a broker-dealer, the holder
must represent that it is not engaged in and does not intend to engage in a
distribution of the New Notes.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Old Notes for exchange when and if the Company
has given oral and written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's accountant the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a greater principal amount
than the holder desires to exchange, such unaccepted or non-exchanged Old
Notes will be returned without expense to the tendering holder thereof (or, in
the case of Old Notes tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described below, such non-exchanged Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration of the Exchange Offer.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal or facsimile thereof with
any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed deliver procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be affected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile and transmission, mail or hand delivery), setting
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forth the name and address of the holder of Old Notes and the amount of Old
Notes tendered, stating that the tender is being made thereby and guaranteeing
that within five New York Stock Exchange ("NYSE") trading days after the date
of execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer or a confirmation
of book-entry transfer of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (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 (iii) the
certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal are received by the Exchange
Agent within five NYSE trading days after the date of execution of the Notice
of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at one of
the addresses set forth below under "Exchange Agent." Any such notice of
withdrawal must specify the name of the person having tendered the Old Notes
to be withdrawn, identify the Old Notes to be withdrawn (including the
principal amount of such Old Notes), and (where certificates for Old Notes
have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing holder. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange
Agent, then, prior to the release of such certificates, the withdrawing holder
must also submit the serial number of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old
Notes have been tendered pursuant to the procedure for book-entry transfer
described above, any notice of withdrawal must specify the name and number of
the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Old Notes and otherwise comply with the procedures of such facility.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange which
are not exchanged for any reason will be returned to the holder thereof
without cost to such holder (or, in the case of Old Notes tendered by book-
entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book entry transfer described above, such Old Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility for the Old Notes) as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes
may be retendered by following one of the procedures described under "--
Procedures for Tendering Old Notes" above at any time on or prior to the
Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer if at any time
before the Expiration Date, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its reasonable discretion. The failure by the Company
at any time to exercise any of the foregoing rights shall not be deemed a
waiver of such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if prior to the Expiration Date any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification
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of the Indenture under the Trust Indenture Act of 1939, as amended (the
"TIA"). In any such event, the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible
time.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at the address set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent addressed as follows:
United States Trust
Company of New York
114 West 47 Street
New York, NY 10036
Via Facsimile: (212) 852-1626
Confirm by Telephone: (212) 852-1614
For Information: (212) 858-2103
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or other
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The expenses to be incurred in connection with the Exchange Officer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the principal amount as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Exchange Offer will be
capitalized for accounting purposes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from,
or in transactions not subject to, the registration requirements of, the
Securities Act and applicable state securities law. Old Notes not exchanged
pursuant to the Exchange Offer will continue to accrue interest at 11% per
annum and will otherwise remain
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outstanding in accordance with their terms. Holders of Old Notes do not have
any appraisal or dissenters' rights under the Delaware General Corporation Law
in connection with the Exchange Offer. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. To the extent that Old Notes are exchanged
for New Notes, the market for the Old Notes may be adversely affected. The
Company does not currently anticipate that it will registered the Old Notes
under the Securities Act. However, (i) if the Initial Purchasers so request
with respect to Old Notes not eligible to be exchanged for New Notes in the
Exchange Offer and held by them following consummation of the Exchange Offer
or (ii) if any holder of Old Notes is not eligible to participate in the
Exchange Offer, or, in the case of any holder of Old Notes that participates
in the Exchange Offer, does not receive freely tradable New Notes in exchange
for Old Notes, the Company is obligated to file a Registration Statement on
the appropriate form under the Securities Act relating to the Old Notes held
by such persons.
Based on certain interpretive letters issue by the staff of the Commission
to third parties in unrelated transactions, it is the Company's view that New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
or otherwise transferred by holders thereof (other than (i) any such holder
which is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act or (ii) any broker-dealer that purchases Notes from the
Company to resell pursuant to Rule 144A or any other available exemption)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no intention, or any
arrangement or understanding with any person, to participate in the
distribution of such New Notes. If a holder of Notes is not a broker-dealer,
the holder must represent that it is not engaged in and does not intend to
engage in a distribution of the New Notes. If any holder has any arrangement
or understanding with respect to the distribution of the New Notes to be
acquired pursuant to the Exchange Offer, such holder (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction. A broker-dealer who
holds Old Notes that were acquired for its own account as a result of market-
making or other trading activities may be deemed to be an "underwriter" within
the meaning of the Securities Act and must, therefore, deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of New Notes. Each such broker-dealer that acquired New Notes as a result of
market-making activities or other trading activities, must acknowledge in the
Letter of Transmittal that it will delivery a prospectus in connection with
any resale of such New Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company
has agreed, pursuant to the Registration Rights Agreement and subject to
certain specified limitations therein, to register or qualify the New Notes
for offer or sale under the securities or blue sky laws of such jurisdictions
as any holder of the Notes reasonably requests in writing.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material United States federal
income tax consequences of the acquisition, ownership and disposition of the
Notes. Unless otherwise stated, this discussion is limited to the tax
consequences to those persons who are original owners of the Notes and who
hold such Notes as capital assets. As used in this discussion, a "U.S. Holder"
means any beneficial owner of a Note that is for United States federal income
tax purposes (i) a citizen or resident of the United States, (ii) a
corporation created or organized under the laws of the United States or of any
political subdivision thereof or (iii) a person otherwise subject to United
States federal income taxation on its worldwide income regardless of the
sources of such income. This discussion does not address specific tax
consequences that may be relevant to particular persons (including, for
example, foreign persons, financial institutions, broker-dealers, insurance
companies, tax-exempt organizations, and persons in special situations, such
as those who hold Notes as part of a straddle, hedge, conversion transaction,
or other integrated investment) except where otherwise specifically stated.
This discussion does not address the tax consequences to persons that have a
functional currency other than the United States dollar. In addition, this
discussion does not address United States federal alternative minimum tax
consequences or any aspect of state, local or foreign taxation. This
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Department regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all of which are subject
to change, possibly on a retroactive basis.
PROSPECTIVE TENDERERS OF THE OLD NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM
OF ACQUIRING, OWNING AND DISPOSING OF THE NOTES, AS WELL AS THE APPLICATION OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
INTEREST INCOME
A U.S. Holder will recognize ordinary income when it receives or accrues
interest on the Notes in accordance with such Holder's method of tax
accounting. A U.S. Holder may be entitled to treat interest income on the
Notes as "investment income" for purposes of computing certain limitations
concerning the deductibility of investment interest expense.
The Notes are not expected to be issued with "original issue discount"
within the meaning of Section 1273 of the Code ("OID"). A U.S. Holder who
purchases a Note after the initial distribution thereof at a discount that
exceeds a statutorily defined de minimis amount will be subject to the "market
discount" rules of the Code, and a U.S. Holder who purchases a Note at a
premium will be subject to the bond premium amortization rules of the Code.
DISPOSITION OF NOTES
Upon the sale, exchange or retirement of a Note, a U.S. Holder will
recognize gain or loss equal to the difference between the amount realized on
the sale, exchange or retirement (other than amounts representing accrued and
unpaid interest) and such Holder's adjusted tax basis in the Note. A U.S.
Holder's adjusted tax basis in a Note will be equal to such Holder's cost for
the Note, (i) increased by any interest that has accrued on the Note since the
last interest payment date, as well as any OID, market discount and gain
previously included by such Holder in income with respect to the Note, and
(ii) decreased by any bond premium previously amortized and any principal
payments previously received by such Holder with respect to such Note. Subject
to the market discount rules, any such gain or loss will be capital gain or
loss, long- or short-term depending upon whether the U.S. Holder has held the
Note for more than one year. Subject to certain limited exceptions, capital
losses cannot be used to offset ordinary income.
A cash basis holder that sells a Note between interest payment dates will be
required to treat an amount equal to accrued but unpaid interest through the
date of sale as ordinary interest income, and to add such amount to its basis
in the Offered Note.
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THE EXCHANGE BY A U.S. HOLDER OF AN OLD NOTE FOR A NEW NOTE PURSUANT
TO THE EXCHANGE OFFER WILL NOT CONSTITUTE A TAXABLE EXCHANGE.
TAX CONSEQUENCES TO FOREIGN HOLDERS
For purposes of this discussion, a "Foreign Holder" is any beneficial owner
that is not a U.S. Holder, and a "Holder" is any U.S. Holder or Foreign
Holder.
A Foreign Holder generally will not be subject to United States federal
income taxes on payments of principal or interest on the Notes so long as the
Foreign Holder (i) is not actually or constructively a "10 percent
shareholder" of the Company or a "controlled foreign corporation" with respect
to which the Company is "related" (directly or indirectly) through stock
ownership within the meaning of the Code, and (ii) provides an appropriate
statement, signed under penalties of perjury, certifying that the beneficial
owner of the Note is a foreign person and providing that foreign person's name
and address. If the information provided in this statement changes, the
foreign person must so inform the Company within 30 days of such change. The
statement generally must be provided in the year a payment of principal or
interest occurs or in either of the two preceding years. If the foregoing
conditions are not satisfied, then interest paid on the Notes will be subject
to United States withholding tax at a rate of 30 percent, unless such rate is
reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain a Foreign Holder realizes on the sale, redemption,
retirement or other taxable disposition of an Offered Note will be exempt from
United States federal income and withholding tax, provided that (i) the gain
is not effectively connected with the Foreign Holder's conduct of a trade or
business in the United States, and (ii) in the case of a Foreign Holder that
is an individual, the Foreign Holder is not present in the United States for
183 days or more in the taxable year.
