<PAGE>
AS FILED WITH THE COMMISSION ON MAY 24, 1999 REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
FRUIT OF THE LOOM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2315 36-3361804
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
----------------------------------
FRUIT OF THE LOOM, LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CAYMAN ISLANDS 2315 NONE
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
----------------------------------
SEE TABLE OF ADDITIONAL REGISTRANTS
------------------------------
5000 SEARS TOWER, 233 SOUTH WACKER DRIVE, CHICAGO, ILLINOIS 60606, (312)
876-1724
(Address, including zip code, and telephone number, including area code,
of registrants' principal executive offices)
JOHN J. RAY III
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
FRUIT OF THE LOOM, INC.
5000 SEARS TOWER
233 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
(312) 876-1724
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPY TO:
HOWARD S. LANZNAR, ESQ.
MARK D. WOOD, ESQ.
KATTEN MUCHIN & ZAVIS
525 WEST MONROE STREET
CHICAGO, ILLINOIS 60661
(312) 902-5200
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
8 7/8% Senior Notes due April 15, 2006......... $250,000,000 100% $250,000,000 $69,500
Guarantees of Guarantor Subsidiaries........... (2) (2) (2) (2)
Guarantee of Fruit of the Loom, Ltd. .......... (2) (2) (2) (2)
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 of Regulation C under the Securities Act of 1933, as amended.
(2) Also registered are guarantees of Fruit of the Loom, Ltd., the parent of
Fruit of the Loom, Inc. and certain subsidiaries of Fruit of the Loom, Inc.
of the 8 7/8% Senior Notes due 2006, for which no additional consideration
will be received. Accordingly, pursuant to Rule 457(n) of Regulation C under
the Securities Act, no additional fee is included for the registration of
such guarantees.
------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT EXCHANGE THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 24, 1999
PROSPECTUS
[LOGO]
FRUIT OF THE LOOM, INC.
OFFER TO EXCHANGE
$250,000,000 OF OUR 8 7/8% SENIOR NOTES DUE 2006
FOR ALL OF OUR OUTSTANDING 8 7/8% SENIOR NOTES DUE 2006
THIS EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1999, UNLESS WE EXTEND THE OFFER.
MATERIAL TERMS OF THE EXCHANGE OFFER
- The terms of the new 8 7/8% senior notes due 2006 that we are offering in
this prospectus are substantially identical to the terms of our already
outstanding 8 7/8% senior notes. However, certain transfer restrictions
and registration and exchange rights relating to the outstanding notes
will not apply to the exchange notes.
- All outstanding notes that are validly tendered and not withdrawn will be
exchanged.
- Tenders of outstanding notes may be withdrawn anytime prior to the
expiration of the exchange offer.
- We do not intend to apply for the listing of the exchange notes on any
securities exchange or quotation system.
INVESTING IN THE EXCHANGE NOTES INVOLVES CERTAIN RISKS. FOR DETAILS, SEE
"RISK FACTORS" BEGINNING ON PAGE 7.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 1999
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY STANDARD
JURISDICTION OF I.R.S. EMPLOYEE INDUSTRIAL
INCORPORATION OR IDENTIFICATION CLASSIFICATION CODE
NAME ORGANIZATION NO. NUMBER
- --------------------------------------------------------- ------------------ ---------------- -------------------
<S> <C> <C> <C>
Aliceville Cotton Mill, Inc. ............................ Alabama 63-0398991 2228
The B.V.D. Licensing Corporation......................... Delaware 13-2873530 2388
Dekalb Knitting Corporation, Inc. ....................... Alabama 61-1218696 2300
Fayette Cotton Mill, Inc. ............................... Alabama 63-0400244 2228
FOL Caribbean Corporation................................ Delaware 61-1296288 8599
Fruit of the Loom Arkansas, Inc. ........................ Arkansas 61-1167075 2315
Fruit of the Loom Caribbean, Inc. ....................... Delaware 61-1153959 4200
Fruit of the Loom, Inc. ................................. New York 05-0144075 2388
Fruit of the Loom Trading Company........................ Delaware 61-1207878 8980
FTL Regional Sales Company, Inc. ........................ Delaware 61-1278881 2388
FTL Sales Company, Inc., f/k/a Fruit of the Loom Sales
Co., Inc. ............................................. New York 13-5591934 8980
Fruit of the Loom, Texas, Inc. .......................... Texas 61-1152526 2315
Gitano Fashions Limited.................................. Delaware 36-3940847 2799
Greenville Manufacturing, Inc. .......................... Mississippi 61-1221118 2315
Jet Sew Technologies, Inc. .............................. New York 16-1442737 3500
Leesburg Yarn Mills, Inc. ............................... Alabama 31-1298216 6749
Martin Mills, Inc. ...................................... Louisiana 72-0688301 2315
Pro-Player, Inc. ........................................ New York 13-3122774 2799
Rabun Apparel, Inc. ..................................... Georgia 58-2012332 2250
Russell Hosiery Mills, Inc. ............................. North Carolina 56-0503626 2250
Salem Sportswear Corporation............................. Delaware 04-3119649 2228
Salem Sportswear, Inc. .................................. New Hampshire 02-0359850 2799
Sherman Warehouse Corporation............................ Mississippi 64-0439662 4200
Union Sales, Inc. ....................................... Delaware 61-0909765 6749
Union Underwear Company, Inc. ........................... New York 61-0505082 2315
Union Yarn Mills, Inc. .................................. Alabama 63-0360168 2228
Whitmire Manufacturing, Inc. ............................ South Carolina 61-1233121 2250
Winfield Cotton Mill, Inc. .............................. Alabama 63-0400565 2228
</TABLE>
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Where You Can Find More Information... ii
Prospectus Summary.................... 1
Summary Financial Data................ 5
Risk Factors.......................... 7
Cautionary Statement Regarding
Forward-Looking Statements.......... 9
Capitalization........................ 10
Use Of Proceeds....................... 11
Our Business.......................... 12
The Reorganization.................... 18
<CAPTION>
Page
-----
<S> <C>
Description Of Our Existing
Indebtedness........................ 20
Description Of The Notes.............. 23
The Exchange Offer.................... 50
United States Federal Income Tax
Considerations...................... 58
Cayman Islands Taxation............... 62
Plan Of Distribution.................. 63
Experts............................... 63
Legal Matters......................... 63
Index To Financial Statements......... F-1
</TABLE>
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR ON
INFORMATION TO WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS MAY ONLY BE USED
WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS PROSPECTUS
MAY ONLY BE ACCURATE AS OF THE DATE OF THIS PROSPECTUS.
i
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-4 with the SEC under the
Securities Act of 1933 relating to the exchange notes. This prospectus, which is
a part of the registration statement, does not contain all of the information
you can find in the registration statement and the exhibits to the registration
statement. For additional information, you should refer to the registration
statement, including its exhibits. Statements made in this prospectus as to the
contents of any contract, agreement or other document referred to in the
registration statement may not be complete. For a more complete understanding of
the contents of any contract, agreement or other document filed as an exhibit to
the registration statement or otherwise filed with the SEC, you should refer to
the copies of such documents filed with the SEC.
We and, since the reorganization discussed in this prospectus, FTL-Cayman
file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy the registration statement and
any other documents we and FTL-Cayman file with the SEC at:
- the public reference room of the SEC, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549;
- the public reference facilities at the SEC's regional offices at 7 World
Trade Center, Suite 1300, New York, New York 10048 and at 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661; or
- the offices of The New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
Some of the locations may charge a modest fee for copies. Please call the
SEC at 1-800-SEC-0330 for further information on its public reference rooms.
Also, you may access any documents we file with the SEC on its website at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" certain documents we file
with it. This means that we can disclose important information to you by
referring you to those documents. These incorporated documents contain important
business and financial information about us that is not included in or delivered
with this prospectus. The information incorporated by reference is considered to
be part of this prospectus, and later information filed with the SEC will update
and supersede this information.
We incorporate by reference the following documents:
- Our Annual Report on Form 10-K for the fiscal year ended January 2, 1999;
- Our Quarterly Report on Form 10-Q for the fiscal quarter ended April 3,
1999;
- Our Current Reports on Form 8-K dated February 17, 1999, March 4, 1999,
and March 24, 1999; and
- The Quarterly Report on Form 10-Q of Fruit of the Loom, Ltd. for the
fiscal quarter ended April 3, 1999.
We also incorporate by reference any future filings we and Fruit of the
Loom, Ltd. make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act prior to the expiration date of the exchange offer.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
Fruit of the Loom, Inc.
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Investor Relations
Telephone: (312) 876-1724
To obtain timely delivery of any copies of filings requested, please write
or telephone us no later than , 1999.
ii
<PAGE>
PROSPECTUS SUMMARY
FOR YOUR CONVENIENCE, WE HAVE PROVIDED A BRIEF SUMMARY OF INFORMATION
CONTAINED IN THIS PROSPECTUS. THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION AND
DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER BEFORE DECIDING TO
EXCHANGE YOUR OUTSTANDING NOTES FOR THE EXCHANGE NOTES. YOU SHOULD READ THIS
ENTIRE DOCUMENT CAREFULLY, INCLUDING THE SECTION ENTITLED "RISK FACTORS," AND
THE OTHER DOCUMENTS WE REFER YOU TO. WE HAVE INCLUDED PAGE REFERENCES IN
PARENTHESES TO DIRECT YOU TO MORE COMPLETE DESCRIPTIONS OF THE TOPICS PRESENTED
IN THIS SUMMARY.
THE COMPANY
OUR BUSINESS (PAGE 12)
We are a leading international, vertically integrated basic apparel company,
emphasizing branded products for consumers ranging from infants to senior
citizens. We are one of the largest producers of men's and boys' underwear,
activewear for the screenprint T-shirt and fleece market, women's and girls'
underwear, casualwear, women's jeanswear and childrenswear. We also design,
manufacture and market licensed sports apparel bearing the names, tradenames and
logos of professional sports teams and leagues, colleges and universities. We
believe our primary strengths are our excellent brand recognition, low cost
production processes, and strong relationships with major discount chains and
mass merchandisers.
We are a subsidiary of Fruit of the Loom, Ltd., a Cayman Islands company.
Our principal executive offices are located at 5000 Sears Tower, 233 South
Wacker Drive, Chicago, Illinois 60606, and our telephone number is (312)
876-1724. We have a website at http://www.fruit.com.
THE REORGANIZATION (PAGE 18)
On March 4, 1999, we completed a corporate reorganization in which Fruit of
the Loom, Ltd., formerly our subsidiary, became our parent holding company.
Fruit of the Loom, Ltd. is referred to as "FTL-Cayman" in this prospectus.
FTL-Cayman, initially through us, continues to conduct the businesses we were
engaged in immediately prior to the reorganization. During the remainder of 1999
and 2000, we will transfer substantially all of our businesses and subsidiaries
located outside of the United States to FTL-Cayman.
FTL-Cayman was registered and incorporated under the laws of the Cayman
Islands on January 23, 1998 to become our parent holding company. FTL-Cayman's
principal offices are located at P.O. Box 31311 SMB, Safehaven Corporate Center,
Grand Cayman, Cayman Islands, BWI, and its telephone number is (345) 949-6690.
Prior to the reorganization, FTL-Cayman did not have any significant assets or
engage in any business or prior activities other than in connection with the
reorganization. As of the date of this prospectus, FTL-Cayman's only significant
asset is our common stock.
SUMMARY DESCRIPTION OF THE EXCHANGE NOTES
NOTES OFFERED (PAGE 23)
$250,000,000 aggregate principal amount of 8 7/8% senior notes due 2006. The
form and terms of the exchange notes are substantially identical to the form and
terms of the outstanding notes, except that the exchange notes will be
registered under the Securities Act of 1933. Therefore, the exchange notes will
not bear legends restricting their transfer and will not be entitled to
registration under the Securities Act. The exchange notes will evidence the same
debt as the outstanding notes. Both the outstanding notes and the exchange notes
are governed by the same indenture.
MATURITY DATE (PAGE 23)
April 15, 2006.
INTEREST PAYMENT DATES (PAGE 23)
April 15 and October 15 of each year, beginning on October 15, 1999.
FTL-CAYMAN GUARANTEE (PAGE 23)
The exchange notes will be fully and unconditionally guaranteed on a senior
unsecured basis by FTL-Cayman.
SUBSIDIARY GUARANTEES (PAGE 23)
The exchange notes will be fully and unconditionally guaranteed on a senior
unsecured basis, jointly and severally, by each of our principal domestic
subsidiaries, referred to in this prospectus as the "guarantor subsidiaries."
The subsidiary
1
<PAGE>
guarantees of the exchange notes will be effective only during non-investment
grade rating periods, as defined on page of this prospectus.
OPTIONAL REDEMPTION (PAGE 24)
We may redeem the exchange notes, in whole or in part at any time and from
time to time, at a redemption price determined as set forth in this prospectus
under the heading "Description of the Notes--Optional Redemption."
RANKING (PAGE 24)
The exchange notes will be senior unsecured obligations of FTL-Cayman and
each of our guarantor subsidiaries. They will not be secured and will rank equal
in right of payment with all of our senior unsecured obligations which exist now
or which we may incur in the future. The guarantees by FTL-Cayman and our
guarantor subsidiaries of the exchange notes will not be secured and will rank
equal in right of payment with all other senior unsecured obligations of
FTL-Cayman and each of our guarantor subsidiaries.
We have outstanding secured debt and guarantees. The exchange notes will
effectively rank junior to our secured debt and the secured debt of FTL-Cayman
and the guarantor subsidiaries to the extent of the assets securing the debt.
The exchange notes will also be effectively subordinated to all liabilities of
our subsidiaries which are not guaranteeing the exchange notes. Additionally,
during investment grade rating periods, as defined on page 44 of this
prospectus, the exchange notes will be effectively subordinated to all
liabilities of the guarantor subsidiaries. We, FTL-Cayman and the guarantor
subsidiaries may issue additional secured indebtedness, subject to some
limitations. For more information, see "Description of Our Existing
Indebtedness."
CHANGE OF CONTROL (PAGE 25)
Upon a change of control, as described in this prospectus under the heading
"Description of the Notes--Change of Control," we will be required to offer to
repurchase all of the exchange notes at a purchase price equal to 101% of the
principal amount of the exchange notes tendered, plus accrued and unpaid
interest, if any, to the date of the repurchase.
RESTRICTIVE COVENANTS (PAGE 26)
The indenture under which the exchange notes will be issued contains
covenants for your benefit which restrict our ability to incur additional
indebtedness and to take or allow our subsidiaries to take other actions.
SUMMARY DESCRIPTION OF THE EXCHANGE OFFER
EXCHANGE AND REGISTRATION RIGHTS
AGREEMENT (PAGE 50)
We issued the outstanding notes on March 23, 1999 to Credit Suisse First
Boston Corporation, NationsBanc Montgomery Securities LLC and Scotia Capital
Market (USA), Inc. These initial purchasers subsequently resold the outstanding
notes to institutional investors in transactions exempt from the registration
requirements of the Securities Act and applicable state securities laws. We,
FTL-Cayman, our guarantor subsidiaries and the initial purchasers entered into
the registration rights agreement that provides for the exchange offer.
THE EXCHANGE OFFER (PAGE 51)
We are offering the exchange notes in exchange for an equal principal amount
of outstanding notes. As of this date, there are $250,000,000 aggregate
principal amount of outstanding notes. You may tender outstanding notes only in
integral multiples of $1,000.
RESALE OF EXCHANGE NOTES (PAGE 50)
We believe that the exchange notes issued in the exchange offer may be
resold by you without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that:
- you are acquiring the exchange notes in the ordinary course of your
business;
- you are not participating, do not intend to participate, and have no
arrangement or understanding with any person to participate, in a
distribution of the exchange notes; and
- you are not an "affiliate" of ours.
If any of the above are not true and you transfer any exchange note without
delivering a prospectus meeting the requirements of the Securities Act
2
<PAGE>
or without an exemption from registration of your exchange notes from these
requirements, you may incur liability under the Securities Act. We do not assume
or indemnify you against such liability.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes which were acquired by the broker-dealer as a
result of market making or other trading activities must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act upon a
resale of the exchange notes. A broker-dealer may use this prospectus for an
offer to resell, resale or other retransfer of the exchange notes. For more
information, see "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING NOTES (PAGE 7)
If you do not exchange your outstanding notes for exchange notes, you will
no longer be able to require us to register the outstanding notes under the
Securities Act. In addition, you will not be able to offer or sell the
outstanding notes unless they are registered under the Securities Act, and we
will have no obligation to register them, except for some limited exceptions.
This limitation does not apply if you offer or sell them under an exemption from
the registration requirements of the Securities Act.
EXPIRATION DATE (PAGE 52)
The exchange offer will expire at 5:00 p.m., New York City time, on
, 1999, unless we extend the expiration date.
INTEREST ON THE EXCHANGE NOTES (PAGE 51)
The exchange notes will accrue interest at 8 7/8% per year, from either the
last date we paid interest on the outstanding notes you exchanged or, if no
interest has been paid, from the date of the issuance of the outstanding notes.
We will pay interest on the exchange notes on April 15 and October 15 of each
year, beginning October 15, 1999.
CONDITIONS TO THE EXCHANGE OFFER (PAGE 55)
The exchange offer is subject to the following conditions:
- the exchange offer or the exchange by a holder of an outstanding note must
not violate any applicable law or applicable interpretation of law by the
staff of the SEC;
- the outstanding notes must be properly tendered in accordance with the
exchange offer; and
- each holder exchanging outstanding notes for exchange notes must make
customary representations.
PROCEDURES FOR TENDERING OUTSTANDING
NOTES (PAGE 52)
If you wish to accept the exchange offer, you must complete, sign and date
the letter of transmittal, or a facsimile of the letter of transmittal and
transmit it together with all other documents required by the letter of
transmittal, to The Bank of New York, as exchange agent, at the address
specified on the cover page of the letter of transmittal. Alternatively, you can
tender your outstanding notes by following the procedures for book-entry
transfer, as described in this prospectus.
GUARANTEED DELIVERY PROCEDURES (PAGE 54)
If you wish to tender your outstanding notes and you cannot get your
required documents to the exchange agent by the expiration date, you may tender
your outstanding notes according to the guaranteed delivery procedures described
in this prospectus.
WITHDRAWAL RIGHTS (PAGE 55)
You may withdraw the tender of your outstanding notes at any time prior to
5:00 p.m., New York City time, on the date the exchange offer expires. To
withdraw, you must send a written or facsimile transmission notice of withdrawal
to the exchange agent by 5:00 p.m., New York City time, on the date the exchange
offer expires.
ACCEPTANCE OF OUTSTANDING NOTES AND DELIVERY OF EXCHANGE NOTES (PAGE 51)
We will accept all outstanding notes that are properly tendered in the
exchange offer prior to 5:00 p.m., New York City time, on the expiration date,
as long as all of the conditions are met. We will deliver the exchange notes
promptly after the expiration date.
3
<PAGE>
TAX CONSIDERATIONS (PAGE 58)
We believe that the exchange of outstanding notes for exchange notes should
not be a taxable exchange for federal income tax purposes. However, you should
consult your tax adviser about the tax consequences to you of this exchange.
EXCHANGE AGENT (PAGE 56)
The Bank of New York is serving as exchange agent for the exchange offer.
The address of The Bank of New York is 101 Barclay Street -- 21W New York, New
York 10286.
FEES AND EXPENSES (PAGE 56)
We will bear all expenses related to the exchange offer and complying with
the registration rights agreement.
ADDITIONAL INTEREST (PAGE 57)
If we do not complete the exchange offer on or before August 24, 1999, the
interest rate on the outstanding notes will increase until we complete the
exchange offer.
4
<PAGE>
SUMMARY FINANCIAL DATA
(IN MILLIONS, EXCEPT RATIOS)
In the table below, we present our summary financial data for each of the
years in the three-year period ended January 2, 1999. We derived this data from
our consolidated financial statements which were audited by Ernst & Young LLP,
independent auditors. This data reflects our results at the dates and for the
periods indicated. In the table below, we also present our summary financial
data for each of the three month periods ended March 28, 1998 and April 3, 1999
and as of April 3, 1999. This data is unaudited, but we believe it reflects all
adjustments necessary for a fair presentation of our results at the dates and
for the periods indicated. Our results for the three months ended April 3, 1999
are not necessarily indicative of results to be expected for the full year. The
unaudited as adjusted data are based upon our historical financial statements.
We have prepared the unaudited as adjusted credit data to give effect to the
repurchase and the repayment at maturity of our 7 7/8% senior notes, as though
the repurchase and the repayment had been completed at the beginning of each of
the periods presented. We have prepared the unaudited as adjusted balance sheet
data to give effect to the repurchase and the repayment as though they had been
completed at April 3, 1999. You should not conclude that the unaudited as
adjusted data (1) reflect our actual results that would have occured or our
financial position that would have existed or (2) project our results for any
future period or our financial position as of any future date. You should read
this summary financial data along with "Management Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements, included elsewhere or incorporated by reference in this prospectus.
FTL-Cayman commenced operations on March 4, 1999. For the three months ended
April 3, 1999, the summary statement of operations and balance sheet data of
FTL-Cayman were identical to ours, except that our net loss for the period
indicated was $8.7 and FTL-Cayman's was $9.0. This difference was due to a
minority interest in FTL-Cayman's statement of operations.
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
--------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, DECEMBER 31, JANUARY 2, MARCH 28,
1996 1997 1999 1998 APRIL 3, 1999
------------ ------------ ----------- ----------- -------------
STATEMENT OF OPERATIONS DATA:
Net sales(1)................................... $ 2,447.4 $ 2,139.9 $2,170.30 $ 457.2 $ 408.7
Gross earnings(2).............................. 722.9 495.5 605.50 147.7 94.4
Operating earnings (loss)(3)................... 318.2 (287.7) 234.90 58.0 6.9
Earnings (loss) from continuing operations
before extraordinary items and cumulative
effect of change in account
principles(3)(4)(5).......................... 146.6 (385.4) 135.90 31.2 (8.7)
OTHER DATA:
Depreciation and amortization.................. $ 155.7 $ 154.2 $ 111.3 $ 32.0 $ 30.8
EBITDA(6)...................................... 470.3 265.4 305.7 84.3 36.5
EBITDA margin(7)............................... 19.2% 12.4% 14.1% 18.4% 8.9%
Capital expenditures........................... $ 44.5 $ 55.4 $ 41.9 $ 6.4 $ 6.7
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED 12 MONTHS
DECEMBER 31, ENDED
1998 APRIL 3, 1999
------------ -------------
<S> <C> <C>
CREDIT DATA (AS ADJUSTED):
Interest expense.......................................................................... 100.9 97.2
Ratio of EBITDA to interest expense....................................................... 3.0x 2.7x
Ratio of total debt to EBITDA............................................................. 3.7 4.9
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 3, 1999
------------------------
HISTORICAL AS ADJUSTED
----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............................................................................ $ 2,374.2 2,374.2
Total debt, including current maturities................................................ 1,249.5 1,251.6
Common stockholders' equity............................................................. 457.2 455.1
</TABLE>
(footnotes begin on page 6)
5
<PAGE>
(1) In November 1996, we sold our hosiery manufacturing operations and related
assets for $73.8 in cash. Giving effect to this sale as if it had occurred
at the beginning of the prior periods presented, our net sales would have
been $2,349.8 in 1996, but our operating and net earnings would not have
been materially affected, as the purchaser of the business also entered into
a ten year licensing agreement with us which substantially replaced the
earnings which we would otherwise have generated.
