<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1996.
FILE NO. 33-65201
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
INTERFACE, INC.
(Exact name of issuer as specified in its charter)
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GEORGIA 2822 58-1451243
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
2859 PACES FERRY ROAD, SUITE 2000, ATLANTA, GEORGIA 30339
(770) 437-6800
(Address, including zip code, and telephone number, including area code, of
issuer's principal executive offices)
DAVID W. PORTER, ESQUIRE
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
INTERFACE, INC.
2859 PACES FERRY ROAD, SUITE 2000, ATLANTA, GEORGIA 30339
(770) 437-6800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
W. RANDY EADDY, ESQUIRE
KILPATRICK & CODY
1100 PEACHTREE STREET, ATLANTA, GEORGIA 30309-4530
TELEPHONE: (404) 815-6500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INTERFACE, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K, SHOWING THE LOCATION IN THE
PROSPECTUS
OF THE INFORMATION REQUIRED BY PART I OF FORM S-4.
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ITEM NUMBER AND CAPTION IN FORM S-4 LOCATION OR CAPTION IN PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION.
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Cover Page of Registration Statement; Cross
Reference Sheet; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Inside Front Cover Page; Outside Back Cover
Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Prospectus Summary; Risk Factors; Business;
Selected Consolidated Financial Data
4. Terms of the Transaction..................... Prospectus Summary; The Exchange Offer;
Description of the Exchange Notes; Certain
U.S. Federal Income Tax Consequences
5. Pro Forma Financial Information.............. Prospectus Summary; Selected Consolidated
Financial Data
6. Material Contacts with the Company being
Acquired................................... Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Not Applicable
8. Interests of Named Experts and Counsel....... Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
B. INFORMATION ABOUT THE REGISTRANT.
10. Information With Respect to S-3
Registrants................................ Prospectus Summary; Risk Factors;
Capitalization; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Selected Consolidated
Financial Data; Business; Management;
Security Ownership of Management and
Principal Holders; Description of the
Exchange Notes; Financial Statements
11. Incorporation of Certain Information
by Reference............................... Incorporation of Certain Information by
Reference
12. Information With Respect to S-2 or
S-3 Registrants............................ Not Applicable
13. Incorporation of Certain Information
by Reference............................... Not Applicable
14. Information With Respect to Registrants Other
Than S-2 or S-3 Registrants................ Not Applicable
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED.
15. Information With Respect to S-3 Companies.... Not Applicable
16. Information With Respect to S-2 or
S-3 Companies.............................. Not Applicable
17. Information With Respect to Companies Other
Than S-2 or S-3 Companies.................. Not Applicable
D. VOTING AND MANAGEMENT INFORMATION.
18. Information if Proxies, Consents or Other
Authorizations are to be Solicited......... Not Applicable
19. Information if Proxies, Consents or Other
Authorizations are not to be Solicited or
in an Exchange Offer....................... Management
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<PAGE> 3
PROSPECTUS
(INTERFACE LOGO)
OFFER TO EXCHANGE
9 1/2% SENIOR SUBORDINATED NOTES DUE 2005, SERIES B
FOR
ALL OUTSTANDING 9 1/2% SENIOR SUBORDINATED NOTES DUE 2005, SERIES A
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT, ATLANTA, GEORGIA, TIME
ON MARCH 8, 1996, UNLESS EXTENDED.
Interface, Inc., a Georgia corporation (the "Company"), hereby offers, upon
the terms and subject to conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"; together with the Prospectus, the "Exchange Offer"), to exchange
up to an aggregate principal amount of $125,000,000 of its 9 1/2% Senior
Subordinated Notes Due 2005, Series B (the "Exchange Notes") for up to an
aggregate principal amount of $125,000,000 of its outstanding 9 1/2% Senior
Subordinated Notes Due 2005, Series A (the "Outstanding Notes"). The terms of
the Exchange Notes are identical in all material respects to those of the
Outstanding Notes, except for certain transfer restrictions and registration
rights relating to the Outstanding Notes and except for certain interest
provisions related to such registration rights. The Exchange Notes will be
issued pursuant to, and entitled to the benefits of, the Indenture (as defined
herein) governing the Outstanding Notes. The Exchange Notes and the Outstanding
Notes are sometimes referred to collectively as the "Notes".
The Exchange Notes will be unsecured obligations of the Company and
subordinated to all existing and future Senior Indebtedness (as defined herein)
of the Company. The Exchange Notes will be guaranteed (the "Guarantees"),
jointly and severally, on an unsecured, senior subordinated basis, by the
Company's principal domestic subsidiaries (the "Guarantors"). The Guarantees
will be subordinated to all existing and future Guarantor Senior Indebtedness
(as defined herein). As of October 1, 1995, on an adjusted basis after giving
effect to the sale of the Outstanding Notes and the application of the net
proceeds therefrom and to the redemption (the "Redemption") of the Company's
outstanding 8% Convertible Subordinated Debentures due 2013 (the "Convertible
Debentures"), the aggregate outstanding principal amount of Senior Indebtedness
of the Company and Guarantor Senior Indebtedness of the Guarantors was
approximately $192.7 million. In addition, the Notes will be effectively
subordinated in right of payment to all existing and future liabilities,
including trade payables, of the Company's subsidiaries which are not
Guarantors, which, as of October 1, 1995, totaled approximately $52.4 million
(excluding intercompany liabilities and Senior Indebtedness). Subject to such
subordination and to limitations necessary to prevent any Guarantee from
constituting a fraudulent conveyance by a Guarantor under applicable law, the
Guarantees are full and unconditional obligations of each Guarantor.
The Company will accept for exchange any and all Outstanding Notes which
are properly tendered in the Exchange Offer prior to 12:00 midnight, Atlanta,
Georgia time, on March 8, 1996, unless extended by the Company in its sole
discretion (the "Expiration Date"). The Exchange Offer will not in any event be
extended to a date beyond April 7, 1996. Tenders of Outstanding Notes may be
withdrawn at any time prior to 12:00 midnight, Atlanta, Georgia time, on the
Expiration Date. If the Company terminates the Exchange Offer and does not
accept for exchange any Outstanding Notes with respect to the Exchange Offer,
the Company will promptly return the Outstanding Notes to the holders thereof.
The Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange, but is otherwise subject to
certain customary conditions. The Outstanding Notes may be tendered only in
integral multiples of $1,000.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS FEBRUARY 9, 1996.
<PAGE> 4
(cover page continued)
Interest on the Exchange Notes will accrue from the date of issuance
thereof and will be payable semi-annually on May 15 and November 15 of each
year, commencing on May 15, 1996. Holders of the Exchange Notes will receive
interest on May 15, 1996 from the date of initial issuance of the Exchange
Notes, plus an amount equal to the accrued interest on the Outstanding Notes
from the later of (i) the most recent date to which interest has been paid
thereon and (ii) the date of issuance of the Outstanding Notes, to the date of
exchange thereof. Interest on the Outstanding Notes accepted for exchange will
cease to accrue upon issuance of the Exchange Notes. The Exchange Notes will
mature on November 15, 2005 and may be redeemed at the option of the Company on
or after November 15, 2000, in whole or in part, at the redemption prices set
forth herein, plus accrued interest to the date of redemption. In the event of a
Change of Control (as defined herein), the Company will be obligated to make an
offer to purchase all of the Notes then outstanding at a redemption price equal
to 101% of the principal amount thereof plus accrued interest to the repurchase
date. In addition, the Company will be obligated to make an offer to repurchase
Notes in the event of certain asset sales. See "Description of the Exchange
Notes".
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
November 21, 1995 (the "Registration Rights Agreement") by and among the
Company, the Guarantors and Smith Barney, Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, The Robinson-Humphrey Company, Inc., Wheat, First
Securities, Inc. and First Chicago Capital Markets, Inc., as the initial
purchasers (the "Initial Purchasers"), with respect to the initial sale of the
Outstanding Notes. Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission"), the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Outstanding Notes may be offered for resale,
resold and otherwise transferred by respective holders 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 of 1933, as amended (the
"Securities Act"), provided that the Exchange 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 Exchange Notes and is not
engaged in and does not intend to engage in a distribution of the Exchange
Notes. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of the Exchange Notes received in exchange for Outstanding Notes if
such Exchange Notes were acquired by such 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 broker-dealer for use in connection with any such
resale. See "Plan of Distribution".
Prior to the Exchange Offer, there has been no public market for the
Exchange Notes. There can be no assurance as to the liquidity of any markets
that may develop for the Exchange Notes, the ability of holders to sell the
Exchange Notes, or the price at which holders would be able to sell the Exchange
Notes. The Company does not intend to list the Exchange Notes for trading on any
national securities exchange or over-the-counter market system. Future trading
prices of the Exchange Notes will depend on many factors, including among other
things, prevailing interest rates, the Company's operating results and the
market for similar securities. Historically, the market for securities similar
to the Exchange Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that any market for the Exchange Notes, if
such market develops, will not be subject to similar disruptions. Certain of the
Initial Purchasers have advised the Company that they currently intend to make a
market in the Exchange Notes offered hereby. However, the Initial Purchasers are
not obligated to do so and any market making may be discontinued at any time
without notice.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to pay the expenses incident to the Exchange Offer.
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER, OR A SOLICITATION
IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS, NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
2
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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Available Information...................................................................... 3
Incorporation of Certain Information by Reference.......................................... 3
Prospectus Summary......................................................................... 4
Risk Factors............................................................................... 13
Use of Proceeds............................................................................ 17
Capitalization............................................................................. 18
The Exchange Offer......................................................................... 19
Selected Consolidated Financial Data....................................................... 27
Management's Discussion and Analysis of Financial Condition and Results of Operations...... 28
Business................................................................................... 33
Management................................................................................. 44
Security Ownership of Management and Principal Holders..................................... 48
Description of Certain Indebtedness and Other Obligations.................................. 50
Description of the Exchange Notes.......................................................... 53
Certain U.S. Federal Income Tax Consequences............................................... 82
Plan of Distribution....................................................................... 84
Legal Matters.............................................................................. 85
Experts.................................................................................... 85
Index to Financial Statements.............................................................. F-1
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AVAILABLE INFORMATION
The Company and the Guarantors have filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form S-4 (the
"Registration Statement", which term shall include all amendments, exhibits,
annexes and schedules thereto) pursuant to the Securities Act, and the rules and
regulations promulgated thereunder, covering the Exchange Notes being offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements made in this Prospectus
as to the contents of any contract, agreement or other document referred to in
the Registration Statement are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Company is subject to the
periodic reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Periodic reports, proxy
statements and other information filed by the Company with the Commission may be
inspected at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at the Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, New York
10007. Copies of such material can be obtained from the Company upon request.
The Company has agreed to file with the Commission, to the extent permitted,
and distribute to holders of the Exchange Notes reports, information and
documents specified in Sections 13 and 15(d) of the Exchange Act, so long as the
Exchange Notes are outstanding, whether or not the Company is subject to such
informational requirements of the Exchange Act. While any Exchange Notes remain
outstanding, the Company will make available, upon request, to any holder of the
Exchange Notes, the information required pursuant to Rule 144A(d)(4) under the
Securities Act during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act. Any such request should be directed to the
Assistant Secretary of the Company at 2859 Paces Ferry Road, Suite 2000,
Atlanta, Georgia 30339, telephone number (770) 437-6800.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents heretofore filed by the Company with the Commission
are hereby incorporated herein by reference: (i) the Company's Annual Report on
Form 10-K for the fiscal year ended January 1, 1995; and (ii) all reports filed
by the Registrant pursuant to Section 13(a) or 15(d) of the Exchange Act since
the end of the fiscal year covered by the Registrant's Annual Report on Form
10-K for its fiscal year ended January 1, 1995. All documents filed by the
Company pursuant to Section 13(a), 13(c), 14, or 15(d) of the Exchange Act after
the date of this Prospectus and prior to the date which is 180 days after the
termination of the Exchange Offer shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such 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 statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. As used herein, all
references to "adjusted for redemption" mean that the amount involved has been
adjusted to give effect to the series of transactions that resulted in the
conversion of an aggregate of approximately $2.5 million in principal amount of
Convertible Debentures, the use by the Company of approximately $106.0 million
of net proceeds from the sale of the Outstanding Notes to pay the redemption
price for the remaining Convertible Debentures, and the use of approximately
$15.0 million of such net proceeds to repay indebtedness under the Credit
Agreement. The definitions of certain capitalized terms used herein are set
forth in "Description of the Notes -- Certain Definitions".
THE COMPANY
Interface, Inc. ("Interface" or the "Company") pioneered the introduction
of the carpet tile concept in the United States in 1973, and is now a global
manufacturer and marketer of products for the commercial and institutional
interiors market. The Company is the leader in the modular carpet segment (which
includes six foot roll goods as well as carpet tile) with a 40% worldwide market
share. Through its strategic acquisitions of Bentley Mills, Inc. ("Bentley
Mills") in 1993 and Prince Street Technologies, Ltd. ("Prince Street") in 1994,
the Company entered the broadloom carpet segment with leading product lines for
the high quality, designer-oriented sector of that market. The Company, through
its Guilford of Maine, Inc. ("Guilford") subsidiary, is also the leading U.S.
manufacturer of panel fabrics for use in open plan office furniture systems,
with a market share of approximately 50%. In fiscal 1994, the Company had sales
of $725 million, with carpet sales of $595 million (82% of the total), and
fabric sales of $110 million (15% of the total). The balance of the Company's
sales are from its chemicals and specialty products group.
The Company markets products in over 100 countries around the world under
such well-known brand names as Interface and Heuga in modular carpet; Bentley
Mills and Prince Street in broadloom carpets; Guilford of Maine, Stevens Linen
and Toltec in interior fabrics; and Intersept in chemicals. The Company's
principal geographic markets are North America (57% of 1994 sales), the United
Kingdom and Western Europe (31% of 1994 sales), and Japan and Australia (5% of
1994 sales). The Company is aggressively developing opportunities in Greater
China and Southeast Asia, South America, and Central and Eastern Europe, which
represent significant growth markets for the Company. The Company's worldwide
marketing efforts are facilitated by having 22 manufacturing facilities at
varied locations in North America, Europe, and Australia. Worldwide
manufacturing locations enable the Company to compete effectively with local
producers in its international markets, while also providing advantages (such as
affording international customers more favorable delivery times and freight
costs) over competitors who must import their products into such markets. These
capabilities are an important competitive advantage to Interface in serving the
needs of multinational corporate customers who require uniform products and
services at their various locations around the world.
The Company utilizes an internal marketing and sales force of over 700
experienced personnel (the largest in the commercial floorcovering industry),
stationed at 83 locations in 42 countries, to market the Company's carpet
products and services in person to its customers. Guilford has its own
specialized marketing and sales force (approximately 44 persons) for marketing
the Company's principal interior fabrics products. The Company also utilizes
independent dealers to achieve additional marketing coverage for all its
products. The Company focuses its sales efforts at the design phase of
commercial projects. Interface personnel cultivate relationships both with the
owners and users of the facilities involved in the projects and with specifiers
such as architects, interior designers, engineers and contracting firms who are
directly involved in specifying products and who often make or significantly
influence purchase decisions. The Company emphasizes its product design and
styling capabilities and its ability to provide creative, high value solutions
to its customers' needs. Interface marketing and sales personnel also serve as a
primary technical resource for the Company's customers, both with respect to
product maintenance and service as well as design matters.
4
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INDUSTRY TRENDS AND COMPANY STRENGTHS
In recent years, the Company's revenue has been derived primarily from the
renovation market. The Company believes that the commercial and institutional
market for floorcovering products, which experienced a significant decline in
demand during the early 1990's, has begun to rebound significantly in the United
States primarily due to renovation projects and, to a lesser extent, new
construction. In international markets, overall demand for commercial
floorcovering products is also beginning to increase, especially in certain
countries in the Asia-Pacific region where new construction projects are
increasing, and also in more developed markets where products are being used for
an increasing number of remodeling or refurbishing projects. The Company also
believes that, within the floorcovering market, the demand for modular carpet is
increasing worldwide as more customers recognize its advantages in terms of
greater design options and flexibility, longer average life, and ease of access
to sub-floor wiring.
Management believes that the Company benefits from several significant
competitive advantages, which will assist it in sustaining and enhancing its
position as a market leader. The Company's principal strengths include: (i) an
excellent reputation for quality, service and reliability; (ii) strong,
well-known brand names; (iii) efficient and low-cost manufacturing operations in
several locations around the world; (iv) strong customer and architectural and
design community relationships; (v) award-winning and innovative product design
and development capabilities; and (vi) state-of-the-art production equipment and
technologically advanced systems. These strengths coupled with the Company's
broad and diversified mix of product lines enable Interface to take a "total
interior solution" approach to serving the needs of its customers around the
world and position the Company to benefit from the recent industry developments.
BUSINESS STRATEGY AND PRINCIPAL INITIATIVES
Interface's long-standing corporate strategy has been to diversify and
integrate worldwide. The Company seeks to diversify by developing internally or
acquiring related product lines and businesses in the commercial interiors
field; and to integrate by identifying and developing synergies and operating
efficiencies among the Company's diverse products and global businesses. In
continuing that strategy, the Company is pursuing the following principal
initiatives:
Enhancement of Design Capabilities. In January 1994, the Company engaged
the leading design firm Roman Oakey, Inc. (under an exclusive consulting
contract) to augment the Company's internal research, development and design
staff. The Company introduced 57 new carpet designs in the U.S. in 1994 (the
largest number in one year in the Company's history), and received eight (out of
a possible 12) U.S. carpet industry design awards bestowed by the International
Interior Design Association, including all five awards in the carpet tile
division. Roman Oakey's design services are being extended to the Company's
international carpet operations and an affiliate of that firm has been engaged
to provide similar design services to the Company's interior fabrics business
(which already has significant capabilities in this area).
Globalization of "Mass Customization" Production Strategy. The goal of
"mass customization" is to be able to respond to customers' requirements for
custom or highly styled products by quickly and efficiently producing both
custom samples and the ultimate products, and to determine proven "winners" that
can be manufactured for inventory for broader distribution. Mass customization
was introduced to the Company's U.S. carpet tile business in 1994, and its
principal components included (i) developing a simplified but versatile yarn
utilization system, (ii) investing in highly efficient, state-of-the-art tufting
and custom sampling equipment, and (iii) utilizing innovative design and styling
to create products. The initiative has resulted in substantial operating
improvements in the U.S. carpet tile business in 1995, including improved
margins and reduced inventory levels of both raw materials and standard
products. The Company is extending the mass customization production initiative
to its floorcovering operations in Europe and Australia.
Diversification, Expansion and Increased Efficiency in the Interior Fabrics
Business. In response to a shift in demand towards lighter weight, less
expensive fabrics by OEM panel fabric customers, the Company initiated a
significant capital investment program at Guilford to consolidate and modernize
its yarn manufacturing operations. This program should result in significant
efficiencies and cost savings, which are expected to permit recovery of that
capital investment in approximately two years, as well as new product
5
<PAGE> 8
capability. Interface's strategic acquisition of Toltec Fabrics in June 1995,
and of the Intek division of Springs Industries in December 1995, provide
further diversification into upholstery and seating fabrics; penetrate certain
niche markets where Guilford has not previously been active; and provide
operating efficiencies as a number of manufacturing processes currently
outsourced by these businesses are brought in-house. Interface will also
continue to devote resources to Guilford's growing export business.
War-on-Waste and EcoSense Programs. In January 1995, the Company initiated
a worldwide "war-on-waste" program. Applying a zero-based definition of waste
(broadly defined as any measurable cost that goes into manufacturing a product
but does not result in identifiable value to the customer), the Company has
identified $70 million of such waste. While a major part of such waste cannot be
eliminated using currently available technologies and production systems,
management believes the Company can eliminate approximately $35 million of such
waste over time. The Company has realized approximately $6 million in savings
(through eliminating such waste) during the first nine months of fiscal 1995.
The war-on-waste program represents a first step in the Company's broader
EcoSense(TM) initiative to achieve greater resource efficiency.
Increased Integration of Marketing Efforts and Operational
Consolidations -- "Total Interior Solutions". The Company's objective is to use
the complementary nature of its product lines to implement a "total interior
solution" approach to serving the diverse needs of customers worldwide.
Marketing and sales personnel are being trained in cross-marketing techniques,
and the Company is implementing a marketing communications network to link its
worldwide marketing and sales force. As a related initiative, the Company has
consolidated management responsibility for certain key operational areas, which
has increased global cooperation and coordination in product planning and
production as well as marketing activities.
Geographic Expansion of Manufacturing in Developing Markets. A key element
of the Company's worldwide focus is having manufacturing (as well as marketing
and service) capabilities in important locations around the world. The Company
is presently constructing a carpet tile manufacturing facility in Thailand,
which is expected to be operational in early 1996, and it is exploring
establishment of manufacturing operations in Greater China. The Company will
consider additional locations for manufacturing operations in other parts of the
world as necessary to meet the needs of its existing and future customers.
------------------
Interface was incorporated in 1973 as a Georgia corporation. The Company's
principal executive offices are located at 2859 Paces Ferry Road, Suite 2000,
Atlanta, Georgia 30339, where its telephone number is (770) 437-6800.
6
<PAGE> 9
THE EXCHANGE OFFER
The Exchange Notes......... The form and terms of the Exchange Notes are
identical in all material respects to the terms of
the Outstanding Notes for which they may be
exchanged pursuant to the Exchange Offer, except
for certain transfer restrictions and registration
rights relating to the Outstanding Notes and except
for certain interest provisions relating to such
registration rights described below under
"Description of the Exchange Notes".
The Exchange Offer......... The Company is offering to exchange up to
$125,000,000 aggregate principal amount of 9 1/2%
Senior Subordinated Notes due 2005, Series B (the
"Exchange Notes") for up to $125,000,000 aggregate
principal amount of its outstanding 9 1/2% Senior
Subordinated Notes due 2005, Series A (the
"Outstanding Notes"). Outstanding Notes may be
exchanged only in integral multiples of $1,000.
Expiration Date; Withdrawal
of Tender................ The Exchange Offer will expire at 12:00 midnight,
Atlanta, Georgia time, on, March 8, 1996, or such
later date and time to which it is extended by the
Company. The Exchange Offer will not in any event
be extended to a date beyond April 7, 1996. The
tender of Outstanding Notes pursuant to the
Exchange Offer may be withdrawn at any time prior
to the Expiration Date. Any Outstanding Notes not
accepted for exchange for any reason will be
returned without expense to the tendering holder
thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Certain Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Certain Conditions to the
Exchange Offer".
Procedures for Tendering
Outstanding Notes........ Each holder of Outstanding Notes wishing to accept
the Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Outstanding Notes and any other required
documentation to the Exchange Agent (as defined) at
the address set forth herein. By executing the
Letter of Transmittal, each holder will represent
to the Company that, among other things, (i) any
Exchange Notes to be received by it will be
acquired in the ordinary course of its business,
(ii) it has no arrangement with any person to
participate in the distribution of the Exchange
Notes and (iii) it is not an "affiliate", as
defined in Rule 405 of the Securities Act, of the
Company or, if it is an affiliate, it will comply
with the registration and prospectus delivery
requirements of the Securities Act to the extent
applicable.
Interest on the Exchange
Notes.................... The Exchange Notes will bear interest at the rate
of 9 1/2% per annum, payable semi-annually on May
15 and November 15, commencing May 15, 1996, to
holders of record on the immediately preceding May
1 and November 1, respectively. Holders of the
Exchange Notes will receive interest on May 15,
1996 from the date of initial issuance of the
Exchange Notes, plus an amount equal to the accrued
interest on the Outstanding Notes from the later of
(i) the most recent date to which
7
<PAGE> 10
interest has been paid thereon and (ii) the date of
initial issuance of the Outstanding Notes, to the
date of exchange thereof. Interest on the
Outstanding Notes accepted for exchange will cease
to accrue upon issuance of the Exchange Notes.
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Outstanding Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender such Outstanding Notes in the
Exchange Offer should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering its Outstanding Notes, either make
appropriate arrangements to register ownership of
the Outstanding Notes in such owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
Guaranteed Delivery
Procedures............... Holders of Notes who wish to tender their
Outstanding Notes and whose Outstanding Notes are
not immediately available or who cannot deliver
their Outstanding Notes, the Letter of Transmittal
or any other documents required by the Letter of
Transmittal to the Exchange Agent, prior to the
Expiration Date, must tender their Outstanding
Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures".
Registration
Requirements............. The Company has agreed to use its best efforts to
consummate the Exchange Offer to offer holders of
the Outstanding Notes an opportunity to exchange
their Outstanding Notes for the Exchange Notes
which will be issued without legends restricting
the transfer thereof. If applicable interpretations
of the staff of the Commission do not permit the
Company to effect the Exchange Offer, or in certain
other circumstances, the Company has agreed to file
a shelf registration statement (the "Shelf
Registration Statement") covering resales of the
Outstanding Notes and to use its best efforts to
cause the Shelf Registration Statement to be
declared effective under the Securities Act and,
subject to certain exceptions, keep the Shelf
Registration Statement effective until three years
after the effective date thereof.
Certain Federal Income Tax
Considerations........... For a discussion of certain federal income tax
considerations relating to the Exchange Notes, see
"Certain Federal Income Tax Consequences".
Use of Proceeds............ There will be no proceeds to the Company from the
exchange of Notes pursuant to the Exchange Offer.
Exchange Agent............. First Union National Bank of Georgia is the
Exchange Agent. The address and telephone number of
the Exchange Agent are set forth in "The Exchange
Offer -- Exchange Agent".
8
<PAGE> 11
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
Securities................. $125,000,000 principal amount of 9 1/2% Senior
Subordinated Notes due 2005, Series B.
Maturity Date.............. November 15, 2005.
Interest Payment Dates..... May 15 and November 15, commencing May 15, 1996.
Ranking.................... The Notes are unsecured senior subordinated
obligations of the Company, and subordinate to all
existing and future Senior Indebtedness of the
Company, including Indebtedness pursuant to the
Company's principal bank credit facility (the
"Credit Agreement") or any replacement bank credit
facility. As of October 1, 1995, the aggregate
amount of Senior Indebtedness of the Company that
would have ranked senior to the Notes was
approximately $192.7 million, adjusted for
redemption. The Notes are also effectively
subordinated to all existing and future
liabilities, including trade payables, of the
Company's subsidiaries which are not Guarantors,
which, as of October 1, 1995, totaled approximately
$52.4 million (excluding intercompany indebtedness
and Senior Indebtedness).
Subordinated Guarantees.... The Notes are guaranteed on a joint and several and
senior subordinated basis by the Company's
principal domestic subsidiaries. The Guarantees are
subordinate to all existing and future Guarantor
Senior Indebtedness, including indebtedness
pursuant to the Credit Agreement, which is also
guaranteed by the Guarantors. As of October 1, the
aggregate amount of Guarantor Senior Indebtedness
that would have ranked senior to the Guarantees
(including the Credit Agreement) was approximately
$192.7 million, adjusted for redemption. Subject to
such subordination and to limitations necessary to
prevent any Guarantee from constituting a
fraudulent conveyance under applicable law, the
Guarantees are full and unconditional obligations
of each Guarantor. See "Risk Factors -- Fraudulent
Conveyance Considerations".
Optional Redemption........ The Notes are redeemable for cash at any time on
and after November 15, 2000 at the Company's
option, in whole or in part, initially at a
redemption price equal to 104.750% of the principal
amount, declining to 100% of the principal amount
on November 15, 2003, plus accrued interest thereon
to the date fixed for redemption.
Change of Control.......... In the event of a Change of Control (as defined
herein), the Company is required by the indenture
governing the Notes (the "Indenture") to make an
offer to repurchase the Notes at a purchase price
equal to 101% of the principal amount thereof, plus
accrued interest to the repurchase date. Within 30
days following a Change of Control and prior to the
making of such offer to repurchase Notes, the
Company is required to either (i) repay in full all
Indebtedness under the Credit Agreements and
terminate the commitments of the lenders
thereunder, or (ii) obtain the requisite consents
under the Credit Agreements to permit the
repurchase of the Notes as provided herein. The
Company is required to repay such Indebtedness or
obtain such consent prior to repurchasing Notes
upon a Change of Control, but any failure to so
repurchase Notes will constitute an Event of
Default under the Indenture. In addition, the
occurrence of the events constituting a Change of
Control under the
9
<PAGE> 12
Indenture will result in an event of default under
the Credit Agreements and, thereafter, the lenders
will have the right to require repayment of the
borrowings thereunder in full. The Company's
obligations under the Credit Agreements will
represent obligations senior in right of payment to
the Notes. Consequently, the subordination
provisions of the Indenture will have the effect of
precluding the purchase of Notes by the Company in
the event of a Change of Control, absent consent of
the lenders under the Credit Agreements or
repayment of all amounts outstanding thereunder
(although the failure by the Company to comply with
its obligations in the event of a Change of Control
will constitute a default under the Notes). The
Company does not currently have the ability to fund
the repurchase of the Notes, if a Change of Control
were now to occur, and there can be no assurance
that the Company would have adequate resources to
repay or refinance all Indebtedness owing under the
Credit Agreements or to fund the purchase of Notes
upon a Change of Control in the future. The
Company's offer to repurchase upon a Change of
Control cannot be modified or conditioned by the
Company without the consent of the holders of the
Exchange Notes. See "Description of the Exchange
Notes -- Certain Covenants -- Change of Control".
The term "Change of Control" is limited to certain
specified transactions and may not include other
events that might adversely affect the financial
condition of the Company or result in a downgrade
of the credit rating of the Notes.
Proceeds of Certain
Asset Sales.............. The Company will be required in certain
circumstances to make an offer to repurchase
Exchange Notes at a price equal to 100% of the
principal amount thereof, plus accrued interest to
the date of repurchase, with the Excess Proceeds
(as defined below) of certain asset sales. The
Company's obligation to so repurchase Exchange
Notes arises only when the Excess Proceeds of all
asset sales exceed $15 million. The "Excess
Proceeds" are the amount of net cash proceeds from
such asset sales that (i) are not applied to repay
and permanently reduce commitments under the Credit
Agreements, and (ii) are not reinvested by the
Company in replacement assets and properties for
use in the Company's business. See "Description of
the Exchange Notes -- Certain
Covenants -- Disposition of Proceeds of Asset
Sales".
Certain Covenants.......... The Indenture contains covenants, including, but
not limited to, covenants with respect to
limitations on the following matters: (i) the
incurrence of additional indebtedness, (ii)
restricted payments, (iii) the creation of liens,
(iv) sales of assets and subsidiary stock, (v)
transactions with affiliates, (vi) payment
restrictions affecting subsidiaries, (vii) the
issuance of other senior subordinated indebtedness,
(viii) guarantees by subsidiaries and (ix) mergers
and consolidations. However, the Indenture also
provides that the above covenants relating to the
incurrence of additional debt, restricted payments,
sales of assets and subsidiary stock, payment
restrictions affecting subsidiaries, and the
issuance of other senior subordinated indebtedness
(the "Suspended Covenants") will not apply to the
Company and its subsidiaries during any period of
time that (a) the ratings assigned to the Notes are
no less than BBB- and Baa3, and (b) no Default or
Event of Default under the Indenture has occurred
and is continuing. As a consequence, the failure of
the Company and its subsidiaries to comply with the
Suspended
10
<PAGE> 13
Covenants (during any such time that the Suspended
Covenants are not applicable) will not constitute a
Default or Event of Default under the Indenture.
See "Description of the Exchange Notes -- Certain
Covenants".
RISK FACTORS
See "Risk Factors", below, for a discussion of certain factors that should
be considered by holders of Outstanding Notes prior to tendering Outstanding
Notes in the Exchange Offer.
11
<PAGE> 14
SUMMARY CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following summary consolidated financial data of the Company for the
fiscal years ended January 3, 1993, January 2, 1994 and January 1, 1995 are
derived from the consolidated financial statements of the Company that have been
audited by the Company's independent certified public accountants. The following
summary consolidated financial data of the Company as of October 1, 1995 and for
the nine months ended October 2, 1994 and October 1, 1995 are derived from the
unaudited consolidated financial statements of the Company, which, in the
opinion of the Company's management, reflect all adjustments necessary for a
fair presentation of the results for the unaudited periods. The summary
consolidated financial data should be read in conjunction with the consolidated
financial statements and other financial information included in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
------------------------------------ -----------------------
JANUARY 3, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1,
1993 1994 1995 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................... $594,078 $625,067 $725,283 $527,343 $597,414
Gross profit........................................ 189,948 197,746 221,185 159,702 184,778
Selling, general and administrative expenses........ 149,509 151,576 170,375 123,559 139,613
Operating income.................................... 40,439 46,170 50,810 36,143 45,165
Interest expense.................................... 21,894 22,840 24,094 17,888 21,194
Preferred dividends................................. - 913 1,750 1,313 1,312
Net income to common shareholders................... 12,250 12,936 14,706 9,457 13,106
OTHER DATA:
EBITDA(1)........................................... $ 62,712 $ 68,656 $ 77,987 $ 56,762 $ 65,735
Depreciation and amortization....................... 22,257 24,512 28,180 22,047 21,285
Capital expenditures................................ 14,476 20,639 21,315 14,071 26,186
Ratio of EBITDA to interest expense................. 2.86x 3.01x 3.24x 3.17x 3.10x
Ratio of earnings to fixed charges(2)............... 1.73x 1.75x 1.80x 1.71x 1.86x
ADJUSTED FOR REDEMPTION(3):
Interest expense.................................... - - $ 26,307 - $ 22,854
Ratio of EBITDA to interest expense................. - - 2.96x - 2.88x
Ratio of earnings to fixed charges.................. - - 1.75x - 1.81x
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 1, 1995
---------------------------
ADJUSTED FOR
ACTUAL REDEMPTION(3)
-------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $167,818 $170,176
Total assets........................................................ 705,752 706,652
Total long-term debt................................................ 311,904 316,132
Redeemable preferred stock.......................................... 25,000 25,000
Total common shareholders' equity................................... 237,098 236,128
Total capitalization................................................ 574,002 577,260
</TABLE>
- ---------------
(1) EBITDA means earnings before interest, income taxes, depreciation and
amortization (excluding certain non-recurring charges and extraordinary
items). EBITDA has been included solely to facilitate the consideration of
the covenants in the Indenture that are based, in part, on EBITDA. In
addition, the Company understands that it is used by certain investors as
one measure of the Company's historical ability to service its debt. EBITDA
is not intended to represent cash flow from operations as defined by
generally accepted accounting principles.
(2) The ratio of earnings to fixed charges is determined by dividing the sum of
earnings before extraordinary items, interest expense, taxes on income, and
a portion of rent expense representative of the interest component by the
sum of interest expense and the portion of rent expense representative of
the interest component.
(3) See the definition of adjusted for redemption on page 4.
12
<PAGE> 15
RISK FACTORS
In addition to the other information in this Prospectus, holders of
Outstanding Notes should carefully consider the following factors prior to
tendering Outstanding Notes in the Exchange Offer.
SUBSTANTIAL INDEBTEDNESS
The Company's indebtedness is substantial in relation to its shareholders'
equity. As of October 1, 1995, the Company's total long-term debt, net of
current portion, totaled $311.9 million or 54.3% of its total capitalization. As
of October 1, 1995, the Company's total long-term debt, net of current portion,
would have accounted for 54.8% of its total capitalization, as adjusted for
redemption. In addition, subject to certain covenants and financial tests set
forth in the Credit Agreement and the Indenture, the Company may incur debt in
the future which may rank senior to or pari passu with the Notes. See
"Description of Certain Indebtedness and Other Obligations", "Description of the
Exchange Notes" and "Capitalization".
The Company's indebtedness will have several important consequences for the
holders of the Notes, including but not limited to the following: (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to debt service requirements on its indebtedness and will not be available for
other purposes; (ii) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions, or to refinance
the Notes or for general corporate purposes may be impaired; (iii) the Company's
leverage may increase the effects of economic downturns on it and limit its
ability to withstand competitive pressures; and (iv) the Company's ability to
capitalize on significant business opportunities may be limited.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Credit Agreement and the Indenture restrict the ability of the Company
and its subsidiaries to, among other things, incur additional indebtedness, pay
dividends or make certain other restricted payments or investments, consummate
certain asset sales, enter into certain transactions with affiliates, incur
liens, or merge or consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of their assets.
The Credit Agreement also requires the Company to meet certain financial tests
and comply with certain other reporting, affirmative and negative covenants. In
an event of default under the Indenture or the Credit Agreement, the lenders
thereunder could elect to declare all amounts borrowed, together with accrued
interest, to be immediately due and payable and the lenders under the Credit
Agreement could terminate all commitments thereunder. If any such indebtedness
were to be accelerated, there can be no assurance that the assets of the Company
would be sufficient to repay in full such indebtedness and the other
indebtedness of the Company. The indebtedness under the Credit Agreement is
Senior Indebtedness and upon any such acceleration would be entitled to
repayment before any repayment of the Notes. See "Description of the Exchange
Notes -- Certain Covenants" and "Description of Certain Indebtedness and Other
Obligations".
SUBORDINATION OF THE NOTES; HOLDING COMPANY STRUCTURE
The Company derives all of its operating income and cash flow from its
subsidiaries. The Company must rely upon cash distributions from its
subsidiaries to generate the funds necessary to meet its obligations, including
the payment of principal and interest on the Notes. Although there currently are
no material restrictions on the Company's ability to control its receipt of
dividends or other payments from its subsidiaries, there can be no assurance
that the Company will not in the future be subject to legal and/or contractual
restrictions which restrict its ability to do so, including but not limited to
those factors discussed in "Risks of Foreign Operations" below. In addition, the
participation by the Company and certain of its subsidiaries in an accounts
receivable securitization program affects the Company's receipt of certain
collections on accounts receivable that are covered by that program. See
"Description of Certain Indebtedness and Other Obligations -- Accounts
Receivable Program."
The Notes are subordinated to all existing and future Senior Indebtedness
of the Company. As of October 1, 1995, the Company's Senior Indebtedness,
adjusted for redemption, was approximately $192.7 mil-
13
<PAGE> 16
lion. The Guarantees are subordinated to Senior Indebtedness of the Guarantors,
which as of October 1, 1995, adjusted for redemption, was approximately $192.7
million. In addition, the operations of the Company are conducted through its
subsidiaries and, therefore, the Notes are also effectively subordinated to all
Indebtedness and other liabilities and commitments of the Company's
subsidiaries, other than subsidiaries which are Guarantors. As of October 1,
1995, the aggregate amount of Indebtedness and obligations of the Company's
non-Guarantor subsidiaries (excluding intercompany indebtedness and Senior
Indebtedness) that would have effectively ranked senior to the Notes was
approximately $52.4 million.
Any right of the holders of the Notes to participate in the assets of a
subsidiary of the Company upon any liquidation or reorganization of such
subsidiary will be subject, in the case of a non-Guarantor Subsidiary, to the
prior claims of all such subsidiary's creditors, and, in the case of a
Guarantor, to the prior claim of such Subsidiary's senior creditors, including
the lenders under the Credit Agreement. In addition, 100% of the capital stock
of the Guarantors and up to 66% of the capital stock of the Company's principal
foreign subsidiaries are pledged as collateral to the lenders under the Credit
Agreement. See "Description of Certain Indebtedness and Other Obligations".
Accordingly, upon any liquidation or reorganization of the Company, the holders
of the Notes will have no claim against such capital stock until the lenders
under the Credit Agreement are paid in full.
COMPETITION
The commercial floorcoverings industry is highly competitive. The Company
competes, on a global basis, in the sale of its modular and broadloom carpet
with other carpet manufacturers and manufacturers of vinyl and other types of
floorcovering. Although the industry recently has experienced significant
consolidation, a large number of manufacturers remain. A number of domestic and
foreign competitors manufacture modular carpet as one segment of their business,
and certain of these competitors have financial resources in excess of the
Company's. See "Business -- Modular and Broadloom Carpet -- Competition".
The Company competes in the interior panel fabrics market on the basis of
product design, quality, service, reliability and price. The Company's products
for the contract fabric markets also include a variety of non-panel fabrics,
including upholstery, cubicle curtains, wall coverings, seat coverings, ceiling
fabrics and window treatments. The competition in these markets is highly
fragmented and includes both large, diversified textile companies (several of
which have greater financial resources than the Company), as well as smaller,
non-integrated specialty manufacturers that may have competitive strengths in
certain niche market areas. See "Business -- Interior Fabrics -- Competition".
CYCLICAL NATURE OF INDUSTRY
Sales of the Company's principal products are related to the construction
and renovation of commercial and institutional buildings. Such activity is
cyclical and can be affected by the strength of a country's general economy,
prevailing interest rates and other factors that lead to cost control measures
by businesses and other users of commercial or institutional space. The effects
of such cyclicality upon the new construction sector of the market tends to be
more pronounced than its effects upon the renovation sector. Although the
predominant portion of the Company's sales are generated from the renovation
sector, any such adverse cycle, in either sector of the market, would lessen the
overall demand for commercial interiors products, which could adversely affect
the Company's growth.
RELIANCE ON KEY PERSONNEL
The Company believes that its continued success will depend to a
significant extent upon the efforts and abilities of its senior management
executives, particularly Ray C. Anderson, Chairman of the Board, President and
Chief Executive Officer; Charles R. Eitel, Executive Vice President of the
Company and President and Chief Executive Officer of the Company's
Floorcoverings Group; and Brian L. DeMoura, Senior Vice President of the Company
and President and Chief Executive Officer of the Company's Interior Fabrics
Group. In addition, the Company relies significantly on the leadership of its
design staff by David Oakey of the design firm Roman Oakey, Inc., which provides
product design/production engineering services to the Company under a consulting
contract which expires at the end of 1998. The loss of all or some of such
personnel could have an adverse impact on the Company.