If the interest gain or other income a Foreign Holder recognizes on an
Offered Note is effectively connected with the Foreign Holder's conduct of a
trade or business in the United States, the Foreign Holder (although exempt
from the withholding tax previously discussed if an appropriate statement is
furnished) generally will be subject to United States federal income tax on
the interest, gain or other income at regular federal income tax rates. In
addition, if the Foreign Holder is a foreign corporation, it may be subject to
a branch profits tax equal to 30 percent of its "effectively connected
earnings and profits", as adjusted for certain items, unless it qualifies for
a lower rate under an applicable tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will be required to report annually to the IRS and to each
Holder of record, the amount of interest paid on the Offered Notes (and the
amount of interest withheld for federal income taxes, if any) for each
calender year, except as to certain Holders (generally, corporations, tax-
exempt organizations, qualified pension and profit-sharing trusts, individual
retirement accounts, or nonresident aliens who provide certification as to
their status). Each Holder (other than Holders who are not subject to the
reporting requirements) will be required to provide to the Company, under
penalties of perjury, certain information relating to backup withholding.
Should a Holder that is required to provide such information fail to do so,
the Company will be required to withhold 31% of the interest otherwise payable
to such Holder and to remit the withheld amount to the IRS as a credit against
the Holder's federal income tax liability.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a Prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company and the Subsidiary Guarantor have agreed that,
86
<PAGE>
for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer to use
in connection with any such resale. In addition, until , 1998 (90 days
after the date of this Prospectus), all dealers effecting transactions in the
New Notes may be required to deliver a Prospectus.
Neither the Company nor the Subsidiary Guarantor will receive any proceeds
from any sale of New Notes by broker-dealers. New Notes received by broker-
dealers for their own account pursuant to the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on such
resale of New Notes and any commissions or concessions received by any such
person may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver
and by delivering a Prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to an Broker-Dealer that requests such documents
in the Letter of Transmittal. The Company and the Subsidiary Guarantor have
jointly and severally agreed to pay all expenses incident to the Exchange
Offer (including expenses of one counsel for the holders of the Old Notes)
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Old Notes (including any Broker-Dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Kirkland & Ellis, New York, New York.
EXPERTS
The Consolidated Financial Statements of the Company for each of the two
years in the period ended January 4, 1997 included in this Prospectus and
Registration Statement have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in their report appearing elsewhere herein.
The Consolidated Financial Statements of the Company for the year ended
December 31, 1994 included in this Prospectus and Registration Statement have
been audited by BDO Seidman, LLP, independent accountants, as stated in their
report appearing elsewhere herein. Such financial statements are so included
in reliance on such reports given upon the authority of said firms as experts
in accounting and auditing.
BDO Seidman, LLP, independent accountants ("BDO"), were dismissed by the
Company on December 13, 1995. BDO's reports on the 1993 and 1994 financial
statements of the Company did not contain an adverse opinion or a disclaimer
of an opinion and was not qualified or modified as to uncertainty, audit scope
or accounting principles. The decision to change accountants was approved by
the Board of Directors of the Company. There were no disagreements with BDO on
any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure.
87
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Financial Data--Pro Forma Consolidated Statement of
Income for the year ended January 4, 1997................................ F-2
Unaudited Pro Forma Financial Data--Pro Forma Consolidated Statement of
Income for the nine months ended October 4, 1997......................... F-3
Notes to Unaudited Pro Forma Consolidated Statements of Income............ F-4
Report of Independent Accountants......................................... F-5
Report of Independent Accountants......................................... F-6
Consolidated Balance Sheets as of December 30, 1995, January 4, 1997 and
October 4, 1997 (unaudited).............................................. F-7
Consolidated Statements of Income for the years ended December 31, 1994,
December 30, 1995 and January 4, 1997 and for the nine months ended
September 28, 1996 (unaudited) and October 4, 1997 (unaudited)........... F-9
Consolidated Statements of Stockholder's Deficit for the periods ended
December 31, 1994, December 30, 1995, January 4, 1997 and October 4, 1997
(unaudited).............................................................. F-10
Consolidated Statements of Cash Flows for the years ended December 31,
1994, December 30, 1995 and January 4, 1997 and for the nine months ended
September 28, 1996 (unaudited) and October 4, 1997 (unaudited)........... F-11
Notes to Consolidated Financial Statements................................ F-12
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma consolidated statements of income data for fiscal
1996 and the nine months ended October 4, 1997 set forth below gives pro forma
effect to the issuance of the Notes and the application of the net proceeds
therefrom to repay in full the Old Credit Facility and the 12.5% Senior
Subordinated Note due 2003 (the "Senior Subordinated Note"), as if such
transactions had been consummated at the beginning of the period presented.
The pro forma adjustments are described in the notes hereto and are based upon
available information and certain assumptions that the Company believes are
reasonable. The unaudited pro forma financial data does not purport to reflect
the results of operations of the Company that actually would have resulted had
the transactions described above been consummated for the period indicated or
to project the Company's results of operations or financial position for any
future period. The unaudited pro forma financial data should be read in
conjunction with the notes hereto and the Consolidated Financial Statements of
the Company and related notes thereto included elsewhere in this Prospectus
and Registration Statement.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JANUARY 4, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
OFFERING
ACTUAL ADJUSTMENTS PRO FORMA
-------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................. $121,751 $121,751
Costs of sales............................. 86,525 86,525
-------- --------
Gross profit........................... 35,226 35,226
-------- --------
Operating expenses:
Selling.................................. 10,262 10,262
Administrative........................... 5,636 5,636
Research and development................. 2,147 2,147
-------- --------
Total operating expenses............... 18,045 18,045
-------- --------
Income from operations..................... 17,181 17,181
-------- --------
Other income (expense):
Interest expense......................... (9,161) 8,842 (1) (11,700)
(11,381)(2)
Interest income.......................... 36 36
Amortization of deferred financing (642) 642 (3) (600)
costs................................... (600)(4)
Other.................................... 53 53
-------- -------- --------
Total other expense.................... (9,714) (2,497) (12,211)
-------- -------- --------
Income before income taxes................. 7,467 (2,497) 4,970
Income tax expense......................... 3,354 (964)(5) 2,390
-------- -------- --------
Net income................................. $ 4,113 $ (1,533) $ 2,580
======== ======== ========
</TABLE>
F-2
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED OCTOBER 4, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
OFFERING
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................. $120,822 $120,822
Costs of sales............................. 77,959 77,959
-------- --------
Gross profit........................... 42,863 42,863
-------- --------
Operating expenses:
Selling.................................. 9,646 9,646
Administrative........................... 6,725 6,725
Research and Development................. 1,488 1,488
-------- --------
17,859 17,859
-------- --------
Income from operations..................... 25,004 25,004
-------- --------
Other income (expense):
Interest expense......................... (8,094) 1,930 (6) (9,009)
(2,845)(7)
Amortization of deferred financing
costs................................... (429) 160 (8) (419)
(150)(9)
Other.................................... (157) (157)
-------- ------ --------
Total other expense.................... (8,680) (905) (9,585)
-------- ------ --------
Income before income taxes and
extraordinary loss........................ 16,324 (905) 15,419
Income tax expense......................... 6,542 (362)(10) 6,180
-------- ------ --------
Income before extraordinary loss........... $ 9,782 $ (543) $ 9,239
======== ====== ========
</TABLE>
F-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(1) Adjustment to eliminate interest expense incurred under the Old Credit
Facility and the Senior Subordinated Note (collectively the "Old Debt")
refinanced by the Company with the net proceeds from the sale of the
Notes.
(2) Adjustment to reflect interest expense associated with the Notes, assuming
an interest rate of 11.0% per annum and commitment fees on the New Credit
Facility of $381,000.
(3) Adjustment to eliminate amortization expense for deferred financing costs
incurred under the Old Debt refinanced by the Company with the net
proceeds from the sale of the Notes. As a result of the early
extinguishment of debt, the Company recognized an extraordinary loss of
$4,384,000, representing the charge-off of deferred loan costs of
$2,884,000 and the payment of prepayment penalties of $1,500,000, and a
tax benefit of $1,527,000.
(4) Adjustment to reflect the amortization of underwriting discounts and
commissions and other expenses of the Offering and the cost associated
with the New Credit Facility.
(5) Adjustment to income tax expense for impacts of the adjustments from the
sale of the Notes at the marginal income tax rate of the Company of
approximately 39%.
(6) Adjustment to eliminate interest expense incurred under the Old Debt that
was refinanced on April 1, 1997 by the Company with the net proceeds for
the sale of the Notes.
(7) Adjustment to reflect interest expense associated with the Notes, assuming
an interest rate of 11.0% per annum, and commitment fees on the New Credit
Facility, for the unused portion of the New Credit Facility, of $95,250
for the period from January 5, 1997 to April 1, 1997.
(8) Adjustment to eliminate amortization expense for deferred financing costs
incurred under the Old Debt which was refinanced on April 1, 1997.
(9) Adjustment to reflect amortization of underwriting discounts and
commissions and other expenses of the Offering and the cost associated
with the New Credit Facility.
