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PROSPECTUS Filed Pursuant to Rule 424(b)(3)
February 16, 1999 File Number 333-64675
Globe Manufacturing Corp.
Offer to Exchange its 10% Senior Subordinated Notes due 2008, Series B for any
and all of its outstanding 10% Senior Subordinated Notes due 2008.
The Exchange Offer will expire at 5:00 p.m., New York City time, on March
23, 1999, unless extended.
Globe Manufacturing Corp., an Alabama corporation ( the "Company") hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 10%
Senior Subordinated Notes due 2008, Series B (the "New Notes"), registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant
to a Registration Statement of which this Prospectus is a part, for each
$1,000 principal amount of its outstanding 10% Senior Subordinated Notes due
2008 (the "Old Notes") of which $150,000,000 principal amount is outstanding.
The form and terms of the New Notes are the same as the form and term of the
Old Notes except that (i) the New Notes will bear a Series B designation and a
different CUSIP number than the Old Notes, (ii) the New Notes will have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (iii) holders of the New Notes will not
be entitled to certain rights of holders of Old Notes under the Registration
Rights Agreement (as defined). The New Notes will evidence the same debt as
the Old Notes (which they replace) and will be issued under and be entitled to
the benefits of the Indenture dated as of July 31, 1998 (the "Indenture") by
and among the Company and Norwest Bank Minnesota, National Association, as
trustee, governing the Old Notes and the New Notes. The Old Notes and the New
Notes are sometimes referred to herein collectively as the "Notes." See "The
Exchange Offer" and "Description of the Notes."
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on March 23, 1999,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the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. See "The Exchange Offer."
Interest on the Notes will accrue from their date of original issuance and
will be payable semiannually in arrears on February 1 and August 1 of each
year, commencing February 1, 1999, at the rate of 10% per annum. The Notes
will mature on August 1, 2008. The Notes are redeemable, in whole or in part,
at the option of the Company on or after August 1, 2003, at the redemption
prices set forth herein, plus accrued and unpaid interest, if any, to the date
of redemption. In addition, prior to August 1, 2001, the Company, at its
option, may redeem up to 35% of the aggregate principal amount of the Notes
originally issued with the net cash proceeds of one or more Equity Offerings
(as defined) at a redemption price equal to 110.0% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of redemption;
provided that not less than $97.5 million of the aggregate principal amount of
the Notes originally issued remain outstanding following such redemption. See
"Description of the Notes--Optional Redemption."
The New Notes will be, as the Old Notes (which they replace) are, general
unsecured obligations of the Company, and will, as the Old Notes (which they
replace), be subordinated in right of payment to all present
(Cover continued on following page)
See "Risk Factors" beginning on page 13 for a description of certain risks
to be considered by holders who tender their Old Notes in the Exchange Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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and future Senior Debt (as defined) of the Company, including the Company's
obligations under the Senior Credit Facility (as defined). The Notes will be
fully and unconditionally guaranteed on a senior subordinated basis (the
"Guarantees") by each of the Company's future Restricted Domestic Subsidiaries
(as defined) (collectively, the "Guarantors"). The Guarantees will be general
unsecured obligations of the Guarantors, subordinated in right of payment to
all Guarantor Senior Debt (as defined) of each Guarantor. The Company has no
existing Restricted Domestic Subsidiaries and, therefore, the Notes are not,
at present, guaranteed. As of January 28, 1999 the Company had $125.3 million
of Senior Debt (excluding unused commitments of approximately $39.7 million
under the Senior Credit Facility) and no debt that was junior to the Notes.
See "Description of the Senior Credit Facility" and "Description of the
Notes."
In the event of a Change of Control (as defined), each Holder (as defined)
will have the right to require the Company to make an offer to repurchase such
Holder's Notes, in whole or in part, at a price of 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest to the date of
repurchase. See "Description of the Notes--Change of Control."
The Old Notes were sold by the Company on July 31, 1998 to BancAmerica
Robertson Stephens and Merrill Lynch & Co. (the "Initial Purchasers") in a
transaction not registered under the Securities Act in reliance upon an
exemption under the Securities Act (the "Initial Offering"). The Initial
Purchasers subsequently placed the Old Notes with (i) qualified institutional
buyers in reliance upon Rule 144A under the Securities Act and (ii) qualified
buyers outside the United States in reliance upon Regulation S under the
Securities Act. Accordingly, the Old 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 the obligations of the Company under the
Registration Rights Agreements entered into by the Company and the Initial
Purchasers in connection with the Initial Offering (the "Registration Rights
Agreement"). See "The Exchange Offer."
Based upon an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in certain 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 that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New 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 New Notes. See "The Exchange Offer--Resale of the New
Notes." Holders of Old Notes wishing to accept the Exchange Offer must
represent to the Company, as required by the Registration Rights Agreements,
that such conditions have been met. 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 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. 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."
Shortly after the Initial Offering, Globe Holdings, Inc. ("Globe Holdings"),
the parent company of the Company, sold 49,086 Units, consisting of 14% Senior
Discount Notes due 2009 (the "Old Senior Discount Notes") and Warrants to
purchase 69,481 shares of Class A Common Stock.
Concurrent with this Exchange Offer, Globe Holdings is offering to exchange
$1,000 principal amount at maturity of their 14% Senior Discount Notes due
2009, Series B (the "New Senior Discount Notes") registered under the
Securities Act pursuant to a Registration Statement, for each $1,000 principal
amount at maturity off
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their outstanding Old Senior Discount Notes, of which $49,086,000 aggregate
principal amount at maturity is outstanding as of the date hereof. See "The
Transactions" and "Description of Certain Indebtedness--Discount Notes."
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter
is being used in connection with the Exchange Offer.
There has not previously been any public market for the Old Notes or the New
Notes. The Company does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. The Old Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automatic Linkages ("PORTAL"). There
can be no assurance that an active market for the New Notes will develop. See
"Risk Factors--Absence of a Public Market Could Adversely Affect the Value of
New Notes." Moreover, to the extent that Old Notes are tendered and accepted
in the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes could be adversely affected.
The New Notes will be available initially only in book-entry form. Except as
described under "Book-Entry Procedures and Transfer," the Company expects that
the New Notes issued pursuant to the Exchange Offer will be represented by one
or more Global Notes (as defined), which will be deposited with, or on behalf
of, the Depository Trust Company ("DTC") and registered in its name or in the
name of Cede & Co., its nominee. Beneficial interests in the Global Notes
representing the New Notes will be shown on, and transfers thereof will be
effected through, records maintained by DTC and its participants. After the
initial issuance of the Global Notes, Notes in certificated form will be
issued in exchange for Global Notes only under limited circumstances as set
forth in the Indenture. See "Book-Entry Procedure and Transfer."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY.
PROSPECTIVE INVESTORS IN THE NEW NOTES ARE NOT TO CONSTRUE THE CONTENTS OF
THIS PROSPECTUS AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD
CONSULT ITS OWN COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX,
BUSINESS, FINANCIAL AND RELATED ASPECTS OF THE NEW NOTES. THE COMPANY IS NOT
MAKING ANY REPRESENTATION TO ANY PROSPECTIVE INVESTOR IN THE NEW NOTES
REGARDING THE LEGALITY OF AN INVESTMENT THEREIN BY SUCH PERSON UNDER
APPROPRIATE LEGAL INVESTMENT OR SIMILAR LAWS.
AVAILABLE INFORMATION
The Company has filed with 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 Exchange Offer contemplated 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 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
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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,
and periodic reports and other information filed by the Company with the
Commission 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 inspected at the Commission's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60601. 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. 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 site is
http://www.sec.gov.
In addition, the Company has agreed that, whether or not it is required to
do so by the rules and regulations of the Commission, for so long as any Notes
remain outstanding, it will furnish to the holders of the Notes and, to the
extent permitted by applicable law or regulation, file with the Commission (i)
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including for each a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereof by the Company's
independent certified public accountants and (ii) all reports that would be
required to be filed on Form 8-K if it were required to file such reports. In
addition, for so long as any of the Notes remain outstanding, the Company has
agreed to make available to any prospective purchaser of the Notes or
beneficial owner of the Notes, in connection with any sale thereof, the
information required by Rule 144A(d)(4) under the Securities Act.
The Company is an Alabama corporation with its principal executive offices
located at 456 Bedford Street, Fall River, Massachusetts 02720, and its
telephone number is (508) 674-3585.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All reports and other documents filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this
Prospectus and prior to the Expiration Date shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of the filing of
such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein (or in any other subsequently filed document which also is incorporated
or deemed to be incorporated by reference herein) modifies or supersedes such
previous statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus and the Exchange Offer Registration Statement.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents are available without charge
upon request from Lawrence R. Walsh, Vice President of Finance and
Administration of Globe Manufacturing Corp, 456 Bedford Street, Fall River,
Massachusetts 02720, telephone (508) 674-3585. In order to ensure timely
delivery of the documents, any request should be made by March 17, 1999 (five
business days prior to the expiration date).
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MARKET SHARE AND INDUSTRY DATA
The market share and industry data presented herein are based upon estimates
by management of the Company, utilizing various third party sources, where
available. While management believes that such estimates are reasonable and
reliable, in certain cases such estimates cannot be verified by information
available from independent sources. Accordingly, no assurance can be given
that such market share and industry data are accurate in all material
respects.
CERTAIN TERMINOLOGY
As used herein, the following terms have the meanings specified below:
circular knit: a type of weft knit in which the fabric is produced in the
form of a tube, with threads running continuously around the fabric. In
weft knit fabrics, the thread runs crosswise in the fabric, as opposed to
lengthwise in warp knits. Circular knits are used in active wear, swimwear,
casual wear and dress wear.
denier: a weight per unit of length measure of any linear material. In
fibers, a weight numerically equal to the weight in grams of 9,000 meters
of the material. Lower numbers represent finer sizes, and higher numbers
represent coarser sizes.
elastomeric: describes any material (including yarn, fiber, film and
sheets) which exhibits pronounced elastic properties, such elastic
properties being the material's primary value attributes.
gauge: the number of needles, fibers or other elements in a determined
unit of length. For latex thread, gauge means the number of individual
rubber threads which, when placed cross-sectionally beside one another, fit
into a length of one inch. Lower numbers represent coarser sizes and higher
numbers represent finer sizes.
narrow fabric: any knit or woven fabric that is twelve inches or less in
width and has a selvage on each side (other than ribbon and seam bindings).
Narrow fabric applications include waist bands and straps.
nonwoven: a type of fabric in which the fibers are fused or bonded in a
random web or mat, as opposed to interlacing sets as in woven fabric.
Nonwovens are employed in diapers, adult incontinence products, feminine
hygiene products and medical bandages.
spandex: a manufactured fiber in which the fiber-forming substance is a
long-chain synthetic polymer comprised of at least 85% segmented
polyurethane.
warp knit: a type of knit in which the threads run lengthwise in the
fabric, as opposed to crosswise in weft knits. Examples of warp knits
include milanese knits, raschel knits and tricot knits. Warp knit
applications include intimate apparel, body shaping garments, swimwear and
footwear.
woven: a type of fabric generally composed of two sets of yarns, warp and
filling, that is formed by weaving interlacing sets of these yarns.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the detailed information and consolidated financial statements
and notes thereto appearing elsewhere in this Prospectus. As used in this
Prospectus, unless the context otherwise indicates, "Company" or "Globe" refers
to Globe Manufacturing Corp. (formerly known as Globe Elastic Co., Inc.)
together with the historical business and operations undertaken by Globe
Holdings, Inc. (formerly known as Globe Manufacturing Co.) which were
transferred to Globe pursuant to the Asset Drop Down (as defined), and "Globe
Holdings" refers to Globe Holdings, Inc., the Company's sole shareholder.
Except as otherwise set forth herein, references to "pro forma" information for
a period ending on a specified date means information that gives pro forma
effect to the Transactions as if the Transactions had occurred on such date for
balance sheet data and as of the beginning of the period for statement of
income data. See "--The Transactions."
The Company
Overview
Globe is a leading domestic manufacturer and worldwide supplier of spandex
and latex elastomeric fibers, marketing its products to more than 500
customers. The Company's fibers are used in a broad range of applications,
including men's and women's hosiery, waistbands, intimate apparel, performance
athletic wear, swimwear, casual wear, suiting fabrics, body shaping (or
foundation) garments, personal care products (including diapers and adult
incontinence products) and footwear. The Company has produced elastomeric
fibers exclusively for over 50 years and has developed long-term relationships
with many of its principal customers, including Fruit of the Loom, Inc.,
Kimberly-Clark Corporation, Minnesota Mining & Manufacturing Company, Sara Lee
Hosiery, Unifi, Inc. and Worldtex, Inc. These customers in the aggregate
contributed approximately 25.4% of total revenue during the 1997 fiscal year.
During the twelve months ended September 30, 1998, the Company had net sales of
$177.0 million, Adjusted EBITDA (as defined) of $46.7 million and net income of
$13.4 million. See Summary Consolidated Financial Data, footnotes 3 and 5.
Spandex fiber, which accounted for 80% of the Company's 1997 sales, is a
highly desirable component of fabrics designed for performance, durability,
comfort, control and resilience due to its unique chemical and physical
properties. Spandex fiber is produced in a broad range of fine and heavy
deniers and is sold on a private label basis and under brand names such as the
Company's GLOSPAN(R) and CLEERSPAN(R), DuPont's Lycra(R) and Bayer's
Dorlastan(R). Recent advances in fabric manufacturing technologies have
facilitated the use of spandex fiber in an increasing number of apparel and
non-apparel applications. Globe has benefited from this recent proliferation of
spandex fiber applications due to its exclusive focus on elastomeric fibers,
superior customer service, broad product line, strong market position and
efficient manufacturing processes.
Based on management's knowledge and experience in the industry, management
estimates that in 1997 the worldwide market for spandex fiber was approximately
240 million pounds, representing approximately $2.0 billion in sales. From 1993
to 1997, worldwide sales of spandex fiber increased at an estimated 11%
compound annual growth rate, and the worldwide spandex fiber market is expected
to grow at approximately 9% over the next three years. Since 1993, demand for
fine denier spandex has increased faster than the overall market due to its
growing use in lightweight and high quality apparel applications and this trend
is expected to continue.
The Company operates three manufacturing facilities, which are located in
Fall River, Massachusetts, Tuscaloosa, Alabama and Gastonia, North Carolina.
Since 1993, Globe has invested $97.5 million to increase manufacturing
capacity, enhance productivity and shift its product mix to the faster growing,
higher margin fine denier spandex fiber. During this period, the Company's
annual fine denier spandex fiber production
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capacity increased from 2.6 million to 10.6 million pounds. As a result of the
Company's capital investment program and continuous improvement initiatives in
its manufacturing facilities, Globe's fine denier spandex fiber production
yields have improved by 35% and sales per employee have increased by 43% since
1993.
Tuscaloosa Plant Expansion
Globe is expanding production capacity at its Tuscaloosa, Alabama fine denier
spandex fiber manufacturing facility in response to existing demand from
current customers (the "Tuscaloosa Plant Expansion"). Through September 30,
1998, Globe had spent approximately $19.2 million of the estimated $22.1
million project cost. The Tuscaloosa facility, built in 1994, has undergone
three prior capacity expansions. The Tuscaloosa Plant Expansion will increase
the Company's fine denier manufacturing capacity by 3.6 million pounds per
annum, or 34%, with approximately half of this increased capacity expected to
be on line in the fourth quarter of 1998 and the balance expected to be on line
in the first quarter of 1999. As of September 30, 1998, Globe's list price for
40 denier spandex fiber, the primary product currently produced at the
Company's Tuscaloosa facility, was $12.99 per pound.
Competitive Strengths
The Company's exclusive focus on elastomeric fibers for over 50 years has
enabled it to develop the following competitive strengths:
Long-Term Customer Relationships and Superior Customer Service. Globe has
established long-term relationships with its principal customers by focusing on
superior technical and customer service. The Company has been a supplier to
Fruit of the Loom, Inc., Kimberly-Clark Corporation, Minnesota Mining and
Manufacturing Company, Sara Lee Hosiery, Unifi, Inc. and Worldtex, Inc. for
over ten years. Seven of the Company's ten largest customers have selected
Globe as their preferred supplier of spandex fiber. Globe provides analytical
laboratory services and on-site technical assistance to improve customers'
manufacturing and engineering processes. As a result, a number of the Company's
major customers have selected it as a technology partner to assist in the
development of new spandex applications.
Broad Product Line. The Company believes that it offers the broadest line of
spandex and latex elastomeric fibers in the world. The Company produces a full
line of spandex fibers in deniers ranging from 15 to 5040. These products
feature an assortment of stretch, strength and other performance
characteristics that may be customized for specific applications and
manufacturing processes. Globe also manufactures a wide variety of latex
threads in multiple gauges and formulations. This broad range of product
offerings differentiates the Company in the industry and represents a
competitive advantage, as many customers purchase multiple deniers of spandex
fiber, as well as various gauges of latex thread, and prefer to utilize one
vendor for their elastomeric fiber requirements. The proprietary technologies
and customized equipment used by Globe in its multiple manufacturing processes
enable the Company to cost-effectively produce this broad product line.
Strong Positions in Growing Markets. The Company has established a strong
market position in each of its principal product lines. The Company has an
estimated 16% share of the domestic spandex fiber market and an estimated 7%
share of the worldwide spandex fiber market (based on pounds produced).
Management estimates that worldwide sales of spandex fiber will increase at a
compound annual growth rate of approximately 9% over the next three years and
that fine denier spandex sales will exceed the overall market growth rate
during this period. Fine denier spandex demand has been driven by strong
consumer demand for lightweight and high quality apparel and technological
advances allowing for the use of spandex fibers in the manufacture of such
apparel.
Cost-Efficient Manufacturing. Management believes that the Company's
manufacturing operations are among the most efficient in the industry, allowing
the Company to become one of the world's lowest cost producers of high quality
spandex fiber. Globe has developed proprietary chemical formulations and highly
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efficient manufacturing processes that utilize sophisticated process control
systems and custom fabricated manufacturing equipment designed and built by the
Company's engineers. Management believes that Globe's in-house capability to
design, engineer and build its own manufacturing equipment distinguishes the
Company from many of its competitors and provides it with an important
competitive advantage in maintaining product quality as well as controlling
design, development and maintenance costs. In addition, increased production
volume at the Company's facilities has enabled the Company to achieve
significant economies of scale and raw material purchasing power.
Experienced Management Team. The Company is led by an experienced management
team with a track record of achieving profitable growth, developing new
manufacturing processes and expanding the Company's customer base. Between 1993
and the twelve months ended September 30, 1998, the Company's net sales
increased from $107.6 million to $177.0 million, Adjusted EBITDA increased from
$23.7 million to $46.7 million and net income increased from $9.2 million to
$13.4 million. See Summary Consolidated Financial Data, footnotes 3 and 5. The
Company's executive officers average approximately 20 years with the Company.
The Company's senior management team has a substantial financial interest in
the Company's continued success through their direct investment in Globe
Holdings.
Business Strategy
The Company's business objective is to become the leading global supplier of
elastomeric fiber for use in selected apparel and non-apparel markets. The
Company seeks to achieve this objective by pursuing the following strategies:
Continue Shift in Product Mix to Higher Growth, More Profitable Fine Denier
Products. Since 1993, Globe has expanded its annual production capacity of
higher growth fine denier spandex fiber from 2.6 million to 10.6 million
pounds. Fine denier spandex fiber is used in applications requiring lightweight
or high quality fabric, and has been generally more profitable than heavy
denier spandex fiber due to the complexity of the manufacturing process
required and strong market demand. Fine denier spandex fiber sales accounted
for approximately 49% of Globe's 1997 total sales, up from 25% in 1993. The
Tuscaloosa Plant Expansion, which will increase the Company's annual production
capacity for fine denier spandex fiber to 14.2 million pounds, will enable the
Company to further address the increase in demand for fine denier spandex
fiber.
Develop Innovative Spandex Fiber Applications. Globe's product managers and
research and development engineers work closely with existing and prospective
customers to develop innovative applications for spandex fiber. For example,
the Company worked with a fleece manufacturer for over two years to develop a
new four-way stretch fleece product for outerwear that incorporates Globe's
spandex fiber. Cooperative efforts such as this have enabled Globe to enhance
its relationships with existing customers and attract new customers.
Improve Manufacturing Productivity; Reduce Production Costs. The Company
seeks to continually improve manufacturing efficiency and reduce production
costs in order to maintain its position as one of the world's lowest cost
producers of high quality spandex fiber. The Company seeks to improve
manufacturing yields, increase equipment utilization, and reduce production
costs by upgrading process monitoring equipment, enhancing production processes
and increasing throughput. Each of the Company's manufacturing facilities is
certified under ISO 9001, and the Company actively incorporates the principles
of continuous improvement.
Increase International Sales. Globe estimates that the international market
accounts for two-thirds of the worldwide spandex fiber market. International
spandex fiber markets are growing rapidly due to increasing consumerism of the
world's population, coupled with increases in personal disposable income. From
1993 to 1997, Globe's international sales increased from 19% of sales to 28% of
sales (primarily in western Europe and Latin America) as the Company expanded
the size and geographic scope of its international sales to 46 countries. The
Company seeks to further expand its international sales by leveraging its
existing sales and marketing infrastructure and capitalizing on Globe's
expanded manufacturing capacity.
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The Transactions
The consummation of the Initial Offering occurred concurrently with the
effectiveness of the recapitalization (the "Recapitalization") of Globe
Holdings, the Company's sole shareholder. The Recapitalization was effected
pursuant to an agreement and plan of merger dated June 23, 1998 (the "Merger
Agreement") between Globe Holdings and Globe Acquisition Company ("MergerCo"),
a newly formed affiliate of Code, Hennessy & Simmons III, L.P. ("Code Hennessy
& Simmons"), pursuant to which MergerCo merged with and into Globe Holdings
(the "Merger"). As a result of the Merger and the Recapitalization, Code
Hennessy & Simmons, certain members of management and certain other investors
have an aggregate investment of $75.0 million (the "Equity Sponsor Investment")
in Globe Holdings, comprised of a rollover of approximately $7.2 million (the
"Retained Investment") by management and other pre-Merger shareholders of Globe
Holdings (the "Pre-Merger Shareholders") and an investment by Code Hennessy &
Simmons and certain other investors in an aggregate amount equal to
approximately $67.8 million. The Equity Sponsor Investment included a $25.0
million loan to Globe Holdings by Code Hennessy & Simmons (the "CHS Loan"),
which was repaid with the net proceeds of the offering (the "Units Offering")
by Globe Holdings of the Old Senior Discount Notes and Warrants. See "Recent
Developments." Immediately prior to the Merger, Globe Holdings transferred
substantially all of its assets and liabilities to the Company (the "Asset Drop
Down").
Pursuant to the Merger and the Recapitalization: (i) the Company incurred
approximately $120.0 million of borrowings (consisting of $115.0 million in
term loans and approximately $5.0 million in revolving loans) under a new
senior secured credit facility (as amended, the "Senior Credit Facility"); (ii)
the Company repaid its indebtedness outstanding under certain loan credit
facilities (collectively, the "Old Credit Facility"); (iii) holders of the
shares of common stock of Globe Holdings outstanding prior to the
Recapitalization received cash (including the payment by Globe Holdings of fees
and expenses on their behalf) equal to $315.0 million less (x) the amount of
the Company's outstanding indebtedness for borrowed money as of the date of the
Merger and (y) the amount of the Retained Investment (the "Cash Merger
Consideration"); and (iv) Globe Holdings deposited $15.0 million (the "Escrow
Amount") into escrow to secure certain indemnification and other obligations of
the Pre-Merger Shareholders under the Merger Agreement. See "Use of Proceeds,"
"Certain Relationships and Related Transactions--Recapitalization," and
"Description of Senior Credit Facility."
The Initial Offering, the Asset Drop Down, the Recapitalization, the Merger,
the initial borrowings under the Senior Credit Facility, the repayment of
borrowings under the Old Credit Facility and the Equity Sponsor Investment are
collectively referred to herein as the "Transactions." See "Use of Proceeds"
and "Description of Senior Credit Facility."
RECENT DEVELOPMENTS
The Old Notes were sold by the Company on July 31, 1998 to the Initial
Purchasers pursuant to a Purchase Agreement dated July 28, 1998 (the "Purchase
Agreement"). The Initial Purchasers subsequently resold the Old Notes to (i)
qualified institutional buyers pursuant to Rule 144A under the Securities Act
and (ii) qualified buyers outside the United States in reliance upon Regulation
S under the Securities Act. Pursuant to the Purchase Agreement, the Company and
the Initial Purchasers entered into a Registration Rights Agreement dated as of
July 31, 1998 (the "Registration Rights Agreement"), which grants the holders
of the Old Notes certain exchange and registration rights. The Exchange Offer
is intended to satisfy such exchange rights which terminate upon the
consummation of the Exchange Offer.
On August 6, 1998, Globe Holdings consummated the Units Offering under Rule
144A of the Securities Act, pursuant to which the Globe Holdings issued and
sold 49,086 units (the "Units"), each consisting of one Old Senior Discount
Note and one warrant (a "Warrant") to purchase 1.4155 shares of Class A Common
Stock, $.01 par value, of Globe Holdings. The Units were initially sold to
BancAmerica Robertson Stephens. The aggregate purchase price of the Units was
$25,000,000 and the net proceeds to Globe Holdings were $24,562,490, after
deducting underwriting discounts and commissions and other expenses payable by
Globe Holdings. On December 28, 1998 the Company began incurring Liquidated
Damages at the rate of .50% per annum because the Registration Statement has
not been declared effective.
4
<PAGE>
As of January 28, 1999, in response to lower than expected earnings, the
Senior Credit Facility was amended such that (i) certain leverage ratio tests
were waived and certain covenants were amended, (ii) the interest rates on both
the term loans and revolving loans were increased and (iii) the management fee
due to an affiliate of Code Hennessy & Simmons LLC may only be paid if certain
leverage tests are met. As a result of the amendment, the applicable borrowing
margin under the Senior Credit Facility for Base Rate (as defined in the Senior
Credit Facility) borrowings increased from 1.25% to 2.00% for the Term Loan A
and the Revolving Loan and from 1.75% to 2.50% for the Term Loan B and the
applicable borrowing margin for Eurodollar Rate (as defined in the Senior
Credit Facility) borrowings increased from 2.25% to 3.00% for the Term Loan A
and the Revolving Loan and from 2.75% to 3.50% for the Term Loan B. See
"Description of the Senior Credit Facility." This increase in interest margins
will increase the Company's interest expense by approximately 3%, which is not
expected to have a material effect on the Company's operating results.
5
<PAGE>
The Exchange Offer
Securities Offered........ $150,000,000 aggregate principal amount of 10% Se-
nior Subordinated Notes due 2008, Series B.
The Exchange Offer........ $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of Old Notes. As
of the date hereof, $150,000,000 aggregate princi-
pal amount of Old Notes are outstanding. The Com-
pany will issue the New Notes to holders on or
promptly after the Expiration Date.
Based on an interpretation by the staff of the Com-
mission set forth in no-action letters issued to
third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and
otherwise transferred by 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 regis-
tration 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.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of market-
making activities or other trading activities may
be a statutory underwriter. Each Participating Bro-
ker-Dealer that receives New Notes for its own ac-
count pursuant to the Exchange Offer must acknowl-
edge that it will deliver a prospectus in connec-
tion 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. This Prospectus, as it may be amended or sup-
plemented from time to time, may be used by a Par-
ticipating Broker-Dealer in connection with resales
of New Notes received in exchange for Old Notes
where such Old Notes were acquired by such Partici-
pating 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."
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 re-
quirements 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 Com-
pany.
6
<PAGE>
Expiration Date........... 5:00 p.m., New York City time, on March 23, 1999
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 ex-
tended.
Accrued Interest on the
New Notes and the Old
Notes.....................
Each New Note will bear interest from its issuance
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 (February
1, 1999). 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. See
"The Exchange Offer--Conditions."
Procedures for Tendering Each holder of Old Notes wishing to accept the Ex-
Old Notes................. change Offer must complete, sign and date the ac-
companying Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions con-
tained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such facsim-
ile, together with the Old Notes and any other re-
quired documentation to the Exchange Agent (as de-
fined) at the address set forth herein. By execut-
ing the Letter of Transmittal, each holder will
represent to the Company that, among other things,
the New Notes acquired pursuant to the Exchange Of-
fer are being obtained in the ordinary course of
business of the person receiving such New Notes,
whether or not such person is the holder, that nei-
ther the holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such New Notes
and that neither the holder nor any such other per-
son is an "affiliate," as defined under Rule 405 of
the Securities Act, of the Company. See "The Ex-
change Offer--Purpose and Effect of the Exchange
Offer" and "--Procedures for Tendering."
Untendered Old Notes...... Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have any
further exchange rights and such Old Notes will
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the market
for such Old Notes could be adversely affected.
Consequences of Failure
to Exchange...............
The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted securi-
ties. Accordingly, such Old 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."
7
<PAGE>
Shelf Registration If any holder of the Old Notes (other than any such
Statement................. 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 satisfied certain conditions relating to
the provision of information to the Company for use
therein, the Company has agreed to register the Old
Notes on a shelf registration statement (the "Shelf
Registration Statement") and use its best efforts
to cause it to be declared effective by the Commis-
sion as promptly as practical on or after the con-
summation of the Exchange Offer. The Company has
agreed to maintain the effectiveness of the Shelf
Registration Statement for, under certain circum-
stances, a maximum of two years, to cover resales
of the Old Notes held by any such holders.
Special Procedures for
Beneficial Owners.........
Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. 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 deliv-
ering its Old Notes, either make appropriate ar-
rangements to register ownership of the Old 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.
Guaranteed Delivery Holders of Old Notes who wish to tender their Old
Procedures................ Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the Ex-
change Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date
must tender their Old Notes according to the guar-
anteed delivery procedures set forth in "The Ex-
change Offer--Guaranteed Delivery Procedures."
Withdrawal Rights......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes
and Delivery of New
Notes..................... The Company will accept for exchange any and all
Old Notes which are properly tendered in the Ex-
change 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............ Norwest Bank Minnesota, National Association is
serving as Exchange Agent in connection with the
exchange offer of New Notes for Old Notes.
8
<PAGE>
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 re-
place) except that (i) the New Notes bear a Series
B designation and have a different CUSIP number
than the Old Notes, (ii) the New Notes have been
registered under the Securities Act and, therefore,
will not bear legends restricting the transfer
thereof, and (iii) the holders of New Notes will
not be entitled to certain rights under the Regis-
tration 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 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 Old Notes and will be entitled to
the benefits of the Indentures. See "Description of
New Notes."
Issuer.................... Globe Manufacturing Corp.
Securities Offered........ $150,000,000 principal amount of 10% Senior Subor-
dinated Notes due 2008, Series B.
Maturity Date............. August 1, 2008.
Interest Payment Dates.... February 1 and August 1 of each year, commencing on
February 1, 1999.
Mandatory Sinking Fund or
Redemption................
None
Optional Redemption....... The New Notes may be redeemed, in whole or in part,
at any time on or after August 1, 2003 at the op-
tion of the Company, at the redemption prices set
forth herein, plus, in each case, accrued and un-
paid interest, if any, to the date of redemption.
In addition, at any time prior to August 1, 2001,
the Company may, at its option, redeem up to 35% in
aggregate principal amount of the New Notes at a
redemption price of 110.0% of the principal amount
thereof, plus accrued and unpaid interest to the
date of redemption, with the net cash proceeds of
one or more Equity Offerings, provided that not
less than $97.5 million of the aggregate principal
amount of the New Notes remains outstanding immedi-
ately after the occurrence of such redemption.
Change of Control......... In the event of a Change of Control, each Holder
will have the right to require the Company to make
an offer to repurchase such Holder's New Notes, in
whole or in part, at a price of 101% of the aggre-
gate principal amount thereof, plus accrued and un-
paid interest to the date of repurchase. At the
time of a Change in Control, the Company may not
have sufficient funds to redeem the New Notes. In
addition, the Company's ability to repurchase the
New Notes may be limited by the Senior Credit Fa-
cility and the terms of any future Senior Debt. See
"Description of the New Notes--Change of Control."
Subordination............. The New Notes will be general unsecured obligations
of the Company, subordinated in right of payment to
all present and future Senior Debt
9
<PAGE>
of the Company, including the Company's obligations
under the Senior Credit Facility. Claims in respect
of the New Notes will also be effectively subordi-
nated to all secured indebtedness of the Company to
the extent of the value of the assets securing such
indebtedness. As of January 28, 1999, the Company
had approximately $125.3 million of Senior Debt
(excluding unused commitments of approximately
$39.7 million under the Senior Credit Facility).
Guarantees................ The Notes are not, at present, guaranteed. The New
Notes will be fully and unconditionally guaranteed
on a senior subordinated basis by each of the
Company's future Restricted Domestic Subsidiaries.
The Guarantees will be general unsecured
obligations of the Guarantors, subordinated in
right of payment to all Guarantor Senior Debt of
each Guarantor. Claims in respect of the New Notes
will also be effectively subordinated to all
obligations of any subsidiary of the Company that
is not a Guarantor. The Company has no existing
Restricted Domestic Subsidiaries.
Certain Covenants......... The Indenture pursuant to which the New Notes will
be issued (the "Indenture"), among other things,
limits the ability of the Company and its
Restricted Subsidiaries to: (i) incur additional
indebtedness; (ii) issue Disqualified Stock; (iii)
make certain restricted payments; (iv) grant liens
on assets; (v) merge, consolidate or transfer
substantially all of their assets; (vi) enter into
transactions with Related Persons; (vii) impose
restrictions on any Restricted Subsidiary's ability
to pay dividends or make certain other payments to
the Company and its Restricted Subsidiaries; (viii)
enter into certain guarantees; (ix) sell assets;
and (x) issue capital stock of Restricted
Subsidiaries.
A description of the terms of the New Notes, including definitions of terms
which are capitalized above, is set forth herein under "Description of the
Notes."
Risk Factors
See "Risk Factors" for a discussion of certain factors that should be
considered before tendering Old Notes in exchange for New Notes, including
factors affecting forward-looking statements. These risk factors are generally
applicable to the Old Notes as well as the New Notes.
10
<PAGE>
Summary Consolidated Financial Data
The following information is qualified in its entirety by the consolidated
financial statements of the Company. The following summary consolidated
financial data as of the dates and for the periods indicated were derived from
the audited and unaudited consolidated financial statements of the Company
contained elsewhere in this Prospectus. The unaudited consolidated financial
data at September 30, 1998 and for the nine months ended September 30, 1997 and
September 30, 1998 include all adjustments (consisting only of normal recurring
adjustments) which management considers necessary for a fair presentation of
the financial information for these unaudited periods. The results of
operations for the nine months ended September 30, 1998 are not necessarily
indicative of the results of operations that may be expected for the full
fiscal year 1998. The unaudited pro forma consolidated financial data as of
September 30, 1998 give effect to the Transactions as if they had occurred at
the beginning of the period. None of the pro forma consolidated financial data
set forth below purport to be indicative of the results that actually would
have been obtained had all of the events been completed as of the date assumed
and for the periods presented and are not intended to be a projection of the
Company's future results or financial position. The following summary
consolidated financial information 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 the
related notes thereto.
<TABLE>
<CAPTION>
Pro Forma
Fiscal Year Ended Nine Months Ended Nine Months
December 31, Pro Forma September 30, Ended
---------------------------- December 31, ------------------ September 30,
1995 1996 1997 1997 1997 1998 1998
-------- -------- -------- ------------ -------- -------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Net sales............... $128,319 $152,603 $170,941 $170,941 $127,307 $133,321 $133,321
Cost of sales........... 97,182 110,609 115,099 115,099 86,187 84,682 84,682
-------- -------- -------- -------- -------- -------- --------
Gross margin........... 31,137 41,994 55,842 55,842 41,120 48,639 48,639
Selling, general and
administrative
expenses............... 18,515 21,705 24,381 24,286 15,808 19,265 19,217
Research and development
costs.................. 2,260 2,533 2,633 2,633 1,953 3,144 3,144
-------- -------- -------- -------- -------- -------- --------
Operating income....... 10,362 17,756 28,828 28,923 23,359 26,230 26,278
Other income (expenses):
Interest, net........... (6,030) (5,285) (3,968) (25,703) (3,076) (6,143) (18,222)
Loss in investment in
joint venture (1)...... (643) -- -- -- -- -- --
Transaction compensation
expense................ -- -- -- -- -- (5,778) --
Other income, etc....... 438 875 372 372 233 647 647
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes and
extraordinary income.. 4,127 13,346 25,232 3,592 20,516 14,956 8,703
Provision for income
taxes.................. 1,718 4,784 8,383 (316) 7,715 5,609 3,095
-------- -------- -------- -------- -------- -------- --------
Income before
extraordinary item.... 2,409 8,562 16,849 3,908 12,801 9,347 5,608
Loss from write-off of
deferred financing
cost, net (2).......... 1,294 -- 301 301 301 187 187
-------- -------- -------- -------- -------- -------- --------
Net income.............. $ 1,115 $ 8,562 $ 16,548 $ 3,607 $ 12,500 $ 9,160 $ 5,421
======== ======== ======== ======== ======== ======== ========
Other Financial Data:
Gross margin %.......... 24.3% 27.5% 32.7% 32.7% 32.3% 36.5% 36.5%
Adjusted EBITDA (3) (5). $ 22,480 $ 28,960 $ 42,377 $ 42,377 $ 30,942 $ 35,131 $35,131
Adjusted EBITDA margin
(%) (4) (5)............ 17.5% 19.0% 24.8% 24.8% 24.3% 26.4% 26.4%
Depreciation and
amortization........... $ 10,688 $ 9,676 $ 12,208 $ 12,208 $ 6,654 $ 11,245 $11,245
Capital expenditures.... 8,640 5,806 17,101 17,230 10,513 26,317 26,412
Ratio of earnings to
fixed charges.......... 1.6x 3.4x 6.3x 1.1x 6.3x 3.0x 1.4x
Cash provided (used) by:
Operating activities... $ 12,683 $ 21,898 $ 20,322 $ 20,451 $ 10,372 $ 20,595 $ 20,690
Investing activities... $ (6,712) $ (5,527) $(18,810) $(18,939) $(11,904) $(26,144) $(26,239)
Financing activities... $ (4,163) $(16,413) $ (2,666) $ 499 $ (309) $ 5,368 $ (169)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
September 30, 1998
----------------------
(dollars in thousands)
<S> <C>
Balance Sheet Data:
Cash..................................................... $ 1,766
Working capital.......................................... 24,420
Property, plant and equipment, net....................... 76,707
Total assets............................................. 140,327
Total debt............................................... 270,889
Shareholders' equity (deficit)........................... (152,775)
</TABLE>
- ---------------------
(1) Represents the Company's share of the operating losses incurred by a joint
venture in which the Company acquired a 40% interest in 1990. The Company
accounted for its investment in the joint venture using the equity method
of accounting.
(2) Reflects non-recurring charges related to the write-off of the unamortized
balance of deferred financing costs in the year in which the related
refinancing occurred. The amounts are shown net of applicable income tax.