14
<PAGE> 17
RISKS OF FOREIGN OPERATIONS
The Company has substantial international operations. In fiscal 1994,
approximately 45% of the Company's revenues and 40% of the Company's production
were outside the United States, primarily in Europe, and the Company's corporate
strategy includes the expansion of its international business on a worldwide
basis. As a result, the Company's operations are subject to various political,
economic and other uncertainties, including risks of restrictive taxation
policies, foreign exchange restrictions, changing political conditions and
governmental regulations. The Company also receives a substantial portion of its
revenues in currencies other than U.S. Dollars, which makes it subject to the
risks inherent in currency translations. Although the Company's ability to
manufacture and ship products from facilities in several foreign countries
reduces the risks of foreign currency fluctuations it might otherwise
experience, and the Company also engages from time to time in hedging programs
intended to further reduce those risks, the Company's financial results remain
subject to foreign currency translation risks. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
RELIANCE ON PETROLEUM-BASED RAW MATERIALS; RELIANCE ON PRINCIPAL SUPPLIER
Petroleum-based products comprise the predominant portion of the cost of
raw materials used by the Company in manufacturing. While the Company generally
attempts to match cost increases with corresponding price increases, large
increases in the cost of such petroleum-based raw materials could adversely
affect the Company if the Company were unable to pass through to customers
increases in raw material costs. E. I. DuPont de Nemours and Company ("DuPont")
currently supplies a significant percentage of the Company's requirements for
synthetic fiber, the principal raw material used in the Company's carpet
products. While the Company believes that there are adequate alternative sources
of supply from which it could fulfill its synthetic fiber requirements, the
unanticipated termination of the supply arrangement with DuPont or a prolonged
interruption in shipments from DuPont could have a material adverse effect on
the Company because of the cost and delay associated with shifting more business
to another supplier or with waiting for the end of the interruption.
CONTROL OF ELECTION OF MAJORITY OF BOARD
The Company's Chairman and Chief Executive Officer, Ray C. Anderson,
beneficially owns approximately 54% of the Company's outstanding Class B Common
Stock, and has entered into a voting agreement with certain other holders of
Class B Common Stock pursuant to which such other holders have irrevocably
appointed Mr. Anderson their proxy and attorney-in-fact to vote their shares.
The holders of the Class B Common Stock are entitled, as a class, to elect a
majority of the Board of Directors of the Company, which means that Mr. Anderson
has sufficient voting power to elect a majority of the Board of Directors. The
holders of Class B Common Stock generally vote together as a single class with
the holders of the Class A Common Stock on all other matters submitted to the
shareholders for a vote, however, and Mr. Anderson's beneficial ownership of the
outstanding Class A and Class B Common Stock combined is less than 10%. See
"Security Ownership of Management and Principal Holders".
FRAUDULENT CONVEYANCE CONSIDERATIONS
Under applicable provisions of the federal bankruptcy law or comparable
provisions of state fraudulent transfer laws, if any Guarantor, at the time it
incurs a Guarantee, (a)(i) was or is insolvent or rendered insolvent by reason
of such incurrence, (ii) was or is engaged in a business or transaction for
which the assets remaining with such Guarantor constituted unreasonably small
capital or (iii) intended or intends to incur, or believed or believes that it
would incur, debts beyond its ability to pay such debts as they mature and (b)
received or receives less than reasonably equivalent value or fair
consideration, the obligations of such Guarantor under its Guarantee could be
avoided, or claims in respect of such Guarantee could be subordinated to all
other debts of such Guarantor. Among other things, a legal challenge of a
Guarantee on fraudulent conveyance grounds may focus on the benefits, if any,
realized by such Guarantor as a result of the issuance by the Company of the
Notes. To the extent that any Guarantee were a fraudulent conveyance or held
unenforceable for any other reason, the holders of the Notes would cease to have
any claim in respect of a
15
<PAGE> 18
Guarantor and would be solely creditors of the Company and any other Guarantors
whose Guarantees were not avoided or held unenforceable.
Each Guarantor will agree, jointly and severally with the other Guarantors,
to contribute to the obligations of any Guarantor under a Guarantee of the
Notes. Further, the Guarantee of each Guarantor will provide that it is limited
to an amount that would not render the Guarantor thereunder insolvent. The
Company believes that the Guarantors will receive equivalent value at the time
the indebtedness is incurred under the Guarantees. In addition, the Company
believes that none of the Guarantors will be, at the time of or as a result of
the issuance of the Guarantees, insolvent, that none of the Guarantors is or
will be engaged in a business or transaction for which its remaining assets
constitute unreasonably small capital and that none of the Guarantors will have
intended or will intend to incur debts beyond its ability to pay such debts as
they mature. Since each of the components of the question of whether a Guarantee
is a fraudulent conveyance is inherently fact based and fact specific, however,
there can be no assurance that a court passing on such questions would agree
with the Company.
CONSEQUENCES OF FAILURE TO EXCHANGE; POSSIBLE ADVERSE EFFECT ON TRADING MARKET
FOR OUTSTANDING NOTES
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Notes as set forth in the legend thereon as
a consequence of the issuance of the Outstanding Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Outstanding
Notes may not be offered or sold unless registered under the Securities Act and
applicable state laws, or pursuant to an exemption therefrom. Subject to the
obligation by the Company to file a Shelf Registration Statement covering
resales of Outstanding Notes in certain circumstances, the Company does not
intend to register the Outstanding Notes under the Securities Act and, after
consummation of the Exchange Offer, will not be obligated to do so. In addition,
any holders of Outstanding Notes who tender in the Exchange Offer for the
purpose of participating in a distribution of the Exchange 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. Additionally, as a result of the
Exchange Offer, it is expected that a substantial decrease in the aggregate
principal amount of Outstanding Notes outstanding will occur. As a result, it is
unlikely that a liquid trading market will exist for the Outstanding Notes at
any time. This lack of liquidity will make transactions more difficult and may
reduce the trading price of the Outstanding Notes. See "The Exchange Offer" and
"Description of the Exchange Notes -- Registration Rights Agreement; Penalty
Interest".
ABSENCE OF PUBLIC MARKET
There is no existing market for the Notes and there can be no assurance as
to the liquidity of any market that may develop for the Notes, the ability of
holders to sell the Notes, or the price at which holders would be able to sell
the Notes. Future trading prices of the Notes will depend on many factors,
including, among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. Historically, the
market for securities similar to the Notes has been subject to disruptions that
have caused substantial volatility in the prices of such securities. There can
be no assurance that any market for the Notes, if such market develops, will not
be subject to similar disruptions. Certain of the Initial Purchasers have
advised the Company that they currently intend to make a market in the Notes
offered hereby; however, the Initial Purchasers are not obligated to do so and
any market making may be discontinued at any time without notice. The
Outstanding Notes are eligible for trading in the Private Offerings, Resale and
Trading through Automated Linkages (PORTAL) market. The Exchange Notes will
constitute a new issue of securities with no established trading market. The
Company does not intend to list the Exchange Notes on any national securities
exchange or to seek approval for quotation through any automated quotation
system. Accordingly, no assurance can be given that an active public or other
market will develop for the Exchange Notes or as to the liquidity of the trading
market for the Exchange Notes. If a trading market does not develop, holders of
the Exchange Notes may experience difficulty in reselling the Exchange Notes or
may be unable to sell them.
16
<PAGE> 19
USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes as contemplated in this Prospectus,
the Company will receive, in exchange, Outstanding Notes in like principal
amount. The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Outstanding Notes, except as otherwise
described herein under "The Exchange Offer -- Terms of the Exchange Offer". The
Outstanding Notes surrendered in exchange for the Exchange Notes will be retired
and cancelled and cannot be reissued. Accordingly, issuance of the Exchange
Notes will not result in any increase in the outstanding debt of the Company.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
October 1, 1995 as reported in the unaudited consolidated financial statements
of the Company, as adjusted for redemption (defined on page 4). This table
should be read in conjunction with the Company's consolidated financial
statements, related notes and other financial information included in this
Prospectus.
<TABLE>
<CAPTION>
AS OF OCTOBER 1, 1995
---------------------------
ADJUSTED FOR
ACTUAL REDEMPTION
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................................... $ 3,034 $ 3,034
Escrowed and restricted funds....................................... 2,413 2,413
-------- ------------
$ 5,447 $ 5,447
======== =========
Short-term debt:
Current maturities of long-term debt.............................. $ 1,550 $ 1,550
======== =========
Long-term debt:
Senior revolving credit agreements................................ $156,379 $139,532
Senior term loans................................................. 50,000 50,000
Convertible subordinated debentures............................... 103,925 0
Senior subordinated notes......................................... 0 125,000
Other long-term debt.............................................. 1,600 1,600
-------- ------------
Total long-term debt...................................... 311,904 316,132
-------- ------------
Redeemable preferred stock.......................................... 25,000 25,000
Common shareholders' equity:
Class A Common Stock: $.10 par value; 40,000,000 shares
authorized; 18,874,659 shares issued(1) actual and 19,019,693
shares issued as adjusted for redemption....................... 1,887(2) 1,902(2)
Class B Common Stock: $.10 par value; 40,000,000 shares
authorized; 2,994,694 shares outstanding....................... 300 300
Additional paid-in capital........................................ 94,186(2) 96,553(2)
Retained earnings................................................. 146,160(3) 142,808(3)
Foreign currency translation...................................... 12,311 12,311
Treasury stock, 3,600,000 Class A shares, at cost................. (17,746) (17,746)
-------- ------------
Total common shareholders' equity......................... 237,098 236,128
-------- ------------
Total capitalization................................................ $574,002 $577,260
======== =========
</TABLE>
- ---------------
(1) Includes 3,600,000 Class A shares, deemed to be treasury stock.
(2) The increase in Class A Common Stock reflects the conversion of a portion of
the Convertible Debentures into 145,034 shares of Class A Common Stock. The
increase in additional paid-in capital
reflects the recording of the effects of such conversion net of
approximately $70,000 of deferred financing costs related to the
Convertible Debentures.
(3) Reflects the write-off of deferred financing costs of approximately $3.0
million and the redemption premium costs of approximately $2.4 million
related to the redemption of the Convertible Debentures. These amounts will
be reported as an extraordinary loss net of the effects of income taxes.
18
<PAGE> 21
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Outstanding Notes were sold by the Company on November 21, 1995 to the
Initial Purchasers, who sold the Outstanding Notes to certain institutional
investors in reliance on Rule 144A and Regulation D promulgated by the
Commission under the Securities Act. In connection with the sale of the
Outstanding Notes, the Company, the Guarantors and the Initial Purchasers
entered into the Registration Rights Agreement, pursuant to which the Company
agreed (i) to file a registration statement with respect to an offer to exchange
the Outstanding Notes for senior subordinated debt securities of the Company
with terms substantially identical to the Outstanding Notes (except that the
Exchange Notes will not contain terms with respect to transfer restrictions)
within 30 days after the date of original issuance of the Outstanding Notes and
(ii) to use best efforts to cause such registration statement to become
effective under the Securities Act within 75 days after such issue date. If
applicable law or interpretations of the staff of the Commission do not permit
the Company to file the registration statement containing this Prospectus or to
effect the Exchange Offer, or if certain holders of the Outstanding Notes notify
the Company that they are not permitted to participate in, or would not receive
freely tradable Exchange Notes pursuant to, the Exchange Offer, the Company will
use its best efforts to cause to become effective the Shelf Registration
Statement with respect to the resale of the Outstanding Notes and to keep the
Shelf Registration Statement effective until three years after the effective
date thereof. The interest rate on the Outstanding Notes is subject to increase
under certain circumstances if the Company is not in compliance with its
obligations under the Registration Rights Agreement. See "Description of the
Exchange Notes -- Registration Rights Agreement; Penalty Interest". Unless the
context requires otherwise, the term "holder" with respect to the Exchange Offer
means the registered holder of the Outstanding Notes or any other person who has
obtained a properly completed bond power from the registered holder.
Each holder of the Outstanding Notes who wishes to exchange such
Outstanding Notes for Exchange Notes in the Exchange Offer will be required to
make certain representations, including representations that (i) any Exchange
Notes to be received by it will be acquired in the ordinary course of its
business, (ii) it has no arrangement with any person to participate in the
distribution of the Exchange Notes and (iii) it is not an "affiliate", as
defined in Rule 405 of the Securities Act, of the Company or, if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. See "Description of
the Exchange Notes -- Registration Rights Agreement; Penalty Interest".
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third-parties, the Company believes that, except as
described below, Exchange Notes issued pursuant to the Exchange Offer in
exchange for Outstanding Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a 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 requirements of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
Offer with the intention or for the purpose of participating in a distribution
of the Exchange Notes cannot rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Unless an exemption from registration is otherwise available, any
such resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K under the Securities Act.
This Prospectus may be used for an offer to resell, resale or other
retransfer of Exchange Notes only as specifically set forth herein. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Outstanding Notes, where such Outstanding Notes were acquired by such
broker-dealer as a result of
19
<PAGE> 22
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Outstanding Notes properly tendered and not withdrawn prior to 5:00 p.m.,
Atlanta, Georgia time, on the Expiration Date. The Company will issue $1,000
principal amount of Exchange Notes in exchange for each $1,000 principal amount
of Outstanding Notes surrendered pursuant to the Exchange Offer. Outstanding
Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Outstanding Notes, except that the Exchange Notes will be
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof. The Exchange Notes will evidence the same debt as the
Outstanding Notes. The Exchange Notes will be issued under and entitled to the
benefits of the Indenture, which also authorized the issuance of the Outstanding
Notes, such that both series will be treated as a single class of debt
securities under the Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered for exchange. Holders of Outstanding
Notes do not have any appraisal or dissenters' rights in connection with the
Exchange Offer.
As of the date of this Prospectus, $125,000,000 aggregate principal amount
of the Outstanding Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Outstanding
Notes. There will be no fixed record date for determining registered holders of
Outstanding Notes entitled to participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Outstanding Notes which are not tendered for exchange in the Exchange Offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits such holders have under the Indenture and the Registration
Rights Agreement.
The Company shall be deemed to have accepted for exchange properly tendered
Notes when, as and if the Company shall have given oral or written notice
thereof to the Exchange Agent and complied with the applicable provisions of the
Registration Rights Agreement. The Exchange Agent will act as agent for the
tendering holders for the purposes of receiving the Exchange Notes from the
Company. The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Outstanding Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
specified below under "-- Certain Conditions to the Exchange Offer".
Holders who tender Outstanding 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
Outstanding Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes described below, in
connection with the Exchange Offer. See "The Exchange Offer -- Fees and
Expenses".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 12:00 midnight, Atlanta, Georgia time
on March 8, 1996, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. The Exchange Offer will
not in any event be extended to a date beyond April 7, 1996.
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 of Outstanding Notes an announcement thereof, each prior to 9:00 a.m.,
Atlanta, Georgia time, on the next business day after the then Expiration Date.
20
<PAGE> 23
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Notes, to extend the Exchange Offer or to terminate
the Exchange Offer if any of the conditions set forth below under "-- Certain
Conditions to the Exchange Offer" 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 of
Outstanding Notes. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, the Company will promptly disclose
such amendment by means of a prospectus supplement that will be distributed to
the registered holders, and the Company will extend the Exchange Offer,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate of 9 1/2% per annum,
payable semi-annually, on each May 15 and November 15, commencing May 15, 1996.
Holders of Exchange Notes will receive interest on May 15, 1996 from the date of
initial issuance of the Exchange Notes, plus an amount equal to the accrued and
unpaid interest on the Outstanding Notes from the date of initial issuance to
the date of exchange thereof for Exchange Notes. Interest on the Outstanding
Notes accepted for exchange will cease to accrue upon issuance of the Exchange
Notes.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any Exchange Notes for, any
Outstanding Notes, and may terminate the Exchange Offer as provided herein
before the acceptance of any Outstanding Notes for exchange, 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 Company's reasonable judgment, might materially impair the
ability of the Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Company's reasonable judgment,
might materially impair the ability of the Company to proceed with the
Exchange Offer; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Outstanding Notes, by giving oral
or written notice of such extension to the holders thereof. During any such
extensions, all Outstanding Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Outstanding
Notes not accepted for exchange for any reason will be returned without expense
to the tendering holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Outstanding Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified above. The Company will give oral or written notice of
any extension, amendment, non-acceptance or termination to the holders of the
Outstanding Notes as promptly as practicable, such notice in the case of any
extension to be issued no later than 9:00 a.m., Atlanta, Georgia time, on the
next business day after the previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable judgment. The failure by the Company at any
21
<PAGE> 24
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right, and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of Outstanding Notes may tender such Outstanding Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the Exchange
Agent prior to 12:00 midnight, Atlanta, Georgia time, on the Expiration Date. In
addition, either (i) Outstanding Notes must be received by the Exchange Agent
along with the Letter of Transmittal, or (ii) a timely confirmation of
book-entry transfer (a "Book-Entry Confirmation") of such Outstanding Notes, if
such procedure is available, into the Exchange Agent's account at the Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for
book-entry transfer described below must be received by the Exchange Agent prior
to the Expiration Date, or (iii) the holder must comply with the guaranteed
delivery procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth below under "The Exchange Offer -- Exchange Agent"
prior to 12:00 midnight, Atlanta, Georgia time, on the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN 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 OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Outstanding 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 of Outstanding Notes to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such owner's own behalf,
such owner must, prior to completing and executing the Letter of Transmittal and
delivering such owner's Outstanding Notes, either make appropriate arrangements
to register ownership of the Outstanding Notes in such owner's name or obtain a
properly completed bond power from the registered holder of Outstanding Notes.
The transfer of registered ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case may be, must be guaranteed by an Eligible Institution (as
defined below) unless the Outstanding Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal or (ii) for the account of an Eligible Institution. If signatures
on a Letter Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantor must be a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of
22
<PAGE> 25
Rule 17Ad-15 under the Exchange Act which is a member of one of the recognized
signature guarantee programs identified in the Letter of Transmittal (an
"Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Outstanding Notes listed therein, such Outstanding
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
Outstanding Notes with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Outstanding Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Outstanding Notes and withdrawal of tendered
Outstanding 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 Outstanding Notes not properly tendered or any
Outstanding Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of tender as to particular
Outstanding 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 Outstanding 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
Outstanding Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Outstanding 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.
In all cases, issuance of Exchange Notes for Outstanding Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of Outstanding Notes or a timely Book-Entry
Confirmation of such Outstanding Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Outstanding Notes
are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange Offer or if Outstanding Notes are submitted for a
greater principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Outstanding Notes will be returned without expense to the
tendering holder thereof (or, in the case of Outstanding Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described below, such
non-exchanged Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Outstanding Notes by causing
the Book-Entry Transfer Facility to transfer such Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address set
forth below under
23
<PAGE> 26
"The Exchange Offer -- Exchange Agent" on or prior to the Expiration Date or, if
the guaranteed delivery procedures described below are to be 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.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver their
Outstanding Notes, the Letter of Transmittal or any other required documents to
the Exchange Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Outstanding Notes and the principal amount of Outstanding Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three (3) New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together
with the Outstanding Notes or a Book-Entry Confirmation, as the case may
be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal, are received by the
Exchange Agent within three (3) 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 Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time prior to 12:00 midnight, Atlanta, Georgia time, on the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent". Any such notice of withdrawal must specify the name of the
person having tendered the Outstanding Notes to be withdrawn, identify the
Outstanding Notes to be withdrawn (including the principal amount of such
Outstanding Notes), and (where certificates for Outstanding Notes have been
transmitted) specify the name in which such Outstanding Notes were registered,
if different from that of the withdrawing holder. If certificates for
Outstanding Notes have been delivered or otherwise identified to the Exchange
Agent, then, prior to the release of such certificates, the withdrawing holder
must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If
Outstanding Notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Outstanding Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Outstanding Notes
so withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Outstanding Notes which have been tendered
for exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Outstanding Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Outstanding Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Outstanding Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
24
<PAGE> 27
Exchange Offer. Properly withdrawn Outstanding Notes may be retendered by
following one of the procedures described under "-- Procedures for Tendering"
above at any time on or prior to the Expiration Date.
EXCHANGE AGENT
First Union National Bank of Georgia has been appointed as Exchange Agent
of the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Overnight Courier or Hand Delivery: By Registered or Certified Mail:
First Union National Bank of Georgia First Union National Bank of Georgia
Suite 1100, First Union Plaza Suite 1100, First Union Plaza
999 Peachtree Street, N.E. 999 Peachtree Street, N.E.
Atlanta, Georgia 30339 Atlanta, Georgia 30339
Attn: Corporate Trust Department Attn: Corporate Trust Department
</TABLE>
By Facsimile:
(404) 827-7305
(For Eligible Institutions Only)
Confirm by Telephone:
(404) 827-7349
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$100,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs, and
related fees and expenses.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates representing
Outstanding Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are to be issued in the name of, any person other
than the registered holder of Notes tendered, or if tendered Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes
for Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes, as set forth in the
legend thereon, as a consequence of the issuance of the Outstanding Notes
pursuant
25
<PAGE> 28
to the exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Outstanding Notes may not be offered or sold, unless registered
under the Securities Act, except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the
Outstanding Notes under the Securities Act.
26
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
The following selected consolidated financial data as of and for each of
the five years in the period ended January 1, 1995 are derived from the
consolidated financial statements of the Company that have been audited by the
Company's independent certified public accountants. The selected consolidated
financial data of the Company as of and for the nine months ended October 2,
1994 and October 1, 1995 are derived from the unaudited consolidated financial
statements of the Company, which, in the opinion of the Company's management,
reflect all adjustments necessary for a fair presentation of the results for the
unaudited periods. The selected consolidated financial data should be read in
conjunction with the consolidated financial statements and other financial
information included in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------------------ -----------------------
DECEMBER 30, DECEMBER 29, JANUARY 3, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1,
1990 1991 1993 1994 1995 1994 1995
------------ ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $623,467 $581,786 $594,078 $625,067 $725,283 $527,343 $597,414
Gross profit................... 212,815 188,053 189,948 197,746 221,185 159,702 184,778
Selling, general and
administrative expenses...... 153,317 150,100 149,509 151,576 170,375 123,559 139,613
Operating income............... 59,498 37,953 40,439 46,170 50,810 36,143 45,165
Interest expense............... 25,192 23,253 21,894 22,840 24,094 17,888 21,194
Preferred dividends............ -- -- -- 913 1,750 1,313 1,312
Net income to common
shareholders................. 23,602 8,921 12,250 12,936 14,706 9,457 13,106
Primary earnings per common
share(1)..................... 1.37 0.52 0.71 0.75 0.82 0.53 0.72
Cash dividends per common
share........................ 0.24 0.24 0.24 0.24 0.24 0.18 0.18
OTHER DATA:
EBITDA(2)...................... $ 84,442 $ 57,306 $ 62,712 $ 68,656 $ 77,987 $ 56,762 $ 65,735
Depreciation and
amortization................. 21,570 19,723 22,257 24,512 28,180 22,047 21,285
Capital expenditures........... 23,705 15,375 14,476 20,639 21,315 14,071 26,186
Ratio of EBITDA to interest
expenses..................... 3.35x 2.46x 2.86x 3.01x 3.24x 3.17x 3.10x
Ratio of earnings to fixed
charges(3)................... 2.39x 1.54x 1.73x 1.75x 1.80x 1.71x 1.86x
</TABLE>
<TABLE>
<CAPTION>
AS OF
--------------------------------------------------------------------------------------------
DECEMBER 30, DECEMBER 29, JANUARY 3, JANUARY 2, JANUARY 1, OCTOBER 2, OCTOBER 1,
1990 1991 1993 1994 1995 1994 1995
------------ ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................ $156,638 $150,541 $138,834 $140,575 $174,620 $176,870 $167,818
Total assets................... 528,371 569,438 534,120 642,319 687,934 685,059 705,752
Total long-term debt........... 254,578 240,137 235,488 291,637 314,441 307,950 311,904
Redeemable preferred stock..... -- -- -- 25,000 25,000 25,000 25,000
Total common shareholders'
equity....................... 198,409 198,977 186,349 181,884 214,090 214,757 237,098
Total capitalization........... 452,987 439,114 421,837 498,521 553,531 547,707 574,002
</TABLE>
- ---------------
(1) For the fiscal year ended December 30, 1990 and the nine months ended
October 1, 1995, fully diluted earnings per share was $1.24 and $.71,
respectively. For all other periods presented, fully diluted earnings per
share were anti-dilutive; therefore, primary earnings per common share is
presented.
(2) EBITDA means earnings before interest, income taxes, depreciation and
amortization (excluding certain non-recurring charges and extraordinary
items). EBITDA has been included solely to facilitate the consideration of
the covenants in the Indenture that are based, in part, on EBITDA. In
addition, the Company understands that it is used by certain investors as
one measure of the Company's historical ability to service its debt. EBITDA
is not intended to represent cash flow from operations as defined by
generally accepted accounting principles.
(3) The ratio of earnings to fixed charges is determined by dividing the sum of
earnings before extraordinary items, interest expense, taxes on income, and
a portion of rent expense representative of the interest component by the
sum of interest expense and the portion of rent expense representative of
the interest component.
27
<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's revenues are derived from sales of commercial carpet (modular
and broadloom), interior fabrics, and chemicals and specialty products. Sales of
commercial carpet and interior fabrics accounted for approximately 82% and 15%,
respectively, of total net sales for 1994 and approximately the same for the
nine months ended October 1, 1995. The Company's revenues and EBITDA were $725
million and $78 million, respectively, in fiscal 1994. For the nine months ended
October 1, 1995, revenues increased 13.3% compared with the same period in 1994;
EBITDA increased at an even higher rate, 15.8%, during this same period. These
improvements are primarily the result of certain programs discussed below.
Historical Operating Trends
The Company pioneered the introduction of the carpet tile concept in the
United States in 1973. Following its initial public offering in 1983, the
Company's sales grew at an annual compound rate of 34.1% from 1983 to 1990, with
sales increasing from $80 million to $623 million. The Company's growth during
this period was fueled by diversification from the new construction market into
the renovation market and other market segments, global expansion into the
United Kingdom and Western Europe (including the 1988 strategic acquisition of
Heuga Holding B.V.), and diversification into interior fabrics with the
acquisition of Guilford in December 1986.
The period from 1991 to 1994, however, was characterized by (i) weak demand
for all floorcovering products in domestic and international commercial markets,
(ii) poor worldwide economic conditions highlighted by an economic recession in
Europe, (iii) increased competition and (iv) a shift in demand away from the
Company's fusion bonded products. During this period, the Company's operating
results initially declined from peak levels that had been achieved in fiscal
1990.
The adverse conditions of the 1991 to 1994 period tested the Company's
resiliency, and the Company responded with initiatives that enabled it to
achieve (after the 1991 decline in sales of 6.7%) sales and operating income
increases totaling 24.7% and 33.9%, respectively, for the three-year period. The
Company implemented strict cost control measures and diversified and expanded
its product offerings to include (through internal production changes) tufted
modular carpet products that had increased in popularity and (through the
strategic acquisitions of Bentley Mills in June 1993 and Prince Street in March
1994) high style, designer-oriented broadloom carpet products. The Company also
made strategic acquisitions to diversify and strengthen its position in other
commercial interiors markets, including the acquisition of the Stevens Linens
fabrics product line in 1993. With the addition of Charles Eitel to its
management team in late 1993, the Company began implementation of the product
design and development process and reengineering program for its U.S. modular
floorcovering business that led to the Company's mass customization and
war-on-waste initiatives. See "Business -- Business Strategy and Principal
Initiatives". These initiatives have assisted the Company in achieving
substantial growth in sales and even greater increases in operating income.
During fiscal 1994, the Company derived approximately 45% of its sales from
operations outside the United States. The Company believes that the geographic
diversity of its sales reduces its dependence on any particular region and
represents a significant competitive advantage. To better support its global
marketing operations, the Company has manufacturing facilities in strategic
locations around the world. An additional result of this strategy is that the
Company's foreign currency risk is reduced because certain revenues are derived
from products manufactured at facilities which incur their operating costs in
the same foreign currency.
28
<PAGE> 31
RESULTS OF OPERATIONS
Nine Months Ended October 1, 1995 Compared With Nine Months Ended October 2,
1994
For the nine months ended October 1, 1995, the Company's net sales
increased $70 million or 13.3% compared with the same period in 1994. The
increase was primarily attributable to (i) increased sales volume in the
Company's floorcoverings operations in the United States, Southeast Asia and
Greater China, (ii) continued improvement in unit volume in the Company's
interior fabrics and chemical operations, (iii) sales generated by Toltec
Fabrics, Inc., which was acquired in June 1995, and (iv) the strengthening of
certain key currencies (particularly the British pound sterling, Dutch guilder
and Japanese yen) against the U.S. dollar, the Company's reporting currency.
These increases were offset somewhat by a decrease in floorcoverings sales
volume in Australia and certain other markets within Continental Europe.
Cost of sales decreased as a percentage of sales for the nine month period
ended October 1, 1995 (69.1%) compared with the same period in 1994 (69.7%). The
decrease was due primarily to (i) a reduction of manufacturing costs in the
Company's carpet tile operations (particularly the U.S. manufacturing facility)
as the Company implemented its mass customization program and war-on-waste
initiative, (ii) the weakening of the U.S. dollar against certain key
currencies, which lowered the cost of U.S. produced goods sold in export
markets, and (iii) decreased manufacturing costs in the Company's interior
fabrics business as a result of improved manufacturing efficiencies. These
benefits were somewhat offset by raw material price increases in the interior
fabrics and chemical operations, and the acquisitions of Prince Street and
Toltec Fabrics, which, historically, had higher cost of sales than the Company.
Selling, general and administrative expenses as a percentage of sales was
consistent at 23.4% for the nine months ended October 1, 1995 and October 2,
1994. Selling, general and administrative expenses did not decrease with the
increase in volume due primarily to the increase in design and sampling cost
associated with the mass customization initiative for which the full impact of
the increased sales has not been realized.
For the nine months ended October 1, 1995, the Company's interest expense
increased by $3.3 million compared to the same period in 1994, primarily due to
an increase in bank debt and increased interest rates.
The effective income tax rate was 38% for the nine months ended October 1,
1995 compared to 36% for the same period of fiscal 1994. The increase in the
effective income tax rate is due to (i) the lack of benefits from foreign net
operating losses and tax credits which existed in previous years and (ii) a
higher percentage of the Company's earnings in the current period being derived
from its U.S. operations, which are generally subject to higher income tax rates
than its earnings from international operations.
Net income increased 33.9% to $14.4 million for the nine months ended
October 1, 1995, compared to $10.8 million for the same period in 1994 due to
the factors discussed above.
Fiscal 1994 Compared With Fiscal 1993
In fiscal 1994, the Company's net sales increased $100 million (16.0%)
compared with fiscal 1993. The increase was due in substantial part to the June
1993 acquisition of Bentley Mills, which had sales of $127 million for fiscal
1993, and the March 1994 acquisition of Prince Street Technologies, which had
sales of $31 million for fiscal 1993. The Company achieved a price increase in
floorcoverings of approximately 4%. The Company also achieved unit volume
increases of approximately 4% and 6%, respectively, in its interior fabrics and
chemical and specialty products operations. Despite adverse economic conditions
in Japan and Europe, the Company generated an overall increase in net sales for
the floorcoverings operations due to the strengthening of the major currencies
of its foreign markets compared to the U.S. dollar, the Company's reporting
currency, which caused net sales to be 1.0% higher than otherwise would have
been the case.
Cost of sales as a percentage of net sales increased slightly to 69.5% in
1994, compared with 68.4% in 1993, primarily because of margin decline in the
interior fabrics area due to competitive pressures and a shift in product mix to
lower weight, less expensive products which resulted in reduced efficiency. In
addition, the acquisition of Bentley Mills also contributed to the increased
cost of sales due to Bentley's historical cost of sales having been 7.0% higher
than the Company's.
29
<PAGE> 32
Selling, general, and administrative expenses as a percentage of sales
decreased to 23.5% in 1994 from 24.2% in 1993 primarily as a result of continued
strict cost control efforts, particularly in Europe, in the area of
discretionary marketing cost and fixed overhead expenditures. In addition, the
acquisition of Bentley Mills also contributed to reduced selling, general, and
administrative costs, due to Bentley's historical costs as a percentage of sales
having been 10% less than the Company's. These factors combined to more than
offset the increase in costs associated with the Company's reorganization of its
U.S. modular carpet operations and development and introduction of new products.
Other expense increased $231,000 in 1994, due to the impact of higher
interest rates and a slight increase in bank debt, offset by other non-operating
income items.
During fiscal 1994, the Company's effective tax rate increased to 36.0%
from 35.0% in 1993, primarily because in 1994 there was no utilization of excess
foreign tax credit carryovers as compared with $1.5 million utilized in 1993.
The lack of excess foreign tax credit usage was partially offset by the
utilization of subsidiary net operating loss carryforwards.
As a result of the aforementioned factors, the Company's net income
increased 18.8% to $16.5 million in 1994 compared to $13.8 million in 1993.
Fiscal 1993 Compared With Fiscal 1992
In fiscal 1993, the Company's net sales increased $31 million (5.2%)
compared with fiscal 1992. The increase was due in substantial part to the June
1993 acquisition of Bentley Mills, which had sales of $112 million for fiscal
1992. The Company also achieved a unit volume increase of approximately 6% in
its interior fabrics and chemical operations. The increase in net sales was
offset somewhat by a strengthening U.S. dollar, the Company's reporting
currency, against the major currencies of its European operation, which caused
net sales to be 5.1% lower than otherwise would have been the case.
Cost of sales as a percentage of net sales increased slightly to 68.4%,
compared with 68.0% in 1992, primarily because of reduced efficiencies in the
carpet tile manufacturing operations as a result of a 1.2 million square yard
decline in unit volume. In addition, the acquisition of Bentley Mills also
contributed to the increased cost of sales due to Bentley's historical cost of
sales having been 75.0% in 1992, compared with 68.0% in 1992 for the Company.
Selling, general, and administrative expenses as a percentage of sales
decreased to 24.2% in 1993 from 25.2% in 1992 primarily as a result of the
acquisition of Bentley Mills in 1993. Bentley's selling, general, and
administrative costs as a percentage of sales were 15.7%, compared with 25.2%
for the Company in 1992. The decline was also the result of cost controls
initiated in 1991 which reduced discretionary marketing cost and fixed overhead
expenditures.
Other expense increased $2.9 million in 1993, primarily because of
increased bank debt of $60.0 million related to the acquisition of Bentley Mills
in June 1993.
During fiscal 1993, the Company's effective income tax rate increased to
35.0% from 33.9% in 1992, primarily because of an increase in the U.S. statutory
rate to 35.0%. In 1993, there was no utilization of net operating loss
carryforwards as compared with $2.6 million utilized in 1992. The rate increase
was offset somewhat by the utilization of excess foreign tax credit carryovers
of $1.5 million in 1993.
As a result of the aforementioned factors, the Company's net income
increased 13.1% to $13.8 million in 1993 from $12.3 million in 1992.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash over the last three fiscal years have
been funds provided by operating activities and proceeds from additional
long-term debt. In 1994, operating activities generated $33.4 million of cash
compared with $40.6 million and $41.7 million in 1993 and 1992, respectively.
The reduction in 1994 operating cash flows compared with 1993 was caused
primarily by inventory increases to improve service not offset by accounts
payable increases. The inventory increases at the end of 1994 are a
30
<PAGE> 33
result of the increased orders (see "Backlog") and the first stages of the
Company's mass customization and other initiatives. The primary uses of cash
during the three years ended January 1, 1995 have been (i) additions to property
and equipment at the Company's manufacturing facilities, (ii) acquisitions of
businesses, and (iii) cash dividends. The additions to property and equipment
required cash outlays of $56.4 million, while the acquisitions of businesses
required $16.6 million and dividends required $15.3 million. Management believes
these capital investments will result in an expanded market presence and
improved efficiency in the Company's production and distribution. During the
nine months ended October 1, 1995, the primary uses of cash have been (i) $26.2
million for additions to property and equipment in the Company's manufacturing
facilities to implement the mass customization program, the yarn modernization
project for the interior fabrics business, the Thailand joint venture and the
new facility for Prince Street, (ii) $13.3 million associated with the
acquisition of Toltec Fabrics, (iii) $9.1 million reduction of long-term debt
and (iv) $4.6 million for dividends paid. These uses were funded by $55.8
million in operating activities which includes $37.9 million from the sale of
domestic receivables.
The Company estimates capital expenditure requirements of approximately
$35.0 million for fiscal 1995, and has purchase commitments of $8.8 million. The
Company estimates that the normal and recurring capital expenditures would be
approximately $20.0 million; $15.0 million are non-recurring expenditures for
the (i) Guilford yarn modernization, (ii) new facility for Prince Street and
(iii) Thailand joint venture. Except for funding the redemption of the
Convertible Debentures (primarily for which purpose the Outstanding Notes were
sold), management believes that the cash provided by operations and long-term
borrowing arrangements will provide adequate funds for current commitments and
other requirements in the foreseeable future.
In January 1995, the Company amended and restated its existing revolving
credit and term loan facilities. The amendment, among other things, (i)
increased the revolving credit facilities by $75.0 million (including a letter
of credit facility of $40.0 million), (ii) reduced the secured term loans by
approximately $85.0 million, and (iii) provided for a new accounts receivable
securitization facility of up to $100.0 million. Additionally, the term on the
revolving credit agreement was extended to June 30, 1999 and the term loans to
December 31, 2001. In July 1995, the Company again amended and restated its
revolving credit and term loan facilities, this time to provide for a swing line
and certain pricing elements which are advantageous to the Company. As of
October 1, 1995, the Company had long-term debt of $311.9 million consisting of
$156.4 million in senior revolving lines of credit, $50 million of term debt,
$103.9 million of convertible subordinated debt and $1.6 million of other
facilities.
At October 1, 1995, interest rate and currency swap agreements related to
certain foreign currency denominated promissory notes effectively converted
approximately $29 million of variable rate debt to fixed rate debt. At October
1, 1995, the weighted average fixed rate on the Dutch guilder and Japanese yen
borrowings was 7.43%. The interest rate and currency swap agreements have
maturity dates ranging from nine to twelve months.
BACKLOG
The Company's backlog of unshipped orders was approximately $87 million at
October 1, 1995, compared to approximately $90 million at October 2, 1994.
Historically, backlog is subject to significant fluctuations due to the timing
of orders for individual large projects and currency fluctuations. The unshipped
orders were down at October 1, 1995 compared to October 2, 1994 primarily due to
the acceleration of shipments under the Company's mass customization program.
Lead times for customer orders have been reduced from approximately eight weeks
in October 1994 to approximately four weeks in October 1995 in the principal
U.S. carpet tile operations. Additionally, orders were higher at October 2, 1994
due to the introduction of several successful product designs in June 1994. At
that time, however, the Company did not have the capital equipment
(manufacturing machinery) necessary to accomplish the "make-to-order" concept
under the mass customization initiative. All of the backlog of orders at October
1, 1995 is expected to be shipped during the succeeding six to nine months.
31
<PAGE> 34
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 112, "Employer's Accounting for
Post-employment Benefits". This new statement establishes accounting standards
for employers who provide benefits to former or inactive employees after
employment but before retirement. The Company currently has no obligation to
provide post-employment benefits, as contemplated under this standard.
The FASB has issued SFAS Nos. 114 and 118 related to accounting by
creditors for the impairment of a loan. These statements, adopted in January
1995, did not have a material impact on the Company.
The FASB has issued SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". This statement did not have a material impact on
the Company when it was adopted in 1994.
The FASB has issued SFAS No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments", which requires enhanced
disclosures about the amounts, nature, and terms of derivative financial
instruments. This statement was adopted by the Company in 1994, and the related
disclosures are included in Note 12 to the accompanying consolidated financial
statements.
The FASB has issued SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets Being Disposed of " which provides
guidance on how and when impairment losses are recognized on long-lived assets.
This statement, when adopted, is not expected to have a material impact on the
Company.
The FASB has issued SFAS No. 123 "Accounting for Stock-Based Compensation"
which establishes financial accounting and reporting standards for stock-based
employee compensation plans. This statement was issued by the FASB during
October 1995 and is effective for transactions entered into in fiscal years that
begin after December 15, 1995. The Company has not yet determined the impact of
this statement.
32
<PAGE> 35
BUSINESS
GENERAL
Interface was founded in 1973 to pioneer the introduction of the carpet
tile concept in the United States. The Company is now a global manufacturer and
marketer of products for the commercial and institutional interiors market, and
is the worldwide leader in the modular carpet segment (which includes both
carpet tile and six-foot roll goods) with a 40% market share. Through its
strategic acquisitions of Bentley Mills in 1993 and Prince Street in 1994, the
Company entered the broadloom carpet segment with leading product lines for the
high quality, designer-oriented sector of the broadloom segment. The Company,
through its Guilford subsidiary, is the leading U.S. manufacturer of panel
fabrics for use in open plan office furniture systems, with a market share of
approximately 50%. The Company's chemicals and specialty products operations
produce a variety of products, including chemical compounds and additives for
use in various rubber and plastic products, and a proprietary antimicrobial
additive that is used in the Company's carpet and fabrics products and licensed
to others for use in interior finishing products that do not compete with the
Company's products. In fiscal 1994, the Company had sales of $725 million, with
carpet sales of $595 million, fabric sales of $110 million, and chemicals and
specialty products sales of $20 million accounting for 82%, 15% and 3% of total
sales, respectively.
The Company markets products in over 100 countries around the world under
such well-known brand names as Interface and Heuga in modular carpet; Bentley
Mills and Prince Street in broadloom carpets; Guilford of Maine, Stevens Linen
and Toltec in interior fabrics; and Intersept in chemicals. The Company's
principal geographic markets are North America (57% of 1994 sales), the United
Kingdom and Western Europe (31% of 1994 sales), and Japan and Australia (5% of
1994 sales). The Company is aggressively developing opportunities in Greater
China and Southeast Asia, South America, and Central and Eastern Europe, which
represent significant growth markets for the Company. The Company's worldwide
marketing efforts are facilitated by having 22 manufacturing facilities at
varied locations in North America, Europe, and Australia. Worldwide
manufacturing locations enable the Company to compete effectively with local
producers in its international markets, while also providing advantages (such as
affording international customers more favorable delivery times and freight
costs) over competitors who must import their products into such markets. These
capabilities are an important competitive advantage to Interface in serving the
needs of multinational corporate customers who require uniform products and
services at their various locations around the world.
The Company utilizes an internal marketing and sales force of over 700
experienced personnel (the largest in the commercial floorcovering industry),
stationed at 83 locations in 42 countries, to market the Company's carpet
products and services in person to its customers. Guilford has its own
specialized marketing and sales force (approximately 44 persons) for marketing
the Company's principal interior fabrics products. The Company also utilizes
independent dealers to achieve additional marketing coverage for all its
products. The Company focuses its sales efforts at the design phase of
commercial projects. Interface personnel cultivate relationships both with the
owners and users of the facilities involved in the projects and with specifiers
such as architects, interior designers, engineers and contracting firms who are
directly involved in specifying products and who often make or significantly
influence purchase decisions. The Company emphasizes its product design and
styling capabilities and its ability to provide creative, high value solutions
to its customers' needs. Interface marketing and sales personnel also serve as a
primary technical resource for the Company's customers, both with respect to
product maintenance and service as well as design matters.