(10) Adjustment to income tax expense for impacts of the adjustments from the
sale of the Notes at the Company's effective tax rate of 40%.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Glenoit Corporation
We have audited the accompanying consolidated balance sheets of Glenoit
Corporation and subsidiary (the "Company"), a wholly-owned subsidiary of
Glenoit Universal, Ltd., as of December 30, 1995 and January 4, 1997, and the
related consolidated statements of income, stockholder's deficit, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Glenoit
Corporation and subsidiary as of December 30, 1995 and January 4, 1997, and
the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Raleigh, North Carolina
February 5, 1997, except for the
information presented in Note 8,
for which date is March 5, 1997
F-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Glenoit Mills, Inc. and Subsidiary
We have audited the accompanying consolidated statements of income, cash
flows and stockholder's deficit of Glenoit Mills, Inc. and subsidiary, a
wholly-owned subsidiary of Glenoit Universal, Ltd., for the year ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Glenoit Mills, Inc. and subsidiary for the year ended December 31,
1994, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Greensboro, North Carolina
February 8, 1995
F-6
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4, OCTOBER 4,
1995 1997 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 1,022,756 $ 48,817 $ 887,092
Receivables:
Trade accounts receivable, net of
allowance of $250,000, $470,000
and $449,000 (unaudited) as of
December 30, 1995, January 4,
1997 and October 4, 1997,
respectively.................... 16,085,004 18,615,029 39,517,284
Other receivables................ 682,809 349,980 229,045
Inventories........................ 7,851,716 7,535,920 9,424,041
Deferred tax asset................. 474,100 300,824 300,824
Due from parent.................... 1,639,029
Prepaid expenses and other current
assets............................ 1,414,055 750,340 483,605
------------ ------------ ------------
Total current assets........... 29,169,469 27,600,910 50,841,891
------------ ------------ ------------
Property, plant and equipment:
Land............................... 340,923 340,923 1,018,614
Buildings and improvements......... 5,800,876 6,717,146 8,998,320
Machinery and equipment............ 19,894,765 21,632,224 30,175,462
Computer equipment................. 614,582 711,220 766,604
Furniture and fixtures............. 513,526 681,327 800,228
Leasehold improvements............. 263,430 397,884 411,276
Equipment under capital leases..... 850,277 1,636,246 1,636,246
Construction-in-progress........... 906,678 5,914,105
------------ ------------ ------------
Total.......................... 29,185,057 32,116,970 49,720,855
Less accumulated depreciation and
amortization...................... (15,558,683) (17,687,558) (19,616,853)
------------ ------------ ------------
Net property, plant and
equipment..................... 13,626,374 14,429,412 30,104,002
------------ ------------ ------------
Other assets:
Notes receivable from related
party............................. 235,000 211,500 193,500
Intangible assets, net of
accumulated amortization of
$801,948, $1,015,755 and
$1,186,755 (unaudited)
as of December 30, 1995, January
4, 1997 and
October 4, 1997, respectively .... 4,302,547 4,246,737 4,049,776
Deferred loan costs and other, net
of accumulated amortization of
$18,876, $660,673 and $307,200
(unaudited) as of December 30,
1995, January 4, 1997 and October
4, 1997, respectively............. 3,612,431 3,008,762 5,116,709
------------ ------------ ------------
Total assets................... $ 50,945,821 $ 49,497,321 $ 90,305,878
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4, OCTOBER 4,
1995 1997 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable................... $ 5,951,661 $ 2,994,133 $ 8,675,106
Accrued expenses................... 626,177 1,180,682 8,649,500
Accrued compensation............... 744,897 1,464,622 3,203,307
Current maturities of the line of
credit............................ 1,316,239
Current maturities of long-term
debt.............................. 4,000,000 5,000,000
Current maturities of capital lease
obligations....................... 111,862 571,037 571,037
Due to Parent...................... 1,734,023 3,269,664
------------ ------------ ------------
Total current liabilities...... 11,434,597 14,260,736 24,368,614
Line of credit--less current
maturities.......................... 16,433,768 12,683,761 7,100,000
Long-term debt--less current
maturities.......................... 68,000,000 63,000,000 100,000,000
Capital lease obligations--less
current maturities.................. 814,403 404,752
Deferred income taxes................ 1,988,411 1,536,739 1,536,739
------------ ------------ ------------
Total liabilities.............. 97,856,776 92,295,639 133,410,105
------------ ------------ ------------
Commitments and contingencies
Stockholder's deficit:
Common stock, $.01 par value, 1,000
shares authorized, issued and
outstanding as of December 30,
1995, January 4, 1997 and October
4, 1997 (unaudited)............... 10 10 10
Additional paid-in capital......... 1,161,713 1,161,713 1,161,713
Accumulated deficit................ (48,072,678) (43,960,041) (44,378,492)
Currency translation adjustment.... -- -- 112,542
------------ ------------ ------------
Total stockholder's deficit.... (46,910,955) (42,798,318) (43,104,227)
------------ ------------ ------------
Total liabilities and
stockholder's deficit......... $ 50,945,821 $ 49,497,321 $ 90,305,878
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
---------------------------------------- --------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4, SEPTEMBER 28, OCTOBER 4,
1994 1995 1997 1996 1997
------------ ------------ ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $72,469,849 $93,840,334 $121,750,833 $95,633,007 $120,821,914
Cost of sales........... 49,594,359 67,249,156 86,525,495 66,449,572 77,958,622
----------- ----------- ------------ ----------- ------------
Gross profit........ 22,875,490 26,591,178 35,225,338 29,183,435 42,863,292
----------- ----------- ------------ ----------- ------------
Operating expenses:
Selling............... 6,588,033 8,872,334 10,262,349 7,490,001 9,646,405
Administrative........ 4,213,999 5,488,617 5,635,692 4,013,916 6,725,045
Research and develop-
ment................. 1,747,973 1,874,306 2,146,627 1,642,781 1,487,977
----------- ----------- ------------ ----------- ------------
Total operating
expenses........... 12,550,005 16,235,257 18,044,668 13,146,698 17,859,427
----------- ----------- ------------ ----------- ------------
Income from operations.. 10,325,485 10,355,921 17,180,670 16,036,737 25,003,865
----------- ----------- ------------ ----------- ------------
Other income (expense):
Interest expense...... (2,328,424) (3,807,550) (9,160,537) (6,857,503) (8,093,954)
Interest income....... 120,166 62,740 35,882
Deferred gain on sale
of land and build-
ing.................. 213,210
Amortization of
deferred financing
costs................ (376,314) (225,429) (641,806) (472,154) (429,077)
Other................. 80,195 59,085 52,932 (133,633) (156,737)
----------- ----------- ------------ ----------- ------------
Total other ex-
pense.............. (2,291,167) (3,911,154) (9,713,529) (7,463,290) (8,679,768)
----------- ----------- ------------ ----------- ------------
Income before income
taxes and extraordinary
loss................... 8,034,318 6,444,767 7,467,141 8,573,447 16,324,097
Income tax expense...... 2,850,000 3,082,934 3,354,504 3,604,703 6,542,083
----------- ----------- ------------ ----------- ------------
Income before extraordi-
nary loss.............. 5,184,318 3,361,833 4,112,637 4,968,744 9,782,014
Extraordinary loss on
early extinguishment of
debt, net of tax
benefit of $1,240,000
for the year ended
December 30, 1995 and
$1,527,000 (unaudited)
for the nine months
ended October 4, 1997.. 2,407,006 2,856,884
----------- ----------- ------------ ----------- ------------
Net income.............. $ 5,184,318 $ 954,827 $ 4,112,637 $ 4,968,744 $ 6,925,130
=========== =========== ============ =========== ============
Net income per common
share
Income before extraor-
dinary loss.......... $ 5,184 $ 3,362 $ 4,113 $ 4,969 $ 9,782
Extraordinary loss on
early extinguishment
of debt.............. (2,407) 2,857
----------- ----------- ------------ ----------- ------------
Net income............ $ 5,184 $ 955 $ 4,113 $ 4,969 $ 6,925
=========== =========== ============ =========== ============
Weighted average shares
outstanding............ 1,000 1,000 1,000 1,000 1,000
=========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
FOR THE PERIODS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995, JANUARY 4, 1997 AND
OCTOBER 4, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
SHARES OF ADDITIONAL EARNINGS CURRENCY
COMMON COMMON PAID-IN (ACCUMULATED TRANSLATION
STOCK STOCK CAPITAL DEFICIT) ADJUSTMENT TOTAL
--------- ------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1,
1994................... 1,000 $10 $ 139,990 $ 8,813,925 $ -- $ 8,953,925
Net income.............. 5,184,318 5,184,318
Dividends............... (20,368,946) (20,368,946)
----- --- ---------- ------------ -------- ------------
Balance as of December
31, 1994............... 1,000 10 139,990 (6,370,703) (6,230,703)
Combination of Tarboro
Properties, Ltd........ 1,021,723 1,021,723
Net income.............. 954,827 954,827
Property dividends...... (2,170,541) (2,170,541)
Cash dividends.......... (40,486,261) (40,486,261)
----- --- ---------- ------------ -------- ------------
Balance as of December
30, 1995............... 1,000 10 1,161,713 (48,072,678) (46,910,955)
Net income.............. 4,112,637 4,112,637
----- --- ---------- ------------ -------- ------------
Balance as of January 4,
1997................... 1,000 10 1,161,713 (43,960,041) (42,798,318)
Net income (unaudited).. 6,925,130 6,925,130
Dividends (unaudited)... (7,343,581) (7,343,581)
Currency translation
adjustment
(unaudited)............ 112,542 112,542
----- --- ---------- ------------ -------- ------------
Balance as of October 4,
1997 (unaudited)....... 1,000 $10 $1,161,713 $(44,378,492) $112,542 $(43,104,227)
===== === ========== ============ ======== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
--------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4, SEPTEMBER 28, OCTOBER 4,
1994 1995 1997 1996 1997
------------ ------------ ----------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 5,184,318 $ 954,827 $ 4,112,637 $ 4,968,744 $ 6,925,130
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Loss on early
extinguishment of
debt................. 3,647,006 4,383,884
Interest on notes
"pushed down" from
Parent............... 1,092,307
Deferred income
taxes................ 120,000 264,311 (278,396)
Depreciation and
amortization......... 1,491,278 1,946,085 3,096,902 2,262,280 2,617,233
Gain on sale of
property and
equipment............ (126,088) (22,311) (26,158) 129,255
Deferred income....... (213,210)
Effect of foreign
currency exchange
rate................. 112,542
Changes in operating
assets and
liabilities, net of
acquired operating
assets and
liabilities:
Trade and other
receivables........ (6,181,774) (3,210,376) (2,329,232) (18,020,269) (17,064,678)
Inventories.......... (1,237,547) (2,124,194) 315,796 (675,364) (855,182)
Prepaid expenses and
other............... (721,408) (800,049) 660,715 625,026 324,996
Due to/from parent... (1,639,029) 2,555,722 2,262,108 1,535,641
Accounts payable..... 320,675 836,296 (2,957,528) 4,395,590 4,619,346
Accrued expenses and
other liabilities... 413,683 306,277 1,274,230 3,693,883 8,986,004
----------- ------------ ----------- ------------ ------------
Net cash provided by
(used in) operating
activities......... 142,234 181,154 6,428,535 (514,160) 11,714,171
----------- ------------ ----------- ------------ ------------
Cash flows from
investing activities:
Purchases of acquired
business.............. (7,836,137) (8,013,406)
Purchases of and
additions to property,
plant and equipment... (1,393,537) (5,239,490) (1,704,631) (1,283,542) (13,314,999)
Proceeds from sale of
property and equipment
and refunds of
deposits.............. 192,099 316,400 200,139 26,650
----------- ------------ ----------- ------------ ------------
Net cash used in
investing
activities......... (1,201,438) (13,075,627) (1,388,231) (1,083,403) (21,301,755)
----------- ------------ ----------- ------------ ------------
Cash flows from
financing activities:
Advances on notes
receivable-related
parties............... (181,633) (1,297,787)
Collections of notes
receivable-related
parties............... 888,328
Combination of Tarboro
Properties, Ltd....... 303,574
Decrease in restricted
cash.................. 200,000
Payments on capital
lease obligations..... (300,385) (155,806) (362,668) (283,626) (409,651)
Proceeds from line of
credit and issuance of
debt.................. 93,281,453 8,200,000 2,650,000 25,100,000
Payments on line of
credit and debt....... (722,084) (27,137,681) (14,633,768)
Payments for financing
costs................. (6,283,760) (35,137) (6,920,909)
Net change in advances
from factor on
accounts receivable... 2,828,327 (5,578,598)
Decrease of deferred
financing costs....... 71,834
Increase (decrease) in
due to parent......... (248,693) 817,330
Dividends paid......... (400,000) (40,486,261) (1,600,000)
Payment of note payable
to related party...... (5,743,581)
----------- ------------ ----------- ------------ ------------
Net cash provided by
(used in) financing
activities......... 1,247,366 13,533,462 (6,014,243) 2,366,374 10,425,859
----------- ------------ ----------- ------------ ------------
Net increase
(decrease) in cash
and cash
equivalents........ 188,162 638,989 (973,939) 768,811 838,275
Cash and cash
equivalents at
beginning of period.... 195,605 383,767 1,022,756 1,022,756 48,817
----------- ------------ ----------- ------------ ------------
Cash and cash
equivalents at end of
period................. $ 383,767 $ 1,022,756 $ 48,817 $ 1,791,567 $ 887,092
=========== ============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
On December 13, 1995, Glenoit Universal, Ltd., (the "Company's Parent")
formed a wholly-owned subsidiary, Glenoit Corporation, formerly Glenoit
Intermediate, Inc., and exchanged all of the issued and outstanding stock of
Glenoit Mills, Inc. and subsidiary ("Mills") for all of the issued and
outstanding shares of common stock of Glenoit Corporation. Accordingly, the
accompanying financial statements of Glenoit Corporation and subsidiary (the
"Company") reflect the historical results of Mills prior to December 13, 1995.