(2) 1997 data include pretax charges of $49.8 related to inventory valuation
write-downs.
(3) 1997 data include pretax charges of $409.3 related to (a) costs associated
with the closing or disposal of a number of domestic manufacturing and
distribution facilities and attendant personnel reductions, impairment
write-downs of a number of domestic and foreign manufacturing and
distribution facilities and inventory valuation write-downs and (b) a
compensation agreement at Pro Player. 1999 data reflects (a) the reversal of
a pretax charge of $22.0 related to a compensation agreement at Pro Player
and (b) increases to pretax earnings of $15.3 resulting from finalization of
certain estimates recorded in connection with the special charges taken in
1997.
(4) 1996 data include a pretax charge of $35.0 related to our evaluation of
exposure under the guarantee of the debt of Acme Boot Company, Inc., an
affiliate. 1996 data also include $24.1 related to reversal of excess income
tax liabilities for tax years through December 31, 1991, all of which closed
for federal income tax purposes effective December 31, 1996.
(5) 1997 data include pretax charges of $32.4 principally from retained
liabilities related to former subsidiaries and $32.0 related to our
evaluation of exposure under the guarantees of the debt of Acme Boot. 1999
data reflect increases to pretax earnings of $1.5 resulting from
finalization of certain estimates recorded in connection with the special
charges taken in 1997.
(6) For purposes of this prospectus, EBITDA is defined as:
- operating earnings (loss) PLUS
- depreciation and amortization (net of deferred financing fees and original
issue discount) PLUS
- restructuring and special charges which impact operating earnings (loss),
net of any reversals of these charges.
We present EBITDA here to provide you with additional information about our
ability to meet future debt service, capital expenditure and working capital
requirements. EBITDA is not a measure of financial performance under generally
accepted accounting principles. You should not consider it as an alternative
either to net income as an indicator of our performance or to cash flow as a
measure of our liquidity. Our calculation of EBITDA may not be comparable to
that reported by other companies. The table below sets forth our calculation of
EBITDA for the periods referenced:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
---------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, DECEMBER 31, JANUARY 2, MARCH 28, APRIL 3,
1996 1997 1999 1998 1999
------------- ------------ ----------- ----------- -----------
Operating earnings (loss)......................... $ 318.2 $ (287.7) $ 234.9 $ 58.0 $ 6.9
Depreciation and amortization..................... 155.7 154.2 111.3 32.0 30.8
Deferred financing fees and OID................... (3.6) (2.9) (3.2) (.8) (1.2)
Restructuring and Special Charges................. -- 409.3 -- -- --
Reversal of Restructuring and Special Charges..... -- (7.5) (37.3) (4.9) --
------ ------------ ----------- ----- -----
EBITDA.......................................... $ 470.3 $ 265.4 $ 305.7 $ 84.3 $ 36.5
------ ------------ ----------- ----- -----
------ ------------ ----------- ----- -----
</TABLE>
We estimate that, excluding the effects of Hurricane Mitch, which interrupted
our assembly operations in Central America, our EBITDA would have been
approximately $312.8 for the fiscal year ended January 2, 1999.
(7) EBITDA margin represents EBITDA as a percentage of net sales.
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS TOGETHER WITH THE
OTHER MATTERS DESCRIBED OR REFERENCED IN THIS PROSPECTUS BEFORE YOU DECIDE
WHETHER TO EXCHANGE YOUR OUTSTANDING NOTES FOR EXCHANGE NOTES IN THE EXCHANGE
OFFER.
IF YOU FAIL TO PARTICIPATE IN THE EXCHANGE OFFER, YOUR OPPORTUNITIES TO SELL
YOUR NOTES IN THE FUTURE WILL BE LIMITED
We issued the outstanding notes in a private offering exempt from the
registration requirements of the Securities Act of 1933. Accordingly, you may
not offer, sell or otherwise transfer your outstanding notes except in
compliance with the registration requirements of the Securities Act and
applicable state securities laws or pursuant to exemptions from, or in
transactions not subject to, these registration requirements. If you do not
exchange your outstanding notes for exchange notes in this exchange offer, your
outstanding notes will continue to be subject to these transfer restrictions
after the completion of this exchange offer.
When we complete this exchange offer, if you have not tendered your
outstanding notes in this exchange offer, you will no longer be able to require
us to register the outstanding notes under the Securities Act. In addition, you
will not be able to offer or sell the outstanding notes unless they are
registered under the Securities Act, and we will have no obligation to register
them, with some limited exceptions. This limitation does not apply if you offer
or sell them under an exemption from the registration requirements of the
Securities Act.
WE MAY BE ADVERSELY AFFECTED BY OUR SUBSTANTIAL DEBT
Our substantial debt creates risks for the holders of the exchange notes,
including:
- a substantial portion of our cash flow will be dedicated to debt service
and unavailable for our operations;
- our ability to obtain additional financing in the future for acquisitions,
capital expenditures, working capital or general corporate purposes could
be limited;
- we are more vulnerable to adverse general economic and industry
conditions; and
- we are vulnerable to higher interest rates, because portions of our
borrowings are at variable rates of interest.
Subject to certain restrictions and financial tests, we may incur additional
indebtedness in the future.
WE MAY NOT BE ABLE TO SERVICE OUR DEBT
We may not have sufficient cash flow from operations or future working
capital borrowings to service our debt, including the exchange notes, or to make
necessary capital expenditures. Our ability to make scheduled payments of
principal of, pay interest on, or refinance our debt, including the exchange
notes, depends on our future results. In part, our results are subject to
general economic, financial, competitive, legislative, regulatory and other
factors beyond our control.
THE EXCHANGE NOTES AND THE GUARANTEES ARE JUNIOR TO SECURED INDEBTEDNESS AND
OTHER LIABILITIES, WHICH WOULD LIMIT COLLECTIBILITY OF THE EXCHANGE NOTES IN
THE EVENT OF BANKRUPTCY
Neither the exchange notes nor the guarantees are secured by any of our
assets or any assets of FTL-Cayman or the guarantor subsidiaries. Therefore, the
exchange notes and the guarantees will effectively rank junior to all the
secured obligations of us, FTL-Cayman and the guarantor subsidiaries to the
extent of the assets securing those obligations. We have outstanding debt and
guarantees which are secured by the capital stock of certain of our subsidiaries
and also by industrial revenue bonds issued and
7
<PAGE>
owned by certain of our subsidiaries. If we, FTL-Cayman or one of the guarantor
subsidiaries becomes insolvent or is liquidated, or if payment under any secured
obligation is accelerated, claims of any secured lenders for the assets securing
the obligation will take priority over any claim of the holders of the exchange
notes for those assets. After the claims of the secured lenders are satisfied,
there may not be assets remaining to fully satisfy the obligations under the
exchange notes. The exchange notes will also be effectively subordinated to all
liabilities of our subsidiaries which are not guaranteeing the exchange notes.
Additionally, during investment grade periods, the exchange notes will be
effectively subordinated to all liabilities of the guarantor subsidiaries,
including trade payables. See "Description of Our Existing Indebtedness" and
"Description of the Notes -- Ranking."
THE NOTES AND OUR OTHER DEBT RESTRICTS OUR ACTIVITIES
The indenture for the notes contains covenants that limit our ability to
incur additional indebtedness and to take other actions or to allow our
subsidiaries to take other actions. In addition, under our credit agreement, we
are required to satisfy specified financial covenants, including a maximum
leverage ratio, a minimum interest coverage ratio, and a minimum fixed charge
coverage ratio. Our ability to comply with any such covenants may be affected by
events beyond our control. If we breach any of the covenants, amounts we have
borrowed could become immediately due and payable. See "Description of Our
Existing Indebtedness" and "Description of the Notes -- Restrictive Covenants."
A FEDERAL OR STATE COURT MAY VOID OR ALTER OUR OBLIGATIONS UNDER YOUR NOTES OR
THE GUARANTEES
Under federal or state fraudulent transfer laws, a court could:
- void all or part of our obligations, or the obligations of FTL-Cayman or
any of the guarantor subsidiaries, to the holders the exchange notes;
- subordinate our obligations, or the obligations of FTL-Cayman or any of
the guarantor subsidiaries, to holders of the exchange notes to other
existing and future debt to a greater extent than would otherwise be the
case; or
- order holders of the exchange notes to return any amounts paid to them
under the exchange notes to us or to a fund benefitting our creditors,
if the court finds that, at the time we sold the notes, we, FTL-Cayman or the
guarantor subsidiaries did not receive consideration of reasonably equivalent
value for the notes and:
- were "insolvent," which means we or it could not pay our debts when they
came due or the sum of our debts was greater than the fair value of all of
our or its assets, or we or it became insolvent as a result of the
obligations under the notes;
- did not have enough capital to operate our or its business following the
sale of the notes;
- intended to incur, or believed we or it would incur, debts beyond our or
its ability to pay them as they become due; or
- intended to hinder, delay or defraud creditors.
If the obligations of any guarantor subsidiary were voided, holders of the
exchange notes would have to look for payment from our assets or the assets of
any remaining guarantor subsidiaries or FTL-Cayman. The standards for insolvency
vary. We cannot predict which standard a court would apply or if a court would
determine that we, FTL-Cayman or any of the guarantor subsidiaries were
insolvent at the time of the sale of the notes or became insolvent as a result
of the sale.
YOUR OPPORTUNITIES TO SELL NOTES IN THE FUTURE COULD BE LIMITED
There currently is no market for the exchange notes. We do not plan to apply
for listing of the exchange notes on any securities exchange or any other
quotation system. Therefore, there may not be an active trading liquid market
for the exchange notes. The market price and liquidity of the exchange notes
could be materially adversely affected by the absence of an active trading
market.
8
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains, and the documents incorporated by reference in
this prospectus contain or will contain, statements which describe or reflect
our beliefs concerning future business conditions and the outlook for us and
FTL-Cayman. These "forward-looking statements," as defined by the federal
securities laws, include statements relating to our and FTL-Cayman's anticipated
future operating performance, business prospects and opportunities, and
merchandising strategies. Wherever possible, we have identified them by words
such as "anticipates," "believes," "estimates," "expects," "projects" and
similar expressions. We have based these forward-looking statements on our
current expectations and projections about future events, based on the
information currently available to us. They are subject to risks, uncertainties
and other factors which could cause our and FTL-Cayman's actual results,
performance or achievements to differ materially from those expressed in, or
implied by, these statements. These risks, uncertainties and other factors
include:
- financial strength of the total industry generally and the mass market
channel specifically;
- the level of consumer spending for apparel;
- the amount of sales by us and FTL-Cayman of activewear screenprint
products;
- the competitive pricing environment within the basic apparel segment of
the apparel industry;
- our and FTL-Cayman's ability to develop new products;
- our and FTL-Cayman's effective income tax rate;
- the success of planned advertising, marketing and promotional campaigns;
- the resolution of legal proceedings and other contingent liabilities;
- currency exchange rate fluctuations, compliance with foreign laws and
other risks relating to international activities;
- our and FTL-Cayman's successful planning of production necessary to
maintain inventories at levels sufficient to meet product demand; and
- weather in the locations where we manufacture and sell our products.
Except as required by the federal securities laws, we undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, changed circumstances or any
other reason.
9
<PAGE>
CAPITALIZATION
(IN MILLIONS)
In the table below, we present our capitalization at April 3, 1999. We
present both our actual capitalization on that date and our capitalization as
adjusted to give effect to the repurchase and the repayment at maturity of our
7 7/8% senior notes as described under "Use of Proceeds." Our capitalization
will not change as a result of the exchange offer. You should read this table
along with our consolidated financial statements and the related notes and the
other financial data contained or incorporated by reference in this prospectus.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
--------- -----------
AS OF APRIL 3, 1999
----------------------
<S> <C> <C>
Total debt (including current maturities):
Capitalized lease obligations, maturing 1999-2017(1)................................... $ 47.9 $ 47.9
Variable rate credit agreement, maturing 1999-2002(2).................................. 303.5 555.5
Variable rate Irish Term Loan, maturing 1999(3)........................................ 12.1 12.1
Variable rate Foreign Credit Facility, maturing 2000(3)................................ 13.0 13.0
7 7/8% Senior Notes, maturing 1999(4).................................................. 249.9 --
6 1/2% Senior Notes, maturing 2003(5).................................................. 149.3 149.3
8 7/8% Senior Notes, maturing 2006(6).................................................. 248.4 248.4
7% Debentures, maturing 2011(7)........................................................ 77.3 77.3
7 3/8% Debentures, maturing 2023(8).................................................... 148.1 148.1
--------- -----------
Total debt........................................................................... 1,249.5 1,251.6
--------- -----------
Preferred stock.......................................................................... 71.7 71.7
--------- -----------
Common stockholders' equity:
Common stock............................................................................. 255.5 255.5
Retained earnings........................................................................ 267.6 265.5
Currency translation and minimum pension liability....................................... (65.9) (65.9)
--------- -----------
Total common stockholders' equity.................................................... 457.2 455.1
--------- -----------
Total capitalization................................................................. $ 1,778.4 $ 1,778.4
--------- -----------
--------- -----------
</TABLE>
- ------------------------
(1) Represents the principal portion of the obligations and includes $30.3 of
debt of our subsidiaries which are not guarantors under our credit
agreement. The capitalized leases are secured by the related property under
lease.
(2) Actual data includes $70.0 outstanding under the term facility and $233.5
outstanding under the revolving credit facility.
(3) Represents indebtedness of our subsidiaries which are not guarantors under
our credit agreement.
(4) Net of unamortized discount of $0.1.
(5) Net of unamortized discount of $0.7.
(6) Net of unamortized discount of $1.6.
(7) Net of unamortized discount of $47.7.
(8) Net of unamortized discount of $1.9.
10
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
Our ratios of earnings to fixed charges for the periods indicated below were
as follows:
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS
- ------------------------------------------------------------------------------------- ENDED
DECEMBER 31, DECEMBER 31, JANUARY 2, APRIL 3,
1994 DECEMBER 31, 1995 1996 DECEMBER 31, 1997 1999 1999
- --------------- ----------------- --------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
2.6x -- 2.5x -- 2.3x 0.7x
</TABLE>
We calculate our ratios of earnings to fixed charges by dividing (1) our
fixed charges plus our pretax earnings from continuing operations by (2) our
fixed charges. Our fixed charges consist of interest expense, the interest
component of rent expense and amortization of deferred financing costs. We had
deficiencies in earnings to cover fixed charges of $218,000,000 for the year
ended December 31, 1995 and $450,600,000 for the year ended December 31, 1997.
USE OF PROCEEDS
We will not receive any cash proceeds from the exchange offer. For issuing
the exchange notes, we will receive the outstanding notes in the same principal
amount. We will retire and cancel the outstanding notes we receive in exchange
for the exchange notes. Therefore, our outstanding debt will not increase.
We received proceeds from the sale of the outstanding notes, after deducting
purchasers' discounts and expenses, of approximately $242,200,000. We used these
net proceeds initially to repay outstanding borrowings under our credit
agreement. We expect to use the availability under our credit agreement created
through this repayment to satisfy our repurchase obligations under our 7 7/8%
senior notes or to repay the 7 7/8% senior notes at maturity. As required by the
indenture for the 7 7/8% senior notes, on April 5, 1999, following the
completion of our corporate reorganization, we commenced a change of control
offer to repurchase the 7 7/8% senior notes at a price equal to 101% of the
principal amount of these notes. This offer expired on May 20, 1999. Holders of
$204,448,000 of aggregate principal amount of the 7 7/8% senior notes tendered
their notes. On June 4, 1999, we will pay these tendering holders an aggregate
purchase price of $206,492,480 plus accrued interest. The remaining $45,552,000
principal amount of the 7 7/8% senior notes will mature by the terms of the
indenture for these notes on October 15, 1999. See "Description of Our Existing
Indebtedness."
11
<PAGE>
OUR BUSINESS
We are a leading international, vertically integrated basic apparel company,
emphasizing branded products for consumers ranging from infants to senior
citizens. We are one of the largest producers of men's and boys' underwear,
activewear for the screenprint T-shirt and fleece market, women's and girls'
underwear, casualwear, women's jeanswear and childrenswear. We sell products
principally under the FRUIT OF THE LOOM-REGISTERED TRADEMARK-,
BVD-REGISTERED TRADEMARK-, SCREEN STARS-REGISTERED TRADEMARK-, BEST-TM-,
MUNSINGWEAR-REGISTERED TRADEMARK-, WILSON-REGISTERED TRADEMARK-,
GITANO-REGISTERED TRADEMARK- AND CUMBERLAND BAY-TM- brand names. In addition to
undecorated products, we offer underwear, sportswear and T-shirts decorated with
licensed characters, including STAR WARS-TM-, BATMAN-TM-, SUPERMAN-TM-,
SPIDERMAN-TM-, LOONEY TUNES-TM-, SESAME STREET-TM-, SCOOBY-DOO-TM-, WOODY
WOODPECKER-TM-, CURIOUS GEORGE-TM- AND TELETUBBIES-TM-. Under the PRO
PLAYER-REGISTERED TRADEMARK- and FANS GEAR-REGISTERED TRADEMARK- brands, we also
design, manufacture and market licensed sports apparel bearing the names,
tradenames and logos of the National Football League, the National Basketball
Association, Major League Baseball and the National Hockey League, professional
sports teams and many colleges and universities, as well as the likenesses of
popular professional athletes.
We are a fully integrated manufacturer and perform most of our own yarn
spinning, knitting, cloth finishing, cutting, sewing and packaging. We consider
our primary strengths to be our excellent brand recognition, low cost production
resulting primarily from the offshore location of substantially all of our
labor-intensive manufacturing operations, and strong relationships with major
discount chains and mass merchandisers. We believe that consumer awareness of
our value, quality and competitive prices will benefit us in any retail
environment where consumers are value conscious.
ORGANIZATION
We have organized our business into four areas:
(1) RETAIL PRODUCTS, representing 50% of our 1998 net sales. We generally sell
our retail products to major discount chains and mass merchandisers. These
products consist of:
- men's and boys' underwear;
- women's and girls' underwear;
- undecorated domestic casualwear, T-shirts and fleecewear;
- international casualwear T-shirts, 70% of which are sold in Canada, 16%
in Mexico and 14% in Japan;
- women's and girls' jeanswear; and
- childrenswear;
(2) ACTIVEWEAR, representing 28% of our 1998 net sales. We sell our activewear
products to large wholesale distributors. These distributors break down bulk
purchases for resale to the screenprint market and specialty retailers. Our
activewear products consist primarily of T-shirts and fleecewear;
(3) LICENSED SPORTSWEAR, representing 9% of our 1998 net sales. We distribute
our licensed sportswear products in the mass merchant channel and to sports
specialty and department stores; and
(4) EUROPEAN BUSINESS, representing 13% of our 1998 net sales. We sell our
European apparel product offering to the retail market (37%) and to
wholesale distributors for resale to the imprint market (63%). Our European
apparel product offerings generally consist of T-shirts, fleecewear and polo
shirts. These products are sold primarily in Western European countries.
12
<PAGE>
PRODUCTS
Within our four business areas, we produce a wide range of basic apparel
products. We believe that price, product quality, customer service and
responsive delivery are important factors in the sale of our products. We divide
our products into seven categories:
(1) MEN'S AND BOYS' UNDERWEAR. We offer a broad array of men's and boys'
underwear including briefs, boxer shorts, T-shirts and A-shirts, and colored
and "fashion" underwear. We sell these products primarily to major discount
chains and mass merchandisers. A recent survey found that the FRUIT OF THE
LOOM brand was the most recognized of 90 men's apparel brands, with 97%
brand awareness. We sell all-cotton and cotton-blend underwear under our
FRUIT OF THE LOOM and BVD brand names. We generally design our products sold
under the BVD brand name to appeal to a more premium market. We price these
products higher than those we sell under the FRUIT OF THE LOOM brand name.
Under our licensing arrangements, we manufacture and market men's and boys'
underwear bearing the MUNSINGWEAR and KANGAROO-REGISTERED TRADEMARK-
trademarks in the United States and overseas markets. We are one of the
market leaders in men's and boys' underwear, with a 1998 domestic market
share of approximately 32%.
The following table illustrates our 1998 domestic market share position in
the men's and boys' underwear market.
MEN'S AND BOYS' UNDERWEAR
<TABLE>
<CAPTION>
TOTAL MASS
TOTAL MARKET MERCHANDISER MARKET
------------- ---------------------
<S> <C> <C>
Fruit of the Loom......................................... 32% 46%
Hanes (Sara Lee).......................................... 37% 42%
Private Label............................................. 15% 6%
Jockey.................................................... 6% --
Other..................................................... 10% 6%
----- -----
100% 100%
----- -----
----- -----
</TABLE>
(2) ACTIVEWEAR. We produce and sell undecorated T-shirts and fleecewear under
the SCREEN STARS brand name and premium fleecewear and T-shirts under the
FRUIT OF THE LOOM, LOFTEEZ and BEST BY FRUIT OF THE LOOM labels. We
manufacture these products in a variety of styles and colors. We sell them
to distributors, screenprinters and specialty retailers. We believe that we
are the largest domestic activewear manufacturer and supplier for
screenprinters, with a domestic market share of the screenprint T-shirt
market of approximately 28% for 1997, the most recent year for which data is
available. We believe that our 1998 market share was substantially the same
as our 1997 market share.
13
<PAGE>
The following table illustrates our 1997 domestic market share position in
the screenprint T-shirt market and screenprint fleece market.
SCREENPRINT
<TABLE>
<CAPTION>
TOTAL T-SHIRT MARKET TOTAL FLEECE MARKET
--------------------- -------------------
<S> <C> <C>
Fruit of the Loom.................................... 28% 9%
Jerzees.............................................. 9% 38%
Hanes (Sara Lee)..................................... 16% 9%
Lee.................................................. -- 10%
Anvil................................................ 6% --
Tultex............................................... -- 5%
Delta................................................ 5% --
Other................................................ 36% 27%
----- -----
100% 100%
----- -----
----- -----
</TABLE>
(3) WOMEN'S AND GIRLS' UNDERWEAR. We offer a variety of women's and girls'
underwear under the FRUIT OF THE LOOM brand name, including cotton, nylon
and lycra panties. We sell these products primarily to major discount chains
and mass merchandisers. In addition, we have granted a license to Warnaco
Inc. for the manufacture and sale of bras, slips, camisoles and other
products under the FRUIT OF THE LOOM brand name in North America. We also
license the use of the FRUIT OF THE LOOM brand name to a manufacturer of
sheer hosiery. We are one of the branded market leaders in the fragmented
women's and girls' underwear market, with a 1998 domestic market share of
approximately 15%.
The following table illustrates our 1998 domestic market share position in
the women's and girls' underwear market.
WOMEN'S AND GIRLS' UNDERWEAR
<TABLE>
<CAPTION>
TOTAL MASS
TOTAL MARKET MERCHANDISER MARKET
------------- ---------------------
<S> <C> <C>
Fruit of the Loom......................................... 15% 24%
Hanes (Sara Lee).......................................... 37% 48%
Private Label............................................. 21% 12%
Other..................................................... 27% 16%
----- -----
100% 100%
----- -----
----- -----
</TABLE>
(4) CASUALWEAR. We market undecorated T-shirts and fleece tops, shorts and
bottoms to mass merchandisers as casualwear under the FRUIT OF THE LOOM, BVD
and MUNSINGWEAR brands. We produce casualwear in separate Spring and Fall
lines, with updated color selections for each of the men's, women's, boys'
and girls' categories. Our national marketing program includes national
advertising and local cooperative advertising promotions and in-store
merchandising. The casualwear market is fragmented and has no dominant
brands.