The Company has recently enhanced its management, both by adding
experienced industry executives in key management positions and by consolidating
responsibilities for certain operational areas. Charles Eitel, who was hired in
November 1993, was promoted to the newly created position of President and Chief
Executive Officer of the Company's worldwide Floorcoverings Group in October
1994; Brian DeMoura was hired as President and Chief Executive Officer of the
worldwide Interior Fabrics Group in March 1994; and Roman Oakey, Inc. and its
affiliates have been engaged to consult on product design matters for all
floorcovering and fabric operations.
33
<PAGE> 36
INDUSTRY TRENDS
In recent years, the Company's revenue has been derived primarily from the
renovation market. The Company believes that the commercial and institutional
market for floorcovering products, which experienced a significant decline in
demand during the early 1990's, has begun to rebound significantly in the United
States primarily due to renovation projects and, to a lesser extent, new
construction. Excess office space from the 1980's is being absorbed, businesses
are beginning to experience growth, and carpeting installed during the 1980's
construction boom is beginning to be updated or replaced as part of remodeling
projects. In international markets, overall demand for commercial floorcovering
products is also beginning to increase, especially in certain countries in the
Asia-Pacific region where new construction projects are increasing, and also in
more developed markets where products are being used for an increasing number of
remodeling or refurbishing projects. The Company also believes that, within the
overall floorcovering market, the demand for modular carpet is increasing
worldwide as more customers recognize its advantages in terms of greater design
options and flexibility, longer average life, and ease of access to sub-floor
wiring.
BUSINESS STRATEGY AND PRINCIPAL INITIATIVES
Interface's long-standing corporate strategy has been to diversify and
integrate worldwide. The Company seeks to diversify by developing internally or
acquiring related product lines and businesses in the commercial interiors
field; and to integrate by identifying and developing synergies and operating
efficiencies among the Company's diverse products and global businesses. In
continuing that strategy, the Company is pursuing the following principal
strategic initiatives:
Enhancement of Design Capabilities. In January 1994, the Company engaged
the leading design firm Roman Oakey, Inc. (under an exclusive consulting
contract) to augment the Company's internal research, development and design
staff. The Company introduced 57 new carpet designs in the U.S. in 1994 (the
largest number in one year in the Company's history), and received eight (out of
a possible 12) U.S. carpet industry design awards bestowed by the International
Interior Design Association, including all five awards in the carpet tile
division. Roman Oakey's design services are being extended to the Company's
international carpet operations and an affiliate of that firm has been engaged
to provide similar design services to the Company's interior fabrics business
(which already has significant capabilities in this area).
Globalization of the "Mass Customization" Production Strategy. The goal of
mass customization is to be able to respond to customers' requirements for
custom or highly styled products by quickly and efficiently producing both
custom samples and the ultimate products, and to determine proven "winners" that
can be manufactured for inventory for broader distribution. Mass customization
was introduced to the Company's U.S. carpet tile business in 1994, and its
principal components included (i) developing a simplified but versatile yarn
utilization system, (ii) investing in highly efficient, state-of-the-art tufting
and custom sampling equipment, and (iii) utilizing innovative design and styling
to create products. The initiative has resulted in substantial operating
improvements in the U.S. carpet tile business in 1995, including increased
margins and reduced inventory levels of both raw materials and standard
products. The Company is extending the mass customization production initiative
to its floorcovering operations in Europe and Australia.
Diversification, Expansion and Increased Efficiency in the Interior Fabrics
Business. In response to a shift in demand towards lighter weight, less
expensive fabrics by OEM panel fabric customers, the Company initiated a
significant capital investment program at Guilford to consolidate and modernize
its yarn manufacturing operations. This program should result in significant
efficiencies and cost savings, which are expected to permit recovery of that
capital investment in approximately two years, as well as new product
capability. Interface's strategic acquisitions of Toltec Fabrics in June 1995,
and of the Intek division of Springs Industries in December 1995, provide
further diversification into upholstery and seating fabrics; penetrate certain
niche markets where Guilford has not previously been active; and provide
operating efficiencies as a number of manufacturing processes currently
outsourced by these businesses are brought in-house. Interface will also
continue to devote resources to Guilford's growing export business.
War-on-Waste and EcoSense Programs. In January 1995, the Company initiated
a worldwide war-on-waste program. Applying a zero-based definition of waste
(broadly defined as any measurable cost that goes
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into manufacturing a product but does not result in identifiable value to the
customer), the Company has identified $70 million of such waste. While a major
part of such waste cannot be eliminated using currently available technologies
and production systems, management believes the Company can eliminate
approximately $35 million of such waste over time. The Company has realized
approximately $6 million in savings (through eliminating such waste) during the
first nine months of fiscal 1995. The war-on-waste program represents a first
step in the Company's broader EcoSense initiative, which is inspired in major
part by the interest of important customers who are concerned about the
environmental implications of how they and their suppliers do business. EcoSense
is the Company's long-range program to achieve greater resource efficiency and,
ultimately, ecological "sustainability" -- that is, the point at which Interface
is no longer a net "taker" from the earth. Its key elements are closed loop
recycling to obtain all principal raw materials; tapping benign sources of
energy (other than fossil fuels) to drive production processes; and, most
immediately, eliminating waste of raw materials and energy from all operations.
The Company believes that its pursuit of these initiatives provides a
competitive advantage in marketing its products to an increasing number of
important customers.
Increased Integration of Marketing Efforts and Operational
Consolidations -- "Total Interior Solutions". The Company's objective is to use
the complementary nature of its product lines to implement a "total interior
solution" approach to serving the diverse needs of customers worldwide.
Marketing and sales personnel are being trained in cross-marketing techniques,
and the Company is implementing a marketing communications network to link its
worldwide marketing and sales force. As a related initiative, the Company has
consolidated management responsibility for certain key operational areas, which
has increased global cooperation and coordination in product planning and
production as well as marketing activities.
Geographic Expansion of Manufacturing in Developing Markets. A key element
of the Company's worldwide focus is having manufacturing (as well as marketing
and service) capabilities in important locations around the world. The Company
is presently constructing a carpet tile manufacturing facility in Thailand,
which is expected to be operational in early 1996, and it is exploring
establishment of manufacturing operations in Greater China. The Company will
consider additional locations for manufacturing operations in other parts of the
world as necessary to meet the needs of its existing and future customers.
MODULAR AND BROADLOOM CARPET
Products
The Company's traditional business has centered on the development,
manufacture, marketing and servicing of modular carpet, which includes carpet
tile and six-foot roll goods. The Company is the world's largest manufacturer
and marketer of modular carpet, with a 40% worldwide market share. Broadloom
carpet generally consists of tufted carpet sold primarily in twelve-foot rolls.
The Company's broadloom carpet operations are conducted through Bentley Mills
and Prince Street, acquired in 1993 and 1994, respectively, both of which focus
on the high quality, designer-oriented sector of the broadloom carpet market.
Modular Carpet. The Company's free-lay modular carpet system utilizes
carpet tiles cut in precise, dimensionally stable squares (usually 18 inches or
50 centimeters square) to produce a floorcovering which combines the appearance
and texture of broadloom carpet with the advantages of a modular carpet system.
The growing use of open plan interiors and modern office arrangements utilizing
demountable, movable partitions and modular furniture systems has encouraged the
use of carpet tile, as compared to other soft surface flooring products. The
Company's patented GlasBac(R) technology employs a unique, fiberglass-reinforced
polymeric composite backing that allows the tile to be installed and remain flat
on the floor without the need for general application of adhesives or use of
fasteners. Carpet tile thus may be easily removed and replaced, permitting
rearrangement of office partitions and modular furniture systems without the
inconvenience and expense associated with removing, replacing or repairing other
soft surface flooring products, including broadloom carpeting. Carpet tile
facilitates access to sub-floor telephone, electrical, computer and other wiring
by lessening disruption of operations, and also eliminates the cumulative damage
and unsightly appearance commonly associated with frequent cutting of
conventional carpet as utility connections and disconnections are made. Because
a relatively small portion of a carpet installation often receives the bulk of
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<PAGE> 38
traffic and wear, the ability to rotate carpet tiles between high traffic and
low traffic areas and to selectively replace worn tiles can significantly
increase the average life and cost efficiency of the floorcovering.
The Company uses a number of conventional and technologically advanced
methods of carpet construction to produce carpet tiles in a wide variety of
colors, patterns, textures, pile heights and densities designed to meet both the
practical and aesthetic needs of a broad spectrum of commercial
interiors -- particularly offices, health care facilities, airports, educational
and other institutions, and retail facilities. The Company's carpet tile systems
permit distinctive styling and patterning that can be used to complement
interior designs, to set off areas for particular purposes and to convey graphic
information. While the Company continues to manufacture and sell the major
portion of its carpet tile in standard styles, an increasing volume of the
Company's modular carpet sales are custom or made-to-order products designed to
meet particular customer specifications.
The Company produces and sells carpet tile specially adapted for the health
care facilities market. The Company's carpet tile possesses characteristics
(such as the use of the Intersept(R) antimicrobial, static-controlling nylon
yarns, and thermally pigmented, colorfast yarns) making it suitable for use in
such facilities in lieu of hard surface flooring.
The Company also manufactures and sells fusion-bonded, tufted and
needle-punched six-foot roll goods under the System Six(R) mark. Six-foot roll
goods are structure-backed and offer many of the advantages of both carpet tiles
and broadloom carpet. They are often used in conjunction with carpet tiles to
create special design effects. The Company's current principal customers for
System Six products are in the educational, health care and governmental
institutions sectors. The Company believes, however, that the demand for six-
foot roll goods is increasing generally within the commercial and institutional
interiors market, and expects six-foot roll goods to account for a growing
percentage of its U.S. modular carpet sales in the future.
Broadloom Carpet. The Company has obtained a significant share of the
high-end, designer-oriented broadloom carpet segment by combining innovative
product design and styling capabilities and short production and delivery times
with a marketing strategy geared toward serving and working closely with
interior designers, architects and other specifiers. Prince Street's
design-sensitive broadloom products center around unique, multidimensional
textured carpets with a hand-tufted look, while Bentley Mills' designs emphasize
the dramatic use of color. In fiscal 1994, Bentley Mills and Prince Street each
had the best year -- in terms of both sales and profits -- in their respective
histories. Collectively, they won three APEX (a product of excellence) awards in
1994 from the International Interior Design Association, and the Bentley Mills
and Prince Street brands were recently rated the number one and two brands,
respectively, for carpet design in the U.S. according to a 1995 survey of
interior designers published in the Floor Focus industry publication. (The
Company's Interface brand was rated number three.)
Marketing and Sales
The Company traditionally has focused its carpet marketing strategy on
major accounts, seeking to build lasting relationships with national and
multinational end-users, and on specifiers, such as architects, interior
designers, engineers and contracting firms who often make or significantly
influence the purchase decision. The acquisitions of Bentley Mills and Prince
Street significantly strengthened the Company's relationships with interior
designers and architects and has enhanced the Company's ability to target those
and other specifiers at the critical design stage of commercial projects. The
Company emphasizes sales to the commercial office sector, both new construction
and renovation, as well as to health care facilities, governmental institutions
and public facilities, including libraries, museums, convention and hospitality
centers, airports, schools and hotels. The Company's marketing efforts are
enhanced by the well-known brand names of its carpet products, including
Interface and Heuga in modular carpet, and Bentley Mills and Prince Street in
broadloom carpet.
An important part of the Company's marketing and sales efforts involves the
preparation of custom made samples of requested carpet designs, in conjunction
with the development of innovative product designs and styles that meet the
customer's particular needs. See "-- Business Strategy and Principal
Initiatives", above, and "-- Product Design and Development", below. The
Company's mass customization initiative, imple-
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<PAGE> 39
mented for its U.S. modular carpet operations in 1994, included the
simplification of the Company's carpet manufacturing operations and the purchase
of five custom sample production machines, which significantly improved its
ability to respond quickly and efficiently to requests for samples. The
turnaround time for the Company to produce made-to-order carpet samples to
customer specifications has been reduced from an average of 30 days in 1993 to
four days in 1995, and the average number of carpet samples produced per month
has increased from 90 per month in 1993 to over 1,000 per month in 1995. This
ability has significantly enhanced the Company's marketing and sales efforts,
and has increased the Company's volume of higher margin custom or made-to-order
sales.
The Company primarily uses its internal marketing and sales force of over
700 persons to market its carpet products, and it also uses independent dealers
to broaden its sales efforts. The Company maintains a Creative Services staff
that works directly with clients on major design projects. The efforts of these
personnel in helping with product selection, customer specifications and unique
approaches to design and styling issues are an important component of the
marketing aspect of the Company's mass customization approach. In order to
implement its global marketing efforts, the Company has product and design
studios in the United States, England, France, Germany, Spain, Norway, the
Netherlands, Australia, Japan and Singapore. The Company expects to continue to
open such offices in other locations around the world as necessary to capitalize
on emerging marketing opportunities.
As part of its full service approach to marketing, the Company maintains a
Field Services staff to provide on-site customer service for both in-progress
and completed installations. (Actual installation services are generally
performed by independent dealers.) In Europe, the Company has licensed selected
independent service contractors to provide carpet maintenance services under the
mark, IMAGESM (Interface Maintenance Advisory Group of Europe).
Manufacturing
The Company manufactures carpet in the United States, the Netherlands, the
United Kingdom, Canada and Australia. In addition to enhancing the Company's
ability to develop a strong local presence in foreign markets, having foreign
manufacturing operations enables the Company to supply its customers with carpet
from the location offering the most advantageous terms for delivery times,
exchange rates, duties and tariffs and freight expense. The Company believes
that the ability to offer consistent products and services on a worldwide basis
at attractive prices is an important competitive advantage in servicing
multinational customers seeking global supply relationships. Consistent with
this strategy, the Company in 1994 entered into a joint venture (owned 70% by
the Company) with Modernform Group Public Co., Ltd., a large Thailand-based
diversified building products company, to build a carpet tile manufacturing
facility in Thailand, which the Company expects to become operational in early
1996. The Company will consider additional locations for manufacturing
operations in other parts of the world as necessary to meet the demands of
customers in growing international markets. The Company is already exploring
establishment of manufacturing operations in Greater China.
The Company utilizes both conventional and technologically advanced methods
of carpet construction. The use of multiple manufacturing processes enables the
Company to manufacture carpet of a variety of designs and styles which can be
sold over a broad range of prices to different sectors of its markets.
Management believes that the Company is the only company with the current
ability to manufacture carpet utilizing any of three different fusion-bonding
processes, a tufting process and a needle-punching process. Tufted products
currently account for the substantial majority of the Company's carpet sales. In
1994, the Company made a major capital investment in high speed tufting
technology to improve its tufting operations.
Operations commenced at the Company's new Prince Street facility in
Cartersville, Georgia in November 1995. The design of the new facility is a
manifestation of the Company's EcoSense initiative. The state-of-the-art
facility will introduce new systems for energy efficiency, increased human
productivity, waste reduction and water purification, and will incorporate the
use of both recycled and non-toxic building materials. See "-- Environmental
Initiatives".
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The Company has entered into arrangements with DuPont pursuant to which the
Company currently obtains a significant percentage of its requirements for
synthetic fiber (the principal raw material used in the Company's carpet
products). The Company believes that these arrangements, which reflect the
Company's effort to consolidate purchasing, permit the Company to obtain
favorable terms. However, there are adequate alternative sources of supply from
which the Company could fulfill its synthetic fiber requirements if its
arrangements with DuPont should change. Other raw materials used by the Company
are also readily available from a number of sources.
Competition
The commercial floorcovering industry is highly competitive. The Company
competes, on a global basis, in the sale of its modular and broadloom carpet
with other carpet manufacturers and manufacturers of vinyl and other types of
floorcovering. Although the industry recently has experienced significant
consolidation, a large number of manufacturers remain in the industry.
Management believes that the Company is the largest manufacturer of modular
carpet in the world, possessing a global market share that is more than two
times that of its nearest competitor. However, a number of domestic and foreign
competitors manufacture modular carpet as one segment of their business, and
certain of these competitors have financial resources in excess of the
Company's.
The Company believes the principal competitive factors in its primary
floorcovering markets are quality, design, service, broad product lines, product
life, marketing strategy, and pricing. In the commercial office market, modular
carpet competes with various floorcoverings, of which broadloom carpet is the
most common. The quality, service, design, longer average life, flexibility
(design options, selective rotation or replacement, use in combination with roll
goods) and convenience of the Company's modular carpet are its principal
competitive advantages, which are offset in part by its higher initial cost for
comparable grades of broadloom carpet. The acquisitions of Bentley Mills and
Prince Street, with their broadloom carpet product lines, have enhanced the
Company's competitive position by enabling the Company to offer one-stop
shopping to commercial carpet customers and thus to capture some sales that
would have gone to competitors.
In the health care facilities market, the Company's products compete
primarily with resilient tile. The Company believes that treatment of its
modular carpet with the Intersept antimicrobial chemical agent is a material
factor in its ability to compete successfully in the health care market and,
increasingly, in other commercial markets.
INTERIOR FABRICS
Products
The Company, through Guilford, designs, manufactures and markets specialty
fabrics for open plan office furniture systems and commercial interiors. Sales
of panel fabrics to original equipment manufacturers (OEMs) of movable office
furniture systems constitute the principal portion of the Company's interior
fabric operations (approximately 62% of total fabrics sales in fiscal 1994 and
55% in the first nine months of fiscal 1995). In addition, the Company produces
woven and knitted seating fabrics, wall covering fabrics that are paper-backed
for vertical wall surfaces or acrylic-backed for panel-wall application, ceiling
fabrics used to cover tiles or for stretch ceiling construction, and fabrics
used for vertical blinds in office interiors.
Open plan office furniture systems are typically panel-enclosed work
stations customized to particular work environments. The open plan concept
offers a number of advantages over conventional office designs, including more
efficient floor space utilization, reduced energy consumption and greater
flexibility to redesign existing space. Since carpet and fabrics are used in the
same types of commercial interiors, the Company's carpet and interior fabrics
operations are able to coordinate the color, design and marketing of both
product lines to their respective customers as part of the Company's "total
interior solution" approach.
The Company recently diversified and expanded significantly both its
product offerings and markets for interior fabrics. The Company's 1993
acquisition of the Stevens LinenTM lines added decorative, upscale upholstery
fabrics and specialty textile products to Guilford's traditional product
offerings. The Company's June 1995 acquisition of Toltec Fabrics, a manufacturer
and marketer of fabric for the contract and home
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<PAGE> 41
furnishings upholstery markets, enhanced the Company's presence in the contract
jobber market. In addition, the December 1995 acquisition of the Intek division
of Springs Industries, a manufacturer experienced in the production of
lighter-weight panel fabrics, is expected to strengthen Guilford's capabilities
in that market. All of these developments complement Guilford's dominant
position with OEMs of movable office furniture systems.
The Company manufactures fabrics made of 100% polyester, as well as
wool-polyester blends and numerous other natural and man-made blends, which are
either woven or knitted. Its products feature a high degree of color
consistency, natural dimensional stability and fire retardancy, in addition to
their overall aesthetic appeal. All of the Company's product lines are color and
texture coordinated. The Company seeks continuously to enhance product
performance and attractiveness through experimentation with different fibers,
dyes, chemicals and manufacturing processes. Product innovation in the interior
fabrics market (similar to the floorcoverings market) is important to achieving
and maintaining market share. See "-- Business Strategy and Principal
Initiatives", above, and "-- Product Design and Development", below. In 1994,
the number of new products introduced by the Company nearly doubled the number
introduced in 1993.
The Company anticipates that future growth opportunities will arise from
the growing market for retrofitting services, where fabrics are used to re-cover
existing panels, and from the increased importance being placed on the aesthetic
design of office space, with upholstery fabric being the segment of its
non-panel fabric business with the greatest anticipated growth potential.
Management also believes that significant growth opportunities exist in
international sales, in domestic health care markets, in contract wall-coverings
and in the provision of ancillary textile processing services such as the
lamination of fabrics onto substrates for pre-formed panels.
Marketing and Sales
The Company's principal interior fabrics customers are OEMs of movable
office furniture systems. Guilford sells to essentially all of the major office
furniture manufacturers, with the majority of its sales being made to a small
number of companies located in the Grand Rapids, Michigan area (where domestic
office furniture manufacturing is concentrated). Guilford also sells to
manufacturers and distributors of wallcoverings, vertical blinds, cubicle
curtains, acoustical wallboards, ceiling tiles and residential furniture, and,
since the acquisition of Toltec Fabrics, to contract jobbers. The Guilford of
Maine, Stevens Linens and Toltec brand names are well-known in the industry and
enhance the Company's fabric marketing efforts.
The Company's sales to OEM customers are made through Guilford's own sales
force. Guilford's sales force also markets open line products for the
retrofitting and refurbishing segment of the industry directly to specifiers
under the trade name Guilford of Maine Textile Resources. In addition, the
Company uses independent dealers to assist with sales of its non-panel fabric
products.
Guilford's sales force also works closely with designers, architects,
facility planners and other specifiers who influence the purchasing decisions of
buyers in the interior fabrics segment. In addition to facilitating sales, the
resulting relationships also provide the Company with market and design ideas
that are incorporated into its development of product offerings. Guilford
maintains a design studio in Dudley, Massachusetts which facilitates
coordination between its in-house designers and the design staffs of major
customers. Guilford's design capabilities are expected to benefit from the
recent expansion of the scope of David Oakey's product design services to the
Company's fabrics business. See "-- Business Strategy and Principal
Initiatives", above, and "-- Product Design and Development", below.
The Company's U.S. sales offices are located in Saddle Brook, New Jersey
and Grand Rapids, Michigan. Guilford also has marketing and distribution
facilities in Canada and the United Kingdom, and sales representatives in Japan,
Hong Kong, Singapore, Korea and South Africa. The Company has sought
increasingly, over the past several years, to expand its export business and
international operations in the fabrics segment, both to accommodate the demand
of principal OEM customers that are expanding their overseas businesses, and to
facilitate additional coordinated marketing to multinational customers of the
Company's carpet business as part of the Company's "total interior solution"
approach.
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Manufacturing
The Company's fabrics manufacturing facilities are located in Maine,
Massachusetts, Michigan and North Carolina. The production of synthetic and wool
blended fabrics is relatively intricate and requires many steps. Raw fiber is
placed in pressurized vats, and dyes and flame retardants are then forced into
the fiber. Particular attention is devoted to the dyeing process, which requires
a high degree of expertise in order to achieve color consistency. Following
dyeing, the fiber is blended and proceeds through multiple steps, including
carding, spinning, cone winding, twisting, dressing, weaving and finishing. All
raw materials used by the Company are readily available from a number of
sources.
In response to a shift in Guilford's traditional panel fabric market toward
lighter weight, less expensive products, the Company implemented a major capital
investment program in 1994 (which included the construction of a new facility
and the acquisition of equipment) to enhance the efficiency and breadth of
Guilford's yarn manufacturing processes. The program, which is nearing
completion, is designed to improve Guilford's cost effectiveness in producing
such lighter weight fabrics, reduce manufacturing cycle time, and enable
Guilford to reinforce its product leadership position with its OEM customers.
The Company anticipates that the program will allow Guilford to achieve
significant cost savings in the production of its traditional fabric product
line.
The Company offers textile processing services through Guilford's Component
Technologies division in Grand Rapids, Michigan. Such services include the
lamination of fabrics onto substrates for pre-formed office furniture system
panels, facilitating easier and more cost effective assembly of the system
components by Guilford's OEM customers.
Competition
The Company competes in the interior fabrics market on the basis of product
design, quality, reliability, price and service. By electing to concentrate on
the open plan office furniture systems segment, Guilford has been able to
specialize its manufacturing capabilities, product offerings and service
functions, resulting in a leading market position. Through Guilford, the Company
is the largest U.S. manufacturer of panel fabric for use in open plan office
furniture systems.
Drawing on Guilford's dominant position in the panel fabric segment and
through its strategic acquisitions, the Company has been successfully
diversifying its product offerings for the commercial interiors market to
include a variety of non-panel fabrics, including upholstery, cubicle curtains,
wallcoverings, ceiling fabrics and window treatments. The competition in these
segments of the market is highly fragmented and includes both large, diversified
textile companies, several of which have greater financial resources than the
Company, as well as smaller, non-integrated specialty manufacturers. However,
the Company's capabilities and strong brand names in these segments should
enable it to continue to compete successfully.
CHEMICALS AND SPECIALTY PRODUCTS
The Company's Chemicals and Specialty Products Group is composed of three
subsidiaries: Interface Research Corporation and Rockland React-Rite, Inc.,
which are involved in the research, development, manufacture, marketing and
licensing of specialty chemical products, and Pandel, Inc., which produces vinyl
carpet tile backing and specialty mat and foam products. While the Chemicals and
Specialty Products Group's revenues represent a relatively small portion of
total Company revenues (approximately 3% in fiscal 1994), the group
traditionally has had the highest profit margins of any division. These
subsidiaries also serve as the research and development arm of the Company.
The Company's leading chemical product, in terms of applicability for the
commercial and institutional interiors market, is its proprietary antimicrobial
chemical compound, sold under the registered trademark Intersept(R). The Company
uses Intersept in many of its carpet and fabric products and has licensed
Intersept to other companies for use in a number of products that are
noncompetitive with the Company's products, such as paint, vinyl wallcoverings,
ceiling tiles and air filters. The licensing arrangements are a component of the
Company's Envirosense(R) program. See "Environmental Initiatives".
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The Company also produces and markets Protekt(2)(TM), a proprietary soil
and stain retardant treatment; water-proofing sheathing for the fiber optic
cable industry and other applications; acrylic monomers, for use in golf balls
and other industrial products; accelerators, used to speed the curing process
for rubber used in tires, hoses and other products; and Fatigue Fighter(R), an
impact-absorbing modular flooring system typically used where people stand for
extended periods.
The Company also recently began to market cable management access flooring
systems, a specialty product which it markets through its Interface
Architectural Resources business unit. The initial product offering, marketed
under the name Intercell(R), is a low-profile (total height of less than three
inches) cable management flooring system, particularly well suited for use in
the renovation of existing buildings. In early 1995, the Company acquired the
rights to the Interstitial Systems(TM) access flooring product, a patented,
multiple plenum system that serves to separate pressurized, climate-controlled
air flow from the electrical and telecommunications cables included within the
same access flooring system.
PRODUCT DESIGN AND DEVELOPMENT
Innovation and increased customization in product design and styling are
the principal focus of the Company's product development efforts. The Company
maintains an active research, development and design staff of approximately 100
persons, and also draws on the research and development efforts of its
suppliers, particularly in the areas of fibers, yarns and modular carpet backing
materials.
The Company's carpet design and development team is recognized as the
industry leader in carpet design and product engineering. Under the leadership
of David Oakey since January 1994 (pursuant to the Company's exclusive
consulting contract with Mr. Oakey's design firm Roman Oakey, Inc.), the
Company's U.S. modular carpet subsidiary created 26 new modular carpet designs
in 1994, the largest number in one year in the Company's history. The new
modular carpet designs, as well as broadloom designs introduced by Bentley Mills
and Prince Street, were well-received by the targeted specifier market, and
resulted in the Company receiving eight (out of a possible 12) U.S. carpet
industry design awards bestowed by the International Interior Design Association
in 1994, including all five awards in the carpet tile division. Mr. Oakey was
also instrumental in the Company's implementation of a new product development
concept -- "simple inputs for pretty outputs" -- resulting in the ability to
efficiently produce many products from a single yarn system. The Company's mass
customization production approach evolved, in major part, from this concept. In
addition to increasing the number and variety of product designs (which enables
the Company to increase high margin custom sales), the mass customization
approach increases inventory turns and reduces inventory levels (for both raw
materials and standard products) and its related costs because of the Company's
more rapid and flexible production capabilities.
For most of 1994, the Company's focus for Roman Oakey's product
design/production engineering services was principally on the Company's carpet
tile products for the U.S. market. Roman Oakey's design services are being
extended to the Company's international carpet operations and an affiliate of
that firm has been engaged to provide similar design services to the Company's
interior fabrics business (which already has significant capabilities in the
design area). The Company expects increased levels of innovation in product
design and development for those divisions to be achieved in the future.
ENVIRONMENTAL INITIATIVES
An important initiative of the Company over the past several years has been
the development of the Envirosense Consortium, an organization of companies
concerned with addressing workplace environmental issues, particularly poor
indoor air quality. The Consortium now totals 24 member organizations, including
interior products manufacturers (a number of which are licensees of the
Company's Intersept antimicrobial agent), professional service organizations and
design professionals.
In the latter part of 1994, the Company commenced a new industrial ecology
initiative called EcoSense, inspired in major part by the interest of important
customers concerned about the environmental implications of how they and their
suppliers do business. EcoSense is directed towards the elimination of energy
and raw materials waste in the Company's businesses, and, on a broader and more
long-term scale, the practical
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reclamation -- and ultimate restoration -- of shared environmental resources.
The initiative involves a commitment by the Company to learn to meet its raw
material and energy needs through recycling carpet and other petrochemical
products and harnessing benign energy sources, and to pursue the creation of new
processes to help sustain the earth's non-renewable natural resources.
The Company believes that its environmental initiatives are valued by its
employees and an increasing number of its important customers and provide a
competitive advantage in marketing products to such customers. The Company also
believes that the resulting long-term resource efficiency (reduction of wasted
environmental resources) will ultimately produce cost savings to the Company.
PATENTS AND TRADEMARKS
The Company owns numerous patents in the United States and abroad on its
modular carpet and manufacturing processes and on the use of its Intersept
antimicrobial chemical agent in various products. The duration of United States
patents is between 14 and 20 years from the dates of filing of a patent
application or issuance of the patent; the duration of patents issued in other
countries varies from country to country. The Company considers its know-how and
technology more important to its current business than patents and, accordingly,
believes that expiration of existing patents or nonissuance of patents under
pending applications would not have a material adverse effect on its operations.
However, the Company maintains an active patent and trade secret program in
order to protect its proprietary technology, know-how and trade secrets.
The Company also owns numerous trademarks in the United States and abroad.
Some of the more prominent registered trademarks of the Company include:
Interface, Heuga, Intersept, GlasBac, System Six, Guilford of Maine, Bentley and
Prince St. Technologies. Trademark registrations in the United States are valid
for a period of 10 years and are renewable for additional 10-year periods as
long as the mark remains in actual use. The duration of trademarks registered in
other countries varies from country to country.
PROPERTIES
The Company maintains its corporate headquarters in Atlanta, Georgia in
approximately 11,465 square feet of leased space. The following table lists the
Company's principal manufacturing facilities:
<TABLE>
<CAPTION>
LOCATION PRIMARY PRODUCTS FLOOR SPACE (SQ. FT.)
- ------------------------------------------------------ --------------------- ---------------------
<S> <C> <C>
Cartersville, Georgia................................. Broadloom carpet 210,000
City of Industry, California.......................... Broadloom carpet 539,641
LaGrange, Georgia..................................... Modular carpet 326,666
West Point, Georgia................................... Modular carpet 108,380
Athens, Tennessee..................................... Modular carpet 71,577
Scherpenzeel, the Netherlands......................... Modular carpet 292,142
Shelf, England........................................ Modular carpet 223,342
Sanquhar, Scotland.................................... Modular carpet 43,594
Craigavon, N. Ireland................................. Modular carpet 125,060
Ontario (Belleville), Canada.......................... Modular carpet 77,000
Picton, Australia..................................... Modular carpet 89,560
Bangkok, Thailand(1).................................. Modular carpet 66,072
Guilford, Maine(2).................................... Interior fabrics 511,441
Eastport, Maine....................................... Interior fabrics 78,135
Newport, Maine........................................ Interior fabrics 208,932
Dudley, Massachusetts................................. Interior fabrics 300,000
East Douglas, Massachusetts........................... Interior fabrics 301,772
Grand Rapids, Michigan................................ Interior fabrics 55,800
Greensboro, North Carolina............................ Interior fabrics 63,700
Cartersville, Georgia................................. Specialty products 124,500
Rockmart, Georgia..................................... Chemicals 37,500
Chatom, Alabama....................................... Chemicals 7,500
</TABLE>
42
<PAGE> 45
- ---------------
(1) Under construction, expected to be operational in early 1996.
(2) Includes new facility under construction, expected to be operational in
fourth quarter of fiscal 1995.
The Company owns all of its manufacturing facilities, except Guilford's
facility in Grand Rapids, Michigan; Pandel's facility in Cartersville, Georgia;
Bentley Mills' facilities in City of Industry, California, and Athens,
Tennessee; and Toltec's facility in Greensboro, North Carolina, which are
leased. The Bangkok, Thailand facility is owned by a joint venture in which the
Company has a 70% interest.
The Company maintains marketing offices in 83 locations in 42 countries and
distribution facilities in 17 locations in nine countries. Most of the marketing
locations and many of the distribution facilities are leased.
The Company believes that its manufacturing and distribution facilities,
and its marketing offices, are sufficient for its present operations. The
Company will continue, however, to consider the desirability of establishing
additional facilities and offices in other locations around the world as part of
its business strategy to meet expanding global market demands.
EMPLOYEES
At October 1, 1995, the Company employed a total of approximately 4,850
employees worldwide. Of such employees, approximately 2,100 were clerical,
sales, supervisory and management personnel and the balance were manufacturing
personnel.
Certain of the Company's production employees in Australia and the United
Kingdom are represented by unions. As required by the laws of the Netherlands, a
Works Council, the members of which are Company employees, is required to be
consulted by management with respect to certain matters relating to the
Company's operations in that country, such as any change in control of Interface
Europe B.V. (the Company's modular carpet facility based in the Netherlands),
and the approval of such Council is required for certain actions, including
changes in compensation scales or employee benefits. Management believes that
its relations with the Works Council, the unions and all of its employees are
good.
LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings
involving it or any of its property.
43
<PAGE> 46
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of October 1, 1995:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITION(S)
- ---------------------------- --- ---------------------------------------------------
<S> <C> <C>
Ray C. Anderson............. 61 Chairman of the Board, President and Chief
Executive Officer
Charles R. Eitel............ 46 Executive Vice President (President and CEO,
Floorcoverings Group) and Director
Brian L. DeMoura............ 50 Senior Vice President and Director
David Milton................ 60 Senior Vice President and Director
Don E. Russell.............. 58 Senior Vice President and Director
C. Edward Terry............. 61 Senior Vice President and Director
John H. Walker.............. 51 Senior Vice President
Gordon D. Whitener.......... 32 Senior Vice President and Director
Daniel T. Hendrix........... 40 Senior Vice President-Finance, Chief Financial
Officer and Treasurer
David W. Porter............. 49 Senior Vice President, General Counsel and
Secretary
F. Colville Harrell......... 60 Vice President-Planning & Analysis
Alan S. Kabus............... 38 Vice President
John R. Wells............... 34 Vice President
Carl I. Gable............... 56 Director
Dr. June M. Henton.......... 55 Director
J. Smith Lanier, II......... 68 Director
Leonard G. Saulter.......... 69 Director
David G. Thomas............. 70 Director
Clarinus C. Th. van Andel... 65 Director
</TABLE>
Mr. Anderson founded the Company in 1973, and has served as the Company's
Chairman and Chief Executive Officer since its founding.
Mr. Eitel joined the Company in November 1993 as a Senior Vice President of
the Company and as President of Interface Americas, Inc. (a wholly-owned U.S.
holding company), with responsibility for the Company's modular carpet
operations throughout the Americas. In October 1994, Mr. Eitel was promoted to
Executive Vice President of the Company and appointed to the newly created
position of President and Chief Executive Officer of the Floorcoverings Group,
thereby assuming overall responsibility for the Company's worldwide carpet
business. From July 1987 until joining the Company, Mr. Eitel served as
President of the Floorcoverings Division (based in Dalton, Georgia) of Collins &
Aikman Corporation. Collins & Aikman is a diversified textile producer,
headquartered in North Carolina.
Mr. DeMoura became a Senior Vice President of the Company and President and
Chief Executive Officer of Guilford in March 1994. From August 1990 until
joining the Company, Mr. DeMoura served as President and CEO of Fashion Fabrics
of America, Inc., an Orangeburg, South Carolina based producer of fabrics for
the upscale men's and women's apparel markets. From December 1988 until January
1990, he served as Vice President and General Manager of the Yarn Sales Division
of Doran Textiles, Inc., a Shelby, North Carolina based producer of novelty
yarns for the apparel and home furnishing markets.
Mr. Milton joined the Company in January 1992 as a Senior Vice President.
Upon joining the Company, he also became President and Chief Executive Officer
of Interface Asia-Pacific, Inc. (a wholly-owned U.S. holding company) and
assumed responsibility for the Company's operations in Japan, China, Southeast
Asia, Australia, New Zealand and the Pacific Islands. Prior to joining the
Company, Mr. Milton was an independent management consultant.
44
<PAGE> 47
Mr. Russell, a co-founder of the Company, has served in various executive
capacities since 1973. He became a Senior Vice President in 1986. He currently
serves as President and Chief Executive Officer of the Company's Architectural
Resources business unit. Mr. Russell served as President and CEO of Interface
Europe, Inc. (the Company's U.S. holding company for its subsidiaries in Europe)
and Interface Europe B.V. from 1991 to August 1995, and as Managing Director of
Interface Europe Ltd. (the Company's U.K. modular carpet subsidiary) from 1989
to August 1995.
Mr. Terry has been a Senior Vice President since joining the Company in
1987. He has served as President and Chief Executive Officer of Rockland
React-Rite, Interface Research Corporation and Pandel since 1987, 1988 and 1990,
respectively. He served as President and CEO of Interface Flooring Systems,
Inc., the Company's principal U.S. modular carpet subsidiary based in LaGrange,
Georgia ("IFS"), and Interface Americas from February 1991 until November 1993.
Mr. Walker joined the Company in 1988 as a result of the Company's
acquisition of Heuga Holding B.V. (now Interface Europe B.V.), for which he had
worked since 1972. At the time of the acquisition, Mr. Walker was serving as
Vice President-Sales and Marketing of Heuga Holding, and he continued in that
position with Interface Europe until becoming Senior Vice President-Sales and
Marketing in February 1995. Mr. Walker was promoted in August 1995 to Senior
Vice President of the Company and President and Chief Executive Officer of
Interface Europe.
Mr. Whitener joined the Company in November 1993 as Senior Vice
President-Sales & Marketing of IFS. In October 1994, he became a Senior Vice
President of the Company and the President and Chief Executive Officer of
Interface Americas, assuming responsibility for Prince Street and the Company's
modular carpet operations throughout the Americas. In July 1995, Mr. Whitener
also assumed corporate responsibility for Bentley Mills. From April 1988 until
joining the Company, Mr. Whitener served in various sales management capacities
with Collins & Aikman (Floorcoverings Division), including Vice President-
Marketing from March 1993.
Mr. Hendrix joined the Company as Financial Manager in 1983. He became
Treasurer of the Company in 1984, Chief Financial Officer in 1985, Vice
President-Finance in 1986, and Senior Vice President-Finance in 1995.
Mr. Porter has served as Vice President and General Counsel since joining
the Company in 1986, and as Secretary since 1987. He became a Senior Vice
President in 1995.
Mr. Harrell joined the Company as a planning analyst in 1984, and became
Vice President-Planning & Analysis in 1986. He served as Senior Vice
President-Operations of IFS from September 1992 until October 1994, at which
time he resumed his current position with the parent Company.
Mr. Kabus joined the Company in 1993 as a result of the Company's
acquisition of Bentley Mills, which he had joined as a salesman in 1984. At the
time of the acquisition, Mr. Kabus was serving as Regional Sales
Manager-Northeast Region of Bentley Mills. He was promoted to Vice President of
the Company and President and Chief Executive Officer of Bentley Mills in July
1995.
Mr. Wells joined the Company in February 1994 as Vice President-Sales of
IFS and was promoted to Senior Vice President-Sales and Marketing of IFS in
October 1994. He was promoted to Vice President of the Company and President and
Chief Executive Officer of IFS in July 1995. Prior to joining the Company, Mr.
Wells worked with the commercial division of Shaw Industries for 13 years, where
he was a key member of the management team that started the Networx Modular
Carpet Division of that company and where he also held various sales management
responsibilities for the Shaw Commercial and Stratton Commercial Divisions.
Mr. Gable, a director since March 1984, is an attorney-at-law in the
Atlanta law firm of Booth, Owens & Jospin. Mr. Gable was a private investor and
business consultant from January 1991 until joining Booth, Owens & Jospin in
September 1992. From June 1985 to December 1990 he served as Vice Chairman of
Intermet Corporation, a multinational iron castings manufacturer.
45
<PAGE> 48
Dr. Henton was elected as a director in February 1995. Since 1985, Dr.
Henton has served as Dean of the School of Human Sciences at Auburn University,
which includes a program in interior environments. Dr. Henton, who received her
Ph.D. from the University of Minnesota, is an accomplished author and lecturer
on child and family issues. She has provided leadership for a wide variety of
professional, policy and civic organizations. As a charter member of the
Operating Board of the National Textile Center, Dr. Henton has significant
expertise in the integration of academic and research programs spanning the
textile industrial complex.
Mr. Lanier has been a director since 1973. He is Chairman and Chief
Executive Officer of J. Smith Lanier & Co., a general insurance agency based in
West Point, Georgia. Mr. Lanier also serves as a director of Intercel, Inc., a
cellular telephone company based in West Point, and National Vision Associates,
Ltd., a Lawrenceville, Georgia based operator of retail optical centers. He also
serves on the Boards of numerous nonprofit organizations.
Mr. Saulter has been a director since July 1987. He served as a Senior Vice
President of the Company from October 1987 until June 1991. He served as
President of Guilford until January 1990, and as Guilford's Chairman from
January 1990 until his retirement in June 1991. In October 1993, Mr. Saulter
resumed the position of President of Guilford on an interim basis, serving until
March 1994.
Mr. Thomas, a director since February 1991, is Chairman of The Fleming
Enterprise Investment Trust PLC, an investment company located in the United
Kingdom. Mr. Thomas has served as a director of Interface Europe Ltd. since
October 1985. Mr. Thomas also serves as a director of Dover Corporation and
Carlisle Companies, Inc., two U.S. based companies involved in the industrial
equipment business.
Mr. van Andel, who has been a director since October 1988, is a partner in
the law firm of Schut & Grosheide, Amsterdam. He has served as Chairman of the
supervisory board of Interface Europe B.V. since 1984.
The Board of Directors of the Company currently consists of 13 directors.