The Company is engaged primarily in the manufacture of fabric and household
rugs with plants in eastern North Carolina and a plant in eastern Tennessee.
The Company offers a wide variety of textile products to customers in the
retail, apparel, and automotive industries throughout the United States.
Basis of Presentation
On December 13, 1995, the Company's Parent acquired all of the issued and
outstanding stock of Tarboro Properties, Ltd. ("Tarboro"), a company related
through common ownership. Tarboro owns the plants located in eastern North
Carolina in which Mills operates. The Company's Parent has accounted for the
acquisition similar to a pooling-of-interests and, accordingly, has restated
all financial data for the year ended December 30, 1995 as of January 1, 1995.
Due to immateriality, the Company's Parent has not restated any periods prior
to January 1, 1995.
On December 13, 1995, the Company's Parent contributed all of the issued and
outstanding stock of Tarboro, with a carryover basis of $1,021,723, to the
Company. In accordance with the accounting followed by the Company's Parent,
the Company has recorded the contribution as of January 1, 1995 at Tarboro's
basis. Further, the results of operations of Tarboro have been included with
the Company since January 1, 1995.
In September 1997, Glenoit Corporation's newly formed wholly-owned
subsidiary, Glenoit Corporation of Canada ("Glenoit Canada"), acquired certain
assets and liabilities of Collins & Aikman Canada, Inc. (see Note 3). In
addition, Glenoit Corporation merged with Glenoit Mills, Inc. and Tarboro in
September 1997. Accordingly, at October 4, 1997 the financial statements
presented include the amounts of Glenoit Corporation and its wholly-owned
subsidiaries Glenoit Canada and Glenoit Asset Corporation.
The consolidated financial statements of the Company as of December 31, 1994
include a $15 million guaranteed secured note (the "Guaranteed Secured Note")
and a note payable to a financial institution with an original principal
amount of $8 million ("Note Payable") entered into by the Company's Parent
during 1994. Mills was the guarantor and its assets were primary collateral
under these obligations. Accordingly, the Company has reflected ("pushed
down") the debt, the related debt issue costs, interest expense, amortization
of the debt issue costs, and extraordinary losses from early extinguishment of
the debt in its financial statements. All proceeds from the issuance of the
Guaranteed Secured Note and the Note Payable, net of interest expense and debt
issue costs, have been treated as "deemed" dividends to the Company's Parent
in the 1994 financial statements. As described in Note 7, these obligations
were paid off by the Company's Parent during 1995.
Interim Financial Presentation
The financial statements and related notes thereto as of October 4, 1997 and
for the nine months ended September 28, 1996 and October 4, 1997 (collectively
the "Interim Financial Statements") are unaudited. The unaudited Interim
Financial Statements have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of
F-12
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation have been included. In connection
with the repayment of the Company's previously existing debt, the Company
recorded an extraordinary loss of $2,856,884, net of an income tax benefit,
during the first quarter of 1997. See Note 7. Operating results for interim
periods are not necessarily indicative of results for the full year.
Principles of Consolidation
The consolidated financial statements as of and for the three years ended
January 4, 1997 include the accounts of Glenoit Corporation and its wholly-
owned subsidiary Glenoit Mills, Inc. and its subsidiaries Glenoit Asset Corp.
and Tarboro Properties, Ltd. At October 4, 1997, the accompanying financial
statement include the accounts of Glenoit Corporation and its wholly-owned
subsidiaries Glenoit Canada and Glenoit Asset Corporation. All material
intercompany accounts and transactions are eliminated. The Company reports its
operations on a fifty-two/fifty-three week fiscal year.
Use of 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.
Cash Flow Statements
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. During 1994, the Company
had noncash financing activities of $23,000,000 of debt borrowings, $750,000
of debt repayments, acquisition of deferred loan costs of $1,188,747, and
$1,092,307 of interest paid as a result of debt and related accounts being
pushed down from its Parent. In addition, the Company also had $19,968,946 of
deemed dividends as a result of this push down of debt. During 1996, the
Company entered into a capital lease of $1,636,246, which is a noncash
investing and financing activity.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost; property, plant and
equipment obtained through purchase business combinations is stated at
estimated fair value as of the date of acquisition. Property and equipment
under capital leases are initially recorded at the lower of the present value
of the future minimum lease payments or the fair value of the related
equipment.
Depreciation (which includes the amortization of capital leased assets) is
computed using the straight-line method over the related asset's estimated
useful life as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................... 27 to 40 years
Machinery and equipment....................................... 5 to 12 years
Computer equipment............................................ 5 years
Furniture and equipment....................................... 5 to 12 years
</TABLE>
F-13
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred Loan Costs
Deferred loan costs, primarily composed of loan origination costs and legal
fees, are amortized over the term of the related loan agreement using the
straight-line method.
Intangible Assets
Intangible assets principally represent the amount by which the costs of
acquired net assets exceeded their related fair value (goodwill) as of the
date of acquisition. Goodwill is being amortized on a straight-line basis over
lives of twenty and forty years. The carrying value of goodwill will be
reviewed if the facts and circumstances suggest that it is impaired. If this
review indicates that goodwill will not be recoverable as determined based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company will adjust the carrying value of goodwill.
Net Sales
The Company recognizes a sale when title passes to the customer (usually at
the date of shipment). Amounts which are determined to be uncollectible are
charged to operating expense. Sales returns and allowances are recorded
against sales based on management's estimates of sales returns. Net sales from
customers in excess of 10% of consolidated net sales in the respective year is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 30, 1995 JANUARY 4, 1997
----------------- ----------------- ---------------
<S> <C> <C> <C>
Customer A............... 14% 10% 11%
Customer B............... 10% 11% 9%
</TABLE>
Research and Development Costs
Research and development costs are charged to expense as incurred.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes pursuant to Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Net Income Per Common Share
Net income per common share is based upon the weighted average number of
common shares outstanding in the respective year.
Concentration of Credit Risk
The Company's principal financial instruments subject to potential
concentration of credit risk are cash and cash equivalents and trade accounts
receivable. The Company places cash deposits with federally insured financial
institutions; however, at times deposits have exceeded the amounts insured by
the Federal Deposit Insurance Corporation. The concentration of credit risk
with respect to trade accounts receivable is limited due to the large number
of customers and their dispersion across different geographic locations.
Although the
F-14
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company does not require collateral for unpaid balances, credit losses have
been within management's expectations.
Fair Values of Financial Instruments
On January 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments" ("FAS No. 107"). The Company's primary financial
instruments subject to the provisions of FAS No. 107 are debt instruments. The
fair values of these instruments are based on market quotations for similar
instruments and present value calculations using market interest rates. Based
on the Company's calculation of fair value, the Company believes there is no
material difference between the carrying value and fair value of these
instruments.
Foreign Currency
Foreign currency activity is reported in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation" ("FAS
No. 52"). FAS No. 52 generally provides that the assets and liabilities of
foreign operations be translated at the current exchange rate as of the end of
the accounting period and that revenues and expenses be translated using
average exchange rates. The resulting translation adjustments arising from
foreign currency translations are accumulated as a separate component of
stockholder's deficit. Gains and losses resulting from foreign currency
transactions are recognized in income.