(5) WOMEN'S JEANSWEAR. We design, manufacture and market women's jeanswear and
jeans related sportswear to mass merchandisers under GITANO and other
trademarks. In addition to our core GITANOapparel products, we license the
production and sale of a variety of accessories and other products bearing
the GITANO trademark.
14
<PAGE>
The following table illustrates our 1998 domestic market share position in
the total mass merchandiser women's and girls' jeans market.
WOMEN'S AND GIRLS' JEANS
<TABLE>
<CAPTION>
TOTAL MASS
MERCHANDISER MARKET
---------------------
<S> <C>
Fruit of the Loom....................................................... 10%
VF Corp (Lee, Riders, Wrangler)......................................... 15%
Chic.................................................................... 11%
Private Label........................................................... 41%
Other................................................................... 23%
-----
100%
-----
-----
</TABLE>
(6) LICENSED SPORTSWEAR. We design, manufacture and market sports apparel under
licenses granted by major professional sports leagues, professional players
and many colleges and universities in the United States. We also have
licenses from The Walt Disney Company for its ESPN and X-Games properties.
We sell a wide variety of quality sportswear, including T-shirts,
sweatshirts, shorts and outerwear, primarily under the PRO PLAYER and FANS
GEAR brands and the WILSON trademark. We manufacture and market a wide
variety of decorated sportswear to retail stores and mass merchants. Under
our PRO PLAYER brand, we design and market heavyweight jackets, lightweight
jackets, headwear and other outerwear and T-shirts and fleecewear bearing
the logos or insignia of professional sports and college teams and leagues.
(7) CHILDRENSWEAR. We offer a broad array of childrenswear, including decorated
underwear, under the FUNPALS-REGISTERED TRADEMARK-,
FUNGALS-REGISTERED TRADEMARK- and UNDEROOS-REGISTERED TRADEMARK- brand
names. The decorated underwear generally has pictures of licensed movie or
cartoon characters.
BUSINESS STRATEGY
LOW COST MANUFACTURING. Our strategy is to use our automated textile
manufacturing facilities in the United States for yarn spinning, knitting,
bleaching and dyeing, together with low cost offshore operations for
labor-intensive cutting, sewing and finishing activities. This combination
allows us to optimize our cost structure and offer continued value to our
customers. As part of this strategy, over the last three years we transferred
substantially all of our sewing operations to locations in Mexico, the Caribbean
and Central America. In 1998, over 95% of our garments were sewn offshore, as
compared to approximately 12% at the beginning of 1995. We estimate that, as a
result of our moving sewing operations offshore, we have reduced our assembly
costs by more than $150 million annually. Based on our selling price points and
operating margins on our various products, we believe that we are one of the
lowest cost producers in the markets we serve.
UTILIZING CONTRACT MANUFACTURERS. Contract manufacturers assembled
approximately half of our garments sewn offshore in 1998. We assembled the
remaining half, consisting primarily of large volume styles, at our owned and
operated facilities. While we believe we have the greatest cost reduction
potential at our owned facilities, we use contract manufacturers for the
following reasons:
- to balance internal capacity requirements;
- to manufacture low volume specialty garments;
- to accommodate seasonal or one-time programs; and
- to bridge capacity in our move from domestic plant to offshore plant
sewing.
15
<PAGE>
We have increased our sewing capacity in Mexico and Central America and expect
to continue to reduce our reliance on contract manufacturing, resulting in
further cost reductions.
DEVELOPING PRODUCT LINE EXTENSIONS AND NEW PRODUCTS. We continue to expand
our existing product lines with variations designed to enhance product demand
and increase revenues. Specifically, we have responded to the popularity of
boxers in the men's and boys' underwear product category by expanding our
offerings of boxers and boxer briefs in various patterns and silhouettes. In the
women's and girls' underwear category, we are introducing new products through
our FTL Sport and Close Comfort programs, which feature styles for improved fit
and more comfortable feeling fashions. In the childrenswear category, we are
introducing an updated line of our Underoos brand costume underwear sets in a
variety of popular character prints, including new licensing properties such as
Star Wars, Superman, Spiderman and Teletubbies. In addition, we are introducing
new product variations in our activewear and licensed sportswear categories,
including our authentic program with the National Hockey League for team jerseys
and uniforms.
EXPANDING MARKETING PROGRAMS. Our marketing programs emphasize the quality
and consistency of the brands we own and those we license from others. We are
increasing our emphasis on marketing programs, with an enhanced commitment to
advertising and promotional programs. In 1996, we signed a ten-year agreement to
rename Joe Robbie Stadium, home of the Miami Dolphins, Florida Marlins and the
1999 Super Bowl, as Pro Player Stadium. In addition, we have launched a new
advertising campaign focusing on Fruit of the Loom, BVD and Pro Player products.
ENHANCING INFORMATION SYSTEMS. We have committed additional resources to
enhance our information systems. Through these efforts we have developed a new
order entry system enabling activewear retailers to order from wholesalers
through the Internet and have implemented electronic data interchange with our
major retail customers. In addition, we have implemented our vendor managed
inventory, or "VMI" program, enabling us to partner with our customers and
allowing these customers to maintain optimal inventory levels. The VMI program
and other enhancements of information systems enable us to improve use of our
own inventories by matching production more closely with customer point of sale
information. We plan to continue our efforts in the information systems area in
1999 and future years to improve our efficiency and customer service.
MARKETING AND DISTRIBUTION
We sell our products to over 10,000 accounts, including all major discount
chains and mass merchandisers, wholesale clubs and screenprinters. We also sell
to many department, specialty, drug and variety stores, national chains,
supermarkets and sports specialty stores. In 1998, approximately 83% of the
domestic products we sold through retail channels were sold to major discount
chains and mass merchandisers, approximately 10% were sold to specialty stores,
and approximately 7% were sold to department stores. We believe that if we were
to lose any one customer, a large percentage of these sales would shift to other
outlets due to the high degree of brand awareness and consumer loyalty to our
products. Sales to our largest customer represented approximately 17% of our net
sales in 1998. Additionally, sales to our second largest customer represented
approximately 12% of our net sales in 1998. We primarily sell our products
through a nationally organized direct sales force of full-time employees. We
also sell some of our products through independent sales representatives. We
ship our products from five primary distribution centers.
We believe that our primary strengths include our long-standing excellent
relationships with major discount chains and mass merchandisers. These retailers
accounted for approximately 64% of the men's and boys' underwear and
approximately 61% of the women's and girls' underwear sold in the United States
in 1998, up from approximately 59% and 54% in 1993. In these U.S. channels, we
supplied approximately 46% of the men's and boys' underwear, compared to 42% for
our principal competitor, and approximately 24% of the women's and girls'
underwear, compared to 48% for our principal competitor. During the last several
years, many of our principal customers have revamped their inventory and
distribution systems,
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requiring their suppliers to offer more flexible product deliveries. In response
to these demands and to enable us to better monitor and control our own
inventory levels, we have made substantial investments in information systems
and in upgrading our warehousing and distribution capabilities.
We extensively market our activewear and, to a lesser extent, our other
products outside the United States, principally in Europe, Canada, Japan and
Mexico. In order to serve these markets, we have manufacturing plants in Canada,
the Republic of Ireland and Northern Ireland. We also have manufacturing
operations in Morocco, where we sew cut fabrics from the Republic of Ireland and
return them to Europe for sale.
LICENSING AND TRADEMARKS
We own the FRUIT OF THE LOOM, BVD, SCREEN STARS, BEST, LOFTEEZ, CUMBERLAND
BAY and other trademarks, which are registered or protected by common law in the
United States and in many foreign countries. We use these trademarks on our
men's, women's and children's underwear and activewear. We own the GITANO
trademark, which is registered in the United States and in many foreign
countries for use principally in connection with our women's jeanswear,
sportswear and other apparel and accessory items.
We license properties from different companies for our lines of decorated
underwear, sportswear and T-shirts. Among the characters we license are STAR
WARS, BATMAN, SUPERMAN, SPIDERMAN, LOONEY TUNES, POWER RANGERS-TM-, SCOOBY-DOO,
SESAME STREET, ANASTASIA-TM-, WOODY WOODPECKER, CURIOUS GEORGE and TELETUBBIES.
We also have a license to use the MUNSINGWEAR and KANGAROO trademarks on our
men's and boys' underwear and certain activewear. We have a license to use the
WILSON brand on our sweatshirts and sweatpants, T-shirts, shorts and other
athletic activewear.
In addition, we own the PRO PLAYER and FANS GEAR trademarks for our licensed
sportswear business. We license properties, including team insignia, images of
professional athletes and college logos from the National Football League, the
National Basketball Association, Major League Baseball, the National Hockey
League, professional players' associations and individual players and many
colleges and universities in the United States. We use these owned and licensed
trademarks on our sports apparel, principally T-shirts, shorts, sweatshirts,
jerseys, and lightweight and heavyweight jackets.
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THE REORGANIZATION
GENERAL
On March 4, 1999, we completed a corporate reorganization pursuant to which
FTL-Cayman, a Cayman Islands company and formerly our subsidiary, became our
parent holding company. FTL-Cayman, initially through us, continues to conduct
the businesses in which we were engaged immediately prior to the reorganization.
During the remainder of 1999 and 2000, we will transfer substantially all of our
businesses and subsidiaries located outside of the United States to FTL-Cayman,
or direct or indirect foreign subsidiaries of FTL-Cayman, other than certain
interests of ours in Canada and Mexico and our beneficial ownership of certain
trademarks. The shareholders of FTL-Cayman have the same relative voting rights
as our stockholders prior to the reorganization. A holder of FTL-Cayman Class A
ordinary shares owns an interest in a parent holding company with subsidiaries
that together are engaged in the same business as we and our subsidiaries were
engaged in before the reorganization. In connection with the reorganization,
FTL-Cayman filed with the SEC a registration statement on Form S-4, Registration
no. 333-46007, which became effective on September 16, 1998.
BACKGROUND AND REASONS FOR THE REORGANIZATION
Our international activities and those of our subsidiaries are a significant
part of our business activities. As part of our growth strategy, we have
globally expanded the marketing and manufacturing of our apparel to target
markets outside of the United States. In addition, to reduce costs and improve
production efficiencies, we have much of our manufacturing operations outside of
the United States. We currently derive, and expect to continue to derive, a
substantial portion of our income from activities outside of the United States.
For these reasons, our board determined it would be appropriate to effect a
reorganization of Fruit of the Loom to create a more efficient worldwide
structure.
THE MERGER AGREEMENT
We completed the reorganization pursuant to an agreement and plan of merger.
Pursuant to the merger agreement:
- FTL Merger Corp., a Delaware subsidiary of FTL-Cayman we organized
specifically for the reorganization, merged into us, and we were the
surviving corporation;
- each outstanding share of our Class A common stock, other than shares held
in our treasury, automatically converted into one Class A ordinary share
of FTL-Cayman. Each outstanding share of our Class B common stock
automatically converted into one share of our exchangeable participating
preferred stock;
- the outstanding shares of common stock of FTL Merger Corp. automatically
converted into that number of shares of our common stock which was equal
to the number of shares of our Class A common stock outstanding on the
date of the merger; and
- all of the shares of FTL-Cayman we owned were repurchased by FTL-Cayman
and canceled. The $100 subscription price we paid for these shares was
returned to us.
As a result, we became a subsidiary of FTL-Cayman, and all the FTL-Cayman
Class A shares outstanding immediately after the merger were owned by former
holders of our Class A common stock. William Farley and his affiliates also own
four Class B redeemable ordinary shares of FTL-Cayman. They acquired these
shares immediately prior to the reorganization.
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The shares of our exchangeable participating preferred stock issued to
William Farley in exchange for his Shares of our Class B common stock, in
the aggregate:
- have a liquidation value equal to $71,700,000, the fair market value of
our Class B common stock based upon the average closing price of our Class
A common stock on the New York Stock Exchange for the 20 trading days
prior to the date of the merger of $13.71;
- are entitled to receive cumulative cash dividends of 4.5% per annum of the
liquidation value, payable quarterly;
- are exchangeable at the option of the holder, in whole or from time to
time in part, at any time for 4,981,000 FTL-Cayman Class A ordinary
shares;
- are convertible at the option of the holder, in whole or from time to time
in part, at any time into 4,981,000 shares of our Class A or Class B
common stock;
- participate with the holders of our Class A or Class B common stock in all
dividends and liquidation payments in addition to its preference payments
as if they had converted into our Class A or Class B common stock;
- are redeemable by us, at our option, on or after March 4, 2002 at a
redemption price equal to the then fair market value of our exchangeable
participating preferred stock as determined by a nationally recognized
investment banking firm; and
- have the right to vote on all matters put to a vote of the holders of our
common Class A or Class B common stock, voting together with those holders
as a single class, and are entitled to the number of votes which the
holder would have as if they had converted into our Class A or Class B
common stock.
The four FTL-Cayman Class B ordinary shares purchased by William Farley
immediately prior to the reorganization have been designed to maintain the
relative voting rights that existed immediately prior to the merger between our
Class A common stock and our Class B common stock. The four FTL-Cayman Class B
shares:
- participate equally, on a share for share basis, with the holders of any
other class of ordinary shares outstanding, including the FTL-Cayman Class
A ordinary shares, upon the liquidation of FTL-Cayman and with respect to
any dividends declared by the board of directors of FTL-Cayman;
- vote together with the FTL-Cayman Class A ordinary shares on all matters,
other than as required by Cayman Islands law with respect to certain
extraordinary transactions, having the number of votes equal to the
aggregate number of votes previously held by Fruit of the Loom Class B
common stock (a total of approximately 29% of the aggregate voting power);
- are redeemable proportionately upon the exchange, transfer to a
non-affiliate of William Farley or redemption of our exchangeable
participating preferred stock; and
- are not transferable except to affiliates of William Farley.
EFFECTIVE TIME
The reorganization became effective at the close of business on March 4,
1999, the date that we filed the certificate of merger with the Delaware
Secretary of State.
For additional financial and other information regarding the reorganization,
you should review the pro forma financial statements of Fruit of the Loom and
FTL-Cayman and the related notes included in this prospectus.
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DESCRIPTION OF OUR EXISTING INDEBTEDNESS
In addition to the outstanding notes, we are a party to various public and
private debt instruments. The following is a description of the instruments
which have an original principal amount in excess of $25,000,000:
CREDIT AGREEMENT. We are party to a credit agreement among us, as borrower,
certain of our subsidiaries and FTL-Cayman, as guarantors, and NationsBank,
N.A., as administrative agent. Under our credit agreement, we have available a
revolving credit facility with a maximum principal amount of $600,000,000 and a
term facility with a maximum principal amount of $100,000,000. The revolving
credit facility matures in September 2002. We must repay amounts outstanding
under the term facility in $5,000,000 quarterly installments through September
2002. We may not reborrow amounts we repay under the term facility. As of April
3, 1999, there was $233,500,000 outstanding under the revolving credit facility
and $70,000,000 outstanding under the term facility. Amounts outstanding under
our credit agreement bear interest at (1) LIBOR PLUS a specified number of basis
points (ranging from 67.5 to 200) or (2) the prime rate PLUS a specified number
of basis points (ranging from 0 to 50), based upon our senior unsecured debt
rating and leverage ratio. As of April 3, 1999, the borrowings under our credit
agreement bore interest at a weighted average rate of 6.2%. Our credit agreement
provides that, as long as our senior unsecured debt rating continues to be below
BBB- by S&P and Baa3 by Moody's, our obligations under our credit agreement will
be secured by (1) a pledge of 100% of the capital stock of our material domestic
subsidiaries and 65% of the stock of our material foreign subsidiaries and (2)
industrial development bonds issued and owned by certain of our subsidiaries. If
our senior unsecured debt rating is below BB by S&P and below Ba2 by Moody's, we
have agreed to further secure our obligations under our credit agreement with a
pledge of all our assets. As of the date of this prospectus, our senior
unsecured public debt ratings were BB by S&P and Ba1 by Moody's. We have been
notified by S&P that our credit ratings are on a negative credit watch and by
Moody's that our credit ratings are on a negative outlook. Our obligations under
our credit agreement also are guaranteed, jointly and severally, by FTL-Cayman
and our guarantor subsidiaries.
Our credit agreement contains affirmative and negative covenants, including:
- certain reporting requirements;
- maintenance of corporate existence, properties and insurance; and
- restrictions on sales of assets, mergers and acquisitions, dividend
payments, indebtedness, investments, guarantees, liens and transactions
with affiliates.
Our credit agreement also requires that we comply with specific financial
covenants and ratios, including (1) a leverage ratio, (2) an interest coverage
ratio and (3) a fixed charge coverage ratio. Events of default under our credit
agreement include:
- failure within a specific number of days to pay principal or interest when
due;
- breaches of covenants and failure to cure within a specified number of
days;
- breaches of representations and warranties;
- cross defaults with other indebtedness;
- certain events of bankruptcy;
- violations of ERISA; and
- certain events resulting in a change of control.
7% DEBENTURES. We, as successor to Northwest Industries, Inc., are a party
to an indenture, dated as of March 15, 1981, relating to $125,000,000 aggregate
principal amount of 7% debentures due March 15, 2011. The amount reflected as
outstanding on our balance sheet as of April 3, 1999 for the 7% debentures is
$77,300,000, due to original issue discount. The indenture for the 7% debentures
restricts the issuance of debt by certain of our subsidiaries, restricts
transactions which constitute sale and leaseback transactions and limits our
ability to incur secured debt. As long as our obligations under our credit
agreement continue
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to be secured by a pledge of stock and bonds as described above, our obligations
on the 7% debentures will be secured equally and ratably. During non-investment
grade rating periods, as defined on page 45 of this prospectus, the 7%
debentures will be guaranteed, jointly and severally, by our guarantor
subsidiaries.
7 7/8% SENIOR NOTES. We are also party to an indenture, dated as of October
15, 1992, relating to $250,000,000 aggregate principal amount of 7 7/8% senior
notes due 1999. The amount reflected as outstanding on our balance sheet as of
April 3, 1999 with respect to the 7 7/8% senior notes is $249,900,000. The
indenture for the 7 7/8% senior notes contains covenants and events of default
substantially similar to those set forth in the indenture for the exchange notes
described in this prospectus. The 7 7/8% senior notes are not guaranteed by our
guarantor subsidiaries and are not secured by the pledge of stock and bonds
described above. As required by the indenture for the 7 7/8% senior notes, on
April 5, 1999, following the completion of our corporate reorganization, we
commenced an offer to repurchase the 7 7/8% senior notes at a price equal to
101% of the principal amount of these notes. This offer expired on May 20, 1999.
Holders of approximately $204,448,000 principal amount of the 7 7/8% senior
notes tendered their notes. On June 4, 1999, we will pay these tendering holders
an aggregate purchase price of $206,492,480 plus accrued interest. The remaining
$45,552,000 principal amount of the 7 7/8% senior notes will mature by the terms
of the indenture for these notes on October 15, 1999.
6 1/2% SENIOR NOTES. We also are party to an indenture, dated as of
November 30, 1993, relating to $150,000,000 aggregate principal amount of 6 1/2%
senior notes due November 15, 2003. The amount reflected as outstanding on our
balance sheet as of April 3, 1999 for the 6 1/2% senior notes is $149,300,000.
The indenture for the 6 1/2% senior notes restricts the issuance of debt and
preferred stock by certain of our subsidiaries, restricts transactions which
constitute sale and leaseback transactions and limits our ability to incur
secured debt. As long as our obligations under our credit agreement are secured
by a pledge of stock and bonds as described above, our obligations on the 6 1/2%
senior notes must be equally and ratably secured. During non-investment grade
rating periods, the 6 1/2% senior notes will be guaranteed, jointly and
severally, by our guarantor subsidiaries.
7 3/8% DEBENTURES. We also are party to an indenture dated as of November
30, 1993 relating to $150,000,000 aggregate principal amount of 7 3/8%
debentures due November 15, 2023. The amount reflected as outstanding on our
balance sheet as of April 3, 1999 for the 7 3/8% debentures is $148,100,000.
Except for the maturity date and interest rate, our obligations on the 7 3/8%
debentures, including the pledge of stock and bonds described above, are
identical to those of the 6 1/2% senior notes. During non-investment grade
rating periods, the 7 3/8% debentures will be guaranteed, jointly and severally,
by our guarantor subsidiaries.
OPERATING LEASE. Some of our subsidiaries are parties to a CSFB Advantage
Lease dated September 30, 1994, as amended. We, our guarantor subsidiaries and
FTL-Cayman have guaranteed the obligations of the subsidiary lessees under the
CSFB operating lease. Pursuant to the CSFB operating lease and related
documents, an owner-trustee purchases equipment at the request of the subsidiary
lessees, and then leases the equipment back to the subsidiary lessees. A related
credit agreement provides funds to the owner trustee to make the purchases.
Amounts outstanding under the lease bear interest at either LIBOR, PLUS a
specified number of basis points based upon our senior unsecured debt rating or
(2) the prime rate. Payments of rent made by the subsidiary lessees under the
CSFB operating lease mirror the payments of principal and interest made by the
owner-trustee under the credit agreement. The CSFB operating lease contains
covenants and events of default substantially similar to those set forth in our
credit agreement. Our obligations and those of the subsidiary lessees under the
CSFB operating lease are secured by a lien on the leased equipment. Our
obligations and those of the subsidiary lessees also are subject to a residual
value guarantee equal to approximately 87% of the original purchase price of the
leased equipment. As of April 3, 1999, approximately $91,600,000 was outstanding
under the equipment lease agreement, of which approximately $74,800,000
represented the residual value guarantee. Pursuant to the lease credit
agreement, each draw under the lease converted to a term loan. All of these term
loans
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are due and payable on September 30, 1999. We have a unilateral option to extend
the payment date to September 30, 2000.
RECEIVABLES PURCHASE AGREEMENT. FTL Receivables Company, our wholly-owned
subsidiary, Union Underwear Company, Inc., our wholly-owned subsidiary, as
servicer; Barton Capital Corporation, as purchaser; and Societe Generale, as
agent, are parties to a receivables purchase agreement, dated as of December 18,
1996, as amended. Pursuant to the receivables purchase agreement, Barton Capital
agrees to purchase from FTL Receivables the accounts receivable purchased by FTL
Receivables from our subsidiaries, in an amount not to exceed $250,000,000.
Amounts outstanding under the receivables purchase agreement bear interest at
the commercial paper rate. The maturity date of the transaction represented by
the receivables purchase agreement is December 17, 2001. Other than compliance
with financial covenants and ratios, the receivables purchase agreement and its
ancillary documents contain covenants and events of default substantially
similar to those set forth in our credit agreement. Obligations under the
receivables purchase agreement are not secured by any of our assets or the
assets of our subsidiaries other than the receivables. If our senior unsecured
debt rating were to fall below BB- by S&P and Ba3 by Moody's, a "liquidity
event" would occur, unless the receivables purchase agreement were amended. Upon
a liquidity event, the receivables purchase agreement would terminate, and
Societe Generale could liquidate the receivables which had been sold pursuant to
the agreement. We have guaranteed the performance by certain of our subsidiaries
of their servicing obligations under the receivables purchase agreement and the
ancillary documents to which the subsidiaries are a party.