The holders of the Company's Class B Common Stock are entitled to elect a
majority (seven) of the Board members, as long as the outstanding shares of
Class B Common Stock equal at least ten percent (10%) of the combined number of
issued and outstanding shares of Class A and Class B Common Stock, and the
holders of the Company's Class A Common Stock are entitled to elect the
remaining (six) directors. As a result of a voting agreement among Mr. Anderson
and several other holders of Class B Common Stock, Mr. Anderson has the ability
to elect a majority of the Board members. See "Security Ownership of Management
and Principal Holders -- Class B Stock Voting Agreement". The term of office for
each director continues until the next annual meeting of shareholders and until
his or her successor, if there is to be one, has been elected and has qualified.
Executive officers serve at the pleasure of the Board of Directors.
46
<PAGE> 49
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid by the Company and its subsidiaries to the Company's Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company (based on salary and bonus earned in fiscal 1994) for each of the
last three fiscal years of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
OTHER ANNUAL SECURITIES ALL OTHER
NAME AND SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS (#) ($)
- --------------------------------- ---- -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Ray C. Anderson,................. 1994 $315,000 $250,000 N/A(1) 20,000 $1,848(5)
Chairman, President and Chief 1993 250,000 149,015 N/A(1) -0- 1,799(5)
Executive Officer 1992 242,500 110,144 N/A(1) -0- 1,746(5)
Charles R. Eitel,................ 1994 299,167 240,000 N/A(1) -0- -0-
Executive Vice President 1993 42,364(2) 175,000(2) N/A(1) 100,000 -0-
(President & CEO, 1992 N/A(2) N/A(2) N/A(1) N/A(2) N/A(2)
Floorcoverings Group)
Royce R. Renfroe,................ 1994 225,000 225,000 N/A(1) -0- 15,595(5)
Senior Vice President 1993 131,250(3) 153,563(3) N/A(1) 40,000 -0-
1992 N/A(3) N/A(3) N/A(1) N/A(3) N/A(3)
Don E. Russell,.................. 1994 250,000 200,000 N/A(1) 40,000 1,848(5)
Senior Vice President 1993 200,000 50,490 N/A(1) -0- 1,799(5)
1992 195,000 50,000 N/A(1) -0- 1,746(5)
David Milton,.................... 1994 373,061(4) 30,000 N/A(1) -0- 1,848(5)
Senior Vice President 1993 289,319(4) 67,548 N/A(1) -0- 1,799(5)
1992 270,609(4) 30,000 N/A(1) 100,000 -0-
</TABLE>
- ---------------
(1) Amount does not exceed 10% of the salary and bonus paid to such individual.
(2) Mr. Eitel joined the Company in November 1993. The bonus paid to Mr. Eitel
in 1993 was paid pursuant to the terms of Mr. Eitel's employment agreement.
(3) Mr. Renfroe joined the Company in June 1993 in connection with the Bentley
Mills acquisition. (He resigned from the Company in July 1995.)
(4) Includes $173,061 (1994), $139,319 (1993) and $120,609 (1992) in
extraordinary remuneration related to assignment in Hong Kong.
(5) Represents the Company's matching contribution (made in the form of Class A
Common Stock) under the Company's 401(k) Savings and Investment Plans. Mr.
Renfroe's figure also includes a $1,500 profit sharing contribution under
the 401(k) Plan in effect for Bentley Mills, and $12,595 paid for the
premium on a whole life insurance policy (a portion of which will be repaid
to the Company under the terms of the policy).
47
<PAGE> 50
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL HOLDERS
The following table sets forth, as of October 1, 1995 (unless otherwise
indicated), beneficial ownership of each class of the Company's Common Stock by:
(i) each person known by the Company to be the beneficial owner of more than 5%
of any such class of the Company's voting securities, (ii) the Company's Chief
Executive Officer and four other most highly compensated executive officers
(based on fiscal 1994 compensation), and (iii) all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
TITLE NATURE OF PERCENT CLASS A
BENEFICIAL OWNER(1) OF BENEFICIAL OF AFTER
(AND BUSINESS ADDRESS OF 5% OWNERS) CLASS OWNERSHIP(2) CLASS(2) CONVERSION(3)
- ----------------------------------------------- ------- ------------ -------- -------------
<S> <C> <C> <C> <C>
Ray C. Anderson................................ Class A 15,826(4) * 9.7%
2859 Paces Ferry Road, Suite 2000 Class B 1,616,463(5) 53.9%
Atlanta, Georgia 30339
Ariel Capital Management, Inc.................. Class A 3,029,089(6)(7) 19.8
307 N. Michigan Avenue
Chicago, Illinois 60601
David L. Babson & Company, Inc................. Class A 1,260,100(6)(8) 8.2
One Memorial Drive
Cambridge, Massachusetts 02142
FMR Corp....................................... Class A 1,127,634(6)(9) 7.3
82 Devonshire Street
Boston, Massachusetts 02109
Brian L. DeMoura............................... Class B 8,000(10) * *
Charles R. Eitel............................... Class A 7,956(11) * *
Class B 75,000(11) 2.4
David Milton................................... Class A 8,913(12) * *
Class B 80,000(12) 2.6
Don E. Russell................................. Class A 9,692(13) * *
Class B 84,732 2.8
All executive officers and directors as a group Class A 263,840(14) 1.7 13.3
(17 persons)................................. Class B 2,074,641(15) 65.1
</TABLE>
- ---------------
* Less than 1%.
(1) Does not include First Capital Corporation of Chicago which owns 167,500
shares of the Company's Series A Cumulative Convertible Preferred Stock,
which are convertible into 1,132,713 shares of the Company's Class A Common
Stock.
(2) Shares of Class B Common Stock are convertible, on a share-for-share basis,
into shares of Class A Common Stock. The number of Class A shares indicated
as beneficially owned by each person or group does not include Class A
shares such person or group could acquire upon conversion of Class B
shares. The Percent of Class is calculated assuming that the beneficial
owner has exercised any conversion rights, options or other rights to
subscribe held by such beneficial owner that are exercisable within 60 days
(not including Class A shares that could be acquired upon conversion of
Class B shares), and that no other conversion rights, options or rights to
subscribe have been exercised by anyone else.
(3) Represents the percent of Class A shares the named person or group would
beneficially own if such person or group, and only such person or group,
converted all Class B shares he or they own into Class A shares.
(4) Includes 4,000 shares held by Mr. Anderson's wife and 11,826 shares
issuable upon conversion of Convertible Debentures held by The Ray C.
Anderson Foundation, Inc. (a nonprofit corporation of
48
<PAGE> 51
which Mr. Anderson is a director). Mr. Anderson disclaims beneficial
ownership of the shares owned by his wife.
(5) Includes 4,000 shares that Mr. Anderson has the right to acquire pursuant
to exercisable stock options. Does not include shares of Class B Common
Stock subject to the Voting Agreement described below that are not owned of
record by Mr. Anderson.
(6) Based upon information included in statements provided to the Company by
such beneficial owners. Information is as of December 31, 1994 for David L.
Babson & Company, Inc. ("Babson") and FMR Corp. ("FMR"), and as of
September 30, 1995 for Ariel Capital Management, Inc. ("Ariel").
(7) All such shares are held by Ariel for the accounts of clients, and Ariel
disclaims beneficial ownership of such shares. Ariel, in its capacity as
investment advisor, has sole voting power with respect to 2,698,839 shares
and shared voting power with respect to 33,800 shares. Ariel has sole
investment power with respect to all such shares. (John W. Rogers, Jr.,
President and a controlling person of Ariel, may be deemed to beneficially
own all such shares, but he disclaims such beneficial ownership.)
(8) Babson, in its capacity as investment advisor, has sole voting power with
respect to 722,200 shares and shared voting power with respect to 537,900
shares. Babson has sole investment power with respect to all such shares.
(9) Includes 171,584 shares issuable upon conversion of Convertible Debentures.
Fidelity Management & Research Company and Fidelity Management Trust
Company, wholly-owned subsidiaries of FMR, beneficially own such shares in
their respective capacities as investment advisor and investment manager to
several investment companies and institutional investors. FMR has sole
voting power with respect to 252,369 shares. FMR has sole investment power
with respect to all such shares. (Edward C. Johnson, III, Chairman and a
controlling person of FMR, may be deemed to have sole voting power with
respect to 252,369 shares and sole investment power with respect to all
such shares, as well. Mr. Johnson, together with various Johnson family
members and trusts for the benefit of Johnson family members, form a
controlling group with respect to FMR.)
(10) All such shares may be acquired by Mr. DeMoura pursuant to exercisable
stock options.
(11) Mr. Eitel has the right to acquire 2,956 of such Class A shares upon
conversion of Convertible Debentures and all such Class B shares pursuant
to exercisable stock options.
(12) Mr. Milton has the right to acquire 5,913 of such Class A shares upon
conversion of Convertible Debentures and all such Class B shares pursuant
to exercisable stock options.
(13) Includes 8,000 shares that Mr. Russell has the right to acquire pursuant to
exercisable stock options.
(14) Includes an aggregate of 172,782 shares that all executive officers and
directors as a group have the right to acquire pursuant to exercisable
stock options (158,000 shares) and upon conversion of Convertible
Debentures (14,782 shares).
(15) Includes 194,000 shares that all executive officers and directors as a
group have the right to acquire pursuant to exercisable stock options.
CLASS B STOCK VOTING AGREEMENT
Certain holders of Class B Common Stock of the Company have entered into a
voting agreement (the "Voting Agreement") providing for certain of their Class B
shares to be voted as a block in the manner determined by the record owners of a
majority of the shares subject to the agreement. The Voting Agreement expires on
April 13, 1998. The shares of Class B Common Stock subject to the agreement
exceed a majority of the outstanding shares of Class B Common Stock. Ray C.
Anderson owns a majority of the shares subject to the agreement, and thus can
direct the voting of the entire block. (The Voting Agreement also gives Mr.
Anderson the right of first refusal to purchase any shares subject to the
agreement that are proposed to be sold in the public market or in a private
transaction.) Under the terms of the Class B Common Stock, its special voting
rights to elect a majority of the Board members would terminate irrevocably if
the total outstanding shares of Class B Common Stock ever comprises less than
ten percent (10%) of the Company's total issued and outstanding shares of Class
A and Class B Common Stock. On October 1, 1995, the outstanding Class B shares
constituted 16.4% of the total outstanding Class A and Class B shares.
49
<PAGE> 52
DESCRIPTION OF CERTAIN INDEBTEDNESS AND OTHER OBLIGATIONS
The following summarizes the material long-term indebtedness and certain
other material obligations of the Company and its subsidiaries. The Company's
indebtedness is substantial in relation to its shareholders' equity. See
"Capitalization". The summary is not a complete description of such indebtedness
or obligations. Copies of the material agreements relating to such indebtedness
have been filed with the Commission and the description set forth below is
qualified in its entirety by reference to such agreements, each of which will be
furnished to a prospective investor upon its request.
REVOLVING CREDIT AND TERM LOAN FACILITY
On June 30, 1995 the Company amended and restated its existing credit
facilities pursuant to an Amended and Restated Credit Agreement (the "Credit
Agreement"), by and among the Company, Interface Europe Ltd. (a wholly-owned
English subsidiary of the Company), and Interface Scherpenzeel B.V. (a
wholly-owned Dutch subsidiary of the Company), each as a "Borrower"; Trust
Company Bank (now SunTrust Bank, Atlanta) and The First National Bank of
Chicago, as Co-Agents; and the other lenders signatory thereto. The Credit
Agreement provides for a $140 million domestic revolving credit facility, a $60
million multicurrency revolving credit facility, and term loans aggregating $50
million. The maturity date for all loans made pursuant to the domestic revolving
credit facility and the multicurrency revolving credit facility is June 30,
1999. The final maturity date for the term loans is December 31, 2001, with a
mandatory prepayment of $25 million being due and payable on December 29, 2000.
The domestic revolving credit facility also includes two subfacilities -- a
letter of credit facility in the amount of $40 million and a domestic swing line
credit facility in the amount of $5 million. The multicurrency credit facility
also provides for a multicurrency swing line subfacility in the amount of $5
million.
The credit facilities evidenced by the Credit Agreement are secured (i) by
a pledge of all of the outstanding capital stock of each of the Company's
principal domestic operating subsidiaries, and (ii) by a pledge of up to 66% of
the outstanding capital stock of the Company's operating subsidiaries organized
and incorporated in jurisdictions outside of the United States. In addition, the
principal domestic subsidiaries of the Company have guaranteed all of the
Company's and the other Borrowers' obligations under the Credit Agreement. At
the election of a Borrower, the Borrower may select a number of different rate
options and interest periods for each borrowing, most of which are tied to
market indices and some of which are determined by a bid process. The applicable
non-bid interest rates are adjusted quarterly based on the Company's "leverage
ratio" (the ratio of funded debt to total capitalization) and the Company's
"interest coverage ratio" (the ratio of EBITA to interest expense). At October
1, 1995, approximately $206.4 million was outstanding under the Credit
Agreement, such amounts bearing interest at a blended rate of 6.9%.
The Credit Agreement limits the Company's ability to, among other things,
incur indebtedness or contingent obligations, to make acquisitions of or invest
in businesses (in excess of a specified amount), to create or incur liens on
assets, to pay dividends, and purchase or redeem any of the Company's stock
(other than as permitted in the Credit Agreement). The Credit Agreement requires
that the Company meet certain financial tests, as well as comply with certain
other reporting, affirmative and negative covenants. If the Company or any other
Borrower fails to perform or breaches any of its affirmative or negative
covenants under the Credit Agreement, or if other limited, specified events
occur (such as a bankruptcy or similar event), after giving effect to any
applicable notice and right to cure provisions, an event of default will exist
under the Credit Agreement. If an event of default exists and is continuing, the
Co-Agents may, and upon the written request of a specified percentage of the
lenders under the Credit Agreement shall, (i) declare all commitments of the
lenders under the Credit Agreement terminated and (ii) declare the principal of
and any accrued interest on the loans made under the Credit Agreement, as well
as any other amounts owing thereunder, immediately due and payable. The Credit
Agreement also provides that should certain events resulting in a change of
control of the Company occur, the lenders shall be entitled to require
prepayment of all of the loans outstanding under the Credit Agreement, as well
as any and all other obligations thereunder.
The Credit Agreement was amended to permit the offering of the Outstanding
Notes and the redemption of the Convertible Debentures, and generally to conform
the principal covenants of the Credit Agreement to those contained in the
Indenture.
50
<PAGE> 53
CERTAIN OTHER LINES OF CREDIT OBLIGATIONS
The Company maintains approximately $27.0 million (denominated in U.S.
dollars and other currencies) in revolving lines of credit through several of
its subsidiaries (both domestic and foreign), some of which are uncommitted,
demand lines of credit. In general, interest is charged at the prime lending
rate of the lenders extending such credit. At October 1, 1995, the equivalent of
approximately $1.6 million was outstanding under these lines of credit.
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
The Company issued 250,000 shares of its Series A Cumulative Convertible
Preferred Stock, $1.00 par value, with a face value of $100.00 per share (the
"Series A Preferred Stock") in conjunction with the Company's acquisition of
Bentley Mills in June 1993. As of October 1, 1995, all of such shares of Series
A Preferred Stock were outstanding. The holders of the Series A Preferred Stock
are entitled to a preferred cash dividend of 7% per annum on the sum of (i) the
face value of each share of Series A Preferred Stock and (ii) the amount, if
any, of previously accrued and due but unpaid dividends. Dividends are payable
quarterly whether or not declared. Shares of the Series A Preferred Stock are
non-voting, except as required by law or in limited circumstances to protect
their preferential rights.
Shares of the Series A Preferred Stock are convertible into shares of the
Company's Class A Common Stock at the rate of one share of Class A Common Stock
for each $14.7875 of face value and accrued but unpaid dividends with respect to
Series A Preferred Stock. The Series A Preferred Stock became redeemable in
whole or in part at the option of the Company on June 1, 1995, at a redemption
price equal to face value plus accrued dividends; however, through May 31, 1996,
the Series A Preferred Stock may be redeemed only if the market price (defined
as the average price over the preceding 10 trading days) on the date notice of
redemption is sent by the Company exceeds 120% of the effective conversion price
per whole share of Series A Preferred Stock on such date. Commencing May 31,
2003, each record holder of a share of Series A Preferred Stock will have the
right to require the Company to redeem at the redemption price some or all of
such holder's Series A Preferred Stock, subject to certain limitations.
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
In August 1995, the Company commenced an accounts receivable securitization
program (the "Securitization Program") that provides the Company up to $65.0
million of funding from the sale of trade accounts receivable generated by
certain of its operating subsidiaries. As of October 1, 1995, Interface Flooring
Systems, Inc., Guilford and Bentley Mills (collectively, the "Originators") were
the only subsidiaries participating in the Securitization Program. In connection
with the Securitization Program, the Company formed a single-purpose,
wholly-owned subsidiary, Interface Securitization Corporation ("ISC"), to serve
as the purchaser of accounts receivable of the Originators. ISC, in turn,
entered into (i) a receivables purchase agreement (the "Primary Purchase
Agreement") with Special Purpose Accounts Receivable Cooperative Corporation
(the "Primary Purchaser") and Canadian Imperial Bank of Commerce as servicing
agent for the Primary Purchaser, both unaffiliated with the Company, and (ii) a
separate receivables purchase agreement (the "Back-Stop Purchase Agreement")
with a group of financial institutions (collectively, the "Back-Stop
Purchasers") and the Company. The Back-Stop Purchasers are substantially the
same as the lenders under the Company's Credit Agreement. (The Primary Purchaser
and the Back-Stop Purchasers are sometimes referred to collectively as the
"Purchasers".)
Under the Securitization Program, ISC purchases and pools, on a daily
basis, accounts receivable and related rights (the "Pool") from the Originators
for a cash purchase price equal to the outstanding balance of the receivables at
the time of sale (net of reserves for doubtful accounts). The Primary Purchaser,
in turn, acquires from ISC an undivided percentage ownership interest in the
Pool by investing cash in ISC, up to a maximum investment of $65.0 million,
which entitles it to an agreed upon investment yield and to the repayment of its
investment if it ceases participating in the Securitization Program. Daily
collections on the receivables in the Pool are controlled and administered by
the Company acting as collection agent for ISC and the Primary Purchaser, and
after reservation of the Primary Purchaser's accrued investment yield, are
automatically reinvested and used to purchase new receivables from the
Originators. The Primary Purchaser's
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ownership interest in the Pool is recalculated to reflect the effect of each
day's collections and reinvestment. In the absence of unanticipated events (such
as a cessation of reinvestments as discussed below), the Primary Purchaser's
percentage ownership interest in the Pool will generally be equal to 100%, even
though the aggregate balance of the receivables in the Pool will be
significantly greater than the amount invested by the Primary Purchaser.
As of October 1, 1995, the Primary Purchaser's investment in the Pool was
$37.9 million; the aggregate balance of the receivables in the Pool on that date
was $67.6 million; and the percentage amount of the Primary Purchaser's
undivided ownership interest in the Pool was 100%.
The Primary Purchase Agreement specifies several events of termination that
would permit the Primary Purchaser to take control of collections on the
receivables in the Pool. Moreover, the Primary Purchaser has the right, on three
business days' prior written notice, to cease reinvestment of its share of daily
collections and to receive such collections until its investment is fully
recovered.
If the Primary Purchaser ceases making reinvestments in the Pool, so that
its outstanding investment becomes owing, ISC could seek to refinance the
Primary Purchaser's investment by selling comparable undivided ownership
interests in the Pool to the Back-Stop Purchasers pursuant to the Back-Stop
Purchase Agreement. The Back-Stop Purchase Agreement would operate in
substantially the same manner as the Primary Purchase Agreement, except that the
Back-Stop Purchasers have committed to invest only $47.5 million in the Pool
(which may be less than the investment made and owing to the Primary Purchaser).
If an event of termination does occur, the Back-Stop Purchasers would be
entitled to cease reinvestments and to receive all daily collections until their
investment in the Pool has been fully recovered. As of October 1, 1995, the
Back-Stop Purchasers had no investment in the Pool.
If an event of termination existed under the Back-Stop Purchase Agreement
at the time ISC sought to refinance the Primary Purchaser's investment by
selling ownership interests in the Pool to the Back-Stop Purchasers, they would
not be obligated thereunder to purchase interests in the Pool. In that event (or
if the Back-Stop Purchasers were to commence investments and then cease
reinvestments because of an event of termination), the Company expects that it
would seek to borrow a sufficient sum under its Credit Agreement to permit ISC
to repay all amounts owing to the Purchasers with respect to their respective
ownership interests in the Pool. However, the occurrence of certain events of
termination under the Primary Purchase Agreement or the Back-Stop Purchase
Agreement may also constitute events of default under the Credit Agreement,
which would permit the lenders thereunder to withhold future loans to the
Company. If the Company were not able to borrow sufficient sums under the Credit
Agreement (or otherwise obtain the funding necessary) to refinance the
Purchasers' respective investments in the Pool, then control of collections on
the receivables in the Pool would remain with the Purchasers until they recover
their investments in the Pool. Moreover, the Originators would be obligated to
continue to sell their receivables to ISC for at least an additional 90 days
following an event of termination if any investment by the Purchasers has not
been repaid, even though ISC may not have the cash flow to pay for the
receivables because of a cessation of the reinvestment of collections proceeds.
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DESCRIPTION OF THE EXCHANGE NOTES
The Outstanding Notes were issued under an indenture dated as of November
15, 1995 (the "Indenture") among the Company, the Guarantors (as defined herein)
and First Union National Bank of Georgia, as trustee (the "Trustee"). The
Exchange Notes will also be issued under the Indenture, and the Indenture will
be qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), upon the effectiveness of the Registration Statement of which
this Prospectus is a part. The form and terms of the Exchange Notes will be the
same as the Outstanding Notes, except that the issuance of the Exchange Notes
has been registered under the Securities Act and thus the Exchange Notes will
not bear legends restricting their transferability. The Exchange Notes will
evidence the same indebtedness as the Outstanding Notes, will be entitled to the
benefits of the Indenture, and will be treated as a single class under the
Indenture with any Outstanding Notes that remain outstanding after the Exchange
Offer.
The following summary of the material provisions of the Indenture does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of the Indenture (a copy of which has been filed
with the Commission as an exhibit to the Registration Statement), including the
definitions of certain terms contained therein and those terms made part of the
Indenture by reference to the Trust Indenture Act. The definitions of certain
capitalized terms used in the following summary are set forth below under
"-- Certain Definitions".
GENERAL
The Notes are unsecured senior subordinated guaranteed obligations of the
Company limited to $125,000,000 aggregate principal amount. The Notes are
guaranteed on a joint and several and senior subordinated basis by each of the
Guarantors pursuant to the Guarantees described below. The Outstanding Notes
were, and the Exchange Notes will be, issued only in registered form without
coupons, in denominations of $1,000 and integral multiples thereof. Principal
of, premium, if any, and interest on the Notes are payable, and the Notes may be
transferable, at the office of the Company's agent in Atlanta, Georgia located
at the corporate trust office of the Trustee. In addition, interest may be paid,
at the option of the Company, by check mailed to the person entitled thereto as
shown on the security register. No service charge will be made for any transfer,
exchange or redemption of Notes, except in certain circumstances for any tax or
other governmental charge that may be imposed in connection therewith.
Substantially all of the operations of the Company are conducted by
Subsidiaries of the Company. Accordingly, the Company is dependent upon the
distribution of the earnings of its Subsidiaries, whether in the form of
dividends, advances or payments on account of intercompany obligations, to
service its debt obligations. The Subsidiaries of the Company that are not
Material U.S. Subsidiaries will not guarantee the Notes. Therefore, the
Indebtedness represented by the Notes is effectively subordinate in right of
payment to all obligations of such Subsidiaries. In addition, the claims of the
Noteholders are subject to the prior payment of all liabilities for Guarantor
Senior Indebtedness (whether or not for borrowed money) of Subsidiaries which
are Guarantors and are effectively subordinate in right of payment to all
existing and future secured Indebtedness of the Company and its Subsidiaries.
There can be no assurance that, after providing for all prior claims, there
would be sufficient assets available from the Company and its Subsidiaries to
satisfy the claims of the Noteholders. See "Risk Factors -- Subordination of the
Notes; Holding Company Structure".
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on November 15, 2005. The Outstanding Notes bear
interest at the rate of 9 1/2% per annum from November 21, 1995, the date of
initial issuance. The Exchange Notes will bear interest at the rate of 9 1/2%
per annum from their date of issuance, except that Holders of Exchange Notes
will also receive interest on May 15, 1996 from the date of initial issuance of
the Outstanding Notes to the date of surrender of such Outstanding Notes in
exchange for Exchange Notes. Subject to the preceding sentence, interest on the
Notes will be payable semi-annually on each May 15 and November 15, commencing
May 15, 1996, to the holders of record of Notes at the close of business on the
May 1 and November 1 immediately preceding such interest payment dates. Interest
on the Notes will accrue from the most recent date to which interest has been
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<PAGE> 56
paid or, if no interest has been paid, from the original date of issuance (the
"Issue Date"). Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
The Notes are not entitled to the benefit of any mandatory sinking fund.
REDEMPTION AND OFFER TO PURCHASE
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after November 15, 2000 on not
less than 30 nor more than 60 days' prior notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest, if any, to the redemption date, if redeemed during the 12-month
period beginning November 15 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------------------------------------------------------- ----------
<S> <C>
2000...................................................................... 104.750%
2001...................................................................... 103.167%
2002...................................................................... 101.583%
2003 and thereafter....................................................... 100.000%
</TABLE>
Offer to Purchase upon a Change of Control and Certain Asset Sales. In
addition, as described below, the Company (a) is obligated upon the occurrence
of a Change of Control, to make an offer to purchase all outstanding Notes at a
purchase price of 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of purchase, and (b) may be obligated to make an
offer to purchase Notes with a portion of the net cash proceeds of certain sales
or other dispositions of assets at a purchase price of 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase. See "-- Certain Covenants -- Change of Control" and "-- Disposition of
Proceeds of Asset Sales".
Selection and Notice. In the event that less than all of the Notes are to
be redeemed at any time, selection of such Notes for redemption will be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Notes of a principal amount of $1,000 or less shall be redeemed
in part. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the holder
thereof upon surrender for cancellation of the original Note. On and after the
redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption, unless the Company defaults in the payment of the
redemption price therefor.
SUBORDINATION
The indebtedness evidenced by the Notes is subordinated in right of payment
to the prior payment in full in cash or Cash Equivalents of all existing and
future Senior Indebtedness of the Company.
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relating to the Company or
its assets, or any liquidation, dissolution or other winding-up of the Company,
whether voluntary or involuntary, and whether or not involving insolvency or
bankruptcy, or any assignment for the benefit of creditors or marshalling of
assets or liabilities of the Company, all Senior Indebtedness must be paid in
full in cash or Cash Equivalents before any direct or indirect payment or
distribution (excluding distributions of certain permitted equity or
subordinated securities) is made on account of the principal of, premium, if
any, or interest on the Notes or on account of the purchase, redemption,
defeasance or other acquisition of, or in respect of, the Notes (other than
payments previously made pursuant to the provisions described below under
"-- Defeasance or Covenant Defeasance of Indenture"). In the event of the
acceleration of the maturity of any of the Notes, the holders of all Senior
Indebtedness will first be entitled to receive payment in full of all amounts
due thereon before the holders of the Notes will be entitled to receive any
payment on the principal of, premium, if any, or interest on, the Notes (other
than payments previously made pursuant to the provisions described below under
"-- Defeasance or Covenant Defeasance of Indenture").
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<PAGE> 57
Upon the occurrence and during the continuance of any default in the
payment of principal, premium, if any, or interest on any Senior Indebtedness,
when the same becomes due (whether due to lapse of time or at maturity, whether
by acceleration or otherwise), and after receipt by the Trustee and the Company
from representatives of holders of such Senior Indebtedness of written notice of
such default, no direct or indirect payment (other than payments previously made
pursuant to the provisions described under "-- Defeasance or Covenant Defeasance
of Indenture") by or on behalf of the Company of any kind or character
(excluding distributions of certain permitted equity or subordinated securities)
may be made on account of the principal of, premium, if any, or interest on, or
the purchase, redemption, defeasance or other acquisition of, the Notes unless
and until such default has been cured or waived or has ceased to exist or such
Senior Indebtedness shall have been discharged or paid in full in cash or Cash
Equivalents.
In addition, upon the occurrence and during the continuance of any other
default in respect of any Designated Senior Indebtedness pursuant to which the
maturity thereof may be accelerated (a "Non-payment Default") and upon the
earlier to occur of (a) the receipt by the Trustee from the representatives of
holders of such Designated Senior Indebtedness of a written notice of such
Non-payment Default or (b) if such Non-payment Default results from the
acceleration of the Notes, the date of such acceleration, no payment (other than
payments previously made pursuant to the provisions described under
"-- Defeasance or Covenant Defeasance of Indenture") or distribution of any
assets of the Company of any kind or character (excluding distributions of
certain permitted equity or subordinated securities) may be made by the Company
on account of the principal of, premium, if any, or interest on, or the
purchase, redemption, defeasance or other acquisition of, the Notes for the
period specified below (the "Payment Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of a
Non-payment Default by the Trustee from the representatives of holders of
Designated Senior Indebtedness or the date of the acceleration referred to in
clause (b) of the preceding paragraph, as the case may be, and shall end on the
earliest to occur of the following events: (i) 179 days has elapsed since the
receipt of such notice or the date of such acceleration (provided such
Designated Senior Indebtedness shall not theretofore have been accelerated),
(ii) such default is cured or waived or ceases to exist or such Designated
Senior Indebtedness is discharged or paid in full in cash or Cash Equivalents
(provided that no other Non-payment Default has occurred and is then continuing
after giving effect to such cure or waiver), or (iii) such Payment Blockage
Period shall have been terminated by written notice to the Company or the
Trustee from the representatives of holders of Designated Senior Indebtedness
initiating such Payment Blockage Period, after which the Company shall promptly
resume making any and all required payments in respect of the Notes, including
any missed payments (except where the provisions of the third paragraph under
"-- Subordination" are then applicable in respect of any Senior Indebtedness or
where payment is otherwise not permitted under the terms of the Indenture). No
Non-payment Default with respect to Designated Senior Indebtedness that existed
or was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Indebtedness initiating such Payment
Blockage Period will be, or can be, made the basis for the commencement of a
second Payment Blockage Period, whether or not within a period of 365
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days. In no event will a Payment Blockage Period
extend beyond 179 days from the receipt by the Trustee of the notice or the date
of the acceleration initiating such Payment Blockage Period and there must be a
186 consecutive day period in any 365 day period during which no Payment
Blockage Period is in effect.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See "-- Events of Default".
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes and funds which would be otherwise
payable to the holders of the Notes will be paid to the holders of the Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full, and
the Company may be unable to meet its obligations fully with respect to the
Notes.
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As adjusted for redemption of the Convertible Debentures, the Company had
approximately $192.7 million of Senior Indebtedness outstanding as of October 1,
1995 and had approximately $43.6 million available to be borrowed under the
Credit Agreement. The Indenture limits, but does not prohibit, the incurrence by
the Company of additional Indebtedness which is senior to the Notes and
prohibits the incurrence by the Company of Indebtedness which is subordinated in
right of payment to any other Indebtedness of the Company and senior in right of
payment to the Notes.
THE GUARANTEES
Each of the Guarantors has (for so long as they remain Subsidiaries of the
Company) unconditionally guaranteed on a senior subordinated and joint and
several basis all of the Company's obligations under the Notes, including its
obligations to pay principal, premium, if any, and interest with respect to the
Notes. The obligations evidenced by the Guarantees are subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all existing
and future Guarantor Senior Indebtedness to the same extent as the Notes are
subordinated to Senior Indebtedness. Without limiting the generality of the
foregoing, during any period when payment on the Notes is prohibited pursuant to
the provisions described above under "-- Subordination", payment on the
Guarantees will be similarly prohibited. Except as provided in "-- Certain
Covenants" below, the Company is not restricted from selling or otherwise
disposing of any of the Guarantors. Subject to such subordination and to
limitations necessary to prevent any Guarantee from constituting a fraudulent
conveyance under applicable law, the Guarantees are full and unconditional
obligations of each Guarantor.
The Indenture provides that each of the Material Subsidiaries of the
Company incorporated in the United States or any State thereof will be a
Guarantor for so long as such company remains a Subsidiary of the Company.
The Indenture provides that if all or substantially all of the assets of
any Guarantor or all of the Capital Stock of any Guarantor is sold (including by
issuance or otherwise) by the Company or any of its Subsidiaries and, in the
case of the sale of a Guarantor which is a Significant Subsidiary of the Company
in a transaction constituting an Asset Sale, if the Net Cash Proceeds from such
Asset Sale are used in accordance with the covenant, "Disposition of Proceeds of
Asset Sales", then such Guarantor (in the event of a sale or other disposition
of all of the Capital Stock of such Guarantor) or the corporation or other
entity acquiring such assets (in the event of a sale or other disposition of all
or substantially all of the assets of such Guarantor) shall be released and
discharged of its Guarantee obligations.
CERTAIN COVENANTS
The Indenture contains the following covenants, among others:
Limitation on Indebtedness. The Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or in any manner become directly or indirectly liable, contingently or
otherwise, for the payment of (in each case, to "incur") any Indebtedness
(including, without limitation, any Acquired Indebtedness); provided, however,
that the Company or any of its Subsidiaries will be permitted to incur
Indebtedness (including, without limitation, Acquired Indebtedness) if at the
time of such incurrence, and after giving pro forma effect thereto, the
Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to 2.0
to 1.
Notwithstanding the foregoing, the Company and its Subsidiaries may, to the
extent specifically set forth below, incur each and all of the following (each
and all of the following, "Permitted Indebtedness"):
(a) Indebtedness of the Company evidenced by the Notes and
Indebtedness of any Guarantor evidenced by its Guarantee;
(b) Indebtedness of the Company and its Subsidiaries outstanding on
the Issue Date;
(c) Indebtedness of the Company and its Subsidiaries in respect of the
Credit Agreements in an aggregate principal amount at any one time
outstanding not to exceed $300,000,000;
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(d) (i) Interest Rate Protection Obligations of the Company covering
Indebtedness of the Company or a Subsidiary of the Company and (ii)
Interest Rate Protection Obligations of any Subsidiary of the Company
covering Indebtedness of such Subsidiary; provided, however, that, in the
case of either clause (i) or (ii), (x) any Indebtedness to which any such
Interest Rate Protection Obligations relate bears interest at fluctuating
interest rates and is otherwise not incurred in violation of this covenant
and (y) the notional principal amount of any such Interest Rate Protection
Obligations does not exceed the principal amount of the Indebtedness to
which such Interest Rate Protection Obligations relate;
(e) Indebtedness of a Wholly Owned Subsidiary owed to and held by the
Company or another Wholly Owned Subsidiary, provided that each loan or
other extension of credit (i) made by a Guarantor to another Subsidiary
that is not a Guarantor shall not be subordinated to other obligations of
such Subsidiary and (ii) made to a Guarantor by another Subsidiary that is
not a Guarantor shall be made on a subordinated basis; except that (i) any
transfer (which shall not include a pledge or assignment as collateral to
or for the benefit of any holders of Senior Indebtedness) of such
Indebtedness by the Company or a Wholly Owned Subsidiary (other than to the
Company or to a Wholly Owned Subsidiary) and (ii) the sale, transfer or
other disposition by the Company or any Subsidiary of the Company of
Capital Stock of a Wholly Owned Subsidiary which is owed Indebtedness of
another Wholly Owned Subsidiary such that it ceases to be a Wholly Owned
Subsidiary of the Company shall, in each case, be an incurrence of
Indebtedness by such Subsidiary subject to the other provisions of this
covenant;
(f) Indebtedness of the Company owed to and held by a Wholly Owned
Subsidiary of the Company which is unsecured and subordinated in right of
payment to the payment and performance of the Company's obligations under
the Indenture and the Notes except that (i) any transfer (which shall not
include a pledge or assignment as collateral to or for the benefit of any
holders of Senior Indebtedness) of such Indebtedness by a Wholly Owned
Subsidiary of the Company (other than to another Wholly Owned Subsidiary of
the Company) and (ii) the sale, transfer or other disposition by the
Company or any Subsidiary of the Company of Capital Stock of a Wholly Owned
Subsidiary which holds Indebtedness of the Company such that it ceases to
be a Wholly Owned Subsidiary shall, in each case, be an incurrence of
Indebtedness by the Company, subject to the other provisions of this
covenant;
(g) Indebtedness in respect of Currency Agreements; provided that, in
the case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(h) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within five business days of incurrence;
(i) Indebtedness of the Company or any of its Subsidiaries evidenced
by guarantees of any Permitted Indebtedness subject, in the case of any
Subsidiary, to compliance with the requirements set forth below under
"-- Limitation on Guarantees by Subsidiaries";
(j) Indebtedness of the Company or any of its Subsidiaries represented
by letters of credit for the account of the Company or such Subsidiary, as
the case may be, in order to provide security for workers' compensation
claims, payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business;
(k) Indebtedness incurred with respect to (i) letters of credit issued
for the account of the Company or any Subsidiary of the Company pursuant to
the Credit Agreements, and (ii) unsecured letters of credit in addition to
those described in (j) above, issued for the account of the Company or any
Subsidiary of the Company in the ordinary course of business in aggregate
outstanding stated amounts not to exceed $5,000,000;
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(l) Indebtedness, if any, owing by the Company or any Subsidiary under
receivables sale agreements in connection with sales of receivables of the
Company or any Subsidiary pursuant to the Receivables Purchase Agreement or
the Bank Receivables Agreement;
(m) Indebtedness, if any, arising under the Guilford Equipment Lease;
(n) Indebtedness of the Company or any Subsidiary of the Company in
addition to that described in clauses (a) through (m) above, in an
aggregate principal amount outstanding at any time not exceeding
$30,000,000; and
(o) (i) Indebtedness of the Company the proceeds of which are used to
refinance (whether by amendment, renewal, extension, substitution,
refinancing, refunding or replacement, whether with the same or any other
person(s) as lender(s), including successive refinancings thereof)
Indebtedness of the Company or any of its Subsidiaries and (ii)
Indebtedness of any Subsidiary of the Company the proceeds of which are
used to refinance (whether by amendment, renewal, extension, substitution,
refinancing, refunding or replacement, whether with the same or any other
person(s) as lender(s), including successive refinancings thereof)
Indebtedness of such Subsidiary, in each case to the extent such
Indebtedness is described in clause (a) or (b) of this covenant (other than
the Indebtedness refinanced, redeemed or retired as described under "Use of
Proceeds" herein) or is originally incurred pursuant to the proviso in the
first paragraph of this covenant (other than Permitted Indebtedness);
provided, however, that (x) the principal amount of Indebtedness incurred
pursuant to this clause (o) (or, if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue
price of such Indebtedness) shall not exceed the sum of the principal
amount of Indebtedness so refinanced (except where the amount of any excess
is permitted pursuant to another clause of this covenant), plus the amount
of any premium or other amount required to be paid in connection with such
refinancing pursuant to the terms of such Indebtedness or the amount of any
premium or other amount reasonably determined by the Board of Directors of
the Company as necessary to accomplish such refinancing by means of a
tender offer or privately negotiated purchase, plus the amount of expenses
in connection therewith and (y) in the case of Indebtedness incurred by the
Company pursuant to this clause (o) to refinance Subordinated Indebtedness,
such Indebtedness (A) has no scheduled principal payment prior to the 91st
day after the final maturity date of the Indebtedness refinanced, (B) has
an Average Life to Stated Maturity greater than the remaining Average Life
to Stated Maturity of the Indebtedness refinanced and (C) is subordinated
to the Notes in the same manner and to the same extent that the
Subordinated Indebtedness being refinanced is subordinated to the Notes and
(z) in the case of Indebtedness incurred by the Company pursuant to this
clause (o) to refinance Pari Passu Indebtedness, such Indebtedness (A) has
no scheduled principal payment date prior to the 91st day after the final
maturity date of the Indebtedness refinanced, (B) has an Average Life to
Stated Maturity greater than the remaining Average Life to Stated Maturity
of the Indebtedness refinanced and (C) constitutes Pari Passu Indebtedness
or Subordinated Indebtedness.
Limitation on Restricted Payments. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other distribution or
payment on or in respect of Capital Stock of the Company or any of its
Subsidiaries or any payment made to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Company or any of its
Subsidiaries (other than (x) dividends or distributions payable solely in
Capital Stock of the Company (other than Redeemable Capital Stock) or in
options, warrants or other rights to purchase Capital Stock of the Company
(other than Redeemable Capital Stock), (y) the declaration or payment of
dividends or other distributions to the extent declared or paid to the
Company or any Subsidiary of the Company and (z) the declaration or payment
of dividends or other distributions by any Subsidiary of the Company to all
holders of Common Stock of such Subsidiary on a pro rata basis),
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(b) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock of the Company or any of its Subsidiaries (other than (x)
any such Capital Stock owned by a Wholly Owned Subsidiary of the Company
and (y) the Company's Series A Cumulative Convertible Preferred Stock),
(c) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness or Pari Passu Indebtedness
(other than the Convertible Debentures or any other such Indebtedness owned
by the Company or a Wholly Owned Subsidiary of the Company), or
(d) make any Investment (other than any Permitted Investment) in any
person
(such payments or Investments described in the preceding clauses (a), (b), (c)
and (d) are collectively referred to as "Restricted Payments"), unless, at the
time of and after giving effect to the proposed Restricted Payment (the amount
of any such Restricted Payment, if other than cash, shall be the Fair Market
Value on the date of such Restricted Payment of the asset(s) proposed to be
transferred by the Company or such Subsidiary, as the case may be, pursuant to
such Restricted Payment), (A) no Default or Event of Default shall have occurred
and be continuing, (B) immediately prior to and after giving effect to such
Restricted Payment, the Company would be able to incur $1.00 of additional
Indebtedness pursuant to the proviso of the first paragraph of the covenant
described under "-- Limitation on Indebtedness" above (assuming a market rate of
interest with respect to such additional Indebtedness) and (C) the aggregate
amount of all Restricted Payments declared or made from and after the Issue Date
would not exceed the sum of (1) 50% of the aggregate Consolidated Net Income of
the Company accrued on a cumulative basis during the period beginning on the
first day of the fiscal quarter of the Company during which the Issue Date
occurs and ending on the last day of the fiscal quarter of the Company
immediately preceding the date of such proposed Restricted Payment, which period
shall be treated as a single accounting period (or, if such aggregate cumulative
Consolidated Net Income of the Company for such period shall be a deficit, minus
100% of such deficit) plus (2) the aggregate net cash proceeds and the Fair
Market Value of any property other than cash received by the Company either (x)
as capital contributions to the Company after the Issue Date from any person
(other than a Subsidiary of the Company) or (y) from the issuance or sale of
Capital Stock (excluding Redeemable Capital Stock, but including Capital Stock
issued upon the conversion of convertible Indebtedness (other than the first
$50,000,000 of proceeds attributable to the conversion of the Convertible
Debentures) or from the exercise of options, warrants or rights to purchase
Capital Stock (other than Redeemable Capital Stock)) of the Company to any
person (other than to a Subsidiary of the Company) after the Issue Date plus (3)
in the case of the disposition or repayment of any Investment constituting a
Restricted Payment made after the Issue Date (excluding any Investment described
in clause (v) of the following paragraph), an amount equal to the lesser of the
return of capital with respect to such Investment and the cost of such
Investment, in either case, less the cost of the disposition of such Investment
plus (4) $30,000,000. For purposes of the preceding clause (C)(2), the value of
the aggregate net proceeds received by the Company upon the issuance of Capital
Stock upon the conversion of convertible Indebtedness or upon the exercise of
options, warrants or rights will be the net cash proceeds received upon the
issuance of such Indebtedness, options, warrants or rights plus the incremental
cash amount received by the Company upon the conversion or exercise thereof.