(3) Adjusted EBITDA represents income before interest expense (net), income
taxes, depreciation and amortization adjusted as follows:
<TABLE>
<CAPTION>
Nine months
Ended
Year Ended December 31, September 30,
----------------------- ---------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
EBITDA before adjustments.......... $19,551 $28,307 $41,107 $29,945 $28,583
Adjustments to EBITDA
Non cash:
Postretirement benefit costs...... 992 653 515 315 378
Loss in joint venture............. 643 0 0 0 0
Write off of deferred finance
costs............................ 1,294 0 301 301 187
Non-recurring legal expenses...... 0 0 454 381 67
Deal costs........................ 0 0 0 0 138
Transaction compensation expense.. 0 0 0 0 5,778
------- ------- ------- ------- -------
Adjusted EBITDA.................... $22,480 $28,960 $42,377 $30,942 $35,131
======= ======= ======= ======= =======
</TABLE>
Adjusted EBITDA is not intended to represent cash flow from operations or
net income as defined by generally accepted accounting principles and
should not be considered as a measure of liquidity or an alternative to, or
more meaningful than, operating income or operating cash flow as an
indication of the Company's operating performance. Adjusted EBITDA is
included herein because management believes that certain investors find it
a useful tool for measuring the Company's ability to service its debt.
Management believes that an increase in Adjusted EBITDA level is an
indicator of the Company's improved ability to service existing debt, to
sustain potential future increases in debt and to satisfy capital
requirements. Given that Adjusted EBITDA is not a measurement determined in
accordance with generally accepted accounting principles and is thus
susceptible to varying calculations, Adjusted EBITDA as presented may not
be comparable to other similarly titled measures of other companies.
(4) Adjusted EBITDA margin represents Adjusted EBITDA as calculated in footnote
(3) above as a percentage of net sales. The explanation and cautionary
statements regarding Adjusted EBITDA in footnote (3) above are also
applicable to Adjusted EBITDA Margin.
(5) The unaudited pro forma consolidated financial data and related ratios give
effect to the consummation of the Transactions as if they occurred on the
first day of such period. In connection with the Transaction the Company
incurred a one time compensation expense charge of $3,318,000 associated
with the vesting of stock options and $2,320,000 associated with bonuses
paid to certain members of management. Although the Company expects to
charge such amounts in the period following the transaction date, such
charge is not reflected in the accompanying pro forma financial
information. See "Management" and "Certain Relationships and Related
Transactions--Management Agreement" and "--Consulting Agreement."
12
<PAGE>
RISK FACTORS
The following risk factors should be considered carefully, in addition to
the other information contained in this Prospectus before tendering the Old
Notes in exchange for the New Notes. In connection with the forward-looking
statements which appear in this Prospectus, prospective purchasers of New
Notes should carefully review the factors discussed below and the cautionary
statements referred to in "Risk Factors--Risks Regarding Forward-Looking
Statements." The risk factors set forth below are generally applicable to the
Old Notes as well as the New Notes.
Consequences of Failure to Exchange
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 exemptions from, or
in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, including Exxon Capital Holdings
Corporation, SEC No-Action Letter (available April 13, 1988) (the "Exxon
Capital Letter"), Morgan Stanley & Co. Incorporated, SEC No-Action Letter
(available June 5, 1991) (the "Morgan Stanley Letter"), and similar letters,
the Company believes that the New Notes issued pursuant to the Exchange Offer
may be offered for resale, resold or otherwise transferred by any holder
thereof (other than any such holder 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 such Holder has no arrangement with any person to
participate in the distribution of such New Notes. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Company). The Company has agreed that, for a period of 180 days from
the Expiration Date, it will make this Prospectus available to any broker-
dealer for use in connection with any such resale. See "Plan of Distribution."
Any holder who tenders in the Exchange Offer for the purpose of participating
in a distribution of the New Notes cannot rely on the Morgan Stanley Letter or
similar letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. To the extent that Old Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Old Notes not so tendered
could be adversely affected. See "The Exchange Offer."
Absence of a Public Market Could Adversely Affect the Value of the Notes
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there has not been any public market for the Old Notes. The Old Notes
have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged 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 Old Notes. The New Notes will constitute new
issues of securities with no established trading market. The Company does not
intend to list the New Notes on any national securities exchange or seek the
admission thereof to trading in the National Association of Securities Dealers
Automated Quotation System.
13
<PAGE>
The Initial Purchasers have advised the Company that they currently intend to
make a market in the New Notes, but they are 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 Statement. Accordingly, no assurance can be given that
an active public 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 such securities will depend on many factors including, among other things,
prevailing interest rates, the Company's results of operations and 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.
Failure to Follow Exchange Offer Procedures Could Adversely Affect Holders
Issuance of the 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 such
Old Notes, a properly completed and duly executed Letter of Transmittal (or
Agent's Message) and all other required documents. Therefore, holders of the
Old Notes desiring to tender such Old 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 Old Notes for exchange. Old 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 Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes 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 transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected. See "The Exchange Offer."
Substantial Leverage and Debt Service Requirements
The Company is highly leveraged. As a result of the Transactions, including
the Initial Offering and the Company's payment of a substantial portion of the
net proceeds therefrom to Globe Holdings to enable Globe Holdings to pay the
Cash Merger Consideration, the Company's aggregate indebtedness for borrowed
money and interest expense increased and its shareholders' equity decreased.
As of September 30, 1998, the Company and Holdings had total Debt (as defined)
of $295.9 million and total annual debt service (including noncash) of $30.1
million. In addition, subject to the restrictions in the Senior Credit
Facility and the Indenture, the Company may incur additional Debt from time to
time to finance working capital, capital expenditures, acquisitions, or for
other purposes.
The Indenture governing the Notes as well as the Senior Credit Facility (or
any replacement facilities of the Company or any subsidiary of the Company)
contain certain restrictive financial and other covenants. The Company's high
degree of leverage and restrictions in its debt agreements could have
important consequences to the holders of the Notes, including the following:
(i) a substantial portion of the Company's cash flow from operations will be
dedicated to debt service and will not be available for operations and other
purposes; (ii) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures,
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acquisitions or other purposes may be limited or impaired; (iii) the Company's
operating flexibility with respect to certain matters will be limited by
covenants contained in the Indenture and the Senior Credit Facility which will
limit the ability of the Company and its Restricted Subsidiaries to, among
other things, incur additional indebtedness, grant liens on assets, merge,
consolidate or transfer substantially all of their assets, enter into
transactions with Related Persons, impose restrictions on any Restricted
Subsidiary's ability to pay dividends or make certain other payments to the
Company and its Restricted Subsidiaries, enter into certain guarantees, sell
assets and issue capital stock of Restricted Subsidiaries; (iv) the Company
will be substantially more leveraged than certain of its competitors, which
may place the Company at a competitive disadvantage; (v) the Company's degree
of leverage may make it more vulnerable to economic downturns, may reduce its
flexibility in responding to changing business and economic conditions and may
limit its ability to pursue other business opportunities, to finance its
future operations or capital needs, and to implement its business strategy;
and (vi) certain of the Company's borrowings will be at variable rates of
interest, which will expose the Company to the risk of increased interest
rates. See "Business--Business Strategy," "Description of Senior Credit
Facility" and "Description of the Notes."
Required payments of principal and interest on the Company's long-term debt
are expected to be financed from cash flow from operations and debt
financings. The Company's ability to generate cash for the repayment of debt
will be dependent upon the future performance of the Company's businesses,
which will in turn be subject to financial, business, economic, and other
factors affecting the business and operations of the Company, including
factors beyond its control, such as prevailing economic conditions. There can
be no assurance that cash flow from operations will be sufficient to enable
the Company to service its debt and meet its other obligations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
As of January 28, 1999, in response to lower than expected earnings, the
Senior Credit Facility was amended such that (i) certain leverage ratio tests
were waived and certain covenants were amended, (ii) the interest rates on
both the term loans and revolving loans were increased and (iii) the
management fee due to an affiliate of Code Hennessy & Simmons LLC may only be
paid if certain leverage tests are met. As a result of the amendment, the
applicable borrowing margin under the Senior Credit Facility for Base Rate (as
defined in the Senior Credit Facility) borrowings increased from 1.25% to
2.00% for the Term Loan A and the Revolving Loan and from 1.75% to 2.50% for
the Term Loan B and the applicable borrowing margin for Eurodollar Rate (as
defined in the Senior Credit Facility) borrowings increased from 2.25% to
3.00% for the Term Loan A and the Revolving Loan and from 2.75% to 3.50% for
the Term Loan B. See "Description of the Senior Credit Facility." This
increase in interest margins will increase the Company's interest expense by
approximately 3%, which is not expected to have a material effect on the
Company's operating results.
Subordination of the Notes and the Guarantees
The Notes are and any Guarantees will be subordinated in right of payment to
all Senior Debt of the Company and Guarantor Senior Debt of the Guarantors,
respectively, including the Company's obligations under the Senior Credit
Facility. In the event of bankruptcy, liquidation or reorganization of the
Company or the Guarantors, the assets of the Company or the Guarantors will be
available to pay obligations on the Notes only after all Senior Debt or
Guarantor Senior Debt, as the case may be, has been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Notes then outstanding. In addition, indebtedness outstanding under the Senior
Credit Facility is secured by substantially all of the assets of the Company
and its domestic subsidiaries. Claims in respect of the Notes will be
effectively subordinated to all secured indebtedness of the Company and the
Guarantors to the extent of the value of the assets securing such indebtedness
and to all liabilities (including trade payables) of any subsidiary of the
Company that is not a Guarantor. As of January 28, 1999, the Company had
approximately $125.3 million of Senior Debt (excluding unused commitments of
approximately $39.7 million under the Senior Credit Facility). Additional
Senior Debt and Guarantor Senior Debt may be incurred by the Company and the
Guarantors from time to time subject to certain restrictions contained in the
Senior Credit Facility and the Indenture. See "Description of Senior Credit
Facility" and "Description of the Notes."
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Change of Control
A Change of Control (as defined) could require the Company to refinance
substantial amounts of indebtedness, including indebtedness under the Notes
and the Senior Credit Facility. Upon the occurrence of a Change of Control,
the holders of the Notes would be entitled to require the Company to
repurchase the Notes at a purchase price equal to 101% of the principal amount
of such Notes, plus accrued and unpaid interest, if any, to the date of
repurchase. Such right is subordinated to the rights of the holders of Senior
Debt. These requirements and the subordination of the Notes will limit the
ability of the Company to repurchase the Notes. The source of funds for any
such repurchase would be the Company's available cash or cash generated from
operations or other sources, including borrowings, sales of equity or funds
provided by a new controlling person. However, there can be no assurance that
sufficient funds will be available at the time of any Change of Control to
make any required repurchases of the Notes tendered. In addition, the Senior
Credit Facility prohibits the repurchase of the Notes by the Company in such
an event, unless and until such time as the indebtedness under the Senior
Credit Facility is repaid in full. The Company's failure to make such
repurchases in such instances would result in a default under both the Notes
and the Senior Credit Facility. Future indebtedness of the Company may also
contain restrictions or repayment requirements with respect to certain events
or transactions that would constitute a Change of Control. In the event of a
Change of Control, there can be no assurance that the Company would have
sufficient assets to satisfy all of its obligations under the Notes or the
Senior Credit Facility. The effect of such requirements may make it more
difficult or delay attempts by others to obtain control of the Company. See
"Description of the Notes--Change in Control" and "Description of Senior
Credit Facility."
Competition
The elastomeric fiber industry is highly competitive. The Company competes
in the spandex fiber markets primarily with E.I. du Pont de Nemours and
Company ("DuPont") and Bayer AG ("Bayer"), both of which have domestic
facilities, and with a number of foreign competitors. The Company's primary
competitors in the latex thread markets are foreign producers. Some of the
Company's competitors have substantially greater financial, marketing,
manufacturing, distribution, sales and support resources, market share and
brand awareness than the Company. There can be no assurance that the Company
will be able to compete successfully in the future against its competitors or
that the Company will not experience increased price competition, which could
materially and adversely affect the Company's results of operations, financial
condition and ability to meet its obligations under the Notes. See "Business--
Competition."
Environmental Compliance
The Company is subject to comprehensive and evolving federal, state and
local environmental, health and safety requirements, including laws and
regulations relating to air emissions, wastewater management, the handling and
disposal of waste and the cleanup of properties affected by hazardous
substances. Violations of environmental, health and safety laws may result in
the imposition of significant fines and other penalties, and certain
environmental laws impose joint and several liability, without regard to
fault, on persons responsible for releases of hazardous substances to the
environment.
The Company's management believes that its operations have been and are in
substantial compliance with environmental, health and safety requirements, and
that it has no liabilities arising under such requirements, except as would
not be expected to have a material adverse effect on the Company's operations,
financial condition or competitive position. Some risk of environmental,
health and safety liability is inherent in the Company's business, however,
and there can be no assurance that material environmental, health or safety
costs will not arise in the future.
Since 1986, the Company has received requests for information and related
correspondence from the U.S. Environmental Protection Agency (the "U.S. EPA")
and other third parties indicating that the Company might be responsible under
the federal Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 ("CERCLA") or equivalent state laws (collectively, the "Superfund
laws") for costs associated with the investigation and cleanup of ten
contaminated sites. The Company's management believes that the Company has
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resolved its involvement with respect to eight of these sites (five of which
were inter-related) since 1988 and that the Company's involvement in matters
arising under the Superfund laws will not have a material adverse effect on
the Company's operations, liquidity or financial condition.
In December 1996, the Company's management learned that U.S. EPA and the
U.S. Attorney's Office were conducting an investigation into whether the
Company had engaged in criminal violations of environmental laws with respect
to its Fall River, Massachusetts facility. The investigators have not informed
the Company of the scope of their inquiry. The Company has provided certain
information regarding its Fall River operations to the federal investigators
and believes it has cooperated fully with their inquiry. The Company does not
know whether the investigation is currently active. If the Company is charged
with violations of environmental laws, it may be subject to substantial fines
and other penalties, which could have a material adverse effect on the
Company's results of operations, financial condition and ability to meet its
obligations under the Notes. See "Business--Environmental, Health and Safety
Matters."
Dependence on Significant Customers
The Company's top ten customers accounted for approximately 48% of 1997
sales, with one customer, Unifi, Inc. (a manufacturer of covered yarns for
men's and women's hosiery and narrow fabrics), accounting for approximately 9%
of 1997 sales. As is customary in the elastomeric fiber industry, the Company
does not generally have long-term supply agreements with its customers. The
Company has pricing contracts with certain significant customers, however,
these contracts do not provide for any minimum purchase requirements. The
Company's significant customers can cease doing business with the Company at
any time. While the Company believes its customer relationships are generally
good, a significant decrease or interruption in business from any of the
Company's significant customers could have a material adverse effect on the
Company's results of operations, financial condition and ability to meet its
obligations under the Notes. See "Business--Customers."
Dependence on Suppliers
During 1997, raw materials represented 42% of the Company's total cost of
sales and 28% of net sales. The primary raw materials used by the Company are
polytetramethylene ether glycol (used for fine denier spandex), which the
Company purchases from BASF Corporation ("BASF"), and polyester resin (used
for heavy denier spandex), which the Company purchases from two suppliers. The
Company is heavily dependent upon these raw materials for spandex fiber
production. These materials are used in a wide variety of products, and based
on its experience, management believes that adequate quantities of these
materials will be available from existing or alternative suppliers in the
foreseeable future. There can be no assurance, however, that such materials
will continue to be available in adequate supply in the future or that
shortages or disruptions in supply will not result in a material adverse
effect on the Company's results of operations, financial condition or ability
to meet its obligations under the Notes. The Company's ten largest suppliers
accounted for approximately 93% of its total raw material purchases and 31% of
its total cost of sales in 1997, with BASF, Polyurethane Specialties Corp. and
Ennar-Latex, Inc. accounting for 39%, 24% and 16% of such raw material
purchases, respectively. Although the prices for the Company's raw materials
have generally been stable over the past five years, the prices of certain of
the raw materials used by the Company have fluctuated, and there can be no
assurance that the prices of the Company's raw materials will not fluctuate in
the future. A significant increase in the price of raw materials that cannot
be passed on to customers could have a material adverse effect on the
Company's results of operations, financial condition and ability to meet its
obligations under the Notes.
Foreign Sales Risk
Sales to international customers represented approximately 28% of sales in
1997 and 47% of total receivables as of December 31, 1997, and the Company is
seeking to increase its international sales. Demand for the Company's products
is affected by economic and political conditions in each of the countries in
which it sells its products and by certain other risks of doing business
abroad, including fluctuations in the value of currencies (which may affect
demand for products priced in United States dollars), import duties, changes
to
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import and export regulations (including quotas), possible restrictions on the
transfer of funds, labor or civil unrest, long payment cycles, greater
difficulty in collecting accounts receivable and the burdens and cost of
compliance with a variety of foreign laws. Changes in policies by foreign
governments could result in, for example, increased duties, higher taxation,
currency conversion limitations, or limitations on imports or exports, any of
which could have a material adverse effect on the Company's results of
operations, financial condition and ability to meet its obligations under the
Notes. Globe's principal export markets are Europe, Central/South America and
Asia. The current economic crisis in Asia has resulted in a flood of fiber,
fabric and apparel into Europe from Asia, which has had a negative impact on
prices and the Company's sales in Europe. In addition, economic difficulties
in Russia have resulted in reduced demand for the Company's products. A
continued economic crisis may precipitate further downturns in spandex fiber
consumption in all of Globe's export markets.
Textile Industry and Cyclicality
In 1997, approximately 92% of the Company's sales were to the textile and
apparel industries. These industries are highly cyclical and are characterized
by rapid shifts in consumer demand, as well as competitive pressures and price
and demand volatility. The demand for the Company's products is principally
dependent upon the level of demand for certain types of apparel. The demand
for apparel is in turn dependent on consumer spending, which may be adversely
affected by economic downturns, changing retailer and consumer demands,
declines in consumer confidence or spending, and other factors beyond the
Company's control. A reduction in the level of demand for apparel or a
decrease in consumer demand for products containing elastomeric fibers could
have a material adverse effect on the Company's result of operations,
financial condition and ability to meet its obligations under the Notes.
Control by Principal Shareholder
Code Hennessy & Simmons owns approximately 75.6% of the outstanding voting
stock of Globe Holdings, which in turn owns all of the issued and outstanding
capital stock of the Company. Consequently, Code Hennessy & Simmons, through
its voting stock holdings in Globe Holdings and its ability to designate all
of the members of the boards of directors of Globe Holdings and of the
Company, exercises significant influence over the policies and direction of
the Company. Code Hennessy & Simmons' interests may differ from the interests
of the holders of the Notes. See "Management--Executive Officers and
Directors" and "Certain Relationships and Related Transactions."
Protection of Intellectual Property
The Company's success is dependent on the proprietary technology included in
its manufacturing processes. Much of this technology is not patented. The
Company relies primarily on intellectual property laws, confidentiality
procedures and contractual provisions to protect its intellectual property.
The Company seeks to protect the majority of its technology under trade secret
laws, which afford only limited protection. There can be no assurance that
intellectual property laws will protect the confidentiality of the Company's
technology and processes. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to obtain and use
information that the Company regards as proprietary. Furthermore, there can be
no assurance that others will not independently develop similar technology or
design around any intellectual property rights held by the Company. In
addition, no assurance can be given that alternative technologies will not be
developed that are superior to or less costly than the Company's existing
technology.
The Company may in the future be notified that it is infringing certain
patent or other intellectual property rights of others, although there are no
such pending lawsuits against the Company or unresolved notices that it is
infringing intellectual property rights of others. No assurance can be given
that in the event of such infringement, licenses could be obtained on
commercially reasonable terms, if at all, or that litigation will not occur.
The failure to obtain necessary licenses or other rights or the occurrence of
litigation arising out of such claims could have a material adverse effect on
the Company's results of operations and financial condition and its ability to
meet its obligations under the Notes.
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Expansion of Production Capacity
All of the Company's significant spandex fiber competitors have been engaged
in production expansion, product improvement and global marketing programs
since 1993. The Company's ability to achieve its strategic objectives and to
retain or increase its current share of the spandex fiber market will require
it to make significant capital expenditures in order to expand its production
capacity, particularly for fine denier spandex fiber. The Company is adding
3.6 million pounds of fine denier spandex fiber capacity to its facility in
Tuscaloosa, Alabama at an estimated cost of $22.1 million, with approximately
half of this increased capacity expected to be on line in the fourth quarter
of 1998 and the balance expected to be on line in the first quarter of 1999.
There can be no assurance that the expansion will be completed within the
Company's timetable or budget. A lengthy delay in the completion of the
Tuscaloosa plant expansion or significant cost over-runs in connection
therewith could have a material adverse effect on the Company's result of
operations, financial condition and ability to meet its obligations under the
Notes.
Antitrust and Antidumping Proceedings
In April 1997 two domestic purchasers of extruded latex thread filed a
complaint against a number of foreign manufacturers and distributors of such
thread, including an Indonesian limited liability company in which Globe
Holdings then owned a 40% interest (the "Joint Venture"). The complaint
alleges an international conspiracy to restrain trade in, and fix prices of,
the thread in the United States ("U.S."). Neither the Company nor Globe
Holdings has been named as a defendant in the case. The Joint Venture has
alleged in its motion to dismiss that not all parties to the conspiracy have
been joined, and there can be no assurance that the Company will not be named
in the future.
On March 31, 1998 a petition was filed with the U.S. Department of Commerce
alleging subsidization and dumping of Indonesian extruded latex thread. The
Department of Commerce is currently conducting an investigation into the
allegations. The proceedings could result in additional duties being levied on
extruded latex thread imported from Indonesia. During 1996 and 1997, the
Company purchased approximately $5.9 million and $9.9 million of latex thread
from the Joint Venture for resale in the North American market.
Dependence on Senior Management
The Company's success depends to a significant extent upon the efforts and
abilities of the Company's senior management employees. The loss of the
services of one or more of such persons could have a material adverse effect
on the Company. The Company believes that its continued future success will
depend on its ability to attract, retain or develop highly skilled managerial,
technical and marketing personnel. There can be no assurance that it will be
able to do so. See "Management."
Impact of the Year 2000 Issue
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000.
If the Company, its significant customers or suppliers fail to make
necessary modifications and conversions on a timely basis, the year 2000 issue
could have a material adverse effect on Company operations. However, the
impact cannot be quantified at this time. The Company believes that its
competitors face similar risks.
The Company has established a corporate-wide project team to identify non-
compliant software and complete the corrections required for the year 2000
issue. The Company has completed its repairs for major manufacturing systems
in all locations. The Company also completed its repair of its major financial
systems. The Company's current target is to resolve compliance issues in its
distribution systems and other ancillary systems by March 31, 1999. The
Company also has made inquiry of its major customers and suppliers to assess
their compliance. Nevertheless, there can be no absolute assurance that there
will not be a material adverse effect
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on the Company if third party governmental or business entities do not convert
or replace their systems in a timely manner and in a way that is compatible
with the Company's systems.
Costs related to the year 2000 issue are funded through operating cash
flows. Through September 30, 1998, the Company expended approximately $108,000
in systems development and remediation efforts, including the cost of new
software and modifying the applicable code of existing software. The Company
estimates remaining costs to be between $50,000 and $100,000. The Company
presently believes that the total cost of achieving year 2000 compliant
systems is not expected to be material to the Company's financial condition,
liquidity or results of operations.
Time and cost estimates are based on currently available information.
Developments that could affect estimates include, but are not limited to, the
availability and cost of trained personnel, the ability to locate and correct
all relevant computer code and systems and remediation success of the
Company's customers and suppliers.
Certain Insolvency Considerations
The incurrence by the Company of indebtedness such as the Notes to finance
the Transactions may be subject to review under relevant state and federal
fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or
on behalf of unpaid creditors of the Company. Under these laws, if a court
were to find that, after giving effect to the sale of the Notes and the
application of the net proceeds therefrom, or the exchange of the Old Notes
for New Notes, either (a) the Company incurred such indebtedness with the
intent of hindering, delaying or defrauding creditors or (b) the Company
received less than reasonably equivalent value or consideration for incurring
such indebtedness and (i) was insolvent or was rendered insolvent by reason of
such transactions, (ii) was engaged in a business or transaction for which the
assets remaining with the Company constituted unreasonably small capital or
(iii) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, such court may subordinate such
indebtedness to presently existing and future indebtedness or obligations of
the Company, avoid the issuance of such indebtedness and direct the repayment
of any amounts paid thereunder to the Company's creditors or take other action
detrimental to the holders of such indebtedness.
The Notes are not, at present, guaranteed. In the event that under relevant
state or federal law a Guarantor is determined, at the time it executed its
Guarantee, to have come within clauses (a) or (b) of the first paragraph of
this subsection, the Guarantee by such Guarantor may be voidable (in whole or
in part) or the claim of the holders of the Notes in respect of such Guarantee
may be subordinated (in whole or in part) to other obligations and liabilities
of such Guarantor, in each case based on the theory that such Guarantee
constituted a fraudulent conveyance under applicable federal or state
fraudulent transfer or conveyance statutes. In the event that such claims are
asserted after any payments are made by a Guarantor under its Guarantee, there
is a risk that persons who received such payments will be ordered by a court
to return to such Guarantor's creditors or its trustee in bankruptcy all or a
portion of such payments.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and mature.
There can be no assurance as to what standard a court would apply in order
to determine insolvency. A court may find that the Company did not receive
fair consideration or reasonably equivalent value for the incurrence of the
indebtedness represented by the Old Notes. In addition, if a court were to
find that any of the components of the Transactions constituted a fraudulent
transfer, a court may find that the Company did not receive fair consideration
or reasonably equivalent value for the incurrence of the indebtedness
represented by the Old Notes and the New Notes.
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The Company believes that it received equivalent value at the time the
indebtedness under the Old Notes was incurred. In addition, the Company does
not believe that, after giving effect to the Transactions, it (i) was or will
be insolvent or rendered insolvent, (ii) was or will be engaged in a business
or transaction for which its remaining assets constituted unreasonably small
capital or (iii) intends or intended to incur, or believes or believed that it
will or would incur, debts beyond its ability to pay such debts as they
mature. These beliefs are based on the Company's operating history and
analysis of internal cash flow projections and estimated values of assets and
liabilities of the Company at the time of the Initial Offering. There can be
no assurance, however, that a court passing on these issues would make the
same determination.
Absence of Established Public Market
The Notes are a new issue of securities for which there is no established
traders market. While application has been made to have the Notes accepted for
trading in the PORTAL market, there can be no assurance that an active trading
market for the Notes will develop in the PORTAL market or elsewhere. The
Company has been advised by the Initial Purchasers that the Initial Purchasers
currently intend to make a market in the Notes; however, they are not
obligated to do so and any market making activity may be discontinued at any
time. Therefore, there can be no assurance that an active public market for
the Notes will develop or, if developed, will continue to exist. If a public
trading market develops for the Notes, future trading prices of the Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for similar
securities. Depending upon such factors, the Notes may trade at a discount
from their principal amount. See "Plan of Distribution."
In addition, the liquidity of, and trading markets for, the Notes also may
be materially and adversely affected by declines in the market for high yield
securities generally. Such declines may adversely affect such liquidity and
trading markets independent of the actual performance of, and prospects for,
the Company.
Risks Regarding Forward-Looking Statements
This Prospectus contains certain forward-looking statements, including,
without limitation, statements concerning the Company's future financial
position, business strategy, budgets, projected costs and plans and objectives
of management for future operations. These forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 (which do not apply to initial public offerings). Forward-
looking statements generally can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "intend," "estimate,"
"anticipate," "believe," "should," "plans," or "continue" or the negative
thereof or variations thereon or similar terminology. Without limiting the
foregoing, forward-looking statements are set forth herein under the captions
"Prospectus Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." 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. These forward-looking statements are subject to a number of
risks and uncertainties, including, without limitation, those identified under
"Risk Factors" and elsewhere in this Prospectus and other risks and
uncertainties indicated from time to time in the Company's filings with the
Securities and Exchange Commission. Actual results could differ materially
from these forward-looking statements.
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USE OF PROCEEDS
The gross proceeds to the Company from the sale of the Old Notes, together
with approximately $120.0 million of borrowings under the Senior Credit
Facility and the Equity Sponsor Investment ($67.8 million) were used (i) to
pay the Cash Merger Consideration ($247.2 million) (ii) to repay outstanding
obligations under the Old Credit Facility and certain other liabilities ($60.6
million) (iii) to fund the Escrow Amount deposited into escrow to secure
certain indemnification and other obligations of Pre-Merger Shareholders of
Globe Holdings under the Merger Agreement ($15.0 million) and (iv) to pay fees
and expenses related to the Transactions ($15.0 million). Borrowings under the
Old Credit Facility bore interest at rates based on the lender's prime rate or
LIBOR, in each case plus a margin. As of June 30, 1998, the weighted average
interest rate for borrowings under the Old Credit Facility was 7.5% per annum
and the weighted average life of the term loans was 4.75 years. The revolving
loan portion of the Old Credit Facility was scheduled to mature on March 31,
2002 and the term loan portion of the old Credit Facility was scheduled to
mature on March 31, 2003. See "Certain Relationships and Related
Transactions--Recapitalization" and "Description of Senior Credit Facility."
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights
Agreement. The Company will not receive any cash proceeds from the issuance of
the New Notes offered hereby. In consideration for issuing the New Notes
contemplated in this Prospectus, the Company will receive Old Notes in like
principal amount, the form and terms of which are the same as the form and
terms of the New Notes (which replace the Old Notes), except as otherwise
described herein. The Old Notes surrendered in exchange for New Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the New
Notes will not result in any increase or decrease in the indebtedness of the
Company. As such, no effect has been given to the Exchange Offer in the pro
forma statements or capitalization table.
22
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited historical consolidated
capitalization of the Company as of September 30, 1998. See "Use of Proceeds."
This table should be read in conjunction with the "Selected Consolidated
Financial Data" and the related notes thereto, and the Company's consolidated
financial statements, including related notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
As of
September 30, 1998
------------------
(dollars in thousands)
<S> <C> <C>
Cash and cash equivalents..... $ 1,766
=========
Long-term debt (including
current maturities):
Senior Credit Facility: (1)
Revolving loan facility... $ 5,800
Term loan facility........ 115,000
Old Notes................... 150,000
Capital lease obligations... 89
---------
Total long-term debt.... 270,889
---------
Shareholders' equity
(deficit).................... (152,775)
---------
Total capitalization.... $ 118,114
=========
</TABLE>
- ----------------------
(1) The Senior Credit Facility provides for term loans in an aggregate
principal amount of $115.0 million and revolving loans of up to $50.0
million. See "Description of Senior Credit Facility."
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following information is qualified in its entirety by the consolidated
financial statements of the Company. The following selected consolidated
financial data as of the dates and for the periods indicated were derived from
the audited and unaudited consolidated financial statements of the Company
contained elsewhere in this Prospectus, except data as of, and for the years
ended December 31, 1993, and 1994, which was derived from audited consolidated
financial statements of the Company not included in this Prospectus. The
unaudited consolidated financial statements for the nine months ended
September 30, 1997 and September 30, 1998 include all adjustments consisting
only of normal recurring adjustments which management considers necessary for
a fair presentation of results for these unaudited periods. The results of
operations for the nine months ended September 30, 1998 are not necessarily
indicative of results of operations that may be expected for the full fiscal
year 1998. The following selected consolidated financial information 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 the related notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended December 31, September 30,
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Net sales............... $107,612 $112,475 $128,319 $152,603 $170,941 $127,307 $133,321
Cost of sales........... 75,980 84,321 97,182 110,609 115,099 86,187 84,682
-------- -------- -------- -------- -------- -------- --------
Gross margin........... 31,632 28,154 31,137 41,994 55,842 41,120 48,639
Selling, general and
administrative
expenses............... 13,467 14,152 18,515 21,705 24,381 15,808 19,265
Research and development
costs.................. 1,561 3,506 2,260 2,533 2,633 1,953 3,144
-------- -------- -------- -------- -------- -------- --------
Operating income....... 16,604 10,496 10,362 17,756 28,828 23,359 26,230
Other income (expenses):
Interest, net........... (2,212) (3,514) (6,030) (5,285) (3,968) (3,076) (6,143)
Loss in investment in
joint venture (1)...... -- (617) (643) -- -- -- --
Transaction compensation
expenses............... -- -- -- -- -- -- (5,778)
Other income, etc....... 492 341 438 875 372 233 647
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes and
extraordinary income.. 14,884 6,706 4,127 13,346 25,232 20,516 14,956
Provision for income
taxes.................. 5,680 2,882 1,718 4,784 8,383 7,715 5,609
-------- -------- -------- -------- -------- -------- --------
Income before
extraordinary item.... 9,204 3,824 2,409 8,562 16,849 12,801 9,347
Loss from write-off of
deferred financing
cost,
net (2)................ -- -- 1,294 -- 301 301 187
-------- -------- -------- -------- -------- -------- --------
Net income............. $ 9,204 $ 3,824 $ 1,115 $ 8,562 $ 16,548 $ 12,500 $ 9,160
======== ======== ======== ======== ======== ======== ========
Other Financial Data:
Gross margin %.......... 29.4% 25.0% 24.3% 27.5% 32.7% 32.3% 36.5%
Adjusted EBITDA (3)..... $ 23,747 $ 20,509 $ 22,480 $ 28,960 $ 42,377 $ 30,942 $ 35,131
Adjusted EBITDA margin %
(4).................... 22.1% 18.2% 17.5% 19.0% 24.8% 24.3% 26.4%
Depreciation and
amortization........... $ 5,284 $ 8,228 $ 10,688 $ 9,676 $ 12,208 $ 6,654 $ 11,245
Capital expenditures.... $ 24,542 $ 24,284 $ 8,640 $ 5,806 $ 17,101 10,513 26,317
Ratio of earnings to
fixed charges (5)...... 6.4x 1.9x 1.6x 3.4x 6.3x 6.3x 3.0x
Cash provided (used) by:
Operating activities... $ 17,704 $ 5,932 $ 12,683 $ 21,898 $ 20,322 $ 10,372 $ 20,595
Investing activities... $(27,582) $(24,872) $ (6,712) $ (5,527) $(18,810) $(11,904) $(26,144)
Financing activities... $ 10,626 $(18,034) $ (4,163) $(16,413) $ (2,666) $ (309) $ 5,368
<CAPTION>
December 31, September 30,
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash.................... $ 2,241 $ 1,336 $ 3,143 $ 3,101 $ 1,947 $ 1,260 $ 1,766
Working capital......... 8,021 9,391 5,052 4,263 19,453 20,577 24,420
Property, plant and
equipment, net......... 40,332 56,323 53,499 50,122 57,950 54,078 76,707
Total assets............ 69,599 93,414 92,824 91,329 105,133 100,538 140,327
Total debt.............. 50,141 69,182 66,698 50,615 56,917 59,321 270,889
Redeemable cumulative
preferred stock........ 6,466 6,466 6,466 6,466 -- -- --
Shareholders' equity.... 2,324 5,298 5,563 13,594 31,109 58,428 (152,775)
</TABLE>
24
<PAGE>
- ----------------------
(1) Represents the Company's share of the operating losses incurred by a joint
venture in which the Company acquired a 40% interest in 1990. The Company
accounted for its investment in the joint venture using the equity method
of accounting.
(2) Reflects non-recurring charges related to the write-off of the unamortized
balance of deferred financing costs in the year in which the related
refinancing occurred. The amounts are shown net of applicable income tax.
(3) Adjusted EBITDA represents income before interest expense (net), income
taxes, depreciation and amortization adjusted as follows:
<TABLE>
<CAPTION>
Nine months
Ended
Year Ended December 31, September 30,
--------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA before
adjustments........... $22,380 $18,449 $19,551 $28,307 $41,107 $29,945 $28,583
Adjustments to EBITDA
Non cash:
Postretirement benefit
costs................. 1,367 1,443 992 653 515 315 378
Loss in joint venture.. 0 617 643 0 0 0 0
Write off of deferred
finance costs......... 0 0 1,294 0 301 301 187
Non-recurring legal
expenses.............. 0 0 0 0 454 381 67
Deal costs............. 0 0 0 0 0 0 138
Transaction
compensation expense.. 0 0 0 0 0 0 5,778
------- ------- ------- ------- ------- ------- -------
Adjusted EBITDA......... $23,747 $20,509 $22,480 $28,960 $42,377 $30,942 $35,131
======= ======= ======= ======= ======= ======= =======
</TABLE>
Adjusted EBITDA is not intended to represent cash flow from operations or
net income as defined by generally accepted accounting principles and
should not be considered as a measure of liquidity or an alternative to, or
more meaningful than, operating income or operating cash flow as an
indication of the Company's operating performance. Adjusted EBITDA is
included herein because management believes that certain investors find it
a useful tool for measuring the Company's ability to service its debt.
Management believes that an increase in Adjusted EBITDA level is an
indicator of the Company's improved ability to service existing debt, to
sustain potential future increases in debt and to satisfy capital
requirements. Given that Adjusted EBITDA is not a measurement determined in
accordance with generally accepted accounting principles and is thus
susceptible to varying calculations, Adjusted EBITDA as presented may not
be comparable to other similarly titled measures of other companies.
(4) Adjusted EBITDA margin represents Adjusted EBITDA as calculated in
footnote (3) above as a percentage of net sales. The explanation and
cautionary statements regarding Adjusted EBITDA in footnote (3) above are
also applicable to Adjusted EBITDA margin.
(5) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before taxes plus fixed charges. Fixed
charges consist of interest expense, capitalized interest costs,
amortization of debt issuance costs and the portion of rental expense on
capital and operating leases deemed representative of the interest factor.
25
<PAGE>
GLOBE MANUFACTURING CORP.
The following unaudited pro forma financial statements (the "Pro Forma
Financial Statements") are based on the historical financial statements of the
Company included elsewhere in this Prospectus.
The unaudited pro forma statement of income for the year ended December 31,
1997 gives effect to the Transactions as if such events were consummated on
January 1, 1997. The unaudited pro forma statement of income for the nine
months ended September 30, 1998 gives effect to the Transactions as if such
events were consummated on January 1, 1998. The pro forma adjustments are
based upon available information and certain assumptions that the Company
believes are reasonable.
The Pro Forma Financial Statements do not purport to be indicative of the
results that would have been obtained had such transactions described above
occurred as of the assumed dates. In addition, the Pro Forma Financial
Statements do not purport to project the Company's results of operations for
any future date or period.
The Pro Forma Financial Statements should be read in conjunction with the
financial statements of the Company and the notes thereto, included elsewhere
herein.
26
<PAGE>
GLOBE MANUFACTURING CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
-------------------------------------
1997 Adjustments Pro forma(d)
-------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Net sales................................. $170,941 $ -- $170,941
Cost of sales............................. 115,099 -- 115,099
-------- -------- --------
Gross margin.......................... 55,842 -- 55,842
Selling, general and administrative
expenses................................. 24,381 (95)(a) 24,286
Research and development costs............ 2,633 -- 2,633
-------- -------- --------
Operating income...................... 28,828 95 28,923
Other Income/(Expense)....................
Interest................................ (3,968) (21,735)(b) (25,703)
Loss in investment in joint venture..... -- -- --
Other income, net....................... 372 -- 372
-------- -------- --------
Income before income taxes and
extraordinary items.................. 25,232 (21,640) 3,592
Provision for income taxes................ 8,383 (8,699)(c) (316)
-------- -------- --------
Income before extraordinary item...... $ 16,849 $(12,941) $ 3,908
======== ======== ========
</TABLE>
- --------
(a) Represents amortization of debt issuance costs associated with the old
credit facility.