CERTAIN GUARANTEED DEBT. Pursuant to authorization from our board of
directors and the boards of FTL-Cayman and each of our domestic subsidiaries,
we, FTL-Cayman and our domestic subsidiaries have guaranteed a loan in an amount
up to $65,000,000 to William Farley from two banks affiliated with the initial
purchasers of the outstanding notes. In exchange for these guarantees, we
receive an annual fee from William Farley equal to 2% of the amount of the loan
guarantee. To secure his obligation to reimburse us for any payment we, our
domestic subsidiaries or FTL-Cayman may make under the guarantee, William Farley
has granted us a lien on substantially all of his assets. To secure payment of
our obligations under the guarantees, we and our domestic subsidiaries granted
the banks a lien on the capital stock and bonds that currently secure our
obligations under our credit agreement and other outstanding debt. We have
received an opinion from an unrelated third party as to the reasonableness of
the loan guarantee fee for this transaction.
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DESCRIPTION OF THE NOTES
The outstanding notes were issued under an indenture, dated as of March 25,
1999, among Fruit of the Loom, FTL-Cayman, our guarantor subsidiaries and The
Bank of New York, as trustee. The exchange notes will be issued under the same
indenture and will have the same form and terms as the outstanding notes, with
two exceptions. First, the exchange notes will not bear legends restricting
their transfer because the issuance of the exchange notes has been registered
under the Securities Act. Second, the holders of exchange notes will not be
entitled to rights under the registration rights agreement, since the primary
provision of that agreement will terminate when the exchange offer is
consummated. The terms of the notes include those stated in the indenture and
those made part of the indenture by reference to the Trust Indenture Act of
1939.
The following description of the particular terms of the exchange notes, the
indenture and the registration rights agreements may not be complete. This
description is qualified in its entirety by reference to all of the provisions
of the indenture, including the form of note, and the registration rights
agreement. These documents have been filed with the SEC, and you can review them
as described under "Where You Can Find More Information.". You can find
definitions of key terms used in this section of the prospectus under "--
Certain Definitions" set forth below. When we refer to the "notes" we are
referring to both the outstanding notes and the exchange notes.
GENERAL
The exchange notes will mature on April 15, 2006 and will bear interest at a
rate of 8 7/8% per year from the date of issuance. We will pay interest on the
exchange notes semiannually on April 15 and October 15 of each year, beginning
October 15, 1999, to everyone who is a registered holder at the close of
business on the April l or October 1 immediately preceding the interest payment
date. The outstanding notes and the exchange notes are limited to $250,000,000
aggregate principal amount.
As discussed under "The Exchange Offer," Fruit of the Loom, FTL-Cayman and
our guarantor subsidiaries have agreed to file with the SEC the registration
statement of which this prospectus is a part and to offer to the holders of
outstanding notes who make certain representations the opportunity to exchange
their outstanding notes for the exchange notes. If we fail to comply with this
agreement, the interest rate on the outstanding notes may increase.
Interest on the exchange notes will be computed on the basis of a 360-day
year of twelve 30-day months. Interest on overdue principal and, to the extent
permitted by law, on overdue installments of interest will accrue at a rate of
one percentage point in excess of the stated annual rate.
We will issue the exchange notes only in registered form, without coupons.
We will issue them only in integral multiples of $1,000.
SUBSIDIARY GUARANTEES
The exchange notes will be fully and unconditionally guaranteed on a senior
unsecured basis, jointly and severally, by each of the guarantor subsidiaries.
These subsidiary guarantees will be effective during Non-Investment Grade Rating
Periods. The obligation of each guarantor subsidiary under its guarantee will be
limited in a manner intended to cause the obligation not to be deemed a
fraudulent conveyance under applicable law. The guarantor subsidiaries are all
of our principal domestic subsidiaries. See "Notes to Condensed Consolidated
Financial Statements" in this prospectus for financial information regarding the
guarantor subsidiaries.
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FTL-CAYMAN GUARANTEE
The notes will be fully and unconditionally guaranteed on a senior unsecured
basis by FTL-Cayman. Prior to the merger, FTL-Cayman had no significant assets.
In the reorganization, we became a subsidiary of FTL-Cayman. See "The
Reorganization."
OPTIONAL REDEMPTION
We may redeem the exchange notes, in whole or in part, at any time, at our
option at 100% of the principal amount, plus the Make-Whole Premium, together
with all accrued and unpaid interest, if any, to the date of redemption. We may
not redeem the exchange notes through the operation of a sinking fund.
If we redeem less than all of the exchange notes at any time, the trustee
will select the exchange notes for redemption on a PRO RATA basis, by lot or by
another method the trustee considers fair and appropriate. The trustee will send
a notice of redemption to each holder of the exchange notes to be redeemed at
its registered address by first-class mail at least 30, but not more than 60,
days prior to the date of redemption. If we are to redeem any exchange note in
part only, the notice of redemption that relates to that exchange note will
state the portion to be redeemed. We will issue a new exchange note in a
principal amount equal to the unredeemed portion in the name of the holder upon
cancellation of the original exchange note. On and after the date of redemption,
interest will no longer accrue on the exchange notes or portions called for
redemption.
RANKING
When issued, the exchange notes will be our senior unsecured obligations and
will rank equally in right of payment with all of our existing and future
unsecured and unsubordinated obligations. The subsidiary guarantees will be
senior unsecured obligations of each of our guarantor subsidiaries and will rank
equally with all other senior unsecured obligations of each of the guarantor
subsidiaries. Borrowings under our credit agreement are secured by a pledge of
the capital stock of certain of our subsidiaries and by the pledge of industrial
development bonds issued and owned by certain of our subsidiaries. As a result,
the exchange notes will be effectively subordinated to all of our obligations
under our credit agreement and approximately $425,000,000 principal amount of
additional outstanding debt to the extent of the value of the capital stock and
bonds securing these obligations. The exchange notes will also be effectively
subordinated to all liabilities, including trade payables, of our non-guarantor
subsidiaries. Additionally, during Investment Grade Rating Periods, they will be
effectively subordinated to all liabilities of our guarantor subsidiaries,
including trade payables and guarantees of our obligations under our credit
agreement and certain lease obligations. As of April 3, 1999, giving effect to
our repurchase of our 7 7/8% senior notes, (1) we, excluding our non-guarantor
subsidiaries, would have had approximately $1,196,200,000 of debt outstanding,
including $555,500,000 under our credit agreement and $374,700,000 principal
amount of additional outstanding debt guaranteed by the guarantor subsidiaries,
and (2) our non-guarantor subsidiaries would have had approximately $55,400,000
of additional outstanding debt and approximately $37,700,000 of outstanding
accrued liabilities. See "Description of Our Existing Indebtedness."
The FTL-Cayman guarantee on the exchange notes will be a senior unsecured
obligation of FTL-Cayman and will rank equally with all other senior unsecured
obligations of FTL-Cayman. FTL-Cayman also guarantees our obligations under our
credit agreement. Because this credit agreement guarantee is secured by a pledge
of our capital stock, the FTL-Cayman guarantee on the exchange notes will be
effectively subordinated to FTL-Cayman's guarantee of our obligations under our
credit agreement. The FTL-Cayman guarantee on the exchange note will also be
effectively subordinated to all liabilities of any subsidiaries of FTL-Cayman.
The indenture does not restrict the incurrence of indebtedness by the
subsidiaries of FTL-Cayman other than ourself and our subsidiaries.
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Although the indenture contains limitations on the amount of additional Debt
that we and FTL-Cayman may incur, under certain circumstances the amount of the
additional Debt could be substantial. See "-- Restrictive Covenants --
Limitation on Debt" below. Our operations are conducted through our
subsidiaries. Although the indenture limits the incurrence of Debt by our
subsidiaries, this limitation is subject to a number of significant
qualifications. Moreover, the indenture does not impose any limitation on the
incurrence by our subsidiaries of liabilities that are not considered debt under
the indenture. See "-- Restrictive Covenants -- Limitation on Subsidiary Debt
and Preferred Stock."
CHANGE OF CONTROL
If any of the following events occur we will be required to offer to
repurchase all of the exchange notes at a price equal to 101% of the principal
amount of the exchange notes, plus accrued and unpaid interest, if any, to the
date of repurchase:
- any person other than William Farley and his affiliates becomes the
beneficial owner, directly or indirectly, of more than 50% of the voting
power of FTL-Cayman;
- during any period of two consecutive years, individuals who at the
beginning of the period constituted the board of directors of FTL-Cayman,
together with any new directors whose election by the board of directors
or whose nomination for election by the shareholders of FTL-Cayman was
approved by a vote of 66 2/3% of the directors of FTL-Cayman still in
office who were either directors at the beginning of the two-year period
or whose election or nomination for election was previously so approved,
no longer constitute a majority of the board of directors of FTL-Cayman
then in office;
- FTL-Cayman consolidates with or merges with or into another person or
conveys, transfers or leases all or substantially all of its assets to any
person, or any person consolidates with or merges into FTL-Cayman, in
either event in a transaction in which the outstanding voting stock of
FTL-Cayman is changed into or exchanged for cash, securities or other
property. This does not include any transaction where the outstanding
voting stock of FTL-Cayman is changed into or exchanged for voting stock
of the surviving or transferee corporation which is neither Redeemable
Stock nor Exchangeable Stock and in which no person, other than William
Farley and his affiliates, is or becomes the beneficial owner, directly or
indirectly, of more than 50% of the total voting power of the voting stock
of the surviving or transferee corporation; or
- FTL-Cayman no longer owns at least 90% of our voting stock.
Subject to the limitations discussed below, we or FTL-Cayman could, in the
future, enter into transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a change of control under the
indenture, but that could increase the amount of indebtedness outstanding at
that time or otherwise affect FTL-Cayman's or our capital structure or credit
rating.
The occurrence of certain of the events which would constitute a change of
control could cause a default under FTL-Cayman's or our other existing or future
debt. In addition, the exercise by holders of the exchange notes of their right
to require us to repurchase their exchange notes could cause a default under
such debt, even if the change of control itself is not, due to the financial
effect of the repurchase on us. Finally, our ability to pay cash to the holders
of the exercise notes upon a repurchase may be limited by our then-existing
financial resources.
Within 30 days following any change of control, we will mail a notice to
each holder of the exchange notes stating:
- that a change of control has occurred and that the holder has the right to
require us to repurchase all or any part of his or her exchange notes at a
repurchase price in cash equal to 101% of the principal amount plus
accrued and unpaid interest, if any, to the date of repurchase;
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- the circumstances and relevant facts regarding the change of control,
including our pro forma historical income, cash flow and capitalization
after giving effect to the change of control;
- the repurchase date, which will be between 30 days and 60 days after the
date we mail the notice; and
- the instructions that the holder must follow in order to have its exchange
notes repurchased.
The change of control purchase feature of the exchange notes may in certain
circumstances make more difficult or discourage a takeover of FTL-Cayman, and
thus, the removal of incumbent management.
We will comply with any tender offer rules under the Exchange Act which may
then be applicable, including Rule 14e-1, in connection with any offer we are
required to make to repurchase the exchange notes as a result of a change of
control.
The provisions relative to our obligation to make an offer to repurchase the
notes as a result of a change of control may be waived or modified with the
written consent of the holders of a majority in principal amount of the notes.
RESTRICTIVE COVENANTS
The following restrictive covenants are contained in the indenture:
LIMITATION ON DEBT. Neither we nor FTL-Cayman may issue, directly or
indirectly, any Debt, unless the Consolidated EBITDA Coverage Ratio of
FTL-Cayman and its consolidated subsidiaries for the reference period exceeds
the ratio of 2.0 to 1.0 through the third anniversary of the issue date of the
outstanding notes and exceeds the ratio of 2.5 to 1.0 after that third
anniversary, taking into account the following:
- the issuance of such Debt and, if applicable, the application of the net
proceeds to refinance other Debt, as if the Debt was issued and the
application of the proceeds occurred at the beginning of the reference
period;
- the issuance and retirement of any other Debt since the last day of the
most recent fiscal quarter covered by our income statement as if the Debt
was issued or retired at the beginning of the reference period;
- the acquisition or disposition of any company or business acquired or
disposed of since the first day of the reference period, including any
acquisition or disposition which will be consummated at substantially the
same time as the issuance of such Debt, as if the acquisition or
disposition occurred at the beginning of the reference period; and
- the discontinuance of any operations since the first day of the reference
period, as if such discontinuance occurred on the first day of the
reference period.
For purposes of the indenture, the guarantee by FTL-Cayman of any of our
Debt or of any Debt of our subsidiaries outstanding on the date of issuance of
the outstanding notes will not be deemed the issuance of Debt by FTL-Cayman.
However, in addition to the Debt we or FTL-Cayman issues at the time our
Consolidated EBITDA Coverage Ratio exceeds the applicable ratio set forth above,
we or FTL-Cayman may issue the following debt:
(1) Debt borrowed under our credit agreement in an aggregate principal
amount outstanding at any time not to exceed the greater of (x)
$675,000,000 LESS the amount, not to exceed $75,000,000, of all
repayments of the term facility under our credit agreement and LESS the
amount of any other Debt under our credit agreement permanently retired
with the Net Available Cash of Asset Sales under the covenant entitled
"-- Disposition of Proceeds of Asset Sales" or (y) the sum of
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(A) 50% of the book value of the inventory of FTL-Cayman and its
subsidiaries and (B) 90% of the book value of the accounts receivable of
FTL-Cayman and its subsidiaries, but excluding any accounts receivable
owned by an Accounts Receivable Subsidiary, or which FTL-Cayman or any of
its subsidiaries has agreed to transfer to an Accounts Receivable
Subsidiary in connection with a Qualified Receivables Transaction, in
each case as determined in accordance with generally accepted accounting
principles;
(2) Debt owed to and held by a wholly-owned subsidiary of FTL-Cayman;
PROVIDED, HOWEVER, that, if we or FTL-Cayman are the obligor on the Debt,
the Debt will be expressly subordinated to the prior payment in full in
cash of all obligations on the notes or the FTL-Cayman guarantee, as the
case may be, and that any subsequent issuance or transfer of any capital
stock which results in any such wholly-owned subsidiary ceasing to be a
wholly-owned subsidiary of FTL-Cayman or any transfer of such Debt will
be considered the issuance of Debt by FTL-Cayman;
(3) the notes and the FTL-Cayman guarantee on the notes;
(4) Debt outstanding on the date on which the outstanding notes were
originally issued;
(5) Debt created, incurred or assumed in connection with industrial
development bond financings for the acquisition, construction and
equipping of manufacturing facilities which (A) are to be used for a
business related to our current business, (B) are located in the United
States and (C) are owned or to be owned by either us or one or more
governmental authorities or subdivisions and, in each case, leased to us.
However, the principal amount of such Debt cannot exceed the principal
amount of the related industrial development bonds;
(6) Permitted Refinancing Debt issued in exchange for, or the proceeds of
which are used to refund or refinance, any Debt permitted by clauses (3),
(4) or this clause (6); and
(7) Debt in an aggregate principal amount at any time outstanding not to
exceed $150,000,000.
LIMITATION ON SUBSIDIARY DEBT AND PREFERRED STOCK. We may not permit any
subsidiary of ours to issue, directly or indirectly, any debt or preferred stock
except the following:
(1) Debt of an Accounts Receivable Subsidiary in a Qualified Receivables
Transaction that is without recourse to us or to any other of our
subsidiaries or its assets (other than the Accounts Receivable Subsidiary
and its assets and, as to ourself or any of our subsidiaries, other than
pursuant to representations, warranties, covenants and indemnities
customary for such transactions) and is not guaranteed by any such person
except in the manner contemplated in the definition of the term "Accounts
Receivable Subsidiary;"
(2) Debt or preferred stock issued to and held by us or one of our wholly
owned subsidiaries. However, if a guarantor subsidiary is the obligor on
the Debt, the Debt will be expressly subordinated to the prior payment in
full in cash of all obligations with respect to the subsidiary guarantee
on the notes of the guarantor subsidiary and that any subsequent issuance
or transfer of any capital stock which results in any such wholly owned
subsidiary ceasing to be one of our wholly owned subsidiaries or
subsequent transfer of the Debt or preferred stock will be considered, in
each case, the issuance of the Debt or preferred stock by the issuer;
(3) Debt or preferred stock of one of our subsidiaries issued and
outstanding on or prior to the date on which the subsidiary was acquired
by us;
(4) Debt or preferred stock issued and outstanding on or prior to the date
on which the outstanding notes were originally issued;
(5) the guarantees of our subsidiaries on the notes and approximately
$425,000,000 principal amount of additional outstanding debt and the
guarantee of any other Debt permitted to be issued under "-- Limitation
on Debt" above by ourself or FTL-Cayman; PROVIDED THAT, if such Debt is
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subordinated in right of payment to the notes or the FTL-Cayman guarantee
on the notes, the guarantee will be subordinated to the subsidiary
guarantees on the notes to the same extent;
(6) Debt created, incurred or assumed in connection with industrial
development bond financings for the acquisition, construction and
equipping of manufacturing facilities which (A) are to be used for a
business related to our current business, (B) are located in the United
States and (C) are owned or to be owned by either one of our subsidiaries
or one or more governmental authorities or subdivisions and, in each
case, leased to the subsidiary that created, incurred or assumed the
Debt. The principal amount of the Debt may not, however, exceed the
principal amount of the related industrial development bonds;
(7) Permitted Refinancing Debt issued in exchange for, or the proceeds of
which are used to refund or refinance, Debt or preferred stock referred
to in clause (3), (4) or this clause (7); and
(8) Debt in an aggregate principal amount or preferred stock having an
aggregate liquidation value at any time outstanding not to exceed
$75,000,000. However, no more than $50,000,000 of such outstanding Debt
may be Debt of subsidiaries that are not guarantor subsidiaries.
LIMITATION ON RESTRICTED PAYMENTS. FTL-Cayman will not, and will not permit
any subsidiary of FTL-Cayman, directly or indirectly, to make any of the
following restricted payments:
- declare or pay any dividend or make any distribution on or in respect of
its capital stock or to the direct or indirect holders of its capital
stock (except dividends or distributions payable solely in its
non-convertible capital stock or in options, warrants or other rights to
purchase its non-convertible capital stock, dividends or distributions
payable to FTL-Cayman or a subsidiary of FTL-Cayman and dividends payable
on preferred stock of Fruit of the Loom issued to William Farley or his
affiliates in the reorganization in an amount not to exceed an aggregate
of $5,000,000 per year);
- purchase, redeem or otherwise acquire or retire for value any of our
capital stock not owned by FTL-Cayman or any capital stock of FTL-Cayman
or of any direct or indirect parent of FTL-Cayman;
- purchase, repurchase, redeem, defease or otherwise acquire or retire for
value, prior to scheduled maturity, scheduled repayment or scheduled
sinking fund payment any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity in each case due within one year
of the date of acquisition); or
- make any investment in any affiliate of FTL-Cayman, other than an
investment in a subsidiary of FTL-Cayman or in a person which will become
a subsidiary of FTL-Cayman as a result of the investment,
if at the time FTL-Cayman or the subsidiary makes the restricted payment:
- a Default has occurred and is continuing or would result from the
restricted payment,
- FTL-Cayman is not able to issue $1.00 of additional Debt in accordance
with the provisions of the first paragraph under "-- Limitation on Debt"
above, or
- the aggregate amount of the restricted payment and all other restricted
payments since the date on which the outstanding notes were originally
issued would exceed the greater of $50,000,000 and the sum of:
- 50% of the Consolidated Net Income accrued during the period from
January 3, 1999 to the end of the most recent fiscal quarter ending
at least 45 days prior to the date of the restricted payment MINUS
100% of the amount of any write-downs, write-offs, other negative
revaluations and other negative extraordinary charges not otherwise
reflected in
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Consolidated Net Income during such period and MINUS 100% of the
amount of any dividends paid on our preferred stock, excluding, for
all purposes of this clause, items treated as balance sheet
adjustments in respect to foreign currency translations;
- the aggregate Net Cash Proceeds which are received by FTL-Cayman
from the issue or sale of its capital stock, other than redeemable
stock or exchangeable stock, subsequent to the date on which the
outstanding notes were originally issued and which are contributed
as capital to us, other than an issuance or sale to a subsidiary of
FTL-Cayman or an employee stock ownership plan;
- the aggregate Net Cash Proceeds received by FTL-Cayman from the
issue or sale of its capital stock, other than Redeemable Stock or
Exchangeable Stock, to an employee stock ownership plan subsequent
to January 2, 1999 and contributed as capital to us, but, if such
employee stock ownership plan incurs any debt, only to the extent
that any such proceeds are equal to any increase in the
consolidated net worth of FTL-Cayman resulting from principal
repayments made by the employee stock ownership plan with respect
to debt incurred by it to finance the purchase of the capital
stock;
- the amount by which debt of FTL-Cayman is reduced on FTL-Cayman's
balance sheet upon the conversion or exchange subsequent to the
date on which the outstanding notes were originally issued of any
Debt of FTL-Cayman convertible or exchangeable for capital stock,
other than redeemable stock or exchangeable stock of FTL-Cayman,
less the amount of any cash or other property distributed by
FTL-Cayman upon such conversion or exchange; and
- $50,000,000.
However, the following are not prohibited:
- any purchase or redemption of capital stock or subordinated obligations
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, capital stock of FTL-Cayman, other than redeemable
stock or exchangeable stock and other than capital stock issued or sold to
a subsidiary of FTL-Cayman or an employee stock ownership plan; PROVIDED,
HOWEVER that such a purchase or redemption will be excluded in the
calculation of the amount of restricted payments;
- any purchase or redemption of Subordinated Obligations made by exchange
for, or out of the proceeds of the substantially concurrent sale of, new
Subordinated Obligations, PROVIDED, HOWEVER, that these new Subordinated
Obligations will (1) not exceed the principal amount so refinanced, (2)
have an Average Life to Stated Maturity equal to or greater than the
remaining Average Life to Stated Maturity of the notes, (3) have a Stated
Maturity the same as or later than the Stated Maturity of the exchange
notes, and (4) be expressly subordinated in right of payment to the notes
at least to the same extent as the Subordinated Obligations to be
refinanced. The purchase or redemption will be excluded in the calculation
of the amount of restricted payments;
- dividends paid within 60 days after the date they are declared if at the
date of declaration the dividend would have complied with this covenant.
At the time of payment of the dividend, no other default may have occurred
and be continuing, or result from the payment. The dividend shall be
included, without duplication, in the calculation of the amount of
restricted payments;
- any acquisition of our preferred stock through an exchange by us of
FTL-Cayman class A ordinary shares for the preferred stock; or
- any redemption of not more than four FTL-Cayman class B ordinary shares in
accordance with the terms of the Articles of Association of FTL-Cayman,
provided that the amount paid in the redemption does not exceed $1,000.
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DISPOSITION OF PROCEEDS OF ASSET SALES. FTL-Cayman will not, and will not
cause or permit any subsidiary of FTL-Cayman to, directly or indirectly, make
any Asset Sale, unless:
(1) FTL-Cayman or the subsidiary, as the case may be, receives consideration at
the time of the sale at least equal to the fair market value of the assets
sold or otherwise disposed of; and
(2) at least 75% of that consideration consists of cash or cash equivalents or
capital stock in any person which becomes a wholly owned subsidiary of
FTL-Cayman whose assets consist primarily of properties and capital assets
used in the same line of business being conducted by FTL-Cayman or any
subsidiary of FTL-Cayman at that time.