None of the foregoing provisions prohibit (i) the payment of any dividend
within 60 days after the date of its declaration, if at the date of declaration
such payment would be permitted by the foregoing paragraph; (ii) so long as no
Default or Event of Default shall have occurred and be continuing, the
redemption, repurchase or other acquisition or retirement of any shares of any
class of Capital Stock of the Company or any Subsidiary of the Company in
exchange for, or out of the net cash proceeds of, a substantially concurrent (x)
capital contribution to the Company from any person (other than a Subsidiary of
the Company) or (y) issue and sale of other shares of Capital Stock (other than
Redeemable Capital Stock) of the Company to any person (other than to a
Subsidiary of the Company); provided, however, that the amount of any such net
cash proceeds that are used for any such redemption, repurchase or other
acquisition or retirement shall be excluded from clause (C)(2) of the preceding
paragraph; (iii) so long as no Default or Event of Default shall have occurred
and be continuing, any redemption, repurchase or other acquisition or retirement
of Subordi-
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nated Indebtedness by exchange for, or out of the net cash proceeds of, a
substantially concurrent (x) capital contribution to the Company from any person
(other than a Subsidiary of the Company) or (y) issue and sale of (1) Capital
Stock (other than Redeemable Capital Stock) of the Company to any person (other
than to a Subsidiary of the Company); provided, however, that the amount of any
such net cash proceeds that are used for any such redemption, repurchase or
other acquisition or retirement shall be excluded from clause (C)(2) of the
preceding paragraph; or (2) Indebtedness of the Company issued to any person
(other than a Subsidiary of the Company), so long as such Indebtedness is
Subordinated Indebtedness which (x) has no Stated Maturity earlier than the 91st
day after the final maturity date of the Indebtedness refinanced, (y) has an
Average Life to Stated Maturity equal to or greater than the remaining Average
Life to Stated Maturity of the Indebtedness refinanced and (z) is subordinated
to the Notes in the same manner and at least to the same extent as the
Subordinated Indebtedness so purchased, exchanged, redeemed, acquired or
retired; (iv) so long as no Default or Event of Default shall have occurred and
be continuing, any redemption, repurchase or other acquisition or retirement of
Pari Passu Indebtedness by exchange for, or out of the net cash proceeds of, a
substantially concurrent (x) capital contribution to the Company from any person
(other than a Subsidiary of the Company) or (y) issue and sale of (1) Capital
Stock (other than Redeemable Capital Stock) of the Company to any person (other
than to a Subsidiary of the Company); provided, however, that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase or
other acquisition or retirement is excluded from clause (C)(2) of the preceding
paragraph; or (2) Indebtedness of the Company issued to any person (other than a
Subsidiary of the Company), so long as such Indebtedness is Subordinated
Indebtedness or Pari Passu Indebtedness which (x) has no Stated Maturity earlier
than the 91st day after the final maturity date of the Indebtedness refinanced
and (y) has an Average Life to Stated Maturity equal to or greater than the
remaining Average Life to Stated Maturity of the Indebtedness refinanced; (v)
Investments constituting Restricted Payments made as a result of the receipt of
non-cash consideration from any Asset Sale made pursuant to and in compliance
with the covenant described under "-- Disposition of Proceeds of Asset Sales"
below; and (vi) so long as no Default or Event of Default has occurred and is
continuing, repurchases by the Company of Common Stock of the Company from
employees of the Company or any of its Subsidiaries or their authorized
representatives upon the death, disability or termination of employment of such
employees, in an aggregate amount not exceeding $1,000,000 in any calendar year.
In computing the amount of Restricted Payments previously made for purposes of
clause (C) of the preceding paragraph, Restricted Payments made under the
preceding clauses (v) and (vi) shall be included and clauses (i), (ii), (iii)
and (iv) shall not be so included.
Limitation on Liens. The Company will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind
against or upon any of its property or assets, or any proceeds therefrom, unless
(x) in the case of Liens securing Subordinated Indebtedness, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and (y) in all other cases, the Notes are equally and
ratably secured, except for (a) Liens existing as of the Issue Date, (b) Liens
on assets of the Company and its Subsidiaries securing Indebtedness under the
Credit Agreements (including guarantees by any Subsidiary in respect of such
Indebtedness); (c) Liens securing the Notes or any Guarantee; (d) Liens on
assets of the Company securing Senior Indebtedness and Liens on assets of a
Guarantor securing Guarantor Senior Indebtedness; (e) Liens in favor of the
Company; (f) Liens in addition to those described in clauses (a) through (e)
securing Indebtedness which is incurred to refinance Indebtedness which has been
secured by a Lien permitted under the Indenture and which has been incurred in
accordance with the provisions of the Indenture; provided, however, that such
Liens do not extend to or cover any property or assets of the Company or any of
its Subsidiaries not securing the Indebtedness so refinanced; (g) Liens on
Indebtedness of a Subsidiary of the Company owed to and held by the Company,
which Indebtedness (x) represents advances by the Company of proceeds of
borrowings by the Company under the Credit Agreement and (y) is incurred in
accordance with the provisions of the Indenture; and (h) Permitted Liens.
Change of Control. Upon the occurrence of a Change of Control, the Company
shall be obligated to make an offer to purchase (a "Change of Control Offer"),
and shall purchase, on a business day (the "Change of Control Purchase Date")
not more than 45 nor less than 30 days following the mailing of the notice
described in the second paragraph below to holders of the Notes, all of the then
outstanding Notes at a
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purchase price (the "Change of Control Purchase Price") equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the Change
of Control Purchase Date. The Company shall be required to purchase all Notes
properly tendered into the Change of Control Offer and not withdrawn. The Change
of Control Offer is required to remain open for at least 15 days and until the
close of business on the Change of Control Purchase Date.
Within 30 days following a Change of Control and prior to the mailing of
the notice to the holders of the Notes provided for in the next paragraph, the
Company covenants to either (i) repay in full all Indebtedness under the Credit
Agreements and terminate the commitments of the lenders thereunder, or (ii)
obtain the requisite consent under the Credit Agreements to permit the
repurchase of the Notes as provided herein. The Company shall first comply with
the provisions of this paragraph before it shall be required to repurchase the
Notes, but any failure to comply with its obligation to offer to repurchase the
Notes upon a Change of Control shall constitute an Event of Default under the
Indenture.
In order to effect the Change of Control Offer, the Company shall, not
later than the 30th day after the occurrence of the Change of Control, mail to
each holder of Notes notice of the Change of Control Offer, which notice shall
govern the terms of the Change of Control Offer and shall state, among other
things, the procedures that holders of Notes must follow to accept the Change of
Control Offer.
The occurrence of the events constituting a Change of Control under the
Indenture will result in an event of default under the Credit Agreements and,
thereafter, the lenders will have the right to require repayment of the
borrowings thereunder in full. The Company's obligations under the Credit
Agreements will constitute Designated Senior Indebtedness and will represent
obligations senior in right of payment to the Notes. Consequently, the
subordination provisions of the Indenture will have the effect of precluding the
purchase of the Notes by the Company in the event of a Change of Control, absent
consent of the lenders under the Credit Agreements or repayment of all amounts
outstanding thereunder (although the failure by the Company to comply with its
obligations in the event of a Change of Control will constitute a default under
the Notes). There can be no assurance that the Company will have adequate
resources to repay or refinance all Indebtedness owing under the Credit
Agreements or to fund the purchase of the Notes upon a Change of Control.
The Company shall 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
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs and the
Company is required to purchase Notes as described above.
Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any of its Subsidiaries to, make any Asset Sale unless (a) the Company or
such Subsidiary, as the case may be, receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the shares or assets sold
or otherwise disposed of and (b) at least 70% of such consideration consists of
cash or Cash Equivalents. To the extent the Net Cash Proceeds of any Asset Sale
are not applied to repay (including by way of cash collateralization of
outstanding letters of credit), and permanently reduce the commitments under,
the Credit Agreements as then in effect or other Senior Indebtedness or
Guarantor Senior Indebtedness, the Company or such Subsidiary, as the case may
be, may, within fifteen months of such Asset Sale, apply such Net Cash Proceeds
to an investment in properties and assets that replace the properties and assets
that were the subject of such Asset Sale or in properties and assets that will
be used in the business of the Company and its Subsidiaries existing on the
Issue Date or in businesses reasonably related thereto ("Replacement Assets").
Any Net Cash Proceeds from any Asset Sale that are neither used to repay, and
permanently reduce the commitments under, the Credit Agreements or other Senior
Indebtedness or Guarantor Senior Indebtedness nor invested in Replacement Assets
within the fifteen month period described above constitute "Excess Proceeds"
subject to disposition as provided below.
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When the aggregate amount of Excess Proceeds equals or exceeds $15,000,000,
the Company shall make an offer to purchase (an "Asset Sale Offer"), from all
holders of the Notes, not more than 40 Business Days thereafter, an aggregate
principal amount of Notes equal to such Excess Proceeds, at a price in cash
equal to 100% of the outstanding principal amount thereof plus accrued and
unpaid interest, if any, to the purchase date. To the extent that the aggregate
principal amount of Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use such deficiency for general corporate
purposes. If the aggregate principal amount of Notes validly tendered and not
withdrawn by holders thereof exceeds the Excess Proceeds, Notes to be purchased
will be selected on a pro rata basis. Upon completion of such Asset Sale Offer,
the amount of Excess Proceeds shall be reset to zero.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above.
Limitation on Transactions with Interested Persons. The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly, enter
into or suffer to exist any transaction or series of related transactions
(including, without limitation, the sale, transfer, disposition, purchase,
exchange or lease of assets, property or services) with, or for the benefit of,
any Affiliate of the Company or any beneficial owner (determined in accordance
with the Indenture) of 5% or more of the Company's Common Stock at any time
outstanding ("Interested Persons"), unless (a) such transaction or series of
related transactions is on terms that are no less favorable to the Company or
such Subsidiary, as the case may be, than those which could have been obtained
in a comparable transaction at such time from persons who are not Affiliates of
the Company or Interested Persons, (b) with respect to a transaction or series
of transactions involving aggregate payments or value equal to or greater than
$1,000,000 and less than $10,000,000, the Company has delivered an officer's
certificate to the Trustee certifying that such transaction or series of
transactions complies with the preceding clause (a), (c) with respect to a
transaction or series of transactions involving aggregate payments or value
equal to or greater than $10,000,000 and less than $25,000,000, the Company has
delivered to the Trustee a board resolution approved by a majority of
disinterested members of the Board of Directors ratifying such transaction or
series of transactions, along with an officer's certificate attesting to such
resolution and (d) with respect to a transaction or series of transactions
involving aggregate payments or value equal to or greater than $25,000,000, the
Company has delivered to the Trustee a written opinion from an Independent
Financial Advisor stating that the terms of such transaction or series of
transactions are fair to the Company or its Subsidiary, as the case may be, from
a financial point of view; provided, however, that this covenant will not
restrict the Company from (i) paying dividends in respect of its Capital Stock
permitted under the covenant described under "-- Limitation on Restricted
Payments" above, (ii) paying reasonable and customary fees to directors of the
Company who are not employees of the Company or (iii) making loans or advances
to officers, employees or consultants of the Company and its Subsidiaries
(including travel and moving expenses) in the ordinary course of business for
bona fide business purposes of the Company or such Subsidiary not in excess of
$1,000,000 in the aggregate at any one time outstanding.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Subsidiary
of the Company to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock or any other interest or
participation in, or measured by, its profits, (b) pay any Indebtedness owed to
the Company or any other Subsidiary of the Company, (c) make loans or advances
to, or any investment in, the Company or any other Subsidiary of the Company,
(d) transfer any of its properties or assets to the Company or any other
Subsidiary of the Company or (e) guarantee any Indebtedness of the Company or
any other Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) customary
non-assignment provisions of any contract or any lease governing a leasehold
interest of the Company or any Subsidiary of the Company, (iii) customary
restrictions on transfers of property subject to a Lien permitted under the
Indenture which could not materially adversely affect the Company's ability to
satisfy its obligations under the Indenture and the Notes, (iv) any agreement or
other instrument of a person acquired by the Company or any Subsidiary of the
Company (or a Subsidiary of such person) in existence at
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the time of such acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any person, or the properties or
assets of any person, other than the person, or the properties or assets of the
person, so acquired, (v) provisions contained in agreements or instruments
relating to Indebtedness which prohibit the transfer of all or substantially all
of the assets of the obligor thereunder unless the transferee shall assume the
obligations of the obligor under such agreement or instrument and (vi)
encumbrances and restrictions under the Credit Agreements and other Senior
Indebtedness and Guarantor Senior Indebtedness in effect on the Issue Date and
encumbrances and restrictions in permitted refinancings or replacements thereof
which are no less favorable to the holders of the Notes than those contained in
the Senior Indebtedness and Guarantor Senior Indebtedness so refinanced or
replaced.
Limitation on the Issuance of Other Senior Subordinated Indebtedness. The
Company will not, directly or indirectly, incur any Indebtedness (including
Acquired Indebtedness) that is subordinate in right of payment to any
Indebtedness of the Company, unless such Indebtedness (x) is pari passu with the
Notes or (y) is subordinate in right of payment to the Notes in the same manner
and at least to the same extent as the Notes are subordinated to Senior
Indebtedness.
Limitation on Guarantees by Subsidiaries. The Company will not permit any
Subsidiary, directly or indirectly, to assume, guarantee or in any other manner
become liable with respect to any Indebtedness of the Company or any Guarantor
unless such Subsidiary is a Guarantor or simultaneously executes and delivers a
supplemental indenture providing for the guarantee of payment of the Notes by
such Subsidiary and such guarantee shall be subordinated to Guarantor Senior
Indebtedness of such Subsidiary in substantially the same manner and to the same
extent as the Notes are subordinated to Senior Indebtedness of the Company under
the terms of the Indenture.
If the Company or any of its Subsidiaries acquire or form a Material U.S.
Subsidiary, the Company will cause any such Subsidiary to (i) execute and
deliver to the Trustee a supplemental indenture in form and substance reasonably
satisfactory to such Trustee pursuant to which such Subsidiary shall guarantee
all of the obligations of the Company with respect to the Notes issued under
such Indenture on a senior subordinated basis and (ii) deliver to such Trustee
an opinion of counsel reasonably satisfactory to such Trustee to the effect that
a supplemental indenture has been duly executed and delivered by such Subsidiary
and such Subsidiary is in compliance with the terms of the Indenture.
Notwithstanding the foregoing, upon any sale or disposition (by merger or
otherwise) of any Guarantor by the Company or a Subsidiary of the Company to any
person that is not an Affiliate of the Company or any of its Subsidiaries, such
Guarantor will be deemed to be released from all obligations under its
Guarantee; provided, however, that each such Guarantor which is a Significant
Subsidiary of the Company is sold or disposed of in accordance with the
Indenture; and provided further that the foregoing proviso shall not apply to
the sale or disposition of such a Guarantor pursuant to, or in lieu of, the
exercise by one or more holders of Senior Indebtedness of rights and remedies in
respect of the capital stock of such Guarantor previously pledged or assigned to
such holder or holders to secure such Indebtedness or other sale or disposition
the proceeds of which are used to repay Senior Indebtedness secured by such
capital stock.
Limitation on Applicability of Certain Covenants. During any period of
time that (i) the ratings assigned to the Notes by each of S&P and Moody's
(collectively, the "Rating Agencies") are no less than BBB- and Baa3,
respectively (the "Investment Grade Ratings"), and (ii) no Default or Event of
Default has occurred and is continuing, the Company and its Restricted
Subsidiaries will not be subject to the covenants entitled "Limitation on
Indebtedness", "Limitation on Restricted Payments", "Disposition of Proceeds of
Asset Sales", "Limitation on Transactions with Interested Persons", "Limitation
on Dividends and Other Payment Restrictions Affecting Subsidiaries", and
"Limitation on Guarantees by Subsidiaries" (collectively, the "Suspended
Covenants"). If one or both Rating Agencies withdraws its rating or downgrades
its Investment Grade Rating, then thereafter the Company and its Subsidiaries
will be subject to the Suspended Covenants (until the Rating Agencies have again
assigned Investment Grade Ratings to the Notes) and compliance with the
Suspended Covenants with respect to Restricted Payments made after the time of
such withdrawal or downgrade will be calculated in accordance with the covenant
entitled "Limitation on Restricted Payments" as if such covenant had been in
effect at all times after the date of the Indenture.
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Reporting Requirements. The Company will file with the Commission the
annual reports, quarterly reports and other documents required to be filed with
the Commission pursuant to Sections 13 and 15 of the Exchange Act, whether or
not the Company has a class of securities registered under the Exchange Act. The
Company will file with the Trustee and provide to each Noteholder within 15 days
after it files them with the Commission (or if any such filing is not permitted
under the Exchange Act, 15 days after the Company would have been required to
make such filing) copies of such reports and documents.
Rule 144A Information Requirement. If at any time the Company is no longer
subject to the reporting requirements of the Exchange Act, it will furnish to
the Holders or beneficial holders of the Notes and prospective purchasers of the
Notes designated by the holders of the Notes, upon their request, any
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
MERGER, SALE OF ASSETS, ETC.
The Company will not, in any transaction or series of transactions, merge
or consolidate with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets as an
entirety to, any person or persons, and the Company will not permit any of its
Subsidiaries to enter into any such transaction or series of transactions if
such transaction or series of transactions, in the aggregate, would result in a
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company or the Company and
its Subsidiaries, taken as a whole, to any other person or persons, unless at
the time of and after giving effect thereto (a) either (i) if the transaction or
series of transactions is a merger or consolidation, the Company shall be the
surviving person of such merger or consolidation, or (ii) the person formed by
such consolidation or into which the Company or such Subsidiary is merged or to
which the properties and assets of the Company or such Subsidiary, as the case
may be, are transferred (any such surviving person or transferee person being
the "Surviving Entity") shall be a corporation organized and existing under the
laws of the United States of America, any state thereof or the District of
Columbia and shall expressly assume by a supplemental indenture executed and
delivered to the Trustee, in form reasonably satisfactory to the Trustee, all
the obligations of the Company under the Notes and the Indenture, and in each
case, the Indenture shall remain in full force and effect; (b) immediately
before and immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default or Event of
Default shall have occurred and be continuing and the Company or the Surviving
Entity, as the case may be, after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), could incur $1.00 of
additional Indebtedness pursuant to the proviso in the first paragraph of the
covenant described under "-- Certain Covenants -- Limitation on Indebtedness"
above (assuming a market rate of interest with respect to such additional
Indebtedness); and (c) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), the Consolidated Net
Worth of the Company or the Surviving Entity, as the case may be, is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction or series of transactions.
In connection with any consolidation, merger, transfer, lease, assignment
or other disposition contemplated hereby, the Company shall deliver, or cause to
be delivered, to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officer's certificate and an opinion of counsel, each stating
that such consolidation, merger, transfer, lease, assignment or other
disposition and the supplemental indenture in respect thereof comply with the
requirements under the Indenture; provided, however, that, solely for purposes
of computing amounts described in subclause (C) of the covenant described under
"-- Certain Covenants -- Limitation on Restricted Payments" above, any such
Surviving Entity shall only be deemed to have succeeded to and be substituted
for the Company with respect to periods subsequent to the effective time of such
merger, consolidation or transfer of assets.
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Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing, in which the
Company is not the continuing corporation, the successor corporation formed by
such a consolidation or into which the Company is merged or to which such
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if such successor corporation had been named as the Company therein.
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, on
any of the Notes when the same becomes due and payable (upon Stated
Maturity, acceleration, optional redemption, required purchase, scheduled
principal payment or otherwise); or
(ii) default in the payment of an installment of interest on any of
the Notes, when the same becomes due and payable, which default continues
for a period of 30 days; or
(iii) failure to perform or observe any other term, covenant or
agreement contained in the Notes, the Indenture or any Guarantee (other
than a default specified in clause (i) or (ii) above) and such default
continues for a period of 60 days after written notice of such default
requiring the Company to remedy the same shall have been given (x) to the
Company by the Trustee or (y) to the Company and the Trustee by holders of
25% in aggregate principal amount of the Notes then outstanding; or
(iv) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which
the Company or any Significant Subsidiary of the Company then has
outstanding Indebtedness in excess of $20,000,000, individually or in the
aggregate, and either (a) such Indebtedness is already due and payable in
full or (b) such default or defaults have resulted in the acceleration of
the maturity of such Indebtedness; or
(v) one or more judgments, orders or decrees of any court or
regulatory or administrative agency of competent jurisdiction for the
payment of money in excess of $20,000,000, either individually or in the
aggregate, shall be entered against the Company or any Significant
Subsidiary of the Company or any of their respective properties and shall
not be discharged or fully bonded and there shall have been a period of 60
days after the date on which any period for appeal has expired and during
which a stay of enforcement of such judgment, order or decree shall not be
in effect; or
(vi) either (i) the collateral agent under the Credit Agreements or
(ii) any holder of at least $20,000,000 in aggregate principal amount of
Indebtedness of the Company or any of its Significant Subsidiaries shall
commence judicial proceedings to foreclose upon assets of the Company or
any of its Significant Subsidiaries having an aggregate Fair Market Value,
individually or in the aggregate, in excess of $20,000,000 or shall have
exercised any right under applicable law or applicable security documents
to take ownership of any such assets in lieu of foreclosure; or
(vii) any Guarantee issued by a Guarantor which is a Significant
Subsidiary of the Company ceases to be in full force and effect or is
declared null and void, or any such Guarantor denies that it has any
further liability under any such Guarantee or gives notice to such effect
(other than by reason of the termination of the Indenture or the release of
any such Guarantee in accordance with the Indenture) and such condition
shall have continued for a period of 60 days after written notice of such
failure (which notice shall specify the Default, demand that it be remedied
and state that it is a "Notice of Default") requiring such Guarantor and
the Company to remedy the same shall have been given (x) to the Company by
the Trustee or (y) to the Company and the Trustee by holders of at least
25% in aggregate principal amount of the Notes then outstanding; or
(viii) certain events of bankruptcy, insolvency or reorganization with
respect to the Company or any Significant Subsidiary of the Company shall
have occurred.
If an Event of Default (other than as specified in clause (viii) above)
shall occur and be continuing, the Trustee, by notice to the Company, or the
holders of at least 25% in aggregate principal amount of the Notes
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then outstanding, by notice to the Trustee and the Company, may declare the
principal of, premium, if any, and accrued and unpaid interest, if any, on all
of the outstanding Notes due and payable immediately, upon which declaration,
all amounts payable in respect of the Notes shall be immediately due and
payable; provided, however, that, for so long as the Credit Agreements are in
effect, such declaration shall not become effective until the earlier of (i) ten
business days following delivery of written notice to the Co-Agents thereunder
of the intention to accelerate the maturity of the Notes, or (ii) the
acceleration of the maturity of the Indebtedness under the Credit Agreements. If
an Event of Default specified in clause (viii) above occurs and is continuing,
then the principal of, premium, if any, and accrued and unpaid interest, if any,
on all of the outstanding Notes shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the Trustee or
any holder of Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes,
(iii) the principal of and premium, if any, on any Notes which have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate borne by the Notes, and (iv) to the extent that payment of such interest is
lawful, interest upon overdue interest and overdue principal at the rate borne
by the Notes which has become due otherwise than by such declaration of
acceleration; (b) the rescission would not conflict with any judgment or decree
of a court of competent jurisdiction; and (c) all Events of Default, other than
the nonpayment of principal of, premium, if any, and interest on the Notes that
have become due solely by such declaration of acceleration, have been cured or
waived.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may on behalf of the holders of all the Notes waive any
past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
No holder of any of the Notes has any right to institute any proceeding
with respect to the Indenture or the Notes or any remedy thereunder, unless the
holders of at least 25% in aggregate principal amount of the outstanding Notes
have made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as Trustee under the Notes and the Indenture, the
Trustee has failed to institute such proceeding within 30 days after receipt of
such notice and the Trustee, within such 30-day period, has not received
directions inconsistent with such written request by holders of a majority in
aggregate principal amount of the outstanding Notes. Such limitations do not
apply, however, to a suit instituted by a holder of a Note for the enforcement
of the payment of the principal of, premium, if any, or interest on such Note on
or after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, whether or not an Event of Default shall occur and be continuing, the
Trustee under the Indenture is not under any obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any of the
holders unless such holders shall have offered to the Trustee reasonable
security or indemnity. Subject to certain provisions concerning the rights of
the Trustee, the holders of not less than a majority in aggregate principal
amount of the outstanding Notes have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee under the Indenture.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 30 days after obtaining knowledge thereof.
Except in the case of a Default or an Event of Default in payment of principal
of,
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premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the holders of such Notes if a committee of its trust officers in good faith
determines that withholding the notice is in the interest of the holders of the
Notes.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such performance. The Company is also
required to notify the Trustee within 30 days of any event which is, or after
notice or lapse of time or both would become, an Event of Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company with respect to the outstanding Notes ("defeasance"). Such
defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Notes, except for (i) the
rights of holders of outstanding Notes to receive payment in respect of the
principal of, premium, if any, and interest on such Notes when such payments are
due, (ii) the Company's obligations to issue temporary Notes, register the
transfer or exchange of any Notes, replace mutilated, destroyed, lost or stolen
Notes and maintain an office or agency for payments in respect of the Notes,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv)
the defeasance provisions of the Indenture. In addition, the Company may, at its
option and at any time, elect to terminate the obligations of the Company with
respect to certain covenants that are set forth in the Indenture, some of which
are described under "-- Certain Covenants" above (including the covenant
described under "-- Certain Covenants -- Change of Control" above) and any
subsequent failure to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes ("covenant defeasance").
In order to exercise either 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 United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Notes to redemption or maturity (except lost, stolen
or destroyed Notes which have been replaced or paid); (ii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred (in the case of defeasance, such opinion
must refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable federal income tax laws); (iii) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit; (iv)
such defeasance or covenant defeasance shall not cause the Trustee to have a
conflicting interest with respect to any securities of the Company; (v) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under, any material agreement or instrument to which the
Company is a party or by which it is bound; (vi) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that (A) 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 and (B) the trust funds will not be
subject to the rights of holders of Senior Indebtedness, including, without
limitation, those rights arising under the Indenture; and (vii) the Company
shall have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that all conditions precedent under the Indenture to
either defeasance or covenant defeasance, as the case may be, have been complied
with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or repaid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
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Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation (except lost, stolen or destroyed Notes which have been replaced or
paid) have been called for redemption pursuant to the terms of the Notes or have
otherwise become due and payable and the Company has irrevocably deposited or
caused to be deposited with the Trustee funds in an amount sufficient to pay and
discharge the entire Indebtedness on the Notes not theretofore delivered to the
Trustee for cancellation, for principal of, premium, if any, and interest on the
Notes to the date of deposit together with irrevocable instructions from the
Company directing the Trustee to apply such funds to the payment thereof at
maturity or redemption, as the case may be; (ii) the Company has paid all other
sums payable under the Indenture by the Company; (iii) there exists no Default
or Event of Default under the Indenture; and (iv) the Company has delivered to
the Trustee an officers' certificate and an opinion of counsel stating that (x)
all conditions precedent under the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with and (y) such satisfaction and
discharge will not result in a breach or violation of, or constitute a default
under, the Indenture or any material agreement or instrument to which the
Company is a party or by which the Company is bound.
AMENDMENTS AND WAIVERS
From time to time, the Company, when authorized by a resolution of its
Board of Directors, and the Trustee may, without the consent of the holders of
any outstanding Notes, amend, waive or supplement the Indenture or the Notes for
certain specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies, qualifying, or maintaining the qualification of, the
Indenture under the Trust Indenture Act of 1939, as amended, or making any other
change that does not adversely affect the rights of any holder of Notes;
provided, however, that the Company has delivered to the Trustee an opinion of
counsel stating that such change does not adversely affect the rights of any
holder of Notes. Other amendments and modifications of the Indenture, the Notes
or the Guarantees may be made by the Company and the Trustee with the consent of
the holders of not less than a majority of the aggregate principal amount of the
outstanding Notes; provided, however, that no such modification or amendment
may, without the consent of the holder of each outstanding Note affected
thereby, (i) reduce the principal amount of, extend the fixed maturity of or
alter the redemption provisions of, the Notes, (ii) change the currency in which
any Note or any premium or the interest thereon is payable or make the principal
of, premium, if any, or interest on any Note payable in money other than that
stated in the Note, (iii) reduce the percentage in principal amount of
outstanding Notes that must consent to an amendment, supplement or waiver or
consent to take any action under the Indenture, any Guarantee or the Notes, (iv)
impair the right to institute suit for the enforcement of any payment on or with
respect to the Notes, (v) waive a default in payment with respect to the Notes,
(vi) amend, change or modify the obligations of the Company to make and
consummate the offer with respect to any Asset Sale or modify any of the
provisions or definitions with respect thereto, (vii) reduce or change the rate
or time for payment of interest on the Notes, (viii) modify or change any
provision of the Indenture affecting the subordination or ranking of the Notes
or any Guarantee in a manner adverse to the holders of the Notes, or (ix)
release any Guarantor from any of its obligations under its Guarantee or the
Indenture other than in compliance with the Indenture.
REGISTRATION RIGHTS AGREEMENT; PENALTY INTEREST
If (i) due to a change in current interpretations by the Commission, the
Company is not permitted to effect the Exchange Offer, (ii) the Exchange Offer
is not for any other reason consummated within 105 days after the date on which
the Company delivered the Notes to the Initial Purchasers (the "Closing Date")
or (iii) any holder of Notes shall, within 30 days after consummation of the
Exchange Offer, notify the Company that such holder (x) is prohibited by
applicable law or Commission policy from participating in the Exchange Offer,
(y) may not resell Exchange Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and that the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such holder or (z) is a broker-dealer and holds Notes acquired
directly from the Company or an "affiliate" of the Company, it is contemplated
that the Company will file a registration statement (a "Shelf Registration
Statement") covering resales (a) by the holders of the Notes in the event the
Company is not permitted to effect the Exchange Offer pursuant to the foregoing
clause (i) or
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the Exchange Offer is not consummated within 105 days after the Closing Date
pursuant to the foregoing clause (ii) or (b) by the holders of Notes with
respect to which the Company receives notice pursuant to the foregoing clause
(iii), and will use its best efforts to cause any such Shelf Registration
Statement to become effective and to keep such Shelf Registration Statement
effective for three years from the effective date thereof. The Company shall, if
it files a Shelf Registration Statement, provide to each holder of the Notes
copies of the prospectus and notify each such holder when the Shelf Registration
Statement has become effective. A holder that sells Notes pursuant to a Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a current prospectus to
purchasers, and will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales.
Under the Registration Rights Agreement, the Company has agreed to use its
best efforts to: (i) file the Registration Statement or a Shelf Registration
Statement with the Commission as soon as practicable after the Closing Date,
(ii) have such Registration Statement or Shelf Registration Statement declared
effective by the Commission, and (iii) commence the Exchange Offer and issue the
Exchange Notes in exchange for all Notes validly tendered in accordance with the
terms of the Exchange Offer prior to the close of the Exchange Offer, or, in the
alternative, cause such Shelf Registration Statement to remain effective for
three years from the effective date thereof. Although the Company intends to
file a Shelf Registration Statement as described above if required, there can be
no assurance that any such registration statement will be filed or, if filed,
that it will become effective. Each holder of Notes, by virtue of becoming so,
will be bound by the provisions of the Registration Rights Agreement that may
require the holder to furnish notice or other information to the Company as a
condition to certain obligations of the Company to file a Shelf Registration
Statement by a particular date or to maintain its effectiveness for the
prescribed three-year period.
If the Company fails to comply with the above provisions, additional
interest (the "Penalty Interest") shall be assessed on the Notes as follows:
(i) (A) if the Registration Statement or, in the event that due to
current interpretations by the Commission the Company is not permitted to
effect the Exchange Offer, a Shelf Registration Statement is not filed
within 30 days following the Closing Date or (B) in the event that within
the prescribed time period, any holder of Notes shall notify the Company
that such holder (x) is prohibited by applicable law or Commission policy
from participating in the Exchange Offer, (y) may not resell Exchange Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and that the prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by
such holder or (z) is a broker-dealer and holds Notes acquired directly
from the Company or an "affiliate" of the Company, a Shelf Registration
Statement is not filed within 30 days after expiration of the prescribed
time period, then commencing on the 31st day after either the Closing Date
or the expiration of the prescribed time period, as the case may be,
Penalty Interest shall be accrued on the Notes over and above the accrued
interest at a rate of .50% per annum for the first 90 days immediately
following the 31st day after either the Closing Date or the expiration of
the prescribed time period, as the case may be, such Penalty Interest rate
increasing by an additional .25% per annum at the beginning of each
subsequent 90-day period;
(ii) if the Registration Statement or a Shelf Registration Statement
is filed pursuant to clause (i) of the preceding full paragraph and is not
declared effective within 75 days following either the Closing Date or the
expiration of the prescribed time period, as the case may be, then
commencing on the 76th day after either the Closing Date or the expiration
of the prescribed time period, as the case may be, Penalty Interest shall
be accrued on the Notes over and above the accrued interest at a rate of
.50% per annum for the first 90 days immediately following the 76th day
after either the Closing Date or the expiration of the prescribed time
period, as the case may be, such Penalty Interest rate increasing by an
additional .25% per annum at the beginning of each subsequent 90-day
period; and
(iii) if either (A) the Company has not exchanged Exchange Notes for
all Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 30 days after the date on which the Exchange Offer
Registration Statement was declared effective, or (B) if applicable, a
Shelf Registration
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Statement has been declared effective and such Shelf Registration Statement
ceases to be effective prior to three years from its original effective
date, then, subject to certain exceptions, Penalty Interest shall be
accrued on the Notes over and above the accrued interest at a rate of .50%
per annum for the first 60 days immediately following the (x) 31st day
after such effective date, in the case of (A) above, or (y) the day such
Shelf Registration Statement ceases to be effective in the case of (B)
above, such Penalty Interest rate increasing by an additional .25% per
annum at the beginning of each subsequent 60-day period;
provided, however, that the Penalty Interest rate on the Notes may not exceed
1.5% per annum; and provided further that (1) upon the filing of the Exchange
Offer Registration Statement or a Shelf Registration Statement (in the case of
(i) above), (2) upon the effectiveness of the Exchange Offer Registration
Statement or a Shelf Registration Statement (in the case of (ii) above), or (3)
upon the exchange of Exchange Notes for all Notes tendered in the Exchange Offer
or upon the effectiveness of the Shelf Registration Statement which had ceased
to remain effective prior to three years from its original effective date (in
the case of (iii) above), Penalty Interest on the Notes as a result of such
clause (i), (ii) or (iii) shall cease to accrue.
Any amounts of Penalty Interest due pursuant to clause (i), (ii) or (iii)
above will be payable in cash on the interest payment dates of the Notes. The
amount of Penalty Interest will be determined by multiplying the applicable
Penalty Interest rate by the principal amount of the Notes, multiplied by a
fraction, the numerator of which is the number of days such Penalty Interest
rate was applicable during such period, and the denominator of which is 360.
The foregoing summary 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 reference to, the provisions of the Registration Rights
Agreement. A copy of the Registration Rights Agreement has been filed with the
Commission as an exhibit to the Registration Statement.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; provided, however, that if it acquires any conflicting
interest (as defined in such Act) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture, the Notes and the Guarantees are governed by the laws of the
State of New York.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a person (a) assumed in
connection with an Asset Acquisition from such person or (b) existing at the
time such person becomes a Subsidiary of any other person.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person.
"Asset Acquisition" means (a) an Investment by the Company or any
Subsidiary of the Company in any other person pursuant to which such person
shall become a Subsidiary of the Company, or shall be merged with or into the
Company or any Subsidiary of the Company, (b) the acquisition by the Company or
any
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Subsidiary of the Company of the assets of any person (other than a Subsidiary
of the Company) which constitute all or substantially all of the assets of such
person or (c) the acquisition by the Company or any Subsidiary of the Company of
any division or line of business of any person (other than a Subsidiary of the
Company).
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease or other disposition to any person other than the Company or a
Wholly Owned Subsidiary of the Company, in one or a series of related
transactions, of (a) any Capital Stock of any Subsidiary of the Company (other
than in respect of director's qualifying shares or investments by foreign
nationals mandated by applicable law); (b) all or substantially all of the
properties and assets of any division or line of business of the Company or any
Subsidiary of the Company; or (c) any other properties or assets of the Company
or any Subsidiary of the Company other than in the ordinary course of business.
For the purposes of this definition, the term "Asset Sale" shall not include (i)
any sale, transfer or other disposition of equipment, tools or other assets by
the Company or any of its Subsidiaries in one or a series of related
transactions in respect of which the Company or such Subsidiary receives cash or
property with an aggregate Fair Market Value of $1,000,000 or less (ii) sales of
accounts receivable or interests in accounts receivable of the Company or any
Subsidiaries pursuant to the Receivables Purchase Agreement or the Bank
Receivables Agreement; and (iii) any sale, issuance, conveyance, transfer, lease
or other disposition of properties or assets that is governed by the provisions
described under "-- Merger, Sale of Assets, Etc." above.
"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years (or any fraction thereof) from such
date to the date or dates of each successive scheduled principal payment
(including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Bank Receivables Agreement" means the Receivables Sale Agreement dated as
of July 31, 1995 (the "1995 Bank Receivables Agreement"), among Interface
Securitization Corporation, the Company, certain financial institutions parties
thereto, Trust Company Bank (now SunTrust Bank, Atlanta), as Co-Agent and
Administrative Agent, and The First National Bank of Chicago, as Co-Agent and
Documentation and Collateral Agent, as such agreement, in whole or in part, may
from time to time be amended, renewed, extended, substituted, refinanced,
restructured, replaced, supplemented or otherwise modified, whether with the
same or any other person(s) as purchaser(s), lender(s) or agent(s) (including,
without limitation, any successive renewals, extensions, substitutions,
refinancings, restructurings, replacements, supplements or other modifications
of the foregoing, whether with the same or any other person) provided that the
sales of receivables pursuant to any such Bank Receivables Agreement are on
non-recourse terms not materially less favorable to the Company and its
Subsidiaries as provided for in the 1995 Bank Receivables Agreement and that the
aggregate amount of sales under such Bank Receivables Agreement and the
Receivables Sales Agreement at any one time outstanding shall not exceed a total
of $100,000,000.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations, rights in or other equivalents (however designated)
of such person's capital stock, and any rights (other than debt securities
convertible into capital stock), warrants or options exchangeable for or
convertible into such capital stock.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness
with a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of 180 days or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500,000,000; (iii) certificates of deposit with a
maturity of 180 days or less
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of any financial institution that is not organized under the laws of the United
States, any state thereof or the District of Columbia that are rated at least
A-1 by S&P or at least P-1 by Moody's or at least an equivalent rating category
of another nationally recognized securities rating agency; (iv) repurchase
agreements and reverse repurchase agreements relating to marketable direct
obligations issued or unconditionally guaranteed by the government of the United
States of America or issued by any agency thereof and backed by the full faith
and credit of the United States of America, in each case maturing within 180
days from the date of acquisition; provided that the terms of such agreements
comply with the guidelines set forth in the Federal Financial Agreements of
Depository Institutions With Securities Dealers and Others, as adopted by the
Comptroller of the Currency on October 31, 1985.
"Change of Control" means the occurrence of any of the following events:
(a) so long as the holders of the Company's Class B common stock are entitled to
elect a majority of the Company's board of directors, the Permitted Holders
shall at any time fail to be the "beneficial owners" (as defined in Rule 13d-3
and 13d-5 under the Exchange Act) of a majority of the issued and outstanding
shares of the Company's Class B common stock; or (b) at any time during which
the holders of the Company's Class B common stock have ceased to be entitled to
elect a majority of the Company's board of directors (i) any "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other
than the Permitted Holders, shall become the "beneficial owner(s)" (as defined
in said Rule 13d-3) of more than 35% of the total Voting Stock of the Company,
provided, however, that the Permitted Holders (A) "beneficially own" (as so
defined) a lower percentage of the Voting Stock than such other person or
"group" and (B) do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors of the Company, or (ii) the Company consolidates with, or merges with
or into, another person or sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any person, or
any person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any such transaction where (A) the outstanding Voting Stock of the
Company is converted into or exchanged for (1) Voting Stock (other than
Redeemable Capital Stock) of the surviving or transferee corporation or (2)
cash, securities and other property in an amount which could then be paid by the
Company as a Restricted Payment under the Indenture, or a combination thereof,
and (B) immediately after such transaction no "person" or "group" (as such terms
are used in Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted
Holders, is the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time, upon
the happening of an event or otherwise), directly or indirectly, of more than
50% of the total Voting Stock of the surviving or transferee corporation; (c) at
any time during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved by
a vote of 66 2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office; or (d) the
Company is liquidated or dissolved or adopts a plan of liquidation.
"Class B Shareholders' Agreement" shall mean that certain Voting Agreement
for Interface, Inc. Class B Common Stock Shareholders dated as of April 13,
1993, by and among Ray C. Anderson and approximately 38 other holders of Class B
common stock of Interface, pursuant to which Ray C. Anderson is entitled to
direct the voting of the shares of Class B common stock subject thereto.