(b) Adjustment to reflect pro forma interest expense calculated using (i)
7.94% per annum on $6,000 for the revolver; (ii) 7.94% on $60,000 for the
Term Loan A; (iii) 8.44% on $55,000 for the Term Loan B; (iv) 10.0% on
$150,000 for the Senior Subordinated Note; (v) amortization of deferred
finance charges; (vi) less capitalized interest costs of $635. As of
January 28, 1999 the applicable borrowing margin under the Senior Credit
Facility was increased by 0.75%; such increase is not included in the pro
forma adjustments (see "Recent Developments").
(c) Reflects a statutory income tax rate of 40.2% for the pro forma
adjustments.
(d) In connection with the Transaction the Company incurred a one time
compensation expense charge of $3,318 associated with the vesting of stock
options and $2,320 associated with bonuses paid to certain members of
management. Although the Company expects to charge such amounts in the
period following the transaction date, such charge is not reflected in the
accompanying pro forma financial information.
27
<PAGE>
GLOBE MANUFACTURING CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For Period Ended September 30,
----------------------------------
1998 Adjustments Pro forma
-------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Net sales................................... $133,321 $ -- $133,321
Cost of sales............................... 84,682 -- 84,682
-------- ------- --------
Gross margin............................ 48,639 -- 48,639
Selling, general and administrative
expenses................................... 19,265 (48) (a) 19,217
Research and development costs.............. 3,144 -- 3,144
-------- ------- --------
Operating income........................ 26,230 48 26,278
Other Income/(Expense)
Interest.................................. (6,143) (12,079) (b) (18,222)
Transaction compensation expense.......... (5,778) 5,778 (d) --
Other income, net......................... 647 -- 647
-------- ------- --------
Income before income taxes.............. 14,956 (6,253) 8,703
Provision for income taxes.................. 5,609 (2,514) (c) 3,095
-------- ------- --------
Income before extraordinary item............ $ 9,347 $(3,739) $ 5,608
======== ======= ========
</TABLE>
- --------
(a) Represents amortization of debt issuance costs associated with the old
credit facility.
(b) Reflects pro forma interest expense calculated using (i) 7.94% per annum
on $6,800 for the revolver; (ii) 7.94% on $60,000 for the Term Loan A;
(iii) 8.44% on $55,000 for the Term Loan B; (iv) 10.0% on $150,000 for the
Senior Subordinated Note; (v) amortization of deferred finance charges;
(vi) less capitalized interest costs of $959. As of January 28, 1999 the
applicable borrowing margin under the Senior Credit Facility was increased
by 0.75%; such increase is not included in the pro forma adjustments. See
"Recent Developments."
(c) Reflects a statutory income tax rate of 40.2% for the pro forma
adjustments.
(d) In connection with the Transaction the Company incurred a one time
compensation expense charge of $3,318 associated with the vesting of stock
options and $2,460 associated with bonuses paid to certain members of
management. Such charges are not included in the calculation of pro forma
income.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations is qualified in its entirety by, and should be read
in conjunction with, the consolidated financial statements of the Company and
related notes thereto included elsewhere in this Prospectus. This discussion
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors including, but not
limited to, those discussed in "Risk Factors," "Business" and elsewhere in
this Prospectus. The Company disclaims any obligation to update information
contained in any forward-looking statement. See "Risk Factors--Risks Regarding
Forward-Looking Statements."
Results of Operations
The following table sets forth for the periods indicated information derived
from the consolidated financial statements of income expressed as a percentage
of net sales. There can be no assurance that the trends in sales growth or
operating results will continue in the future.
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
-------------------- -------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................ 75.7% 72.5% 67.3% 67.7% 63.5%
Gross margin................................. 24.3% 27.5% 32.7% 32.3% 36.5%
Selling, general & administrative expenses... 14.4% 14.2% 14.3% 12.4% 14.4%
Research and development expenses............ 1.8% 1.7% 1.5% 1.5% 2.4%
Operating income............................. 8.1% 11.6% 16.9% 18.3% 19.7%
</TABLE>
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September
30, 1997
Net sales of the Company for the nine months ended September 30, 1998
increased $6.0 million, or 4.7%, to $133.3 million from $127.3 million for the
corresponding period in 1997. The increase in sales was primarily attributable
to a 21.5% increase in fine denier spandex fiber volume and a 4.8% increase in
average heavy denier spandex fiber price associated with a change in mix
within the Company's heavy denier product line. This sales increase has been
offset by the current economic crisis in Asia which has resulted in an influx
of fiber, fabric and apparel into Europe from Asia, resulting in a negative
impact on prices and the Company's sales in Europe. In addition, economic
difficulties in Russia have resulted in reduced demand for the Company's
products. Continued economic difficulties may precipitate further downturns in
spandex fiber consumption in all of Globe's export markets.
Gross margin of the Company for the nine months ended September 30, 1998
increased $7.5 million, or 18.3%, to $48.6 million from $41.1 million for the
corresponding period in 1997. The Company's gross margin as a percentage of
net sales increased to 36.5% for the nine months ended September 30, 1998 from
32.3% for the corresponding period in 1997. The increase in gross margin was
primarily due to a 6% reduction in fine denier spandex fiber unit costs
attained through operating efficiencies and economies of scale resulting from
increased capacity at the Company's Tuscaloosa, Alabama facility and a
favorable shift in product mix towards higher margin fine denier spandex fiber
products. Fine denier spandex fiber sales represented 54.3% of total sales in
the nine months ended September 30, 1998, compared to 48.5% in the
corresponding period in 1997.
Selling, general and administrative expenses for the Company for the nine
months ended September 30, 1998 increased $3.5 million, or 21.9%, to $19.3
million from $15.8 million for the corresponding period in 1997. Selling,
general and administrative expenses for the Company as a percentage of net
sales increased to 14.4% for the nine months ended September 30, 1998 from
12.4% in the corresponding period in 1997. The change from the previous year
was primarily due to an increase in allowances for bad debt and additional
selling expenses associated with an increased level of foreign sales.
29
<PAGE>
Research and development expenses for the Company for the nine months ended
September 30, 1998 increased $1.2 million, or 61.0%, to $3.1 million from $1.9
million for the corresponding period in 1997. Research and development
expenses for the Company as a percentage of net sales increased to 2.4% for
the nine months ended September 30, 1998 from 1.5% for the corresponding
period in 1997. The increase in research and development expense was
associated with the development of new heavy denier spandex fiber products.
Net interest expense for the Company for the nine months ended September 30,
1998 increased $3.0 million to $6.1 million from $3.1 million in the
corresponding period in 1997. The increase in interest expense was directly
attributable to the recapitalization of the Company.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales of the Company for 1997 increased $18.3 million, or 12.0%, to
$170.9 million from $152.6 million in 1996. The increase in sales was
primarily due to a 5.3% increase in the Company's average fine denier spandex
fiber prices and a 17.7% increase in fine denier spandex fiber volume. The
increase in average spandex fiber prices was primarily due to stronger market
demand, improved acceptance of the Company's products in higher-priced
markets, and cost reductions related in improved efficiencies.
Gross margin of the Company for 1997 increased $13.8 million, or 32.9%, to
$55.8 million from $42.0 million in 1996. The Company's gross margin as a
percentage of net sales increased to 32.7% in 1997 from 27.5% in 1996. The
increase in gross margin reflects a reduction in fine denier spandex fiber
unit costs attributable to economies of scale created by an increase in fine
denier spandex fiber capacity at the Company's Tuscaloosa, Alabama facility,
gains in efficiencies achieved through improved production processes and a
decline in latex raw material costs. The increase in gross margin also
reflects a favorable shift in product mix toward higher margin fine denier
spandex fiber products. Fine denier spandex fiber sales represented 49.4% of
total net sales in 1997 compared to 44.2% in 1996.
Selling, general and administrative expenses for the Company in 1997
increased $2.7 million, or 12.4%, to $24.4 million from $21.7 million in 1996.
The increase in selling, general and administrative expenses was primarily
attributable to the higher level of net sales achieved in 1997. As a
percentage of net sales, selling, general and administrative expenses
increased to 14.3% in 1997 from 14.2% in 1996.
Research and development expenses for the Company in 1997 increased $0.1
million, or 4.0%, to $2.6 million from $2.5 million in 1996. Research and
development expenses for the Company as a percentage of net sales decreased to
1.5% in 1997 from 1.7% in 1996. The decrease was primarily due to the higher
level of net sales attained in 1997.
Net interest expense for the Company in 1997 decreased $1.3 million, or
24.5%, to $4.0 million from $5.3 million in 1996. The decrease in interest
expense was primarily due to a decline in interest rates and the
capitalization of $0.5 million of interest expense in 1997 in connection with
a capital expansion project.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales of the Company for 1996 increased $24.3 million, or 18.9%, to
$152.6 million from $128.3 million in 1995. The increase in sales was
primarily due to a 56.4% increase in fine denier spandex fiber volume related
to increased manufacturing capacity.
Gross margin of the Company for 1996 increased $10.9 million, or 35.0%, to
$42.0 million from $31.1 million for the corresponding period in 1995. The
Company's gross margin as a percentage of net sales increased to 27.5% in 1996
from 24.3% in 1995. The increase in gross margin was primarily due to a
favorable shift in product mix toward higher margin fine denier spandex fiber
products. Fine denier spandex fiber sales represented 44.2% of total net sales
in 1996 compared to 34.8% in 1995. In addition, the Company's gross margin in
1995 was negatively impacted by Globe's first expansion of its Tuscaloosa
facility, which temporarily reduced manufacturing efficiencies, and by lower
average selling prices of fine denier spandex resulting from Bayer entering
the domestic market.
30
<PAGE>
Selling, general and administrative expenses for the Company in 1996
increased $3.2 million, or 17.3%, to $21.7 million from $18.5 million in 1995.
Selling, general and administrative expenses for the Company as a percentage
of net sales decreased to 14.2% in 1996 from 14.4% in 1995. The decrease in
selling, general and administrative expense as a percentage of net sales was
primarily attributable to the increase in sales noted above.
Research and development expenses for the Company in 1996 increased $0.2
million, or 8.7%, to $2.5 million from $2.3 million in 1995. Research and
development expenses for the Company as a percentage of net sales decreased to
1.7% in 1996 from 1.8% in 1995. The decrease in research and development
expense as a percentage of net sales reflects the higher level of net sales
achieved in 1996.
Net interest expense for the Company in 1996 decreased $0.7 million, or
11.7%, to $5.3 million from $6.0 million in 1995. The decrease in interest
expense was primarily due to a decrease in the average debt outstanding
throughout the year and a decline in interest rates.
The Company reported an extraordinary loss of $1.3 million, net of tax, in
1995 to reflect the write-off of unamortized deferred financing costs
associated with the restatement of its credit agreement.
Liquidity and Capital Resources
Cash provided by operating activities was $12.7 million in 1995, $21.9
million in 1996 and $20.3 million in 1997. The increase in cash provided by
operating activities for 1996 was primarily due to increases in profitability,
accounts payable, taxes payable, accrued expenses and a reduction of inventory
balances, partially offset by an increase in accounts receivable. The
reduction in cash provided by operating activities in 1997 was due to
increases in accounts receivable, inventory balances and deferred tax assets,
and a reduction in taxes payable, partially offset by an increase in
amortization of unearned compensation. For the nine months ended September 30,
1998, cash provided by operating activities was $20.6 million compared to
$10.4 million for the same period in 1997. This increase was primarily
attributable to increases in profitability, accounts payable and accrued
expenses and a reduction in inventory, partially offset by an increase in
accounts receivable. The average days' sales outstanding for accounts
receivable was approximately 44, 54 and 56 days for the years ended 1995, 1996
and 1997, respectively. Average days' sales outstanding was 56 days at
September 30, 1998. The increase in average days' sales outstanding was
primarily attributable to an increase in foreign sales, which have a longer
payment cycle than domestic sales as a result of longer shipping times and
extended credit terms required by foreign competition. Foreign sales
represented 27.5% and 31.6% of sales for the year end December 31, 1997 and
for the nine months ended September 30, 1998, respectively. Management does
not expect that the increasing days sales outstanding will have a material
impact on future results of operations and liquidity.
The Company's inventories decreased from $15.9 million at December 31, 1995
to $11.8 million at December 31, 1996. This decrease was primarily
attributable to a decrease in fine denier spandex fiber quantities and cost
aggregating to a 42%, or $2.3 million, decrease. The Company's inventory
increased from $11.8 million at December 31, 1996 to $13.8 million at December
31, 1997. This increase was primarily due to higher fine denier production
capacity and anticipated higher heavy denier sales levels. The Company's
inventories decreased from $13.2 million at September 30, 1997 to $14.8
million at September 30, 1998. This decrease was primarily due to lower fine
denier spandex thread manufacturing costs and reduced latex thread inventory.
The Company's accounts payable increased from $4.7 million at December 31,
1995 to $7.2 million at December 31, 1996. The Company's accounts payable
increased from $7.2 million at December 31, 1996 to $7.4 million at December
31, 1997. The increase in accounts payable was attributable to capital
expenditures incurred to increase fine denier spandex fiber capacity. The
Company's accounts payable increased from $6.3 million at September 30, 1997
to $8.5 million at September 30, 1998. The increase was primarily due to
capital expenditures incurred to increase fine denier capacity.
The Company has historically financed its operations and acquisitions
through a combination of internally generated funds and borrowings under its
existing credit agreement. The Company financed the construction of the
Tuscaloosa plant, as well as the subsequent expansions of the facility, under
its existing credit facilities.
31
<PAGE>
Capital expenditures were $5.8 million in 1996, $17.1 million in 1997 and
$26.3 million for the nine months ended September 30, 1998. Capital
expenditures incurred during 1996 consisted primarily of general maintenance
and process improvement expenditures, and the capital expenditures incurred
during 1997 consisted primarily of expenditures for the expansion of the
Tuscaloosa facility and general maintenance and process improvement
expenditures. The capital expenditures incurred during the first nine months
of 1998 included $19.2 million of plant expansion expenditures. The Company
anticipates that its capital expenditures for the balance of 1998 will be
approximately $10.0 million, of which $6.0 million is related to the
Tuscaloosa Plant Expansion and $1.5 million is related to the Company's new
enterprise resource planning system, which is expected to be installed in 1998
and 1999. The Company estimates that based on anticipated levels of operations
its capital expenditures will be approximately $6.0 million in each of 1999
and 2000.
The Company applied the net proceeds of the Initial Offering and the Equity
Sponsor Investment, together with borrowings under the Senior Credit Facility,
to repay all outstanding obligations under the Old Credit Facility and to pay
a dividend to Globe Holdings to permit it to pay the Cash Merger Consideration
and to pay the fees and expenses incurred in connection with the Transactions.
In connection with the Transactions, the Company also entered into the Senior
Credit Facility, which enables the Company to borrow up to $165.0 million,
subject to certain borrowing conditions. The Senior Credit Facility is fully
secured and consists of a $115.0 million term loan facility, which was fully
drawn upon the consummation of the Transactions, and a $50.0 million revolving
loan facility, $10.3 million of which was outstanding at January 28, 1999. The
revolving loan facility is available for general corporate and working capital
purposes. See "Description of Senior Credit Facility."
As a result of the Initial Offering and the other Transactions, the
Company's total debt significantly increased. Interest payments on the Notes
and under the Senior Credit Facility represent significant liquidity
requirements for the Company. The Notes require semi-annual payments and
interest on the loans under the Senior Credit Facility is due at least
quarterly.
Although there can be no assurance, the Company anticipates that its cash
flow generated from operations and borrowings under the Senior Credit Facility
will be sufficient to fund the Company's working capital needs, planned
capital expenditures, scheduled interest payments (including interest payments
on the Notes and amounts outstanding under the Senior Credit Facility) and
other cash needs for the next twelve months. However, the Company may require
additional funds if it enters into strategic alliances, acquires significant
assets or businesses or makes significant investments in furtherance of its
growth strategy. The ability of the Company to satisfy its capital
requirements will be dependent upon the future financial performance of the
Company, which in turn will be subject to general economic conditions and to
financial, business, and other factors, including factors beyond the Company's
control.
Instruments governing the Company's indebtedness, including the Senior
Credit Facility and the Indenture, contain financial and other covenants that
restrict, among other things, the Company's ability to incur additional
indebtedness, incur liens, pay dividends or make certain other restricted
payments, consummate certain asset sales, enter into certain transactions with
affiliates, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of substantially all of the
assets of the Company. Such limitations, together with the highly leveraged
nature of the Company, could limit corporate and operating activities,
including the Company's ability to respond to market conditions, to provide
for unanticipated capital investments or to take advantage of business
opportunities. See "Risk Factors--Substantial Leverage and Debt Service
Requirements."
As of January 28, 1999, in response to lower than expected earnings, the
Senior Credit Facility was amended such that (i) certain leverage ratio tests
were waived and certain covenants were amended, (ii) the interest rates on
both the term loans and revolving loans were increased and (iii) the
management fee due to an affiliate of Code Hennessy & Simmons LLC may only be
paid if certain leverage tests are met. As a result of the amendment, the
applicable borrowing margin under the Senior Credit Facility for Base Rate (as
defined in the Senior Credit Facility) borrowings increased from 1.25% to
2.00% for the Term Loan A and the Revolving Loan
32
<PAGE>
and from 1.75% to 2.50% for the Term Loan B and the applicable borrowing
margin for Eurodollar Rate (as defined in the Senior Credit Facility)
borrowings increased from 2.25% to 3.00% for the Term Loan A and the Revolving
Loan and from 2.75% to 3.50% for the Term Loan B. See "Description of the
Senior Credit Facility." This increase in interest margins will increase the
Company's interest expense by approximtely 3%, which is not expected to have a
material effect on the Company's operating results.
Impact of the Year 2000 Issue
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000.
If the Company, its significant customers or suppliers fail to make
necessary modifications and conversions on a timely basis, the year 2000 issue
could have a material adverse effect on Company operations. However, the
impact cannot be quantified at this time. The Company believes that its
competitors face similar risks.
The Company has established a corporate-wide project team to identify non-
compliant software and complete the corrections required for the year 2000
issue. The Company has completed its repairs for major manufacturing systems
in all locations. The Company also completed its repair of its major financial
systems. The Company's current target is to resolve compliance issues in its
distribution systems and other ancillary systems by March 31, 1999. The
Company also has made inquiry of its major customers and suppliers to assess
their compliance. Nevertheless, there can be no absolute assurance that there
will not be a material adverse effect on the Company if third party
governmental or business entities do not convert or replace their systems in a
timely manner and in a way that is compatible with the Company's systems.
Costs related to the year 2000 issue are funded through operating cash
flows. Through September 30, 1998, the Company expended approximately $108,000
in systems development and remediation efforts, including the cost of new
software and modifying the applicable code of existing software. The Company
estimates remaining costs to be between $50,000 and $100,000. The Company
presently believes that the total cost of achieving year 2000 compliant
systems is not expected to be material to the Company's financial condition,
liquidity or results of operations.
Time and cost estimates are based on currently available information.
Developments that could affect estimates include, but are not limited to, the
availability and cost of trained personnel, the ability to locate and correct
all relevant computer code and systems and remediation success of the
Company's customers and suppliers.
Inflation
The Company does not believe that inflation has had any material effect on
the Company's business over the past three years.
Impact of New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("Statement 130"), which establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Statement 130 is effective for fiscal years
beginning after December 15, 1997. Disclosure of total comprehensive income is
required in interim period financial statements. Management does not believe
that comprehensive income for prior periods will differ significantly from net
income in those periods.
In June, 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("Statement 131"), which is effective for years beginning after December 15,
1997. However, Statement 131 need not be applied to interim financial
statements in the
33
<PAGE>
initial year of application. Statement 131 establishes standards for the way
that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and
services, geographic areas, and major customers. Since Statement 131 is
effective for financial statements for fiscal years beginning after December
15, 1997, the Company will adopt the new requirements retroactively in 1998.
Management has not yet determined the impact Statement 131 will have on
disclosures of the Company's reported segments.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits ("Statement 132"), that revises disclosure
requirements of FASB Statements No. 87, Employers' Accounting for Pensions,
and No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions. Statement 132 is effective for fiscal years beginning after December
15, 1997. The Statement does not change the recognition or measurement of
pension or post-retirement benefit plans, but standardizes disclosure
requirements for pensions and other post-retirement benefits, eliminates
certain disclosures and requires additional information. Management does not
anticipate that the adoption of Statement 132 will have a material impact on
its financial position or the results of its operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and for Hedging Activities
("Statement 133"). Statement 133 is effective for years beginning after June
15, 1999. Statement 133 provides a comprehensive and consistent standard for
the recognition and measurement of derivatives and hedging activities.
Management does not anticipate that the adoption of Statement 133 will have a
material impact on its financial position or the results of its operations.
34
<PAGE>
BUSINESS
Overview
Globe is a leading domestic manufacturer and worldwide supplier of spandex
and latex elastomeric fibers, marketing its products to more than 500
customers. The Company's fibers are used in a broad range of applications,
including men's and women's hosiery, waistbands, intimate apparel, performance
athletic wear, swimwear, casual wear, suiting fabrics, body shaping (or
foundation) garments, personal care products (including diapers and adult
incontinence products) and footwear. The Company has produced elastomeric
fibers exclusively for over 50 years and has developed long-term relationships
with many of its principal customers, including Fruit of the Loom, Inc.,
Kimberly-Clark Corporation, Minnesota Mining & Manufacturing Company, Sara Lee
Hosiery, Unifi, Inc. and Worldtex, Inc. These customers in the aggregate
contributed approximately 25.4% of total revenue during the 1997 fiscal year.
During the twelve months ended September 30, 1998, the Company had net sales
of $177.0 million, Adjusted EBITDA of $46.7 million and net income of $13.4
million. See Summary Consolidated Financial Data, footnotes 3 and 5.
Spandex fiber, which accounted for 80% of the Company's 1997 sales, is a
highly desirable component of fabrics designed for performance, durability,
comfort, control and resilience due to its unique chemical and physical
properties. Spandex fiber is produced in a broad range of fine and heavy
deniers and is sold on a private label basis and under brand names such as the
Company's GLOSPAN(R) and CLEERSPAN(R), DuPont's Lycra(R) and Bayer's
Dorlastan(R). Recent advances in manufacturing technologies have facilitated
the use of spandex fiber in an increasing number of apparel and non-apparel
applications. Globe has benefited from this recent proliferation of spandex
fiber applications due to its exclusive focus on elastomeric fibers, superior
customer service, broad product line, strong market position and efficient
manufacturing processes.
Based on management's knowledge and experience in the industry, management
estimates that in 1997 the worldwide market for spandex fiber was
approximately 240 million pounds, representing approximately $2.0 billion in
sales. From 1993 to 1997, worldwide sales of spandex fiber increased at an
estimated 11% compound annual growth rate, and the worldwide spandex fiber
market is expected to grow at approximately 9% over the next three years.
Since 1993, demand for fine denier spandex has increased faster than the
overall market due to its growing use in lightweight and high quality apparel
applications and this trend is expected to continue.
The Company operates three manufacturing facilities, which are located in
Fall River, Massachusetts, Tuscaloosa, Alabama and Gastonia, North Carolina.
Since 1993, Globe has invested $97.5 million to increase manufacturing
capacity, enhance productivity and shift its product mix to the faster
growing, higher margin fine denier spandex fiber. During this period, the
Company's annual fine denier spandex fiber production capacity increased from
2.6 million to 10.6 million pounds. As a result of the Company's capital
investment program and continuous improvement initiatives in its manufacturing
facilities, Globe's fine denier spandex fiber production yields have improved
by 35%, and sales per employee have increased by 43% since 1993.
Tuscaloosa Plant Expansion
Globe is expanding production capacity at its Tuscaloosa, Alabama fine
denier spandex fiber manufacturing facility in response to existing demand
from current customers. Through September 30, 1998, Globe had spent
approximately $19.2 million of the estimated $22.1 million project cost. The
Tuscaloosa facility, built in 1994, has undergone three prior capacity
expansions. The Tuscaloosa Plant Expansion will increase the Company's fine
denier manufacturing capacity by 3.6 million pounds per annum, or 34%, with
approximately half of this increased capacity expected to be on line in the
fourth quarter of 1998 and the balance expected to be on line in the first
quarter of 1999. As of September 30, 1998, Globe's list price for 40 denier
spandex fiber, the primary product produced at the Company's Tuscaloosa
facility, was $12.99 per pound.
Competitive Strengths
The Company's exclusive focus on elastomeric fibers for over 50 years has
enabled it to develop the following competitive strengths:
35
<PAGE>
Long-Term Customer Relationships and Superior Customer Service. Globe has
established long-term relationships with its principal customers by focusing
on superior technical and customer service. The Company has been a supplier to
Fruit of the Loom, Inc., Kimberly-Clark Corporation, Minnesota Mining and
Manufacturing Company, Sara Lee Hosiery, Unifi, Inc. and Worldtex, Inc. for
over ten years. Seven of the Company's ten largest customers have selected
Globe as their preferred supplier of spandex fiber. Globe provides analytical
laboratory services and on-site technical assistance to improve customers'
manufacturing and engineering processes. As a result, a number of the
Company's major customers have selected it as a technology partner to assist
in the development of new spandex applications.
Broad Product Line. The Company believes that it offers the broadest line of
spandex and latex elastomeric fibers in the world. The Company produces a full
line of spandex fibers in deniers ranging from 15 to 5040. These products
feature an assortment of stretch, strength and other performance
characteristics that may be customized for specific applications and
manufacturing processes. Globe also manufactures a wide variety of latex
threads in multiple gauges and formulations. This broad range of product
offerings differentiates the Company in the industry and represents a
competitive advantage, as many customers purchase multiple deniers of spandex
fiber, as well as various gauges of latex thread, and prefer to utilize one
vendor for their elastomeric fiber requirements. The proprietary technologies
and customized equipment used by Globe in its multiple manufacturing processes
enable the Company to cost-effectively produce this broad product line.
Strong Positions in Growing Markets. The Company has established a strong
market position in each of its principal product lines. The Company has an
estimated 16% share of the domestic spandex fiber market and an estimated 7%
share of the worldwide spandex fiber market (based on pounds produced).
Management estimates that worldwide sales of spandex fiber will increase at a
compound annual growth rate of approximately 9% over the next three years and
that fine denier spandex sales will exceed the overall market growth rate
during this period. Fine denier spandex demand has been driven by strong
consumer demand for lightweight and high quality apparel and technological
advances allowing for the use of spandex fibers in the manufacture of such
apparel.
Cost-Efficient Manufacturing. Management believes that the Company's
manufacturing operations are among the most efficient in the industry,
allowing the Company to become one of the world's lowest cost producers of
high quality spandex fiber. Globe has developed proprietary chemical
formulations and highly efficient manufacturing processes that utilize
sophisticated process control systems and custom fabricated manufacturing
equipment designed and built by the Company's engineers. Management believes
that Globe's in-house capability to design, engineer and build its own
manufacturing equipment distinguishes the Company from many of its competitors
and provides it with an important competitive advantage in maintaining product
quality as well as controlling design, development and maintenance costs. In
addition, increased production volume at the Company's facilities has enabled
the Company to achieve significant economies of scale and raw material
purchasing power.
Experienced Management Team. The Company is led by an experienced management
team with a track record of achieving profitable growth, developing new
manufacturing processes and expanding the Company's customer base. Between
1993 and the twelve months ended September 30, 1998, the Company's net sales
increased from $107.6 million to $177.0 million, Adjusted EBITDA increased
from $23.7 million to $46.7 million and net income increased from $9.2 million
to $13.4 million. See Summary Consolidated Financial Data, footnotes 3 and 5.
The Company's executive officers average approximately 20 years with the
Company. The Company's senior management team has a substantial financial
interest in the Company's continued success through their direct investment in
Globe Holdings.
Business Strategy
The Company's business objective is to become the leading global supplier of
elastomeric fiber for use in selected apparel and non-apparel markets. The
Company seeks to achieve this objective by pursuing the following strategies:
Continue Shift in Product Mix to Higher Growth, More Profitable Fine Denier
Products. Since 1993, Globe has expanded its annual production capacity of
higher growth fine denier spandex fiber from 2.6 million to 10.6
36
<PAGE>
million pounds. Fine denier spandex fiber is used in applications requiring
lightweight or high quality fabric, and has been generally more profitable
than heavy denier spandex fiber due to the complexity of the manufacturing
process required and strong market demand. Fine denier spandex fiber sales
accounted for approximately 49% of Globe's 1997 total sales, up from 25% in
1993. The Tuscaloosa Plant Expansion, which will increase the Company's annual
production capacity for fine denier spandex fiber to 14.2 million pounds, will
enable the Company to further address the increase in demand for fine denier
spandex fiber.
Develop Innovative Spandex Fiber Applications. Globe's product managers and
research and development engineers work closely with existing and prospective
customers to develop innovative applications for spandex fiber. For example,
the Company worked with a fleece manufacturer for over two years to develop a
new four-way stretch fleece product for outerwear that incorporates Globe's
spandex fiber. Cooperative efforts such as this have enabled Globe to enhance
its relationships with existing customers and attract new customers.
Improve Manufacturing Productivity; Reduce Production Costs. The Company
seeks to continually improve manufacturing efficiency and reduce production
costs in order to maintain its position as one of the world's lowest cost
producers of high quality spandex fiber. The Company seeks to improve
manufacturing yields, increase equipment utilization, and reduce production
costs by upgrading process monitoring equipment, enhancing production
processes and increasing throughput. Each of the Company's manufacturing
facilities is certified under ISO 9001, and the Company actively incorporates
the principles of continuous improvement.
Increase International Sales. Globe estimates that the international market
accounts for two-thirds of the worldwide spandex fiber market. International
spandex fiber markets are growing rapidly due to increasing consumerism of the
world's population, coupled with increases in personal disposable income. From
1993 to 1997, Globe's international sales increased from 19% of sales to 28%
of sales (primarily in western Europe and Latin America) as the Company
expanded the size and geographic scope of its international sales to 46
countries. The Company seeks to further expand its international sales by
leveraging its existing sales and marketing infrastructure and capitalizing on
Globe's expanded manufacturing capacity.
Industry Overview
The Company competes primarily in the worldwide market for spandex fiber and
the domestic market for latex thread.
Spandex Fiber
The worldwide spandex fiber industry has experienced significant growth in
recent years. First developed in the early 1960s, spandex fiber has repeatable
stretch and recovery capabilities, end-to-end uniformity, and unlike most
other elastomeric fibers, is resistant to breakdown from exposure to
oxidation, ozone, light, solvents, body oils, and perspiration. In addition,
advances in polymer chemistry and manufacturing technology have allowed
manufacturers to produce increasingly finer elastomeric fibers. These
production advances and the physical characteristics of spandex fiber have
made spandex fiber a highly desirable component of an increasing number of
applications.
As the production capabilities of spandex fiber suppliers have improved,
fabric manufacturers have also developed new processes that have allowed them
to integrate spandex fiber into a number of new applications. Traditionally,
manufacturers of circular knit fabrics were unable to use spandex fiber in the
manufacturing process unless the spandex fiber had been covered with another
fiber, such as cotton or nylon. Recently, new technologies enabling
manufacturers to knit uncovered spandex fibers have spurred an increased use
of spandex fiber in sheer, lightweight circular knit products.
Suppliers of spandex fiber such as the Company generally target six end-use
markets for their fibers: circular knits (which includes product applications
such as active wear, swimwear and casual wear); hosiery; nonwovens (personal
care products such as diapers); narrow fabrics (waistbands and straps); warp
knits (intimate apparel and body shaping garments); and stretch wovens.
Stretch wovens include fabrics that are used in men's suits and
37
<PAGE>
pants, as well as other new applications, and this segment represents a growth
opportunity for industry participants such as Globe.
Management estimates that in 1997 the worldwide market for spandex fiber was
approximately 240 million pounds, representing approximately $2.0 billion in
sales. From 1993 to 1997, worldwide sales of spandex fiber increased at an
estimated 11% compound annual growth rate, and the worldwide spandex fiber
market is projected to grow at a compound annual growth rate of approximately
9% over the next three years. Since 1993, demand for fine denier spandex fiber
has increased faster than the overall market due to its growing use in
lightweight and high quality apparel applications and this trend is expected
to continue. Currently, approximately 61% of spandex fiber consumption occurs
in the major industrialized regions, including the U.S., Japan, and western
Europe. International spandex fiber markets are growing rapidly due to
increasing consumerism of the world's population, coupled with increases in
personal disposable income.
Spandex fiber is currently produced throughout the world. Management
estimates that there are approximately 16 spandex fiber manufacturers in the
world, with the top 5 manufacturers accounting for approximately 77% of the
worldwide market. These manufacturers are expected to increase capacity to
meet anticipated demand and maintain their respective market shares.
Latex Thread
The Company estimates that in 1997 the U.S. market for extruded latex thread
was approximately 35 million pounds. The primary markets include men's
hosiery, narrow fabrics and fused tapes. Fine gauges of latex thread are
typically used in men's hosiery. Medium and heavy gauges are used in narrow
fabrics and fused tapes. Fused tapes are used for face masks and insert
elastics. The Company produces a heat resistant latex thread which resists
degradation caused by repeated household laundry drying cycles.
Products and Customers
Products
The Company develops, manufactures and sells spandex and latex elastomeric
fibers. The Company's products include fine denier spandex fiber (15 to 140
denier), heavier denier spandex fiber (184 to 5040 denier), and latex thread
in a variety of gauges. Spandex fiber accounted for 80% of the Company's sales
in 1997, and latex thread accounted for the remaining 20%.
Spandex Fiber. The unique chemical and physical properties of spandex fiber
make it a desirable component of fabrics designed for performance, durability,
comfort, control and resilience. Spandex fiber, produced from polyether or
polyester, has repeatable stretch and recovery capabilities, end-to-end
uniformity, and unlike most other elastomeric fibers, is resistant to
breakdown from exposure to oxidation, ozone, light, solvents, body oils and
perspiration. Such properties, together with the wide range of available
deniers, make spandex fiber suitable for a broad range of applications,
including men's and women's hosiery, waistbands, intimate apparel, performance
athletic wear, swimwear, casual wear, suiting fabrics, body shaping (or
foundation) garments, personal care products (including diapers and adult
incontinence products) and footwear. Spandex fiber can be made in deniers much
finer than alternative elastomeric fibers while retaining uniform physical
properties, and can be heat set in finishing, thereby allowing manufacturers
to create ultra sheer and lightweight, yet highly elastic fabrics. Although
spandex fiber typically accounts for a small percentage of the total fiber in
an application (ranging from 2% in men's suits to 40% in women's foundation
garments), it can be used to enhance the performance of an increasing number
of apparel and non-apparel products.
Latex Thread. The Company's first product was latex thread. Extruded latex
thread, which is round, was developed in the 1940's to replace cut rubber
thread, which was square and limited in size and usage. Finer gauge latex
thread is used in men's hosiery and athletic socks. Mid-range gauges are
typically used for narrow fabrics, such as waistbands, straps and insert
elastics, and for specialty products and medical garments. Coarse gauge latex
thread is also used for narrow fabrics and in specialty products. The Company
has engineered various latex thread compound formulations in response to
market needs for high-strength, chemical and heat resistance, and durability,
and the Company believes opportunities exist for additional uses for latex
thread.
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<PAGE>
The Company's products have historically been sold to a variety of customers
in five end-markets: circular knits, hosiery, nonwovens, narrow fabrics and
warp knits. In addition, the Company has recently begun selling products to
the stretch woven market for use in suiting fabrics and outerwear linings. The
following table lists the Company's principal product lines, applications for
these products, the fiber utilized in the products, and representative
customers.
<TABLE>
<CAPTION>
End Market and
Percentage of Representative
1997 Sales Product Applications Fiber Utilized Customers
-------------- ------------------------------ ----------------- --------------
<C> <C> <C> <S>
Hosiery Women's sheer hosiery 10-560 denier Unifi, Inc.
36% of sales Men's hosiery spandex fiber; Sara Lee Ho-
Athletic socks fine gauge latex siery
thread Kayser Roth
Hosiery, Inc.
McMichael
Mills, Inc.
Worldtex, Inc.
Tanofil A.G.
Golden Lady
S.P.A.
Americal Cor-
poration
Pennaco Ho-
siery, Inc.
Circular Knits Active wear 20-105 denier C.K.M. Indus-
35% of sales Swimwear spandex fiber tries, Inc.
Casual wear Textivision,
Dress wear SA de CV
Cotton athletic wear Tanofil,
A.G./Karl Na-
gele GmbH &
Co. K.G.
Texere 2000
Inc.
Elatex--D&S
International
Taiwan
Narrow Fabrics Waistband elastics 280-5040 denier Fruit of the
16% of sales Straps spandex fiber; Loom, Inc.
Insert elastics 22-50 gauge Asheboro Elas-
Accent laces latex thread tic Corp.
Hanes Mens-
wear, Inc.
Beech Island
Knitting Co.
North East
Knitting, Inc.
Sun Hing
Elastics &
Lace Flat A.C.
Nonwovens Diapers 280-1400 denier Kimberly-Clark
8% of sales Adult incontinence products spandex fiber; Corporation
Feminine hygiene products 30-50 gauge latex Minnesota Min-
Medical bandages thread ing & Manufac-
Industrial protective clothing turing Com-
pany
Paragon Trade
Brands, Inc.
Warp Knits Intimate apparel 20-560 denier Guilford Mills
5% of sales Body shaping garments spandex fiber Inc.
Swimwear The Moore Com-
Footwear pany, Inc.--
Darlington
Fabrics Divi-
sion
Liberty Fab-
rics, Inc.
Charbert Divi-
sion of NFA
Corp.-- Alton
Operating
Corp.
</TABLE>
The Company has historically maintained a strong position in the hosiery and
narrow fabrics markets. Based on management's knowledge and experience in the
industry, management estimates that Globe's spandex fibers are utilized in the
waistband of over 90% of the pantyhose sold in the United States. In addition,
the Company believes it is the leading domestic supplier of latex thread for
men's dress hosiery and men's underwear waistbands.
Fine denier spandex fiber accounted for approximately 49% of the Company's
total 1997 sales, up from 25% in 1993. Based on current market demand for
products which utilize lightweight or high quality fabrics, the Company
believes that fine denier products manufactured for the circular knit, warp
knit and stretch woven markets will represent an increasing percentage of
Globe's sales.
Customers
The Company sells its products to a diverse customer base of intermediate
and end-use manufacturers. Intermediate users of the Company's products, which
include Unifi, Inc., C.K.M. Industries, Inc. and Worldtex, Inc., cover the
elastomeric fibers with other materials, and then either sell them to another
manufacturer or knit or weave them. The Company's end-use customers, which
include Fruit of the Loom, Inc., Sara Lee Hosiery,
39
<PAGE>
Hanes Menswear, Inc., and Kayser-Roth Corporation (manufacturer of No Nonsense
pantyhose), produce finished goods from the elastomeric fibers supplied by the
Company. Most of the Company's customers rely on sophisticated technologies
and production techniques to manufacture products of which the Company's
fibers are a significant value-added component. These customers typically
operate high speed, high volume production lines. In order to run their
production lines efficiently and avoid costly line stoppages, customers rely
on the Company's ability to provide reliable, on time delivery of high quality
products. A number of the Company's customers have selected Globe as a
preferred supplier of elastomeric fiber.