Adoption of New Accounting Pronouncements
The Company will adopt Statement of Financial Standards No. 131 "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS No. 131") for
its 1998 fiscal year. SFAS No. 131 requires the Company to report selected
information about operating segments in its financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company has
yet to determine the impact, if any, of adoption of the new pronouncement.
The Company will adopt Statement of Financial Standards No. 130 "Reporting
Comprehensive Income" ("SFAS No. 130") for its 1998 fiscal year. SFAS No. 130
requires the Company to display an amount representing the total comprehensive
income for the period in a financial statement which is displayed with the
same prominence as other financial statements. Upon adoption, all prior period
data presented will be restated to conform to the provisions of SFAS No. 130.
The Company has yet to determine the impact, if any, of adoption of the new
pronouncement.
Reclassifications
Certain amounts in the prior years' financial statements have been
reclassified to conform to the presentation used in the current year with no
effect on stockholder's deficit or net income.
2. RECAPITALIZATION
On December 13, 1995, the Company's Parent completed a series of
transactions in order to consummate a leveraged recapitalization (the
"Recapitalization"). The Company obtained two new financing arrangements: an
$80 million credit facility from a financial institution and a $15 million
note from another financial institution. The Company used the proceeds from
these borrowings to pay off all of the Company's outstanding debt as of
December 13, 1995 (see Note 7 for further discussion of this financing and
payoff of the Company's debt) and
F-15
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. RECAPITALIZATION (CONTINUED)
to terminate the Company's factor agreement (see Note 4). In addition, the
Company paid a cash dividend of $40,486,261 to the Company's Parent.
3. ACQUISITIONS
On September 9, 1995, the Company, through a wholly-owned subsidiary,
acquired certain assets and liabilities of Borg Textiles Corporation ("Borg"),
a manufacturer of textile goods in Jacksboro, Tennessee, in a transaction
accounted for as a purchase business combination for cash consideration of
approximately $7.8 million. The purchase price allocation attributed
approximately $1.8 million to net working capital items, approximately $2.7
million to property, plant and equipment and $3.3 million to goodwill. The
goodwill is being amortized over a twenty year life. The results of operations
of the acquired business have been included in the consolidated financial
statements since the acquisition date.
The following unaudited pro forma summary of consolidated results of
operations have been prepared as if Borg had been acquired as of January 2,
1994.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
<S> <C> <C>
Net sales....................................... $86,022,000 $108,161,000
=========== ============
Income before extraordinary loss................ $ 4,838,000 $ 2,205,000
=========== ============
Net income (loss)............................... $ 4,838,000 $ (202,000)
=========== ============
Income per common share before extraordinary
loss........................................... $ 4,838 $ 2,205
=========== ============
Net income (loss) per common share.............. $ 4,838 $ (202)
=========== ============
</TABLE>
These pro forma results do not purport to be indicative of the results that
would have actually been obtained if Borg had been acquired as of January 2,
1994.
Effective August 30, 1997, Glenoit Corporation through Glenoit Canada,
acquired certain assets and certain liabilities of Collins & Aikman Canada,
Inc. for cash consideration of approximately $8.0 million, subject to post-
closing adjustment. The acquisition has been accounted for as a purchase and,
accordingly, the operating results of the acquired business have been included
in the results of operations since the acquisition date. The purchase price
allocation attributed approximately $3.5 million to net working capital items
and approximately $4.5 million to property, plant and equipment. For the years
ended December 28, 1996 and December 23, 1995, the acquired business had sales
of approximately $11.6 million and $9.6 million, respectively. Net income and
net income per common share for the periods presented in the accompanying
unaudited consolidated statements of income would not differ significantly on
a pro forma basis adjusted for this acquisition.
4. FACTOR RECEIVABLES
On December 13, 1995, the Company terminated its agreement with a factor for
total cash consideration of approximately $9,160,000. The consideration paid
included the repayment of $4,283,000 to the factor for advances and related
interest previously borrowed, the repurchase of $4,727,000 of accounts
receivable previously sold to the factor under the factor agreement, and a
termination fee of $150,000. The Company has accounted for this termination
fee as an extraordinary loss on the early extinguishment of debt.
F-16
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. FACTOR RECEIVABLES (CONTINUED)
Prior to December 13, 1995, the Company's factor agreement called for the
factor to purchase substantially all trade receivables without recourse up to
maximums established by the factor for each customer account. Receivables
purchased in excess of these limitations were subject to recourse in the event
of nonpayment by the customer. The factor agreement, as amended on June 14,
1994, allowed for advances up to 95% of the factored receivables with interest
charged on the net advances at 1% over the prime rate.
5. RELATED PARTY TRANSACTIONS
The Company has an unsecured 4% note receivable from an officer with a face
amount of $300,000. The note will be forgiven by the Company under certain
circumstances and, accordingly, the Company is recognizing compensation
expense over the term of the note, which is expected to be December 31, 2005.
The unamortized balance at December 30, 1995, January 4, 1997, and October 4,
1997 was $235,000, $211,500 and $193,500 (unaudited), respectively.
During 1995, the Company loaned a shareholder of the Company's Parent a
total of $1,297,787 in the form of notes receivable bearing interest at rates
ranging from 4% to 9%. During 1995, the shareholder repaid $888,328 of these
notes. On December 13, 1995, the Company distributed a noncash dividend of
$2,170,541, which represented the balance of these notes at the distribution
date and certain other receivables and assets to the Company's Parent.
During the year ended December 30, 1995, the Company sold approximately
$645,000 in merchandise to a company owned indirectly by a shareholder of the
Company's Parent. During the years ended December 30, 1995 and January 4,
1997, the Company paid a total of approximately $650,000 and $175,000,
respectively, to companies under common ownership and related parties for
management and consulting fees.
Included in other receivables at January 4, 1997 are receivables of
approximately $297,000 from companies indirectly owned by a shareholder of the
Company's Parent.
All expenses of the Company are reflected in the Consolidated Financial
Statements. No costs are incurred by the Company's Parent on behalf of the
Company. As discussed in Note 10, the Company has a tax sharing agreement with
the Company's Parent whereby the Company will pay the Company's Parent its
respective pro rata share of the total federal consolidated tax liability or
receive its respective pro rata share of the total federal consolidated tax
refund. The impact to the Company is recorded in the "Due from Parent" or "Due
to Parent" accounts.
On March 5, 1997, the Company declared a dividend and issued a note in the
amount of approximately $5.8 million (the "Note") to a shareholder of the
Company's Parent in satisfaction of a contingent earnout obligation of the
Company's Parent related to the Recapitalization discussed in Note 2. This
note contained a mandatory prepayment provision which required the Company to
retire the Note and accrued interest as of the date of a bond offering of the
Company. On April 1, 1997, the date of the bond offering described in Note 7,
the Company retired the Note from the proceeds of the bond offering.
On June 14, 1997, the Company declared a dividend in the amount of $1.6
million to enable the Company's Parent to exercise an option to repurchase
shares of the Company's Parent's common stock and to repay a note due to a
shareholder of the Company's Parent. This transaction was related to the
Recapitalization discussed in Note 2. Additionally, as part of the same
transaction the Company made a loan of $931,263 to an officer at an interest
rate of prime plus 1/2%. The principal and interest were repaid in full on
August 12, 1997.
In August 1997, the Company's Parent granted an officer of the Company
1,286.211 options for shares of the Company's Parent's Class A common stock at
an exercise price of $37,500 in the aggregate. The officer
F-17
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
exercised the options immediately; however, the stock is restricted and
subject to certain vesting requirements. Under the grant, the officer is
entitled to one-third of the shares of stock immediately, which are subject to
vesting requirements. The Company must meet certain financial targets in each
of the Company's 1997 and 1998 fiscal years in order for the officer to be
entitled to the remaining two-thirds shares, which are then subject to vesting
requirements. All options in which the officer becomes entitled vest 50% after
the delivery of the independent accountants' report on the Company's 1998
fiscal year and 50% one year thereafter.
6. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4, OCTOBER 4,
1995 1997 1997
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Raw materials........................ $3,330,118 $2,567,060 $3,097,508
Work-in-progress..................... 1,322,157 1,432,577 1,887,762
Finished goods....................... 3,199,441 3,536,283 4,438,771
---------- ---------- ----------
Total Inventories.................. $7,851,716 $7,535,920 $9,424,041
========== ========== ========== ===
</TABLE>
7. CREDIT FACILITY AND LONG-TERM DEBT
At December 30, 1995, January 4, 1997 and October 4, 1997, long-term debt
with financial institutions consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4, OCTOBER 4,
1995 1997 1997
------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Term A Note Payable issued under
the Senior Credit Facility....... $32,000,000 $28,000,000 $ --
Term B Note Payable issued under
the Senior Credit Facility....... 25,000,000 25,000,000
Senior Subordinated note payable
at 12.5%......................... 15,000,000 15,000,000
Senior Subordinated Notes at 11%.. -- -- 100,000,000
----------- ----------- ------------
Total........................... 72,000,000 68,000,000 100,000,000
Less: current maturities.......... (4,000,000) (5,000,000)
----------- ----------- ------------
Total long-term debt............ $68,000,000 $63,000,000 $100,000,000
=========== =========== ============
</TABLE>
On April 1, 1997, the Company issued $100,000,000 of senior subordinated
notes (the "Senior Subordinated Notes") in a private placement bond offering.
The Senior Subordinated Notes bear interest at a fixed rate of 11% and are
redeemable on April 15, 2007. The Company at its option, can prepay these
notes at a price of 105.5% of the original principal amount, beginning on
April 15, 2002. The premium declines by 1.833% thereafter each year beginning
on April 15 until reduced to the original principal amount. Additionally,
prior to April 15, 2000, the Company may redeem in the aggregate up to 25% of
the original aggregate principal amount with the proceeds of one or more
Public Equity Offerings, as defined in the Indenture governing the Senior
Subordinated Notes, at a redemption price of 110% of the original principal
amount. Upon a Change of Control of the Company, as defined in the Indenture
governing the Senior Subordinated Notes, the holder of a Senior Subordinated
Note may require the Company to redeem the note at a price of 101% of the
principal amount. Interest is payable semi-annually, commencing October 15,
1997.