Instead of the consideration described in clause (2) above, FTL-Cayman or
any subsidiary of FTL-Cayman may receive consideration from an Asset Sale
consisting of obligations payable to the sellers of the asset in an aggregate
amount not to exceed $50,000,000 at any time outstanding; PROVIDED, HOWEVER,
that all consideration received from an Asset Sale in excess of such $50,000,000
will be subject to clause (2) above. The amount of any debt of a subsidiary of
FTL-Cayman that is actually assumed by the transferee in the Asset Sale and from
which FTL-Cayman and the subsidiaries of FTL-Cayman are fully released will be
considered cash for purposes of determining the percentage of cash consideration
received by FTL-Cayman or the subsidiaries of FTL-Cayman, and excluding any
liabilities that are incurred in connection with or in anticipation of the Asset
Sale. The amount of any notes or other similar obligations received by
FTL-Cayman or any subsidiary of FTL-Cayman from the transferee that are either
immediately or within 60 days of the Asset Sale converted, sold or exchanged by
FTL-Cayman or the subsidiaries of FTL-Cayman into cash will be considered cash,
in an amount equal to the net cash proceeds realized upon the conversion, sale
or exchange for purposes of determining the percentage of cash consideration
received by FTL-Cayman or the subsidiaries of FTL-Cayman.
FTL-Cayman or the subsidiary of FTL-Cayman, as the case may be, may apply
the Net Available Cash of any Asset Sale within 365 days of receipt thereof to
(1) repay debt of FTL-Cayman or any subsidiary of FTL-Cayman, other than
Subordinated Obligations, and permanently reduce any related commitment, or (2)
make asset acquisitions or acquire, construct or improve properties or capital
assets, in each case, to be used in the same line of business being conducted by
FTL-Cayman or any subsidiary of FTL-Cayman at that time.
To the extent we do not apply all or part of the Net Available Cash of any
Asset Sale within 365 days of such Asset Sale as described above, we will,
within 20 days after such 365th day, make an offer to purchase all notes up to a
maximum principal amount (expressed as a multiple of $1,000) of notes equal to
such unutilized Net Available Cash, at a price equal to 100% of the principal
amount plus accrued and unpaid interest, if any, to the purchase date. However,
we may defer the offer until we have aggregate unutilized Net Available Cash
equal to or in excess of $25,000,000, at which time the entire amount of the
unutilized Net Available Cash, and not just the amount in excess of $25,000,000,
will be applied as required by this paragraph.
With respect to any offer effected pursuant to this covenant, to the extent
the aggregate principal amount of notes tendered pursuant to the offer exceeds
our unutilized Net Available Cash to be applied to the repurchase of the notes,
we will purchase the notes pro rata based on the aggregate principal amount of
the notes tendered by each holder. To the extent the unutilized Net Available
Cash exceeds the aggregate amount of notes tendered by the holders of the notes
pursuant to the offer, we may retain and utilize any portion of the unutilized
Net Available Cash not applied to repurchase the notes for any purpose
consistent with the other terms of the indenture.
We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in
connection with the repurchase of notes pursuant to an offer. To the extent that
the provisions of any securities laws or regulations conflict with provisions of
the indenture, we will comply with the applicable securities laws and
regulations and will not be deemed to have breached our obligations under the
indenture by so complying.
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LIMITATION ON TRANSACTIONS WITH AFFILIATES. FTL-Cayman will not, and will
not permit any of its subsidiaries to, conduct any business or enter into any
transaction or series of similar transactions (including the purchase sale,
lease or exchange of any property or the rendering of any service) with any
affiliate of FTL-Cayman or any legal or beneficial owner of 5% or more of any
class of capital stock of FTL-Cayman or with any affiliate of such owner, other
than a wholly owned subsidiary of FTL-Cayman or an employee stock ownership plan
for the benefit of FTL-Cayman's or its subsidiary's employees, unless:
- the terms of transaction or series of transactions are as favorable to
FTL-Cayman or the subsidiary as terms that would be obtainable at the time
for a comparable transaction or series of similar transactions in
arm's-length dealings with an unrelated third person or,
- if the transaction or series of transactions is not one which by its
nature could be obtained from the person, is on fair and reasonable terms
and is in the ordinary course of business. If the transaction is not in
the ordinary course of business, the terms must be set forth in writing
and the board of directors of FTL-Cayman must, by resolution, determine in
good faith that the transaction or series of transactions meets the
applicable criteria set forth above. FTL-Cayman will be entitled to rely
upon the good faith determination by its board of directors.
The following are not transactions subject to the provisions of this paragraph:
- Qualified Receivables Transactions between or among FTL-Cayman or any of
its subsidiaries and any Accounts Receivable Subsidiary; and
- contracts or other arrangements or commitments in existence on the date of
issuance of the outstanding notes or any extensions or renewals of any
such contracts or other arrangements or commitments, if such extensions or
renewals are on terms substantially the same as those in effect on that
date.
RESTRICTIONS ON SECURED DEBT. FTL-Cayman will not, and will not permit any
restricted subsidiary of FTL-Cayman to, issue any Debt secured after the date of
the indenture, by pledge of, or mortgage or lien on, any property of FTL-Cayman
or any restricted subsidiary of FTL-Cayman or any shares of capital stock or
Debt of any restricted subsidiary of FTL-Cayman without effectively providing
that the notes will be secured equally and ratably with such secured Debt and
any other Debt entitled to share in the security, so long as such secured Debt
is so secured. However, after giving effect to that Debt, if the aggregate
amount of all such secured Debt plus all Attributable Debt of FTL-Cayman and its
restricted subsidiaries with respect to sale and leaseback transactions to which
the covenant entitled "-- Restrictions on Sale and Leaseback Transactions"
described below is applicable would not exceed 5% of Consolidated Net Tangible
Assets, then FTL-Cayman may issue the Debt.
This restriction does not apply to Debt secured by mortgages, pledges or liens:
(1) on property of, or on any shares of capital stock or Debt of, any
corporation existing at the time such corporation becomes a restricted
subsidiary of FTL-Cayman;
(2) in favor of the FTL-Cayman or any restricted subsidiary of FTL-Cayman;
(3) on property, shares of capital stock or Debt existing at the time of
their or its acquisition, including acquisition through merger or
consolidation or to secure the payment of all or any part of the purchase
price or construction or to secure any Debt incurred prior to, at the
time of, or within 180 days after the later of the acquisition of the
property, shares of capital stock or debt or the completion of
construction for the purpose of financing all or any part of the purchase
price of or construction on such property, shares or debt;
(4) existing on the date of the indenture (or which we or any restricted
subsidiary has an obligation to create under Debt outstanding on the date
of the indenture), but only in an amount equal to the amount of the Debt
which is secured by such mortgages, liens or pledges, and which is
outstanding on the date of the indenture;
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(5) which FTL-Cayman or any restricted subsidiary has an obligation to
create under our credit agreement, securing the maximum amount permitted
to be outstanding under our credit agreement pursuant to clause (1) under
the second paragraph of the restriction entitled "-- Limitation on Debt"
or for which FTL-Cayman or a Restricted Subsidiary of FTL-Cayman has
outstanding commitments under our credit agreement on the date of the
indenture;
(6) on assets of FTL-Cayman or any of its subsidiaries, including an
Accounts Receivable Subsidiary, incurred in connection with a Qualified
Receivables Transaction;
(7) securing the notes;
(8) which are Permitted Mortgages; or
(9) securing Permitted Refinancing Debt.
This restriction also does not apply to any extension, renewal or replacement,
as a whole or in part, of any mortgage, pledge or lien referred to in clauses
(1) through (7) or this clause (9). However, the aggregate Debt secured by an
extension, renewal or replacement mortgage may not exceed the amount of the
Permitted Refinancing Debt or the Debt secured by the original mortgage, pledge
or lien, as the case may be, and any extension, renewal or replacement mortgage
will be limited to all or a part of the same property, shares of capital stock
or Debt (and substitutions for and accretions to such property, shares or Debt)
that secured the original mortgage, pledge or lien. If a mortgage, pledge or
lien is excluded from this restriction, it will also be excluded from Secured
Debt in any computation.
As described under "Description of Our Existing Indebtedness -- Credit
Agreement," we are required to secure borrowings under our credit agreement
under circumstances relating to our credit rating. As of April 3, 1999, we had
approximately $303,500,000 of outstanding debt under our credit agreement. All
of the borrowings, together with approximately $374,700,000 of outstanding
additional Debt guaranteed by our guarantor subsidiaries, are secured by a
pledge of all of the capital stock of our material domestic subsidiaries and by
65% of the capital stock of our material foreign subsidiaries and by a pledge of
industrial development bonds issued and owned by certain of our subsidiaries. We
have also agreed to grant a lien on substantially all of our assets if our
senior unsecured debt rating is BB- or below by Standard and Poor's and Ba3 or
below by Moody's. Under the indenture we may incur additional borrowings under
our credit agreement, up to the maximum of $670,000,000 for which we currently
have outstanding commitments, without securing the notes. See "Description of
Our Existing Indebtedness."
RESTRICTIONS ON SALE AND LEASEBACK TRANSACTIONS. FTL-Cayman will not, and
will not permit any Restricted Subsidiary of FTL-Cayman to, enter into any
transaction after the date of the indenture, with any bank, insurance company or
other lender or investor providing for the leasing by FTL-Cayman or a Restricted
Subsidiary of FTL-Cayman of any property which has been or is to be sold or
transferred by FTL-Cayman or such Restricted Subsidiary to the lender, or any
person to whom funds have been or are to be advanced by the Lender on the
security of the property unless, after giving effect to the transaction, the
aggregate amount of all Attributable Debt with respect to all such transactions
plus all Secured Debt to which the covenant entitled "-- Restrictions on Secured
Debt" described above is applicable would not exceed 5% of our Consolidated Net
Tangible Assets.
This restriction does not apply to Attributable Debt with respect to such a
sale if:
- the lease is for a period, including renewal rights, of less than three
years;
- FTL-Cayman or a Restricted Subsidiary of FTL-Cayman, within 180 days after
the sale or transfer by FTL-Cayman or by a Restricted Subsidiary of
FTL-Cayman, applies an amount equal to the net cash proceeds of the sale
of the property leased pursuant to such arrangement to (1) the retirement
of the notes or other Debt of FTL-Cayman ranking equally with or senior to
the notes, or the retirement of such Debt of a Restricted Subsidiary of
FTL-Cayman, or (2) the purchase of other property having a fair market
value, in the opinion of the board of directors of FTL-Cayman, at
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least equal to the fair market value of the property leased in the sale
and leaseback transaction. However, no retirement referred to in clause
(1) may be effected by payment at maturity or pursuant to any mandatory
sinking fund payment or any mandatory prepayment provision;
- the sale is entered into prior to, at the time of, or within 180 days
after the later of the acquisition of the property or the completion of
construction on the property; or
- the sale is entered into between FTL-Cayman and a Restricted Subsidiary of
FTL-Cayman or between restricted subsidiaries of FTL-Cayman.
If a transaction is excluded from this restriction, it will also be excluded
from Attributable Debt in any computation under this covenant.
LIMITATION ON RESTRICTIONS ON DISTRIBUTIONS FROM SUBSIDIARIES OF
FTL-CAYMAN. FTL-Cayman will not, and will not permit any subsidiary of
FTL-Cayman to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any subsidiary of
FTL-Cayman to do any of the following:
- pay dividends or make any other distributions on its capital stock or pay
any Debt or other obligation owed to us or FTL-Cayman;
- make any loans or advances to us or FTL-Cayman; or
- transfer any of its property or assets to us or FTL-Cayman.
However, FTL-Cayman may, and may permit any subsidiary of FTL-Cayman to, create
or otherwise convey or permit to exist or become effective:
(1) any encumbrance or restriction pursuant to an agreement in effect at or
entered into on the date on which the outstanding notes were originally
issued;
(2) any encumbrance or restriction with respect to a subsidiary of
FTL-Cayman pursuant to an agreement relating to any Debt issued by the
subsidiary on or prior to the date on which such subsidiary became a
subsidiary of FTL-Cayman or was acquired by us or FTL-Cayman (other than
debt issued as consideration in, or to provide all or any portion of the
funds utilized to consummate, the transaction or series of related
transactions pursuant to which such subsidiary became a subsidiary of
FTL-Cayman or was acquired by us or FTL-Cayman) and outstanding on that
date;
(3) any encumbrance or restriction pursuant to an agreement effecting a
refinancing of debt issued, assumed or incurred pursuant to an agreement
referred to in clause (1), (2) or this clause (3) or contained in any
amendment to any agreement referred to in clause (1), (2) or (3);
PROVIDED, HOWEVER, that the encumbrances and restrictions contained in
any such refinancing agreement or amendment will be no less favorable to
the holders of the notes than encumbrances and restrictions contained in
such agreements;
(4) any encumbrance or restriction consisting of customary nonassignment
provisions in leases governing leasehold interests to the extent the
provisions restrict the transfer of the applicable lease;
(5) in the case of clause (3) above, restrictions contained in security
agreements securing Debt of a subsidiary of FTL-Cayman to the extent the
restrictions restrict the transfer of the property subject to such
security agreements; and
(6) any encumbrances or restrictions with respect to Debt or other
contractual requirements of an Accounts Receivable Subsidiary in
connection with a Qualified Receivables Transaction, PROVIDED that the
encumbrances and restrictions apply only to the Accounts Receivable
Subsidiary.
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ADDITIONAL SUBSIDIARY GUARANTEES AND RELEASES. If at any time during
Non-Investment Grade Rating Periods, a subsidiary of FTL-Cayman enters into a
guarantee pursuant to our credit agreement or any other Debt of us or
FTL-Cayman, or any renewal or replacement of any such Debt, FTL-Cayman will
cause the subsidiary to execute a guarantee of the notes in form and substance
satisfactory to the trustee. If at any time during Non-Investment Grade Rating
Periods, a guarantor subsidiary is released from all of its guarantees under our
credit agreement and any such other guaranteed Debt, or any renewal or
replacement of such Debt, that guarantor subsidiary shall be released from its
guarantee on the notes.
SECURITIES AND EXCHANGE COMMISSION REPORTS. We and FTL-Cayman will each
file with the trustee and, within 15 days after filing them with the SEC,
provide the holders of the exchange notes copies of the annual report and of the
information, documents and other reports, or copies of such portions of any of
these reports as the SEC may require, which we or FTL-Cayman are required to
file with the SEC pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934. Even if we or FTL-Cayman are not required to remain subject to the
reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, FTL-Cayman will continue to file with the SEC and provide the trustee and
holders of notes with the annual reports and information, documents and other
reports, or copies of such portions of any of these reports as the SEC may
require, which are specified in Sections 13 and 15(d) of the Exchange Act.
COVENANTS IN EFFECT PRIOR TO INVESTMENT GRADE RATING DATE
Our obligations and the obligations of FTL-Cayman under the following
covenants will no longer be effective upon an Investment Grade Rating Date: "--
Limitation on Debt," "-- Limitation on Subsidiary Debt and Preferred Stock," "--
Limitation on Restricted Payments," "-- Disposition of Proceeds of Asset Sales,"
"-- Limitation on Transactions with Affiliates" and "-- Limitation on
Restrictions on Distributions from Subsidiaries of FTL-Cayman." These
obligations will be reinstated during Non-Investment Grade Rating Periods. For
purposes of these covenants, no action taken during any Investment Grade Rating
Period will result in a violation of any obligation solely as a result of the
reinstatement of the obligation. However, such actions will be taken into
account when determining availability under, and compliance with, such
obligations.
SUCCESSOR COMPANIES
Neither we nor FTL-Cayman will consolidate with or merge with or into, or
convey, transfer or lease all or substantially all our assets or its assets to,
any person unless the following requirements are met:
(1) the resulting, surviving or transferee person, if not us or FTL-Cayman,
is organized and existing under the laws of the United States of America,
any state or the District of Columbia (in the case of a transaction
involving us), and such person must expressly assume by a supplemental
indenture, executed and delivered to the trustee, in form satisfactory to
the trustee, all of our or FTL-Cayman's obligations under the notes, the
FTL-Cayman guarantee and the indenture;
(2) immediately prior to and after giving effect to the transaction, and
treating any Debt which becomes an obligation of the resulting, surviving
or transferee person or any subsidiary of such person as a result of the
transaction as having been issued by such person or such subsidiary at
the time of the transaction, no default has occurred and is continuing;
(3) immediately after giving effect to the transaction, the resulting,
surviving or transferee person is able to issue at least $1.00 of debt
pursuant to the provisions of the first paragraph under "-- Limitation on
Debt" above; PROVIDED, HOWEVER, that the Consolidated EBITDA Coverage
Ratio of the resulting, surviving or transferee person for the reference
period will be calculated on a pro forma basis as if the transaction
occurred at the beginning of the reference period;
(4) immediately after giving effect to the transaction, the resulting,
surviving or transferee person has consolidated net worth in an amount
which is not less than the consolidated net worth of us or FTL-Cayman, as
the case may be, prior to the transaction; and
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(5) we or FTL-Cayman, as the case may be, deliver to the trustee an
officer's certificate and an opinion of counsel, each stating that the
consolidation, merger or transfer and the supplemental indenture, if any,
comply with the indenture.
The resulting, surviving or transferee person will be the successor company
or the successor guarantor and will succeed to, and be substituted for, and may
exercise every right and power of, us or FTL-Cayman, as the case may be, under
the indenture. However, the predecessor company or the predecessor guarantor, as
the case may be, in the case of a conveyance, transfer or lease will not be
released from the obligation to pay the principal of and interest on the notes
(in the case of us) or the obligation to guarantee such payment (in the case of
FTL-Cayman).
During Non-Investment Grade Rating Periods, no guarantor subsidiary will
consolidate with or merge with or convey, transfer or lease all or substantially
all its assets to, any person unless:
- the resulting, surviving or transferee person, if not the guarantor
subsidiary, is organized and existing under the laws of the United States
of America, any state or the District of Columbia and such person
expressly assumes by a supplemental indenture, executed and delivered to
the trustee, in form satisfactory to it, all the obligations of the
guarantor subsidiary under its guarantee of the notes and the indenture;
- immediately prior to and after giving effect to the transaction (and
treating any debt which becomes an obligation of the resulting, surviving
or transferee person or any subsidiary of the person as a result of the
transaction as having been issued by the person or such subsidiary at the
time of the transaction), no default has occurred and is continuing; and
- we deliver to the trustee an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger or transfer and the
supplemental indenture, if any, comply with the indenture. The resulting,
surviving or transferee person will be the successor guarantor and will
succeed to, and be substituted for, and may exercise every right and power
of a guarantor subsidiary under the indenture.
DEFAULTS
An event of default is defined in the indenture as any of the following:
(1) a default in the payment of interest on any note when it becomes due and
payable and the default continues for a period of 30 days;
(2) a default in the payment of principal of any note when it becomes due
and payable or upon notice of optional redemption, upon required
repurchase, upon declaration or otherwise;
(3) the failure by Fruit of the Loom, FTL-Cayman or any guarantor subsidiary
to comply with its obligations under "-- Successor Companies" above;
(4) the failure by Fruit of the Loom or FTL-Cayman to comply for 30 days
after notice with any of its obligations under the covenants described
above under "-- Change of Control," "-- Limitation on Debt," "--
Limitation on Subsidiary Debt and Preferred Stock," "-- Limitation on
Restricted Payments," "-- Disposition of Proceeds of Asset Sales," "--
Limitation on Transactions with Affiliates," "-- Restrictions on Secured
Debt," "-- Restrictions on Sale and Leaseback Transactions," "--
Limitations on Restrictions on Distributions from subsidiaries of
FTL-Cayman," "-- Additional Subsidiary Guarantees and Releases" and "--
Securities and Exchange Commission Reports;"
(5) the failure by Fruit of the Loom or FTL-Cayman to comply for 60 days
after notice with its other agreements contained in the indenture;
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(6) Debt of FTL-Cayman or any Significant Subsidiary is not paid within any
applicable grace period after final maturity or is accelerated by the
holders of the Debt because of a default, the total amount of the debt
unpaid or accelerated exceeds $25,000,000 or its foreign currency
equivalent and such failure continues for 10 days after notice;
(7) certain events of bankruptcy, insolvency or reorganization of FTL-Cayman
or a significant subsidiary;
(8) any judgment or decree for the payment of money in excess of $25,000,000
is rendered against FTL-Cayman or a significant subsidiary and is not
discharged, and either (A) an enforcement proceeding has been commenced
by any creditor upon the judgment or decree or (B) there is a period of
60 days following such judgment or decree during which such judgment or
decree is not discharged or waived or its execution stayed and, in the
case of (B), the default continues for 10 days after notice;
(9) the FTL-Cayman guarantee of the notes ceases to be in full force and
effect or FTL-Cayman or any person acting by or on behalf of FTL-Cayman
denies or disaffirms FTL-Cayman's obligations under the FTL-Cayman
guarantee; or
(10) during Non-Investment Grade Rating Periods, any subsidiary guarantee
ceases to be in full force and effect or any guarantor subsidiary or any
person acting by or on behalf of such guarantor subsidiary denies or
disaffirms such guarantor subsidiary's obligations under its guarantee of
the notes, except as permitted under "-- Restrictive Covenants --
Additional Subsidiary Guarantees and Releases." However, a default under
clauses (5), (6) and (8) above will not constitute an event of default
under the indenture until the trustee or the holders of at least 25% in
principal amount of the outstanding notes notify us in writing of the
default and we do not cure the default within the time specified after we
receive the notice.
If an event of default occurs and is continuing with respect to the notes,
other than a default described in clause (7) above, the trustee or the holders
of at least 25% in principal amount of the outstanding notes may declare the
principal and accrued but unpaid interest on all of the notes to be due and
payable. Upon such a declaration, the principal and interest will be due and
payable immediately. If an event of default relating to events of bankruptcy,
insolvency or reorganization occurs and is continuing, the principal and
interest on all of the notes will automatically become immediately due and
payable without any declaration or other act on the part of the trustee or any
holders of the notes. Under certain circumstances, the holders of a majority in
principal amount of the outstanding notes may rescind any such acceleration with
respect to the notes and its consequences.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an event of default under the indenture occurs and is
continuing, the trustee will be under no obligation to exercise any of the
rights or powers under the indenture at the request or direction of any of the
holders of the notes unless those holders have offered the trustee reasonable
indemnity or security against any loss, liability or expense. Except to enforce
the right to receive payment of principal, premium, if any, or interest when
due, no holder of a note may pursue any remedy with respect to the indenture or
the notes unless:
- the holder has previously given the trustee notice that an event of
default is continuing;
- holders of at least 25% in principal amount of the outstanding notes have
requested the trustee to pursue the remedy;
- the holders have offered the trustee security or indemnity satisfactory to
it against any loss, liability or expense;
- the trustee has not complied with the request by the holders within 60
days after receipt of the request and the offer of security and indemnity;
and
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- the holders of a majority in principal amount of the notes have not given
the trustee a direction inconsistent with the request within the 60-day
period.
Subject to certain restrictions, the holders of a majority in 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 of
exercising any trust or power conferred on the trustee. The trustee, however,
may refuse to follow any direction that conflicts with law or the indenture or
that the trustee determines is unduly prejudicial to the rights of any other
holder of a note or that would involve the trustee in personal liability.