"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Consolidated Cash Flow Available for Fixed Charges" means, with respect to
any person for any period, the sum of, without duplication, the amounts for such
period, taken as a single accounting period, of
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(a) Consolidated Net Income, (b) Consolidated Non-cash Charges, (c) Consolidated
Interest Expense, (d) Consolidated Income Tax Expense and (e) one third of
Consolidated Rental Payments less any non-cash items increasing Consolidated Net
Income for such period.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
person, the ratio of the aggregate amount of Consolidated Cash Flow Available
for Fixed Charges of such person for the four full fiscal quarters immediately
preceding the date of the transaction (the "Transaction Date") giving rise to
the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four
full fiscal quarter period being referred to herein as the "Four Quarter
Period") to the aggregate amount of Consolidated Fixed Charges of such person
for the Four Quarter Period. In addition to and without limitation of the
foregoing, for purposes of this definition, "Consolidated Cash Flow Available
for Fixed Charges" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to,
without duplication, (a) the incurrence of any Indebtedness of such person or
any of its Subsidiaries (and the application of the net proceeds thereof) during
the period commencing on the first day of the Four Quarter Period to and
including the Transaction Date (the "Reference Period"), including, without
limitation, the incurrence of the Indebtedness giving rise to the need to make
such calculation (and the application of the net proceeds thereof), as if such
incurrence (and application) occurred on the first day of the Reference Period,
and (b) any Asset Sales or Asset Acquisitions (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation as a
result of such person or one of its Subsidiaries (including any person who
becomes a Subsidiary as a result of the Asset Acquisition) incurring, assuming
or otherwise being liable for Acquired Indebtedness) occurring during the
Reference Period, as if such Asset Sale or Asset Acquisition occurred on the
first day of the Reference Period. Furthermore, 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
outstanding Indebtedness determined on a fluctuating basis as of the Transaction
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
Indebtedness in effect on the Transaction Date; and (ii) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
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 Transaction Date will be deemed to have been in effect during the
Reference Period. If such person or any of its Subsidiaries directly or
indirectly guarantees Indebtedness of a third person, the above clause shall
give effect to the incurrence of such guaranteed Indebtedness as if such person
or such Subsidiary had directly incurred or otherwise assumed such guaranteed
Indebtedness.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense, (ii) the product of (a) the aggregate amount of
dividends and other distributions paid or accrued during such period in respect
of Preferred Stock and Redeemable Capital Stock of such person and its
Subsidiaries on a consolidated basis and (b) a fraction, the numerator of which
is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such person, expressed as a
decimal and (iii) one-third of Consolidated Rental Payments.
"Consolidated Income Tax Expense" means, with respect to any person for any
period, the provision for federal, state, local and foreign income taxes of such
person and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of (i) the interest expense of such person
and its Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP, including, without limitation, (a) any amortization of
debt discount, (b) the net cost under Interest Rate Protection Obligations, (c)
the interest portion of any deferred payment obligation, (d) all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and (e) all accrued interest and (ii) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by such person and its Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
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"Consolidated Net Income" means, with respect to any person, for any
period, the consolidated net income (or loss) of such person and its
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses, (ii) the portion of net
income (but not losses) of such person and its Subsidiaries allocable to
minority interests in unconsolidated persons to the extent that cash dividends
or distributions have not actually been received by such person or one of its
Subsidiaries, (iii) net income (or loss) of any person combined with such person
or one of its Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of combination, (iv) any gain or loss realized upon the
termination of any employee pension benefit plan, on an after-tax basis, (v)
gains or losses in respect of any Asset Sales by such person or one of its
Subsidiaries and (vi) the net income of any Subsidiary of such person to the
extent that the declaration of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary or its stockholders.
"Consolidated Net Worth" means, with respect to any person at any date, the
consolidated stockholders' equity of such person less the amount of such
stockholders' equity attributable to Redeemable Capital Stock of such person and
its Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-cash Charges" means, with respect to any person for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such person and its Subsidiaries reducing Consolidated Net Income of such person
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which required an accrual of or a reserve for
cash charges for any future period).
"Consolidated Rental Payments" of any person means, for any period, the
aggregate rental obligations of such person and its consolidated Subsidiaries
(not including taxes, insurance, maintenance and similar expenses that the
lessee is obligated to pay under the terms of the relevant leases), determined
on a consolidated basis in accordance with GAAP, payable in respect of such
period (net of income from subleases thereof, not including taxes, insurance,
maintenance and similar expenses that the sublessee is obligated to pay under
the terms of such sublease), whether or not such obligations are reflected as
liabilities or commitments on a consolidated balance sheet of such person and
its Subsidiaries or in the notes thereto, excluding, however, in any event, (i)
that portion of Consolidated Interest Expense of such person representing
payments by such person or any of its consolidated Subsidiaries in respect of
Capitalized Lease Obligations (net of payments to such person or any of its
consolidated Subsidiaries under subleases qualifying as capitalized lease
subleases to the extent that such payments would be deducted in determining
Consolidated Interest Expense) and (ii) the aggregate amount of amortization of
obligations of such person and its consolidated Subsidiaries in respect of such
Capitalized Lease Obligations for such period (net of payments to such person or
any of its consolidated Subsidiaries and subleases qualifying as capitalized
lease subleases to the extent that such payments could be deducted in
determining such amortization amount).
"Consolidated Tangible Assets" means the sum of the Tangible Assets of the
Company and its Subsidiaries after eliminating inter-company items, all
determined in accordance with GAAP, including appropriate deductions for
minority interest in Net Tangible Assets of such Subsidiaries.
"Credit Agreements" means, collectively, (i) the Amended and Restated
Credit Agreement dated as of June 30, 1995, among the Company, certain
Subsidiaries of the Company, the banks and other lending institution parties
thereto, Trust Company Bank (now SunTrust Bank, Atlanta), as Co-Agent and
Collateral Agent, and The First National Bank of Chicago, as Co-Agent, as
amended by the First Amendment to Amended and Restated Credit Agreement dated as
of July 31, 1995, and (ii) the Letter of Credit Agreement dated as of January 9,
1995, among the Company, certain Subsidiaries of the Company, the banks and
other lending institutions parties thereto, and Trust Company Bank (now SunTrust
Bank, Atlanta), as Domestic Agent and Collateral Agent, as amended by the Master
Amendment to Credit Documents dated as of June 30, 1995, in each case as such
agreement, in whole or in part, may from time to time be amended, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented or
otherwise modified (including, without limitation, any successive renewals,
extensions, substitutions, refinancings, restructurings,
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replacements, supplementations or other modifications of the foregoing), and
whether with the present lenders or any other lenders.
"Currency Agreement" means, with respect to any person, any foreign
exchange contract, currency swap agreement or other similar agreement or
arrangement designed to protect such person or any of its Subsidiaries against
fluctuations in currency values.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under
the Credit Agreements and (ii) any other Senior Indebtedness which (a) at the
time of the determination exceeds $25,000,000 in aggregate principal amount and
(b) is specifically designated in the instrument evidencing such Senior
Indebtedness as "Designated Senior Indebtedness" by the Company.
"Event of Default" has the meaning set forth under "Events of Default"
herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, with respect to any assets, the price, as
determined by the Board of Directors of the Company, acting in good faith which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under pressure
or compulsion to complete the transaction; provided, however, that, with respect
to any transaction which involves an asset or assets in excess of $5,000,000,
such determination shall be evidenced by a certificate of an officer of the
Company delivered to the Trustee.
"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 may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable from time to
time and are consistently applied.
"Guarantee" means each guarantee of the Notes by each Guarantor.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantor" means (i) each of Guilford (Delaware), Inc., Guilford of Maine,
Inc., Interface Asia-Pacific, Inc., Interface Europe, Inc., Interface Flooring
Systems, Inc., Interface Research Corporation, Pandel, Inc., Rockland
React-Rite, Inc., Bentley Mills, Inc., Prince Street Technologies, Ltd. and each
other Material U.S. Subsidiary and (ii) each person who delivers a Guarantee
pursuant to the covenant described under "-- Certain Covenants -- Limitations on
Guarantees by Subsidiaries" above and shall include any successor replacing it
pursuant to the Indenture, and thereafter means such successor.
"Guarantor Senior Indebtedness" means the principal of, premium, if any,
and interest on any Indebtedness of a Guarantor, whether outstanding on the
Issue Date or thereafter created, incurred or assumed, and whether at any time
owing, actually or contingently, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Guarantee of such Guarantor. Without
limiting the generality of the foregoing, "Guarantor Senior Indebtedness" shall
include the principal of, premium, if any, and interest (including interest
accruing after the filing of a petition initiating any proceeding under any
state, federal or foreign bankruptcy or insolvency laws, whether or not
allowable as a claim in such proceeding) and shall also include reimbursement
payments, fees, expenses, indemnities, gross-up payments, and other obligations
of every nature from time to time owing, actually or
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contingently by the Guarantor in respect of any such amounts owing by the
Company or any of its Subsidiaries under the Credit Agreements, the Receivables
Purchase Agreement, the Bank Receivables Agreement, the Guilford Equipment
Lease, Interest Rate Protection Agreements, Currency Agreements or other
extensions of credit to the Company or any of its Subsidiaries from banks or
other lending institutions. Notwithstanding the foregoing, "Guarantor Senior
Indebtedness" shall not include (a) Indebtedness evidenced by the Guarantee of
such Guarantor, (b) Indebtedness that is expressly subordinate or junior in
right of payment to any Indebtedness of such Guarantor, (c) Indebtedness which,
when incurred and without respect to any election under Section 1111(b) of Title
11, United States Code, is without recourse to such Guarantor, (d) Indebtedness
which is represented by Redeemable Capital Stock, (e) Indebtedness for goods,
materials or services purchased in the ordinary course of business or
Indebtedness consisting of trade payables or other current liabilities (other
than Indebtedness in respect of any services rendered by or purchased from, or
current liabilities owing to, banks or financial institutions, or the current
portion of any long-term Indebtedness which would constitute Guarantor Senior
Indebtedness but for the operation of this clause (e)), (f) Indebtedness of or
amounts owed by such Guarantor for compensation to employees or for services
rendered to such Guarantor, (g) any liability for foreign, federal, state, local
or other taxes owed or owing by such Guarantor, (h) Indebtedness of such
Guarantor to a Subsidiary of such Guarantor or any other Affiliate of such
Guarantor (other than the Company) or any of such Affiliate's Subsidiaries, (i)
Indebtedness evidenced by any guarantee of any Subordinated Indebtedness, (j)
that portion of any Indebtedness which, at the time of the incurrence, is
incurred by such Guarantor in violation of this Indenture and (k) amounts owing
under leases (other than Capitalized Lease Obligations and the Guilford
Equipment Lease).
"Guilford Equipment Lease" means the Master Equipment Lease Agreement dated
as of June 30, 1995, between Fleet Credit Corporation and Guilford of Maine,
Inc., relating to the leasing of various textile manufacturing equipment in
aggregate amount (acquisition costs) of not more than $19,000,000, as such
agreement, in whole or in part, may from time to time be amended, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented or
otherwise modified, whether with the same or any other person(s) as lessor(s) or
lender(s) (including, without limitation, any successive renewals, extensions,
substitutions, refinancings, restructurings, replacements, supplements or other
modifications of the foregoing).
"Indebtedness" means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business and which are
not overdue by more than 90 days, but including, without limitation, all
obligations, contingent or otherwise, of such person in connection with any
letters of credit, banker's acceptance or other similar credit transaction, (b)
all obligations of such person evidenced by bonds, notes, debentures or other
similar instruments, (c) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade accounts payable arising in the ordinary
course of business, (d) all obligations of such person arising under Capitalized
Lease Obligations (including those arising under the Guilford Equipment Lease),
(e) all Indebtedness referred to in the preceding clauses of other persons and
all dividends of other persons, the payment of which is secured by (or for which
the holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon property (including, without limitation,
accounts and contract rights) owned by such person, even though such person has
not assumed or become liable for the payment of such Indebtedness (the amount of
such obligation being deemed to be the lesser of the value of such property or
asset or the amount of the obligation so secured), (f) all guarantees of
Indebtedness referred to in this definition by such person, (g) all Redeemable
Capital Stock of such person valued at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued dividends, (h) all
obligations under or in respect of Currency Agreements and Interest Rate
Protection Obligations of such person, and (i) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (a) through (h) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to this Indenture, and if such price is based upon, or
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measured by, the fair market value of such Redeemable Capital Stock, such fair
market value shall be determined in good faith by the board of directors of the
issuer of such Redeemable Capital Stock.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Interest Rate Protection Agreement" means, with respect to the Company or
any of its Subsidiaries, any arrangement with any other person whereby, directly
or indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include without limitation, interest rate swaps, caps,
floors, collars and similar agreements.
"Interest Rate Protection Obligations" means the obligations of any person
pursuant to an Interest Rate Protection Agreement.
"Investment" means, with respect to any person, any direct or indirect loan
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such person of any Capital Stock, bonds, notes, debentures or other securities
or evidences of Indebtedness issued by, any other person. In addition, the Fair
Market Value of the assets of any Subsidiary of the Company at the time that
such Subsidiary is designated as an Unrestricted Subsidiary shall be deemed to
be an Investment made by the Company in such Unrestricted Subsidiary at such
time. "Investments" shall exclude extensions of trade credit by the Company and
its Subsidiaries in the ordinary course of business in accordance with normal
trade practices of the Company or such Subsidiary, as the case may be.
"Investments" does not include payments made as the purchase consideration in an
Asset Acquisition.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, or preference
or priority or other encumbrance upon or with respect to any property of any
kind. A person shall be deemed to own subject to a Lien any property which such
person has acquired or holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title retention
agreement.
"Material Subsidiary" means each Subsidiary, now existing or hereinafter
established or acquired, that has or acquires total assets in excess of
$10,000,000, or that holds any fixed assets material to the operations or
business of another Material Subsidiary.
"Material U.S. Subsidiary" means each Material Subsidiary of the Company
that is incorporated in the United States or any State thereof.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Subsidiary of the Company) net of (i)
brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid to any person (other than the
Company or any Subsidiary of the Company) owning a beneficial interest in the
assets subject to the Asset Sale and (iv) appropriate amounts to be provided by
the Company or any Subsidiary of the Company, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Company or any Subsidiary of the Company, as the
case may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee.
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"Pari Passu Indebtedness" means Indebtedness of the Company or any
Guarantor which ranks pari passu in right of payment with the Notes or the
Guarantee or such Guarantor, as the case may be.
"Permitted Holder" means (i) for so long as Ray C. Anderson shall be living
and is performing the duties of chairman and chief executive officer of
Interface, Ray C. Anderson and each other party to the Class B Shareholders'
Agreement, David Milton, Daniel T. Hendrix, Charles R. Eitel, Brian L. DeMoura,
and David W. Porter, and (ii) at all times thereafter, the individuals listed on
Schedule 10.11 to the Amended and Restated Credit Agreement dated June 30, 1995;
provided that in the case of each individual referred to in the preceding
clauses (i) and (ii), for the purposes of this definition the reference to such
individual shall be deemed to include the members of such individual's immediate
family, such individual's estate, and any trusts established by such individual
(whether inter vivos or testamentary) for the benefit of members of such
individual's immediate family.
"Permitted Investments" means any of the following: (i) Investments in any
Subsidiary of the Company (including any person that pursuant to such Investment
becomes a Subsidiary of the Company) and in any person that is merged or
consolidated with or into, or transfers or conveys all or substantially all of
its assets to, the Company or any Subsidiary of the Company at the time such
Investment is made; (ii) Investments in Cash Equivalents; (iii) Investments in
deposits with respect to leases or utilities provided to third parties in the
ordinary course of business; (iv) Investments in the Notes; (v) Investments in
Currency Agreements on commercially reasonable terms entered into by the Company
or any of its Subsidiaries in the ordinary course of business in connection with
the operations of the business of the Company or its Subsidiaries to hedge
against fluctuations in foreign exchange rates; (vi) loans or advances to
officers, employees or consultants of the Company and its Subsidiaries in the
ordinary course of business for bona fide business purposes of the Company and
its Subsidiaries (including travel and moving expenses) not in excess of
$1,000,000 in the aggregate at any one time outstanding; (vii) Investments in
evidences of Indebtedness, securities or other property received from another
person by the Company or any of its Subsidiaries in connection with any
bankruptcy proceeding or by reason of a composition or readjustment of debt or a
reorganization of such person or as a result of foreclosure, perfection or
enforcement of any Lien in exchange for evidences of Indebtedness, securities or
other property of such person held by the Company or any of its Subsidiaries, or
for other liabilities or obligations of such other person to the Company or any
of its Subsidiaries that were created, in accordance with the terms of the
Indenture; (viii) Investments in Interest Rate Protection Agreements on
commercially reasonable terms entered into by the Company or any of its
Subsidiaries in the ordinary course of business in connection with the
operations of the business of the Company or its Subsidiaries to hedge against
fluctuations in interest rates; and (ix) Investments, in addition to those
described in clauses (i) through (viii) above, in an aggregate amount at any
time outstanding not to exceed 15% of the Company's Consolidated Net Worth.
"Permitted Liens" means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or any of its Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP;
(b) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(c) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, governmental
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(d) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such
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judgment shall not have been finally terminated or the period within which
such proceedings may be initiated shall not have expired;
(e) Easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Subsidiaries;
(f) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease;
(g) purchase money Liens to finance the acquisition or construction of
property or assets of the Company or any Subsidiary of the Company acquired
in the ordinary course of business; provided, however, that (i) the related
purchase money Indebtedness shall not be secured by any property or assets
of the Company or any Subsidiary of the Company other than the property and
assets so acquired or constructed and (ii) the Lien securing such
Indebtedness either (x) exists at the time of such acquisition or
construction or (y) shall be created within 90 days of such acquisition or
construction;
(h) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(i) Liens on any property securing the obligations of the Company or
any Subsidiary in respect of letters of credit issued by the lenders under
the Credit Agreements and as permitted under the Credit Agreements in
support of industrial development revenue bonds;
(j) Liens, if any, that may be deemed to have been granted in
connection with accounts receivable or interests in accounts receivable of
the Company or any Subsidiary as a result of the assignment thereof
pursuant to the Receivables Purchase Agreement or the Bank Receivables
Agreement;
(k) Liens, if any, arising under the Guilford Equipment Lease; and
(l) Liens, in addition to those described in clauses (a) through (k)
above, securing Indebtedness in an amount not to exceed 10% of the
Consolidated Tangible Assets of the Company.
"person" means any individual, corporation, limited liability company
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock whether now outstanding or issued after
the date of the Indenture, and includes, without limitation, all classes and
series of preferred or preference stock.
"Receivables Purchase Agreement" means the Receivables Purchase Agreement
dated as of July 31, 1995 (the "1995 Receivables Purchase Agreement") among the
Company, Interface Securitization Corporation, Special Purpose Accounts
Receivables Cooperative Corporation, and Canadian Imperial Bank of Commerce as
servicing agent, as such agreement, in whole or in part, may from time to time
be amended, renewed, extended, substituted, refinanced, restructured, replaced,
supplemented or otherwise modified, whether with the same or any other person(s)
as purchaser(s), lender(s) or agent(s) (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplements or other modifications of the foregoing) provided that
the sales of receivables pursuant to any such Receivables Purchase Agreement are
on non-recourse terms not materially less favorable to the Company and its
Subsidiaries as provided for in the 1995 Receivables Purchase Agreement and that
the aggregate amount of sales under such Receivables Sales Agreement and the
Bank Receivables Agreement at any one time outstanding shall not exceed a total
of $100,000,000.
"Redeemable Capital Stock" means any shares of any class or series of
Capital Stock, that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be, required to be
redeemed prior to the Stated Maturity with respect to the principal of any Note
or is redeemable at the option of the holder thereof at any time prior to any
such Stated Maturity, or is convertible into or exchangeable for debt securities
at any time prior to any such Stated Maturity.
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<PAGE> 82
"Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, and whether at any time owing, actually
or contingently, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the Notes. Without limiting the generality of the foregoing,
"Senior Indebtedness" shall include the principal of, premium, if any, and
interest (including interest accruing after the filing of a petition initiating
any proceeding under any state, federal or foreign bankruptcy or insolvency
laws, whether or not allowable as a claim in such proceeding) and shall also
include reimbursement payments, fees, expenses, indemnities, gross-up payments,
and other obligations of every nature from time to time owing, actually or
contingently by the Company in respect of any such amounts owing by the Company
or any of its Subsidiaries under the Credit Agreements, the Receivables Purchase
Agreement, the Bank Receivables Agreement, the Guilford Equipment Lease,
Interest Rate Protection Agreements, Currency Agreements or other extensions of
credit to the Company or any of its Subsidiaries from banks or other lending
institutions. Notwithstanding the foregoing, "Senior Indebtedness" shall not
include (a) Indebtedness evidenced by the Notes, (b) Indebtedness that is
expressly subordinate or junior in right of payment to any Indebtedness of the
Company, (c) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company, (d) Indebtedness which is represented by Redeemable
Capital Stock, (e) Indebtedness for goods, materials or services purchased in
the ordinary course of business or Indebtedness consisting of trade payables or
other current liabilities (other than Indebtedness in respect of any services
rendered by or purchased from, or current liabilities owing to, banks or
financial institutions or the current portion of any long-term Indebtedness
which would constitute Senior Indebtedness but for the operation of this clause
(e)), (f) Indebtedness of or amounts owed by the Company for compensation to
employees or for services rendered to the Company, (g) any liability for
foreign, federal, state, local or other taxes owed or owing by the Company, (h)
Indebtedness of the Company to a Subsidiary of the Company or any other
Affiliate of the Company or any of such Affiliate's Subsidiaries, (i) that
portion of any Indebtedness which, at the time of the incurrence, is incurred by
the Company in violation of the Indenture and (j) amounts owing under leases
(other than Capitalized Lease Obligations and the Guilford Equipment Lease).
"Significant Subsidiary" shall have the same meaning as in Rule 1.02(v) of
Regulation S-X under the Securities Act.
"S&P" means Standard & Poor's Corporation, and its successors.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable, and when used with respect to any other Indebtedness, means the
date specified in the instrument governing such Indebtedness as the fixed date
on which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor which is expressly subordinated in right of payment to the Notes or
the Guarantee of such Guarantor, as the case may be.
"Subsidiary" means, with respect to any person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such person, by one or more Subsidiaries of such person or by such person and
one or more Subsidiaries thereof and (ii) any other person (other than a
corporation), including, without limitation, a joint venture, in which such
person, one or more Subsidiaries thereof or such person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, has at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other person performing
similar functions). For purposes of this definition, any directors' qualifying
shares or investments by foreign nationals mandated by applicable law shall be
disregarded in determining the ownership of a Subsidiary. Notwithstanding the
foregoing, an Unrestricted Subsidiary shall not be deemed a Subsidiary of the
Company under the Indenture, other than for purposes of the definition of an
Unrestricted Subsidiary, unless the Company shall have designated an
Unrestricted Subsidiary as a "Subsidiary" by written notice to the Trustee under
the Indenture, accompanied by an Officers' Certificate as to compliance with the
80
<PAGE> 83
Indenture; provided, however, that the Company shall not be permitted to
designate any Unrestricted Subsidiary as a Subsidiary unless, after giving pro
forma effect to such designation, (i) the Company would be permitted to incur
$1.00 of additional Indebtedness under the proviso in the first paragraph of the
covenant described under "-- Certain Covenants -- Limitation on Indebtedness"
above (assuming a market rate of interest with respect to such Indebtedness) and
(ii) all Indebtedness and Liens of such Unrestricted Subsidiary would be
permitted to be incurred by a Subsidiary of the Company under the Indenture. A
designation of an Unrestricted Subsidiary as a Subsidiary may not thereafter be
rescinded.
"Tangible Assets" means, at any date, the gross book value, as shown by the
accounting books and records of the Company and its Subsidiaries, of all the
property both real and personal of the Company and its Subsidiaries, less (i)
the net book value of all licenses, patents, patent applications, copyrights,
trademarks, trade names, goodwill, noncompete agreements or organizational
expenses and other like intangibles, (ii) unamortized debt discount expense,
(iii) all reserves for depreciation, obsolescence, depletion and amortization of
properties and (iv) all other proper reserves which in accordance with GAAP
should be provided in connection with the business conducted by the Company.
"Unrestricted Subsidiary" means a Subsidiary of the Company other than a
Guarantor (i) none of whose properties or assets were owned by the Company or
any of its Subsidiaries prior to the Issue Date, other than any such assets as
are transferred to such Unrestricted Subsidiary in accordance with the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments"
above, (ii) whose properties and assets, to the extent that they secure
Indebtedness, secure only Non-Recourse Indebtedness and (iii) which has no
Indebtedness other than Non-Recourse Indebtedness. As used above, "Non-Recourse
Indebtedness" means Indebtedness as to which (i) neither the Company nor any of
its Subsidiaries (other than the relevant Unrestricted Subsidiary or another
Unrestricted Subsidiary) (1) provides credit support (including any undertaking,
agreement or instrument which would constitute Indebtedness), (2) guarantees or
is otherwise directly or indirectly liable or (3) constitutes the lender (in
each case, other than pursuant to and in compliance with the covenant described
under "-- Certain Covenants -- Limitation on Restricted Payments") and (ii) no
default with respect to such Indebtedness (including any rights which the
holders thereof may have to take enforcement action against the relevant
Unrestricted Subsidiary or its assets) would permit (upon notice, lapse of time
or both) any holder of any other Indebtedness of the Company or its Subsidiaries
(other than Unrestricted Subsidiaries) to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any person (irrespective of whether or not, at the time, Capital
Stock of any other class or classes shall have, or might have, voting power by
reason of the happening of any contingency).
"Wholly Owned Subsidiary" means any Subsidiary of the Company of which 100%
of the outstanding Capital Stock is owned by the Company or by one or more
Wholly Owned Subsidiaries of the Company or by the Company and one or more
Wholly Owned Subsidiaries of the Company. For purposes of this definition, any
directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a
Subsidiary.
81
<PAGE> 84
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
Kilpatrick & Cody, counsel to the Company, has rendered its opinion, which
opinion has been filed as an exhibit to the Registration Statement, that (i)
adopts the following summary of certain U.S. federal income tax consequences of
the acquisition, ownership and disposition of Notes as its opinion with respect
to the material U.S. federal income tax consequences of the Exchange Offer, and
(ii) opines that such discussion describes the material U.S. federal income tax
consequences of the acquisition, ownership and disposition of the Notes. Such
opinion is based upon the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the final, temporary and proposed regulations promulgated
thereunder, and administrative rulings and judicial decisions in effect as of
the date hereof, all of which are subject to change (possibly with retroactive
effect) or different interpretations. The following summary is not binding on
the Internal Revenue Service ("IRS") and there can be no assurance that the IRS
will take a similar view with respect to the tax consequences described below.
No ruling has been or will be requested by the Company from the IRS on any tax
matters relating to the Notes or the Exchange Offer. This discussion is limited
to the material U.S. federal income tax consequences, and it does not purport to
address all of the possible federal income tax consequences or any state, local
or foreign tax consequences, of the acquisition, ownership and disposition of
the Notes, the Exchange Notes or the Exchange Offer. It is limited to investors
who will hold the Notes and the Exchange Notes as capital assets and does not
address the federal income tax consequences that may be relevant to particular
investors in light of their unique circumstances or to certain types of
investors (such as dealers in securities, insurance companies, financial
institutions and tax-exempt entities) who might be subject to special treatment
under federal income tax laws.
As used in the discussion which follows, the term "U.S. Holder" means a
beneficial owner of the Notes or the Exchange Notes that, for United States
federal income tax purposes, is (i) a citizen or resident of the United States,
(ii) a corporation, partnership or other entity created or organized in or under
the laws of the United States or of any political subdivision thereof, or (iii)
an estate or trust the income of which is subject to United States federal
income taxation regardless of its source. The term "Non-U.S. Holder" means a
beneficial owner of the Notes or the Exchange Notes that, for United States
federal income tax purposes, is not a U.S. Holder.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES OR THE
EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS.
TAX CONSEQUENCES TO U.S. HOLDERS
Exchange Offer
The exchange of the Outstanding Notes for Exchange Notes pursuant to the
Exchange Offer will not be treated as an "exchange" because the Exchange Notes
will not be considered to differ materially in kind or extent from the
Outstanding Notes. Rather, the Exchange Notes received by a holder of the
Outstanding Notes will be treated as a continuation of the Outstanding Notes in
the hands of such holder. As a result, there will be no federal income tax
consequences to holders exchanging the Outstanding Notes for the Exchange Notes
pursuant to the Exchange Offer.
Interest
Except as provided below in respect of certain Additional Interest (as
described below), a holder of a Note will be required to report stated interest
on the Note as interest income in accordance with the holder's method of
accounting for tax purposes.
The Treasury Regulations relating to original issue discount ("OID") permit
the accrual of OID to be determined, in the case of a debt instrument with
alternative payment schedules, based upon the payment schedule most likely to
occur, as determined by the issuer of the debt, so long as the timing and
amounts of each payment schedule are known as of the issue date. Under the OID
rules, holders may be required to recognize income prior to receipt of cash.
Under certain circumstances, including failure of the Company to register the
Notes pursuant to an effective registration statement, additional interest (the
"Additional
82
<PAGE> 85
Interest") will accrue on the Notes in the manner described in "Description of
the Exchange Notes -- Registration Rights Agreement; Penalty Interest". The
Company does not intend to treat the possibility of Additional Interest as
affecting the computation of OID or the yield to maturity. If a holder of a Note
becomes entitled to Additional Interest, then, solely for purposes of
determining the accrual of OID, the yield to maturity on the Notes will be
determined by treating the Notes as reissued on the date that it is determined
that such Additional Interest will be required to be paid, for an amount equal
to its adjusted issue price on such date. The foregoing position taken by the
Company will be binding on all holders, unless a holder explicitly discloses
that its determination of the yield to maturity is different from the Company's
determination on a statement attached to the holder's timely filed federal
income tax return for the year that includes the acquisition date of the Notes.
Tax Basis in Outstanding Notes and Exchange Notes
A holder's tax basis in a Note will be the holder's purchase price for the
Note, increased for OID, if any, previously included in income by the holder
with respect to the Notes and not yet paid. If a holder of an Outstanding Note
exchanges the Outstanding Note for an Exchange Note pursuant to the Exchange
Offer, the tax basis of the Exchange Note immediately after such exchange should
equal the holder's tax basis in the Outstanding Note immediately prior to the
Exchange.
Disposition of Outstanding Notes or Exchange Notes
The sale, exchange, redemption or other disposition of a Note will be a
taxable event, except in the case of an exchange pursuant to the Exchange Offer
(see the above discussion), or certain exchanges in which gain or loss is not
recognized under the Code. A holder will recognize gain or loss equal to the
difference between (i) the amount of cash (plus the fair market value of any
property) received upon such sale, exchange, redemption or other taxable
disposition of the Outstanding Note or the Exchange Note (except to the extent
attributable to accrued interest) and (ii) the holder's adjusted tax basis in
such Outstanding Note or Exchange Note. Such gain or loss will be capital gain
or loss, and will be long term if the Note has been held for more than one year
at the time of the sale or other disposition.
Purchasers of Notes at Other than Original Issuance Price
The foregoing does not discuss special rules that may affect the treatment
of purchasers that acquire Notes other than at par, including those provisions
of the Internal Revenue Code relating to the treatment of "market discount",
"bond premium" and "amortizable bond premium". Any such purchaser should consult
its tax advisor as to the consequences to it of the acquisition, ownership, and
disposition of Notes.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
In the case of a Non-U.S. Holder, such Non-U.S. Holder will not be subject
to U.S. federal income tax, including U.S. withholding tax, on interest paid or
OID (if any) on the Notes under the "portfolio interest" exception, provided
that (i) the Non-U.S. Holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of the Company
entitled to vote, (ii) the Non-U.S. Holder is not (a) a bank receiving interest
or OID pursuant to a loan agreement entered into in the ordinary course of its
trade or business or (b) a controlled foreign corporation that is related to the
Company through stock ownership, (iii) such interest or OID is not effectively
connected with a United States trade or business, and (iv) either (a) the
beneficial owner of the Notes certifies to the Company or its agent, under
penalties of perjury, that the beneficial owner is a foreign person and provides
a completed IRS Form W-8 ("Certificate of Foreign Status") or (b) a securities
clearing organization, bank or other financial institution which holds
customers' securities in the ordinary course of its trade or business (a
"financial institution") and holds the Notes, certifies to the Company or its
agency, under penalties of perjury, that it has received Form W-8 from the
beneficial owner or that it has received from another financial institution a
Form W-8 and furnishes the payor with a copy thereof. If any of the situations
described in proviso (i), (ii) or (iv) of the preceding sentence do not exist,
then, except as described below for effectively connected income, interest paid
and OID, if any, on the Notes would be subject to U.S. withholding tax at a 30%
rate (or lower tax treaty rate as
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<PAGE> 86
evidenced by an IRS Form 1001 (Ownership Exemption or Reduced Rate
Certificate)). If the income on the Notes is effectively connected with a
Non-U.S. Holder's conduct of a trade or business within the United States, then,
absent tax treaty protection, the Non-U.S. Holder will be subject to U.S.
federal income tax on such income in essentially the same manner as a United
States person and, in the case of a foreign corporation, may also be subject to
the U.S. branch profits tax.
BACKUP WITHHOLDING
Unless a holder provides its correct taxpayer identification number
(employer identification number or social security number) to the Company and
certifies that such number is correct, under the federal income tax backup
withholding rules, 31% of (i) the interest paid on the Notes, and (ii) proceeds
of sale of the Notes, must be withheld and remitted to the United States
Treasury. However, certain holders (including, among others, certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. For a foreign individual to qualify as an exempt foreign
recipient, that holder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt foreign status.
Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained from the IRS.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Outstanding Notes
may be offered for resale, resold and otherwise transferred by holders thereof
(other than any holder which is (i) an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who acquired
Notes directly from the Company or (iii) broker-dealers who acquired Notes as a
result of market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Exchange Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Exchange Notes; provided that broker-dealers
("Participating Broker-Dealers") receiving Exchange Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resales of
such Exchange Notes. To date, the staff of the Commission has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the Exchange Offer (other than a resale of an
unsold allotment from the sale of the Outstanding Notes to the Initial
Purchasers) with the Prospectus contained in the Exchange Offer Registration
Statement. Pursuant to the Registration Rights Agreement, the Company has agreed
to permit Participating Broker-Dealers and other persons, if any, subject to
similar prospectus delivery requirements to use this Prospectus in connection
with the resale of such Exchange Notes. The Company and the Guarantors have
agreed that, for a period of 180 days after the Expiration Date, they will make
this Prospectus, and any amendment or supplement to this Prospectus, available
to any broker-dealer that requests such documents in the Letter of Transmittal.
Each holder of Outstanding Notes who wishes to exchange its Outstanding
Notes for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer -- Terms and
Conditions of the Letter of Transmittal". In addition, each holder who is a
broker-dealer and who receives Exchange Notes for its own account in exchange
for Outstanding Notes that were acquired by it as a result of market-making
activities or other trading activities, will be required to acknowledge that it
will deliver a prospectus in connection with any resale by it of such Exchange
Notes.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market
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<PAGE> 87
prices prevailing at the time of resale, at prices related to such prevailing
market prices or at negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Notes. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Outstanding Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act, as
set forth in the Registration Rights Agreement.
LEGAL MATTERS
Certain legal matters regarding the validity of the Exchange Notes offered
hereby will be passed upon for the Company by Kilpatrick & Cody, Atlanta,
Georgia. As of October 1, 1995, attorneys at Kilpatrick & Cody who worked on the
preparation of this Prospectus beneficially owned in the aggregate 5,000 shares
of the Company's outstanding Class A and Class B Common Stock.
EXPERTS
The Consolidated Financial Statements of the Company and its subsidiaries
included in this Prospectus have been audited by BDO Seidman, LLP, independent
certified public accountants, to the extent and for the periods set forth in
their report appearing elsewhere in this Prospectus, and have been so included
in reliance upon such report given upon the authority of said firm as experts in
accounting and auditing.
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<PAGE> 88
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.................................... F-2
Consolidated Statements of Income -- years ended January 1, 1995, January 2, 1994 and
January 3, 1993..................................................................... F-3
Consolidated Balance Sheets -- January 1, 1995 and January 2, 1994.................... F-4
Consolidated Statements of Cash Flows -- years ended January 1, 1995, January 2, 1994
and
January 3, 1993..................................................................... F-5
Notes to Consolidated Financial Statements............................................ F-6
Condensed Consolidated Statements of Income -- nine months ended October 1, 1995 and
October 2, 1994 (unaudited)......................................................... F-28
Condensed Consolidated Balance Sheets -- October 1, 1995 (unaudited) and January 1,
1995................................................................................ F-29
Condensed Consolidated Statements of Cash Flows -- nine months ended October 1, 1995
and October 2, 1994 (unaudited)..................................................... F-30
Notes to Condensed Consolidated Financial Statements (unaudited)...................... F-31
</TABLE>
F-1
<PAGE> 89
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of Interface, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of Interface,
Inc. and subsidiaries as of January 1, 1995 and January 2, 1994, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended January 1, 1995. The 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 Interface, Inc.
and its subsidiaries as of January 1, 1995 and January 2, 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 1, 1995, in conformity with generally
accepted accounting principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 22, 1995 (except for Note 17, which is
as of October 27, 1995)
F-2
<PAGE> 90
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
NET SALES...................................................... $ 725,283 $ 625,067 $ 594,078
COST OF SALES.................................................. 504,098 427,321 404,130
-------- -------- --------
Gross profit on sales................................ 221,185 197,746 189,948
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES.................. 170,375 151,576 149,509
-------- -------- --------
Operating income..................................... 50,810 46,170 40,439
-------- -------- --------
OTHER EXPENSE:
Interest expense............................................. 24,094 22,840 21,894
Other (income)............................................... 1,003 2,026 (16)
-------- -------- --------
Total other expense.................................. 25,097 24,866 21,878
-------- -------- --------
Net income before taxes on income.................... 25,713 21,304 18,561
TAXES ON INCOME................................................ 9,257 7,455 6,311
-------- -------- --------
Net income........................................... 16,456 13,849 12,250
PREFERRED STOCK DIVIDENDS...................................... 1,750 913 --
-------- -------- --------
Income applicable to common shareholders............. $ 14,706 $ 12,936 $ 12,250
======== ======== ========
Primary earnings per common share.............................. $ 0.82 $ 0.75 $ 0.71
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 91
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1995 1994
---------- ----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents............................................ $ 4,389 $ 4,674
Escrowed and restricted funds........................................ 2,663 4,015
Accounts receivable.................................................. 133,536 124,170
Inventories.......................................................... 132,650 116,041
Prepaid expenses..................................................... 15,110 15,078
Deferred income taxes................................................ 3,767 2,539
---------- ----------
TOTAL CURRENT ASSETS......................................... 292,115 266,517
Property and equipment, less accumulated depreciation.................. 152,874 145,125
Miscellaneous.......................................................... 31,895 35,534
Deferred income taxes.................................................. 8,198 5,976
Excess of cost over net assets acquired................................ 202,852 189,167
---------- ----------
$ 687,934 $ 642,319
======== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT
Accounts payable..................................................... $ 59,702 $ 56,043
Accrued expenses..................................................... 56,940 52,744
Current maturities of long term debt................................. 853 17,155
---------- ----------
TOTAL CURRENT LIABILITIES.................................... 117,495 125,942
Long term debt, less current maturities................................ 209,663 187,712
Convertible subordinated debentures.................................... 103,925 103,925
Deferred income taxes.................................................. 17,761 17,856
---------- ----------
TOTAL LIABILITIES............................................ 448,844 435,435
Redeemable preferred stock............................................. 25,000 25,000
Common stock........................................................... 2,179 2,104
Additional paid-in-capital............................................. 93,450 83,989
Retained earnings...................................................... 136,343 125,960
Foreign currency translation adjustment................................ (136) (12,423)
Treasury stock, 3,600,000 Class A shares, at cost...................... (17,746) (17,746)
---------- ----------
$ 687,934 $ 642,319
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 92
INTERFACE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................... $ 16,456 $ 13,849 $ 12,250
Adjustments to reconcile net income to cash provided by
operating activities
Depreciation and amortization............................. 28,180 24,512 22,257
Deferred income taxes..................................... (2,650) (8,465) (9,059)
Other..................................................... -- -- (2,315)
Cash provided by (used for)
Accounts receivable..................................... (2,788) (1,569) 8,324
Inventories............................................. (6,849) 3,147 8,976
Prepaid expenses and other.............................. (1,015) (3,762) (848)
Accounts payable and accrued expenses................... 2,061 12,870 2,111
---------- ---------- ----------
33,395 40,582 41,696
---------- ---------- ----------
INVESTING ACTIVITIES:
Capital expenditures......................................... (21,315) (20,639) (14,476)
Acquisitions of businesses................................... (1,409) (15,209) --
Changes in escrowed and restricted funds..................... 1,352 404 (560)
Other........................................................ (5,030) (7,039) (2,980)
---------- ---------- ----------
(26,402) (42,483) (18,016)
---------- ---------- ----------
FINANCING ACTIVITIES:
Principal payments on long term debt......................... 75,011 (11,500) (12,438)
Net borrowing (repayments) under lines-of-credit............. (75,233) 15,572 (6,171)
Proceeds from issuance of common stock....................... 678 1,898 344
Dividends paid............................................... (6,073) (5,063) (4,142)
Other........................................................ (2,026) -- (1,562)
---------- ---------- ----------
(7,643) 907 (23,969)
---------- ---------- ----------
NET CASH USED FOR OPERATING, INVESTING, AND FINANCING
ACTIVITIES................................................... (650) (994) (289)
Effect of exchange rate changes on cash........................ 365 (156) (404)
---------- ---------- ----------
CASH AND CASH EQUIVALENTS:
Net decrease................................................. (285) (1,150) (693)
Balance, beginning of year................................... 4,674 5,824 6,517
---------- ---------- ----------
Balance, end of year......................................... $ 4,389 $ 4,674 $ 5,824
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 93
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Interface,
Inc. ("the Company") and its subsidiaries. All material intercompany accounts
and transactions are eliminated.
Inventories
Inventories are valued at the lower of cost (standards which approximate
actual cost on a first-in, first-out basis) or market. Maintenance, operating,
and office supplies are generally not inventoried.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives: buildings
and improvements -- ten to fifty years; furniture and equipment -- three to
twelve years.
Excess of Cost Over Net Assets Acquired
The excess of purchase price over fair value of net assets of acquired
businesses arises in connection with business combinations accounted for as
purchases and is amortized on a straight-line basis generally over forty years.
Accumulated amortization amounted to approximately $27,101,000 and $20,302,000
at January 1, 1995 and January 2, 1994, respectively.