F-18
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)
On April 1, 1997, the Company also entered into a $70 million senior credit
facility (the "Facility") with a financial institution. Of the total
commitment of $70 million under the Facility, $25 million is designated as an
Acquisition Commitment and $45 million as a Working Capital Commitment, which
is limited to the Borrowing Base as defined in the Facility. The Company may
borrow under the Acquisition Facility through December 31, 1999. The bank also
extended up to a total of $5 million in letters of credit to the Company;
however, the amount is limited to the amount of the unused Working Capital
Commitment. At October 4, 1997, the Company had $7.1 million outstanding under
the Working Capital Commitment, had approximately $30.3 million available
under the Working Capital Commitment and $25 million available under the
Acquisition Commitment.
At the option of the Company, the Company may designate advances under the
Facility to bear interest at the Base Rate, as defined in the Facility, plus
.5% for an Acquisition Commitment Advance and 1% for a Working Capital
Commitment Advance or the Eurodollar Rate plus 2% for an Acquisition
Commitment Advance or 2.5% for a Working Capital Commitment Advance. The
Company must pay a commitment fee equal to five eighths of one percent per
year of the unused Acquisition Commitment and one half of one percent per year
of the unused Working Capital Commitment. Additionally, the Company must pay a
letter of credit fee of two percent per year of the average available amount
under the letters of credit for each quarter such letters of credit are
outstanding.
All interest, commitment fees and letter of credit fees under the Facility
are payable quarterly beginning June 30, 1997. The principal balance of the
Acquisition Commitment is repayable quarterly commencing on March 31, 2000 in
amounts equal to one-twentieth of the aggregate principal balance then
outstanding, with the balance due on December 31, 2001. The Working Capital
commitment is due on December 31, 2001. Prior to December 31, 1999, the
Company may be required to prepay the Acquisition Commitment and Working
Capital Commitment in amounts equal to the Net Cash Proceeds of the sale of
assets, stock, debt securities or any other Net Cash Proceeds, as defined by
the Facility. The Acquisition and Working Capital Commitments would then be
permanently reduced by such payment.
The Facility and Senior Subordinated Notes have various covenants that
require the Company to: maintain key financial ratios, restrict corporate
borrowings, limit the Company's ability to pay dividends, limit the type and
amount of certain investments which may be undertaken by the Company, limit
the Company's disposition of assets, limit the Company's ability to enter into
operating and capital leases, and restrict the Company's ability to issue
shares of its stock.
Substantially all of the Company's assets and operations are pledged as
collateral for the Facility. The Company's Parent and Glenoit Asset
Corporation have guaranteed the Company's obligations under the Facility and
pledged their assets as collateral; however, the Company's Parent and Glenoit
Asset Corporation have no substantive assets or operations and rely on the
Company to fund their obligations.
The Senior Subordinated Notes are fully and unconditionally guaranteed, on a
joint and several basis, by Glenoit Asset Corporation. Glenoit Asset
Corporation's operations consist solely of leasing certain trademarks and
other intangibles to Glenoit Corporation. Accordingly, Glenoit Asset
Corporation's assets and operations consist primarily of intercompany assets
and operations with Glenoit Corporation. Glenoit Canada has not guaranteed the
Senior Subordinated Notes. Prior to the formation of Glenoit Canada in June
1997, all of Glenoit Corporation's wholly-owned subsidiaries fully and
unconditionally guaranteed the Senior Subordinated Notes. For periods prior to
the formation of Glenoit Canada, the Company had no independent operations or
assets other than its investment in its subsidiaries. The financial
information of the Subsidiary Guarantors for these periods has been excluded
because management believes that this information is not material to
investors.
The following tables present summarized unaudited balance sheet information
of Glenoit Corporation, Glenoit Asset Corporation, and Glenoit Canada as of
October 4, 1997 and the related summarized unaudited
F-19
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)
operating statement information for the nine months then ended. The Company
believes that separate financial statements and other disclosures regarding
Glenoit Asset Corporation, the sole subsidiary guarantor of the Senior
Subordinated Notes, are not material to investors. Summarized balance sheet
information, in thousands, as of October 4, 1997 are as follows (unaudited):
<TABLE>
<CAPTION>
CONSOLIDATED
GLENOIT ASSET DOMESTIC GLENOIT
GLENOIT CORP. CORPORATION ELIMINATIONS OPERATIONS CANADA ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ ------------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equiva-
lents.................. 67 67 134 753 887
Accounts and other re-
ceivables, net......... 36,011 36,011 3,735 39,746
Inventories............. 8,501 8,501 923 9,424
Other current assets.... 765 765 20 785
------- ------ ------- ------- ------ ------ -------
Total current assets... 45,344 67 45,411 5,431 50,842
Property, plant and
equipment, net......... 24,758 24,758 5,346 30,104
Other assets............ 41,390 22,798 (45,663) 18,525 (9,165) 9,360
------- ------ ------- ------- ------ ------ -------
Total assets........... 111,492 22,865 (45,663) 88,694 10,777 (9,165) 90,306
======= ====== ======= ======= ====== ====== =======
Accounts payable........ 7,587 7,587 1,088 8,675
Accrued expenses........ 15,277 164 (164) 15,277 417 15,694
------- ------ ------- ------- ------ ------ -------
Total current liabili-
ties.................. 22,864 164 (164) 22,864 1,505 0 24,369
Long-term debt.......... 107,100 107,100 107,100
Other long-term liabili-
ties................... 24,739 (22,798) 1,941 1,941
Stockholder's
equity(deficit)........ (43,211) 22,701 (22,701) (43,211) 9,272 (9,165) (43,104)
------- ------ ------- ------- ------ ------ -------
Total liabilities and
equity (deficit)...... 111,492 22,865 (45,663) 88,694 10,777 (9,165) 90,306
======= ====== ======= ======= ====== ====== =======
Summarized operating statements information, in thousands, for the nine
month period ended October 4, 1997 is as follows (unaudited):
<CAPTION>
CONSOLIDATED
GLENOIT ASSET DOMESTIC GLENOIT
GLENOIT CORP. CORPORATION ELIMINATIONS OPERATIONS CANADA ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ ------------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 119,134 119,134 1,688 120,822
Cost of sales........... 76,752 76,752 1,207 77,959
------- ------ ------- ------- ------ ------ -------
Gross profit............ 42,382 0 0 42,382 481 42,863
Operating expenses...... 17,755 9 17,764 95 17,859
Royalty income (ex-
pense)................. (3,846) 3,846 0 0
------- ------ ------- ------- ------ ------ -------
Income from operations.. 20,781 3,837 0 24,618 386 0 25,004
Interest expense (in-
come).................. 9,381 (1,307) 8,074 20 8,094
Other expense (income).. (3,011) 3,344 333 52 201 586
Income taxes............ 4,629 1,800 6,429 113 6,542
Extraordinary loss,
net.................... 2,857 2,857 2,857
------- ------ ------- ------- ------ ------ -------
Net income............. 6,925 3,344 (3,344) 6,925 201 (201) 6,925
======= ====== ======= ======= ====== ====== =======
Summarized cashflow statement information, in thousands, for the nine month
period ended October 4, 1997 is as follows (unaudited):
<CAPTION>
CONSOLIDATED
GLENOIT ASSET DOMESTIC GLENOIT
GLENOIT CORP. CORPORATION ELIMINATIONS OPERATIONS CANADA ELIMINATIONS CONSOLIDATED
------------- ------------- ------------ ------------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cashflows from operating
activities............. 7,352 3,508 10,860 854 11,714
Cashflows used in
investing activities... (21,201) (21,201) (101) (21,302)
Cashflows from financing
activities............. 13,957 (3,531) 10,426 10,426
------- ------ ------- ------- ------ ------ -------
Net increase (decrease)
in cash................ 108 (23) 85 753 838
Cash at beginning of pe-
riod................... (41) 90 49 0 49
------- ------ ------- ------- ------ ------ -------
Cash at end of period... 67 67 0 134 753 0 887
======= ====== ======= ======= ====== ====== =======
</TABLE>
F-20
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)
On April 1, 1997, the Company utilized the proceeds from the 11% Senior
Subordinated Notes to retire the Company's existing debt with financial
institutions, which included the balance of the $80 million senior credit
facility (the Term A and B Notes and the Working Capital line of credit) and
the $15 million 12.5% Senior Subordinated Note. Additionally, on April 1,
1997, the Company retired a note to a shareholder of the Company's Parent in
the amount of approximately $5.8 million (see Note 5). As a result of the
Company's payoff of these obligations, the Company charged to earnings
$2,884,000 of net deferred loan costs and a $1,500,000 prepayment penalty
related to the $15 million 12.5% Senior Subordinated Note. The Company has
recognized an extraordinary loss from the early extinguishment of debt of
$2,857,000, which is net of a tax benefit of $1,527,000 related to these
changes.
Prior to the refinancing, the Company had an $80 million credit facility
(the "Old Facility") and a $15 million senior subordinated note (the "$15
Million Senior Subordinated Note"). At the option of the Company, the Company
could designate the Term A and Term B portions of the Old Facility to bear
interest at the Base Rate (which is defined as the higher of the bank's prime
rate or one-half of one percent above the Federal Funds Rate) plus 1.75% and
2.25%, respectively, or the LIBOR rate plus 3.25% and 3.75%, respectively. The
working capital line of credit portion of the Old Facility bore interest at
the Base Rate plus 1.5% or the LIBOR rate plus 3%. The $15 Million Senior
Subordinated Note bore interest at 12.5%.