The indenture provides that if a default occurs and is continuing and is
known to the trustee, the trustee must mail to each holder of the notes notice
of the default within 90 days after it occurs. Except in the case of a default
in the payment of principal of, premium (if any) or interest on any note, the
trustee may withhold notice if and so long as a committee of its trust officers
determines that doing so is in the interest of the holders of the notes. In
addition, we and FTL-Cayman are required to deliver to the trustee, within 120
days after the end of each fiscal year, a certificate as to their compliance
with all conditions and covenants under the indenture. We and FTL-Cayman also
are required to deliver to the trustee within 30 days after their occurrence,
written notice of events which would constitute certain defaults under the
indenture, their status and what action we and FTL-Cayman are taking or propose
to take in respect of the events.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, we may amend or supplement the indenture with
the consent of the holders of a majority in principal amount of the notes then
outstanding. Also, any past default or compliance with any provisions may be
waived with the consent of the holders of a majority in principal amount of the
notes then outstanding. However, without the consent of each holder of an
affected outstanding note, no amendment may:
- reduce the amount of notes whose holders must consent to an amendment;
- reduce the rate of or extend the time for payment of interest on any note;
- reduce the principal of or extend the fixed maturity of any note;
- reduce the premium payable upon the repurchase or redemption of any note
or change the time at which any such note must be repurchased or may be
redeemed;
- make any note payable in money other than that stated in the note;
- impair the right of any holder of the notes to receive payment of
principal of and interest on the holder's note on or after the due dates
or to institute suit for the enforcement of any payment on or with respect
to the holder's note;
- make any change in the amendment provisions which require each holder's
consent; or
- make any change in the waiver provisions.
Without the consent of any holder of the notes affected thereby, we,
FTL-Cayman and the trustee may amend or supplement the indenture:
- to cure any ambiguity, omission, defect or inconsistency;
- to provide for the assumption by a successor corporation of our
obligations or those of FTL-Cayman under the indenture;
- to provide for uncertificated notes in addition to or in place of
certificated notes (provided that the uncertificated notes are issued in
registered form for purposes of Section 163(f) of the Internal
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Revenue Code, or in a manner so that the uncertificated notes are
described in Section 163(f)(2)(B) of the Internal Revenue Code);
- to add guarantees of the notes;
- to add to our covenants or those of FTL-Cayman for the benefit of the
holders of the notes;
- to surrender any right or power conferred upon us or FTL-Cayman;
- to make any change that does not adversely affect the rights of any holder
of the notes; or
- to comply with any requirement of the SEC in connection with the
qualification of the indenture under the Trust Indenture of 1939.
The holders of the notes do not need to approve the particular form of any
proposed amendment. They only have to approve the substance of the proposed
amendment.
After an amendment under the indenture becomes effective, we are required to
mail to holders of the notes a notice briefly describing the amendment. However,
our failure to give notice to all holders of the notes, or any defect in the
notice, will not impair or affect the validity of the amendment.
TRANSFER
We will issue the exchange notes in registered form. The exchange notes will
be transferable only upon the surrender of the notes being transferred for
registration of transfer. We may require payment of a sum sufficient to cover
any tax, assessment or other governmental charge payable in connection with
transfers and exchanges.
DEFEASANCE
The indenture provides that we and FTL-Cayman may, at any time, terminate
all of the obligations under the notes and the indenture, except for certain
obligations, including those respecting the defeasance trust, to replace
mutilated, destroyed, lost or stolen notes, and to maintain a registrar and
paying agent for the notes (this is referred to as "legal defeasance"). We and
FTL-Cayman may, at any time, terminate our obligations under the covenants
described under "-- Restrictive Covenants" and "-- Change of Control," the
operation of the cross acceleration provision, certain of the bankruptcy
provisions and the judgment default provision described under "-- Defaults"
above and limitations contained in clauses (3) and (4) of the first paragraph
under "-- Successor Companies" above (this is referred to as "covenant
defeasance").
We and FTL-Cayman may exercise the legal defeasance option even if we have
previously exercised our covenant defeasance option. If we and FTL-Cayman
exercise the legal defeasance option, payment of the notes may not be
accelerated because of an event of default with respect to the notes. If we and
FTL-Cayman exercise the covenant defeasance option, payment of the notes may not
be accelerated because of an event of default specified in clause (4), (6), (7),
with respect to any significant subsidiary other us, or (8) under "-- Defaults"
above or because of the failure Fruit of the Loom or FTL-Cayman to comply with
clause (3) or (4) of the first paragraph under "-- Successor Companies" above.
To exercise either option, we and FTL-Cayman must irrevocably deposit in
trust with the trustee money or U.S. government obligations for the payment of
principal, premium, if any, and interest on the notes to redemption or maturity,
as the case may be, and must comply with other conditions, including delivering
to the trustee an opinion of counsel to the effect that holders of the notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such deposit and defeasance and will be subject to federal income tax
on the same amount and in the same manner and at the same times as would have
been the case if the deposit and defeasance had not occurred. In the case of
legal defeasance, the opinion of counsel must be based on a ruling of the
Internal Revenue Service or a change in applicable federal income tax law.
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PAYMENT OF ADDITIONAL AMOUNTS
We will pay the holder of any exchange note additional amounts as may be
necessary so that every net payment of the principal of and interest on the
note, after deduction or other withholding for or on account of any present or
future tax, assessment or other governmental charge of any nature whatsoever
imposed, levied or collected by or on behalf of the country in which FTL-Cayman
is organized, or any political subdivision or taxing authority in such country
having power to tax, will not be less than the amount provided for in the
exchange note to be then due and payable. However, our obligation to pay
additional amounts will not apply on account of any tax, assessment, or other
governmental charge which is payable:
- other than by deduction or withholding from payments of principal of or
interest on the note;
- by reason of the holder, or a person on behalf of the holder, having, or
having had, some personal or business connection with the country in which
FTL-Cayman is organized other than the mere receipt of the payment or the
ownership or holding of a note;
- to, or to a person on behalf of, a holder who presents a note where
presentation is required for payment more than 30 days after the relevant
date for payment of principal or interest in respect of the note except to
the extent that the holder would have been entitled to such additional
amounts on presenting such note for payment on the last day of such period
of 30 days;
- by reason of any estate, excise, inheritance, gift, sales, transfer,
wealth or personal property tax or any similar assessment or governmental
charge;
- as a result of the failure of the holder, or a person on behalf of the
holder, to satisfy any statutory requirements or make a declaration of
nonresidence or other similar claim for exemption to the relevant tax
authority; or
- owing to any combination of all of these clauses.
We will not pay any additional amounts as provided above with respect to any
payment of principal of or interest on any exchange note to any holder who is a
fiduciary or partnership or other than the sole beneficial owner of any such
payment to the extent that the beneficiary or settlor with respect to such
fiduciary, a member of such a partnership or the beneficial owner of such
payment would not have been entitled to the additional amounts had such
beneficiary, settlor, member or beneficial owner been the holder of any note.
INDEMNIFICATION OF JUDGMENT CURRENCY
We will indemnify a holder of an exchange note against any loss incurred by
the holder as a result of any judgment or order being given or made for any
amount due under the exchange note and the judgment or order being expressed and
paid in a currency other than U.S. dollars and as a result of any variation as
between the rate of exchange at which the U.S. dollar amount is converted for
the purpose of the judgment or order and the spot rate of exchange in the city
of New York at which the holder on the date of payment of the judgment or order
is able to purchase U.S. dollars with the amount of the judgment actually
received by the holder.
CONSENT TO SERVICE
FTL-Cayman has designated and appointed CT Corporation System, in the
Borough of Manhattan, the City of New York, New York, as its authorized agent
upon which process may be served in any suit or proceeding arising out of or
relating to the notes or the indenture which may be instituted in any state or
federal court located in the city of New York, New York and has submitted, for
the purposes of any such suit or proceeding, to the nonexclusive jurisdiction of
any such court in which such suit or proceeding is so instituted. FTL-Cayman has
agreed, to the fullest extent that it lawfully may do so, that final judgment in
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any such suit, action or proceeding brought in such a court will be conclusive
and binding upon it and may be enforced in the courts of the Cayman Islands or
any other courts to the jurisdiction of which it is subject.
However, any actions arising out of or relating to the notes or the
indenture may be instituted by the trustee or the holder of any notes in any
competent court in the Cayman Islands, or such other competent jurisdiction, as
the case may be.
CONCERNING THE TRUSTEE
The Bank of New York is the trustee under the indenture. We have appointed
the Bank of New York as registrar and paying agent for the notes.
GOVERNING LAW
The indenture provides that it and the notes will be governed by, and
construed in accordance with, the laws of the state of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required by such
principles of conflicts.
CERTAIN DEFINITIONS
"ACCOUNTS RECEIVABLE SUBSIDIARY" means FTL Receivables Company and any other
present or future subsidiary of FTL-Cayman:
- which engages in no activities other than in connection with the financing
of accounts receivable;
- which is designated by the board of directors of FTL-Cayman as an Accounts
Receivable Subsidiary;
- for which no portion of the Debt or any other obligation, contingent or
otherwise, of which (1) is guaranteed by FTL-Cayman or any subsidiary of
FTL-Cayman, excluding guarantees of obligations (other than the principal
of, and interest on, Debt) pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business
in connection with a Qualified Receivables Transaction, (2) is recourse to
or obligates FTL-Cayman or any subsidiary of FTL-Cayman in any way other
than pursuant to representations, warranties, covenants and indemnities
entered into in the ordinary course of business in connection with a
Qualified Receivables Transaction or (3) subjects any property or asset of
FTL-Cayman or any subsidiary of FTL-Cayman (other than accounts receivable
and related assets as provided in the definition of "Qualified Receivables
Transaction"), directly or indirectly, contingently or otherwise, to the
satisfaction of such obligation, other than pursuant to representations,
warranties, covenants and indemnities entered into in the ordinary course
of business in connection with a Qualified Receivables Transaction:
- with which neither FTL-Cayman nor any subsidiary of FTL-Cayman has any
material contract, agreement, arrangement or understanding other than on
terms no less favorable to FTL-Cayman or such subsidiary than those that
might be obtained at the time from persons who are not affiliates of
FTL-Cayman, other than fees payable in the ordinary course of business in
connection with servicing accounts receivable; and
- with which neither FTL-Cayman nor any subsidiary of FTL-Cayman has any
obligation to maintain or preserve such subsidiary's financial condition
or cause such subsidiary to achieve certain levels of operating results.
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"ASSET SALE" means any direct or indirect sale, issuance, conveyance or
transfer or other disposition (including, without limitation, any merger,
consolidation or sale-leaseback transaction) to any person other than to
FTL-Cayman or to a Subsidiary of FTL-Cayman, in one or a series of related
transactions, of:
- any capital stock of any subsidiary of FTL-Cayman;
- all or substantially all of the assets of any division or line of business
of FTL-Cayman or any subsidiary of FTL-Cayman; or
- any other properties or assets of FTL-Cayman or any subsidiary of
FTL-Cayman other than in the ordinary course of business.
For the purposes of this definition, the term "Asset Sale" will not include:
- any sale, issuance, conveyance, transfer, lease or other disposition of
properties or assets that is governed by the provisions described under
"-- Successor Companies;"
- sales of surplus and other property or equipment that has become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of FTL-Cayman or any subsidiary of FTL-Cayman, as the case may
be;
- any transaction consummated in compliance with "-- Limitation on
Restricted Payments;" or
- any sale, conveyance, transfer, lease or other disposition of any aircraft
owned by FTL-Cayman or any subsidiary of FTL-Cayman as of the date of the
indenture.
For purposes of the covenant described under "-- Disposition of Proceeds of
Asset Sales," the term "Asset Sale" will not include:
- any sale, conveyance, transfer, lease or other disposition of any property
or asset, whether in one transaction or a series of related transactions
(1) constituting a capital lease obligation or a transfer consisting
solely of a grant of a security interest permitted by the Indenture or (2)
involving assets with a fair market value not in excess of $10,000,000;
- sales of accounts receivable and related assets of the type specified in
the definition of "Qualified Receivables Transaction" to an Accounts
Receivable Subsidiary for its fair market value, including cash in an
amount at least equal to 75% of their book value as determined in
accordance with generally accepted accounting principles, it being
understood that, for the purposes of this clause, notes (including
subordinated notes) received in exchange for the transfer of accounts
receivable and related assets will be deemed cash if the Accounts
Receivable Subsidiary or other payor is required to repay the notes as
soon as practicable from available cash collections less amounts required
to be established as reserves pursuant to contractual agreements with
entities that are not Affiliates of FTL-Cayman entered into as part of a
Qualified Receivables Transaction; and
- transfers of accounts receivable and related assets of the type specified
in the definition of "Qualified Receivables Transaction," or a fractional
undivided interest therein, by an Accounts Receivable Subsidiary in a
Qualified Receivables Transaction.
"ATTRIBUTABLE DEBT" means, as to any particular lease under which any person
is at the time liable and at any date as of which its amount is to be
determined, the total net amount of rent required to be paid by the person under
such lease during its remaining primary term, without giving effect to any
renewals at the option of the lessee, discounted from the respective due dates
to such date at the rate of interest implicit in the terms of the lease. The net
amount of rent required to be paid under the lease for the period will be the
aggregate amount of the rent payable by the lessee with respect to the period
after excluding amounts required to be paid for maintenance and repairs,
insurance, taxes, assessments, water rates and similar charges.
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"AVERAGE LIFE" means, as of the date of determination, with respect to any
Debt or preferred stock, the quotient obtained by dividing (1) the sum of the
products of the numbers of years from the date of determination to the dates of
each successive scheduled principal payment of the Debt or redemption payment on
the preferred stock multiplied by the amount of the payment by (2) the sum of
all such payments.
"CONSOLIDATED EBITDA" means, with respect to any person for any period, the
Consolidated Net Income of the person for the period PLUS:
- an amount equal to any extraordinary loss PLUS any net loss realized in
connection with an Asset Sale, to the extent such losses were deducted in
computing the Consolidated Net Income; PLUS
- provision for taxes based on income or profits of such person and its
subsidiaries for the period, to the extent that such provision for taxes
was deducted in computing the Consolidated Net Income; PLUS
- Consolidated Interest Expense of the person and its subsidiaries for the
period; PLUS
- depreciation, amortization, including amortization of goodwill and other
intangibles, and other non-cash expenses, excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period, of the person and its subsidiaries for
the period to the extent that the depreciation, amortization and other
non-cash expenses were deducted in computing the Consolidated Net Income;
and MINUS
- non-cash items increasing the Consolidated Net Income for the period,
other than items that were accrued in the ordinary course of business, in
each case on a consolidated basis and determined in accordance with
generally accepted accounting principles.
"CONSOLIDATED EBITDA COVERAGE RATIO" with respect to any period means the
ratio of (1) the aggregate amount of Consolidated EBITDA for the period to (2)
the aggregate amount of Consolidated Interest Expense for the period.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, the total interest
expense of FTL-Cayman and its consolidated subsidiaries, determined on a
consolidated basis in accordance with generally accepted accounting principles,
plus the amount of all dividends paid by FTL-Cayman or any subsidiary of
FTL-Cayman with respect to (1) any preferred stock of any subsidiary of
FTL-Cayman or (2) preferred stock which is convertible into debt of FTL-Cayman
or any subsidiary of FTL-Cayman, as applicable.
"CONSOLIDATED NET INCOME" means, for any period, the net income of
FTL-Cayman and its consolidated subsidiaries determined on a consolidated basis
in accordance with generally accepted accounting principles. However,
Consolidated Net Income will not include:
(1) any net income of any person if the person is not a subsidiary of
FTL-Cayman, except that (A) FTL-Cayman's equity in the net income of the
person for the period will be included in the Consolidated Net Income for
purposes of determining whether an investment in an affiliate of FTL-Cayman
will constitute a restricted payment under the indenture, up to the
aggregate amount of cash actually distributed by the person during such
period to FTL-Cayman or a subsidiary of FTL-Cayman as a dividend or other
distribution (subject, in the case of a dividend or other distribution to a
subsidiary of FTL-Cayman, to the limitations contained in clause (3) below)
and (B) FTL-Cayman's equity in a net loss of the person for the period will
be included in determining the Consolidated Net Income;
(2) any net income of any person acquired by FTL-Cayman or a subsidiary
of FTL-Cayman in a pooling of interests transaction for any period prior to
the date of the acquisition;
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(3) any income of any subsidiary of FTL-Cayman if the subsidiary is
subject to restrictions, directly or indirectly, on the payment of dividends
or the making of distributions by the subsidiary, directly or indirectly, to
FTL-Cayman, except that (A) FTL-Cayman's equity in the net income of any
such subsidiary for the period will be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by the
subsidiary during such period to FTL-Cayman or another subsidiary of
FTL-Cayman as a dividend or other distribution (subject, in the case of a
dividend or other distribution to another subsidiary of FTL-Cayman, to the
limitation contained in this clause), (B) FTL-Cayman's equity in a net loss
of any such subsidiary for such period will be included in determining the
Consolidated Net Income and (C) FTL-Cayman's equity in our net income or net
loss for the period will be included in the Consolidated Net Income whether
or not we are subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions to FTL-Cayman;
(4) any gain, but not loss, realized upon the sale or other disposition
of any property, plant or equipment of FTL-Cayman or its consolidated
subsidiaries, including pursuant to any sale-and-leaseback arrangement,
which is not sold or otherwise disposed of in the ordinary course of
business and any gain, but not loss, realized upon the sale or other
disposition of any capital stock of any person;
(5) the cumulative effect of a change in accounting principles; or
(6) any write-downs, write-offs, other negative revaluations and other
negative extraordinary charges incurred prior to March 25, 1999.
"CONSOLIDATED NET TANGIBLE ASSETS" means the total assets shown on the
balance sheet of FTL-Cayman and its consolidated subsidiaries, determined on a
consolidated basis using generally accepted accounting principles, as of any
date selected by FTL-Cayman not more than 90 days prior to the taking of any
action for the purpose of which the determination is being made, less (1) all
current liabilities and minority interests and (2) goodwill and other
intangibles.
"CONSOLIDATED NET WORTH" of any person means the total amounts shown on the
balance sheet of such person and its consolidated subsidiaries, determined on a
consolidated basis in accordance with generally accepted accounting principles,
as of the end of the most recent fiscal quarter of such person ending at least
45 days prior to the taking of any action for the purpose of which the
determination is being made, as (1) the par or stated value of all outstanding
capital stock of the person PLUS (2) paid-in capital or capital surplus relating
to such capital stock PLUS (3) any retained earnings or earned surplus less (A)
any accumulated deficit, (B) any amounts attributable to Redeemable Stock and
(C) any amounts attributable to Exchangeable Stock.
"DEBT" of any person means, without duplication,
(1) the principal of and premium (if any) on (A) indebtedness of the
person for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which the
person is responsible or liable;
(2) all capital lease obligations of such person;
(3) all obligations of the person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of the person
and all obligations of the person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(4) all obligations of the person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in (1) through (3) above)
entered into in the ordinary course of business of the person to the extent
such letters of credit are not drawn upon or, if and to the extent drawn
upon, the drawing is reimbursed no later than the third business day
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following receipt by the person of a demand for reimbursement following
payment on the letter of credit);
(5) the amount of all obligations of the person with respect to the
redemption, repayment or other repurchase of any Redeemable Stock or
Exchangeable Stock, but excluding any accrued dividends;
(6) all obligations of the type referred to in clauses (1) through (5)
of other persons and all dividends of other persons for the payment of
which, in either case, the person is responsible or liable as obligor,
guarantor or otherwise; PROVIDED, HOWEVER, that to the extent such person is
responsible or liable for the obligation of another person to pay interest
on Debt, then a designated percentage of the interest or the amount of the
underlying Debt, as the case may be, will be deemed Debt of the referent
person and the amount of the deemed Debt of the referent person will be
equal to the lesser of (A) the aggregate principal amount of the underlying
Debt or (B) the aggregate amount of interest due or payable over the term of
the Debt, or the term of the notes, if shorter, determined based upon the
rate of interest in effect as of the date of such determination, together
with the maximum prepayment premium or penalty which could become due or
payable with respect to such Debt if such Debt was prepaid prior to the
maturity of the notes;
(7) all fees and expenses incurred by such person in connection with the
incurrence of any of the obligations described in this definition; and
(8) all obligations of the type referred to in clauses (1) through (7)
of other persons secured by any Lien on any property or asset of the person,
whether or not such obligation is assumed by such person, the amount of such
obligation being deemed to be the lesser of the value of the property or
assets or the amount of the obligation so secured.
"EXCHANGEABLE STOCK" means any capital stock of us or FTL-Cayman which is
exchangeable or convertible into another security (other than our capital stock
or that of FTL-Cayman which is neither Exchangeable Stock nor Redeemable Stock).
"INVESTMENT GRADE" means in one of the four highest categories (without
regard to subcategories within such rating categories) by a Rating Agency.
"INVESTMENT GRADE RATING DATE" means the date on which the Company receives
written certification from any two Rating Agencies that the notes are rated
Investment Grade.
"INVESTMENT GRADE RATING PERIOD" means any period from an Investment Grade
Rating Date until the date immediately preceding a subsequent Non-Investment
Grade Rating Date.
"MAKE-WHOLE PREMIUM" means, with respect to any note at any Redemption Date,
the excess, if any, of (1) the aggregate present value of the sum of the
principal amount of the note and the amount of interest, exclusive of interest
accrued to the Redemption Date, that would have been payable in respect of the
principal amount if the redemption had not been made, discounted on a
semi-annual bond equivalent basis to the Redemption Date from the respective
dates on which such principal and interest would have been payable at an annual
interest rate equal to the sum of the Treasury Yield (determined on the business
day immediately preceding the Redemption Date), PLUS 62.5 basis points, over (2)
the principal amount of the note being redeemed.
"NET AVAILABLE CASH" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents, including payments for deferred payment
obligations when received in the form of cash or Cash Equivalents (except to the
extent that the obligations are financed or sold with recourse to FTL-Cayman or
any subsidiary of FTL-Cayman) net of (1) brokerage commissions and other
reasonable fees and expenses (including fees and expenses of legal counsel and
investment bankers) related to such Asset Sale, (2) provisions for all taxes
payable as a result of such Asset Sale, (3) amounts required to be paid to any
person (other than FTL-Cayman or any subsidiary of FTL-Cayman) owning a
beneficial
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interest in the assets subject to the Asset Sale and (4) appropriate amounts to
be provided by FTL-Cayman or any subsidiary of FTL-Cayman, as the case may be,
as a reserve required in accordance with GAAP consistently applied against any
liabilities associated with the Asset Sale and retained by FTL-Cayman or any
subsidiary of FTL-Cayman, as the case may be, after the Asset Sale, including,
without limitation, pension and other postemployment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with the Asset Sale, provided that the
amount of any the reserves will be deemed to constitute Net Available Cash at
the time such reserves have been released or are not otherwise required to be
retained as a reserve.
"NET CASH PROCEEDS" means cash payments received (including any cash
payments received as deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received) from any
sale, lease, transfer or other disposition of capital stock of FTL-Cayman or a
subsidiary of FTL-Cayman or property or other assets of FTL-Cayman or a
subsidiary of FTL-Cayman, in each case net of all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and any taxes
payable and reasonably estimated income taxes, as a consequence of the sale,
lease, transfer or other disposition.