Globe markets its products to over 500 customers. The Company's top ten
customers accounted for approximately 48% of 1997 sales, with sales to Unifi,
Inc., a manufacturer of covered yarns for men's and women's hosiery and for
narrow fabrics, accounting for approximately 9% of 1997 sales. Export sales
represented approximately 28% of the Company's total sales in 1997. See Note 1
to the Company's Consolidated Financial Statements. As is customary in the
industry, the Company generally does not have long-term supply agreements with
its customers.
Sales and Marketing
Globe's sales and marketing functions are organized into three product
lines: hosiery/narrow fabrics; wide fabrics (including circular knits, warp
knits, stretch wovens); and nonwovens. Each product line requires different
technical expertise and is the responsibility of one of the Company's product
managers. Management believes that organizing its sales and marketing team by
product line is the most efficient and effective way to develop and maintain
customer relationships, to stay abreast of technical and other developments
that may result in changing customer or consumer preferences and to take
advantage of new business opportunities.
The Company markets and sells its products under the direction of three
product managers who are supported by an extensive organization comprised of
26 individuals, including key account managers, inside sales staff, field
sales personnel, and technical service and customer service personnel. By
providing dedicated support to key customers, the Company believes it can
better support these larger customers, who, in many cases, have a variety of
different product application or production requirements. Domestic sales are
handled primarily by the Company's internal sales organization. International
sales activity is coordinated by a senior manager and supported by a dedicated
customer service staff. The Company sells its products internationally through
35 commissioned agents or authorized distributors, covering 46 countries.
Technical service is an integral part of Globe's sales and marketing efforts
and includes providing product testing analysis of fabric composition at the
Company's laboratories, assisting customers with the integration of Globe's
products into the customer's production process and the development of methods
to enhance a customer's products through the incorporation of the Company's
elastomeric fibers. The Company's sales and marketing organization regularly
provides market feedback to Globe's research and development teams. The
Company believes this high level of service has been instrumental in retaining
and attracting customers.
Globe sells spandex fiber under its GLOSPAN(R) and CLEERSPAN(R) brand names.
The Company does not require customers to co-brand their fabrics or products
with its brand name. The Company believes that this marketing strategy is
attractive for customers who seek to build their own brand identity and desire
flexibility in sourcing their spandex fiber requirements.
Competition
Spandex Fiber. The Company competes in the spandex fiber markets primarily
on the basis of product quality, service, price and product innovation. The
Company competes in the spandex fiber market primarily with DuPont and Bayer,
both of which have domestic facilities, and with a number of foreign
competitors. Some of the Company's competitors have substantially greater
financial, marketing, manufacturing, distribution, sales and support
resources, market share and brand awareness than the Company. The Company
seeks to differentiate its product offerings by providing a high level of
technical and customer service, and believes that DuPont and Bayer are the
only other major spandex fiber suppliers that provide similar levels of
technical and customer service.
40
<PAGE>
Despite significant growth in demand for spandex fiber since 1990, the
number of spandex fiber manufacturers has remained relatively constant
primarily due to the technological expertise required to produce spandex fiber
and the substantial capital requirements to establish a spandex fiber
manufacturing facility. Because spandex fiber production is not labor-
intensive, the Company believes that the availability of low-cost unskilled
labor does not provide foreign manufacturers with a significant competitive
advantage.
Latex Thread. The Company competes in the latex thread market on the basis
of product quality, product variety and price. The Company focuses its latex
thread product marketing efforts on high quality and specialty latex thread,
which requires high levels of customer support. The Company believes that its
customer service and product quality, and its ability to respond to the just-
in-time inventory needs of domestic customers, permit it to compete
effectively with foreign latex thread manufacturers. The Company's primary
competitors in the latex thread markets are foreign producers. See "Risk
Factors--Competition."
Suppliers
During 1997, raw materials represented 42% of the Company's total cost of
sales and 28% of net sales. The primary raw materials used by the Company are
polytetramethylene ether glycol, which the Company purchases from BASF, and
polyester resin, which the Company purchases from two suppliers. These
materials are used in a wide variety of products, and based on its experience,
management believes that adequate quantities of these materials will be
available from existing or alternative suppliers in the foreseeable future.
The Company's ten largest suppliers accounted for approximately 93% of its
total raw material purchases and 31% of its total cost of sales in 1997, with
BASF, Polyurethane Specialties Corp. and Ennar Latex, Inc. accounting for 39%,
24% and 16% of such raw material purchases, respectively. The prices for the
Company's raw materials have generally been stable over the past five years,
although there can be no assurance that they will not fluctuate in the future.
See "Risk Factors--Dependence on Suppliers."
Intellectual Property
The Company utilizes a variety of proprietary technology in its
manufacturing processes. In addition to its proprietary technology, management
believes that the Company's research, development and engineering skills, as
well as its technical know-how, are significant to the Company's business.
Much of the Company's technology is not patented. The Company relies primarily
on intellectual property laws, confidentiality procedures and contractual
provisions to protect its intellectual property. The Company seeks to protect
the majority of its technology under trade secret laws, which afford only
limited protection. See "Risk Factors--Protection of Intellectual Property."
The Company owns certain brand names and trademarks used in its business,
including GLOSPAN(R) and CLEERSPAN(R).
Manufacturing
General. The Company utilizes multiple manufacturing processes that allow it
to cost-effectively produce a broad range of elastomeric fibers. The Company
utilizes real-time control and monitoring systems that continuously monitor
key process variables using a sophisticated closed loop system of computers,
sensors and custom software.
Spandex Fiber. The Company produces spandex fiber in a wide variety of
deniers, using dry-spin and reaction spin processes. Typically, spandex fiber
of heavier deniers is produced by the reaction spin process, while fine denier
threads are produced by the dry-spin process.
In 1985, the Company began commercial production of fine denier spandex
fiber using a dry-spin, polyether-based process at its Fall River facility.
Fine denier fiber production is a continuous process accomplished by vertical
spinning of the polymer from the top of a production cell to the bottom, where
the chamber is heated and filled with nitrogen in order to strip the solvent
from the fiber. The solvent is removed from the cell chamber as a gas,
recovered and recycled in a separate process. The process is monitored and
41
<PAGE>
controlled by a state-of-the-art computer system developed specifically for
the Company. The Company produces fine denier spandex fiber using the dry-spin
process at its facilities in Fall River, Massachusetts and Tuscaloosa,
Alabama, and currently has the capacity to produce 10.6 million pounds of fine
denier spandex fiber annually using the dry-spin process. The Company's dry-
spin operations run 24 hours a day, 7 days a week, 52 weeks a year.
The Company believes that it is the only manufacturer of spandex fiber using
the reaction spin process, which is based on technology proprietary to the
Company. The process begins with the preparation of the prepolymer which is
transported to an extruder, where it is processed through pumps and filters.
The resulting pressure forces the prepolymer through a series of tubes and
spinerettes, which distribute the prepolymer into a spinning tank where the
chemical reaction which gives the fiber its elasticity occurs and the fibers
are formed. The fibers are heated, cured and dried in ovens and then cooled,
lubricated and spooled for shipment. In some cases, the Company uses a
proprietary process which permits the Company to deliver the fiber in "knit-
tape" form, which facilitates its use for certain customers. The Company
conducts reaction spin production at its Fall River, Massachusetts, and
Gastonia, North Carolina facilities. It currently has the capacity to produce
13.4 million pounds of heavy denier spandex fiber annually using the reaction
spin process.
Latex Thread. The Company manufactures latex thread through a batch process
which begins with the combination of latex (a natural rubber material) and
various base chemicals. This compound is matured, heated and fed to extruders,
where it is pumped through a series of filters and distributed separately out
of a group of capillaries. These capillaries produce latex thread which is
then moved through an acid bath reservoir before being washed, dried and
cured. At the end of the extruder, the fibers are combined into ribbons of
various counts depending on customer needs. The Company produces latex thread
at its Fall River, Massachusetts facility, and currently has the capacity to
produce 11.0 million pounds of latex thread annually.
Facilities
The following table sets forth certain information with respect to the
Company's principal facilities.
<TABLE>
<CAPTION>
Square
Location Footage Owned/Leased Principal Function
-------- ------- ------------ --------------------------
<S> <C> <C> <C>
Fall River, Massachusetts... 375,000 Owned Headquarters
Fine denier spandex fiber
Heavy denier spandex fiber
Latex thread
Gastonia, North Carolina.... 180,000 Owned Heavy denier spandex fiber
80,000 Owned Distribution center
10,000 Leased Warehouse
Tuscaloosa, Alabama......... 157,000 Owned Fine denier spandex fiber
Rancho Dominguez, 15,000 Leased Warehouse
California.................
</TABLE>
The Company believes that its facilities are adequate and suitable for the
purposes for which they are utilized by the Company. The Company is currently
expanding production capacity at its Tuscaloosa, Alabama fine denier spandex
fiber manufacturing facility in response to existing demand from current
customers. See "--Tuscaloosa Plant Expansion."
Employees
As of September 30, 1998, the Company had approximately 900 employees. Of
these, approximately 175 are salaried employees and 725 are hourly workers. Of
the approximately 175 salaried employees, 60 perform manufacturing functions,
50 are technical employees, 25 perform sales and marketing functions and 40
perform administrative functions. None of the Company's employees are covered
by a collective bargaining agreement. The Company believes its relationships
with its employees are good.
42
<PAGE>
Environmental, Health and Safety Matters
The Company is subject to stringent environmental, health and safety
requirements, including laws and regulations relating to air emissions,
wastewater management, the handling and disposal of waste and the cleanup of
properties affected by hazardous substances. The Company's management believes
that its operations have been and are in substantial compliance with
environmental, health and safety requirements, and that it has no liabilities
arising under such requirements, except as would not be expected to have a
material adverse effect on the Company's operations, financial condition or
competitive position.
During 1996 and 1997, respectively, the Company spent approximately $0.3
million and $0.9 million on environmental, health and safety compliance
activities at its three operating locations. The Company estimates that
approximately $1.0 million will be spent in 1998 on such activities, including
efforts to resolve pending compliance issues relating to air emissions and
wastewater discharges from the Company's Fall River, Massachusetts facility.
Although the Company's management believes its estimate of 1998 costs to be
reasonable, there can be no assurances that actual expenditures will not
exceed the estimated amount.
Since 1986, the Company has received requests for information and related
correspondence from the U.S. EPA and other third parties indicating that the
Company might be responsible under CERCLA or Superfund laws for costs
associated with the investigation and cleanup of ten contaminated sites. The
Company's management believes that the Company has resolved its involvement
with respect to eight of these sites (five of which were inter-related) since
1988 and that the Company's involvement in matters arising under the Superfund
laws will not have a material adverse effect on the Company's operations,
liquidity or financial condition.
In December 1996, the Company's management learned that the U.S. EPA and the
U.S. Attorney's Office were conducting an investigation into whether the
Company had engaged in criminal violations of environmental laws with respect
to its Fall River, Massachusetts facility. The investigators have not informed
the Company of the scope of their inquiry. The Company has provided certain
information regarding its Fall River operations to the federal investigators
and believes it has cooperated fully with their inquiry. The Company does not
know whether the investigation is currently active. If the Company is charged
with violations of environmental laws, it may be subject to substantial fines
and other penalties. Based on the Company's discussions with the investigators
and the results of the Company's internal investigation of this matter, the
Company's management does not believe that the investigation will result in
any monetary or other penalties that would have a material adverse effect on
the Company's financial condition, results of operations or ability to meet
its obligations under the Notes. The Merger Agreement provides that the
Indemnification Escrow Fund will be available to indemnify the Company from,
among other items, any liabilities arising out of this investigation to the
extent related to the activities of the Company prior to the Merger. This
indemnity expires on December 31, 2001. See "Certain Relationships and Related
Transactions--Recapitalization" and "Risk Factors--Environmental Compliance."
Legal Proceedings
In April 1997 two domestic purchasers of extruded latex thread filed a
complaint against a number of foreign manufacturers and distributors of such
thread, including an Indonesian limited liability company in which Globe
Holdings then owned a 40% interest (the "Joint Venture"). The complaint
alleges an international conspiracy to restrain trade in, and fix prices of,
the thread in the U.S. Neither the Company nor Globe Holdings has been named
as a defendant in the case. The Joint Venture has alleged in its motion to
dismiss that not all parties to the conspiracy have been joined. There can be
no assurance that the Company will not be named in the future. The Merger
Agreement provides that the Indemnification Escrow Fund will be available to
indemnify the Company from, among other items, any liabilities arising out of
any criminal or civil antitrust claims or investigations resulting from the
above-described proceedings to the extent related to the Company's activities
prior to the Merger. This indemnity expires on December 31, 2001.
On March 31, 1998 a petition was filed with the U.S. Department of Commerce
alleging subsidization and dumping of Indonesian extruded latex thread. The
Department of Commerce is currently conducting an
43
<PAGE>
investigation into the allegations. The proceedings could result in additional
duties being levied on extruded latex thread imported from Indonesia. During
1996 and 1997, the Company purchased approximately $5.9 million and $9.9
million of latex thread from the Joint Venture for resale in the North
American market.
From time to time, the Company has been and is involved in various legal
proceedings, all of which management believes are routine in nature and
generally incidental to the conduct of its business. The ultimate legal and
financial liability of the Company with respect to such proceedings cannot be
estimated with certainty, but the Company believes, based on its examination
of such matters, that none of such proceedings, if determined adversely to the
Company, would have a material adverse effect on the Company's results of
operations, financial condition and its ability to meet its obligations under
the Notes.
44
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company, and their ages as of
July 14, 1998 are set forth below:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Thomas A. Rodgers, Jr... 84 Chairman
Thomas A. Rodgers, III.. 53 President and Chief Executive Officer, Director
Lawrence R. Walsh....... 46 Vice President, Finance and Administration
Americo Reis............ 64 Vice President, Operations
Robert L. Bailey........ 60 Vice President, Sales and Marketing
William J. Girrier...... 42 Director of Marketing and Business Development
Kevin T. Cardullo....... 38 Director of Finance and Accounting
Andrew W. Code.......... 39 Director
Peter M. Gotsch......... 34 Director
Edward M. Lhee.......... 28 Director
</TABLE>
The present principal occupations and recent employment history of each of
the executive officers and directors of the Company listed above are set forth
below.
Thomas A. Rodgers, Jr., co-founded Globe Holdings in 1945. He has served as
Chairman since 1945, and served as President from 1945 to 1992.
Thomas A. Rodgers, III, is the son of Thomas A. Rodgers, Jr., and has served
as President of the Company since 1992. He served as the Executive Vice
President and Chief Operating Officer of the Company from 1985 to 1992. Mr.
Rodgers joined the Company in 1968. Mr. Rodgers has been a Director of the
Company since 1972.
Lawrence R. Walsh has served as Vice President, Finance and Administration
of the Company since 1982. From 1976 to 1982, he was employed by Smith
Precious Metals Co.
Americo Reis joined the Company in 1959, and has served as the Company's
Vice President, Operations since 1982. From 1957 to 1959, he served in the
U.S. Army and from 1954 to 1957, he was employed by Goodyear Tire & Rubber Co.
Robert L. Bailey has served as the Company's Vice President, Sales and
Marketing since he joined the Company in 1979. From 1972 to 1979, he served as
Vice President of Sales for the Yarn Division of Texfi Industries, Inc., and
from 1967 to 1972 was Vice President of Sales for Intercontinental Fibers.
William J. Girrier has been with the Company since 1990, first as Marketing
Manager and then as Director of Marketing and Business Development. From 1987
to 1990, he was an Associate Manager of The Robbins Group, a commercial real
estate development company. From 1978 to 1987, he served as a Naval Officer in
various command and staff positions at the Pentagon and onboard warships.
Kevin T. Cardullo has served as the Company's Director of Finance and
Accounting since 1992. He is a Certified Public Accountant, and worked as a
Senior Manager with Ernst & Young from 1986 to 1992. Mr. Cardullo was with
Coopers & Lybrand from 1983 to 1986.
Andrew W. Code is a Partner of Code Hennessy & Simmons LLC ("CHS"), which
manages three private equity funds, including Code, Hennessy & Simmons III,
L.P. Since founding the first such fund in 1988, Mr. Code has been actively
involved in the investment organization and investment management activities
of CHS. Mr. Code was a Vice President with Citicorp's Leveraged Capital Group
from 1986 to 1988, and prior to 1986 he was employed by American National
Bank. He is a director of SCP Pool Corporation, a distributor of swimming pool
supplies.
45
<PAGE>
Peter M. Gotsch has been a Partner of CHS since 1997, and has been employed
by CHS and its affiliates since 1989. From 1987 to 1989, Mr. Gotsch was a
Corporate Banking Officer at The First National Bank of Chicago, N.A. He is a
director of SCP Pool Corporation.
Edward M. Lhee has been an associate of CHS since 1997. From 1995 to 1997,
he attended the Kellogg Graduate School of Management. From 1992 to 1995, Mr.
Lhee was employed by Morgan Stanley & Co., where he worked as a financial
analyst in the mergers and acquisitions and corporate finance departments.
The term of office for each officer and director of the Company is one year.
The following table summarizes the compensation paid by Globe Holdings and
its subsidiaries, including the Company, to the Company's Chief Executive
Officer and four other most highly compensated executive officers at December
31, 1997 (collectively, the "Named Executive Officers") for services rendered
to the Company in 1997.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
---------------------------- ------------
Other Annual Securities All Other
Name and Principal Salary Bonus Compensation Underlying Compensation
Position Year ($) ($) (1) Options/SARs ($) (2)
- ------------------ ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas A. Rodgers, Jr... 1997 759,668 5,000 -- -- 198,796
Chairman
Thomas A. Rodgers, III.. 1997 549,042 197,500 -- 11,250 1,900
President
Americo Reis............ 1997 211,982 72,500 -- 3,750 1,900
Vice President,
Operations
Lawrence R. Walsh....... 1997 218,889 72,500 -- 3,750 3,166
Vice President, Finance
and Administration
Robert L. Bailey........ 1997 176,828 72,500 -- 3,750 1,900
Vice President, Sales
and Marketing
</TABLE>
- ----------------------
(1) Other Annual Compensation was not reportable.
(2) Reflects reimbursement of premiums for life insurance for Thomas A.
Rodgers, Jr. and Company contributions under a 401(k) plan for the other
Named Executive Officers.
The following table sets forth information with respect to all options
granted in fiscal 1997 to the Named Executive Officers.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants Grant Date Value
- ------------------------------------------------------------------------- ----------------
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Exercise or Grant Date
Options/SARs Employees in Base Price Expiration Present Value
Name Granted (1) Fiscal Year ($/Sh) Date (2) ($)
- ---- ------------ ------------ ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Thomas A. Rodgers, Jr... -- -- -- -- --
Thomas A. Rodgers, III.. 11,250 50.0% 30.00 12/31/07 2,468,700
Americo Reis............ 3,750 16.7% 30.00 12/31/07 822,900
Lawrence R. Walsh....... 3,750 16.7% 30.00 12/31/07 822,900
Robert L. Bailey........ 3,750 16.7% 30.00 12/31/07 822,900
</TABLE>
- ----------------------
(1) The options vested upon consummation of the Recapitalization and the
Merger, and are exercisable for common stock and preferred stock of Globe
Holdings pursuant to the Recapitalization. See "Certain Relationships and
Related Transactions--Recapitalization." The Company expects to implement
a new stock option plan.
(2) The Black-Scholes option pricing model was used to determine the grant
date present value of the options. The grant date present value of the
options was calculated to be $219.44 per share, based on an expected life
of 5 years and an assumed risk-free interest rate of 5.7%.
46
<PAGE>
The following table sets forth information with respect to all options
exercised in fiscal 1997 and the year-end value of unexercised options held by
the Named Executive Officers.
Aggregated Option/SAR Exercises in Last Fiscal Year And
Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities
Underlying
Unexercised Value of
Options/SARs Unexercised In-the-
at Fiscal Money Options/SAR's
Year End at Fiscal Year-End
------------- -------------------
Shares Acquired Value Exercisable/
on Exercise Realized Unexercisable Exercisable/
Name (#) ($) (#) Unexercisable ($)
- ---- --------------- -------- ------------- -------------------
<S> <C> <C> <C> <C>
Thomas A. Rodgers, Jr... -- -- -- --
Thomas A. Rodgers, III.. -- -- 11,250/11,250 2,385,000/2,385,000
Americo Reis............ -- -- 3,750/ 3,750 795,000/ 795,000
Lawrence R. Walsh....... -- -- 3,750/ 3,750 795,000/ 795,000
Robert L. Bailey........ -- -- 3,750/ 3,750 795,000/ 795,000
</TABLE>
Pension Plans
Globe maintains a Non-Qualified Pension Plan and a Deferred Compensation
Plan, pursuant to which each of Thomas A. Rodgers, III, Americo Reis, Lawrence
R. Walsh and Robert L. Bailey (the "Participating Executives") will be
entitled to receive certain payments upon retirement. Under the Non-Qualified
Pension Plan, each of the Participating Executives will receive a lump sum
distribution upon retirement at age 65. The amounts payable under the Non-
Qualified Pension Plan were determined by the Company and its consultants to
approximate 50% of estimated final compensation. Pursuant to the Deferred
Compensation Plan, each Participating Executive is entitled to receive,
beginning at his retirement at age 65, an annual distribution payable for the
following 15 years. The following table shows the estimated annual benefits
payable under the Non-Qualified Pension Plan and the Deferred Compensation
Plan for each of the Participating Executives.
<TABLE>
<CAPTION>
Estimated Annual Benefit Upon
Retirement at Age 65
-------------------------------
Non-Qualified Deferred
Name Pension Plan Compensation Plan
---- ------------- -----------------
<S> <C> <C>
Thomas A. Rodgers, Jr. (1)................ $ -- $ --
Thomas A. Rodgers, III.................... $206,400 $90,000
Americo Reis.............................. $ 86,400 $25,000
Lawrence R. Walsh......................... $104,000 $15,000
Robert L. Bailey.......................... $ 96,000 $20,000
</TABLE>
- ----------------------
(1) Thomas A. Rodgers, Jr. does not participate in the Non-Qualified Pension
Plan or the Deferred Compensation Plan.
Employment Agreements
Each of Messrs. Thomas A. Rodgers, III, Americo Reis, Lawrence R. Walsh and
Robert L. Bailey are parties to an Employment Agreement with Globe Holdings
dated as of December 31, 1997 (the "Employment Agreements"). The Employment
Agreements were transferred to the Company pursuant to the Asset Drop Down.
The Employment Agreements provide for annual base salaries for Messrs.
Rodgers, Reis, Walsh and Bailey of at least $549,000, $212,000, $219,000 and
$200,000, respectively, and provide that such executives shall generally be
entitled to participate in all bonus and benefit plans made available to
executives. The Employment Agreements have a term of three years, but may be
terminated earlier by the Company or the executive. If an executive's
employment is terminated by the Company without Cause or by the executive with
Good Reason (each as defined in the Employment Agreements), then the Company
will be required to pay the executive his base salary through December 2000
and the maximum amount he would have been entitled to under the Company's
incentive plans for the year in which the termination occurred, and will also
be required to provide insurance benefits for three years from the date of
termination, except to the extent the executive obtains comparable benefits
from a subsequent employer.
47
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following summaries of the material terms of certain agreements to which
the Company is a party do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of such
agreements, including the definitions of certain terms therein and the
exhibits and schedules thereto. Copies of such agreements may be obtained from
the Company or the Initial Purchasers.
Recapitalization
The consummation of the Initial Offering occurred concurrently with the
effectiveness of the Recapitalization. The Recapitalization was effected
pursuant to the Merger Agreement between Globe Holdings and MergerCo, a newly
formed affiliate of Code Hennessy & Simmons. In connection with the Merger and
the Recapitalization, (i) Globe Holdings transferred substantially all of its
assets and liabilities to the Company pursuant to the Asset Drop Down, (ii)
Code Hennessy & Simmons and certain other investors invested approximately
$42.8 million in common stock and preferred stock of MergerCo and (iii) Code
Hennessy & Simmons made the CHS Loan in the amount of $25.0 million. Pursuant
to the Merger Agreement: (i) MergerCo merged with and into Globe Holdings,
with Globe Holdings being the surviving corporation; (ii) the common stock of
MergerCo was converted into common stock of the surviving corporation (the
"New Common Stock") and the preferred stock of MergerCo became preferred stock
of the surviving corporation (the "New Preferred Stock"); (iii) the CHS Loan
became the obligation of the surviving corporation; (iv) certain stock and all
stock options of Globe Holdings was converted into or became exercisable for
New Common Stock and New Preferred Stock; (v) holders of the remaining stock
of Globe Holdings outstanding prior to the Merger received the Cash Merger
Consideration (including the payment by Globe Holdings of fees and expenses on
their behalf) in an aggregate amount equal to $315.0 million less (x) the
amount of Globe Holdings' outstanding indebtedness as of the date of the
Merger and (y) the amount of the Retained Investment; and (vi) $15.0 million
was deposited into escrow as the Escrow Amount. Following the consummation of
the Recapitalization, the CHS Loan was repaid with the net proceeds to Globe
Holdings from the Units Offering.
The Escrow Amount consists of (a) $5.0 million to secure the obligations of
the Pre-Merger Shareholders with respect to the post-closing adjustment of the
Cash Merger Consideration and (b) $10.0 million to satisfy any indemnification
obligations of the Pre-Merger Shareholders under the Merger Agreement. The
Adjustment Escrow Fund is required to be applied and/or released upon the
determination of the final closing date consolidated net asset value of the
Company and the balance of the Indemnification Escrow Fund is required to be
released promptly after December 31, 2001.
Pursuant to the Merger Agreement, the Pre-Merger Shareholders have agreed to
indemnify Globe Holdings and certain of its related parties for all
liabilities and other losses arising from, among other things, (i) any breach
of representations, warranties or pre-closing covenants of Globe Holdings
contained in or contemplated by the Merger Agreement, (ii) the failure of any
Pre-Merger Shareholders to have good, valid and marketable title to the shares
of common stock held by such Pre-Merger Shareholder, (iii) the environmental
investigation relating to Globe Holdings' facility in Fall River,
Massachusetts to the extent related to activities prior to the effective time
of the Merger, (iv) the antitrust claims and investigations relating to the
alleged conspiracy by the Joint Venture to restrain trade in, and fix prices
of, latex thread in the United States to the extent related to activities
prior to the effective time of the Merger and (v) certain other matters. With
respect to claims based on any misrepresentation or breach of any
representation or warranty made by Globe Holdings, the Pre-Merger Shareholders
are not required to indemnify Globe Holdings unless the aggregate of all
amounts for which indemnity would otherwise be payable exceeds $1.0 million
and, in such event, the Pre-Merger Shareholders will only be responsible for
the amount in excess of $1.0 million. In addition, the indemnification
obligations of the Pre-Merger Shareholders are generally limited to the amount
held in the Indemnification Escrow Fund, other than with respect to claims
based on fraud or on the failure of a Pre-Merger Shareholder to have good,
valid and marketable title to his shares of common stock.
48
<PAGE>
The Merger Agreement contains representations and warranties typical of
agreements of like nature, including, without limitation, those relating to
corporate organization and capitalization, the valid authorization, execution,
delivery and enforceability of all transaction documents, Globe Holdings'
financial statements, the absence of material adverse changes in the business,
assets, financial condition and results of operations, the absence of material
undisclosed liabilities, tax matters, the quality and title of personal and
real property, material contracts, intellectual property, employee benefits
plans, environmental matters, compliance with laws, governmental
authorizations, permits and licenses and insurance matters. Generally, the
representations and warranties of Globe Holdings expire 18 months after the
closing date of the Merger except that (i) those relating to environmental
matters remain in full force and effect until the second anniversary of the
closing date of the Merger and (ii) those relating to tax matters survive
until the expiration of the applicable statute of limitations.
Prior to the Merger, Thomas A. Rodgers, Jr. and Thomas A. Rodgers, III
beneficially owned, directly or indirectly, an aggregate of approximately 39%
of the common stock of Globe Holdings on a fully-diluted basis. In addition,
Messrs. Bailey, Reis and Walsh beneficially owned, in the aggregate,
approximately 2% of the common stock of Globe Holdings on a fully-diluted
basis. In connection with the Merger, these individuals received a pro rata
portion of the aggregate merger consideration.
Management Agreement
In connection with the Recapitalization, the Company entered into a
Management Agreement with CHS Management III, L.P. ("CHS Management"), an
affiliate of Code Hennessy & Simmons LLC, pursuant to which CHS Management
will provide financial and management consulting services to the Company and
receive a quarterly fee of $250,000, payable in arrears only if certain
leverage ratios under the Senior Credit Facility are met. In addition,
pursuant to the Management Agreement the Company paid to CHS Management $3.0
million at the closing of the Transactions as compensation for services
rendered by CHS Management to the Company in connection with the Transactions.
The Management Agreement also provides that when and as the Company
consummates the acquisition of other businesses, the Company will pay to CHS
Management a fee equal to the greater of $250,000 and one percent of the
acquisition price of each such business as compensation for services rendered
by CHS Management to the Company in connection with the consummation of such
acquisition. The term of the Management Agreement is five years, subject to
automatic renewal unless either CHS Management or the Company elects to
terminate. The Company believes that the fees to be paid to CHS Management for
the professional services to be rendered are at least as favorable to the
Company as those which could be negotiated with an unrelated third party. The
Company reimbursed CHS Management for expenses related to the Transactions and
will reimburse CHS Management for expenses incurred in rendering services to
the Company and Globe Holdings under the Management Agreement.
Securityholders Agreement
In connection with the Recapitalization, Globe Holdings' shareholders
entered into a Securityholders Agreement. This agreement provides, among other
things, for the nomination of and voting for at least five directors of Globe
Holdings by Globe Holdings' shareholders. The Securityholders Agreement also
provides that Code Hennessy & Simmons will be entitled to appoint all of the
directors of Globe Holdings. The following individuals have been initially
designated by Code Hennessy & Simmons to serve as directors: Thomas A.
Rodgers, Jr., Thomas A. Rodgers, III, Andrew W. Code, Peter M. Gotsch and
Edward M. Lhee. See "Management."
Executive Securities Agreements
In connection with the Recapitalization, each of Lawrence R. Walsh, Americo
Reis and Robert L. Bailey entered into an Executive Securities Agreement with
Globe Holdings and Code Hennessy & Simmons which provides for, among other
things, repurchase rights with respect to the Globe Holdings securities held
by them upon termination of employment (other than retirement) and
restrictions on transfer of such securities.
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<PAGE>
Registration Agreement
In connection with the Recapitalization, Globe Holdings' shareholders
entered into a Registration Agreement. The Registration Agreement grants
certain demand registration rights to Code Hennessy & Simmons. An unlimited
number of such demand registrations may be requested by Code Hennessy &
Simmons. In the event that Code Hennessy & Simmons makes such a demand
registration request, all other shareholders of Globe Holdings will be
entitled to participate in such registration on a pro rata basis (based on
shares held). Code Hennessy & Simmons may request, pursuant to its demand
registration rights, and each other shareholder may request, pursuant to his
or its participation rights, that up to all of such shareholder's shares of
common stock be registered by Globe Holdings. Globe Holdings is entitled to
postpone such a demand registration for up to 180 days under certain
circumstances. In addition, the parties to the Registration Agreement are
granted certain rights to have shares included in registrations initiated by
Globe Holdings or its shareholders ("piggyback registration rights"). Expenses
incurred in connection with the exercise of such demand or piggyback
registration rights shall, subject to limited exceptions, be borne by Globe
Holdings.
Executive Loan
In December 1992, Globe Holdings made a loan to Thomas A. Rodgers, III to
assist him in paying taxes incurred in a previous recapitalization of Globe
Holdings. As of June 30, 1998, the balance of such loan, including accrued
interest, was $285,397. The loan was repaid prior to the Merger.
Non-Competition Agreement
In connection with the Merger and the Recapitalization, each of the Named
Executive Officers entered into a Non-Competition Agreement with Globe
Holdings pursuant to which the Named Executive Officers agreed not to engage
anywhere in the U.S. in any business that manufactures, distributes or sells
polyester or polyester spandex fiber, latex thread or other elastomeric fiber
for a period of three years (or, in the case of Mr. Bailey, until December 31,
2000). The Named Executive Officers also agreed not to solicit employees or
customers of Globe Holdings or its subsidiaries, or to hire any person who was
an employee of Globe Holdings or any of its subsidiaries within twelve months
after such person's employment with Globe Holdings or any subsidiary is
terminated. The Named Executive Officers also agreed to maintain the
confidentiality of information regarding the business and affairs of Globe
Holdings and its subsidiaries.
Sale Bonus
In February 1998, Globe Holdings instituted a management reward program
pursuant to which each of the Named Executive Officers was entitled to receive
a cash bonus upon consummation of the Merger. The amount of the bonus paid was
based on a percentage of the consideration paid in connection with the Merger.
Pursuant to the program, Thomas A. Rodgers, Jr. and Thomas A. Rodgers, III
received an aggregate of $825,000; and Messrs. Reis, Walsh and Bailey each
received $412,500. In addition, Messrs. Cardullo and Girrier each received a
bonus of $50,000 upon consummation of the Merger.
Investment Banking Fees
Prior to the Merger, certain affiliates of Goldman, Sachs & Co. owned an
aggregate of approximately 46% of the common stock of Globe Holdings on a
fully-diluted basis prior to the consummation of the Merger, and three members
of the Board of Directors of Globe Holdings prior to the Merger were
affiliates of Goldman, Sachs & Co. Goldman, Sachs & Co. acted as financial
advisor to Globe Holdings in connection with the Transactions, for which it
received a fee.
Tax Sharing Agreement
The operations of the Company are included in the Federal income tax returns
filed by Globe Holdings. Prior to the closing of the Initial Offering, Globe
Holdings and the Company entered into a Tax Sharing Agreement ("Tax Sharing
Agreement") pursuant to which the Company agreed to advance to Globe Holdings
so long as Globe Holdings files consolidated income tax returns that include
the Company (i) payments for the Company's share of income taxes assuming the
Company is a stand-alone entity, which in no event may exceed
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<PAGE>
the group's consolidated tax liabilities for such year, and (ii) payments to
or on behalf of Globe Holdings in respect of franchise or similar taxes and
governmental charges incurred by it relating to the business, operations or
finances of the Company.
Consulting Agreement
In connection with the Merger and the Recapitalization, Thomas A. Rodgers,
Jr. entered into a consulting agreement with the Company, pursuant to which he
will be compensated at a rate of $100,000 per annum, and agreed to perform
special projects for the Company and such other matters as the Company's Board
of Directors or officers reasonably request.
CHS Loan
In connection with the Recapitalization, Code Hennessy & Simmons extended
the CHS Loan to Globe Holdings in the principal amount of $25.0 million. The
CHS Loan was repaid with the net proceeds to Globe Holdings from the Units
Offering. The CHS Loan bore interest at a rate of 14% per annum and would have
matured on July 31, 2009.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Globe Holdings owns all of the Company's issued and outstanding capital
stock. The following table sets forth certain information as of September 15,
1998 regarding the beneficial ownership of the capital stock of Globe Holdings
by (i) each shareholder who beneficially owns more than 5% of the common stock
of Globe Holdings, (ii) each director and Named Executive Officer of the
Company and (iii) all directors and executive officers of the Company as a
group. Except as otherwise indicated below, each of the persons named in the
table has sole voting and investment power with respect to the securities
beneficially owned by it or him as set forth opposite its or his name. Unless
otherwise noted, the address for each director and executive officer of the
Company is c/o the Company, 456 Bedford Street, Fall River, Massachusetts
02720.
<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------- ----------------------
Name of Beneficial Owner Number (1) Percent (1) Number (1) Percent (1)
------------------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Code, Hennessy & Simmons
III, L.P. (2).............. 1,647,437 75.6 21,999.6 75.6
Thomas A. Rodgers, Jr. (3).. 166,244 7.6 2,220 7.6
Thomas A. Rodgers, III...... 89,862 4.1 1,200 4.1
Americo Reis (4)............ 22,465 1.0 300 1.0
Lawrence R. Walsh (4)....... 22,465 1.0 300 1.0
Robert L. Bailey (4)........ 22,465 1.0 300 1.0
William J. Girrier.......... -- -- -- --
Kevin T. Cardullo........... -- -- -- --
Andrew W. Code (5).......... 1,647,437 75.6 21,999.6 75.6
Peter M. Gotsch (5)......... 1,647,437 75.6 21,999.6 75.6
Edward M. Lhee ............. 1,977 * 26.4 *
Brinson Partners, Inc.
(6)(7)..................... 224,655 10.3 3,000 10.3
Virginia Retirement System
(7)........................ 179,724 8.2 2,400 8.2
All executive officers and
directors as a group (9
persons)................... 1,806,671 80.4 24,126 80.4
</TABLE>
- --------
* Less than 1%
(1) Includes shares of Common Stock and Preferred Stock subject to options
which are exercisable within 60 days of September 15, 1998.
(2) The business address of Code, Hennessy & Simmons III, L.P. is 10 South
Wacker Drive, Suite 3175, Chicago, Illinois 60606.
(3) All of such shares are held of record by the Thomas A. Rodgers, Jr.
Grantor Retained Annuity Trust, of which Thomas A. Rodgers, Jr. is the
sole beneficiary.
(4) All of the shares shown are issuable upon exercise of outstanding options.
(5) All of such shares are held of record by Code, Hennessy & Simmons III,
L.P. Messrs. Code and Gotsch are officers, directors and shareholders of
the sole general partner of Code, Hennessy & Simmons III, L.P. and share
investment and voting power with respect to the securities owned by Code,
Hennessy & Simmons III, L.P. Each of Messrs. Code and Gotsch disclaims
beneficial ownership of such shares except to the extent of his pecuniary
interest therein. The business address of Messrs. Code and Gotsch is c/o
Code, Hennessy & Simmons III, L.P., 10 South Wacker Drive, Suite 3175,
Chicago, Illinois 60606.
(6) Brinson Partners, Inc. ("BPI") has advised the Company that it is an
Investment Adviser registered under Section 203 of the Investment Advisers
Act of 1940. Of the shares shown: (i) 38,631 shares of Common Stock and
515.87 shares of Preferred Stock are held of record by Brinson Venture
Capital Fund III, L.P., of which BPI is the general partner and (ii) 6,300
shares of Common Stock and 84.13 shares of Preferred Stock are held of
record by Brinson MAP Venture Capital Fund III, a trust of which a wholly
owned subsidiary of BPI is the sole trustee. As a result, BPI has sole
voting and dispositive power with respect to such shares. The address of
BPI is 209 South LaSalle Street, Chicago, Illinois 60604-1295.
(7) BPI serves as an Investment Adviser to Virginia Retirement System and
shares voting and dispositive power with respect to the shares held of
record by Virginia Retirement System. The address of Virginia Retirement
System is 1200 East Main Street, Richmond, Virginia 23219.
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<PAGE>
DESCRIPTION OF SENIOR CREDIT FACILITY
General. As part of the Transactions, the Company entered into the Senior
Credit Facility with Bank of America National Trust and Savings Association,
as a lender and as administrative agent, BancAmerica Robertson Stephens, as
arranger, Merrill, Lynch, Pierce, Fenner & Smith, Inc. as syndication agent,
and certain other financial institutions (the "Lenders").
The Senior Credit Facility provides for two term loans to the Company for
$60.0 million and $55.0 million ("Term Loan A" and "Term Loan B,"
respectively, and collectively, the "Term Loans") and revolving loans to the
Company for up to $50.0 million (including letters of credit) (the "Revolving
Loan" and, together with the Term Loans, the "Loans"). Subject to certain
restrictions, the Senior Credit Facility may be used to finance the
Transactions and for working capital and general corporate purposes of the
Company and its subsidiaries.