On December 13, 1995, the Company utilized the proceeds from the Old
Facility and the $15 Million Senior Subordinated Note to pay off the Company's
then existing debt with financial institutions, including $4.8 million of debt
issued in connection with the 1995 acquisition described in Note 3 and the
debt pushed down to the Company. As a result of the Company's payoff of these
debts, the Company charged to earnings $1,218,000 of net deferred loan costs
and $2,279,000 paid as a prepayment penalty related to the Guaranteed Secured
Notes. The Company recognized an extraordinary loss from the early
extinguishment of debt of $3,497,000 related to these charges in 1995.
During the years ended December 31, 1994, December 30, 1995 and January 4,
1997, the Company paid $2,199,000, $3,870,000, and $8,730,000, respectively,
in cash for interest.
8. COMMITMENTS AND CONTINGENCIES
The Company's Parent is a holding company and as a result does not have any
substantive assets or operations that generate revenues or cash flows.
Accordingly, the Company's Parent relies on the Company's distribution of
dividends in order to fund its operations and meet its obligations, including
its interest and principal payments. In April 1997, the Company declared a
dividend of $1.6 million to the Company's Parent (see Note 5). The dividend
was used to pay a $1.4 million obligation to a shareholder of the Company's
Parent and to repurchase shares of the Company's Parent's common stock.
As of October 4, 1997, the Company's Parent has obligations with a face
amount of approximately $24 million, bearing interest at stated rates between
5% to 12.5%, to shareholders ("Shareholder Notes") with principal due in 2004
and 2005. These obligations are not reflected in the Company's accompanying
balance sheets or income statements. Subject to existing debt restrictions,
Shareholder Notes with a face amount of approximately $9.7 million contain
certain acceleration clauses. They include the sale of stock in a registered
public offering, certain mergers and certain changes of existing shareholder
ownership. At the option of the Company's Parent, subject to the Company's
existing debt restrictions (Note 7), the interest may be paid by the issuance
of additional notes or in cash. However, the Company's Parent must pay
interest in cash on certain of the Shareholder Notes if defined levels of
consolidated cash flows of the Company's Parent are attained.
F-21
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Annual interest payments during the next five years are approximately $2
million in 1997 and 1998, and approximately $2.6 million per year thereafter,
excluding interest on notes that may be issued to pay interest. Assuming the
Company's Parent pays all interest payments related to the Shareholder Notes
with additional notes, the Company's ultimate distribution of dividends in
order for the Company's Parent to meet its existing debt obligations is
expected to be approximately $63 million beginning December 2004 through
December 2005. However, the Company may be required to declare dividends in
order for the Company's Parent to fund certain of its obligations in cash as
discussed above. Such amounts could approximate $3 million in the aggregate
and are due through December 2004, if the defined levels of consolidated cash
flow of the Company's Parent are met.
On February 1, 1997, the Company entered into a supply agreement with a
large raw material supplier to purchase minimum quantities of raw material for
fiscal 1997, 1998 and 1999. At current prices, the minimum requirements commit
the Company to purchasing between approximately $2.8 million and approximately
$6.2 million per year depending on the type of fiber purchased.
9. LEASES
The Company leases certain equipment under operating leases that expire
through December 2005. Rent expense, including the rent of the buildings
discussed below, was $2,778,000, $2,797,000, and $3,640,000 during the years
ended December 31, 1994, December 30, 1995 and January 4, 1997, respectively.
In December 1982, the Company sold its land and manufacturing facility
located in Tarboro, North Carolina to Tarboro Properties, Ltd. ("Tarboro"),
and leased the facility back under the terms of a lease originally expiring in
December 1994. The sale resulted in a deferred gain which was fully amortized
through 1994. Rent expense related to this facility in 1994 was $1,000,000
(see Note 1, "Basis of Presentation").
On January 1, 1995, the Company entered into a lease with a company, whose
shareholders are indirectly shareholders of the Company's Parent, for a
warehouse in Tarboro, North Carolina. On December 13, 1995, the Company
through its wholly-owned subsidiary Mills, acquired the warehouse from this
company for a purchase price of approximately $1,263,000, which approximated
its net carrying value. As a result, the Company was released from obligation
under this lease effective December 13, 1995. Rent expense related to this
facility during 1995 was $458,000.
As of January 4, 1997 future net minimum lease payments under capital leases
and future minimum rental payments required under operating leases that have
initial or remaining noncancelable terms in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- -----------
<S> <C> <C>
1997............................................... $ 697,500 $ 3,679,000
1998............................................... 747,000 3,679,000
1999............................................... 124,500 3,492,000
2000............................................... 3,311,000
2001............................................... 2,585,000
Thereafter......................................... 4,074,000
---------- -----------
Total minimum lease payments..................... 1,569,000 $20,820,000
===========
Less amounts representing interest, calculated at
the Company's incremental borrowing rate........ 183,560
----------
Present value of net minimum lease payments........ 1,385,440
Current maturities of capital lease obligations.... (571,037)
----------
Capital lease obligations--less current obliga-
tions............................................. $ 814,403
==========
</TABLE>
F-22
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES
The provision for federal and state income taxes consist of the following
components:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ ----------
<S> <C> <C> <C>
Current:
Federal.............................. $2,670,000 $1,455,623 $3,260,957
State................................ 60,000 123,000 371,943
---------- ---------- ----------
2,730,000 1,578,623 3,632,900
---------- ---------- ----------
Deferred:
Federal.............................. 100,000 339,551 (263,662)
State................................ 20,000 (75,240) (14,734)
---------- ---------- ----------
120,000 264,311 (278,396)
---------- ---------- ----------
Total.............................. $2,850,000 $1,842,934 $3,354,504
========== ========== ==========
</TABLE>
The 1995 provision for federal and state income taxes has been allocated to
income before income taxes and extraordinary loss, and the extraordinary loss
on early extinguishment of debt.
A reconciliation of the provision for income taxes to the federal statutory
rate of 34% is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JANUARY 4,
1994 1995 1997
------------ ------------ ----------
<S> <C> <C> <C>
Statutory federal income tax expense.. $2,732,000 $ 951,000 $2,539,000
State income taxes, net of federal
benefit.............................. 80,000 107,000 275,000
Contingencies and nondeductible ex-
penses............................... 25,000 709,000 475,000
Foreign sales corporation profits..... (44,000)
Other................................. 57,000 75,934 65,504
---------- ---------- ----------
Income tax expense.................... $2,850,000 $1,842,934 $3,354,504
========== ========== ==========
</TABLE>
Deferred income taxes reflect the tax effects of differences between the
carrying amounts of assets and liabilities for financial reporting and income
tax purposes. The significant components of the Company's deferred tax assets
and liabilities at December 30, 1995 and January 4, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 4,
1995 1997
------------ ----------
<S> <C> <C>
Deferred tax assets:
Capital loss carry forwards.......................... $ 416,440 $ 416,440
Accrued liabilities.................................. 88,404 141,366
Asset valuation allowances........................... 385,696 138,473
Other................................................ 20,985
---------- ----------
Gross deferred assets................................ 890,540 717,264
Valuation allowance.................................. (416,440) (416,440)
---------- ----------
Total.............................................. $ 474,100 $ 300,824
========== ==========
Deferred tax liabilities:
Depreciation and amortization........................ $1,315,411 $1,515,248
Contingencies........................................ 673,000
Other................................................ 21,491
---------- ----------
Total.............................................. $1,988,411 $1,536,739
========== ==========
</TABLE>
F-23
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES (CONTINUED)
A deferred tax asset is required to be recognized for the tax benefit of
deductible temporary differences and net operating loss carryforwards. A
valuation allowance is recognized if it is more likely than not that some or
all of the deferred tax asset will not be realized. The valuation allowance
was provided for the charge-off of an investment in 1993 which is a capital
loss realizable as an offset against capital gains in future periods.
The Company's and its Parent's federal income tax returns for January 1,
1994 and December 31, 1994, have been examined by the Internal Revenue Service
("IRS"). The IRS has assessed taxes, penalties and interest relating to the
deductibility of certain expenses claimed as deductions by the Company. The
Company is currently in the process of responding to the IRS. In the opinion
of management, adequate provision has been made in the accompanying financial
statements for its income tax obligations; however, should the Company be
responsible for all taxes, penalties and interest assessed by the IRS, the
Company would be required to pay an additional amount of approximately $1.6
million over amounts currently accrued. The Company believes that the proposed
adjustments by the IRS are inappropriate and intends to vigorously contest
these assessments. It is reasonably possible that the Company's current
estimate of its obligations related to the IRS assessment will change in the
near term.
The Company's state income tax returns for the years ended January 1, 1994
and December 31, 1994, have been examined by the New York Department of
Finance. In April 1997, the New York Department of Finance assessed taxes and
interest in the amount of approximately $130,000. The Company is currently in
the process of responding to the New York Department of Finance. The Company
believes that the proposed adjustments made by the New York Department of
Finance are inappropriate and intends to vigorously contest these assessments.
The Company's Parent has an indemnification agreement with a shareholder
with respect to certain tax obligations. While tax obligations are the expense
and liability of the Company and its Parent, the indemnification agreement
provides for an additional contribution of capital to the Company's Parent
from this shareholder via reductions of long-term obligations due the
shareholder from the Company's Parent.
The Company and the Company's Parent have entered into a Tax Sharing
Agreement whereby the Company will pay the Company's Parent its respective pro
rata share of the total consolidated tax liability or receive its respective
pro rata share of the total consolidated tax refund, as set forth in the tax
sharing agreement. Under the Tax Sharing Agreement, the Company and the
Company's Parent are treated as separate tax groups.
During the years ended December 31, 1994, December 30, 1995 and January 4,
1997, the Company paid $2,997,000, $3,486,000, and $2,952,000, respectively,
in cash for taxes.
F-24
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. EMPLOYEE BENEFIT PLANS
The Company has non-contributory pension plans covering substantially all of
its employees. The benefits are based on years of service and the employee's
compensation during the years of credited service. The Company's funding
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes. Assets of the plan are managed by a trustee and
invested in marketable securities, money market instruments, and mutual funds.