"NON-INVESTMENT GRADE" means any rating by a Rating Agency which does not
constitute an Investment Grade Rating.
"NON-INVESTMENT GRADE RATING DATE" means each date on which the notes are
rated Non-Investment Grade by two Rating Agencies.
"NON-INVESTMENT GRADE RATING PERIOD" means any period of time which is not
an Investment Grade Rating Period.
"PERMITTED MORTGAGES" means:
- mortgages, pledges or liens imposed by governmental authorities for taxes,
assessments or other charges not yet subject to penalty or which are being
contested in good faith and by appropriate proceedings, if adequate
reserves are maintained on the books of FTL-Cayman or the applicable
subsidiary in accordance with generally accepted accounting principles;
- statutory mortgages of carriers, warehousemen, mechanics, materialmen,
landlords, repairmen or other like mortgages arising by operation of law
in the ordinary course of business;
- mortgages, pledges or liens securing the performance of bids, trade
contracts (other than borrowed money), leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
- mortgages, pledges or liens arising by operation of law in connection with
judgments, only to the extent, for an amount and for a period not
resulting in an event of default with respect thereto; and
- pledges or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of
social security legislation.
"PERMITTED REFINANCING DEBT" means any Debt of FTL-Cayman or any of its
Subsidiaries issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund, other Debt of FTL-Cayman
or any of FTL-Cayman's subsidiaries (other than intercompany Debt); PROVIDED
that:
- the principal amount (or accreted value, if applicable) of the Permitted
Refinancing Debt does not exceed the principal amount of (or accreted
value, if applicable), plus accrued interest on, the premium, if any,
together with all reasonable fees, charges and expenses incurred in
connection with the refinancing of the Debt so extended, refinanced,
renewed, replaced, defeased or refunded;
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- such Permitted Refinancing Debt has a Stated Maturity that is the same as
or later than its Stated Maturity and has an Average Life equal to or
greater than the Average Life of, the Debt being extended, refinanced,
renewed, replaced, defeased or refunded;
- if the Debt being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the notes, the FTL-Cayman
Guarantee or the Subsidiary Guarantees, the Permitted Refinancing Debt is
subordinated in right of payment to the notes, the FTL-Cayman Guarantee or
the Subsidiary Guarantees, as the case may be, to the same extent as the
Debt being extended, refinanced, renewed, replaced, defeased or refunded;
and
- the Debt either is incurred by us, FTL-Cayman or any of the guarantor
subsidiaries or is incurred by the subsidiary that is the obligor on the
Debt being extended, refinanced, renewed, replaced, defeased or refunded.
"QUALIFIED RECEIVABLES TRANSACTION" means any transaction or series of
transactions entered into by FTL-Cayman or any of its subsidiaries pursuant to
which FTL-Cayman or any of its subsidiaries sells, conveys or otherwise
transfers to (1) an Accounts Receivable Subsidiary, in the case of a transfer by
FTL-Cayman or any of its subsidiaries or (2) any other person, in the case of a
transfer by an accounts receivable subsidiary, or grants a security interest in,
any accounts receivable, whether now existing or arising in the future, of
FTL-Cayman or any of its subsidiaries, and any assets, including all collateral
securing the accounts receivable, property sold giving rise to the accounts
receivable (including returned goods), all contracts and all guarantees or other
obligations in respect of the accounts receivable, proceeds of the accounts
receivable and other assets which are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable.
"RATING AGENCY" means each of Standard & Poor's, Duff & Phelps Credit Rating
Co. and Moody's Investors Service or, if such person ceases to rate the notes
for reasons outside of our control, any other "nationally recognized statistical
rating organization" (within the meaning of Rule 15c3-1(c)(2)(vi) under the
Exchange Act) we select as a replacement rating agency).
"REDEEMABLE STOCK" means any capital stock that by its terms or otherwise is
required to be redeemed on or prior to April 15, 2007 or is redeemable at the
option of the holder thereof at any time on or prior to April 15, 2007.
"REDEMPTION DATE" means the date we fix for the redemption of the notes
pursuant to the indenture.
"SIGNIFICANT SUBSIDIARY" means (1) any subsidiary of FTL-Cayman which at the
time of determination either (A) had assets which, as of the date of
FTL-Cayman's most recent quarterly consolidated balance sheet, constituted at
least 5% of FTL-Cayman's total assets on a consolidated basis as of such date or
(B) had revenues for the 12-month period ending on the date of FTL-Cayman's most
recent quarterly consolidated statement of income which constituted at least 5%
of FTL-Cayman's total revenues on a consolidated basis for such period or (2)
any subsidiary of FTL-Cayman which, if merged with all defaulting subsidiaries
of FTL-Cayman, would at the time of determination either (A) have had assets
which, as of the date of FTL-Cayman's most recent quarterly consolidated balance
sheet, would have constituted at least 10% of FTL-Cayman's total assets on a
consolidated basis as of that date or (B) have had revenues for the 12-month
period ending on the date of FTL-Cayman's most recent quarterly consolidated
statement of income which would have constituted at least 10% of FTL-Cayman's
total revenues on a consolidated basis for that period. A "defaulting
subsidiary" is any subsidiary of FTL-Cayman with respect to which an event
described under clause (6), (7) or (8) of the first paragraph under "Defaults"
has occurred and is continuing.
"STATED MATURITY" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision.
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"SUBORDINATED OBLIGATION" means any of our Debt which is subordinate or
junior in right of payment to the notes, any Debt of any guarantor subsidiary
which is subordinate or junior in right of payment to the guarantee of such
guarantor subsidiary and any Debt of FTL-Cayman which is subordinate or junior
in right of payment to the FTL-Cayman Guarantee, in each case whether currently
outstanding or incurred in the future.
"TREASURY YIELD" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity, as compiled by and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the date
fixed for redemption (or, if such Statistical Release is no longer published,
any publicly available source of similar data) most nearly equal to the then
remaining Average Life of the notes; provided, that if the Average Life of the
notes is not equal to the constant maturity of a United States Treasury security
for which a weekly average yield is given, the Treasury Yield will be obtained
by linear interpolation, calculated to the nearest one-twelfth of a year, from
the weekly average yields of United States Treasury securities for which such
yields are given, except that if the Average Life of the notes is less than one
year, the weekly average yield on actually traded United States Treasury
securities adjusted to a constant maturity of one year will be used.
BOOK-ENTRY, DELIVERY AND FORM
We will initially issue the exchange notes in the form of one or more
registered, global notes without interest coupons. We will deposit these global
notes upon issuance with the trustee, as custodian for Depository Trust Company
(commonly referred to as "DTC") and will be registered in the name of DTC or its
nominee.
Except as discussed below, these global notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"-- Exchange of Book-Entry Notes for Certificated Notes."
Initially, the trustee will act as paying agent and registrar. The exchange
notes may be presented for registration of transfer and exchange at the offices
of the registrar.
DEPOSITARY PROCEDURES
We are providing you the following description of the operations and
procedures of DTC solely as a matter of convenience. These operations and
procedures are solely within the control of DTC and are subject to changes by it
from time to time. We, FTL-Cayman and the guarantor subsidiaries take no
responsibility for these operations and procedures and urge you to contact DTC
or its participants directly to discuss these matters.
DTC has advised us, FTL-Cayman and the guarantor subsidiaries that DTC is a
limited-purpose trust company created to hold securities for its participating
organizations and to facilitate the clearance and settlement of transactions in
those securities through electronic book-entry changes in accounts of the
participants. The participants include securities brokers and dealers, including
the initial purchasers of the outstanding notes; banks; trust companies; and
clearing corporations. Other entities, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly, also have access to DTC's system.
Persons who are not participants may beneficially own securities held by or on
behalf of DTC only through a participant. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the participants.
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DTC has also advised us, FTL-Cayman and the guarantor subsidiaries that,
pursuant to procedures established by it, (1) upon deposit of the global notes,
DTC will credit the accounts of participants represented by the global notes
with portions of the principal amount of the global notes, and (2) ownership of
such interests in the global notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC, with
respect to the participants, or by the participants, with respect to other
owners of beneficial interest in the global notes.
Investors in the global notes may hold their interests directly through DTC,
if they are participants in the system, or indirectly through organizations,
including Euroclear, which are participants in the system. All interests in a
global note, including those held through Euroclear, may be subject to the
procedures and requirements of the DTC. Those interests held through Euroclear
may also be subject to the procedures and requirements of that system. The laws
of some states require that certain persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer
beneficial interests in a global note to those persons will be limited to that
extent. Because DTC can act only on behalf of participants, which in turn act on
behalf of indirect participants and certain banks, the ability of a person
having beneficial interests in a global note to pledge those interests to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of those interests, may be affected by the lack of a physical
certificate evidencing those interests.
Except as described below, owners of interests in the global notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"holders" of the notes under the indenture for any purpose.
We will make payments in respect of the principal of, and premium, if any,
and interest on a global note registered in the name of the DTC or its nominee
to the DTC in its capacity as the registered holder under the indenture. Under
the terms of the indenture, we, FTL-Cayman, the guarantor subsidiaries and the
trustee will treat the persons in whose names the exchange notes, including the
global notes, are registered as the owners of the exchange notes for the purpose
of receiving such payments and for any and all other purposes whatsoever.
Consequently, neither we, FTL-Cayman, the guarantor subsidiaries, nor the
trustee nor any agent of us, FTL-Cayman, the guarantor subsidiaries or the
trustee has or will have any responsibility or liability for (1) any aspect of
the DTC's records or any participant's records relating to, or payments made on
account of, beneficial ownership interests in the global notes, or for
maintaining, supervising or reviewing any of the DTC's records or any
participant's records relating to the beneficial ownership interests in the
global notes, or (2) any other matter relating to the actions and practices of
the DTC or any of its participants. The DTC has advised us that its current
practice, upon receipt of any payment in respect of securities such as the
exchange notes, including principal and interest, is to credit the accounts of
the relevant participants with the payment on the payment date, in amounts
proportionate to their respective holdings in the principal amount of beneficial
interest in the relevant security as shown on the records of the DTC unless it
has reason to believe it will not receive payment on the payment date. Payments
by the participants to the beneficial owners of notes will be governed by
standing instructions and customary practices and will be the responsibility of
the participants. They will not be the responsibility of the DTC, the trustee,
us, FTL-Cayman or the guarantor subsidiaries. None of us, FTL-Cayman, the
guarantor subsidiaries or the trustee will be liable for any delay by the DTC or
any of its participants in identifying the beneficial owners of the notes. We,
FTL-Cayman, the guarantor subsidiaries and the trustee may conclusively rely on
and will be protected in relying on instructions from DTC or its nominee for all
purposes.
Transfers between participants in the DTC will be made in accordance with
the DTC's procedures and will be settled in same day funds. Transfers between
participants in Euroclear will be effected in the ordinary way in accordance
with its rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the notes
described herein, cross-market transfers between the participants in the DTC, on
the one hand, and Euroclear participants, on the other hand, will be effected
through the DTC in accordance with the DTC's rules on behalf of Euroclear
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by its respective depositary. However, these cross-market transactions will
require delivery of instructions to Euroclear by the counterparty in the DTC
system in accordance with the rules and procedures and within the established
deadlines (Brussels time) of that system. Euroclear will, if the transaction
meets its settlement requirements, deliver instructions to its respective
depositary to take action to effect final settlement on its behalf by delivering
or receiving interests in the relevant global note in the DTC, and making or
receiving payment in accordance with normal procedures for same-day funds
settlement applicable to the DTC. Euroclear participants may not deliver
instructions directly to the depositories for Euroclear.
The DTC has advised us, FTL-Cayman and the guarantor subsidiaries that it
will take any action permitted to be taken by a holder of notes only at the
direction of one or more participants to whose account the DTC has credited the
interests in the global notes and only in respect of such portion of the
aggregate principal amount of the notes as to which such participant or
participants has or have given such direction. However, if there is an event of
default under the notes, the DTC reserves the right to exchange the global notes
for legended notes in certificated form, and to distribute such notes to its
participants.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive notes in certificated form if:
- DTC notifies us that it is unwilling or unable to continue as depositary
for the global notes and we fail to appoint a successor depositary within
120 days or the DTC has ceased to be a clearing agency registered under
the Securities Exchange Act of 1934;
- we, at our option, notify the trustee in writing that we elect to cause
the issuance of the certificated notes; or
- upon the request of the trustee or holders of a majority of the aggregate
principal amount of outstanding notes if there shall have occurred and be
continuing a default or event of default with respect to the notes.
In addition, beneficial interests in a global note may be exchanged for
certificated notes upon request but only in accordance with the procedures
specified in the indenture. In all cases, certificated notes delivered in
exchange for any global note or beneficial interests in the global note will be
registered with us in the names, and issued in any approved denominations,
requested by or on behalf of the depositary in accordance with its customary
procedures.
SAME DAY SETTLEMENT AND PAYMENT
The indenture requires that we make payments in respect of the notes
represented by the global notes (including principal, premium, if any, and
interest) by wire transfer of immediately available funds to the accounts
specified by the global note holder. With respect to exchange notes in
certificated form, we will make all payments of principal, premium, if any, and
interest by wire transfer of immediately available funds to the accounts
specified by the note holders or, if no such account is specified, by mailing a
check to each such holder's registered address. The exchange notes represented
by the global notes are expected to be eligible to trade in PORTAL and to trade
in DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in the exchange notes will, therefore, be required by the DTC
to be settled in immediately available funds. We expect that secondary trading
in any exchange notes in certificated form will also be settled in immediately
available funds.
Because of time zone differences, the securities account of a Euroclear
participant purchasing an interest in a global note from a participant in the
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear participant, during the securities settlement processing day, which
must be a business day for Euroclear, immediately following the settlement date
of the DTC. The DTC has advised us that cash received in Euroclear as a result
of sales of interests in a global note by or through a Euroclear participant to
a participant in DTC will be received with value on the settlement date of the
DTC but will be available in the relevant Euroclear cash account only as of the
business day for Euroclear following the DTC's settlement date.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Upon the issuance of the outstanding notes under the purchase agreement
dated as of March 18, 1999, by and among us, FTL-Cayman, the guarantor
subsidiaries and the initial purchasers, the initial purchasers and their
assignees became entitled to the benefits of the registration rights agreement.
Under the registration rights agreement, we, FTL-Cayman and the guarantor
subsidiaries were required to file, not later than 60 days following the date
the outstanding notes were originally issued, the registration statement of
which this prospectus is a part, providing for an offer to exchange the
outstanding notes for exchange notes with terms substantially identical to those
of the outstanding notes. We and the guarantors agreed to use our best efforts
to:
- cause the registration statement to be declared effective not later than
120 days after the date the outstanding shares were issued;
- keep the exchange offer open for not less than 30 calendar days, or longer
if required by applicable law, after we notified holders of the
outstanding notes of the exchange offer; and
- cause the exchange offer to be consummated within 150 days of the original
issue date of the outstanding notes.
We, FTL-Cayman and the guarantor subsidiaries also agreed that, promptly
after this registration statement was declared effective, we would offer to
exchange the exchange notes for the outstanding notes. We will keep the exchange
offer open until the expiration date. For each outstanding note validly tendered
to us in the exchange offer, we will issue to its holder an exchange note of
equal principal amount.
The exchange offer being made by this prospectus is intended to satisfy our
obligation rights under the registration rights agreement. If we fail to fulfill
these registration obligations, you, as a holder of outstanding notes, will be
entitled to receive additional interest until we have fulfilled these
obligations. We must pay this additional interest at an initial rate of 0.25%
per year. This initial rate will increase if we continue to fail to fulfill
these obligations, up to a maximum of 1% per year. We will pay additional
interest in cash on the same interest payment dates as the notes.
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the SEC contained in no-action
letters issued to third parties, we believe that you may offer for resale,
resell and otherwise transfer the exchange notes issued to you pursuant to the
exchange offer in exchange for your outstanding notes without compliance with
the registration and prospectus delivery provisions of the Securities Act of
1933, if you can represent that:
- you are acquiring the exchange notes in the ordinary course of your
business;
- you are not participants, do not intend to participate and have no
arrangement or understanding with any person to participate in a
distribution of the exchange notes; and
- you are not an "affiliate," as defined in Rule 405 of the Securities Act
of us, FTL-Cayman or any guarantor subsidiary.
If you are not able to make these representations, you are referred to in
this prospectus as a restricted holder. As a restricted holder, you will not be
able to participate in the exchange offer and may only sell your outstanding
notes as part of a registration statement containing the selling security holder
information required by Item 507 of Regulation S-K under the Securities Act, or
under an exemption from the registration requirement of the Securities Act.
In addition, each broker-dealer, other than a restricted holder, that
receives exchange notes for its own account in exchange for outstanding notes
which were acquired by the broker-dealer as a result of
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market-making or other trading activities, must acknowledge in the letter of
transmittal that it will deliver a prospectus meeting the requirements of the
Securities Act upon any resale of the 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. Based upon interpretations by the staff of the SEC, we
believe that a broker-dealer who acquired the notes as a result of market-making
or other trading activities may offer for resale, resell and otherwise transfer
exchange notes issued under the exchange offer upon compliance with the
prospectus delivery requirements, but without compliance with the registration
requirements, of the Securities Act. This prospectus, as we may amend or
supplement it from time to time, may be used by these broker-dealers for their
resales. We have agreed that we will make this prospectus available to any
broker-dealer for use by the broker-dealer in any resale. By acceptance of the
exchange offer, each broker-dealer that receives exchange notes under the
exchange offer agrees to notify us and FTL-Cayman prior to using this prospectus
in a sale or transfer of exchange notes. See "Plan of Distribution."
To the extent outstanding notes are tendered and accepted in the exchange
offer, the principal amount of outstanding notes will decrease, with a resulting
decrease in the liquidity in the market for the outstanding notes. Outstanding
notes that are still outstanding following the completion of the exchange offer
will continue to be subject to transfer restrictions.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions contained in this prospectus
and in the letter of transmittal, we will accept any and all outstanding notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the expiration date. As of the date of this prospectus, an aggregate of
$250,000,000 principal amount of the outstanding notes is outstanding. We will
issue $1,000 principal amount at maturity of exchange notes in exchange for each
$1,000 principal amount at maturity of outstanding notes accepted in the
exchange offer. You may tender some or all of your outstanding notes under the
exchange offer. However, you may tender outstanding notes only in integral
multiples of $1,000.
The exchange notes will evidence the same debt as the outstanding notes and
will be entitled to the benefits of the indenture under which the outstanding
notes were issued and the exchange notes will be issued. The form and terms of
the exchange notes will be substantially identical to the form and terms of the
outstanding notes, except that:
- the offering of the exchange notes has been registered under the
Securities Act, and, therefore, the exchange notes will not be subject to
transfer restrictions, and
- the exchange notes will be issued free of any covenants regarding exchange
and registration rights and will not provide for additional interest.
You do not have any appraisal or dissenters' rights under law or the
indenture in the exchange offer. We intend to conduct the exchange offer in
accordance with the applicable requirements of the Exchange Act.
We will be deemed to have accepted validly tendered outstanding notes when
we have given oral notice, promptly confirmed in writing, or written notice of
our acceptance to the exchange agent. The exchange agent will act as agent for
the tendering holders for the purpose of receiving the exchange notes from us.
If we do not accept for exchange any tendered outstanding notes because of
an invalid tender, the occurrence of other events described in this prospectus
or another reason, we will return certificates for the unaccepted outstanding
notes to you, without expense, as promptly as practicable after the expiration
date.
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes relating to the
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exchange of outstanding notes under the exchange offer. We will pay all charges
and expenses, other than certain applicable taxes, as part of the exchange
offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" means 5:00 p.m., New York City time, on
, 1999, unless we, in our sole discretion, extend the exchange
offer, in which case the term "expiration date" will mean the latest date and
time to which we extend the exchange offer.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral notice, promptly confirmed in writing, or written notice
and will make a public announcement of the extension, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date unless otherwise required by applicable law or regulation.
PROCEDURES FOR TENDERING
Only a holder of outstanding notes may tender the outstanding notes in the
exchange offer. To tender in the exchange offer, you must complete, sign and
date the letter of transmittal, or a facsimile of it; have the signatures
guaranteed if required by the letter of transmittal; and mail or otherwise
deliver the letter of transmittal or facsimile, together with the outstanding
notes, or a confirmation of an appropriate book-entry transfer into the exchange
agent's account at The Depository Trust Company, and any other required
documents, to the exchange agent prior to 5:00 p.m., New York City time, on the
expiration date. The Depository Trust Company is commonly referred to as DTC. To
be tendered effectively, the outstanding notes, or a timely confirmation of a
book-entry transfer of the outstanding notes into the exchange agent's account
at DTC as described below, letter of transmittal and other required documents
must be received by the exchange agent at the address listed below under "--
Exchange Agent" prior to 5:00 p.m., New York City time, on the expiration date.
The tender by a holder will constitute an agreement between the holder and
ourself in accordance with the terms and subject to the conditions described in
this prospectus and in the letter of transmittal.
Any financial institution which is a participant in DTC may make book-entry
delivery of the outstanding notes by causing DTC to transfer the outstanding
notes into the exchange agent's account and to deliver an Agent's Message on or
prior to the expiration date in accordance with DTC's procedure for such
transfer. Although delivery of outstanding notes may be effected through
book-entry transfer into the exchange agent's account at DTC, the letter of
transmittal, with any required signature guarantees and any other required
documents, must in any case be transmitted to and received by the exchange agent
prior to 5:00 p.m., New York City time, on the expiration date at one of its
addresses listed below under "-- Exchange Agent," or the guaranteed delivery
procedure described below must be complied with. DELIVERY OF DOCUMENTS TO DTC IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT. All references in this prospectus to deposit or delivery of outstanding
notes will include DTC's book-entry delivery method.
Your method of delivery of outstanding notes and the letter of transmittal
and all other required documents to the exchange agent, including delivery
through DTC, is at your election and risk. Instead of delivery by mail, we
recommend that you use an overnight or hand delivery service. If you send
outstanding notes by mail, we recommend registered mail with return receipt
requested, properly insured. In all cases, you should allow sufficient time to
assure delivery to the exchange agent before the expiration date. You should not
send letters of transmittal or outstanding notes to us.
You may request that your broker, dealer, commercial bank, trust company or
nominee effect the transactions for you.
If you are a beneficial owner whose outstanding notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
you wish to tender, you should contact the
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registered holder promptly and instruct the registered holder to tender on your
behalf. If you wish to tender on your own behalf, you must, prior to completing
and executing the letter of transmittal and delivering your outstanding notes,
either make appropriate arrangements to register ownership of the outstanding
notes in your name or obtain a properly completed bond power from the registered
holder. You should be aware that the transfer of registered ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an eligible institution unless the outstanding
notes are tendered (1) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the letter of transmittal or (2) for the account of an eligible institution. If
the signature on a letter of transmittal or a notice of withdrawal needs to be
guaranteed, the guarantee must be by an eligible institution. An eligible
institution includes a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank or
trust company having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act.
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, the persons should so indicate when signing. Unless we waive the
requirement, they must submit proper evidence satisfactory to us of their
authority to so act with the letter of transmittal.