The Company's operational policy for the assessment and measurement of any
impairment in the value of excess of cost over net assets acquired which is
other than temporary is to evaluate the recoverability and remaining life of its
goodwill and determine whether the goodwill should be completely or partially
written off or the amortization period accelerated. The Company will recognize
an impairment of goodwill if undiscounted estimated future operating cash flows
of the acquired business are determined to be less than the carrying amount of
goodwill. If the Company determines that goodwill has been impaired, the
measurement of the impairment will be equal to the excess of the carrying amount
of the goodwill over the amount of the undiscounted estimated operating cash
flows. If an impairment of goodwill were to occur, the Company would reflect the
impairment through a reduction in the carrying value of goodwill.
Taxes on Income
Income taxes are calculated using the liability method specified by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
Earnings Per Common Share and Dividends
Earnings per common share are computed by dividing net income applicable to
common shareholders by the combined weighted average number of shares of Class A
and Class B Common Stock outstanding during each year. The computation does not
include a negligible dilutive effect of common stock options. Neither the
Convertible Debentures nor the Preferred Stock were determined to be common
stock equivalents. In computing primary earnings per share, the preferred stock
dividend reduces income applicable to common shareholders. Primary earnings per
share are based upon 18,012,722 shares, 17,302,000 shares, and 17,253,000 shares
for the years ended January 1, 1995, January 2, 1994, and January 3, 1993,
respectively. For fiscal 1994, 1993, and 1992 fully diluted earnings per common
share were antidilutive. For the purposes of computing earnings per common share
and dividends paid per common share, the Company is treating as treasury stock
(and therefore not outstanding) the shares that are owned by a wholly owned
subsidiary (3,600,000 Class A shares, recorded at cost).
F-6
<PAGE> 94
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Translation of Foreign Currencies
The financial position and results of operations of the Company's foreign
subsidiaries are measured generally using local currencies as the functional
currency. Assets and liabilities of these subsidiaries are translated into U.S.
dollars at the exchange rate in effect at each year end. Income statement items
are translated at the average rate of exchange prevailing during the year. The
resulting translation adjustments are recorded in the foreign currency
translation adjustment account. In the event of a divestiture of a foreign net
investment or an investment being no longer considered long term in nature, the
related foreign currency translation results are reversed from equity to income.
Other foreign currency transaction gains and losses are also included in income.
Exchange gains and losses are not material in amount in any year.
Derivatives
Gains and losses on hedges of existing assets or liabilities are included
in the carrying amounts of those assets or liabilities and are ultimately
recognized in income as part of those carrying amounts. Gains or losses related
to qualifying hedges of firm commitments or anticipated transactions also are
deferred and are recognized in income or as adjustments of carrying amounts when
the hedged transaction occurs.
Fiscal Year
The Company's fiscal year ends on the Sunday nearest December 31. The
fiscal years ended January 1, 1995 and January 2, 1994 comprised 52 weeks, and
the fiscal year ended January 3, 1993 comprised 53 weeks.
NOTE 2 -- BUSINESS ACQUISITIONS
In March 1994, the Company acquired 100% of the outstanding capital stock
of Prince Street Technologies, Ltd. ("Prince Street"), a broadloom carpet
producer located in Atlanta, Georgia. As consideration the Company issued
674,953 shares of Class A common stock valued at approximately $8.9 million. The
transaction was accounted for as a purchase. At the acquisition date, the fair
value of the net liabilities of Prince Street exceeded the fair value of the net
assets by approximately $0.6 million. Accordingly, the excess of the purchase
price ($9.3 million) over the fair value of the net liabilities was
approximately $9.9 million and is being amortized over 40 years. The results of
the operations of Prince Street have been included within the consolidated
financial statements since the acquisition date.
The Company, through a series of stock purchases in June 1993, acquired
100% of the outstanding capital stock of Bentley Mills, Inc. ("Bentley"), a U.S.
company engaged in the manufacturing and distribution of broadloom and modular
carpet, for the aggregate consideration of approximately $34.0 million, which
was comprised of $9.0 million in cash and $25.0 million of newly issued Series A
Cumulative Convertible Preferred Stock. The results of the operations of Bentley
have been included within the consolidated financial statements since the
acquisition date.
In February 1993, the Company acquired the assets of the fabric division of
Stevens Linen Associates, Inc., based in Dudley, Massachusetts, for
approximately $4.9 million.
F-7
<PAGE> 95
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash............................................................. $3,496 $4,045
Cash equivalents................................................. 893 629
---------- ----------
$4,389 $4,674
======= =======
</TABLE>
Cash equivalents, carried at costs which approximate market, consist of
short term, highly liquid investments which are readily convertible into cash
and have initial maturities of three months or less. The Company does not
believe it is exposed to any significant credit risk on cash and cash
equivalents. Under the Company's cash management program, checks in transit are
not considered reductions of cash or accounts payable until presented to the
bank for payment. At January 1, 1995 and January 2, 1994, checks not yet
presented to the bank totaled approximately $6.3 million and $9.7 million,
respectively. In accordance with a Workers' Compensation self-insurance
arrangement in the State of Maine, the Company is required by state law to
maintain a trust account to pay Workers' Compensation claims. At January 1, 1995
and January 2, 1994, the trust account had balances of approximately $2.4
million and $4.0 million, respectively, and was segregated from cash and cash
equivalents and reflected as escrowed and restricted funds. Cash payments for
interest amounted to approximately $24.0 million, $23.4 million, and $21.1
million for the years ended January 1, 1995, January 2, 1994, and January 3,
1993, respectively. Income tax payments amounted to approximately $6.5 million,
$16.3 million, and $8.9 million for the years ended January 1, 1995, January 2,
1994, and January 3, 1993, respectively.
NOTE 4 -- INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Finished goods................................................... $ 74,542 $ 64,497
Work-in-process.................................................. 20,250 20,010
Raw materials.................................................... 37,858 31,534
---------- ----------
$ 132,650 $ 116,041
======== ========
</TABLE>
NOTE 5 -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Land............................................................ $ 8,623 $ 7,917
Buildings....................................................... 71,752 66,182
Equipment....................................................... 200,937 162,985
Construction-in-process......................................... 6,283 4,717
---------- ----------
287,595 241,801
Accumulated depreciation........................................ (134,721) (96,676)
---------- ----------
$ 152,874 $ 145,125
========= ========
</TABLE>
F-8
<PAGE> 96
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Taxes......................................................... $ 17,989 $ 9,846
Compensation.................................................. 12,312 14,209
Interest...................................................... 3,200 3,437
Other......................................................... 23,439 25,252
---------- ----------
$ 56,940 $ 52,744
========= =========
</TABLE>
NOTE 7 -- LONG TERM DEBT
Long term debt consisted of the following:
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 2,
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Secured term loans............................................ $ 50,000 $ 121,500
Revolving credit agreements................................... 156,165 79,260
Other......................................................... 4,351 4,107
---------- ----------
Total long term debt........................................ 210,516 204,867
Less current maturities..................................... (853) (17,155)
---------- ----------
$ 209,663 $ 187,712
========= =========
</TABLE>
During January 1995, the Company entered into an agreement to amend and
restate its revolving credit and term loan facilities. The amendment provides
for, among other things, (i) an increase in the revolving credit facilities from
$125 million to $200 million (including a letter of credit facility of up to $40
million), (ii) a decrease in the secured term loans from approximately $135
million to $50 million, and (iii) a new accounts receivable securitization
facility of up to $100 million. Additionally, the agreement, which originally
was to expire during 1996, has been extended to June 30, 1999 for the revolving
credit facilities and December 31, 2001 for the term loans. The current and
future maturities of long term debt, as disclosed herein, reflect the payment
terms established by the amendment.
The amended and restated revolving credit and secured term loans are
collateralized by substantially all of the outstanding stock of the Company's
operating subsidiaries (except certain foreign subsidiaries, for which only 66%
of the outstanding stock was pledged). The secured term loans are payable in two
equal installments of $25 million at December 29, 2000 and December 31, 2001,
plus accrued interest. Interest is charged, at the Company's option, at a rate
based on either the bank's certificate of deposit rate or LIBOR, plus an
applicable margin of 3/8% to 1 1/4%, depending upon the Company's ability to
meet certain performance criteria; or the bank's prime lending rate (8.5% at
January 1, 1995). The Company is also required to pay a commitment fee of 3/8%
per annum on the unused portion of the revolving credit loans depending upon the
Company's ability to meet certain performance criteria. The agreements require
prepayment from specified excess cash flows or proceeds from certain asset sales
and provide for restrictions which, among other things, require maintenance of
certain financial ratios, restrict encumbrance of assets, limit the payment of
dividends, and prohibit the retirement of its Convertible Subordinated
Debentures. At January 1, 1995, approximately $16.0 million of the Company's
retained earnings were unrestricted and available for payment of dividends under
the most restrictive terms of the agreement.
F-9
<PAGE> 97
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- LONG TERM DEBT -- (CONTINUED)
Future maturities of long term debt based on fixed payments (amounts could
be higher if excess cash flows or asset sales require prepayment of debt under
the credit agreements) are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
-----------------------------------------------------------------------
<S> <C>
1995................................................................. $ 853
1996................................................................. 400
1997................................................................. 400
1998................................................................. 400
1999................................................................. 156,565
Thereafter........................................................... 51,898
--------------
$210,516
--------------
</TABLE>
Additionally, the Company maintains approximately $38 million in revolving
lines of credit through several of its subsidiaries. Interest is generally
charged at the prime lending rate. Approximately $7.7 million was outstanding
under these lines and is included within accounts payable in the consolidated
balance sheets at January 1, 1995 and January 2, 1994, respectively.
NOTE 8 -- CONVERTIBLE SUBORDINATED DEBENTURES
The Company has $103,925,000 aggregate principal amount of Convertible
Subordinated Debentures ("Convertible Debentures") maturing in 2013 which were
sold in a public offering. The Convertible Debentures are unsecured obligations
of the Company and bear interest, payable semi-annually, at 8%. They are
convertible into shares of the Company's Class A Common Stock at a conversion
price of approximately $16.92 per share. The Convertible Debentures are
redeemable, at the option of the Company, at a price of 102.4% during fiscal
1995, and are redeemable at decreasing prices thereafter. Sinking fund payments
starting in 1999 are required to retire 70% of the Convertible Debentures prior
to maturity. Since issuance, no Convertible Debentures have been converted or
redeemed.
NOTE 9 -- REDEEMABLE PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of $1.00 par value
Preferred Stock. In conjunction with the Bentley acquisition, the Company issued
250,000 shares of Series A Cumulative Convertible Preferred Stock with a face
value of $100 per share. The Series A Preferred Stock is entitled to a 7% annual
cumulative cash dividend ($7.00 per preferred share) that is payable quarterly.
Series A Preferred Stock is non-voting, except as required by law or in limited
circumstances to protect its preferential rights. The Series A Preferred Stock
is convertible into shares of the Company's Class A Common Stock at the rate of
one share of Class A Common Stock for each $14.79 face value thereof plus the
amount of any accrued but unpaid dividends. At January 1, 1995, the Series A
Preferred Stock was convertible into 1,720,204 shares of Class A Common Stock.
The Company, at its sole option, may redeem any of the then outstanding
Series A Preferred Stock by paying in cash for each share redeemed the face
value thereof, plus all accrued but unpaid dividends. No such redemption is
permitted before June 1, 1995. Between June 1, 1995 and May 31, 1996, such
redemption is allowable if the market price of Class A Common Stock exceeds
approximately $17.75. No limitations exist as to redemption subsequent to May
31, 1996.
Upon any liquidation, dissolution, or winding up of the Company, record
holders of Series A Preferred Stock are entitled to receive out of the assets of
the Company, an amount in cash equal to the face value per
F-10
<PAGE> 98
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- REDEEMABLE PREFERRED STOCK -- (CONTINUED)
share of outstanding Series A Preferred Stock plus the amount of accrued but
unpaid dividends accumulated thereon, if any, to the date of payment of such
liquidating distribution.
Preferred shareholders have the right to redeem after May 31, 2003, the
then outstanding shares of Series A Preferred Stock at face value plus all
accrued but unpaid dividends. The Company is not required to establish any
sinking or retirement fund with respect to the shares of Series A Preferred
Stock. During the year ended January 1, 1995, the Company paid cash dividends of
approximately $7.00 per preferred share.
NOTE 10 -- COMMON STOCK AND STOCK OPTIONS
The Company is authorized to issue 40,000,000 shares of $.10 par value
Class A Common Stock and 40,000,000 shares of $.10 par value Class B Common
Stock. Class A and Class B Common Stock have identical voting rights except for
the election or removal of directors. Holders of Class B Common Stock are
entitled as a class to elect a majority of the Board of Directors. The Company's
Class A Common Stock is traded in the over-the-counter market under the symbol
IFSIA and is quoted on the NASDAQ National Market System. The Company's Class B
Common Stock and Series A Cumulative Convertible Preferred Stock are not
publicly traded. Class B Common Stock is convertible into Class A Common Stock
on a one-for-one basis. Both classes of Common Stock share in dividends
available to common shareholders and the Series A Preferred Stock carries a 7%
dividend rate (see Note 7 for discussion of restrictions on the payment of
dividends). Cash dividends on Common Stock were $.24 per share for the years
ended January 1, 1995, January 2, 1994, and January 3, 1993.
Changes in common shareholders' equity were:
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------- FOREIGN
CLASS A CLASS B ADDITIONAL CURRENCY
--------------- --------------- PAID-IN RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT
------ ------ ------ ------ ---------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 29, 1991........... 17,355 $1,736 3,466 $346 $ 81,769 $ 109,066 $ 23,805
Net income........................ -- -- -- -- -- 12,250 --
Conversion of common stock........ 172 17 (172) (17)
Issuance of common stock.......... 33 3 -- -- 341 -- --
Cash dividends paid............... -- -- -- -- -- (4,142) --
Foreign currency translation
adjustment...................... -- -- -- -- -- -- (21,080)
------ ------ ------ ------ ---------- --------- -----------
Balance January 3, 1993............. 17,560 1,756 3,294 329 82,110 117,174 2,725
Net income........................ -- -- -- -- -- 13,849 --
Conversion of common stock........ 173 17 (173) (17) -- -- --
Issuance of common stock.......... 185 19 -- -- 1,879 -- --
Cash dividends paid............... -- -- -- -- -- (5,063) --
Foreign currency translation
adjustment...................... -- -- -- -- -- -- (15,148)
------ ------ ------ ------ ---------- --------- -----------
Balance January 2, 1994............. 17,918 1,792 3,121 312 83,989 125,960 (12,423)
Net income........................ -- -- -- -- -- 16,456 --
Conversion of common stock........ 44 4 (44) (4) -- --
Issuance of common stock.......... 753 75 -- -- 9,461 -- --
Cash dividends paid............... -- -- -- -- -- (6,073) --
Foreign currency translation
adjustment...................... -- -- -- -- -- -- 12,287
------ ------ ------ ------ ---------- --------- -----------
Balance January 1, 1995............. 18,715 $1,871 3,077 $308 $ 93,450 $ 136,343 $ (136)
====== ====== ====== ====== ======== ========= =========
</TABLE>
F-11
<PAGE> 99
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- COMMON STOCK AND STOCK OPTIONS -- (CONTINUED)
The Company has Key Employee Stock Option Plans ("the 1983 Plan" and "the
1993 Plan") and an Offshore Stock Option Plan ("Offshore Plan"), under which a
committee of the Board of Directors is authorized to grant key employees,
including officers, options to purchase the Company's Common Stock. Options
granted pursuant to the 1993 Plan are exercisable for shares of Class A or Class
B Common Stock at a price not less than 100% of the fair market value on the
date of grant. The options are generally exercisable 20% per year for five years
from the date of the grant and the options generally expire ten years from the
date of the grant. An aggregate of 1,050,000 shares of Common Stock (Class A or
Class B) have been reserved for issuance under the 1993 Plan. No options are
available to be granted under the 1983 Plan. An aggregate of 830,674 shares of
Class A Common Stock have been reserved for issuance under the 1983 Plan.
Options are granted pursuant to the Offshore Plan to key employees and the
directors of the Company's foreign subsidiaries. These options may be exercised
for shares of Class A or Class B Common Stock as determined by the Compensation
Committee of the Board of Directors. An aggregate of 1,000,000 shares of Common
Stock (Class A or Class B) have been reserved for issuance under this Plan. As
of January 1, 1995, the following stock options were outstanding under these
Plans:
<TABLE>
<CAPTION>
NUMBER
YEAR OF GRANT OF SHARES OPTION PRICE
--------------------------------------------------------- --------- -------------------
<S> <C> <C> <C> <C>
1985.................................................. 30,000 $ 6.50
1987.................................................. 80,000 10.50
1988.................................................. 337,500 $ 9.00 - 16.25
1990.................................................. 15,000 18.63
1991.................................................. 165,000 11.88 - 13.00
1992.................................................. 261,000 11.50 - 13.75
1993.................................................. 297,143 11.00 - 14.75
1994.................................................. 622,500 10.31 - 16.63
---------
1,808,143
========
</TABLE>
During the year ended January 1, 1995, 4,000, 7,500, 20,000, and 46,666
options were exercised at option prices of $12.625, $9.00, $10.50, and $7.50,
respectively. Additionally, approximately 83,000 options were forfeited or
cancelled. At January 1, 1995 and January 2, 1994, respectively, approximately
731,000 and 679,000 options were exercisable at amounts ranging from $6.50 to
$18.63.
The FASB has issued SFAS No. 123 "Accounting for Stock-Based Compensation"
which establishes financial accounting and reporting standards for stock-based
employee compensation plans. This statement was issued by the FASB during
October 1995 and is effective for transactions entered into in fiscal years that
begin after December 15, 1995. The Company has not yet determined the impact of
this statement.
F-12
<PAGE> 100
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- TAXES ON INCOME
Provisions for federal, foreign, and state income taxes in the consolidated
statements of income consisted of the following components:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................... $ 4,878 $ 6,115 $ 4,880
Foreign............................................... 4,660 6,028 3,196
State................................................. 1,713 1,165 1,352
---------- ---------- ----------
11,251 13,308 9,428
---------- ---------- ----------
Deferred (reduction):
Federal............................................... (445) (1,271) (2,606)
Foreign............................................... (674) (4,340) (15)
State................................................. (875) (242) (496)
---------- ---------- ----------
(1,994) (5,853) (3,117)
---------- ---------- ----------
$ 9,257 $ 7,455 $ 6,311
======= ======= =======
</TABLE>
Income before taxes on income consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
U. S. Operations........................................ $ 18,072 $ 17,714 $ 8,793
Foreign Operations...................................... 7,641 3,587 9,768
---------- ---------- ----------
$ 25,713 $ 21,301 $ 18,561
======= ======= =======
</TABLE>
Deferred income taxes for the years ended January 1, 1995, and January 2,
1994, reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
The sources of the temporary differences and their effect on the net
deferred tax liability at January 1, 1995 and January 2, 1994, are as follows:
<TABLE>
<CAPTION>
JANUARY 1, 1995 JANUARY 2, 1994
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Basis difference of property and equipment....... $ -- $17,761 $ -- $17,553
Net operating loss carryforwards................. 12,720 -- 9,135 --
Other differences in bases of assets and
liabilities.................................... 4,252 -- 2,539 303
Valuation allowance.............................. (5,007) -- (3,159) --
------- ----------- ------- -----------
$11,965 $17,761 $ 8,515 $17,856
======= ======= ======= =======
</TABLE>
During the year ended January 1, 1995, the valuation allowance increased
approximately $1.8 million. For the year ended January 2, 1994, the valuation
allowance increased approximately $417,000. At January 1, 1995, the Company had
approximately $30.1 million in net operating losses within foreign subsidiaries
available for carryforward. Of this amount, $21.6 million is available for an
unlimited period while $8.5 million
F-13
<PAGE> 101
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- TAXES ON INCOME -- (CONTINUED)
expires at various times through 1999. Additionally, the Company had
approximately $28.8 million in state net operating losses expiring at various
times through 2009.
The effective tax rate on income before taxes differs from the United
States statutory rate. The following summary reconciles taxes at the United
States statutory rate with the effective rates:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Taxes on income at U.S. statutory rate.................. 35.0% 35.0% 34.0%
Increase (reduction) in taxes resulting from:
State income taxes, net of federal benefit............ 2.2 2.8 3.0
Amortization of excess of cost over net assets
acquired and related purchase accounting
adjustments........................................ 4.5 3.9 2.5
Foreign and U.S. tax effects attributable to foreign
operations......................................... (4.7) (5.2) (4.6)
Other................................................. (1.0) (1.5) (1.0)
----- ----- -----
Taxes on income at effective rates...................... 36.0% 35.0% 33.9%
======= ======= =======
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $58.7 million at January 1, 1995. Those earnings are considered to
be indefinitely reinvested and, accordingly, no provision for United States
federal and state income taxes has been provided thereon. Upon distribution of
those earnings in the form of dividends or otherwise, the Company would be
subject to both United States income taxes (subject to an adjustment for foreign
tax credits) and withholding taxes payable to the various foreign countries.
Determination of the amount of unrecognized deferred United States income tax
liability is not practicable because of the complexities associated with its
hypothetical calculation. Withholding taxes of approximately $2.9 million would
be payable upon remittance of all previously unremitted earnings at January 1,
1995.
NOTE 12 -- HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company employs the use of derivative financial instruments for the
purpose of reducing its exposure to adverse fluctuations in interest and foreign
currency exchange rates. While these hedging instruments are subject to
fluctuations in value, such fluctuations are generally offset by the value of
the underlying exposures being hedged. The Company does not hold or issue
derivative financial instruments for trading purposes. The Company effectively
monitors the use of these derivative financial instruments through the use of
objective measurable systems, well-defined market and credit risk limits, and
timely reports to senior management according to prescribed guidelines. The
Company has established strict counterparty credit guidelines and only enters
into transactions with financial institutions of investment grade or better. As
a result, the Company considers the risk of counterparty default to be minimal.
Interest Rate Management
Management of the Company has developed and implemented a policy to
maintain the percentage of fixed and variable rate debt within certain
parameters. The Company enters into interest rate swap agreements, which
maintain the fixed/variable mix within these defined parameters. In these swaps,
the Company agrees to exchange, at specified intervals, the difference between
fixed and variable interest amounts calculated by reference to an agreed-upon
notional principal linked to LIBOR (London Interbank Offered Rate). Any
differences paid or received on interest rate swap agreements are recognized as
adjustments to interest expense over the life of each swap, thereby adjusting
the effective interest rate on the underlying obligation.
F-14
<PAGE> 102
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL
INSTRUMENTS -- (CONTINUED)
Foreign Currency Exchange Rate Management
The purpose of the Company's foreign currency hedging activities is to
reduce the risk that the eventual net dollar inflows resulting from sales to
foreign customers will be adversely affected by changes in exchange rates.
The Company enters into forward exchange contracts and currency swap
contracts to hedge certain firm sales commitments denominated in foreign
currencies (principally European currencies and Japanese yen). Net deferred
realized gains and losses are recognized in income, along with unrealized gains
and losses, in the same period as the hedged transaction. Net deferred
gains/losses from hedging anticipated but not yet firmly committed transactions
were not material at January 1, 1995 or January 2, 1994.
The estimated fair values of derivatives used to hedge or modify the
Company's risks will fluctuate over time. These fair value amounts should not be
viewed in isolation, but rather in relation to the fair values of the underlying
hedged transactions and investments and the overall reduction in the Company's
exposure to adverse fluctuations in interest and foreign exchange rates.
The notional amounts of the derivative financial instruments do not
necessarily represent amounts exchanged by the parties and, therefore, are not a
direct measure of the exposure of the Company through its use of derivatives.
The amounts exchanged are calculated on the basis of the notional amounts and
the other terms of the derivatives, which relate to interest rates or other
financial indices.
The following table represents the aggregate notional amounts, fair values,
and maturities of the Company's derivative financial instruments outstanding at
January 1, 1995:
<TABLE>
<CAPTION>
NOTIONAL FAIR
AMOUNTS VALUES MATURITY
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest Rate Management
Swap agreement:
Liabilities........................................... $ 23,000 $ (17) 1996
Foreign Currency Management
Forward contracts:
Assets................................................ 6,499 (367) 1995
Liabilities........................................... 23,423 (29) 1995
Swap agreement:
Liabilities........................................... 35,000 (5,504) 1996
</TABLE>
At January 2, 1994 interest rate and currency swap agreements related to
certain foreign currency denominated promissory notes effectively converted
approximately $29 million of variable rate debt to fixed rate debt. At January
2, 1994, the weighted average fixed rate on the Dutch guilder and Japanese yen
borrowings was 7.43%. The interest rate and currency swaps have maturity dates
ranging from six months to two years.
At January 2, 1994, the Company had approximately $43 million (notional
amount) of foreign currency hedge contracts outstanding, consisting principally
of forward exchange contracts and call options. The contracts and options served
to hedge firmly committed Dutch guilder, German mark, Japanese yen, French
franc, British pound sterling, and other foreign currency revenues. The contract
and options generally have maturity dates of six to nine months.
F-15
<PAGE> 103
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- COMMITMENTS AND CONTINGENCIES
The Company leases certain marketing locations, distribution facilities,
and equipment. At January 1, 1995 aggregate minimum rent commitments under
operating leases with initial or remaining terms of one year or more consisted
of the following:
<TABLE>
<CAPTION>
FISCAL YEAR (IN THOUSANDS)
----------------------------------------------------------------------- --------------
<S> <C>
1995................................................................. $ 6,851
1996................................................................. 4,849
1997................................................................. 3,709
1998................................................................. 1,784
1999................................................................. 747
Thereafter........................................................... 458
--------------
$ 18,398
===========
</TABLE>
Rental expense amounted to approximately $11.8 million, $10.2 million, and
$10.3 million for the fiscal years ended January 1, 1995, January 2, 1994, and
January 3, 1993, respectively.
Bentley Mills' City of Industry, California plant is located in the San
Gabriel Valley, which has been generally designated as a Superfund site. Neither
the Environmental Protection Agency nor the potentially responsible party
("PRP") group has asserted that Bentley is a PRP in connection with such
Superfund site.
NOTE 14 -- EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries have trusteed defined benefit retirement
plans ("Plans") which cover substantially all of their employees except those of
Guilford, which has its own 401(k) retirement investment plan. The benefits are
generally based on years of service and the employee's average monthly
compensation. Pension expense was $0.8 million, $1.5 million, and $1.7 million
for the years ended January 1, 1995, January 2, 1994, and January 3, 1993,
respectively. Assets exceeded accumulated benefits in certain plans and
accumulated benefits exceeded assets in others during the years ended January 1,
1995 and January 2, 1994.
The ranges of assumptions used for the actuarial determinations reflect the
different economic environments within the various countries where the Plans
exist. In fiscal 1994, the assumed rates of return on plan assets ranged from 5%
to 10%, the measurement of the projected benefit obligation was based on assumed
discount rates ranging from 7% to 10% and assumed long term rates of
compensation increases ranging from 4% to 8%. During the year, assets and
obligations related to a contributory profit sharing plan were combined with the
trusteed defined benefit retirement plans in Interface Europe B.V. The impact
upon the accumulated benefit obligation and the projected benefit obligation was
immaterial, however, the plan assets increased $10.0 million. In fiscal 1993,
the assumed rates of return on plan assets ranged from 6% to 8.5%, the
measurement of the projected benefit obligation was based on assumed discount
rates ranging from 6% to 7.5% and assumed long term rates of compensation
increases ranging from 4% to 5.5%.
The Company has 401(k) retirement investment plans ("401(k) Plans"), which
are open to all its U.S. employees with one or more years of service. The 401(k)
Plans call for Company contributions on a sliding scale based on the level of
the employee's contribution. Approximately 70% of eligible employees are
enrolled in the 401(k) Plans. The Company's contributions are funded monthly by
payment to the 401(k) Plan administrators. Company contributions totalled
$557,000, $492,000, and $474,000 for the years ended January 1, 1995, January 2,
1994, and January 3, 1993, respectively.
F-16
<PAGE> 104
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- EMPLOYEE BENEFIT PLANS -- (CONTINUED)
The table presented below sets forth the funded status of the Company's
defined benefit plans and amounts recognized in the consolidated financial
statements. All of the Company's significant domestic and foreign plans are
reflected in the table for each year presented.
<TABLE>
<CAPTION>
JANUARY 1, 1995 JANUARY 2, 1994
----------------------------- -----------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Plan assets at fair value, primarily
insurance contracts........................ $49,741 $ 4,097 $35,537 $ 5,401
------------- ------------- ------------- -------------
Actuarial present value of benefit
obligations:
Vested benefits............................ 34,536 3,145 31,920 5,085
Nonvested benefits......................... 836 151 1,137 828
------------- ------------- ------------- -------------
Accumulated benefit obligation............... 35,372 3,296 33,057 5,913
Effect of projected future salary
increases............................... 2,644 1,169 105 3,082
------------- ------------- ------------- -------------
Projected benefit obligation................. 38,016 4,465 33,162 8,995
------------- ------------- ------------- -------------
Plan assets in excess of (lesser than)
projected benefit obligation............... 11,725 (368) 2,375 (3,594)
Unrecognized net gain from past experience
different from that assumed................ (11,112) 518 (2,880) 314
Unrecognized prior service cost.............. 421 6 437 172
Unrecognized net asset existing at the date
of initial application of SFAS 87.......... 1,670 0 (344) 1,887
------------- ------------- ------------- -------------
Prepaid (accrued) pension cost............... $ 2,704 $ 156 $ (412) $(1,221)
========== ========== ========== ==========
Net pension cost included the following
components:
Service cost -- benefits earned during
the period.............................. $ 1,022 $ 502 $ 716 $ 739
Interest cost on projected benefit
obligation.............................. 3,401 420 2,540 613
Actual return on plan assets............... 1,703 184 (8,196) (389)
Net amortization and deferral.............. (5,824) (611) 5,316 145
------------- ------------- ------------- -------------
Net pension cost (credit).................... $ 302 $ 495 $ 376 $ 1,108
========== ========== ========== ==========
</TABLE>
F-17
<PAGE> 105
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- BUSINESS AND FOREIGN OPERATIONS
The Company and its subsidiaries are engaged predominantly in the
manufacture and sale of commercial and institutional interior finishings.
Financial information by geographic area for the years ended January 1, 1995,
January 2, 1994, and January 3, 1993 were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
JANUARY 1, JANUARY 2, JANUARY 3,
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to Unaffiliated Customers (by source operation)
United States........................................ $ 426,179 $ 336,470 $ 255,476
Americas, excluding the United States................ 14,504 13,054 17,268
Europe............................................... 250,102 232,385 273,665
Asia-Pacific......................................... 34,498 43,158 47,669
---------- ---------- ----------
Total........................................ $ 725,283 $ 625,067 $ 594,078
======== ======== ========
Operating Income
United States........................................ $ 37,456 $ 41,052 $ 29,016
Americas, excluding the United States................ 240 (322) 572
Europe............................................... 25,131 16,866 20,099
Asia-Pacific......................................... (3,425) (2,929) (1,579)
Corporate overhead................................... (8,592) (8,497) (7,669)
---------- ---------- ----------
Total........................................ $ 50,810 $ 46,170 $ 40,439
======== ======== ========
Identifiable Assets
United States........................................ $ 337,179 $ 322,379 $ 240,799
Americas, excluding the United States................ 7,951 9,262 13,141
Europe............................................... 304,894 274,928 242,020
Asia-Pacific......................................... 37,910 35,750 38,160
---------- ---------- ----------
Total........................................ $ 687,934 $ 642,319 $ 534,120
======== ======== ========
</TABLE>
F-18
<PAGE> 106
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- QUARTERLY DATA AND SHARE INFORMATION (UNAUDITED)
The following table sets forth, for the fiscal periods indicated, selected
consolidated financial data and information regarding the market price per share
of the Company's Class A Common Stock. The prices represent the reported high
and low closing sale prices.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Fiscal Year Ended January 1, 1995
Net sales........................................... $160,219 $181,665 $184,959 $196,940
Gross profit........................................ 48,344 55,548 55,810 61,483
Net income.......................................... 2,812 3,711 4,247 5,686
Net income applicable to common shareholders........ 2,374 3,274 3,809 5,249
Primary earnings per common share*.................. 0.14 0.18 0.21 0.29
Share prices:
High................................................ 16 1/8 14 13 5/8 13 3/8
Low................................................. 12 1/2 11 1/4 11 1/8 9 3/4
Dividends per common share............................ 0.06 0.06 0.06 0.06
Fiscal Year Ended January 2, 1994
Net sales........................................... $135,041 $150,045 $167,586 $172,395
Gross profit........................................ 41,236 47,443 54,556 54,511
Net income.......................................... 2,204 2,797 3,870 4,978
Net income applicable to common shareholders........ 2,204 2,744 3,447 4,541
Primary earnings per common share*.................... 0.13 0.16 0.20 0.26
Share prices:
High................................................ 14 1/4 13 12 15 1/2
Low................................................. 11 1/2 9 7/8 9 3/4 10 5/8
Dividends per common share............................ 0.06 0.06 0.06 0.06
</TABLE>
- ---------------
* For the years ended January 1, 1995 and January 2, 1994, earnings per share on
a fully diluted basis were antidilutive.
F-19
<PAGE> 107
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1995
--------------------------------------------------------------------------------
INTERFACE,
INC. CONSOLIDATION AND
GUARANTOR NON-GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- -------------- ----------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $434,580 $ 389,823 $ 0 $ (99,120) $725,283
Cost of sales.............................. 310,493 292,394 0 (98,789) 504,098
------------ ------------- ------- -------- ------------
Gross profit on sales.................. 124,087 97,429 0 (331) 221,185
Selling, general and administrative
expenses................................. 93,303 76,965 107 0 170,375
------------ ------------- ------- -------- ------------
Operating income....................... 30,784 20,464 (107) (331) 50,810
Other expense (income)
Interest expense......................... 7,673 9,287 7,134 0 24,094
Other.................................... 2,468 3,205 (4,670) 0 1,003
------------ ------------- ------- -------- ------------
Total other expenses................... 10,141 12,492 2,464 0 25,097
------------ ------------- ------- -------- ------------
Income before taxes on income and
equity in income of subsidiaries..... 20,643 7,972 (2,571) (331) 25,713
Taxes on income (benefit).................. 7,355 3,986 (2,084) 0 9,257
Equity in income of subsidiaries........... 0 0 17,274 (17,274) 0
------------ ------------- ------- -------- ------------
Net income............................. 13,288 3,986 16,787 (17,605) 16,456
Preferred stock dividends.................. 0 0 1,750 0 1,750
------------ ------------- ------- -------- ------------
Income applicable to common shareholders... $ 13,288 $ 3,986 $ 15,037 $ (17,605) $ 14,706
=========== ============= =========== ================ ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 2, 1994
--------------------------------------------------------------------------------
INTERFACE,
INC. CONSOLIDATION AND
GUARANTOR NON-GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- -------------- ----------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.................................. $345,157 $ 364,857 $ 0 $ (84,947) $625,067
Cost of sales.............................. 244,603 267,408 0 (84,690) 427,321
------------ ------------- ------- -------- ------------
Gross profit on sales.................. 100,554 97,449 0 (257) 197,746
Selling, general and administrative
expenses................................. 71,075 80,501 0 0 151,576
------------ ------------- ------- -------- ------------
Operating income....................... 29,479 16,948 0 (257) 46,170
Other expense (income)
Interest expense......................... 4,201 11,078 7,561 0 22,840
Other.................................... 0 2,026 0 0 2,026
------------ ------------- ------- -------- ------------
Total other expenses................... 4,201 13,104 7,561 0 24,866
------------ ------------- ------- -------- ------------
Income before taxes on income and
equity in income of subsidiaries..... 25,278 3,844 (7,561) (257) 21,304
Taxes on income (benefit).................. 9,975 1,688 (4,208) 0 7,455
Equity in income of subsidiaries........... 0 0 17,459 (17,459) 0
------------ ------------- ------- -------- ------------
Net income............................. 15,303 2,156 14,106 (17,716) 13,849
Preferred stock dividends.................. 0 0 913 0 913
------------ ------------- ------- -------- ------------
Income applicable to common shareholders... $ 15,303 $ 2,156 $ 13,193 $ (17,716) $ 12,936
=========== ============= =========== ================ ===========
</TABLE>
F-20
<PAGE> 108
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 3, 1993
---------------------------------------------------------------------------------
INTERFACE INC. CONSOLIDATION AND
GUARANTOR NON-GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- ----------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................. $270,526 $ 407,849 $ 0 $ (84,297) $594,078
Cost of sales............................. 188,619 299,504 (83,993) 404,130
------------ ------------- ------- -------- ------------
Gross profit on sales................. 81,907 108,345 0 (304) 189,948
Selling, general and administrative
expenses................................ 59,517 89,992 0 149,509
------------ ------------- ------- -------- ------------
Operating income...................... 22,390 18,353 0 (304) 40,439
Other expense (income)
Interest expense........................ 7,355 8,281 6,258 0 21,894
Other................................... (16) (16)
------------ ------------- ------- -------- ------------
Total other expenses.................. 7,339 8,281 6,258 0 21,878
------------ ------------- ------- -------- ------------
Income before taxes on income and
equity in income of subsidiaries.... 15,051 10,072 (6,258) (304) 18,561
Taxes on income (benefit)................. 5,433 3,181 (2,303) 0 6,311
Equity in income of subsidiaries.......... 0 0 16,509 (16,509) 0
------------ ------------- ------- -------- ------------
Net income............................ 9,618 6,891 12,554 (16,813) 12,250
=========== ============= ============ ================ ===========
</TABLE>
F-21
<PAGE> 109
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
JANUARY 1, 1995
-----------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION AND
GUARANTOR NON-GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- ----------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Current
Cash and cash equivalents.......... $ 416 $ 3,972 1 $ 0 $ 4,389
Escrowed and restricted funds...... 2,663 0 0 0 2,663
Accounts receivable................ 64,351 68,820 365 0 133,536
Inventories........................ 72,455 60,195 0 0 132,650
Prepaid expenses................... 7,019 11,805 53 0 18,877
------------ ------------- --------------- ----------------- ------------
Total current assets....... 146,904 144,792 419 0 292,115
Property and equipment, less
accumulated depreciation........... 104,502 48,372 0 0 152,874
Investments in subsidiaries.......... 108,978 17,746 316,101 (442,825) 0
Notes receivable and miscellaneous... 74,132 20,473 287,514 (342,026) 40,093
Excess cost over net assets
acquired........................... 112,358 73,498 16,996 0 202,852
------------ ------------- --------------- ----------------- ------------
$546,874 $ 304,881 $ 621,030 $ 784,851 $687,934
========= =========== ========== ============= =========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current
Accounts payable................... $ 43,474 $ 28,154 $ 4,675 $ (16,601) $ 59,702
Accrued expenses................... 21,724 23,981 11,235 0 56,940
Current maturities of long-term
debt............................ 853 0 0 0 853
------------ ------------- --------------- ----------------- ------------
Total current
liabilities.............. 66,051 52,135 15,910 (16,601) 117,495
Long-term debt, less current
maturities......................... 108,992 76,700 231,866 (207,895) 209,663
Convertible subordinated
debentures......................... 0 0 103,925 0 103,925
Deferred income taxes................ 5,707 8,958 3,096 0 17,761
------------ ------------- --------------- ----------------- ------------
Total liabilities.......... 180,750 137,793 354,797 (224,496) 448,844
Redeemable preferred stock........... 57,891 0 25,000 (57,891) 25,000
Common stock......................... 66,607 88,791 2,179 (155,398) 2,179
Additional paid-in capital........... 153,731 11,030 93,450 (164,761) 93,450
Retained earnings.................... 86,285 67,685 146,932 (164,559) 136,343
Foreign currency translation
adjustment......................... 1,610 (418) (1,328) 0 (136)
Treasury stock, 3,600,000 Class A
shares, at cost.................... 0 0 0 (17,746) (17,746)
------------ ------------- --------------- ----------------- ------------
$546,874 $ 304,881 $ 621,030 $(784,851) $687,934
========= =========== ========== ============= =========
</TABLE>
F-22
<PAGE> 110
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
JANUARY 2, 1994
---------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION AND
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- ----------------- ------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Current
Cash and cash equivalents..... $ (216) $ 4,769 $ 121 $ 0 $ 4,674
Escrowed and restricted
funds...................... 4,015 0 0 0 4,015
Accounts receivable........... 59,103 64,591 476 0 124,170
Inventories................... 64,596 51,445 0 0 116,041
Prepaid expenses.............. 7,748 9,869 0 0 17,617
------------ ------------- --------------- ----------------- ------------
Total current
assets.............. 135,246 130,674 597 0 266,517
Property and equipment, less
accumulated depreciation...... 98,828 46,297 0 0 145,125
Investments in subsidiaries..... 108,965 17,746 328,030 (454,741) 0
Notes receivable and
miscellaneous................. 130,739 25,296 231,122 (345,647) 41,510
Excess cost over net assets
acquired...................... 120,326 67,330 1,511 0 189,167
------------ ------------- --------------- ----------------- ------------
$594,104 $ 287,343 $ 561,260 $(800,388) $642,319
========= ========== ========== ============= =========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current
Accounts payable.............. $ 41,175 $ 27,038 $ 1,747 $ (13,917) $ 56,043
Accrued expenses.............. 23,123 22,500 7,121 0 52,744
Current maturities of
long-term debt............. 655 0 16,500 0 17,155
------------ ------------- --------------- ----------------- ------------
Total current
liabilities......... 64,953 49,538 25,368 (13,917) 125,942
Long-term debt, less current
maturities.................... 176,904 78,022 185,979 (253,193) 187,712
Convertible subordinated
debentures.................... 0 0 103,925 0 103,925
Deferred income taxes........... 9,236 8,620 0 0 17,856
------------ ------------- --------------- ----------------- ------------
Total liabilities..... 251,093 136,180 315,272 (267,110) 435,435
Redeemable preferred stock...... 57,891 0 25,000 (57,891) 25,000
Common stock.................... 62,054 88,791 2,104 (150,845) 2,104
Additional paid-in capital...... 148,813 11,030 83,988 (159,842) 83,989
Retained earnings............... 72,997 63,698 136,219 (146,954) 125,960
Foreign currency translation
adjustment.................... 1,256 (12,356) (1,323) 0 (12,423)
Treasury stock, 3,600,000 Class
A shares, at cost............. 0 0 (17,746) (17,746)
------------ ------------- --------------- ----------------- ------------
$594,104 $ 287,343 $ 561,260 $(800,388) $642,319
========= ========== ========== ============= =========
</TABLE>
F-23
<PAGE> 111
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
JANUARY 3, 1993
---------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION AND
GUARANTOR NON-GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- ----------------- ------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Current
Cash and cash equivalents..... $ 1,645 $ 4,179 $ 0 $ 0 $ 5,824
Escrowed and restricted
funds...................... 4,419 0 0 0 4,419
Accounts receivable........... 44,516 63,871 956 0 109,343
Inventories................... 40,537 60,853 0 0 101,390
Prepaid expenses.............. 2,494 8,961 0 0 11,455
------------ ------------- --------------- ----------------- ------------
Total current
assets.............. 93,611 137,864 956 0 232,431
Property and equipment, less
accumulated depreciation...... 85,220 52,385 0 137,605
Investments in subsidiaries..... 108,962 17,746 310,143 (436,851) 0
Notes receivable and
miscellaneous................. 109,375 4,942 123,634 (207,188)_ 30,763
Excess of cost over net assets
acquired...................... 56,412 75,359 1,550 0 133,321
------------ ------------- --------------- ----------------- ------------
$453,580 $ 288,296 $ 436,283 $(644,039) $534,120
========= ========== ========== ============= =========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current
Accounts payable.............. $ 31,293 $ 36,187 $ 4,675 $ (28,625) $ 43,530
Accrued expenses.............. 16,978 23,653 (1,989) 0 38,642
Current maturities of
long-term debt............. 2,723 0 8,702 0 11,425
------------ ------------- --------------- ----------------- ------------
Total current
liabilities......... 50,994 59,840 11,388 (28,625) 93,597
Long-term debt, less current
maturities.................... 117,724 62,038 109,598 (157,797)) 131,563
Convertible subordinated
debentures.................... 0 0 103,925 0 103,925
Deferred income taxes........... 10,222 8,464 0 0 18,686
------------ ------------- --------------- ----------------- ------------
Total liabilities..... 178,940 130,342 224,911 (186,422) 347,771
Redeemable preferred stock...... 0 0 0 0 0
Common stock.................... 61,953 88,791 2,086 (150,744) 2,086
Additional paid-in capital...... 148,859 11,030 82,110 (159,889) 82,110
Retained earnings............... 57,694 61,542 126,176 (128,238) 117,174
Foreign currency translation
adjustment.................... 6,134 (3,409) 0 0 2,725
Treasury stock, 3,600,000 Class
A shares, at cost............. 0 0 0 (17,746) (17,746)
------------ ------------- --------------- ----------------- ------------
$453,580 $ 288,296 $ 436,283 $(644,039) $534,120
========= ========== ========== ============= =========
</TABLE>
F-24
<PAGE> 112
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 1, 1995
---------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION AND
GUARANTOR NON-GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- ----------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES...... $ 16,314 $ 7,372 $ 9,709 $ 0 $ 33,395
=========== ============= ============ ================ ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment......... (15,689) (5,626) 0 0 (21,315)
Acquisitions, net of cash acquired...... 0 0 (1,409) 0 (1,409)
Other................................... 19,028 (28,605) 6,230 (331) (3,678)
------------ ------------- --------------- ------- ------------
Net cash provided by (used in) investing
activities.............................. 3,339 (34,231) 4,821 (331) (26,402)
------------ ------------- --------------- ------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments)............. (67,714) 105,524 (38,032) 0 (222)
Proceeds from issuance of common
stock................................. 0 0 678 0 678
Cash dividends paid..................... 0 0 (6,073) 0 (6,073)
Other................................... 48,693 (79,827) 28,777 331 (2,026)
------------ ------------- --------------- ------- ------------
Net cash provided by (used in) financing
activities.............................. (19,021) 25,697 (14,650) 331 (7,643)
------------ ------------- --------------- ------- ------------
Effect of exchange rate changes on cash... 0 365 0 0 365
------------ ------------- --------------- ------- ------------
NET INCREASE (DECREASE) IN CASH........... 632 (797) (120) 0 (285)
Cash at beginning of year................. (216) 4,769 121 0 4,674
------------ ------------- --------------- ------- ------------
Cash at end of year....................... $ 416 $ 3,972 $ 1 $ 0 $ 4,389
=========== ============= ============ ================ ===========
</TABLE>
F-25
<PAGE> 113
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 2, 1994
---------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION AND
GUARANTOR NON-GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- ----------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES......... $ 1,429 $ 35,844 $ 3,309 $ 0 $ 40,582
=========== ============= ============ ================ ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment............ (13,053) (7,586) 0 0 (20,639)
Acquisitions, net of cash acquired......... (15,209) 0 0 0 (15,209)
Other...................................... (5,317) (10,359) 9,298 (257) (6,635)
------------ ------------- --------------- -------- ------------
Net cash provided by (used in) investing
activities................................. (33,579) (17,945) 9,298 (257) (42,483)
------------ ------------- --------------- -------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments)................ 57,112 (137,219) 84,179 0 4,072
Proceeds from issuance of common stock..... 0 0 1,898 0 1,898
Cash dividends paid........................ 0 0 (5,063) 0 (5,063)
Other...................................... (26,823) 120,066 (93,500) 257 0
------------ ------------- --------------- -------- ------------
Net cash provided by (used in) financing
activities................................. 30,289 (17,153) (12,486) 257 907
------------ ------------- --------------- -------- ------------
Effect of exchange rate changes on cash...... 0 (156) 0 0 (156)
------------ ------------- --------------- -------- ------------
NET INCREASE (DECREASE) IN CASH.............. (1,861) 590 121 0 (1,150)
Cash at beginning of year.................... 1,645 4,179 0 0 5,824
------------ ------------- --------------- -------- ------------
Cash at end of year.......................... $ (216) $ 4,769 $ 121 $ 0 $ 4,674
=========== ============= ============ ================ ===========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 3, 1993
---------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION AND
GUARANTOR NON-GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- ----------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES.......... $ 34,712 $ 14,280 $ (7,296) $ 0 $ 41,696
=========== ============= ============ ================ ===========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment............. (8,970) (5,506) 0 0 (14,476)
Acquisitions, net of cash acquired.......... 0 0 0 0 0
Other....................................... 1,047 (21,386) 17,103 (304) (3,540)
------------ ------------- --------------- -------- ------------
Net cash provided by (used in) investing
activities.................................. (7,923) (26,892) 17,103 (304) (18,016)
------------ ------------- --------------- -------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments)................. (37,993) (58,210) 77,594 0 (18,609)
Proceeds from issuance of common stock...... 0 0 344 0 344
Cash dividends paid......................... 0 0 (4,142) 0 (4,142)
Other....................................... 12,056 69,681 (83,603) 304 (1,562)
------------ ------------- --------------- -------- ------------
Net cash provided by (used in) financing
activities.................................. (25,937) 11,471 (9,807) 304 (23,969)
------------ ------------- --------------- -------- ------------
Effect of exchange rate changes on cash....... 0 (404) 0 0 (404)
------------ ------------- --------------- -------- ------------
NET INCREASE (DECREASE) IN CASH............... 852 (1,545) 0 0 (693)
Cash at beginning of year..................... 793 5,724 0 0 6,517
------------ ------------- --------------- -------- ------------
Cash at end of year........................... $ 1,645 $ 4,179 $ 0 $ 0 $ 5,824
=========== ============= ============ ================ ===========
</TABLE>
F-26
<PAGE> 114
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS -- (CONTINUED)
BASIS OF PRESENTATION
The Company is offering $125,000,000 in aggregate principal amount of
Senior Subordinated Notes due 2005 (the "Notes"). The Notes will be guaranteed,
jointly and severally, on an unsecured senior subordinated basis, by each of the
Company's principal domestic subsidiaries (the "Guarantors"). The Guarantors
include Interface Flooring Systems, Inc., Bentley Mills, Inc., Guilford of
Maine, Inc., Prince Street Technologies, Inc. and several other smaller domestic
subsidiaries. The condensed consolidating financial statements of the Company (a
holding company) and the Guarantors are presented on page F-20 through F-27 and
should be read in connection with the consolidated financial statements of the
Company. Separate financial statements of the Guarantors are not presented
because the Guarantors are jointly, severally and unconditionally liable under
the guarantees, and the Company believes the condensed consolidating financial
statements presented are more meaningful in understanding the financial position
of the Guarantors.