As of January 28, 1999, in response to lower than expected earnings, the
Senior Credit Facility was amended such that (i) certain leverage ratio tests
were waived and certain covenants were amended, (ii) the interest rates on
both the term loans and revolving loans were increased and (iii) the
management fee due to an affiliate of Code Hennessy & Simmons LLC may only be
paid if certain leverage tests are met. This increase in interest rates will
increase the Company's interest expense by approximately 3%, which is not
expected to have a material effect on the Company's operating results.
Repayment. Term Loan A and the Revolving Loan must be repaid six and one-
half years following the date of the closing of the Senior Credit Facility.
Term Loan B must be repaid eight years following the date of the closing of
the Senior Credit Facility. Loans made pursuant to the Senior Credit Facility
may be borrowed, repaid and, in the case of the Revolving Loans, reborrowed,
without premium or penalty (other than prepayments of Eurodollar Loans (as
defined in the Senior Credit Facility) which may be subject to customary
breakage costs), from time to time until maturity, subject to the satisfaction
of certain conditions on the date of any such borrowing. In addition, the
Senior Credit Facility provides for mandatory repayments (with corresponding
permanent reductions on Revolving Loan commitments) of any outstanding
borrowings out of any proceeds received from a sale of assets (other than
sales of inventory in the ordinary course of business, sales of certain
obsolete assets, and certain other exceptions), net cash proceeds of permitted
debt and equity issuances (subject to certain exceptions), net cash proceeds
from insurance recovery and condemnation events (subject to certain
reinvestment rights) and 75% of annual excess cash flow, reducing to 50% when
the ratio of total debt to EBITDA is less than 3.75:1.
Security; Guaranty. The obligations of the Company under the Senior Credit
Facility are guaranteed by Globe Holdings and will be guaranteed by each of
the Company's future direct and indirect domestic subsidiaries and, so long as
there are no adverse tax consequences, foreign subsidiaries. The obligations
of the Company under the Senior Credit Facility and each of the guarantors
under its guarantee is or will be secured by substantially all of the assets
of such person and the capital stock of subsidiaries owned by the Company and
the guarantors.
Interest. At the Company's option, the interest rates per annum applicable
to the loans under the Senior Credit Facility will be a fluctuating rate of
interest measured by reference to one or a combination (at the Company's
election) of the following: (i) the Base Rate (as defined in the Senior Credit
Facility), plus the applicable borrowing margin, or (ii) the relevant
Eurodollar Rate (as defined in the Senior Credit Facility), plus the
applicable borrowing margin. The applicable borrowing margin under the Senior
Credit Facility for Base Rate-based borrowings is 2.00% for the Term Loan A
and the Revolving Loan and 2.50% for the Term Loan B; the applicable borrowing
margin under the Senior Credit Facility for Eurodollar Rate-based borrowings
is 3.00% for the Term Loan A and the Revolving Loan and 3.50% for the Term
Loan B, subject to adjustment in each case based on the Company's Consolidated
Leverage Ratio (defined in the Senior Credit Facility as the ratio of
Consolidated Indebtedness (as defined in the Senior Credit Facility) to
Consolidated EBITDA (as defined in the Senior Credit Facility)).
53
<PAGE>
Fees. The Company has agreed to pay certain fees in connection with the
Senior Credit Facility, including: (i) letter of credit fees; (ii) agency
fees; and (iii) commitment fees. Commitment fees are payable at a rate per
annum of 0.5% on the undrawn amounts of the Senior Credit Facility, subject to
adjustment based on the Company's Leverage Ratio.
Covenants. The Senior Credit Facility contains negative covenants which,
among other things, restrict the ability of the Company and its subsidiaries
(subject to certain exceptions) to incur liens, transact with affiliates,
incur indebtedness, declare dividends or redeem or repurchase capital stock,
make loans and investments, engage in mergers, acquisitions and asset sales,
acquire assets, stock, or debt securities of any person, have additional
subsidiaries, amend its certificate of incorporation and bylaws, and make
capital expenditures. The Senior Credit Facility also requires the Company and
its restricted subsidiaries to satisfy certain customary affirmative
covenants, including financial reporting, notice provisions, books and
records, inspection of property, maintenance of property and insurance,
maintenance of corporate rights, payment of taxes, contributions from Globe
Holdings to Globe Manufacturing, cash management systems, the pledges of
additional collateral, security and guarantees, use of proceeds and payment of
dividends on the Preferred Stock, and to make certain customary
indemnifications to the Lenders and the administrative agent under the Senior
Credit Facility.
The Senior Credit Facility further requires Globe Holdings and Globe
Manufacturing to maintain compliance with three financial covenants which are
tested at the end of each fiscal quarter of Globe Holdings (or, in the case of
the Consolidated Interest Coverage Ratio for the first fiscal year, the period
from the Closing Date to the last day of the fiscal quarter of Globe Holdings
then last ended). The Consolidated Interest Coverage Ratio (as defined in the
Senior Credit Facility) prohibits Globe Holdings and Globe Manufacturing from
exceeding specified minimum ratios (which increase over time) of Consolidated
EBITDA (as defined in the Senior Credit Facility) for the applicable period to
Consolidated Interest Expense (as defined in the Senior Credit Facility) for
such period. The second financial test, the Consolidated Fixed Charge Coverage
Ratio (as defined in the Senior Credit Facility), requires Globe Holdings and
Globe Manufacturing to maintain a minimum ratio of 1.10:1.00 for any
applicable period ending after December 31, 1999 of Consolidated EBITDA (as
adjusted pursuant to the Senior Credit Facility) to Consolidated Fixed Charges
(as defined in the Senior Credit Facility). Finally, the Consolidated Leverage
Ratio (as defined in the Senior Credit Facility) prohibits Globe Holdings and
Globe Manufacturing from exceeding specified ratios (which decline over time)
of Consolidated Indebtedness (as defined in the Senior Credit Facility) for
the applicable period to Consolidated EBITDA for such period. The Senior
Credit Facility provides that from January 28, 1999 until December 31, 1999 a
Senior Leverage Ratio (as defined in the Senior Credit Facility) will be used
in place of the Consolidated Leverage Ratio.
Events of Default. The Senior Credit Facility contains customary events of
default, including payment defaults, breach of representations and warranties,
covenant defaults, certain events of bankruptcy and insolvency, ERISA
violations, judgment defaults, cross-default to certain other indebtedness,
and a change in control of Globe Holdings or the Company.
54
<PAGE>
DESCRIPTION OF THE NEW NOTES
The New Notes offered hereby are to be issued as a separate series under an
Indenture dated as of July 31, 1998 (the "Indenture") between the Company and
Norwest Bank Minnesota, National Association, as trustee (the "Trustee"). 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 bear a Series B
designation and a different CUSIP number than the Old Notes, (ii) the New
Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof, and (iii) the holders of New
Notes will not be entitled to certain rights under the Registration 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 when the Exchange Offer is
consummated. The Old Notes issued in the Initial Offering and the New Notes
offered hereby are referred to collectively as the "Notes." The following
summary of the material provisions of the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all provisions of the Indenture, a copy of which can be obtained from the
Trustee upon request. Upon the issuance of the New Notes, or the effectiveness
of the Shelf Registration Statement, the Indenture will be subject to and
governed by the provisions of the Trust Indenture Act of 1939 (the "Trust
Indenture Act" ). The definitions of certain terms used in the following
summary are set forth below under "--Certain Definitions." Wherever particular
sections or defined terms of the Indenture not otherwise defined herein are
referred to, such Sections or defined terms shall be incorporated herein by
reference, and those terms made a part of the Indenture by the Trust Indenture
Act also are incorporated herein by reference.
General
The Notes, which mature on August 1, 2008, will be limited to $300.0 million
in aggregate principal amount, $150.0 million of which will be issued on the
Issue Date. Additional amounts may be issued in one or more series from time
to time, subject to the limitations set forth under "Certain Covenants--
Incurrence of Debt and Issuance of Preferred Stock." The Notes will not be
entitled to any sinking fund. The Notes will be redeemable at the option of
the Company as described below under "--Optional Redemption."
The Notes will bear interest from the Issue Date at the rate of 10% per
annum payable semiannually in arrears on February 1 and August 1 of each year
commencing on February 1, 1999 until the principal thereof is paid or made
available for payment to the Holders of record at the close of business on the
immediately preceding January 15 or July 15, respectively. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months. The
circumstances under which the interest rate may increase are described under
"--Exchange Offer; Registration Rights."
Principal, premium, if any, and interest on the Notes will be payable at the
office or agency of the Trustee maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest
may be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all
payments of principal, premium, if any, and interest with respect to Notes the
Holders of which have given wire transfer instructions to the Company will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Notes will be issued in denominations
of $1,000 and integral multiples thereof.
All references herein to payments of principal, premium, if any, and
interest on the Notes shall be deemed to include any applicable Additional
Interest (as defined) that may become payable in respect of the Notes. See "--
Exchange Offer; Registration Rights."
Subordination
The Notes will be general unsecured obligations of the Company and will be
subordinated in right of payment to all current and future Senior Debt of the
Company, including the Company's obligations under the
55
<PAGE>
Senior Credit Facility. The Notes will also be effectively subordinated to all
secured Debt of the Company and any Guarantor to the extent of the value of
the assets securing such Debt. The Notes will rank pari passu with any future
senior subordinated indebtedness of the Company and will rank senior to any
future Subordinated Debt of the Company. As of September 30, 1998, the Company
had an aggregate of approximately $120.9 million of Senior Debt (excluding
unused commitments of approximately $44.2 million under the Senior Credit
Facility).
The Notes will be fully and unconditionally guaranteed, on a senior
subordinated basis, as to the payment of principal, premium, if any, and
interest, jointly and severally, by all future direct and indirect Restricted
Domestic Subsidiaries of the Company (the "Guarantors"). The Company has no
existing Restricted Domestic Subsidiaries and, therefore the Notes are not, at
present, guaranteed.
In connection with the Transactions, the Company entered into the Senior
Credit Facility, under which the Company may borrow up to an aggregate of
$165.0 million, subject to compliance with certain covenants and financial
ratios. See "Description of Senior Credit Facility."
Upon any payment or distribution of assets of the Company of any kind or
character to creditors of the Company in a total or partial liquidation,
winding up, reorganization or dissolution of the Company or in a voluntary or
involuntary bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property, an assignment for the
benefit of creditors or any marshaling of the Company's assets and
liabilities, the holders of all Senior Debt will be entitled to receive
payment in full in cash of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt whether or not such interest is an
allowed claim in any such proceeding) before the Holders of the Notes will be
entitled to receive any payment of any kind or character with respect to the
Notes, and until all Obligations with respect to all Senior Debt are paid in
full in cash, any distribution to which the Holders of the Notes would be
entitled shall be made to the holders of Senior Debt or their Representative
(except that Holders of the Notes may receive Permitted Junior Securities and
payments made from the trust described under "--Legal Defeasance and Covenant
Defeasance").
Neither the Company nor any Person on behalf of the Company may make any
payment of any kind or character upon or in respect of the Notes (except from
the trust described under "--Legal Defeasance and Covenant Defeasance") if (i)
a default in the payment of the principal of, premium, if any, interest on,
unpaid drawings for letters of credit issued in respect of, or regularly
accruing fees with respect to, any Designated Senior Debt occurs and is
continuing or (ii) any other default occurs and is continuing with respect to
Designated Senior Debt that permits holders of the Designated Senior Debt as
to which such default relates to accelerate its maturity and, in the case of
clause (ii), the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Representative of any Designated Senior Debt.
Payments on the Notes may and shall be resumed (A) in the case of a payment
default described in clause (i) above, upon the date on which such default is
cured or waived and (B) in case of a default described in clause (ii) above,
the earlier of (1) the date on which all such defaults have been cured or
waived, (2) 179 days after the date on which the applicable Payment Blockage
Notice is received, (3) the date such Designated Senior Debt shall have been
paid in full in cash or (4) the date such Payment Blockage Period shall have
been terminated by written notice to the Trustee from the Representative of
the Designated Senior Debt initiating such Payment Blockage Period, after
which, in the case of clauses (1), (2), (3) and (4), the Company shall resume
making any and all required payments in respect of the Notes, including any
payments not made to the Holders of the Notes during the Payment Blockage
Period due to the foregoing prohibitions, unless the provisions described in
clause (i) above or the provisions of the immediately preceding sentence are
then applicable. No new Payment Blockage Period may be commenced unless and
until 360 days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice. No default that existed or was continuing on the date
of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice unless such default
shall have been cured or waived for a period of not less than 90 consecutive
days.
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<PAGE>
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of the Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt. The Indenture
limits, subject to certain financial tests, the amount of additional Debt,
including Senior Debt, that the Company and its Subsidiaries can incur. See
"--Certain Covenants--Incurrence of Debt and Issuance of Preferred Stock."
Guarantees
The Notes are not at present, guaranteed. Each Guarantor, if any, will
unconditionally guarantee, on a senior subordinated basis, jointly and
severally to each Holder and the Trustee, the full and prompt performance of
the Company's obligations under the Indenture and the Notes, including the
payment of principal, premium, if any, and interest on the Notes. The
Guarantees will be subordinated to Guarantor Senior Debt on the same basis as
the Notes are subordinated to Senior Debt. The obligations of each Guarantor
will be limited to the maximum amount which after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, will result in
the obligations of such Guarantor under the Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in an amount pro rata,
based on the net assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company, another Guarantor that is a Restricted Subsidiary of the Company or a
Restricted Subsidiary that is or in connection therewith becomes a Guarantor
without limitation, or with other Persons upon the terms and conditions set
forth in the Indenture. See "Certain Covenants--Merger, Consolidation or Sale
of Assets." In the event all of the Capital Stock of a Guarantor or the parent
company of a Guarantor are sold and the sale complies with the provisions set
forth in "--Certain Covenants--Asset Sales," the Guarantor's Guarantee will be
released. A Guarantor's Guarantee shall also be released if such Guarantor
becomes an Unrestricted Subsidiary in accordance with the Indenture.
Optional Redemption
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time and from time to time on or after August 1, 2003 upon not
less than 30 nor more than 60 days notice, at the redemption prices (expressed
as percentages of principal amount) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on August 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2003........................................................... 105.000%
2004........................................................... 103.333%
2005........................................................... 101.667%
2006 and thereafter............................................ 100.000%
</TABLE>
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
At any time prior to August 1, 2001, the Company may on any one or more
occasions redeem from the net proceeds of one or more Equity Offerings up to
an aggregate of 35% of the aggregate principal amount of the Notes at a
redemption price of 110.0% of the principal amount thereof, plus accrued and
unpaid interest thereon to the redemption date; provided that at least $97.5
million in aggregate principal amount of the Notes issued under the Indenture
remain outstanding immediately after the occurrence of such redemption.
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<PAGE>
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
the Notes or portions of them called for redemption.
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof and accrued and
unpaid interest thereon, if any, to the date of purchase (the "Change of
Control Payment"). Within 30 days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes on the
date specified in such notice, which date shall be no earlier than 30 days and
no later than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"), pursuant to the procedures required by the Indenture
and described in such notice.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Trustee an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Trustee will promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided, that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Indenture
provides that, prior to complying with the provisions of this covenant
(including the mailing of the notice referred to above), but in any event
within 90 days following a Change of Control, the Company will either repay in
full in cash all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant and the Company's failure to
comply with this covenant shall constitute an Event of Default under the
Indenture. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Senior Credit Facility restricts the ability of the Company to purchase
any Notes and other senior subordinated or subordinated indebtedness of the
Company, and also provides that certain change of control events with respect
to the Company would constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event
any such restrictions would prohibit the Company from purchasing Notes upon a
Change of Control, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to
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refinance the borrowings that contain such restrictions. If the Company does
not obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing Notes. In such case, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute a default under the Senior Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The Change of Control provision of the Notes may in certain circumstances
make it more difficult or discourage a takeover of the Company and, as a
result, may make removal of incumbent management more difficult. The Change of
Control provision is a result of negotiations between the Company and the
Initial Purchasers.
The provisions of the Indenture would not necessarily afford Holders of the
Notes protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction involving the
Company that may adversely affect Holders of the Notes.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another person or group may be
uncertain.
The Company will comply with the applicable tender offer rules, including
the requirements of Rule 14e-1 under the Exchange Act, and all other
applicable securities laws and regulations in connection with any Change of
Control Offer. To the extent that the provisions of any securities laws or
regulations conflict with the "Change of Control" provisions of the Indenture,
the Company shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under the "Change of
Control" provisions of the Indenture by virtue thereof.
Certain Covenants
Incurrence of Debt and Issuance of Preferred Stock.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any Debt
(including Acquired Debt) and that the Company will not issue any Disqualified
Stock and will not permit any of its Restricted Subsidiaries to issue any
shares of preferred stock; provided, however, that if no Default or Event of
Default shall have occurred and be continuing at the time or as a consequence
thereof, the Company may incur Debt (including Acquired Debt) or issue shares
of Disqualified Stock and any Guarantor may incur Debt (including Acquired
Debt) or issue preferred stock if the Consolidated Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
financial statements are available immediately preceding the date on which
such additional Debt is incurred or such Disqualified Stock or preferred stock
is issued would have been at least 2.0 to 1.0, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Debt had been incurred, or the Disqualified Stock or preferred
stock had been issued, as the case may be, at the beginning of such four-
quarter period.
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The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Debt (collectively, "Permitted
Debt"):
(i) the incurrence by the Company or any of the Guarantors of Debt under
the Senior Credit Facility (or if the Senior Credit Facility has matured or
been terminated or repaid in whole or in part, any other Credit Facility)
in an aggregate principal amount at any time outstanding not to exceed
$165.0 million, which amount shall be reduced by (A) any required permanent
repayments pursuant to the provisions of the covenant described under the
caption "--Asset Sales" (which are accompanied by a corresponding permanent
commitment reduction thereunder), (B) the aggregate amount of any Debt
constituting Limited Originator Recourse outstanding pursuant to clause
(xi) below and (C) the principal amount of Debt outstanding pursuant to
clause (x) below;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
Existing Debt;
(iii) the incurrence by the Company or any of its Restricted Subsidiaries
of Debt represented by the Notes issued on the Issue Date (or any Notes
issued in exchange therefor) or any Guarantee;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to refund, refinance or replace, Debt that was permitted by the
Indenture to be incurred;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Debt between or among the Company and any of its Restricted
Subsidiaries; provided, however, that (A) if the Company or a Guarantor is
the obligor on such Debt, such Debt is expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Notes or
such Guarantor's Guarantee, as the case may be, and (B) (1) any subsequent
issuance or transfer (other than any bona fide pledge under the Senior
Credit Facility) of Equity Interests that results in any such Debt being
held by a Person other than the Company or a Restricted Subsidiary and (2)
any sale or other transfer (other than any bona fide pledge under the
Senior Credit Facility) of any such Debt to a Person that is not either the
Company or a Restricted Subsidiary shall be deemed, in each case, to
constitute an incurrence of such Debt by the Company or such Subsidiary, as
the case may be;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Debt that is
permitted by the terms of the Indenture to be outstanding or for the
purpose of fixing or hedging currency exchange risk with respect to any
currency exchanges;
(vii) Capitalized Lease Obligations and Purchase Money Obligations of the
Company and the Guarantors not to exceed $5.0 million in aggregate
principal amount (or accrued value, as applicable) at any time outstanding;
(viii) Guarantees by the Company of Debt of any Restricted Subsidiaries
otherwise permitted by this covenant and guarantees by any of the Company's
Restricted Subsidiaries of Debt of the Company or any other Restricted
Subsidiary permitted to be incurred under the covenant described under "--
Limitation of Guarantees by Restricted Subsidiaries";
(ix) Debt of the Company or any Restricted Subsidiary in respect of
performance bonds, bankers' acceptances, trade letters of credit, workers'
compensation or self-insurance, surety bonds and guarantees provided by the
Company or any Restricted Subsidiary in the ordinary course of business;
(x) Debt of Foreign Restricted Subsidiaries incurred for working capital
purposes in an aggregate principal amount outstanding at any one time not
to exceed the sum of 85% of the net book value of such Subsidiaries'
accounts receivable determined in accordance with GAAP and 60% of the net
book value of their inventory determined in accordance with GAAP and
guarantees by Foreign Restricted Subsidiaries of such Debt (which Debt
shall reduce the aggregate Debt permitted pursuant to clause (i) above in
the manner contemplated thereby);
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(xi) the incurrence by (A) a Securitization Entity of Debt in a Qualified
Securitization Transaction that is Non-Recourse Debt with respect to the
Company and its other Restricted Subsidiaries (except for Standard
Securitization Undertakings and Limited Originator Recourse) or (B) the
Company or any Restricted Subsidiary of Debt constituting Limited
Originator Recourse (which Debt shall reduce the aggregate Debt permitted
pursuant to clause (i) above in the manner contemplated thereby);
(xii) Debt arising from agreements of the Company or a Restricted
Subsidiary of the Company providing for indemnification, adjustment of
purchase price, earn-out or other similar obligations, in each case,
incurred or assumed in connection with the disposition of any business,
assets or a Restricted Subsidiary of the Company, other than guarantees of
Debt incurred by any Person acquiring all or any portion of such business,
assets or Restricted Subsidiary for the purpose of financing such
acquisition; and
(xiii) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Debt in an aggregate principal amount (or
accrued value, as applicable) at any time outstanding, including all
Permitted Refinancing Debt incurred to refund, refinance or replace any
other Debt incurred pursuant to this clause (xiii), not to exceed $40.0
million (which amount may, but need not, be incurred in whole or in part
under the Senior Credit Facility).
For purposes of determining compliance with this covenant, in the event that
an item of Debt meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (xiii) above or is entitled to
be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Debt in any manner that
complies with this covenant and such item of Debt will be treated as having
been incurred pursuant to only one of such clauses or pursuant to the first
paragraph hereof. Accrual of interest, the accretion of accrued value and the
payment of interest in the form of additional Debt will not be deemed to be an
incurrence of Debt for purposes of this covenant.
Restricted Payments.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, make any Restricted
Payment, unless, at the time of and after giving effect to such Restricted
Payment:
(i) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(ii) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Debt pursuant to the Consolidated
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "--Incurrence of Debt and
Issuance of Preferred Stock"; and
(iii) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (including Restricted Payments
permitted by clauses (i) and (v) of the next succeeding paragraph and
excluding the Restricted Payments permitted by the other clauses therein),
is less than or equal to the sum of (A) 50% of the Consolidated Net Income
of the Company (or if Consolidated Net Income shall be a loss, minus 100%
of such loss) earned during the period beginning on the first day of the
first fiscal quarter immediately following the Issue Date and ending on the
last day of the fiscal quarter immediately preceding the date the
Restricted Payment is made (the "Reference Date") (treating such period as
a single accounting period) plus (B) 100% of the aggregate net proceeds
(including the fair market value of property other than cash (determined in
good faith by the Board of Directors as evidenced by an Officers'
Certificate filed with the Trustee, except that in the event the value of
any non-cash consideration shall be $10.0 million or more, the value shall
be as determined based on an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing)) received by the
Company from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date of Equity Interests of the
Company (other than Disqualified Stock) or from the issue or sale of
Disqualified Stock or debt
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securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company); plus (C)
without duplication of any amounts included in clause (B) above, 100% of
the aggregate net cash proceeds of any equity contribution received by the
Company from a holder of the Company's Capital Stock (excluding, in the
case of clauses (B) and (C), any net cash proceeds from an Equity Offering
to the extent used to redeem the Notes and any net cash proceeds received
by the Company from the sale of Equity Interests of the Company or equity
contribution which has been financed, directly or indirectly using funds
(1) borrowed from the Company or any of its Subsidiaries, unless and until
and to the extent such borrowing is repaid or (2) contributed, extended,
guaranteed or advanced by the Company or by any of its Subsidiaries), plus
(D) to the extent that any Restricted Investment that was made after the
Issue Date is sold by Company or any Restricted Subsidiary for cash or
otherwise liquidated or repaid for cash, the lesser of (1) the fair market
value of such Restricted Investment as of the date of such Restricted
Investment or (2) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any), to the extent
any such amount was not otherwise included in Consolidated Net Income, plus
(E) 50% of any dividends received by the Company or a Restricted Subsidiary
after the Issue Date from an Unrestricted Subsidiary of the Company, to the
extent that such dividends were not otherwise included in Consolidated Net
Income of the Company for such period, plus (F) to the extent that any
Unrestricted Subsidiary is redesignated as a Restricted Subsidiary after
the Issue Date, the fair market value of the Investment made by the Company
or any of its Restricted Subsidiaries in such Subsidiary as of the date of
such redesignation, plus (G) $10.0 million. For purposes of this paragraph,
the fair market value of property other than cash shall be determined in
good faith by the Board of Directors and evidenced by an Officers'
Certificate filed with the Trustee, except that in the event the value of
any non-cash consideration shall be $10.0 million or more, the value shall
be determined based on an opinion or appraisal issued by an accounting,
appraisal or investment banking firm of national standing.
The foregoing provisions will not prohibit (i) the payment of any dividend
or the consummation of any irrevocable redemption within 60 days after the
date of declaration thereof or giving of irrevocable redemption notice, if at
said date of declaration or giving of notice such payment or redemption would
have complied with the provisions of the Indenture; (ii) if no Default or
Event of Default shall have occurred and be continuing, the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Company or any Restricted Subsidiary of the Company or any Subordinated Debt
of the Company or any Restricted Subsidiary, in each case in exchange for, or
out of the net proceeds of, the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of other Equity Interests of the Company
(other than any Disqualified Stock); provided, however, that the amount of any
such net proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clauses (iii) (B) and
(iii) (C) of the preceding paragraph; (iii) the redemption, repurchase,
refinancing or defeasance of Subordinated Debt in exchange for, or with the
net cash proceeds from, an incurrence of Permitted Refinancing Debt; (iv) the
payment to Globe Holdings of any amounts required under the Tax Sharing
Agreement; (v) if no Default or Event of Default shall have occurred and be
continuing, the payment of dividends to Globe Holdings in an amount up to $1.0
million in any period of four consecutive quarters to fund repurchases by
Globe Holdings (or its successor) of Equity Interests therein or Debt of Globe
Holdings issued in connection with such Equity Interests held by Persons who
have ceased to be bona fide officers or employees of the Company or one of its
Restricted Subsidiaries, provided that any unused amount thereof may be
carried forward to subsequent periods so long as the total amount of such
Restricted Payments shall not exceed $5.0 million in the aggregate (and shall
be increased by the amount of any net cash proceeds (after deducting any
premiums) to the Company from (A) sales of Equity Interests of Globe Holdings
to management employees subsequent to the Issue Date and (B) any "key-man"
life insurance policies which are used to make such redemptions and
repurchases); (vi) the payment of dividends to Globe Holdings in an amount
necessary to fund Globe Holdings' bona fide corporate overhead and similar
fees and expenses relating to the ownership or operation of the Company; (vii)
repurchases of Equity Interests deemed to occur upon the exercise of stock
options if such Equity Interests represent a portion of the exercise price
thereof; and (viii) distributions to Globe Holdings to fund the Transactions
and to pay fees and expenses incurred in connection with the Transactions and
the Discount Note Offering (as described under "Use of Proceeds").
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The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not
cause a Default or an Event of Default. For purposes of making such
determination, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid in cash) in the Subsidiary so
designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such outstanding Investments will be
deemed to constitute Investments in an amount equal to the greater of (i) the
net book value of such Investments at the time of such designation and (ii)
the fair market value of such Investments at the time of such designation.
Such designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
Liens.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly create, incur, assume
or suffer to exist any Lien (other than Permitted Liens) that secures Debt or
trade payables unless (i) in the case of Liens securing Subordinated Debt, the
Notes are secured on a senior basis to the obligations so secured until such
time as such obligations are no longer secured by a Lien and (ii) in the case
of Liens securing obligations under Pari Passu Debt, the Notes are equally and
ratably secured with the obligations so secured until such time as such
obligations are no longer secured by a Lien.
Merger, Consolidation or Sale of Assets.
The Indenture provides that the Company may not consolidate or merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless: (i) the Company
is the surviving corporation or the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the Person that
acquires by conveyance, transfer or lease substantially all of the properties
and assets of the Company (the "Surviving Entity") shall be a corporation
organized and validly existing under the laws of the United States or any
State thereof or the District of Columbia; (ii) if the Company is not the
surviving corporation, the Surviving Entity assumes all the obligations of the
Company under the Notes and the Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction, no Default or Event of Default exists; (iv) except in the case of
a merger of the Company with or into a Wholly Owned Restricted Subsidiary of
the Company or a merger entered into solely for the purpose of reincorporating
the Company in another jurisdiction, the Company or the Surviving Entity, as
the case may be, (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction
had occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Debt pursuant to the
Consolidated Fixed Charge Coverage Ratio test set forth in the first paragraph
of the covenant described above under the caption "--Incurrence of Debt and
Issuance of Preferred Stock"; and (v) the Company or the Surviving Entity, as
the case may be, shall have delivered to the Trustee an Officers' Certificate
and an opinion of counsel, each stating that such consolidation, merger, sale,
assignment transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of the Indenture
and that all conditions precedent in the Indenture relating to such
transaction have been satisfied.
The Indenture provides that each Guarantor (other than any Guarantor whose
Guarantee is to be released in accordance with the terms of the Guarantee and
the Indenture in connection with any transaction complying with the provisions
of "--Asset Sales") will not, and the Company will not cause or permit any
Guarantor to, consolidate with or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of
its properties or assets to any Person other than the Company or any other
Guarantor unless: (i) such Guarantor is the surviving corporation or the
Person (if other than a Guarantor) formed by such
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consolidation or into which such Guarantor is merged or the Person that
acquires by conveyance, transfer or lease substantially all of the properties
and assets of such Guarantor shall be a corporation organized and existing
under the laws of the United States or any State thereof or the District of
Columbia; (ii) such entity or Person formed by or surviving any such
consolidation or merger (if other than the Guarantor) or the entity or Person
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made assumes all of the obligations of the
Guarantor under the Guarantee pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee; (iii) immediately after giving effect
to such transaction, no Default or Event of Default exists; and (iv)
immediately after giving effect to such transaction, the Company could satisfy
the provisions of clause (iv) of the first paragraph of this covenant. Any
merger or consolidation of a Guarantor with and into the Company (with the
Company being the surviving entity) or another Guarantor need only comply with
clauses (iv)(A) and (v) of the first paragraph of this covenant.
Transactions with Related Persons.
The Company will not, nor will it permit any of its Restricted Subsidiaries
to, directly or indirectly (i) sell, lease, transfer or otherwise dispose of
any of its property to, (ii) purchase any property from, (iii) make any
Investment in, or (iv) enter into or amend any contract, agreement or
understanding with, or for the benefit of, any of its Related Persons (each a
"Related Person Transaction"), other than Related Person Transactions that are
no less favorable to the Company or such Restricted Subsidiary than those that
could be obtained in a comparable arm's length transaction by the Company or
such Restricted Subsidiary from an unrelated party; provided that the Company
delivers to the Trustee (A) with respect to any Related Person Transaction (or
series of Related Person Transactions which are similar or part of a common
plan) involving aggregate payments in excess of $5.0 million, a resolution of
the Board of Directors set forth in an Officers' Certificate certifying that
such Related Person Transaction complies with the preceding sentence and such
Related Person Transaction was approved by a majority of the disinterested
members of the Board of Directors of the Company and (B) with respect to any
Related Person Transaction (or series of Related Person Transactions which are
similar or part of a common plan) involving aggregate payments in excess of
$10.0 million, an affirmative opinion as to the fairness to the Company or
such Restricted Subsidiary, as the case may be, from a financial point of view
issued by a nationally recognized accounting, appraisal, investment banking or
consulting firm that is, in the judgment of the Board of Directors of the
Company, independent and qualified to render such opinion. The foregoing
restrictions shall not apply to: (i) any transactions between Wholly Owned
Restricted Subsidiaries of the Company, or between the Company and any Wholly
Owned Restricted Subsidiary of the Company, if such transaction is not
otherwise prohibited by the terms of the Indenture; (ii) Restricted Payments
permitted under the covenant described above under the caption "--Restricted
Payments"; (iii) customary directors' fees, indemnification and similar
arrangements, employee salaries, bonuses or employment agreements,
compensation or employee benefit arrangements and incentive arrangements with
any officer, director or employee of the Company or any Restricted Subsidiary
entered into in the ordinary course of business (including customary benefits
thereunder); (iv) transactions undertaken pursuant to the Management Agreement
and the Tax Sharing Agreement; (v) the issue and sale by the Company to its
stockholders of Equity Interests other than Disqualified Stock; (vi) the
incurrence of intercompany Debt permitted pursuant to "--Incurrence of Debt
and Issuance of Preferred Stock" above; (vii) customary indemnification and
similar arrangements with any officer, director or employee of Globe Holdings
relating to the business, operations or ownership of the Company; (viii) the
pledge of Equity Interests of Unrestricted Subsidiaries to support the Debt
thereof; (ix) transactions that are permitted by the provisions of the
Indenture described above under the caption "--Merger, Consolidation and Sale
of Assets;" (x) transactions effected as a part of a Qualified Securitization
Transaction; (xi) transactions with customers, clients, suppliers, joint
venture partners or purchasers or sellers of goods and services, in each case
in the ordinary course of business (including, without limitation, pursuant to
joint venture agreements) and otherwise in compliance with the terms of the
Indenture which are on terms at least as favorable as might reasonably have
been obtained at such time from an unaffiliated party; and (xii) transactions
undertaken pursuant to the Asset Drop Down.
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Payment Restrictions Affecting Restricted Subsidiaries.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i) (A) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1)
on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (B) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (A) Existing Debt, (B) the Senior Credit Facility as in
effect on the date of the Indenture, and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are not materially more restrictive taken as a whole with respect
to such dividend and other payment restrictions than those contained in the
Senior Credit Facility as in effect on the date of the Indenture (as
determined by the Board of Directors of the Company in its reasonable and good
faith judgment), (C) the Indenture and the Notes, (D) applicable law, (E) any
instrument governing Debt or Capital Stock of a Person acquired by the Company
or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Debt was incurred or such encumbrance
or restriction was established in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, provided that, in the case
of Debt, such Debt was permitted by the terms of the Indenture to be incurred,
(F) customary non-assignment provisions in leases and
other agreements entered into in the ordinary course of business and
consistent with past practices, restricting assignment or restricting
transfers of non-cash assets, (G) Purchase Money Obligations for property
acquired in the ordinary course of business and other Liens permitted by the
Indenture, in each case that impose restrictions of the nature described in
clause (iii) above on the property so acquired (or subject to such Liens), (H)
Debt permitted under clause (x) of the second paragraph under the covenant
described above under the caption "--Incurrence of Debt and Issuance of
Preferred Stock," (I) Permitted Refinancing Debt, provided that the
restrictions contained in the agreements governing such Permitted Refinancing
Debt are not materially more restrictive taken as a whole than those contained
in the agreements governing the Debt being refinanced (as determined by the
Board of Directors of the Company in its reasonable and good faith judgment),
(J) contracts for the sale of assets or Equity Interests to the extent that
any such contract imposes restrictions of the nature described in clause (iii)
above on the property to be sold, (K) any pledge by the Company or a
Restricted Subsidiary of the Equity Interests of an Unrestricted Subsidiary to
support the Debt thereof, (L) secured Debt otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the caption
"--Liens" that limits the right of the debtor to dispose of the assets
securing such Debt, (M) provisions with respect to the disposition or
distribution of assets or property in joint venture agreements and other
similar agreements entered into in the ordinary course of business, (N)
restrictions on cash or other deposits or net worth imposed by customers under
contracts entered into in the ordinary course of business, (O) any Debt or
other contractual requirements of a Securitization Entity in connection with a
Qualified Securitization Transaction; provided that such restrictions apply
only to such Securitization Entity, (P) other Debt of a Restricted Subsidiary
that is a Guarantor permitted to be incurred subsequent to the date of the
Indenture pursuant to the provisions of the covenants described above under
the caption "--Incurrence of Debt and Issuance of Preferred Stock"; provided
that any such restrictions are ordinary and customary with respect to the type
of Debt or preferred stock being incurred or issued (under the relevant
circumstances), or (Q) any encumbrances or restrictions imposed by any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings of the contracts, instruments or
obligations referred to in clauses (A) through (P) above, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of
the Board of Directors, not materially more restrictive with respect to such
dividend and other payment restrictions than those contained in the dividend
or other payment restrictions prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding, replacement or
refinancing.
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Incurrence of Senior Subordinated Indebtedness.
The Indenture provides that (i) the Company will not, directly or
indirectly, incur, create, issue, assume, guarantee or otherwise become liable
for any Debt that is expressly subordinated or junior in right of payment to
any Senior Debt of the Company and senior in any respect in right of payment
to the Notes, and (ii) the Company will not, directly or indirectly, permit
any Guarantor to incur, create, issue, assume, guarantee or otherwise become
liable for any Debt that is expressly subordinated or junior in right of
payment to its Guarantor Senior Debt and senior in any respect in right of
payment to its Guarantee.
Limitation of Guarantees by Restricted Subsidiaries.
The Company will not permit any of its Restricted Subsidiaries, directly or
indirectly, by way of the pledge of any intercompany note or otherwise to
assume, guarantee or in any other manner become liable with respect to any
Debt of the Company or any other Restricted Subsidiary (other than any
guarantee by a Foreign Restricted Subsidiary of Debt of another Foreign
Restricted Subsidiary permitted under "--Incurrence of Debt and Issuance of
Preferred Stock" above) unless, in any such case (i) such Restricted
Subsidiary, if it is not a Guarantor, executes and delivers a supplemental
indenture to the Indenture, providing a Guarantee and (ii) (A) if any such
assumption, guarantee or other liability of such Restricted Subsidiary is
provided in respect of Senior Debt or Guarantor Senior Debt, the guarantee or
other instrument provided by such Restricted Subsidiary in respect of such
Senior Debt or Guarantor Senior Debt may be superior to the Guarantee pursuant
to subordination provisions no less favorable in any material respect to the
Holders than those contained in the Indenture and (B) if such assumption,
guarantee or other liability of such Restricted Subsidiary is provided in
respect of Debt that is expressly subordinated to the Notes, the guarantee or
other instrument provided by such Restricted Subsidiary in respect to such
subordinated Debt shall be subordinated to the Guarantee pursuant to
subordination provisions no less favorable in any material respect to the
Holders than those contained in the Indenture.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary
of the Notes pursuant to the foregoing paragraph shall provide by its terms
that it shall be automatically and unconditionally released and discharged,
without any further action required on the part of the Trustee or any Holder,
upon: (i) the unconditional release of such Restricted Subsidiary from its
liability in respect of the Debt in connection with which such Guarantee was
executed and delivered pursuant to the preceding paragraph (including any Debt
in respect of the Senior Credit Facility); or (ii) any sale or other
disposition (by merger or otherwise) to any Person which is not a Restricted
Subsidiary of the Company of all of the Company's Capital Stock in, or all or
substantially all of the assets of, such Restricted Subsidiary or the parent
of such Restricted Subsidiary; provided that (A) such sale or disposition of
such Capital Stock or assets is otherwise in compliance with the terms of the
Indenture and (B) such assumption, guarantee or other liability of such
Restricted Subsidiary has been released by the holders of the other Debt so
guaranteed or (iii) such Guarantor becoming an Unrestricted Subsidiary in
accordance with the Indenture.