Based on the actuarial valuation as of January 1, 1996 no contribution was
required for 1996. The following sets forth the plan's status based on
actuarial studies as of December 31, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4,
1995 1997
------------ ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $6,843,489 and $7,878,842,
respectively.................................... $7,208,001 $8,362,919
========== ==========
Projected benefit obligation for service rendered
to date......................................... $8,008,890 $9,905,860
Plan assets at fair value, primarily money market
funds, guaranteed investment contracts, and an-
nuity contracts................................. 8,340,668 9,242,634
---------- ----------
Plan assets in excess of projected benefit
obligation (projected benefit obligation in
excess of plan assets).......................... 331,778 (663,226)
Unrecognized prior service cost.................. 626,603 474,714
Unrecognized net asset being amortized over 12
years (salaried) and 9 years (non-salaried)..... (439,941) (325,462)
Unrecognized (gain) loss......................... (360,151) 364,639
---------- ----------
Prepaid pension cost (accrued pension) included
in other current assets (accrued expenses)...... $ 158,289 $ (149,335)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ ----------
<S> <C> <C> <C>
Net pension cost includes the follow-
ing components:
Service cost--benefits earned dur-
ing the period.................... $ 376,390 $ 432,085 $ 530,689
Interest cost on projected benefit
obligations....................... 485,993 556,019 666,149
Actual return on plan assets....... 116,262 (1,452,735) (972,441)
Net amortization and deferral of
unrecognized net gain (loss)...... (642,973) 952,598 344,316
--------- ----------- ---------
Net periodic pension expense for
year.............................. $ 335,672 $ 487,967 $ 568,713
========= =========== =========
</TABLE>
A weighted average discount rate of 7.5% and a 4.5% rate of increase in
future compensation levels was used in determining the actuarial present value
of the projected benefit obligations for both 1995 and 1996. The expected
long-term rate of return of pension plan assets was 8% for both 1995 and 1996.
In 1995, the Company established a defined contribution plan (the "Plan")
for all hourly employees in Tennessee. Under the Plan, the Company must
contribute 2.5% of employee salaries to the Plan each plan year. Contributions
were approximately $25,000 and $95,000 during the years ended December 30,
1995 and January 4, 1997, respectively. Amounts contributed are invested by a
trustee in a variety of investment options, including marketable securities
and mutual funds.
F-25
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. OTHER CONTINGENCIES
From time to time, the Company is involved in litigation which arises in the
ordinary course of business. Management believes the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
F-26
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS REG-
ISTRATION STATEMENT IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. NEITHER THE DELIVERY
OF THIS REGISTRATION STATEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS
REGISTRATION STATEMENT. THIS REGISTRATION STATEMENT DOES NOT CONSTITUTE AN OF-
FER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SO-
LICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 3
Summary.................................................................. 4
Risk Factors............................................................. 16
Use of Proceeds.......................................................... 22
Selected Historical Consolidated Financial Data.......................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 30
Management............................................................... 38
Principal Stockholders................................................... 41
Certain Relationships and Related Transactions........................... 43
Description of Capital Stock and Indebtedness of Holdings................ 46
Description of New Credit Facility....................................... 47
Description of Notes..................................................... 49
Exchange Offer; Registration Rights...................................... 79
Certain Federal Income Tax Considerations................................ 85
Plan of Distribution..................................................... 86
Legal Matters............................................................ 87
Experts.................................................................. 87
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$100,000,000
GLENOIT CORPORATION
11% SENIOR SUBORDINATED NOTES DUE 2007
DATED , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware, inter alia,
("Section 145") provides that a Delaware corporation may indemnify any persons
who were, are or are threatened to be made, parties to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify any persons who are, were or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided
such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.
The Company's Certificate of Incorporation provides for the indemnification
of directors and officers of the Company to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as it currently exists
or may hereafter be amended.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
The Company maintains and has in effect insurance policies covering all of
the Company's directors and officers against certain liabilities for actions
taken in such capacities, including liabilities under the Securities Act of
1933.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of Glenoit Corporation.**
3.2 By-Laws of Glenoit Corporation**
3.3 Certificate of Incorporation of Glenoit Asset Corporation**
3.4 By-Laws of Glenoit Asset Corporation**
4.1 Indenture dated as of April 1, 1997 between Glenoit Corporation, the
Subsidiary Guarantors (as defined therein) and United States Trust
Company of New York.**
4.2 Purchase Agreement dated as of March 26, 1997 among Glenoit
Corporation, the Subsidiary Guarantors (as defined therein), Salomon
Brothers Inc. and CIBC Wood Gundy Securities Corp.**
4.3 Registration Agreement dated as of March 26, 1997 among Glenoit
Corporation, the Subsidiary Guarantors (as defined therein), Salomon
Brothers Inc. and CIBC Wood Gundy Securities Corp.**
5.1 Opinion and consent of Kirkland & Ellis.**
10.1 Second Amended and Restated Credit Agreement dated as of April 1, 1997
among Glenoit Corporation, the banks, financial institutions and other
institutional lenders listed on the signature pages thereto as the
Restatement Lenders, the Banque Nationale de Paris, as Administrative
Agent for the Lender Parties (as defined therein).**
10.2 Supply Agreement dated February 1, 1997 by and between the Company and
Sterling Fibers, Inc.**
10.3 Employment Agreement dated October 28, 1997 by and among the Company,
Glenoit Universal, Inc. and Thomas J. O'Gorman.**
10.4 Employment Agreement dated August 5, 1996 by and between the Company
and Lester D. Sears.**
10.5 Stockholders Agreement dated as of December 14, 1995 by and among
Glenoit Universal, Inc., Citicorp Venture Capital, John Mowbry O'Mara,
Banque Nationale de Paris, The Equitable Life Assurance Society of the
United States, the Seller, Soannes Investment Corp., Thomas J. O'Gorman
and certain other parties thereto.**
16.1 Letter from BDO Seidman, LLP, independent auditors.**
21.1 Subsidiaries of Glenoit Corporation.**
23.1 Consent of Coopers & Lybrand L.L.P., independent auditors.*
23.2 Consent of BDO Seidman, LLP, independent auditors.*
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).*
24.1 Powers of Attorney (included in signature page).**
25.1 Statement of Eligibility of Trustee on Form T-1.**
27.1 Financial Data Schedule.**
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of Tender Instructions.**
</TABLE>
- --------
* Filed herewith.
** Previously filed.
(b) Financial Statement Schedules
Not applicable
ITEM 22. UNDERTAKINGS.
The undersigned registrant and co-registrant (together the "Registrants")
hereby undertake:
(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.
II-2
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the Securities
offered therein, and the offering of such Securities at the time
shall be deemed to be the initial bona fide offering thereof;
(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; and
(4) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.
(5) That for the purpose of determining liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
(6) 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.
(7) 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.
(8) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a 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 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.
(9) That every prospectus: (i) that is filed pursuant to paragraph (8)
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 a 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.
In so far as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrants pursuant to the provisions described
under Item 20 or otherwise, the Registrants have been advised that in the
opinion of the Securities and exchange Commission such indemnification is
against public policy as expressed in the Securities At and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrants of expenses incurred or
paid by a director, officer or controlling person of the Registrants 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 Registrants will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of New York, state of New
York, on February 17, 1998.
GLENOIT CORPORATION
*
By___________________________________
Thomas J. O'Gorman
President, Chief Executive Officer
and Director (principal executive
officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on February
17, 1998 in the capacities indicated:
*
By___________________________________
Thomas J. O'Gorman
President, Chief Executive Officer
and Director (principal executive
officer)
/s/ Lester D. Sears
By___________________________________
Lester D. Sears
Executive Vice President and Chief
Financial Officer (principal
financial and accounting officer)
*
By___________________________________
John Mowbray O'Mara
Director
*
By___________________________________
Saleem Muqaddam
Director
*
By___________________________________
Isaac Shapira
Director
*
By___________________________________
Joseph M. Silvestri
Director
/s/ Lester D. Sears
*By__________________________________
Lester D. Sears
as Attorney-in-fact
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of New York, state of New
York, on February 17, 1998.
GLENOIT ASSET CORPORATION
*
By
-----------------------------------
Thomas J. O'Gorman
President, Chief Executive
Officer and Director (principal
executive officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons on February 17, 1998 in the capacities indicated:
*
By
-----------------------------------
Thomas J. O'Gorman
President, Chief Executive
Officer and Director (principal
executive officer)
/s/ Lester D. Sears
By
-----------------------------------
Lester D. Sears
Executive Vice President,
Assistant Secretary (principal
financial and accounting
officer)
*
By
-----------------------------------
Peter J. Winnington
Secretary and Vice President
*
By
-----------------------------------
Thomas L. Harrell
Assistant Treasurer
/s/ Lester D. Sears
*By__________________________________
Lester D. Sears
as Attorney-in-fact
II-5
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this prospectus and registration statement on
Form S-4 (File No. 333-42411 and 333-42411-01) of our report dated February 5,
1997, except for the information presented in Note 8, for which the date is
March 5, 1997, on our audits of the financial statements of Glenoit Corporation.
We also consent to the references to our firm under the captions "Experts",
"Summary Consolidated Histocial and Pro Forma Financial Data", and "Selected
Historical Consolidated Financial Data."
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Raleigh, North Carolina
February 17, 1998
<PAGE>
EXHIBIT 23.2
[LOGO] BDO
- ----------
BDO Seidman,LLP
Accountants and Consultants
510 First Citizens Bank Building
100 South Elm Street
Greensboro, North Carolina 27401-2643
Telephone: (910) 275-0931
Fax: (910) 379-8397
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Glenoit Mills, Inc.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement (Amendment No. 2) of our report dated February 8, 1995,
relating to the consolidated statements of income, capital deficit and cash
flows of Glenoit Mills, Inc. and subsidiary, which is contained in that
Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
Greensboro, North Carolina
February 17, 1998