DISTRIBUTIONS
There are no significant restrictions on the ability of the Guarantors to
make distributions to Interface, Inc.
F-27
<PAGE> 115
INTERFACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------
OCTOBER 1, OCTOBER 2,
1995 1994
---------- ----------
(IN THOUSANDS EXCEPT SHARE
DATA)
<S> <C> <C>
NET SALES.......................................................... $ 597,414 $ 527,343
COST OF SALES...................................................... 412,636 367,641
---------- ----------
Gross profit on sales............................................ 184,778 159,702
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....................... 139,613 123,559
---------- ----------
Operating income................................................. 45,165 36,143
OTHER EXPENSE -- NET............................................... 21,909 19,316
---------- ----------
Income before taxes on income.................................... 23,256 16,827
TAXES ON INCOME.................................................... 8,838 6,057
---------- ----------
Net income......................................................... 14,418 10,770
PREFERRED STOCK DIVIDENDS.......................................... 1,312 1,313
---------- ----------
Net income applicable to common shareholders....................... $ 13,106 $ 9,457
======== ========
Earnings per share
Primary.......................................................... $ 0.72 $ 0.53
======== ========
Fully diluted*................................................... $ 0.71 $ 0.53*
======== ========
Weighted average common shares outstanding
Primary.......................................................... 18,237 17,953
======== ========
Fully Diluted.................................................... 26,072 25,786
======== ========
</TABLE>
- ---------------
* For the nine month period ended October 2, 1994, earnings per share on a fully
dilutive basis were antidilutive.
See accompanying notes to condensed consolidated financial statements.
F-28
<PAGE> 116
INTERFACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 1,
1995 1995
----------- ----------
(UNAUDITED)
(IN THOUSANDS
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT
Cash and cash equivalents.......................................... $ 3,034 $ 4,389
Escrowed and restricted funds...................................... 2,413 2,663
Accounts receivable................................................ 113,145 133,536
Inventories........................................................ 138,801 132,650
Miscellaneous...................................................... 22,540 18,877
----------- ----------
TOTAL CURRENT ASSETS....................................... 279,933 292,115
PROPERTY AND EQUIPMENT, less accumulated depreciation................ 170,218 152,874
EXCESS OF COST OVER NET ASSETS ACQUIRED.............................. 212,446 202,852
OTHER ASSETS......................................................... 43,155 40,093
----------- ----------
$ 705,752 $ 687,934
========= ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT
Accounts payable................................................... $ 54,673 $ 59,702
Accrued expenses................................................... 55,892 56,940
Current maturities of long-term debt............................... 1,550 853
----------- ----------
TOTAL CURRENT LIABILITIES.................................. 112,115 117,495
LONG-TERM DEBT, less current maturities.............................. 207,979 209,663
CONVERTIBLE SUBORDINATED DEBENTURES.................................. 103,925 103,925
DEFERRED INCOME TAXES................................................ 19,635 17,761
----------- ----------
TOTAL LIABILITIES.......................................... 443,654 448,844
----------- ----------
Redeemable preferred stock........................................... 25,000 25,000
Common Stock:
Class A............................................................ 1,887 1,871
Class B............................................................ 300 308
Additional paid-in capital........................................... 94,186 93,450
Retained earnings.................................................... 146,160 136,343
Foreign currency translation adjustment.............................. 12,311 (136)
Treasury stock, 3,600,000 Class A Shares, at cost.................... (17,746) (17,746)
----------- ----------
$ 705,752 $ 687,934
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-29
<PAGE> 117
INTERFACE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
OCTOBER 1, OCTOBER 2,
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES................................... $ 55,818 $ 6,745
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................. (26,186) (14,071)
Acquisitions of businesses........................................... (15,203) (643)
Other................................................................ (2,798) 1,547
---------- ----------
Net cash provided by (used in) investing activities.................. (44,187) (13,167)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing (reduction) of long-term debt.......................... (9,114) 9,490
Issuance of common stock............................................. 744 453
Dividends paid....................................................... (4,597) (4,544)
---------- ----------
Net cash provided by (used in) financing activities.................. (12,967) 5,399
---------- ----------
Effect of exchange rate changes on cash................................ (19) 406
---------- ----------
NET INCREASE (DECREASE) DURING THE PERIOD.............................. (1,355) (617)
---------- ----------
Cash at beginning of period............................................ 4,389 4,674
---------- ----------
Cash at end of period.................................................. $ 3,034 $ 4,057
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-30
<PAGE> 118
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company and, in the opinion of management, contain all
adjustments (all of which are normal and recurring) necessary for a fair
presentation of the results for the interim periods. Nevertheless, the results
shown for interim periods are not necessarily indicative of results to be
expected for the full year.
As contemplated by Rule 10-01 of Regulation S-X, the following footnotes
have been condensed and, therefore, do not contain all disclosures required in
connection with annual financial statements. Reference should be made to the
notes to the Company's year-end financial statements contained elsewhere herein.
NOTE 2 -- RECEIVABLES
During August 1995, the Company entered into an agreement with a financial
institution to sell up to $65 million of certain domestic accounts receivable
under a continuous sale program. Under this agreement, undivided interests in
designated receivable pools are sold to the purchaser with recourse limited to
the receivables purchased. Fees paid by the Company under this agreement are
based on certain variable rate indices and are recorded as other expense. As of
October 1, 1995 the Company had sold accounts receivable under this agreement
for which net proceeds of approximately $38 million were received.
NOTE 3 -- INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 1,
1995 1995
---------- ----------
<S> <C> <C>
Finished Goods................................................. $ 72,746 $ 74,542
Work-in-Process................................................ 28,561 20,250
Raw Materials.................................................. 37,494 37,858
---------- ----------
$ 138,801 $ 132,650
======== ========
</TABLE>
NOTE 4 -- BUSINESS ACQUISITIONS
In June 1995, the Company acquired substantially all of the assets of
Toltec Fabrics, Inc., a North Carolina based company, for approximately
$13,280,000 (comprised of $7,530,000 in cash and $5,750,000 in notes). The
acquisition was accounted for as a purchase and, accordingly, the results of
operations are included in the Company's consolidated financial statements from
the date of acquisition.
NOTE 5 -- EARNINGS PER SHARE AND DIVIDENDS
Earnings per share are computed by dividing net income applicable to common
shareholders by the combined weighted average number of shares of Class A and
Class B Common Stock outstanding during the particular reporting period. The
computation does not include a negligible dilutive effect of outstanding stock
options. Neither the Convertible Subordinated Debentures issued in September
1988 nor the Series A Cumulative Convertible Preferred Stock issued during June
1993 were determined to be common stock equivalents. In computing primary
earnings per share, the preferred stock dividend reduces income applicable to
common shareholders. For the purposes of computing earnings per share and
dividends paid per share, the Company is treating as treasury stock (and
therefore not outstanding) the shares that are owned by a wholly-owned
subsidiary (3,600,000 Class A shares, recorded at cost).
F-31
<PAGE> 119
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 1, 1995
---------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION AND
GUARANTOR NON-GUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- ----------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales....................... $368,225 $ 273,316 $ 0 $ (44,127) $597,414
Cost of sales................... 259,202 197,320 0 (43,886) 412,636
------------ ------------- --------------- ----------------- ------------
Gross profit on sales...... 109,023 75,996 0 (241) 184,778
Selling, general and
administrative expenses....... 70,524 59,033 10,056 0 139,613
------------ ------------- --------------- ----------------- ------------
Operating income........... 38,499 16,963 (10,056) (241) 45,165
Other expense (income)
Interest expense.............. 5,423 7,285 8,486 0 21,194
Other......................... 1,342 2,285 (2,912) 0 715
------------ ------------- --------------- ----------------- ------------
Total other expenses....... 6,765 9,570 5,574 0 21,909
------------ ------------- --------------- ----------------- ------------
Income before taxes on
income and equity in
income of subsidiaries... 31,734 7,393 (15,630) (241) 23,256
Taxes on income (benefit)....... 12,997 3,631 (7,790) 0 8,838
Equity in income of
subsidiaries.................. 0 0 22,499 (22,499) 0
------------ ------------- --------------- ----------------- ------------
Net income................. 18,737 3,762 14,659 (22,740) 14,418
Preferred stock dividends....... 0 0 1,312 0 1,312
------------ ------------- --------------- ----------------- ------------
Income applicable to common
shareholders.................. $ 18,737 $ 3,762 $ 13,347 $ (22,740) $ 13,106
========= =========== ========== ============= =========
</TABLE>
F-32
<PAGE> 120
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
OCTOBER 1, 1995
-------------------------------------------------------------------------------------
INTERFACE, INC. CONSOLIDATION AND
GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTALS
------------ ------------- --------------- ----------------- ------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
ASSETS
Current
Cash and cash
equivalents............ $ 1,859 $ 3,305 $ (2,130) $ 0 $ 3,034
Escrowed and restricted
funds.................. 2,413 0 0 0 2,413
Accounts receivable....... 40,422 72,723 0 0 113,145
Inventories............... 77,332 60,277 1,192 0 138,801
Miscellaneous............. 9,908 14,985 (2,353) 0 22,540
------------ ------------- --------------- ----------------- ------------
Total current
assets.......... 131,934 151,290 (3,291) 0 279,933
Property and equipment, less
accumulated
depreciation.............. 116,110 48,944 5,164 0 170,218
Investments in
subsidiaries.............. 112,820 17,746 309,658 (440,224) 0
Notes receivable and
miscellaneous............. 122,771 28,260 288,109 (395,985) 43,155
Excess cost over net assets
acquired.................. 126,136 78,769 7,541 0 212,446
------------ ------------- --------------- ----------------- ------------
$609,771 $ 325,009 $ 607,181 $(836,209) $705,752
========= =========== ========== ============= =========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current
Accounts payable.......... $ 54,317 $ 24,383 $ 287 $ (24,314) $ 54,673
Accrued expenses.......... 35,849 19,258 785 0 55,892
Current maturities of
long-term debt......... 1,550 0 0 0 1,550
------------ ------------- --------------- ----------------- ------------
Total current
liabilities..... 91,716 43,641 1,072 (24,314) 112,115
Long-term debt, less current
maturities................ 120,104 83,163 221,916 (217,204) 207,979
Convertible subordinated
debentures................ 0 0 103,925 0 103,925
Deferred income taxes....... 7,772 8,766 3,097 0 19,635
------------ ------------- --------------- ----------------- ------------
Total
liabilities..... 219,592 135,570 330,010 (241,518) 443,654
Redeemable preferred
stock..................... 57,891 0 25,000 (57,891) 25,000
Common stock................ 62,054 92,634 2,187 (154,688) 2,187
Additional paid-in
capital................... 165,022 11,030 95,197 (177,063) 94,186
Retained earnings........... 105,022 71,477 156,994 (187,303) 146,160
Foreign currency translation
adjustment................ 190 14,328 (2,207) 0 12,311
Treasury stock, 3,600,000
Class A shares, at cost... 0 0 0 (17,746) (17,746)
------------ ------------- --------------- ----------------- ------------
$609,771 $ 325,009 $ 607,181 $(836,209) $705,752
========= =========== ========== ============= =========
</TABLE>
F-33
<PAGE> 121
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 1, 1995
-----------------------------------------------------------------------------------------
CONSOLIDATION AND
GUARANTOR NONGUARANTOR INTERFACE, INC. ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES (PARENT CORPORATION) ENTRIES TOTALS
--------------- ------------- -------------------- ----------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES............. $ 73,980 $ 1,686 $(19,848) $ 0 $ 55,818
========== =========== =============== ============= =========
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of plant and
equipment........... (17,555) (3,946) (4,685) 0 (26,186)
Acquisitions, net of
cash acquired....... (15,203) 0 0 0 (15,203)
Other.................. (10,632) (9,578) 17,653 (241) (2,798)
--------------- ------------- ----------- ----------------- ------------
Net cash provided by
(used in) investing
activities.......... (43,390) (13,524) 12,968 (241) (44,187)
--------------- ------------- ----------- ----------------- ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings
(repayments)........ 11,809 (10,973) (9,950) 0 (9,114)
Proceeds from issuance
of common stock..... 0 0 744 0 744
Cash dividends paid.... 0 0 (4,597) 0 (4,597)
Other.................. (40,956) 22,163 18,552 241 0
--------------- ------------- ----------- ----------------- ------------
Net cash provided by
(used in) financing
activities.......... (29,147) (11,190) 4,749 241 (12,967)
--------------- ------------- ----------- ----------------- ------------
EFFECT OF EXCHANGE RATE
CHANGE ON CASH......... 0 (19) 0 0 (19)
--------------- ------------- ----------- ----------------- ------------
NET INCREASE (DECREASE)
IN CASH................ 1,443 (667) (2,131) 0 (1,355)
CASH AT BEGINNING OF
YEAR................... 416 3,972 1 0 4,389
--------------- ------------- ----------- ----------------- ------------
CASH AT END OF PERIOD.... $ 1,859 $ 3,305 $ (2,130) $ 0 $ 3,034
========== =========== =============== ============= =========
</TABLE>
BASIS OF PRESENTATION
The Company is offering $125,000,000 in aggregate principal amount of
Senior Subordinated Notes due 2005 (the "Notes"). The Notes will be guaranteed,
jointly and severally, on an unsecured senior subordinated basis, by each of the
Company's principal domestic subsidiaries (the "Guarantors"). The Guarantors
include Interface Flooring Systems, Inc., Bentley Mills, Inc., Guilford of
Maine, Inc., Prince Street Technologies, Inc. and several other smaller domestic
subsidiaries. The condensed consolidating financial statements of the Company (a
holding company) and the Guarantors are presented on page F-32 through F-34 and
should be read in connection with the condensed consolidated financial
statements of the Company. Separate financial statements of the Guarantors are
not presented because the Guarantors are jointly, severally and uncondition-
F-34
<PAGE> 122
INTERFACE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL
STATEMENTS -- (CONTINUED)
ally liable under the guarantees, and the Company believes the condensed
consolidating financial statements presented are more meaningful in
understanding the financial position of the Guarantors.
DISTRIBUTIONS
There are no significant restrictions on the ability of the Guarantors to
make distributions to Interface, Inc.
F-35
<PAGE> 123
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation provide that a director shall
not be personally liable to the Registrant or its shareholders for monetary
damages for breach of duty of care or any other duty owed to the Registrant as a
director, except that such provision shall not eliminate or limit the liability
of a director (a) for any appropriation, in violation of his duties, of any
business opportunity of the Registrant, (b) for acts or omissions which involve
intentional misconduct or a knowing violation of law, (c) for unlawful corporate
distributions or (d) for any transaction from which the director received an
improper benefit.
Article VII of the Bylaws of the Registrant authorizes indemnification of
the Registrant's officers and directors for any liability and expense incurred
by them in connection with or resulting from any threatened, pending or
completed legal action or other proceeding or investigation by reason of his
being or having been an officer or director. An officer or director may only be
indemnified if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Registrant, and, with
respect to a criminal matter, he did not have reasonable cause to believe that
his conduct was unlawful. No officer or director who has been adjudged liable to
the Registrant or adjudged liable for the improper receipt of a personal benefit
is entitled to indemnification.
Any officer or director who has been wholly successful on the merits or
otherwise in an action or proceeding in his official capacity is entitled to
indemnification as to expenses by the Registrant as of right. All other
determinations in respect of indemnification shall be made by either: (i) a
majority vote of a quorum of disinterested directors; (ii) independent legal
counsel selected in accordance with the Bylaws and at the request of the Board;
or (iii) the holders of a majority of the Registrant's stock who at such time
are entitled to vote for the election of directors.
The Registrant's directors and officers are insured against losses arising
from any claim against them as such for wrongful acts or omissions, subject to
certain limitations. In addition, the Registration Rights Agreement filed as
Exhibit 4.3 hereto contains certain provisions pursuant to which certain
officers, directors and controlling persons of the Company may be entitled to be
indemnified by the Initial Purchasers and other holders of Notes.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ ----------------------------------------------------------------------------------
<C> <C> <S>
3.1 -- Articles of Incorporation (composite as of September 8, 1988) (included as Exhibit
3.1 to the Company's annual report on Form 10-K for the year ended January 3,
1993, previously filed with the Commission and incorporated herein by reference).
3.2 -- Bylaws, as amended (included as Exhibit 3.2 to the Company's quarterly report on
Form 10-Q for the quarter ended April 1, 1990, previously filed with the
Commission and incorporated herein by reference).
4.1 -- Indenture dated as of November 15, 1995, among the Company, the Guarantors and
First Union National Bank of Georgia, as Trustee (including form of Exchange
Note).*
4.2 -- Purchase Agreement dated as of November 16, 1995 among the Company, the Guarantors
and the Initial Purchasers.*
4.3 -- Registration Rights Agreement dated as of November 21, 1995 among the Company, the
Guarantors and the Initial Purchasers.*
4.4 -- Form of Exchange Note (included in Exhibit 4.1).*
</TABLE>
II-1
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------ ----------------------------------------------------------------------------------
<C> <C> <S>
5. -- Opinion of Kilpatrick & Cody.
8. -- Tax Opinion of Kilpatrick & Cody.
12.1 -- Computation of Ratio of Earnings to Fixed Charges.*
23.1 -- Consent of BDO Seidman, LLP (included in Part II).
23.2 -- Consent of Kilpatrick & Cody (included as part of Exhibits 5 and 8).
24. -- Powers of Attorney (see signature pages).
25. -- Statement of Eligibility of Trustee under the Trust Indenture Act on Form T-1*
99.1 -- Form of Transmittal Letter.*
99.2 -- Form of Notice of Guaranteed Delivery.*
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules
None.
(c) Reports, Opinions or Appraisals
Not Applicable.
ITEM 22. UNDERTAKINGS.
(a) (i) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(ii) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE> 125
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Interface, Inc.
Atlanta, Georgia
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of this Registration Statement of our reports dated February
22, 1995, relating to the consolidated financial statements and financial
statement schedule II (Valuation and Qualifying Accounts and Reserves) of
Interface, Inc., appearing in the Company's Annual Report on Form 10-K for the
year ended January 1, 1995.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Atlanta, Georgia
February 8, 1996
II-3
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on February 7, 1996.
INTERFACE, INC.
By: /s/ RAY C. ANDERSON
------------------------------------
Ray C. Anderson
Chairman, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of February, 1996.
<TABLE>
<C> <S>
/s/ RAY C. ANDERSON Chairman of the Board, President and Chief
- --------------------------------------------- Executive Officer (Principal Executive
Ray C. Anderson Officer)
* Senior Vice President, Chief Financial Officer
- --------------------------------------------- and Treasurer (Principal Financial and
Daniel T. Hendrix Accounting Officer)
* Director
- ---------------------------------------------
Charles R. Eitel
* Director
- ---------------------------------------------
Brian L. DeMoura
Director
- ---------------------------------------------
David Milton
* Director
- ---------------------------------------------
Don E. Russell
* Director
- ---------------------------------------------
C. Edward Terry
* Director
- ---------------------------------------------
Gordon D. Whitener
* Director
- ---------------------------------------------
Carl I. Gable
* Director
- ---------------------------------------------
Dr. June M. Henton
* Director
- ---------------------------------------------
J. Smith Lanier, II
* Director
- ---------------------------------------------
Leonard G. Saulter
</TABLE>
II-4
<PAGE> 127
<TABLE>
<C> <S>
- --------------------------------------------- Director
David G. Thomas
Director
- ---------------------------------------------
Clarinus C. Th. van Andel
*By: /s/ RAY C. ANDERSON
- ---------------------------------------------
Ray C. Anderson,
pursuant to power of attorney
</TABLE>
II-5
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on February 7, 1996.
BENTLEY MILLS, INC.
By: /s/ DAVID W. PORTER
------------------------------------
David W. Porter
Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of February, 1996.
<TABLE>
<C> <S>
* President, Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
Alan S. Kabus
* Vice President, Chief Financial Officer and
- --------------------------------------------- Director (Principal Financial and Accounting
David W. Munro Officer)
* Director
- ---------------------------------------------
Charles R. Eitel
* Director
- ---------------------------------------------
Daniel T. Hendrix
/s/ DAVID W. PORTER Director
- ---------------------------------------------
David W. Porter
*By: /s/ DAVID W. PORTER
- ---------------------------------------------
David W. Porter,
pursuant to power of attorney
</TABLE>
II-6
<PAGE> 129
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on February 7, 1996.
GUILFORD (DELAWARE), INC.
By: /s/ DAVID W. PORTER
------------------------------------
David W. Porter
Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of February, 1996.
<TABLE>
<C> <S>
* President and Director
- --------------------------------------------- (Principal Executive Officer)
Brian L. DeMoura
* Vice President and Assistant Treasurer
- --------------------------------------------- (Principal Financial and Accounting Officer)
Daniel T. Hendrix
* Director
- ---------------------------------------------
Ray C. Anderson
*By: /s/ DAVID W. PORTER
- ---------------------------------------------
David W. Porter,
pursuant to power of attorney
</TABLE>
II-7
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on February 7, 1996.
GUILFORD OF MAINE, INC.
By: /s/ DAVID W. PORTER
------------------------------------
David W. Porter
Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of February, 1996.
<TABLE>
<C> <S>
* President, Chief Executive Officer and Director
- --------------------------------------------- (Principal Executive Officer)
Brian L. DeMoura
* Vice President and Director
- --------------------------------------------- (Principal Financial and Accounting Officer)
Daniel T. Hendrix
* Director
- ---------------------------------------------
Ray C. Anderson
*By: /s/ DAVID W. PORTER
- ---------------------------------------------
David W. Porter,
pursuant to power of attorney
</TABLE>
II-8
<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on February 7, 1996.
INTERFACE ASIA-PACIFIC, INC.
By: /s/ DAVID W. PORTER
------------------------------------
David W. Porter
Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of February, 1996.
<TABLE>
<C> <S>
* President, Chief Executive Officer and
- --------------------------------------------- Director (Principal Executive Officer)
David Milton
* Vice President, Treasurer and Director
- --------------------------------------------- (Principal Financial and Accounting Officer)
Daniel T. Hendrix
* Director
- ---------------------------------------------
Charles R. Eitel
*By: /s/ DAVID W. PORTER
----------------------
David W. Porter,
pursuant to power of attorney
</TABLE>
II-9
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on February 7, 1996.
INTERFACE EUROPE, INC.
By: /s/ DAVID W. PORTER
------------------------------------
David W. Porter
Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of February, 1996.
<TABLE>
<C> <S>
* President and Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer)
John H. Walker
* Vice President and Treasurer
- --------------------------------------------- (Principal Financial and Accounting Officer)
Daniel T. Hendrix
* Director
- ---------------------------------------------
Ray C. Anderson
*By: /s/ DAVID W. PORTER
- ---------------------------------------------
David W. Porter,
pursuant to power of attorney
</TABLE>
II-10
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on February 7, 1996.
INTERFACE FLOORING SYSTEMS, INC.
By: /s/ DAVID W. PORTER
------------------------------------
David W. Porter
Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of February, 1996.
<TABLE>
<C> <S>
* President and Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer)
John R. Wells
* Vice President and Treasurer
- --------------------------------------------- (Principal Financial and Accounting Officer)
Daniel T. Hendrix
* Director
- ---------------------------------------------
Ray C. Anderson
*By: /s/ DAVID W. PORTER
- ---------------------------------------------
David W. Porter,
pursuant to power of attorney
</TABLE>
II-11
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on February 7, 1996.
INTERFACE RESEARCH CORPORATION
By: /s/ DAVID W. PORTER
------------------------------------
David W. Porter
Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of February, 1996.
<TABLE>
<C> <S>
* President and Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer)
C. Edward Terry
* Vice President and Treasurer
- --------------------------------------------- (Principal Financial and Accounting Officer)
Daniel T. Hendrix
* Director
- ---------------------------------------------
Ray C. Anderson
*By: /s/ DAVID W. PORTER
- ---------------------------------------------
David W. Porter,
pursuant to power of attorney
</TABLE>
II-12
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on February 7, 1996.
PANDEL, INC.
By: /s/ DAVID W. PORTER
------------------------------------
David W. Porter
Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of February, 1996.
<TABLE>
<C> <S>
* President
- --------------------------------------------- (Principal Executive Officer)
C. Edward Terry
* Vice President and Treasurer
- --------------------------------------------- (Principal Financial and Accounting Officer)
Daniel T. Hendrix
* Director
- ---------------------------------------------
Ray C. Anderson
*By: /s/ DAVID W. PORTER
- ---------------------------------------------
David W. Porter,
pursuant to power of attorney
</TABLE>
II-13
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on February 7, 1996.
PRINCE STREET TECHNOLOGIES, INC.
By: /s/ DAVID W. PORTER
------------------------------------
David W. Porter
Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of February, 1996.
<TABLE>
<C> <S>
* President and Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer)
Gordon D. Whitener
* Vice President and Treasurer
- --------------------------------------------- (Principal Financial and Accounting Officer)
Daniel T. Hendrix
* Director
- ---------------------------------------------
Ray C. Anderson
*By: /s/ DAVID W. PORTER
- ---------------------------------------------
David W. Porter,
pursuant to power of attorney
</TABLE>
II-14
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Atlanta,
State of Georgia, on February 7, 1996.
ROCKLAND REACT-RITE, INC.
By: /s/ DAVID W. PORTER
------------------------------------
David W. Porter
Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 7th day of February, 1996.
<TABLE>
<C> <S>
* President
- --------------------------------------------- (Principal Executive Officer)
C. Edward Terry
* Vice President and Treasurer
- --------------------------------------------- (Principal Financial and Accounting Officer)
Daniel T. Hendrix
* Director
- ---------------------------------------------
Ray C. Anderson
*By: /s/ DAVID W. PORTER
- ---------------------------------------------
David W. Porter,
pursuant to power of attorney
</TABLE>
II-15
<PAGE> 138
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF EXHIBITS PAGE NO.
- ------ ------------------------------------------------------------------------- ----------
<C> <C> <S> <C>
3.1 -- Articles of Incorporation (composite as of September 8, 1988) (included
as Exhibit 3.1 to the Company's annual report on Form 10-K for the year
ended January 3, 1993, previously filed with the Commission and
incorporated herein by reference).
3.2 -- Bylaws, as amended (included as Exhibit 3.2 to the Company's quarterly
report on Form 10-Q for the quarter ended April 1, 1990, previously filed
with the Commission and incorporated herein by reference).
4.1 -- Indenture dated as of November 15, 1995, among the Company, the
Guarantors and First Union National Bank of Georgia, as Trustee
(including form of Exchange Note).*
4.2 -- Purchase Agreement dated as of November 16, 1995 among the Company, the
Guarantors and the Initial Purchasers.*
4.3 -- Registration Rights Agreement dated as of November 21, 1995 among the
Company, the Guarantors and the Initial Purchasers.*
4.4 -- Form of Exchange Note (included in Exhibit 4.1).*
5. -- Opinion of Kilpatrick & Cody.
8. -- Tax Opinion of Kilpatrick & Cody.
12.1 -- Computation of Ratio of Earnings to Fixed Charges.*
23.1 -- Consent of BDO Seidman, LLP (included in Part II).
23.2 -- Consent of Kilpatrick & Cody (included as part of Exhibits 5 and 8).
24. -- Powers of Attorney (see signature pages).
25. -- Statement of Eligibility of Trustee under the Trust Indenture Act on Form
T-1*
99.1 -- Form of Transmittal Letter.*
99.2 -- Form of Notice of Guaranteed Delivery*
</TABLE>
- ---------------
* Previously filed
<PAGE> 1
Exhibit 5
KILPATRICK & CODY
1100 Peachtree Street
Suite 2800
Atlanta, Georgia 30309-4530
February 8, 1996
404 815-6500
Interface, Inc.
2859 Paces Ferry Road
Suite 2000
Atlanta, Georgia 30339
Re: Registration Statement on Form S-4
File No. 33-65201
Ladies and Gentlemen:
We have acted as counsel for Interface, Inc., a Georgia corporation
(the "Company"), in connection with the preparation and filing of a
registration statement on Form S-4, File No. 33-65201 (the "Registration
Statement"), with the Securities and Exchange Commission under the Securities
Act of 1933, as amended. The Registration Statement relates to the exchange of
up to an aggregate principal amount of $125,000,000 of the Company's 9 1/2%
Senior Notes Due 2005, Series B (the "Exchange Notes") for up to an aggregate
principal amount of $125,000,000 of its outstanding 9 1/2% Senior Notes Due
2005, Series A. Capitalized terms used but not defined herein shall have the
meanings as set forth in the Registration Statement.
This letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the American Bar Association
Section of Business Law (1991). As a consequence, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord, and this letter
should be read in conjunction with the Accord. Notwithstanding anything in the
Accord to the contrary, the Accord shall not be deemed to limit or otherwise
qualify any of the express qualifications, exceptions and limitations that are
set forth herein, each of which shall be cumulative of the Accord.
In connection with this opinion, we have relied as to matters of fact,
without investigation, upon certificates of public officials and others and
upon affidavits, certificates
<PAGE> 2
Interface, Inc.
February 8, 1996
Page 2
and written statements of directors, officers and employees of, and the
accountants for, the Company. We have also examined originals or copies,
certified or otherwise identified to our satisfaction, of such instruments,
documents and records as we have deemed relevant and necessary to examine for
the purpose of this opinion, including (a) the Registration Statement, (b) the
Articles of Incorporation of the Company, (c) the By-laws of the Company, (d)
the minutes of meetings of the Board of Directors of the Company, (e) the
Indenture for the Notes, (f) the Form of Exchange Note, and (g) the Statements
on Form T-1 under the Trust Indenture Act of 1939, as amended, relating to the
Indenture.
In connection with this opinion, we have assumed the accuracy and
completeness of all documents and records that we have reviewed, the
genuineness of all signatures, the due authority of the parties signing such
documents, the authenticity of the documents submitted to us as originals and
the conformity to authentic original documents of all documents submitted to us
as certified, conformed or reproduced copies. We have further assumed that:
(i) All natural persons involved in the transactions
contemplated by the Registration Statement (the "Offering") and the
Indenture have sufficient legal capacity to enter into and perform
their respective obligations under the Indenture and to carry out
their roles in the Offering.
(ii) Each party involved in the Offering other than the
Company (collectively the "Other Parties") has satisfied all legal
requirements that are applicable to it to the extent necessary to make
the Indenture enforceable against it.
(iii) Each of the Other Parties has complied with all legal
requirements pertaining to its status as such related to its rights to
enforce the Indenture against the Company.
The opinions set forth below are limited to the laws of the
State of Georgia and the federal laws of the United States of America.
We are not members of the state bare of New York, and we are not
experts on the laws of such state.
Further, we note that the Exchange Notes provide that they are
to be governed by the laws of the State of New York. For purposes of
this letter, we have assumed with your consent that, notwithstanding
their express terms, the Exchange Notes will be governed by the laws
of the State of Georgia (without giving effect to its conflicts of
laws principles). We express no opinion on what laws will actually
govern the Exchange Notes.
<PAGE> 3
Interface, Inc.
February 8, 1996
Page 3
Based upon and subject to the foregoing, it is our opinion
that:
(1) The Company is a corporation duly incorporated and existing
under the laws of the State of Georgia.
(2) The Exchange Notes covered by the Registration Statement, when
executed in the manner set forth in the Indenture and issued and delivered in
the manner set forth in the Registration Statement, will be legally issued,
will be binding obligations of, and will be enforceable against.
The General Qualifications apply to the opinions set forth above.
We hereby consent to the reference to our name in the Registration
Statement under the caption "Legal Matters" and further consent to the filing
of this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
KILPATRICK & CODY
By: /s/ W. Randy Eaddy
-------------------------
W. Randy Eaddy, a Partner
<PAGE> 1
Exhibit 8
February 7, 1996
404 815-6500
Interface, Inc.
2859 Paces Ferry Road
Suite 2000
Atlanta, Georgia 30339
Gentlemen:
We have acted as counsel to Interface, Inc., a Georgia corporation
("the Company"), in connection with the offer by the Company to exchange (the
"Exchange Offer") its 9 1/2% Senior Subordinated Notes Due 2005, Series B (the
"Exchange Notes"), for all outstanding 9 1/2% Senior Subordinated Notes Due
2005, Series A (the "Outstanding Notes"). This letter will confirm that we
have advised the Company with respect to certain United States federal income
tax consequences of the Exchange Offer, as described in the discussion set
forth under the caption "Certain U.S. Federal Income Tax Consequences" in the
Prospectus included in the Registration Statement on Form S-4 (the
"Registration Statement"), filed on this date with the Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the
"Act"). Unless otherwise defined, capitalized terms used herein shall have the
respective meanings ascribed to them in the Registration Statement.
We have based our opinions set forth in this letter on the
provisions of the Internal Revenue Code of 1986, as presently amended (the
"Code"), existing Treasury regulations thereunder (the "Regulations"),
published rulings and practices of the Internal Revenue Service (the "Service")
and court decisions. It should be noted that the federal income tax
consequences discussed in this letter might be modified by legislative,
judicial or administrative action at any time, and such action might be applied
retroactively or otherwise in a manner that might alter such tax consequences.
<PAGE> 2
Interface, Inc.
February 7, 1996
Page 2
Based on the assumptions and subject to the qualifications and
limitations set forth therein, (i) we adopt the discussion set forth under the
caption "Certain U.S. Federal Income Tax Consequences" in the Registration
Statement as our opinion with respect to the material United States federal
income tax consequences of the Exchange Offer, and (ii) in our opinion such
discussion accurately describes the material United States federal income tax
consequences of the acquistion, ownership and disposition of the Notes. Such
discussion is limited to the material United States federal income tax
consequences, and it does not purport to discuss all possible federal income
tax consequences or any state, local or foreign tax consequences, of the
acquistion, ownership and disposition of the Notes.
Except as stated above, we express no opinion with respect to any
other matter. We are furnishing this opinion to you solely in connection with
the Exchange Offer, and this opinion is not to be relied upon, circulated,
quoted, or otherwise referred to for any other purpose.
We hereby consent to the filing of this opinion letter as an exhibit
to the Registration Statement, to the use of our name in the Registration
Statement and to the reference to us and this opinion letter in the
Registration Statement. By giving such consent, we do not thereby admit that
we are "experts" with respect to this letter, as that term is used in the Act,
or the rules and regulations of the SEC thereunder.
KILPATRICK & CODY
By: /s/ Lynn E. Fowler
-------------------------
Lynn E. Fowler, A Partner