Asset Sales.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash, Cash Equivalents or properties and assets to be used
in the Company's business or Equity Interests in a Person that becomes a
Restricted Subsidiary and is received at the time of such disposition;
provided that the amount of any Senior Debt or Guarantor Senior Debt (as shown
on the most recent consolidated balance sheet of the Company) of the Company
or any Guarantor that is assumed by the transferee of any such assets pursuant
to a customary novation agreement or other agreement that releases or
indemnifies the Company or such Guarantor from further liability shall be
deemed to be cash for purposes of this provision.
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Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Restricted Subsidiary may apply such Net Proceeds at its
option, (i) to permanently repay, reduce, or secure letters of credit in
respect of, Senior Debt and/or Guarantor Senior Debt (and to correspondingly
reduce commitments with respect thereto in the case of revolving borrowings),
and/or (ii) to the acquisition of a controlling interest in another business,
the making of a capital expenditure or Permitted Investment or the acquisition
of other assets, in each case, for use in the same or a similar line of
business as the Company or any Restricted Subsidiary was engaged in on the
date of such Asset Sale or reasonable extensions thereof. Pending the final
application of any such Net Proceeds, the Company or such Restricted
Subsidiary may temporarily reduce indebtedness under the Senior Credit
Facility (or any alternative or subsequent revolving credit agreement where
borrowings thereunder constitute Senior Debt and/or Guarantor Senior Debt) or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
Indenture. Any Net Proceeds from Asset Sales that are not applied or invested
as provided in the first sentence of this paragraph will be deemed to
constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company will be required to make an offer (an "Asset Sale Offer") to all
Holders of Notes and holders of any other Pari Passu Debt outstanding with
provisions requiring the Company to make an offer to purchase or redeem such
indebtedness with the proceeds from any Asset Sale as follows: (i) the Company
will make an offer to purchase from all holders of the Notes in accordance
with the procedures set forth in the Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of Notes that may be purchased out of an
amount (the "Note Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the Notes, and the denominator of which is the sum of the
outstanding principal amount of the Notes and such Pari Passu Debt (subject to
proration in the event such amount is less than the aggregate Asset Sale
Offered Price (as defined herein) of all Notes tendered), and (ii) to the
extent required by such Pari Passu Debt to permanently reduce the principal
amount of such Pari Passu Debt, the Company will make an offer to purchase or
otherwise repurchase or redeem Pari Passu Debt (an "Asset Sale Pari Passu
Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess of the
Excess Proceeds over the Note Amount; provided that in no event will the
Company be required to make an Asset Sale Pari Passu Offer in a Pari Passu
Debt Amount exceeding the principal amount of such Pari Passu Debt plus the
amount of any premium required to be paid to repurchase such Pari Passu Debt.
The offer price for the Notes will be payable in cash in an amount equal to
100% of the principal amount of the Notes, plus accrued and unpaid interest,
if any, to the date (the "Asset Sale Offer Date") such Asset Sale Offer is
consummated (the "Asset Sale Offered Price"), in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate Asset
Sale Offered Price of the Notes tendered pursuant to the Asset Sale Offer is
less than the Note Amount relating thereto or the aggregate amount of Pari
Passu Debt that is purchased in an Asset Sale Pari Passu Offer is less than
the Pari Passu Debt Amount, the Company may use any remaining Excess Proceeds
for any purpose not otherwise prohibited by the Indenture. If the aggregate
principal amount of Notes and Pari Passu Debt surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to
be purchased on a pro rata basis. Upon the completion of the purchase of all
the Notes tendered pursuant to an Asset Sale Offer and the completion of a
Pari Passu Offer, the amount of Excess Proceeds, if any, shall be reset at
zero.
The Indenture provides that, if the Company becomes obligated to make an
Asset Sale Offer pursuant to the immediately preceding paragraph, the Notes
and the Pari Passu Debt shall be purchased by the Company, at the option of
the holders thereof, in whole or in part in integral multiples of $1,000, on a
date that is not earlier than 30 days and not later than 60 days from the date
the notice of the Asset Sale Offer is given to holders, or such later date as
may be necessary for the Company to comply with the requirements under the
Exchange Act.
The Indenture provides that the Company will comply with the applicable
tender offer rules, including Rule 14e-1 under the Exchange Act, and any other
applicable securities laws or regulations in connection with an Asset Sale
Offer. To the extent that the provisions of any securities laws or regulations
conflict with the "Asset Sale" provisions of the Indenture, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under such provisions of the Indenture
by virtue thereof.
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Issuance and Sale of Capital Stock of Restricted Subsidiaries.
The Indenture provides that the Company (i) will not, and will not permit
any Restricted Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Restricted Subsidiary to any
Person (other than to the Company or a Wholly Owned Restricted Subsidiary) and
(ii) will not permit any Restricted Subsidiary to issue any of its Capital
Stock to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary, in each case unless the Net Proceeds from such transfer, sale or
other disposition are applied in accordance with "--Asset Sales."
Conduct of Business.
The Company and its Restricted Subsidiaries will not engage in any
businesses which are not the same, similar or related to the businesses in
which the Company and its Restricted Subsidiaries are engaged as of the Issue
Date (or any reasonable extension or expansion thereof), except to such extent
as would not be material to the Company and its Restricted Subsidiaries taken
as a whole.
Guarantors.
The Indenture provides that so long as any Notes remain outstanding, any
Restricted Domestic Subsidiary shall (i) execute and deliver to the Trustee a
supplemental indenture in form reasonably satisfactory to the Trustee pursuant
to which such Restricted Domestic Subsidiary shall unconditionally guarantee
all of the Company's obligations under the Notes and the Indenture on the
terms set forth in the Indenture and (ii) deliver to the Trustee an opinion of
counsel that such supplemental indenture has been duly authorized, executed
and delivered by such Restricted Domestic Subsidiary and constitutes a legal,
valid, binding and enforceable obligation of such Restricted Domestic
Subsidiary. Thereafter, such Restricted Domestic Subsidiary shall be a
Guarantor for all purposes of the Indenture. The Company has no existing
Restricted Domestic Subsidiaries and therefore the Notes are not, at present,
guaranteed.
If all the Capital Stock of any Guarantor is sold to a Person (other than
the Company or any of its Restricted Subsidiaries) and the Net Proceeds from
such Asset Sale are used in accordance with the terms of the covenant
described under "--Asset Sales," then such Guarantor will be released and
discharged from all of its obligations under its Guarantee of the Notes and
the Indenture.
Limitation on Sale and Lease-Back Transactions.
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, enter into any Sale and Lease-Back
Transaction; provided that the Company or any Guarantor may enter into a Sale
and Lease-Back Transaction if: (i) the Company could have (A) incurred Debt in
an amount equal to the Attributable Debt relating to such Sale and Lease-Back
Transaction pursuant to the Consolidated Fixed Charge Coverage Ratio test set
forth in the first paragraph of the covenant described above under the caption
"--Incurrence of Debt and Issuance of Preferred Stock" and (B) incurred a Lien
to secure such Debt pursuant to the covenant described above under the caption
"--Liens;" (ii) the gross cash proceeds of such Sale and Lease-Back
Transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors pursuant to a Board Resolution) of the
property that is the subject of such Sale and Lease-Back Transaction; and
(iii) the transfer of assets in such Sale and Lease-Back Transaction is
permitted by, and the Company applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--Asset
Sales. "
Rule 144A Information Requirement.
The Company will furnish to the Holders or beneficial holders of the Notes
and prospective purchasers of Notes designated by the Holders, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act for so long as is required for an offer or sale of
the Notes to qualify for an exemption under Rule 144A.
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Reports.
The Company will deliver to the Trustee within 15 days after the filing of
the same with the Commission, copies of the quarterly and annual reports and
of the information, documents and other reports, if any, which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the
Trustee and the Holders with such quarterly and annual reports and such
information, documents and other reports specified in Sections 13 and 15(d) of
the Exchange Act. The Company will also comply with the other provisions of
Section 314(a) of the Trust Indenture Act.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Accounts Receivable Subsidiary" means any Subsidiary of the Company that
is, directly or indirectly, wholly owned by the Company (other than director
qualifying shares) and organized solely for the purpose of and engaged in (i)
purchasing, financing and collecting accounts receivable obligations of
customers of the Company or its Subsidiaries, (ii) the sale or financing or
such accounts receivable or interest therein and (iii) other activities
incident thereto.
"Acquired Debt" means, with respect to any specified Person, (i) Debt of any
other Person existing at the time such other Person is merged with or into or
became a Restricted Subsidiary of such specified Person, including, without
limitation, Debt incurred in connection with, or in contemplation of, such
other Person merging with or into or becoming a Restricted Subsidiary of such
specified Person, and (ii) Debt secured by a Lien encumbering any asset
acquired by such specified Person which, in each case, is not repaid at or
within five days following the date of such acquisition.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise.
Notwithstanding the foregoing, no Person (other than the Company or any
Subsidiary of the Company) in whom a Securitization Entity makes an Investment
in connection with a Qualified Securitization Transaction shall be deemed to
be an Affiliate of the Company or any of its Subsidiaries solely by reason of
such Investment.
"Asset Sale" means (i) the sale, lease (other than operating leases entered
into in the ordinary course of business), conveyance or other disposition of
any assets or rights (including, without limitation, by way of a Sale and
Lease-Back Transaction) other than in the ordinary course of business
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole will be governed by the provisions of the Indenture described
above under the caption "Repurchase at the Option of Holders Upon Change of
Control" and/or the provisions described above under the caption "--Certain
Covenants--Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant), and (ii) the issue or sale by the Company or any
of its Restricted Subsidiaries of Equity Interests of any of the Company's
Restricted Subsidiaries (to the extent such Equity Interests are held by the
Company or another Restricted Subsidiary of the Company), in the case of
either clause (i) or (ii), whether in a single transaction or a series of
related transactions that (x) have a fair market value in excess of $1.0
million or (y) generate net proceeds in excess of $1.0 million.
Notwithstanding the foregoing, the following shall not be deemed to constitute
Asset Sales: (i) sales of accounts receivable, equipment and related assets
(including
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contract rights) of the type specified in the definition of "Qualified
Securitization Transaction" to a Securitization Entity for the fair market
value thereof, including cash in an amount at least equal to 75% of the fair
market value thereof as determined in accordance with GAAP; (ii) transfers of
accounts receivable, equipment and related assets (including contract rights)
of the type specified in the definition of "Qualified Securitization
Transaction" (or a fractional undivided interest therein) by a Securitization
Entity in a Qualified Securitization Transaction (for the purposes of this
clause (ii), Purchase Money Notes shall be deemed to be cash); (iii) a
transfer of assets by the Company to a Restricted Subsidiary or by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary; (iv)
a disposition of inventory held for sale in the ordinary course of business or
obsolete, worn out or damaged property or equipment in the ordinary course of
business; (v) an issuance of Equity Interests by a Restricted Subsidiary to
the Company or to another Restricted Subsidiary; (vi) a Restricted Payment or
Permitted Investment that is permitted by the covenant described above under
the caption "--Certain Covenants--Restricted Payments"; (vii) the sale or
discount, in each case without recourse, of accounts receivable arising in the
ordinary course of business, but only in connection with the compromise or
collection thereof; (viii) the grant in the ordinary course of business of any
non-exclusive license of patents, trademarks, registrations therefor and other
similar intellectual property and (ix) sales of accounts receivable for cash
at fair market value, and any sale, conveyance or transfer of accounts
receivable in the ordinary course of business to an Accounts Receivable
Subsidiary or to third parties that are not Affiliates of the Company or any
Subsidiary of the Company.
"Asset Sale Offer" shall have the definition set forth under "--Certain
Covenants--Asset Sales."
"Asset Sale Offer Date" shall have the definition set forth under "--Certain
Covenants--Asset Sales."
"Asset Sale Offered Price" shall have the definition set forth under "--
Certain Covenants--Asset Sales."
"Asset Sale Pari Passu Offer" shall have the definition set forth under "--
Certain Covenants--Asset Sales."
"Attributable Debt" in respect of a Sale and Lease-Back Transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such Sale and Lease-Back Transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Board Resolution" means a copy of a resolution certified pursuant to an
Officers' Certificate to have been duly adopted by the Board of Directors of
the Company or a Restricted Subsidiary of the Company, as appropriate, and to
be in full force and effect, and delivered to the Trustee.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and
Eurodollar time deposits with maturities of one year or less from the date of
acquisition, bankers' acceptances with maturities not exceeding one year and
overnight bank deposits, in each case with any lender party to the Senior
Credit Facility or with
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any domestic commercial bank having capital and surplus in excess of $500.0
million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within one year after the date of acquisition, (vi) marketable direct
obligations issued by any state of the United States or any political
subdivision, or public instrumentality of such state, in each case having
maturities of not more than one year from the date of acquisition and, at the
time of acquisition thereof, having one of the two highest ratings obtainable
from either Moody's Investors Service, Inc. or Standard & Poor's Corporation,
and (vii) money market, mutual or similar funds which invest substantially all
of their assets in securities of the type described in clauses (i) through
(vi) above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act), or group of related persons, together with any Affiliates
thereof (other than Permitted Holders), (ii) the adoption by the Company of a
plan relating to the liquidation or dissolution of the Company, (iii) the
first day on which a majority of the members of the Board of Directors of the
Company or Globe Holdings (for so long as Globe Holdings beneficially owns a
majority of any class of the Voting Stock of the Company) are not Continuing
Directors, or (iv) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) or group of related persons, together with any
Affiliates thereof (other than Permitted Holders) becomes the "beneficial
owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the
Exchange Act), directly or indirectly, of more than 50% (measured by voting
power rather than number of shares) of the Voting Stock of the Company or
Globe Holdings (for so long as Globe Holdings beneficially owns a majority of
any class of the Voting Stock of the Company).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication, (i) an amount equal to any extraordinary loss plus any net loss
realized in connection with an Asset Sale (to the extent such losses were
deducted in computing such Consolidated Net Income and without regard to the
$1.0 million threshold in the definition thereof), plus (ii) provision for
taxes based on income or profits of such Person and its Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Restricted Subsidiaries for such period (including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations) to the extent that any such expense was
deducted in computing such Consolidated Net Income, plus (iv) the consolidated
net interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period to the extent that any such expense was
deducted in computing such Consolidated Net Income, plus (v) depreciation,
amortization (including amortization of goodwill and other intangibles) and
other non-cash expenses (excluding any such non-cash expense to the extent
that it represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (vi) other non-
recurring non-cash items increasing such Consolidated Net Income for such
period (which will be added back to Consolidated Cash Flow in any subsequent
period to the extent cash is received in respect of such item in such
subsequent period), in each case, on a consolidated basis and determined in
accordance with GAAP. Notwithstanding the foregoing, "Consolidated Cash Flow"
shall be calculated without giving effect to amortization or depreciation of
any amounts required or permitted by Accounting Principles Board Opinion Nos.
16 (including non-cash write-ups and non-cash charges relating to
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inventory and fixed assets, in each case arising in connection with any
acquisition permitted under the Indenture) and 17 (including non-cash charges
relating to intangibles and goodwill arising in connection with any such
acquisition).
"Consolidated Fixed Charge Coverage Ratio" means with respect to any Person
for any period, the ratio of the Consolidated Cash Flow of such Person for
such period to the Consolidated Fixed Charges of such Person for such period.
In the event that the Company or any of its Restricted Subsidiaries incurs,
assumes, guarantees, repays or redeems any Debt (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the
commencement of the period for which the Consolidated Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which
the calculation of the Consolidated Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Consolidated Fixed Charge Coverage Ratio shall
be calculated giving pro forma effect to such incurrence, assumption,
guarantee, repayment or redemption of Debt, or such issuance or redemption of
preferred stock, as if the same had occurred at the beginning of the
applicable four-quarter reference period. In addition, for purposes of making
the computation referred to above, (i) acquisitions or Asset Sales that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to
have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded,
and (iii) the Consolidated Fixed Charges attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Consolidated Fixed
Charges will not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date. In calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (i)
interest on Debt determined on a fluctuating basis as of the Calculation Date
and which will continue to be so determined thereafter shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest on such Debt
in effect on the Calculation Date; (ii) if interest on any Debt actually
incurred on the Calculation Date may be optionally determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate or other rates, then the interest rate in effect on the
Calculation Date will be deemed to have been in effect during the relevant
four-quarter period reference; and (iii) notwithstanding the foregoing,
interest on Debt determined on a fluctuating basis, to the extent such
interest is covered by agreements relating to Interest Swap Obligations, shall
be deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) the consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid
or accrued (including, without limitation, amortization of debt issuance costs
(other than those debt issuance costs incurred on the Issue Date in connection
with the Transactions) and original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations) and (ii) the consolidated interest expense of such Person and its
Restricted Subsidiaries that was capitalized during such period, and (iii) any
interest expense on Debt of another Person that is guaranteed by such Person
or one of its Restricted Subsidiaries or secured by a Lien on assets of such
Person or one of its Subsidiaries (whether or not such guarantee or Lien is
called upon) and (iv) all dividend payments, whether or not in cash, on any
series of preferred stock of such Person or any of its Restricted Subsidiaries
(other than dividend payments on Equity Interests payable solely in Equity
Interests (other than Disqualified Stock) of the Company) paid or accrued
during such period.
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"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
its stockholders, (iii) the Net Income (or loss) of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded, (iv) the cumulative effect of a change in
accounting principles adopted after the Issue Date shall be excluded, (v) any
restoration to Net Income of any contingency reserve of an extraordinary,
nonrecurring or unusual nature, except to the extent that provision for such
reserve was made out of Consolidated Net Income accrued at any time following
the Issue Date, shall be excluded, (vi) in the case of a successor to the
referent Person by consolidation or merger or as a transferee of the referent
Person's assets, any earnings of the successor corporation prior to such
consolidation, merger or transfer of assets shall be excluded, (vii) non-cash
compensation charges arising upon the issuance or exercise of employee stock
options or Capital Stock (other than Disqualified Stock) shall be excluded and
(viii) all extraordinary gains and extraordinary losses and any unusual or
non-recurring charges recorded or accrued in connection with the Transactions
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the ordinary shareholders of such
Person and its consolidated Subsidiaries as of such date and (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (A) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (B) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (C) all unamortized debt discount
and expense and unamortized deferred charges as of such date, all of the
foregoing determined in accordance with GAAP.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of the Company or Globe Holdings, as the case may be,
who (i) was a member of such Board of Directors on the date of the Indenture,
(ii) was nominated for election or elected to such Board of Directors with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election or (iii) was nominated for
election or elected to such Board of Directors by or with the approval of the
Permitted Holders.
"Credit Facilities" means, with respect to the Company or any Subsidiary,
one or more debt facilities (including, without limitation, the Senior Credit
Facility) or commercial paper facilities with banks or other lenders providing
for revolving credit loans, term loans, receivables financing (including
through the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables), bankers
acceptance or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to
time. Debt under Credit Facilities outstanding on the date on which Notes are
first issued and authenticated under the Indenture shall be deemed to have
been incurred on such date in reliance on the exception provided by clause (i)
of the definition of Permitted Debt.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
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"Debt" means, with respect to any Person, any indebtedness of such Person,
whether or not contingent, in respect of borrowed money or evidenced by bonds,
notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, as well as all Debt of
others secured by a Lien on any asset of such Person (whether or not such Debt
is assumed by such Person) and, to the extent not otherwise included, the
guarantee by such Person of any Debt of any other Person (but excluding, with
respect to Debt of a Securitization Entity, any Standard Securitization
Undertakings that might be deemed to constitute guarantees). The amount of any
Debt outstanding as of any date shall be (i) the accrued or accreted value
thereof, in the case of any Debt that does not require current payments of
interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other Debt. For
purposes of calculating the amount of Debt of a Securitization Entity
outstanding as of any date, the face or notional amount of any interest in
receivables or equipment that is outstanding as of such date shall be deemed
to be Debt but any such interests held by Affiliates of such Securitization
Entity shall be excluded for purposes of such calculation.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Debt under the Senior Credit Facility
and (ii) any other Senior Debt or Guarantor Senior Debt permitted under the
Indenture the principal amount of which is $10.0 million or more and that has
been expressly designated by the Company in such Senior Debt or Guarantor
Senior Debt instrument as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
first anniversary of the Stated Maturity of the Notes; provided, however, that
any Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such
Capital Stock upon the occurrence of a Change of Control or an Asset Sale
shall not constitute Disqualified Stock if the terms of such Capital Stock
provide that the Company may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
the covenant described above under the caption "--Certain Covenants--
Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means a bona fide underwritten sale to the public of
Equity Interests (other than Disqualified Stock) of the Company or of Globe
Holdings (to the extent the net proceeds thereof are contributed to the
Company as common equity) pursuant to a registration statement (other than on
Form S-8 or any other form relating to securities issuable under any benefit
plan of the Company or Globe Holdings, as the case may be) that is declared
effective by the Commission.
"Existing Debt" means up to $500,000 in aggregate principal amount of Debt
of the Company and its Restricted Subsidiaries (other than Debt under the
Senior Credit Facility) in existence on the date of the Indenture, until such
amounts are repaid.
"Foreign Subsidiary" means any Subsidiary not organized or validly existing
under the laws of the United States or any state thereof or the District of
Columbia.
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"Foreign Restricted Subsidiary" means any Foreign Subsidiary that is a
Restricted Subsidiary.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"Globe Holdings" means Globe Holdings, Inc., a Massachusetts corporation,
and its successors and assigns.
"guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any Debt.
"Guarantor Senior Debt" means, with respect to any Guarantor, (i) all Debt
of such Guarantor under the Senior Credit Facility and all Hedging Obligations
with respect thereto (including, but not limited to, the principal of,
premium, if any, interest (including any interest accruing subsequent to a
filing of a petition of bankruptcy at the rate provided for in documentation
with respect thereto, whether or not such interest is an allowed claim under
applicable law) on, reimbursement obligations under letters of credit issued
under, and fees, expenses, indemnities and other amounts owing in respect of,
the foregoing Debt); (ii) any other Debt permitted to be incurred by such
Guarantor under the terms of the Indenture, unless the instrument under which
such Debt is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the Guarantee of such Guarantor and (iii)
all Obligations with respect to the foregoing. Notwithstanding anything to the
contrary in the foregoing, Guarantor Senior Debt will not include (v) Debt
represented by Disqualified Stock, (w) any liability for federal, state, local
or other taxes owed or owing by any Guarantor, (x) any Debt of a Guarantor to
any of its Subsidiaries or other Affiliates, (y) any trade payables or (z)
that portion of any Debt that is incurred in violation of the Indenture.
"Guarantor" means each of the Company's Restricted Domestic Subsidiaries
that executes a supplemental indenture in which such Restricted Domestic
Subsidiaries agree to be bound by the terms of the Indenture as a Guarantor;
provided that any Person constituting a Guarantor as described above shall
cease to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of the Indenture. The Company has no existing
Restricted Domestic Subsidiaries and therefore the Notes are not, at present,
guaranteed.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under Interest Swap Agreements and Currency Agreements.
"Interest Swap Agreements" means any interest rate swap agreement, interest
rate cap agreement, interest rate floor agreement, interest rate collar
agreement, treasury rate-lock agreement or other similar agreement or
arrangement designed to protect the Company or any Restricted Subsidiary of
the Company from fluctuations in interest rates.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any Interest Swap Agreement with any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Debt or other obligations), advances
or capital contributions (excluding commission, travel and similar advances to
officers and employees and extensions of trade credit made in the ordinary
course of business), purchases or other acquisitions for consideration of
Debt, Equity Interests or other securities, together with all items that are
or would be classified as investments on a balance sheet prepared in
accordance with GAAP.
"Issue Date" means July 31, 1998, the date of original issuance of the
Notes.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Limited Originator Recourse" means a reimbursement obligation of the
Company or a Restricted Subsidiary in connection with a drawing on a letter of
credit, revolving loan commitment, cash collateral account or other such
credit enhancement issue to support Debt of a Securitization Entity under a
facility for the financing of trade receivables and the warehousing of
equipment loans and leases; provided that the available amount of any such
form of credit enhancement at any time shall not exceed 10.0% of the principal
amount of such Debt at such time.
"Management Agreement" means the Management Agreement between the Company
and CHS Management III, L.P., dated as of July 31, 1998, as in effect on the
date of the Indenture or as thereafter amended in a manner that is not adverse
to the Company or the Holders of the Notes.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to Sale and Lease-Back Transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Debt of such Person or any of its
Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash and Cash Equivalents received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale),
net of (i) the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, (ii)
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), (iii)
any reserve for adjustment in respect of the sale price of such asset or
assets established in accordance with GAAP, or against any liabilities
associated with the Asset Sale, or the assets subject thereto, and retained by
the Company or any Restricted Subsidiary, and (iv) amounts required to be
applied to the repayment of Debt secured by a Lien on the asset or assets that
were the subject of such Asset Sale, or to the satisfaction of contractual
obligations either existing at the date of the Indenture, or entered into
after the date of the Indenture in connection with the payment of deferred
purchase price of the properties or assets that were the subject of such Asset
Sale.
"Non-Recourse Debt" means Debt (i) as to which neither the Company nor any
of its Restricted Subsidiaries (A) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Debt), (B) is directly or indirectly liable (as guarantor or otherwise), or
(C) constitutes the lender; and (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Debt (other than the Notes being offered
hereby) of the Company or any of its Restricted Subsidiaries to declare a
default on such other Debt or cause the payment thereof to be accelerated or
payable prior to its stated maturity.
"Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Debt.
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"Officers' Certificate" means with respect to any Person, a certificate
signed by the Chairman, Vice Chairman, Chief Executive Officer, the President
or any Vice President and the Chief Financial Officer, Controller or the
Treasurer of such Person that shall comply with applicable provisions of the
Indenture.
"Pari Passu Debt" shall mean (i) any Debt of the Company that is pari passu
in right of payment to the Notes and (ii) with respect to any Guarantee of the
Notes, Debt which ranks pari passu in right of payment to such Guarantee.
"Pari Passu Debt Amount" shall have the definition set forth under "--
Certain Covenants--Asset Sales."
"Permitted Holders" means (i) Code, Hennessy & Simmons, Inc., (ii) Code
Hennessy & Simmons LLC, (iii) Code, Hennessy & Simmons III, L.P. and (iv)
their respective affiliates.
"Permitted Investments" means (i) any Investment in the Company or in a
Restricted Subsidiary of the Company that is engaged in the same or a similar
line of business as the Company and its Restricted Subsidiaries (or reasonable
extensions or expansions thereof); (ii) any Investment in Cash Equivalents;
(iii) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment (A) such Person becomes
a Restricted Subsidiary of the Company that is engaged in the same or a
similar line of business as the Company and its Restricted Subsidiaries (or
reasonable extensions or expansions thereof) or (B) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company that is engaged in the same or a similar
line of business as the Company and its Restricted Subsidiaries (or reasonable
extensions or expansions thereof); (iv) any Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption "--
Certain Covenants--Asset Sales"; (v) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock)
of the Company; (vi) Investments made in exchange for accounts receivable
arising in the ordinary course of business which have not been collected for
180 days and which are, in the good faith of the Company, substantially
uncollectible, provided that any such Investments in excess of $500,000 shall
be approved by the Board of Directors (evidenced by a Board Resolution set
forth in an Officers' Certificate delivered to the Trustee), (vii) loans and
advances to employees of the Company and its Restricted Subsidiaries in the
ordinary course of business for bona fide business purposes not to exceed $1.0
million in the aggregate at any one time outstanding; (viii) Investments in
Permitted Joint Ventures and Investments in suppliers to the Company and its
Restricted Subsidiaries in an aggregate amount when taken together with all
other Investments pursuant to this clause (viii) does not exceed the greater
of $10.0 million or 10% of Total Assets at any one time outstanding; (ix)
Hedging Obligations entered into in the ordinary course of business and
otherwise in compliance with the Indenture, (x) other Investments in any
Person having an aggregate fair market value (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause
(x) that are at the time outstanding, not to exceed $10.0 million, (xi)
Investments in securities of trade creditors or customers received pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers, (xii) guarantees (A) by the
Company of Debt otherwise permitted to be incurred by Restricted Subsidiaries
of the Company under the Indenture or (B) permitted by the "Limitations on
Guarantees by Subsidiaries" covenant, (xiii) any Investment by the Company or
a Wholly Owned Subsidiary of the Company in a Securitization Entity or any
Investment by a Securitization Entity in any other Person in connection with a
Qualified Securitization Transaction; provided that any Investment in a
Securitization Entity is in the form of a Purchase Money Note or an Equity
Interest and (xiv) Investments received by the Company or its Restricted
Subsidiaries as consideration for asset sales, including Asset Sales; provided
that in the case of an Asset Sale, such Asset Sale is effected in compliance
with the "Limitations on Asset Sales" covenant. For purposes of calculating
the aggregate amount of Permitted Investments permitted to be outstanding at
any one time pursuant to clauses (viii) and (x) of the preceding sentence, (i)
to the extent the consideration for any such Investment consists of Equity
Interests (other than Disqualified Stock) of the Company, the value of the
Equity Interests so issued will be ignored in determining the amount of such
Investment and (ii) the aggregate amount
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of such Investments made by the Company and its Restricted Subsidiaries on or
after the date of the Indenture will be decreased (but not below zero) by an
amount equal to the lesser of (A) the cash return of capital to the Company or
a Restricted Subsidiary with respect to such Investment that is sold for cash
or otherwise liquidated or repaid for cash (less the cost of disposition,
including applicable taxes, if any) and (B) the initial amount of such
Investment.
"Permitted Joint Venture" means any Person which is, directly or indirectly
through its Subsidiaries or otherwise, engaged principally in the principal
business of the Company, or a reasonably related business, and the Capital
Stock of which is owned by the Company and one or more Persons other than the
Company or any Affiliate of the Company.
"Permitted Junior Securities" means (i) Equity Interests in Globe Holdings,
for so long as Globe Holdings owns all of the outstanding Capital Stock of the
Company, or, in all other cases, Equity Interests in the Company or (ii) debt
securities of the Company that are subordinated to all Senior Debt (and any
debt securities issued in exchange for Senior Debt) to the same extent as, or
to a greater extent than, the Notes are subordinated to Senior Debt pursuant
to the Indenture and which, in the case of clauses (i) and (ii), do not mature
or become subject to a mandatory redemption obligation prior to the maturity
of the Notes and do not cause the Notes to be treated in any case or
proceeding or similar event under any bankruptcy or insolvency law as part of
the same class of claims as the Senior Debt.
"Permitted Liens" means (i) Liens to secure obligations in respect of
workers compensation, unemployment, social security, statutory obligations,
surety or appeal bonds or other obligations of a like nature incurred in the
ordinary course of business, (ii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted, (iii) Liens in favor of the Company and any Restricted Subsidiary,
(iv) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business in
respect of obligations not overdue for a period in excess of 30 days or which
are being contested in good faith by appropriate proceedings promptly
instituted and diligently prosecuted, provided that any reserve or other
appropriate provision as shall be required to conform with GAAP shall have
been made therefor, (v) Liens securing Senior Debt (including the Senior
Credit Facility), (vi) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or such Restricted Subsidiary, (vii) Liens on property existing at the
time of acquisition thereof by the Company or any Restricted Subsidiary of the
Company, provided that such liens were in existence prior to the contemplation
of such acquisition, (viii) purchase money Liens to finance property or assets
of the Company or any Restricted Subsidiary of the Company acquired in the
ordinary course of business; provided, however, that (A) the related Purchase
Money Obligations shall not exceed the cost of such property or assets and
shall not be secured by any property or assets of the Company or any
Restricted Subsidiary of the Company other than the property or assets so
acquired and (B) the Lien securing such Debt shall be created within 90 days
of such acquisition, (ix) Liens existing on the date of the Indenture, (x)
judgment Liens not giving rise to an Event of Default, (xi) easements, rights-
of-way, zoning and similar restrictions and other similar encumbrances or
title defects incurred or imposed, as applicable, in the ordinary course of
business and consistent with industry practices which, in the aggregate, are
not substantial in amount, and which do not in any case materially detract
from the value of the property subject thereto (as such property is used by
the Company or its Subsidiaries) or interfere with the ordinary conduct of
business of the Company or such Subsidiaries; provided, however, that any such
Liens are not incurred in connection with any borrowing of money or commitment
to loan any money to or to extend any credit, (xii) Liens on assets
transferred to a Securitization Entity or on assets of a Securitization
Entity, in either case incurred in connection with a Qualified Securitization
Transaction, (xiii) Liens incurred in the ordinary course of business of the
Company or any Restricted Subsidiary of the Company with respect to
obligations that do not exceed $5.0 million at any one time outstanding and
that (A) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit
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in the ordinary course of business) and (B) do not in the aggregate materially
detract from the value of property or materially impair the use thereof in the
operation of business by the Company or such Subsidiary, (xiv) Liens on assets
of Guarantors to secure Guarantor Senior Debt of such Guarantors that were
permitted by the Indenture to be incurred, (xv) Liens on assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries, (xvi) any interest or title of a lessor under any Capital Lease
Obligation, (xvii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other goods,
(xviii) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof, (xix) Liens encumbering
deposits made to secure obligations arising from statutory, regulatory,
contractual or warranty requirements of the Company or any of its Restricted
Subsidiaries, including rights of offset and set-off, (xx) Liens securing
Hedging Obligations, (xxi) leases or subleases granted to others that do not
materially interfere with the ordinary course of business of the Company and
its Restricted Subsidiaries, (xxii) Liens arising from filing Uniform
Commercial Code financing statements regarding operating leases entered into
in the ordinary course of business, (xxiii) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payments of customer
duties in connection with the importation of goods and (xxiv) Liens securing
Debt of Foreign Restricted Subsidiaries incurred in reliance on clause (x) of
the second paragraph of the covenant described above under the caption "--
Incurrence of Debt and Issuance of Preferred Stock."
"Permitted Refinancing Debt" means any Debt of the Company or any of its
Restricted Subsidiaries or any Disqualified Stock issued in exchange for, or
the net proceeds of which are used to extend, refinance, renew, replace,
defease or refund other Debt of the Company or any of its Restricted
Subsidiaries; provided that: (i) the principal amount (or accrued value, if
applicable) of such Permitted Refinancing Debt does not exceed the principal
amount of (or accrued value, if applicable), plus accrued interest on, the
Debt so extended, refinanced, renewed, replaced, defeased or refunded (plus
the amount of reasonable fees and expenses incurred in connection therewith);
(ii) such Permitted Refinancing Debt has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of, the Debt being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Debt being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes or any Guarantee, such Permitted
Refinancing Debt has a final maturity date later than the final maturity date
of, and is subordinated in right of payment to the Notes on terms at least as
favorable to the Holders of Notes or the Guarantees, as applicable, as those
contained in the documentation governing the Debt being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Debt is incurred either
by the Company or by the Restricted Subsidiary who is the obligor on the Debt
being extended, refinanced, renewed, replaced, defeased or refunded or is
Disqualified Stock.
"Purchase Money Notes" means a promissory note of a Securitization Entity
evidencing a line of credit, which may be irrevocable, from the Company or any
Subsidiary of the Company in connection with a Qualified Securitization
Transaction to a Securitization Entity which note shall be repaid from cash
available to the Securitization Entity, other than amounts required to be
established as reserves pursuant to agreements, amounts paid to investors in
respect of interest, principal and other amounts owing to such investors and
amounts paid in connection with the purchase of newly generated receivables or
newly acquired equipment.
"Purchase Money Obligations" of a Person means Debt of such Person incurred
in connection with the purchase, construction or improvement of property,
plant or equipment used in the business of such Person (whether through the
direct purchase of the assets or the Equity Interests of any Person owning
such assets).
"Qualified Securitization Transaction" means any transaction or series of
transactions pursuant to which the Company or any of its Restricted
Subsidiaries may sell, convey or otherwise transfer to (i) a Securitization
Entity (in the case of a transfer by the Company or any of its Restricted
Subsidiaries) and (ii) any other Person (in the case of a transfer by a
Securitization Entity), or may grant a security interest in, any receivables
or
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equipment loans (whether now existing or arising or acquired in the future) of
the Company or any of its Restricted Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such
receivables and equipment loans, all contracts and contract rights and all
guarantees or other obligations in respect of such receivables and equipment
loans, proceeds of such receivables and equipment loans and other assets
(including contract rights) which are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transaction involving receivables and equipment (collectively,
"transferred assets"); provided that in the case of any such transfer by the
Company or any of its Restricted Subsidiaries, the transferor receives cash or
Purchase Money Notes in an amount which (when aggregated with the cash and
Purchase Money Notes received by the Company and its Restricted Subsidiaries
upon all other such transfers of transferred assets during the ninety days
preceding such transfer) is at least equal to 75.0% of the aggregate face
amount of all receivables so transferred during such day and the ninety
preceding days.
"Related Person" means with respect to any Person (i) any Affiliate of such
Person, (ii) any individual or other Person who directly or indirectly is the
registered or beneficial owner of 5% or more of any class of Capital Stock of
such Person or warrants, rights, options or other rights to acquire more than
5% of any class of Capital Stock of such Person, (iii) any relative of such
individual by blood, marriage or adoption not more remote than first cousin
and (iv) any officer or director of such Person.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt.
"Restricted Domestic Subsidiary" means a Restricted Subsidiary organized and
validly existing under the laws of the United States or any state thereof or
the District of Columbia.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payment" means: (i) any dividend or any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or such Restricted
Subsidiary or dividends or distributions payable to the Company or any Wholly
Owned Restricted Subsidiary); (ii) any payment to purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company, any
direct or indirect parent of the Company or any Restricted Subsidiary of the
Company (other than any Equity Interests owned by the Company or any Wholly
Owned Restricted Subsidiary); (iii) any payment to purchase, redeem, defease
or otherwise acquire or retire for value any Subordinated Debt of the Company
or a Restricted Subsidiary, except a payment of interest or principal at
Stated Maturity; and (iv) any Restricted Investment.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal property, which property has been or
is to be sold or transferred by the Company or such Restricted Subsidiary to
such Person in contemplation of such leasing.
"Securitization Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Restricted Subsidiary of the
Company makes an Investment and to which the Company or any Restricted
Subsidiary of the Company transfers receivables or equipment and related
assets) that engages in no activities other than in connection with the
financing of receivables or equipment and that is designated by
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the Board of Directors of the Company (as provided below) as a Securitization
Entity (i) no portion of the Debt or any other Obligations (contingent or
otherwise) of which (A) is guaranteed by the Company or any Restricted
Subsidiary of the Company (other than the Securitization Entity) in any way
other than pursuant to Standard Securitization Undertakings or Limited
Originator Recourse, (B) is recourse to or obligates the Company or any
Restricted Subsidiary of the Company (other than the Securitization Entity) in
any way other than pursuant to Standard Securitization Undertakings or Limited
Originator Recourse or (C) subjects any property or asset of the Company or
any Restricted Subsidiary of the Company (other than the Securitization
Entity), directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to Standard Securitization
Undertakings or Limited Originator Recourse, (ii) with which neither the
Company nor any Restricted Subsidiary of the Company has any material
contract, agreement, arrangement or understanding other than on terms no less
favorable to the Company or such Restricted Subsidiary than those that might
be obtained at the time from Persons that are not Affiliates of the Company,
other than fees payable in the ordinary course of business in connection with
servicing receivables of such entity and (iii) to which neither the Company
nor any Restricted Subsidiary of the Company has any obligation to maintain or
preserve such entity's financial condition or cause such entity to achieve
certain levels of operating results. Any such designation by the Board of
Directors of the Company shall be evidenced by the filing with the Trustee a
Board Resolution of the Company giving effect to such designation and an
Officer's Certificate certifying that such designation complied with the
foregoing conditions.
"Senior Credit Facility" means, the Credit Agreement dated as of July 31,
1998, among the Company, Globe Holdings, the lenders party thereto in their
capacity as such, Bank of America National Trust and Savings Association, as
administrative agent, Merrill Lynch, Pierce, Fenner & Smith, Inc., as
syndication agent, and BancAmerica Robertson Stephens, as arranger, together
with the related documents thereto (including, without limitation, any
guarantee agreements and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without limitation, increasing the amount of available borrowings thereunder
or adding Subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the indebtedness under such agreement or any
successor or replacement agreement, whether by the same or any other agent,
lender or group of lenders, whether contained in one or more agreements.
"Senior Debt" means (i) all Debt of the Company outstanding under the Senior
Credit Facility and all Hedging Obligations with respect thereto (including,
but not limited to, the principal of, premium, if any, interest (including any
interest accruing subsequent to a filing of a petition of bankruptcy at the
rate provided for in documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, reimbursement
obligations under letters of credit issued under, and fees, expenses,
indemnities and other amounts owing in respect of, the foregoing Debt); (ii)
any other Debt permitted to be incurred by the Company under the terms of the
Indenture, unless the instrument under which such Debt is incurred expressly
provides that it is on a parity with or subordinated in right of payment to
the Notes and (iii) all Obligations with respect to the foregoing.
Notwithstanding anything to the contrary in the foregoing, Senior Debt will
not include (i) Debt represented by Disqualified Stock, (ii) any liability for
federal, state, local or other taxes owed or owing by the Company, (iii) any
Debt of the Company to any of its Subsidiaries or other Affiliates, (iv) any
trade payables or (v) that portion of any Debt that is incurred in violation
of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary of the Company that
would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such Regulation is in
effect on the Issue Date.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnitees entered into by the Company or any Subsidiary of the
Company that are reasonably customary in receivables or equipment loan
transactions.
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"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Debt, the date on which such payment of interest or
principal was scheduled to be paid in the original documentation governing
such Debt, and shall not include any contingent obligations to repay, redeem
or repurchase any such interest or principal prior to the date originally
scheduled for the payment thereof.
"Subordinated Debt" means any Debt of the Company or any Guarantor which is
by its terms subordinated in right of payment to the Notes or any Guarantee.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (A) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (B) the only general partners of which are such
Person or one or more Subsidiaries of such Person (or any combination
thereof).
"Tax Sharing Agreement" means the Tax Sharing Agreement between the Company
and Globe Holdings as in effect on the date of the Indenture or as thereafter
amended in a manner that is not adverse to the Company or the Holders of
Notes.
"Total Assets" means, with respect to any date of determination, the total
assets of the Company and its Restricted Subsidiaries shown on the Company's
consolidated balance sheet prepared in accordance with GAAP on the last day of
the fiscal quarter prior to the date of determination.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that as of the time of determination shall be or continue to be
designated an Unrestricted Subsidiary in the manner provided below and (ii)
any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of the Company or any Restricted Subsidiary 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 be so designated; provided that (i) the
Company certifies to the Trustee that such designation complies with the
provisions of the covenant described under the caption "--Certain Covenants--
Restricted Payments" and (ii) each Subsidiary to be so designated and each of
its Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to, any indebtedness pursuant to which the
lender has recourse to any of the assets of the Company or any of its
Restricted Subsidiaries. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary only if (i) immediately after giving
effect to such designation, the Company is able to incur at least $1.00 of
additional Debt pursuant to the Consolidated Fixed Charge Coverage Ratio set
forth in the first paragraph of the covenant described under the caption "--
Incurrence of Debt and Issuance of Preferred Stock" and (ii) immediately
before and immediately after giving effect to such designation, no Default or
Event of 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.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors, managers, trustees or other governing body, as applicable, of such
Person.
"Weighted Average Life to Maturity" means, when applied to any Debt at any
date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (A) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal
including payment at final
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maturity, in respect thereof, by (B) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of such
payment, by (ii) the then outstanding principal amount of such Debt.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person that is a Wholly Owned Subsidiary of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person, by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or premium,
if any, on the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) failure by the Company or any of its
Restricted Subsidiaries for 30 days after notice from either the Trustee or
the Holders of at least 25% in principal amount of the then outstanding Notes
to comply with the provisions described under the captions "--Repurchase at
the Option of Holders Upon Change of Control", "--Certain Covenants--Asset
Sales", or "--Certain Covenants--Merger, Consolidation or Sale of Assets";
(iv) failure by the Company or any of its Restricted Subsidiaries for 60 days
after notice from either the Trustee or the Holders of at least 25% in
principal amount of the then-outstanding Notes to comply with any of its other
agreements or covenants in the Indenture or the Notes; (v) any Guarantee of a
Significant Subsidiary ceases to be in full force and effect or any such
Guarantor denies its liability under its Guarantee (other than by reason of a
release of a Guarantee in accordance with the terms of the Indenture); (vi) a
default under any mortgage, indenture, agreement or instrument under which
there may be issued or by which there may be secured or evidenced any Debt for
money borrowed by the Company or any of its Restricted Subsidiaries (other
than a Securitization Entity) (or the payment of which is guaranteed by the
Company or any of its Restricted Subsidiaries (other than a Securitization
Entity)) whether such Debt or guarantee now exists, or is created after the
date of the Indenture, which default (A) is caused by a failure to pay at
final Stated Maturity (giving effect to any applicable grace periods and any
extensions thereof) the principal amount of such Debt (a "Payment Default") or
(B) results in the acceleration of such Debt prior to its final Stated
Maturity and, in the case of either clause (A) or (B), the principal amount of
any such Debt, together with the principal amount of any other such Debt under
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $7.5 million or more; (vii) failure by the Company or
any of its Significant Subsidiaries to pay final judgments aggregating in
excess of $7.5 million (to the extent not covered by third party insurance as
to which the insurance company has acknowledged coverage), which judgments are
not paid, discharged or stayed for a period of 60 days; and (viii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable by notice in writing to the Company and
the Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice") and the same (i) shall
become immediately due and payable or (ii) if there are any amounts
outstanding under the Senior Credit Facility, shall become due and payable
upon the first to occur of an acceleration under the Senior Credit Facility,
or five business days after receipt by the Company and the Representative
under the Senior Credit Facility of such Acceleration Notice (but only if such
Event of Default is then continuing). In the event of a declaration of
acceleration because an Event of Default set forth in clause (vi) of the
preceding paragraph has occurred and is continuing, such declaration of
acceleration shall be automatically annulled if (i) the missed payments in
respect of the applicable Debt have been paid or if the holders of the Debt
that is subject to acceleration have rescinded their declaration of
acceleration, in each case within 30 days thereof and (ii) all existing Events
of Default, except non-payment of principal or interest which have become due
solely
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because of the acceleration of the Notes, have been cured or waived.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes
will become due and payable without further action or notice. Holders of the
Notes may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Notes may direct the Trustee in its exercise of
any trust or power.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding the prohibition on redemption of the
Notes, then the premium specified in the Indenture shall also become
immediately due and payable to the extent permitted by law upon the
acceleration of the Notes. If an Event of Default occurs prior to August 1,
2003, by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then the amount payable for
purposes of this paragraph will be 110.0%, expressed as a percentage of the
amount that would otherwise be due but for the provisions of this sentence,
plus accrued interest, if any, to the date of payment.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
All references herein to payments of principal, premium, if any, and
interest on the Notes shall be deemed to include any applicable Additional
Interest that may become payable in respect of the Notes.
Modification of the Indenture
Except as provided in the two succeeding paragraphs, the Indenture or the
Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenant described above
under the caption "Certain Covenants-Repurchase at the Option of Holders Upon
Change of Control"), (iii) reduce the rate of or change the time for payment
of interest on any Note, (iv) waive a Default or Event of Default in the
payment of principal, premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the Notes and a waiver of the payment default
that resulted from such acceleration), (v) make any Note payable in money
other than that stated in the Notes, (vi) make any change in the provisions of
the Indenture relating to waivers of past
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Defaults or the rights of Holders of Notes to receive payments of principal of
or premium, if any, or interest on the Notes, (vii) waive a redemption payment
with respect to any Note (other than a payment required by the covenant
described above under the caption "--Change of Control"), (viii) modify or
change any provision of the Indenture or the related definitions, affecting
the subordination or ranking of the Notes or any Guarantee in any manner that
adversely affects the Holders, (ix) release any Guarantor from any of its
obligations under its Guarantee or the Indenture otherwise than in accordance
with the terms of the Indenture or (x) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
Payments for Consent
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or
agreed to be paid to all holders of the Notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement, which solicitation documents must be mailed
to all Holders of the Notes a reasonable length of time prior to the
expiration of the solicitation.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder of Notes by accepting a
Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of the Guarantors discharged with respect to
the outstanding Notes ("Legal Defeasance") except for (i) the rights of
Holders of outstanding Notes to receive payments in respect of the principal,
premium, if any, and interest on such Notes when such payments are due from
the trust referred to below, (ii) the Company's obligations with respect to
the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
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In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal, premium, if any, and interest on the
outstanding Notes at their Stated Maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the
case of Legal Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance,
the Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that the Holders
of the outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such deposit)
or insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company must deliver to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
Governing Law
The Indenture, the Notes and the Registration Rights Agreement are governed
by, and construed in accordance with, the laws of the State of New York,
without giving effect to the conflicts of law principles thereof.
Concerning the Trustee
Norwest Bank Minnesota, National Association is the Trustee under the
Indenture. Its address is Sixth & Marquette, Minneapolis, Minnesota 55479-
0069. The Company has also approved the Trustee as the initial Registrar and
Paying Agent under the Indenture.
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The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be 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.
Exchange Offer; Registration Rights
The Company and the Initial Purchasers entered into a registration rights
agreement (the "Registration Rights Agreement") on July 31, 1998 pursuant to
which the Company agreed, for the benefit of Holders of the Notes, that it
will, at its expense for the benefit of the Holders, (i) within 60 days after
the Issue Date, file the Exchange Offer Registration Statement with the
Commission with respect to the Exchange Offer and (ii) use its best effort to
cause the Exchange Offer Registration Statement to be declared effective under
the Securities Act within 150 days after the Issue Date. Upon the Exchange
Offer Registration Statement being declared effective, the Company and the
Guarantors will offer to all holders of the Notes an opportunity to exchange
their securities for a like principal amount of the New Notes (and the related
Guarantees). The Company and the Guarantors will keep the Exchange Offer open
for acceptance for not less than 20 business days (or longer if required by
applicable law) after the date notice of the Exchange Offer is mailed to the
Holders. For each Note surrendered to the Company for exchange pursuant to the
Exchange Offer, the Holder of such Note will receive a New Note having a
principal amount at maturity equal to that of the surrendered Note. Interest
on each New Note will accrue (i) from the last interest payment date on which
interest was paid on the Note surrendered in exchange therefor or (ii) if no
interest has been paid on such Note, from the Issue Date.
Under existing interpretations of the Commission contained in several no-
action letters to third parties, the New Notes (and any related Guarantees)
will be freely transferable by holders thereof (other than affiliates of the
Company) after the Exchange Offer without further registration under the
Securities Act; provided, however, that each Holder that wishes to exchange
its Notes for New Notes will be required to represent (i) that any New Notes
to be received by it will be acquired in the ordinary course of its business,
(ii) that at the time of the consummation of the Exchange Offer it has no
arrangement or understanding with any person to participate in the
distribution (within the meaning of Securities Act) of the New Notes in
violation of the Securities Act, (iii) that it is not an "affiliate" (as
defined in Rule 405 promulgated under the Securities Act) of the Company, (iv)
if such Holder is not a broker-dealer, that it is not engaged in, and does not
intend to engage in, the distribution of New Notes and (v) if such Holder is a
broker-dealer (a "Participating Broker-Dealer") that will receive New Notes
for its own account in exchange for Notes that were acquired as a result of
market-making or other trading activities, that it will deliver a prospectus
in connection with any resale of such New Notes. The Commission has taken the
position that Participating Broker-Dealers may fulfill their prospectus
delivery requirements with respect to the New Notes (other than a resale of an
unsold allotment from the original sale of the Notes) with the prospectus
contained in the Exchange Offer Registration Statement. The Company and any
Guarantors will agree to make available, during the period required by the
Securities Act, a prospectus meeting the requirements of the Securities Act
for use by Participating Broker-Dealers and other persons, if any, with
similar prospectus delivery requirements for use in connection with any resale
of New Notes.
If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Company and any Guarantors
are not permitted to effect an Exchange Offer, (ii) the Exchange Offer is not
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consummated within 180 days of the Issue Date, (iii) in certain circumstances,
certain holders of unregistered New Notes so request, or (iv) in the case of
any Holder that participates in the Exchange Offer, such Holder does not
receive New Notes on the date of the exchange that may be sold without
restriction under state and federal securities laws (other than due solely to
the status of such Holder as an affiliate of the Company or any Guarantor
within the meaning of the Securities Act), then in each case, the Company and
any Guarantors will (x) promptly deliver to the Holders and the Trustee
written notice thereof and (y) at their sole expense, (1) as promptly as
practicable, file a shelf registration statement covering resales of the Notes
and the Guarantees (the "Shelf Registration Statement"), (2) use their best
efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act and (3) use their best efforts to keep effective the
Shelf Registration Statement until the earlier of two years after the date
such Shelf Registration Statement is declared effective or such time as all of
the applicable Notes have been sold thereunder. The Company will, in the event
that a Shelf Registration Statement is filed, provide to each Holder copies of
the prospectus that is a part of the Shelf Registration Statement, notify each
such Holder when the Shelf Registration Statement for the Notes has become
effective and take certain other actions as are required to permit
unrestricted resales of the Notes. A Holder that sells Old Notes pursuant to
the Shelf Registration Statement will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such
Holder (including certain indemnification rights and obligations).
If the Company or any Guarantor fails to comply with the above provision or
if the Exchange Offer Registration Statement or the Shelf Registration
Statement fails to become effective, then, as liquidated damages, additional
interest (the "Additional Interest") shall become payable in respect of the
Notes as follows:
(i) if the Exchange Offer Registration Statement or any Shelf
Registration Statement is not filed with the Commission on or prior to the
applicable Filing Date, Additional Interest shall accrue on the principal
amount of the Notes at a rate of .50% per annum for the first 90 days
immediately following such Filing Date, such Additional Interest rate
increasing by an additional .25% per annum at the beginning of each
subsequent 90-day period; or
(ii) if the Exchange Offer Registration Statement is not declared
effective by the Commission within 150 days following the Issue Date or,
whether or not the Company and the Guarantors have consummated or will
consummate an Exchange Offer, the Company and the Guarantors are required
to file a Shelf Registration Statement and such Shelf Registration
Statement is not declared effective by the Commission on or prior to the
90th day following the applicable Filing Date with respect to such Shelf
Registration Statement, then, commencing on the day after either such
required effective date, Additional Interest shall accrue on the principal
amount of the Notes at a rate of .50% per annum for the first 90 days
immediately following such date, such Additional Interest rate increasing
by an additional .25% per annum at the beginning of each subsequent 90-day
period; or
(iii) if (A) the Company has not exchanged New Notes for all Notes
validly tendered in accordance with the terms of the Exchange Offer on or
prior to the 180th day after the Issue Date, (B) the Exchange Offer
Registration Statement ceases to be effective for at least 30 days (or
longer if required by applicable law) after the date that notice of the
Exchange Offer is mailed to Holders or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
second anniversary of the date such Shelf Registration Statement was
declared effective (other than after such time as all Notes have been
disposed of thereunder), then Additional Interest shall accrue on the
principal amount of the Notes at a rate of .50% per annum for the first 90
days commencing on (x) the 181st day after the Issue Date, in the case of
(A) above, (y) the day the Exchange Offer Registration Statement ceases to
be effective in the case of (B) above or (z) the day such Shelf
Registration Statement ceases to be effective in the case of (C) above,
such Additional Interest rate increasing by an additional .25% per annum at
the beginning of each subsequent 90-day period;
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provided, however, that the Additional Interest rate on the Notes as a result
of the provisions of clauses (i), (ii) and (iii) above may not exceed in the
aggregate 2.0% per annum; provided, further, however, that (x) upon the filing
of the Exchange Offer Registration Statement or a Shelf Registration Statement
(in the case of clause (i) above), (y) upon the effectiveness of the Exchange
Offer Registration or a Shelf Registration Statement (in the case of clause
(ii) above), or (z) upon the exchange of New Notes for all Notes tendered (in
the case of clause (iii) (A) above), upon the effectiveness of the Exchange
Offer Registration Statement which had ceased to remain effective (in the case
of clause (iii) (B) above) or upon the effectiveness of the Shelf Registration
Statement which had ceased to remain effective (in the case of clause (iii)
(C) above), Additional Interest on the Notes as a result of such clause (or
the relevant subclause thereof), as the case may be, shall cease to accrue.
As used herein, "Filing Date" means (i) in the case of an Exchange Offer
Registration Statement, the 60th day after the Issue Date; or (ii) in the case
of a Shelf Registration Statement (which may be applicable notwithstanding the
consummation of the Exchange Offer), the 60th day after a notice regarding the
obligation to file a Shelf Registration Statement is required to be delivered.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment
dates as the Notes. The amount of Additional Interest will be determined by
multiplying the applicable Additional Interest rate by the principal amount of
the Notes, multiplied by a fraction, the numerator of which is the number of
days such Additional Interest rate was applicable during such period
(determined on the basis of a 360-day year comprised of twelve 30-day months),
and the denominator of which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which will be available upon request to the Company.
Additional Information
Anyone who receives this Prospectus may obtain a copy of the Indenture and
the Registration Rights Agreement without charge by writing to the Trustee.
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Old Notes were originally sold by the Company on July 31, 1998 to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes to qualified institutional buyers in
reliance on Rule 144A under the Securities Act. As a condition to the Purchase
Agreement, the Company and the Initial Purchasers entered into the
Registration Rights Agreement on the date of the Initial Offering (the "Issue
Date").
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of New Notes in exchange for each $1,000 principal amount of outstanding Old
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered
only in integral multiples of $1,000.
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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 bear a Series B designation and a
different CUSIP Number from the Old Notes, (ii) the New Notes have been
registered under the Securities Act and hence will not bear legends
restricting the transfer thereof and (iii) the holders of the New Notes will
not be entitled to certain rights under the Registration 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, all of which rights will terminate when the Exchange Offer is
consummated. The New Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
February 12, 1999 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Alabama, or the Indenture in connection with
the Exchange Offer. The Company intends to conduct the Exchange Offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "--Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
March 23, 1999, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "--Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof to the registered holders.
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Interest on the New Notes
The New Notes will bear interest from their date of issuance. Holders of Old
Notes that are accepted for exchange will receive, in cash, accrued interest
thereon to, but not including, the date of issuance of the New Notes. Such
interest will be paid with the first interest payment on the New Notes on
February 1, 1999. Interest on the Old Notes accepted for exchange will cease
to accrue upon issuance of the New Notes.
Interest on the New Notes is payable semi-annually on each February 1 and
August 1, commencing on February 1, 1999.
Procedures for Tendering
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal or submit an Agent's
Message (as defined below) in connection with a book-entry transfer, and mail
or otherwise deliver such Letter of Transmittal or such facsimile, or Agent's
Message, together with the Old Notes and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
To be tendered effectively, the Old Notes, Letter of Transmittal or Agent's
Message and other required documents must be completed and received by the
Exchange Agent at the address set forth below under "Exchange Agent" prior to
5:00 p.m., New York City time, on the Expiration Date. Delivery of the Old
Notes may be made by book-entry transfer in accordance with the procedures
described below. Confirmation of such book-entry transfer must be received by
the Exchange Agent prior to the Expiration Date.
The term "Agent's Message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the Old Notes that such participant has
received and agrees: (i) to participate in the Automated Tender Option Program
("ATOP"); (ii) to be bound by the terms of the Letter of Transmittal; and
(iii) that the Company may enforce such agreement against such participant.
By executing the Letter of Transmittal (or transmitting an Agent's Message
in lieu thereof), each holder will make to the Company the representations set
forth above in the third paragraph under the heading "--Purpose and Effect of
the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal or Agent's Message.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL OR AGENT'S
MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
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Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the book-entry transfer facility, The Depository Trust Company
(the "Book-Entry Transfer Facility"), for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the Book-Entry Transfer Facility's system
may make book-entry delivery of Old Notes by causing such Book-Entry Transfer
Facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer. Although delivery of the Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility, an appropriate Letter of Transmittal properly
completed and duly executed with any required signature guarantee (or, in the
case of book-entry transfer, an Agent's Message in lieu thereof) and all other
required documents must in each case be transmitted to and received or
confirmed by the Exchange Agent at its address set forth below on or prior to
the Expiration Date, or, if the guaranteed delivery procedures described below
are complied with, within the time period provided under such procedures.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in their sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal (or, in the case of book-entry transfer, an Agent's
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Message) or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal or
facsimile thereof (or, in the case of book-entry transfer, an Agent's
Message), as well as the certificate(s) representing all 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), and all other documents required by the Letter of Transmittal
are received by the Exchange Agent upon three New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
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 purposes of
the Exchange Offer and no New Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have
been tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
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Conditions
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company or any of its subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
Exchange Agent
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
By Registered or Certified Mail: Overnight Courier:
Norwest Bank Minnesota, National Norwest Bank Minnesota, National
Association Association
P.O. Box 1517 Norwest Center
Minneapolis, Minnesota 55480-1517 6th and Marquette Avenue
Attention: Corporate Trust Services Minneapolis, Minnesota 55479-0113
Attention: Corporate Trust Services
By Hand: Facsimile Transmission:
Norwest Bank Minnesota, National (For Eligible Institutions Only)
Association (612) 667-4927
NorthStar East, 12th Floor Confirm by Telephone:
608 Second Avenue South, North Star (612) 667-9764
East
Minneapolis, Minnesota 55479-0113
DELIVERY TO AN ADDRESS OTHER THAN SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE SET FORTH ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY.
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Fees and Expenses
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. 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 face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the New Notes.
Consequences of Failure to Exchange
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so
long as the Old Notes are eligible for resale pursuant to Rule 144A, to a
person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
Resale of the New Notes
With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties, the
Company believes that a holder or other person who receives New Notes, whether
or not such person is the holder (other than a person that is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who
receives New Notes in exchange for Old Notes in the ordinary course of
business and who is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, will be allowed to resell the New Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the New Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such holder cannot rely on
the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that
receives New Notes for its own account 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, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes.
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As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging and does not intend to engage, in the distribution
of the New Notes, (iii) the holder or any such other person has no arrangement
or understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, and (v)
the holder or any such other person acknowledges that if such holder or other
person participates in the Exchange Offer for the purpose of distributing the
New Notes it must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the New
Notes and cannot rely on those no-action letters. As indicated above, each
Participating Broker-Dealer that receives New Notes for its own account in
exchange for Old Notes must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. For a description of the
procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
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MATERIAL UNITED STATES
FEDERAL TAX CONSIDERATIONS
The following is a discussion of material U.S. Federal income and estate tax
consequences of an exchange of Old Notes for New Notes and the ownership and
disposition of the New 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 ("Holders"). The
discussion does not purport to address specific tax consequences that may be
relevant to particular persons (including, for example, financial
institutions, broker-dealers, insurance companies, tax-exempt organizations,
and persons in special situations, such as those who hold Notes as part of a
straddle, hedge, conversion transaction, or other integrated investment). In
addition, this discussion does not address U.S. 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 (the
"Treasury Regulations"), and administrative and judicial interpretations
thereof, all of which are subject to change, possibly with retroactive effect.
The Company will treat the Notes as indebtedness for Federal income tax
purposes, and the following discussion assumes that such treatment is correct.
For purposes of this discussion, a "U.S. Holder" is a Holder of a Note who
is a United States citizen or resident, a corporation or partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, an estate the income of which is subject to
U.S. Federal income taxation regardless of its source, or a trust if a United
States court exercises primary jurisdiction over its administration and one or
more United States persons have the authority to control all of its
substantial decisions. A "Non-U.S. Holder" is a Holder of a Note who is not a
U.S. Holder.
Exchange of Notes
The Company believes that the exchange of Old Notes for New Notes pursuant
to the Exchange Offer will not be treated as an "exchange" for federal income
tax purposes because the New Notes will not be considered to differ materially
in kind or extent from the Old Notes. Rather, the New Notes received by a
holder will be treated as a continuation of the Old Notes in the hands of such
holder. As a result, there will be no federal income tax consequences to
holders exchanging Old Notes for New Notes pursuant to the Exchange Offer.
PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS
CONCERNING THE UNITED STATES FEDERAL INCOME AND ESTATE 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.
Tax Consequences to U.S. Holders
Taxation of Interest
Interest paid on the Notes will be includible in the income of a U.S. Holder
in accordance with the U.S. Holder's regular 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.
In the event of a Change of Control, a Holder of a Note will have the right
to require the Company to purchase such Note at a price equal to 101% of the
principal amount thereof. The Treasury Regulations provide that the right of a
Holder of a Note to require redemption of such Note upon the occurrence of a
Change of Control will not affect the yield or maturity date of the Note
unless, based on all the facts and circumstances as of the issue date, it is
more likely than not that a Change of Control giving rise to the redemption
right will occur. The Company believes that the redemption provisions of the
Notes will not affect the computation of the yield to maturity of the Notes
and intends to report in a manner consistent with this belief.
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The Company may redeem the Notes at any time on or after August 1, 2003, and
in certain circumstances, may redeem a portion of the Notes at any time prior
to August 1, 2001. Under the Treasury Regulations, the Company is deemed to
exercise any option to redeem if the exercise of such option would lower the
yield of the debt instrument. The Company believes that it will not be treated
as having exercised an option to redeem under these rules and intends to
report in a manner consistent with this belief.
The Company believes that it is significantly more likely than not that no
Additional Interest will be payable by the Company to Holders of Notes.
Accordingly, the Company intends to take the position (which generally will be
binding upon Holders of Notes) that the possible payment of Additional
Interest will not affect the computation of the yield to maturity of the Notes
and any Additional Interest will be recognized by a Holder of Notes in
accordance with such Holder's method of accounting.
Sale, Exchange or Retirement of the Notes
Upon the sale, exchange or retirement of the Notes, a U.S. Holder will
recognize gain or loss equal to the difference between the amount realized
upon the sale, exchange or retirement (less a portion allocable to any accrued
and unpaid interest, which will be taxable as ordinary income) and the U.S.
Holder's adjusted tax basis in the Notes. A U.S. Holder's adjusted tax basis
in the Notes generally will be the U.S. Holder's cost therefor, less any
principal payments received by such Holder.
Gain or loss recognized by a U.S. Holder on the sale, exchange or retirement
of the Notes will be capital gain or loss. The gain or loss will be long-term
capital gain or loss if the Notes have been held by the U.S. Holder for more
than 18 months, and mid-term gain or loss if the Notes have been held by the
U.S. Holder for more than 12 months but not more than 18 months. The
deductibility of capital losses by U.S. Holders is subject to limitation.
Tax Consequences to Non-U.S. Holders
Taxation of Interest
A Non-U.S. Holder generally will not be subject to U.S. Federal income or
withholding tax on interest paid on the Notes so long as such interest is not
effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the United States, and the Non-U.S. Holder (i) does not
actually or constructively own 10% or more of the total combined voting power
of all classes of stock of the Company, (ii) is not a "controlled foreign
corporation" with respect to which the Company is a "related person" within
the meaning of the Code, and (iii) satisfies the requirements of Sections
871(h) or 881(c) of the Code, as set forth below under "Owner Statement
Requirement." If the foregoing conditions are not satisfied, then interest
paid on the Notes will be subject to U.S. withholding tax at a rate of 30%,
unless such rate is reduced or eliminated pursuant to an applicable tax
treaty.
Sale, Exchange or Retirement of the Notes
Any capital gain a Non-U.S. Holder realizes on the sale, exchange,
retirement or other taxable disposition of a Note will be exempt from U.S.
Federal income and withholding tax, provided that (i) the gain is not
effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the United States, and (ii) in the case of a Non-U.S. Holder
that is an individual, the Non-U.S. Holder is not present in the United States
for 183 days or more during the taxable year.
Effectively Connected Income
If the interest, gain or other income a Non-U.S. Holder recognizes on a Note
is effectively connected with the Non-U.S. Holder's conduct of a trade or
business within the United States, the Non-U.S. Holder (although exempt from
the withholding tax previously discussed if an appropriate statement is
furnished) generally will be subject to U.S. Federal income tax on the
interest, gain or other income at regular Federal income tax rates. In
addition, if the Non-U.S. Holder is a corporation, it may be subject to a
branch profits tax equal to 30% of its "effectively connected earnings and
profits," as adjusted for certain items, unless it qualifies for a lower rate
under an applicable tax treaty.
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Federal Estate Taxes
A Note held by an individual who at the time of death is not a citizen or
resident of the United States will not be subject to United States Federal
estate tax as a result of such individual's death, provided that the
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
and that the interest accrued on such Notes was not effectively connected with
a United States trade or business.
Owner Statement Requirement
Sections 871(h) and 881(c) of the Code require that either the beneficial
owner of a Note or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution") and that holds a Note on behalf
of such owner files a statement with the Company or its agent to the effect
that the beneficial owner is not a United States person in order to avoid
withholding of United States Federal income tax. Under current regulations,
this requirement will be satisfied if the Company or its agent receives (i) a
statement (an "Owner Statement") from the beneficial owner of a Note in which
such owner certifies, under penalties of perjury, that such owner is not a
United States person and provides such owner's name and address, or (ii) a
statement from the Financial Institution holding the Note on behalf of the
beneficial owner in which the Financial Institution certifies, under penalties
of perjury, that it has received the Owner Statement together with a copy of
the Owner Statement. The beneficial owner must inform the Company or its agent
(or, in the case of a statement described in clause (ii) of the immediately
preceding sentence, the Financial Institution) within 30 days of any change in
information on the Owner Statement. The Internal Revenue Service has amended
the transition period relating to recently issued Treasury Regulations
governing backup withholding and information reporting requirements.
Withholding certificates or statements that are valid on December 31, 1999,
may be treated as valid until the earlier of their expiration or December 31,
2000. Certificates or statements received under the currently effective rules
will fail to be effective after December 31, 2000.
Information Reporting and Backup Withholding
The Company will, where required, report to the Holders of Notes and the
Internal Revenue Service the amount of any interest paid on the Notes in each
calendar year and the amounts of tax withheld, if any, with respect to such
payments. A noncorporate U.S. Holder may be subject to information reporting
and to backup withholding at a rate of 31% with respect to payments of
principal and interest made on a Note, or on proceeds of the disposition of a
Note before maturity, unless such U.S. Holder provides a correct taxpayer
identification number or proof of an applicable exemption, and otherwise
complies with applicable requirements of the information reporting and backup
withholding rules.
In the case of payments of interest to Non-U.S. Holders, current Treasury
Regulations provide that the 31% backup withholding tax and certain
information reporting requirements will not apply to such payments with
respect to which either the requisite certification, as described above, has
been received or an exemption has otherwise been established, provided that
neither the Company nor its payment agent has actual knowledge that the Holder
is a United States person or that the conditions of any other exemption are
not in fact satisfied. Under current Treasury Regulations, these information
reporting and backup withholding requirements will apply, however, to the
gross proceeds paid to a Non-U.S. Holder on the disposition of the Notes by or
through a United States office of a United States or foreign broker, unless
the Non-U.S. Holder otherwise establishes an exemption. Information reporting
requirements, but not backup withholding, will also apply to payment of the
proceeds of a disposition of the Notes by or through a foreign office of a
United States broker or foreign brokers with certain types of relationships to
the United States unless such broker has documentary evidence in its file that
the Holder of the Notes is not a United States person and such broker has no
actual knowledge to the contrary, or the Holder establishes an exception.
Neither information reporting nor backup withholding generally will apply to
payment of the proceeds of a disposition of the Notes by or through a foreign
office of a foreign broker not subject to the preceding sentence.
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The Treasury Department has released new Treasury Regulations governing the
backup withholding and information reporting requirements. The new regulations
would not generally alter the treatment of a Non-U.S. Holder who furnishes an
Owner Statement to the payor. The new regulations may change certain
procedures applicable to the foreign office of a United States broker or
foreign brokers with certain types of relationships to the United States. The
new regulations are generally effective for payments made after December 31,
1999. Non-U.S. Holders should consult their own tax advisors with respect to
the impact, if any, of the new final regulations.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Holder's
United States Federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
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BOOK-ENTRY PROCEDURES AND TRANSFER
General
Except as set forth in the next paragraph, the Notes to be resold as set
forth herein will initially be issued in the form of one or more Global Notes
(each, a "Global Note"). Each Global Note will be deposited on the date of the
closing of the sale of the Notes offered hereby (the "Closing Date") with, or
on behalf of, The Depository Trust Company (the "Depository") and registered
in the name of Cede & Co., as nominee of the Depository (such nominee being
referred to herein as the "Global Note Holder").
Notes that are issued as described below under "--Certificated Securities"
will be issued in the form of registered definitive certificates (the
"Certificated Securities"). Upon the transfer of Certificated Securities, such
Certificated Securities may, unless the Global Note has previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Notes being transferred.
The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depository's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depository's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depository's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depository's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only thorough the Depository's
Participants or the Depository's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository ownership of the Notes evidenced by the Global Note will be shown
on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depository (with respect to the interests of the
Depository's Participants), the Depository's Participants and the Depository's
Indirect Participants. Note holders are advised that the laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Notes
evidenced by the Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of
any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced
by the Global Note will not be considered the owners or Holders thereof under
the Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depository or for maintaining, supervising or
reviewing any records of the Depository relating to the Notes.
Payments in respect of the principal, premium, if any, and interest on any
Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the
Global Note Holder in its capacity as the registered Holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names Notes, including the Global Note, are
registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial
owners of Notes. The Company believes, however, that it is currently the
policy of the Depository to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depository. Payments by the Depository's Participants and the
Depository's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depository's Participants or the Depository's Indirect
Participants.
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Certificated Securities.
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depository is no longer willing or able to act as
a depository and the Company is unable to locate a qualified successor within
90 days or (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of Notes in the form of Certificated
Securities under the Indenture, then, upon surrender by the Global Note Holder
of its Global Note, Notes in such form will be issued to each person that the
Global Note Holder and the Depository identify as being the beneficial owner
of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depository in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depository for all purposes.
Next Day Settlement and Payment.
The Indenture will require that payments in respect of the Notes represented
by the Global Note (including principal, premium, if any, and interest) be
made by wire transfer of immediately available next day funds to the accounts
specified by the Global Note Holder. With respect to Certificated Securities,
the Company will make all payments of principal, premium, if any, and
interest, if any, by wire transfer of immediately available next day funds to
the accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered address. The
Company expects that secondary trading in the Certificated Securities will
also be settled in immediately available funds.
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PLAN OF DISTRIBUTION
Each 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 such New Notes. 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 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, as amended or supplemented, available to any Participating Broker-
Dealer for use in connection with any such resale. In addition, until May 20,
1999 (90 days after the commencement of the Exchange Offer), all dealers
effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sales of the New Notes by
Participating Broker-Dealers. New Notes received by Participating 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 Participating Broker-Dealer and/or the purchasers of
any such New Notes. Any Participating Broker-Dealer that resells the New Notes
that were received by it for its own account pursuant to the Exchange Offer
and any broker or dealer that participates in a distribution of such New Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of New Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a
Participating 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 any Participating Broker-Dealer that requests such
documents in the Letter of Transmittal.
LEGAL MATTERS
The validity of the New Notes offered hereby and certain other legal matters
will be passed upon on behalf of the Company by Kirkland & Ellis, Chicago,
Illinois.
EXPERTS
The consolidated financial statements of the Company at December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is not currently subject to the periodic reporting and other
informational requirements of the Exchange Act. The Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, it will
furnish to the holders of the Notes and file with the Commission, copies of
the financial and other information that would be contained in the annual
reports and quarterly reports that the Company would be required to file with
the Commission if it were subject
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to such requirements of the Exchange Act. The Company will also make such
reports available to prospective purchasers of the Old Notes and the New
Notes, as applicable, and to securities analysts and broker-dealers upon their
request. In addition, the Company has agreed to furnish to holders of the
Notes, and prospective purchasers of the Notes, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act until such time as the Company has exchanged the Notes for the
New Notes and which have been registered under the Securities Act or the Shelf
Registration Statement has been declared effective by the Commission.
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GLOBE MANUFACTURING CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at December 31, 1996 and 1997 and Unaudited
September 30, 1998....................................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1995,
1996 and 1997 and the Unaudited Nine Months Ended September 30, 1997 and
1998..................................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1995, 1996 and 1997 and the Unaudited Nine Months
Ended September 30, 1998................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and the Unaudited Nine Months Ended September 30,
1997 and 1998............................................................ F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Globe Manufacturing Corp.
We have audited the accompanying consolidated balance sheets of Globe
Manufacturing Corp. (formerly Globe Manufacturing Co.) as of December 31, 1996
and 1997, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Globe
Manufacturing Corp. (formerly Globe Manufacturing Co.) at December 31, 1996
and 1997, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Providence, Rhode Island
March 24, 1998
except for Note 12, as to which
the date is January 28, 1999
F-2
<PAGE>
GLOBE MANUFACTURING CORP.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31,
------------------ September 30,
ASSETS 1996 1997 1998
------ -------- -------- -------------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................... $ 3,101 $ 1,947 $ 1,766
Accounts receivable, net.................... 20,517 23,953 25,633
Receivable from joint venture............... -- 213 319
Taxes receivable............................ -- -- 2,211
Inventories................................. 11,812 13,764 14,843
Prepaid expenses and other assets........... 445 484 449
Deferred income taxes....................... 1,395 2,449 2,848
-------- -------- --------
Total current assets...................... 37,270 42,810 48,069
Property, plant and equipment:
Land and land improvements.................. 942 942 942
Building and building improvements.......... 31,575 33,122 35,344
Manufacturing equipment..................... 66,359 79,202 83,084
Furniture and equipment..................... 1,826 2,087 2,166
Autos and trucks............................ 319 319 319
Construction in progress.................... 3,460 5,959 26,156
-------- -------- --------
104,481 121,631 148,011
Less accumulated depreciation............... (54,359) (63,681) (71,304)
-------- -------- --------
Net property, plant and equipment......... 50,122 57,950 76,707
Deferred income taxes........................ 1,421 2,822 2,961
Cash surrender value of life insurance, net
of loans.................................... 1,523 927 1,054
Intangible assets............................ 214 -- --
Investment in joint venture.................. -- -- --
Notes receivable from officers............... 264 278 --
Other Assets................................. -- -- --
Deferred financing costs, net of
amortization................................ 515 346 11,536
-------- -------- --------
Total assets.............................. $ 91,329 $105,133 $140,327
======== ======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable............................ $ 7,177 $ 7,440 $ 8,466
Accrued expenses............................ 5,183 4,827 9,352
Payable to joint venture.................... 1,481 -- --
Dividend payable............................ 872 50 --
Note payable................................ 2,750 2,475 5,800
Taxes payable............................... 2,206 1,028 --
Long-term lease obligations due within one
year....................................... 88 37 31
Long-term debt obligations due within one
year....................................... 13,250 7,500 --
-------- -------- --------
Total current liabilities................. 33,007 23,357 23,649
Long-term debt............................... 34,500 46,875 115,000
Senior subordinated notes.................... -- -- 150,000
Senior discount notes........................ -- -- --
Long-term lease obligation................... 27 30 58
Other long-term postretirement liability..... 3,521 3,762 4,395
Minimum pension liability.................... 214 -- --
Commitments and contingencies (Note 7)....... -- -- --
Redeemable cumulative preferred stock, Series
A, redeemable at $8,000; 30,000 shares
authorized, 8,000 issued and outstanding at
December 31, 1996........................... 6,466 -- --
Shareholders' equity.........................
Common stock, Class A, voting, $.01 par
value...................................... 2 2 --
Common stock, Class B, nonvoting, $.01 par
value...................................... 16 16 --
Paid in capital............................. 5,700 10,785 68,076
Retained earnings........................... 41,744 56,468 (220,851)
-------- -------- --------
47,462 67,271 (152,775)
Less treasury stock, at cost:
Common, Class A, 99,000 shares.............. (4,187) (4,187) --
Common, Class B, 683,314 shares............. (28,657) (28,657) --
-------- -------- --------
(32,844) (32,844) --
Unearned compensation........................ (1,024) (3,318) --
-------- -------- --------
Total shareholders' equity................ 13,594 31,109 (152,775)
-------- -------- --------
Total liabilities & shareholders' equity.. $ 91,329 $105,133 $140,327
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
GLOBE MANUFACTURING CORP.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended December Nine Months Ended
31, September 30,
---------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales.................... $128,319 $152,603 $170,941 $127,307 $133,321
Cost of sales................ 97,182 110,609 115,099 86,187 84,682
-------- -------- -------- -------- --------
Gross margin............. 31,137 41,994 55,842 41,120 48,639
Selling, general and
administrative expenses..... 18,515 21,705 24,381 15,808 19,265
Research and development
costs....................... 2,260 2,533 2,633 1,953 3,144
-------- -------- -------- -------- --------
Operating income......... 10,362 17,756 28,828 23,359 26,230
Other Income/(Expense)
Interest................... (6,030) (5,285) (3,968) (3,076) (6,143)
Loss in investment in joint
venture................... (643) -- -- -- --
Transaction compensation
expenses.................. -- -- -- -- (5,778)
Other income, net.......... 438 875 372 233 647
-------- -------- -------- -------- --------
Income before income
taxes and extraordinary
items................... 4,127 13,346 25,232 20,516 14,956
Provision for income taxes... 1,718 4,784 8,383 7,715 5,609
-------- -------- -------- -------- --------
Income before
extraordinary item...... 2,409 8,562 16,849 12,801 9,347
Loss from write-off of
deferred financing costs,
net of applicable income
taxes of $822 in 1995 and
$176 in 1997................ 1,294 -- 301 301 187
-------- -------- -------- -------- --------
Net income............... $ 1,115 $ 8,562 $ 16,548 $ 12,500 $ 9,160
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
GLOBE MANUFACTURING CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
Shares
Outstanding Treasury Stock
------------------ -----------------
Common Stock Common Stock Common Stock Total
------------------ ---------------- Paid-In Retained ----------------- Unearned Shareholders'
Class A Class B Class A Class B Capital Earnings Class A Class B Compensation Equity
-------- -------- ------- -------- ------- --------- ------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1994............. 100,000 931,404 $16 $ 2 $ 4,965 $ 33,789 $(4,187) $(28,657) $ (630) $ 5,298
Dividends....... -- -- -- -- -- (850) -- -- -- (850)
Net income...... -- -- -- -- -- 1,115 -- -- -- 1,115
-------- -------- --- ---- ------- --------- ------- -------- ------- ---------
Balances,
December 31,
1995............. 100,000 931,404 16 2 4,965 34,054 (4,187) (28,657) (630) 5,563
Dividends....... -- -- -- -- -- (872) -- -- -- (872)
Unearned
compensation
relating to the
grant of stock
options......... -- -- -- -- 735 -- -- -- (735) 0
Amortization of
unearned
compensation.... -- -- -- -- -- -- -- -- 341 341
Net income...... -- -- -- -- -- 8,562 -- -- -- 8,562
-------- -------- --- ---- ------- --------- ------- -------- ------- ---------
Balances,
December 31,
1996............. 100,000 931,404 16 2 5,700 41,744 (4,187) (28,657) (1,024) 13,594
Dividends....... -- -- -- -- -- (290) -- -- -- (290)
Redemption of
Series A
Cumulative
Preferred Stock. -- -- -- -- -- (1,534) -- -- -- (1,534)
Unearned
compensation
relating to the
grant of stock
options......... -- -- -- -- 5,085 -- -- -- (5,085) 0
Amortization of
unearned
compensation.... -- -- -- -- -- -- -- -- 2,791 2,791
Net income...... -- -- -- -- -- 16,548 -- -- -- 16,548
-------- -------- --- ---- ------- --------- ------- -------- ------- ---------
Balances,
December 31,
1997............. 100,000 931,404 16 2 10,785 56,468 (4,187) (28,657) (3,318) 31,109
Net effect of
recapitalization
transaction..... (100,000) (931,404) (16) (2) 57,291 (286,479) 4,187 28,657 3,318 (193,044)
Net income
(unaudited)..... -- -- -- -- -- 9,160 -- -- -- 9,160
-------- -------- --- ---- ------- --------- ------- -------- ------- ---------
Balances,
September 30,
1998 (unaudited). -- -- -- $-- $68,076 $(220,851) $ -- $ -- $ -- $(152,775)
======== ======== === ==== ======= ========= ======= ======== ======= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
GLOBE MANUFACTURING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
December 31, September 30,
--------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- ------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net Income.................. $ 1,115 $ 8,562 $16,548 $ 12,500 $ 9,160
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization............. 10,688 9,335 9,417 6,654 7,926
Amortization of unearned
compensation............. -- 341 2,791 -- 3,319
Extraordinary charge--
write-off of deferred
finance cost............. 1,801 -- 478 478 299
Provision for losses on
accounts receivable...... 336 1,093 691 277 1,363
Loss in joint venture..... 643 -- -- -- --
Deferred income tax
provision (benefit)...... (606) (958) (2,455) -- (538)
Other post-retirement
benefits charge.......... 992 652 515 565 633
Increase (decrease) in
cash from changes in
assets and liabilities:
Accounts receivable..... (1,296) (7,122) (4,127) (7,163) (3,044)
Inventories............. (4,008) 4,132 (1,952) (1,374) (1,079)
Prepaid expenses and
other assets........... 381 12 (38) 215 35
Refundable income taxes. 1,414 61 -- -- --
Accounts payable........ (214) 2,459 263 (923) 1,026
Accrued expenses........ 840 2,203 (357) 420 4,525
Taxes payable........... 772 1,434 (1,178) (1,277) (3,239)
Other long-term
postretirement
liability.............. (175) (306) (274) -- --
-------- -------- ------- -------- --------
Net cash provided by
operating activities. 12,683 21,898 20,322 10,372 20,595
Investing Activities
Capital expenditures........ (8,640) (5,806) (17,101) (4,182) (7,156)
Plant expansion capital
expenditures
Thirty-two cell expansion... -- -- -- (6,331) (98)
Fifty-six cell expansion.... -- -- -- -- (19,063)
Payable to (receivable from)
joint venture.............. 1,259 293 (1,694) (1,391) (105)
Note receivable collected
from (issued to)
shareholders............... 669 (14) (15) -- 278
-------- -------- ------- -------- --------
Net cash used in
investing activities. (6,712) (5,527) (18,810) (11,904) (26,144)
Financing Activities
Net change in note payable.. 3,000 (4,750) (275) 250 3,325
Borrowing on long-term debt. 62,000 -- 15,000 60,000 119,400
Principal payments on long-
term debt.................. (67,500) (11,250) (8,375) (51,500) (58,775)
Principal payments on
capital lease obligation... (75) (85) (97) (69) (42)
Redemption of preferred
stock...................... -- -- (8,000) (8,000) --
Deferred financing costs.... (754) -- (403) (350) (11,791)
Issuance of senior
subordinate notes.......... -- -- -- -- 150,000
Issuance of senior discount
notes...................... -- -- -- -- 25,000
Issuance of preferred stock. -- -- -- -- 21,530
Issuance of common stock.... -- -- -- -- 14,353
Distribution to Company
stockholders for
recapitalization........... -- -- -- -- (257,455)
Cash surrender value of life
insurance, net............. 16 522 596 472 (127)
Payment of dividends........ (850) (850) (1,112) (1,112) (50)
-------- -------- ------- -------- --------
Net cash provided by
(used in) financing
activities........... (4,163) (16,413) (2,666) (309) 5,368
Net decrease in cash and
cash equivalents........... 1,808 (42) (1,154) (1,841) (181)
Cash and cash equivalents at
beginning of year.......... 1,335 3,143 3,101 3,101 1,947
-------- -------- ------- -------- --------
Cash and cash equivalents at
end of period.............. $ 3,143 $ 3,101 $ 1,947 $ 1,260 $ 1,766
======== ======== ======= ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
GLOBE MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1997
(dollars in thousands, except per share data)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Globe
Manufacturing Corp. (formerly Globe Manufacturing Co.) and its wholly-owned
subsidiaries, Globe Elastic Co. and Globe Manufacturing FSC, Ltd.
(collectively, the Company). All significant intercompany accounts have been
eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid, short-term investments with an
original maturity of three months or less to be cash equivalents.
Risks and Uncertainties
Segment Information and Concentration of Credit Risk
The Company operates in one dominant industry segment encompassing the
manufacture and sale of elastomeric fibers. These fibers, which consist of
spandex fibers and latex thread, are sold to customers in the textile and
apparel industries that are geographically diversified throughout the United
States and in various foreign countries. The Company performs credit
evaluations on all new customers and requires collateral in certain
circumstances.
For the years ended December 31, 1995, 1996 and 1997, respectively, sales to
foreign customers totaled 24%, 27% and 28%. During the years ended December
31, 1995, 1996 and 1997, the composition of sales made to the following
geographic areas was of 6.3%, 7.6%, 13.8% in Europe; 7.7%, 8.7%, 4.0% in Asia;
3.4%, 3.4%, 2.1% in Central and South America; and 6.6%, 7.3%, 8.1% in other,
respectively. Historically, transfers of product between geographic areas have
not been significant. Sales to one customer represented 11%, 9% and 9% of
total sales for the years ended December 31, 1995, 1996 and 1997,
respectively. Also for the years ended December 31, 1995, 1996 and 1997,
respectively, sales to five customers totaled 32%, 34% and 36%.
At December 31, 1996 and 1997, 48% and 47%, respectively, of total
receivables were from foreign customers. Balances owed from one customer
totaled 9% and 8% of total receivables at December 31, 1996 and 1997,
respectively. Also at December 31, 1996 and 1997, 33% and 39%, respectively,
of total receivables were from five customers of which 21% and 24% represented
receivables from foreign customers.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Accounts Receivable
Accounts receivable at December 31, 1996 and 1997 are shown net of an
allowance for doubtful accounts of $1,346 and $1,870, respectively. At
December 31, 1994 and 1995, the Company's allowance for doubtful accounts was
$314 and $416, respectively. Additions to the allowance for doubtful accounts
charged to costs and expenses were $333, $1,085 and $684 during each of the
years in the three-year period ended December 31, 1997. Deductions to the
allowance for doubtful accounts were $231, $155, and $160 during each of the
years in the three-year period ended December 31, 1997.
F-7
<PAGE>
GLOBE MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(dollars in thousands, except per share data)
Revenue Recognition
Revenue is recognized when products are shipped to customers.
Inventories
Inventories are valued at lower of cost or market. Cost is determined by the
last-in, first-out (LIFO) method for latex and certain spandex inventories and
the first-in, first out (FIFO) method for the other inventories. Management
utilizes LIFO for those product lines that have exhibited increasing costs to
better match costs with revenues.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
using an accelerated method over estimated useful lives of the assets for
financial statement purposes, which range from 3 to 39.5 years. For the years
ended December 31, 1995, 1996 and 1997, the Company recorded depreciation
expense of $10,390, $9,183 and $9,322, respectively. The Company capitalizes
direct materials, labor and certain overhead costs for self-constructed
assets. In 1996 and 1997, the Company capitalized $0 and $506,007,
respectively, of interest costs incurred in connection with the expansion of
the manufacturing plant in Alabama. Total interest costs in 1996 and 1997
amounted to $5,347 and $4,573, respectively.
Intangible Asset
The intangible asset (and minimum pension liability) represents the
adjustment required to record the Company's minimum pension liability for a
defined benefit pension plan covering salaried employees of the Company at
December 31, 1996.
Investment in Joint Venture
The Company accounts for its 40% investment in a joint venture using the
equity method of accounting (see Note 10).
Deferred Financing Costs
Deferred financing costs are amortized over the term of the facility using
the straight line method of amortization. Use of the straight line method to
amortize deferred financing costs does not yield results that are materially
different from those that would result from the use of the interest method.
Stock Based Compensation
The Company accounts for its stock based compensation arrangements under the
provisions of APB 25, Accounting for Stock Issued to Employees.
The Company recognizes as compensation expense the excess of the deemed fair
value of the common stock issuable upon exercise of compensatory stock options
over the aggregate exercise price of such options. The expense is amortized
over the vesting period of each option.
Income Taxes
The liability method is used in accounting for income taxes. Deferred tax
assets and liabilities are determined based on differences between financial
reporting and income tax bases of assets and liabilities and
F-8
<PAGE>
GLOBE MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(dollars in thousands, except per share data)
are measured using the currently enacted tax rates and laws that are in effect
for the period when the differences are expected to reverse.
Fair Value of Financial Instruments
The carrying amounts of accounts receivable, accounts payable, long term
debt, notes payable and other current and long-term liabilities approximate
their respective fair values.
Interest Rate Swap Agreements
The differential to be paid or received on interest rate swap agreements is
accrued as an interest rate charge and is recognized over the life of the
agreements (see Note 3).
Unaudited Interim Financial Data
The interim financial data relating to the nine months ended September 30,
1997 and 1998 are unaudited; however, in the opinion of the Company's
management, the interim data includes all adjustments, consisting of only
normal recurring adjustments, necessary for a fair statement of the results
for the interim periods. The results for the nine months ended September 30,
1998 are not necessarily indicative of the results to be expected for the full
year or any other interim period.
Research and Development Costs
The Company expenses research and development costs as incurred.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (Statement 130), which establishes standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. Statement 130 is effective for fiscal years
beginning after December 15, 1997. Disclosure of total comprehensive income is
required in interim period financial statements. Management does not believe
that comprehensive income for prior periods will differ significantly from net
income in those periods as the Company had no material items of other
comprehensive income in any of the three years in the period ended December
31, 1997.
In June, 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
(Statement 131), which is effective for years beginning after December 15,
1997. However, Statement 131 need not be applied to interim financial
statements in the initial year of application. Statement 131 establishes
standards for the way that public business enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. Since Statement 131 is effective for financial statements for
fiscal years beginning after December 15, 1997, the Company will adopt the new
requirements retroactively in 1998. Management has not yet determined the
impact it will have on disclosures of the Company's reported segments.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits (Statement 132), that revises and improves
F-9
<PAGE>
GLOBE MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(dollars in thousands, except per share data)
disclosure requirements of FASB Statements No. 87, Employers' Accounting for
Pensions, and No. 106, Employers' Accounting for Postretirement Benefits Other
Than Pensions. The Statement is effective for fiscal years beginning after
December 15, 1997. Statement 132 does not change the recognition or
measurement of pension or postretirement benefit plans, but standardizes
disclosure requirements for pensions and other postretirement benefits,
eliminates unnecessary disclosures and requires additional information.
Management does not anticipate that the adoption of Statement 132 will have a
material impact on the Company's financial position or the results of its
operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and for Hedging Activities
(Statement 133). Statement 133 is effective for years beginning after June 15,
1999. Statement 133 provides a comprehensive and consistent standard for the
recognition and measurement of derivatives and hedging activities. Management
does not anticipate that the adoption of Statement 133 will have a material
impact on the Company's financial position or the results of its operations.
2. Inventories
At December 31, 1996 and 1997, inventories totaling approximately $5,452 and
$6,465, respectively, were valued using the LIFO method. Had the FIFO method
of inventory valuation been used, inventories and income before taxes would
have increased (decreased) by approximately $786 and $(687) in 1995; $1,149
and $363 in 1996; and, $1,247 and $98 in 1997.
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31
----------------
1996 1997
------- -------
<S> <C> <C>
Raw materials........................................... $ 2,233 $ 2,460
Finished goods.......................................... 10,728 12,551
------- -------
12,961 15,011
Less LIFO reserve....................................... (1,149) (1,247)
------- -------
$11,812 $13,764
======= =======
</TABLE>
3. Debt
On June 9, 1995, the Company refinanced its existing debt by entering into a
new debt agreement with a group of banks consisting of a $62,000 term loan and
a $12,000 working capital facility. As a result of the refinancing, the
unamortized deferred financing costs totaling $1,801, relating to the prior
debt facility, and a fee associated with terminating the prior debt agreement
of $315, were charged to expense as an extraordinary item in 1995.
On April 16, 1997, the Company amended and restated its existing credit
agreement (as amended, the "Credit Agreement"). The Credit Agreement consists
of a new $60,000 term loan, extension of the $12,000 working capital facility
to March 31, 2002, and a reduction in interest rates and other fees charged on
the loans. The Credit Agreement allows for letters of credit to the extent of
the unused portion of the working capital facility up to a maximum of $3,000.
At December 31, 1996 and 1997, respectively, the Company had $2,750
F-10
<PAGE>
GLOBE MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(dollars in thousands, except per share data)
and $2,475 outstanding under the working capital facility and $1,200 and
$1,000 outstanding under letters of credit to secure the Company's workers'
compensation self-insurance program (see Note 11).
In connection with the Credit Agreement, a portion of the additional
proceeds from the term note ($15,000) were used to redeem all outstanding
shares of Series A Cumulative Preferred Stock for $8,000 (see Note 5). As a
result of the amendment, the unamortized deferred financing costs totaling
$477, relating to the original term note, were charged to expense as an
extraordinary item in 1997.
Borrowings under the term loan bear interest at either the bank's prime rate
plus a margin ranging from .25% to 1.00% (.0% to .75% for advances under the
working capital facility) or the applicable Eurodollar rate plus a margin
ranging from 1.25% to 2.00% (1.125% to 1.875% for advances under the working
capital facility), as determined by the borrower. At December 31, 1996 and
1997, the weighted average interest rates on the working capital facility were
9.75% and 8.75%, respectively.
In February 1998, the Credit Agreement was modified so as to provide an
additional $14,000 in term loans beginning on June 30, 1998.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
---------------
1996 1997
------- -------
<S> <C> <C>
Term note, principal due in variable quarterly installments
through 2003; variable interest rates based on the base rate
(see above) (7.3125%-8.75% at December 31, 1997; 8.3789%-
8.5938% at December 31, 1996)................................. $47,750 $54,375
Less current maturities........................................ 13,250 7,500
------- -------
$34,500 $46,875
======= =======
</TABLE>
The Credit Agreement contains certain covenants that limit, among other
things, capital expenditures, investments, debt, and dividends declared and
distributed. The Credit Agreement also limits net extraordinary losses and
requires the maintenance of a minimum fixed charge coverage, leverage ratio,
and earnings before interest, income taxes, depreciation and amortization as
defined in the Credit Agreement. All of the Company's assets are pledged under
the Credit Agreement.
The Company uses interest-rate swap agreements to effectively convert a
portion of its floating rate debt to a fixed rate basis, thus reducing the
impact of interest-rate changes on future income. At December 31, 1997, the
Company had outstanding interest rate swap agreements with a commercial bank,
having a total notional principal amount of $15 million. These agreements
effectively change the Company's interest rate exposure on $15 million of its
variable rate term notes to a fixed rate of 6.29%. The interest rate swap
agreements in effect at December 31, 1997 matured on March 18, 1998. The
Company is obligated to maintain such agreements during the first two years
that the term note is outstanding. While the Company is exposed to credit loss
for the periodic settlement of amounts due under the agreements in the event
of nonperformance by the counterparty, the Company does not anticipate
nonperformance by this party. The fair value of these agreements representing
the estimated amount that the Company would receive from a third party
assuming the Company's obligations under the interest rate agreements ceased
at December 31, 1997, is approximately $187. The fair value of the agreements
was determined by independent commercial bankers and represents the fair value
based on pricing models or formulas using current assumptions.
F-11
<PAGE>
GLOBE MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(dollars in thousands, except per share data)
The term loan matures on a quarterly basis during the following years:
<TABLE>
<S> <C>
December 31
1998........................... $ 7,500
1999........................... 9,375
2000........................... 10,000
2001........................... 11,875
2002........................... 12,500
2003........................... 3,125
-------
$54,375
=======
</TABLE>
Cash paid for interest, net of amounts capitalized amounted to $6,182,
$5,469 and $4,192 in 1995, 1996 and 1997, respectively.
4. Lease Commitments
The Company leases certain assets under capital leases. At December 31, 1996
and 1997, leased assets, with a cost of approximately $316 and $366, have been
included in property, plant and equipment. Accumulated amortization was
approximately $256 and $302 at December 31, 1996 and 1997, respectively.
Future minimum lease payments relating to the equipment under the capital
lease are as follows:
<TABLE>
<S> <C>
1998............................................................... $40
1999............................................................... 15
2000............................................................... 9
2001............................................................... 6
2002............................................................... 4
---
Total minimum lease payments....................................... 74
Less amount representing interest.................................. 7
---
Present value of net minimum lease payments........................ 67
Lease payments due within one year................................. 37
---
Lease obligations due after one year............................... $30
===
</TABLE>
5. Redeemable Cumulative Preferred Stock and Warrants
At December 31, 1996, the Company had authorized 30,000 shares of Series A
Cumulative Preferred Stock with a redemption price of $1,000 per share.
Dividends were payable on December 22 of each year at a rate of 10% per annum,
to the extent that such dividends were paid in cash and 15% per annum, to the
extent that dividends were paid in additional shares of Series A Cumulative
Preferred Stock. In 1997, the Company redeemed all outstanding shares of
Series A Cumulative Preferred Stock at a price of $1,000 per share, plus
unpaid dividends at the time of redemption. In connection with the redemption,
the Company terminated any future vesting associated with its agreement to
issue warrants to purchase shares of Class B Common Stock at a price of $.01
per share. At December 31, 1996 and 1997, the Company had 59 and 50 of such
warrants issued and outstanding.
During the years ended December 31, 1995, 1996 and 1997, the Company paid
cash dividends on the preferred stock of $800, $822 and $240, respectively.
The preferred stock required redemption on the earlier of December 21, 1999 or
consummation of certain transactions.
F-12
<PAGE>
GLOBE MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(dollars in thousands, except per share data)
6. Shareholders' Equity
Common Stock
The Company has authorized 2,000 shares of Class A Common Stock and 2,000
shares of Class B Common Stock. Class B Common Stock automatically converts
into Class A Common Stock if the Company sells stock pursuant to a registered
public offering and Class A Common Stock automatically converts into Class B
Common Stock upon certain transfers of Class A Common Stock. The Company paid
cash dividends of $0.05 per share in 1995, 1996 and 1997.
Stock Options
The Company has a Management Incentive Plan ("the Plan") which authorizes
the grant of incentive stock options and nonqualified stock options including
performance options based on the financial performance of the Company to
employees. A total of 102,570 shares has been reserved for issuance under the
Plan.
The exercise price of incentive stock options granted under the Plan may not
be less than 100% of the fair market value of the common stock as of the grant
date, as determined by the Board of Directors. The exercise price of
nonqualified stock options may not be less than $1.00 per share. Options
issued under the Plan generally have a five year vesting period, unless
otherwise determined by the Board of Directors. The term of stock options
granted under the Plan may not exceed ten years.
The following table presents the activity under the Plan for the years ended
December 31, as follows:
<TABLE>
<CAPTION>
1996 1997
-------------------------- --------------------------
Weighted Average Weighted Average
Options Exercise Price (1) Options Exercise Price (1)
------- ------------------ ------- ------------------
<S> <C> <C> <C> <C>
Outstanding at January 1. 22,500 $30.00 22,500 $30.00
Granted................ -- -- 22,500 30.00
Canceled............... -- -- -- --
------ ------ ------ ------
Outstanding at December
31...................... 22,500 $30.00 45,000 $30.00
====== ====== ====== ======
Options exercisable at
December 31........... 9,000 $30.00 22,500 $30.00
====== ====== ====== ======
</TABLE>
(1) All options were granted at an exercise price of $30 per share.
In connection with the grant of performance options, the Company recorded a
total of $5,820 of unearned compensation ($735 and $5,085 in 1996 and 1997,
respectively) of which $341 and $2,791 was earned and recognized as
compensation expense in 1996 and 1997, respectively. Options that did not vest
in the years 1994 and 1995 were vested in the current year since cumulative
five-year performance measurements were achieved for the option granted in
1993.
The weighted average remaining contractual life of options outstanding at
December 31, 1996 and 1997, is six and eight years, respectively.
FAS 123 Disclosures
The Company has only adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("Statement 123"). Had the compensation cost for options granted
under the Plan been determined based on the fair value at the grant date for
grants in 1997, consistent with the provisions of Statement 123, there would
have been no pro forma effect on net income for 1997, since the options
granted under the Plan will be earned and vest during the five-years January
1, 1998 to December 31, 2002 and, thus, have no impact on the determination of
consolidated net income during 1997.
F-13
<PAGE>
GLOBE MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(dollars in thousands, except per share data)
The weighted average fair value per share of options granted during 1997 and
whose exercise price was less than the market price of the underlying common
stock on the grant date was $219.44. The fair value of options issued at the
date of grant were estimated using the Black-Scholes model with the following
weighted average assumptions:
<TABLE>
<CAPTION>
Options
Granted
1997
-------
<S> <C>
Expected life (years)............ 5.0
Interest rate.................... 5.7%
Expected volatility.............. 0.0%
Expected dividend yield.......... $ --
</TABLE>
Stock Reserved
As of December 31, 1997, a total of 1,668,383 shares of Class A Common Stock
and 258,383 shares of Class B Common Stock are reserved for issuance under the
various capital stock conversion and warrant arrangements.
7. Commitments and Contingencies
The Company is a party to an agreement with a utility company, under the
terms of which, the Company is obligated to purchase power generated from a
co-generation power plant through 2006. The Company receives a portion of the
savings generated by the plant and profits on excess supply generated. The co-
generation power plant began operations in January 1991.
From time to time, the Company has been and is involved in various legal and
environmental proceedings, all of which management believes are routine in
nature and incidental to the conduct of its business. The ultimate legal and
financial liability of the Company with respect to such proceedings cannot be
estimated with certainty, but the Company believes, based on its examination
of such matters, that none of such proceedings, if determined adversely to the
Company, would have a material adverse effect on the Company's results of
operations, or financial condition.
8. Pension and Other Benefits
The Company sponsors three noncontributory defined benefit pension plans
covering substantially all employees. The Plan assets are invested in a group
annuity contract with an insurance company and in a trust that holds a
balanced portfolio of corporate stocks and bonds, U.S. Government bonds and
money market investments. The plan covering salaried employees at the
Massachusetts, North Carolina and Alabama locations provides pension benefits
based on the employee's average monthly compensation during a defined period.
The plans covering hourly employees at the Massachusetts, North Carolina and
Alabama locations provide benefits based on years of service. The Company's
funding policy is to contribute annually the maximum deductible amount
allowable under applicable tax regulations.
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
December 31
-----------------------
1995 1996 1997
------- ----- -------
<S> <C> <C> <C>
Service cost..................................... $ 258 $ 257 $ 303
Interest cost on projected benefit obligations... 471 427 477
Actual return on plan assets..................... (1,103) (669) (1,102)
Net amortization and deferral.................... 798 337 697
------- ----- -------
Net periodic pension cost........................ $ 424 $ 352 $ 375
======= ===== =======
</TABLE>
F-14
<PAGE>
GLOBE MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(dollars in thousands, except per share data)
The following summarizes the funded status of the Company's pension plans,
measured as of:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------
1996 1997
----------------------- -----------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Actuarial Present Value of Accumulated Exceed Accumulated Exceed
Benefit Obligations Benefits Assets Benefits Assets
-------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Vested benefit obligations..... $2,010 $3,856 $2,250 $3,631
====== ====== ====== ======
Accumulated benefit
obligations................... $2,071 $3,925 $2,309 $3,736
====== ====== ====== ======
Projected benefit obligations.. $2,071 $4,268 $2,309 $4,282
Less: Plan assets at fair
value, mutual funds........... 2,313 3,770 2,699 3,981
------ ------ ------ ------
Projected benefit obligations
(in excess of) less than plan
assets........................ 242 (498) 390 (301)
Unrecognized actuarial net
losses (gains)................ 123 159 (5) (13)
Prior service cost to be
recognized in future periods.. 14 204 12 179
Unrecognized initial net
(asset) obligation............ (123) 193 (104) 152
Adjustment required to
recognize minimum liability... -- (213) -- --
------ ------ ------ ------
Prepaid (accrued) pension cost
at end of period.............. $ 256 $ (155) $ 293 $ 17
====== ====== ====== ======
</TABLE>
In 1996 and 1997, the salaried and Massachusetts hourly plans had
distribution of $502 and $602, respectively. Inasmuch as the 1996 settlements
exceeded the 1996 service and interest cost components of the net periodic
pension cost, an additional loss of $89 has been recognized in the
accompanying statement of income.
Assumptions used in calculating the pension expense and the accumulated
benefit obligation, were as follows:
<TABLE>
<CAPTION>
December 31
--------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Discount rate.............................................. 7.5% 7.5% 7.5%
Rate of increase in compensation levels.................... 5.5% 5.5% 5.5%
Expected long-term rate of return on assets................ 7.5% 7.5% 7.5%
</TABLE>
The Company has instituted a tax deferred savings plan covering all
employees of the Company under Section 401(k) of the Internal Revenue Code.
Under the Plan, subject to certain limitations, each eligible employee may
contribute up to 10% of gross wages per year to the maximum amount set by law.
The Company matches one third of the first 6% of employee contributions.
Company contributions to the Plan for employees were approximately $345 in
1995; $356 in 1996; and $384 in 1997.
In addition to the Company's defined benefit plans, the Company currently
provides postretirement medical and life insurance benefits (postretirement
benefits) to eligible full-time employees. The Company is recognizing the
initial accumulated benefit obligation over a 20-year period.
F-15
<PAGE>
GLOBE MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(dollars in thousands, except per share data)
The following table provides information on the status of the postretirement
benefit plan as of December 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................. $ 1,675 $ 1,505
Fully eligible plan participants..................... 1,077 1,186
Other active plan participants....................... 2,324 2,968
------- -------
Total.............................................. 5,076 5,659
Unrecognized net gain.................................. 1,594 1,055
Unrecognized transition obligation..................... (3,149) (2,952)
------- -------
Accrued postretirement benefit cost................ $ 3,521 $ 3,762
======= =======
</TABLE>
Net periodic postretirement benefit cost consisted of the following:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- ----
<S> <C> <C> <C>
Service cost--benefits attributed to service during
the period......................................... $ 442 $284 $273
Interest cost on accumulated postretirement benefit
obligation......................................... 550 347 366
Amortization of unrecognized net (gain) or loss..... (379) (175) (192)
Amortization of unrecognized transition obligation.. 379 196 197
----- ----- ----
Net periodic postretirement benefit cost.......... $ 992 $ 652 $644
===== ===== ====
</TABLE>
At December 31, 1995, 1996 and 1997, respectively, 951, 908 and 833 active
employees and 176, 185 and 181 retired employees are covered by the Plan.
The Company's policy is to fund postretirement benefits as claims are paid.
The accumulated postretirement benefit obligation was determined using a
discount rate of 7% in 1996 and 7.5% in 1997 and a health care cost trend rate
of 9.5%, declining each year to 4% in the year 2007 and thereafter. The effect
of a 1% annual increase in these assumed cost trend rates would increase the
accumulated postretirement benefit obligation by approximately $481 and the
annual net periodic postretirement benefit cost by approximately $74.
F-16
<PAGE>
GLOBE MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996 and 1997
(dollars in thousands, except per share data)
9. Income Taxes
Significant components of the Company's deferred tax assets and liabilities
as of December 31, are as follows:
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Deferred tax liabilities:
Pension................................................. $ 125 $ 126
Depreciation............................................ 235 249
------ ------
Total deferred tax liabilities........................ 360 375
Deferred tax assets:
Other postretirement benefits........................... 1,390 1,519
Joint venture........................................... 428 --
Professional fees, primarily financing fees............. 84 279
Inventories............................................. 231 639
Bad debts............................................... 534 759
Workers' compensation accrued........................... 344 491
Deferred compensation................................... 198 1,330
Vacation accrued........................................ 221 241
Other, net.............................................. 174 388
------ ------
Total deferred tax assets............................. 3,604 5,646
Valuation allowance for deferred tax assets............... (428) --
------ ------
Net deferred tax assets............................... $2,816 $5,271
====== ======
</TABLE>
The following table sets forth selected data with respect to the Company's
provision for income taxes from continuing operations for the years ended:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Current:
Federal....................................... $1,819 $4,683 $ 9,090
State......................................... 505 1,059 1,748
------ ------ -------
2,324 5,742 10,838
Deferred:
Federal....................................... (448) (820) (2,034)
State......................................... (158) (138) (421)
------ ------ -------
(606) (958) (2,455)
------ ------ -------
Total....................................... $1,718 $4,784 $ 8,383
====== ====== =======
</TABLE>
F-17
<PAGE>
GLOBE MANUFACTURING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
December 31, 1996 and 1997
(dollars in thousands, except per share data)
The reconciliation of income taxes computed at the U.S. federal statutory
tax rate to income tax expense for continuing operations is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
Amount % Amount % Amount %
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory rate................ $1,403 34.0 $4,538 34.0 $8,831 35.0
State income tax expense, less
federal tax benefit................. 351 8.5 601 4.5 858 3.4
Foreign sales corporation............ (187) (4.5) (203) (1.5) (775) (3.0)
Change in valuation allowance........ 219 5.3 -- -- (428) (1.7)
Other, net........................... (68) (1.7) (152) (1.1) (103) (0.5)
------ ---- ------ ---- ------ ----
Total.............................. $1,718 41.6 $4,784 35.9 $8,383 33.2
====== ==== ====== ==== ====== ====
</TABLE>
Cash paid for income taxes amounted to $1,150, $4,247 and $11,833 in 1995,
1996 and 1997, respectively.
10. Investment in Joint Venture
On November 23, 1990, the Company entered into a joint venture agreement
(Joint Venture) with PT Bakrie Nusantara Corporation ("Bakrie"), an Indonesian
company, to engage in the business of the manufacturer of rubber thread and
its related products. During 1997, the Company took steps to terminate its
Joint Venture relationship. However, the Company continues to acquire and sell
the entire production of the Joint Venture other than production sold in
Indonesia. During the years ended December 31, 1996 and 1997, respectively,
the Company purchased inventory totaling $5,912 and $9,854 from the Joint
Venture.
11. Self-Insurance
The Company has a self-insurance program for its workers' compensation. The
plan, which is administered by an insurance company, contains certain stop
loss clauses that limit the Company's liability in the event of catastrophic
losses ($200 per incident, $580 in the aggregate per year). Claims are accrued
as incurred based on available claim information and management's estimate of
claims incurred but not yet reported.
At December 31, 1996 and 1997, the Company had outstanding letters of credit
of $1,200 and $1,000, respectively, to secure the Company's workers'
compensation self-insurance program.
12. Subsequent Events
On June 23, 1998, the Company entered into an Agreement and Plan of Merger
(the Agreement) with an affiliate of Code, Hennessy & Simmons III, L.P. The
Agreement provides for the obtaining of additional debt and equity to be used
in a recapitalization transaction whereby Code, Hennessy & Simmons III, L.P.
will obtain a majority interest in the Company and certain continuing
shareholders will retain a minority interest. The recapitalization transaction
was financed with $50,000 of equity and $295,000 of debt. Prior to the closing
of the merger, substantially all of the assets and liabilities of Globe
Manufacturing Co. were contributed to its wholly owned subsidiary, Globe
Elastic Co., Inc., which was renamed Globe Manufacturing Corp. Inasmuch as the
recapitalization transaction was among the Company's shareholders, some of
whom maintained a continuing interest in the Company, management expects the
assets and liabilities contributed to Globe Manufacturing Corp. to be carried
at their respective historical cost bases. Management also expects that the
distributions to certain of the Company's shareholders upon redemption of
their shares of Company stock will be recorded as a distribution from retained
earnings.
F-18
<PAGE>
On July 31, 1998, Globe Manufacturing Corp. issued $150,000 of 10% Senior
Subordinated Notes due 2008 (the "Notes"). The proceeds of these Notes were
used to (i) pay consideration under the Agreement to certain shareholders of
the Company (ii) repay certain indebtedness of the Company and (iii) repay
related fees and expenses of the recapitalization and refinancing.
On August 6, 1998 the Company issued and sold 49,086 units (the "Units"),
each consisting of one 14% Senior Discount Note due 2009 (the "Senior Discount
Notes") and one warrant (a "Warrant") to purchase 1.4155 shares of Class A
Common Stock, $.01 par value, of the Company. The aggregate purchase price of
the Units was $25,000 and the net proceeds to the Company were $24,562 after
deducting underwriting discounts and commissions and other expenses payable by
the Company. The proceeds of these Units were used to repay a $25,000 loan
made by Code, Hennessy & Simmons, III, L.P. to the Company pursuant to the
recapitalization transaction.
As of January 28, 1999, in response to lower than expected earnings, the
Senior Credit Facility was amended such that (i) certain leverage ratio tests
were waived and certain covenants were amended, (ii) the interest rates on
both the term loans and revolving loans were increased and (iii) the
management fee due to an affiliate of Code Hennessy & Simmons LLC may only be
paid if certain leverage tests are met.
F-19
<PAGE>
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No dealer, salesperson or other person has been authorized to give any
information or to make any representations not contained in this Prospectus
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell, or solicitation of an offer to buy to any Person
in any jurisdiction where such an offer or solicitation would be unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that the information contained
herein is correct as of any time subsequent to the date hereof.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 13
Use of Proceeds........................................................... 22
Capitalization............................................................ 23
Selected Consolidated Financial Data...................................... 24
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 29
Business.................................................................. 35
Management................................................................ 45
Certain Relationships and Related Transactions............................ 48
Security Ownership of Certain Beneficial Owners and Management............ 52
Description of Senior Credit Facility..................................... 53
Description of the New Notes.............................................. 55
Material United States Federal Tax Considerations......................... 97
Book-Entry Procedures and Transfer........................................ 101
Plan of Distribution...................................................... 103
Legal Matters............................................................. 103
Experts................................................................... 103
Available Information..................................................... 103
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Globe Manufacturing Corp.
Offer to Exchange its
10% Senior Subordinated Notes
due 2008, Series B for any and all of its outstanding 10% Senior Subordinated
Notes due 2008
--------------------
PROSPECTUS
FEBRUARY 16, 1999
--------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