We will determine questions as to the validity, form, eligibility (including
time of receipt), acceptance and withdrawal of tendered outstanding notes in our
sole discretion, our determination will be final and binding. We reserve the
absolute right to reject any and all outstanding notes not properly tendered or
any outstanding notes our acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular outstanding notes. Our
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 the time we determine. Although we
intend to notify holders of defects or irregularities with respect to tenders of
outstanding notes, neither we nor the exchange agent nor any other person will
be liable for failure to give such notification. Tenders of outstanding notes
will not be deemed to have been made until the defects or irregularities have
been cured or waived. The exchange agent will return to the tendering holders
(or, in the case of outstanding notes delivered by book-entry transfer within
DTC, will credit them to the account maintained in DTC by the
participant in DTC which delivered them, unless otherwise provided in the letter
of transmittal, as soon as practicable following the expiration date.
In addition, we reserve the right in our sole discretion (1) to purchase or
make offers for any outstanding notes that remain outstanding after the
expiration date, (2) as set forth below under "-- Conditions," to terminate the
exchange offer and (3) to the extent permitted by applicable law, to purchase
outstanding notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the terms
of the exchange offer.
By tendering, each holder will represent to us that, among other things, the
holder is not a restricted holder. In addition, each broker-dealer who acquired
the notes as a result of market-making or other trading activities must
acknowledge that it will deliver a prospectus as part of any resale of exchange
notes.
BOOK-ENTRY TRANSFER
The exchange agent will establish a new account or use an existing account
for the outstanding notes at DTC promptly after the date of this prospectus. Any
financial institution that is a participant in DTC and whose name appears on a
security position listing as the owner of outstanding notes may make a
book-entry tender of outstanding notes by causing DTC to transfer the
outstanding notes into the
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exchange agent's account in accordance with DTC's procedures for the transfer.
Tender of outstanding notes may be effected through book-entry transfer at DTC.
However, an original or facsimile copy of the letter of transmittal, properly
completed and validly executed, with any required signature guarantees, or an
Agent's Message in lieu of the letter of transmittal, and any other required
documents, must be received by the exchange agent at its address listed below
under the caption "-- Exchange Agent" on or prior to the expiration date, or the
guaranteed delivery procedures described below must be complied with. The
confirmation of book-entry transfer of outstanding notes into the exchange
agent's account at DTC as described above is referred to in this prospectus as a
"Book-Entry Confirmation." Delivery of documents to DTC in accordance with DTC's
procedures does not constitute delivery to the exchange agent.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the exchange agent and forming a part of a Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering outstanding notes stating:
- the aggregate principal amount of outstanding notes which have been
tendered by such participant;
- that the participant has received and agrees to be bound by the terms of
the letter of transmittal; and
- that we may enforce the agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes and:
- your outstanding notes are not immediately available; or
- you cannot deliver your outstanding notes (or a confirmation of book-entry
transfer of outstanding notes into the exchange agent's account at DTC),
the letter of transmittal or any other required documents to the exchange
agent prior to the expiration date; or
- you cannot complete the procedure for book-entry transfer on a timely
basis,
you may effect a tender if:
- the tender is made by or through an eligible institution;
- prior to the expiration date, the exchange agent receives from the
eligible institution a properly completed and duly executed notice of
guaranteed delivery (by facsimile transmission, mail or hand delivery)
listing the name and address of the holder of the outstanding notes and
the principal amount of outstanding notes tendered, stating that the
tender is being made by the notice and guaranteeing that, within three
New York Stock Exchange trading days after the expiration date, a duly
executed letter of transmittal (or facsimile thereof) together with the
outstanding notes (or a confirmation of book-entry transfer of the
outstanding notes into the exchange agent's account at DTC), and any
other documents required by the letter of transmittal and the related
instructions, will be deposited by the eligible institution with the
exchange agent; and
- the properly completed and executed letter of transmittal, or facsimile
thereof), and all tendered outstanding notes in proper form for transfer,
or a confirmation of book-entry transfer of the outstanding notes into
the exchange agent's account at DTC, and all other documents required by
the letter of transmittal are received by the exchange agent within three
New York Stock Exchange trading days after the expiration date.
Upon request, the exchange agent will send you a notice of guaranteed
delivery if you wish to tender your outstanding notes according to the
guaranteed delivery procedures described above.
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WITHDRAWAL OF TENDERS
Except as otherwise provided herein, you may withdraw tenders of outstanding
notes at any time prior to 5:00 p.m., New York City time, on the expiration
date.
To withdraw a tender of outstanding notes in the exchange offer, the
exchange agent must receive a written or facsimile transmission notice of
withdrawal at its address listed in this prospectus prior to 5:00 p.m., New York
City time, on the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn, including the certificate
number or numbers and principal amount of the outstanding notes;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the outstanding notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee register the transfer
of the outstanding notes into the name of the person withdrawing the
tender; and
- specify the name in which any outstanding notes are to be registered, if
different from that of the person who deposited the notes to be withdrawn.
If the outstanding notes have been delivered under the book-entry procedure
set forth above under "-- Procedures for Tendering," any notice of withdrawal
must specify the name and number of the participant's account at DTC to be
credited with the withdrawn outstanding notes. We will determine, in our sole
discretion, all questions as to the validity, form and eligibility (including
time of receipt) of the notices. Our determination will be final and binding on
all parties. Any outstanding notes so withdrawn will be deemed not to have been
validly tendered for purposes of the exchange offer. No exchange notes will be
issued with respect to these outstanding notes unless these outstanding notes
are validly retendered. Properly withdrawn outstanding notes may be retendered
by following one of the procedures described above under "-- Procedures for
Tendering" at any time prior to the expiration date.
Any outstanding notes which are tendered but which are not accepted due to
withdrawal, rejection of tender or termination of the exchange offer will be
returned as soon as practicable to the holder without cost to the 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 under the book-entry
transfer procedures described above, these outstanding notes will be credited to
an account maintained with the book-entry transfer facility for the outstanding
notes).
CONDITIONS
The exchange offer is subject to the following conditions:
- the exchange offer, or the exchange by a holder of an outstanding note
must not violate any applicable law or applicable interpretation of law by
the staff of the SEC,
- the outstanding notes must be properly tendered in accordance with the
exchange offer, and
- each holder exchanging outstanding notes for exchange notes in the
exchange must make customary representations. See "-- Resale of Exchange
Notes."
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EXCHANGE AGENT
We have appointed The Bank of New York, the trustee under the indenture, as
exchange agent for the exchange offer. You should direct any questions and
requests for assistance and inquiries for additional copies of this prospectus
or of the letter of transmittal to the exchange agent addressed as follows:
THE BANK OF NEW YORK
<TABLE>
<S> <C>
By Mail, Hand or Overnight Delivery: Facsimile Transmission
Number:
The Bank of New York (212) 815-6339
101 Barclay Street, 7 East Confirm by Telephone:
New York, NY 10286 (212) 815-3738
Attention: Carolle Montreuil, Reorganization
Section
(If by mail we recommend registered or certified
mail)
</TABLE>
Delivery of the letter of transmittal to an address other than as set forth
above or transmission of instructions via facsimile other than as set forth
above does not constitute a valid delivery of the letter of transmittal.
FEES AND EXPENSES
We will pay expenses of soliciting tenders. The principal solicitation is
being made by mail; however, additional solicitation may be made by facsimile,
telephone or in person by our officers and regular employees.
We have not retained any dealer-manager as part of the exchange offer and
will not make any payments to brokers, dealers or others soliciting acceptance
of the exchange offer. We will, however, pay the exchange agent reasonable and
customary fees for services and will reimburse it for its reasonable
out-of-pocket expenses under the exchange offer and will pay the reasonable fees
and expenses of one firm acting as counsel for the holders of outstanding notes
should the holders deem it advisable to appoint counsel.
We will pay the cash expenses to be incurred under the exchange offer. These
expenses include fees and expenses of the exchange agent and trustee, accounting
and legal fees and printing costs, among others.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. If, however, exchange notes or
outstanding notes for principal amounts not tendered or accepted for exchange
are to be registered, or are to be issued in the name of, or delivered to, any
person other than the registered holder, or if tendered outstanding 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 outstanding notes in the exchange offer, then the tendering holder
must pay the amount of any transfer taxes, whether imposed on the registered
holder or any other persons. If satisfactory evidence of payment of the taxes or
an exemption from the taxes not submitted with the letter of transmittal, we
will bill the amount of the transfer taxes directly to the tendering holder.
SHELF REGISTRATION
The registration rights agreement sets forth various circumstances under
which we are required to file a shelf registration statement with the SEC
instead of a registration statement.
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We will, in the event we file a shelf registration statement, provide to
each holder of the outstanding notes copies of the prospectus which is a part of
the shelf registration statement, notify each such holder when the shelf
registration statement for the outstanding notes has become effective and take
certain other actions as are required to permit unrestricted resales of the
outstanding notes. A holder of outstanding notes who sells the notes pursuant to
the shelf registration statement generally will be required to be named as a
selling security holder in the related prospectus and to deliver the prospectus
to purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with the sales and will be bound by the
provisions of the registration rights agreement which are applicable to the
holder, including certain indemnification obligations.
ADDITIONAL INTEREST
If we do not complete the exchange offer on or prior to the 150th calendar
day following the date of original issue of the outstanding notes or a shelf
registration statement is not declared effective on or prior to the 150th
calendar day following the date of original issue of the outstanding notes (or,
if a shelf registration statement is required to be filed because of the request
by any purchaser of outstanding notes made later than 60 days after the issue
date, 90 days following the request by the purchaser of outstanding notes that
we, FTL-Cayman and the guarantor subsidiaries file the shelf registration
statement), the interest rate on the outstanding notes will increase by 0.25%
per year and this rate will increase by an additional 0.25% per year each 90-day
period that additional interest continues to accrue under any such circumstance.
However, the interest rate may not increase by more than 1.0% per year.
Following the cure of all registration defaults, additional interest will no
longer accrue, and the interest rate will revert to the original rate.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
outstanding notes on the date of the exchange. Therefore, we will recognize no
gain or loss for accounting purposes. We will amortize the expenses of the
exchange offer and the unamortized expenses relating to the issuance of the
outstanding notes over the term of the exchange notes.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes United States federal income tax
consequences to holders of the outstanding notes who exchange their notes for
the exchange notes in the exchange offer. This summary is based on the existing
provisions of the Internal Revenue Code, existing, temporary and proposed
regulations promulgated under the Internal Revenue Code, and administrative
rulings and judicial decisions now in effect or different interpretations, all
of which are subject to change, possibly with retroactive effect. This summary
does not cover all aspects of federal income taxation that may be relevant to
particular investors such as dealers in securities, insurance companies,
financial institutions, tax-exempt entities, regulated investment companies,
persons holding notes as a hedge against currency risks or as a position in a
"straddle" for tax purposes, or persons whose "functional currency" is not the
United States dollar. These persons may be subject to special treatment under
federal income tax laws. In addition, this discussion is limited to investors
who will hold the notes as capital assets, within the meaning of Section 1221 of
the Internal Revenue Code. This summary does not discuss any aspect of state,
local or foreign tax laws.
INDEBTEDNESS
The exchange notes should be treated as our indebtedness, and we should be
able to deduct interest on the notes. In the foreseeable future, we do not
anticipate any disallowance under Section 163(j) of the Internal Revenue Code.
In the unlikely event the exchange notes would be treated as equity, the amount
treated as a distribution on any exchange note would first be taxable to the
holder as dividend income to the extent of our current and accumulated earnings
and profits and would next be treated as a return of capital to the extent of
the holder's tax basis in the exchange notes. Any remaining amount would be
treated as a gain from the sale of an exchange note. In addition, in the event
of equity treatment, we could not deduct interest on the exchange notes. The
remainder of this discussion assumes that the exchange notes will constitute
indebtedness.
Section 163(j) of the Internal Revenue Code generally disallows the
deductibility of a portion of the interest expense of a corporate payor with a
debt to equity ratio exceeding 1.5 to 1 where the debt has been guaranteed by a
foreign person, as the notes have been guaranteed by FTL-Cayman. The amount of
the disallowance is generally the excess of the interest expense over: (1)
interest income plus (2) 50% of the adjusted taxable income of the payor.
Because the tests would be made for the periods for which the interest deduction
is claimed, we cannot currently determine the extent of any potential interest
expense disallowance.
EXCHANGE OFFER
The exchange of outstanding notes for exchange notes pursuant to the
exchange offer should not be treated as an "exchange" or other taxable event. As
a result, there should be no adverse federal income tax consequences to holders
who exchange outstanding notes for exchange notes pursuant to the exchange
offer. The exchange notes received by a holder of the outstanding notes should
be treated as a continuation of the notes in the hands of that holder.
U.S. HOLDERS
As used in this prospectus, the term "U.S. Holder" means the beneficial
owner of an exchange note that for U.S. federal income tax purposes is:
- a citizen or resident (as defined in Section 7701(b) of the Internal
Revenue Code) of the U.S.;
- a corporation, partnership or other entity formed under the laws of the
U.S. or any political subdivision of the U.S.;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source;
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- in general, a trust subject to the primary supervision of a U.S. court and
the control of a U.S. person as described in Section 7701(a) (30) of the
Internal Revenue Code; and
- any other person whose income or gain with respect to a note is
effectively connected with the conduct of a U.S. trade or business.
A "Non-U.S. Holder" is any beneficial owner other than a U.S. Holder. The
payments of interest made under the exchange notes should be U.S. source income
for U.S. federal income tax purposes.
INTEREST. A holder of an exchange note will be required to report interest
on the note as interest income in accordance with the holder's method of
accounting at the time the interest is accrued or received. We expect that the
exchange notes will not be considered to be issued with original issue discount
for tax purposes.
TAX BASIS IN NOTES. The tax basis of the exchange note immediately after
the exchange should equal the holder's tax basis in the outstanding note
immediately prior to the exchange.
DISPOSITION OF NOTES. The sale, exchange, or other disposition of an
exchange note generally will be a taxable event. A holder generally will
recognize gain or loss equal to the difference between: (1) the amount of cash
plus the fair market value of any property received upon the sale, exchange or
other taxable disposition of the exchange note (except to the extent
attributable to accrued interest) and (2) the holder's adjusted tax basis in the
exchange note. The gain or loss will be capital gain or loss. The maximum tax
rate for individual taxpayers on net long-term capital gains (the excess of net
long-term capital gain over net short-term capital loss) is 20% for most assets
held for more than 12 months at the time of disposition. A lower rate of 18%
will apply after December 31, 2000 for assets held for more than 5 years.
However, the 18% rate applies only to assets acquired after December 31, 2000
unless the taxpayer elects to treat an asset held prior to such date as sold for
fair market value on January 1, 2001. In the case of individuals whose ordinary
income is taxed at a 15% rate, the 20% rate for assets held for more than 12
months is reduced to 10%, and the 18% rate for assets held for more than 5 years
is reduced to 8%.
PURCHASERS OF NOTES AT OTHER THAN ORIGINAL ISSUANCE PRICE OR DATE. In the
discussion above, we do not address special rules which 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" and
"amortizable bond premium." If you are such a purchaser, you should consult your
tax advisor as to the consequences of the acquisition, ownership and disposition
of notes.
BACKUP WITHHOLDING. Unless a holder provides us with its correct taxpayer
identification number (employer identification number or social security number)
and certifies that the number is correct, we must withhold and remit to the U.S.
Treasury 31% of (1) the interest paid on the exchange note and (2) the proceeds
of any sale or other disposition of the exchange notes. Therefore, each holder
should complete and sign Internal Revenue Service Form W-9 to provide the
information and certification necessary to avoid backup withholding. However,
certain holders, including certain foreign persons, are not subject to these
backup withholding and reporting requirements. To qualify as an exempt foreign
recipient, that holder should complete and sign Internal Revenue Service Form
W-8BEN (for payments made before 2001, Form W-8 may be provided), attesting to
that individual's exempt foreign status. The statements can be obtained from us.
For further information concerning backup withholding and instructions for
completing Internal Revenue Service Form W-8BEN (for payments made before 2001,
Form W-8 may be provided) and Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete Internal
Revenue Service Form W-8 and Form W-9 if the notes are held in more than one
name), contact us.
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 Internal Revenue Service.
59
<PAGE>
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Non-U.S. holder.
For purposes of withholding tax on interest discussed below, a Non-U.S.
Holder includes a non-resident fiduciary of an estate or trust. Interest and
gain on the sale, exchange or other disposition of a note will generally be
considered to be "U.S. trade or business income" if the income or gain is (1)
effectively connected with the conduct of a U.S. trade or business and (2) in
the case of most treaty residents, attributable to a permanent establishment
(or, in the case of an individual, a fixed base) in the U.S.
STATED INTEREST. Generally, any interest paid to a Non-U.S. Holder of an
exchange note that is not U.S. trade or business income will not be subject to
U.S. federal tax if the interest qualifies as "portfolio interest." Generally,
interest on the exchange notes will qualify as portfolio interest if the
following four qualifications are met:
- the Non-U.S. holder does not own 10% or more of our voting power and is
not a "controlled foreign corporation" with respect to which we are a
"related person" within the meaning of the Internal Revenue Code;
- the beneficial owner, under penalties of perjury, certifies that it is not
a U.S. person and provides its name and address;
- the Non-U.S. holder is not a bank receiving interest on an extension of
credit made pursuant to a loan agreement that was made in the ordinary
course of its trade or business; and
- the notes are in registered form.
The notes should be treated as issued in registered form. An obligation is
considered in registered form if: (1) the obligation is registered as to both
principal and any stated interest with the issuer or its agent, and the
obligation may be transferred only by surrender of the old instrument and either
the reissuance by the issuer of the old instrument to the new holder or the
issuance by the issuer of a new instrument to the new holder, or (2) the right
to receive principal and interest may only be transferred through a book-entry
system maintained by the issuer or its agent. The exchange notes and beneficial
interests in the exchange notes which have been certificated may only be
transferred by surrender of the old instrument and reissuance by us to a new
holder or issuance by us of a new instrument. Beneficial interests in any notes
which have not been certificated may only be transferred through the book-entry
system of DTC or its participants.
A withholding agent that has determined that the payee is a foreign person
must determine whether the payee is entitled to a reduced rate of withholding
before the payment is made. Portfolio interest is exempt from such withholding.
A withholding agent may only rely on the beneficial owner's claim of foreign
status absent actual knowledge or reason to know otherwise. The withholding
agent must hold the documentation prior to payment and must not have been
notified by the Internal Revenue Service that any of the information on the
withholding certificate is incorrect or unreliable. For payments made after
2000, a withholding certificate is generally only valid if it is provided on
Internal Revenue Service Form W-8BEN (for payments before 2001, a substitute
form may be provided). A Form W-8BEN is valid only if its validity period has
not expired, it is signed under penalties of perjury by the beneficial owner and
it contains all of the information required on the form. The following
information must be provided: the beneficial owner's name, permanent resident
address and tax identification number; the country in which the beneficial owner
was created, incorporated or governed; the classification of the entity; and
other information as may be required by the regulations. As long as these
certification requirements and the other qualifications mentioned in the
preceding paragraph discussed above are satisfied, interest paid to Non-U.S.
Holders of the notes should not be subject to U.S. federal income tax.
60
<PAGE>
The payments of interest to a Non-U.S. Holder that does not qualify for the
portfolio interest exemption and that is not U.S. trade or business income will
be subject to U.S. federal income tax at the rate of 30%, unless a U.S. income
tax treaty applies to reduce or eliminate withholding. U.S. trade or business
income will be taxed at regular U.S. tax rates. In the case of a Non-U.S. holder
that is a corporation, the U.S. trade or business income may also be subject to
the branch profits tax at a 30% rate. The branch profits tax may not apply, or
may apply at a reduced rate, if a recipient is a qualified resident of certain
countries with which the U.S. has an income tax treaty. To claim the benefit of
a tax treaty or to claim exemption from withholding because the income is U.S.
trade or business income, the Non-U.S. Holder must provide a properly executed
Form W-8BEN or W-8ECI (for payments made before 2001, Forms 1001 and 4224 may be
used), as applicable, prior to the payment of interest. These forms must be
periodically updated.
New withholding regulations will apply to payments made after 2000. Under
these new regulations, the required Forms 1001 and 4224 will be replaced by a
new Forms W-8BEN and W-8ECI. Under the new regulations, a Non-U.S. Holder who is
claiming the benefits of a treaty may be required to obtain a U.S. taxpayer
identification number and make certain certifications to us. Special procedures
are provided in the new regulations for payments through qualified
intermediaries. You should consult your tax advisor regarding the effect on you
of the new regulations.
SALE, EXCHANGE OR REDEMPTION OF NOTES. Except as described below and
subject to the discussion concerning backup withholding, any gain realized by a
Non-U.S. Holder on the sale or exchange of a note generally will not be subject
to U.S. federal income tax, unless:
- the gain is U.S. trade or business income;
- subject to certain exceptions, the Non-U.S. Holder is an individual who
holds the note as a capital asset and is present in the U.S. for 183 days
or more in the taxable year of the disposition; or
- the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates, including certain former
citizens or residents of the U.S.
INFORMATION REPORTING AND BACKUP WITHHOLDING. We must report annually to
the Internal Revenue Service and each Non-U.S. Holder any interest that is
subject to withholding, or that is exempt from U.S. withholding tax pursuant to
a tax treaty, or interest that is exempt from U.S. tax under the portfolio
interest exception. Copies of these information returns may also be made
available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the Non-U.S. holder resides.
The payment of the proceeds from the disposition of notes to or through the
U.S. office of any broker, U.S. or foreign, will ordinarily be subject to
information reporting and possible backup withholding. However, if the owner
certifies as to its Non-U.S. Holder status under penalties of perjury or
otherwise establishes an exemption and the broker does not have actual knowledge
that the holder is a U.S. person or that the conditions of any other exemption
are not satisfied, the payment will not be subject to information or backup
withholding. The payment of the proceeds from the disposition of an exchange
note to or through a non-U.S. office of a non-U.S. broker that is not a U.S.
related person will not be subject to information reporting or backup
withholding. For this purpose, a "U.S. related person" is:
- a "controlled foreign corporation" for U.S. federal income tax purposes;
- a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding
the payment, or for such part of the period that the broker has been in
existence, is derived from activities that are effectively connected with
the conduct of a U.S. trade or business; or
- with respect to payments made after December 31, 2000, a foreign
partnership that, at any time during its taxable year, is 50% or more, by
income or capital interest, owned by U.S. persons or is engaged in the
conduct of a U.S. trade or business. In the case of the payment of
proceeds from the
61
<PAGE>
disposition of exchange notes to or through a non-U.S. office of a broker
that is either a U.S. person or a U.S. related person, information
reporting is required on the payment unless the broker has documentary
evidence in the files that the owner is a Non-U.S. holder and the broker
has no knowledge to the contrary.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. holder will be allowed as a refund or a credit against the Non-U.S.
Holder's U.S. federal income tax liability, provided that the required
procedures are followed.
The preceding discussion of certain U.S. federal income tax consequences is
for general information only. Therefore, you should consult your own tax advisor
as to particular consequences of the exchange offer and the exchange to you.
CAYMAN ISLANDS TAXATION
In the opinion of Truman Bodden & Company, Cayman Islands counsel for
FTL-Cayman, under current Cayman Islands law, payment of interest on and
principal of the exchange notes will not be subject to taxation in the Cayman
Islands and no withholding will be required in the Cayman Islands on these
payments to any holder of a note. Gains derived from the sale of the exchange
notes will not be subject to Cayman Islands income or corporation tax. There
will be no Cayman Islands tax consequences to holders of the outstanding notes
who exchange them for exchange notes pursuant to the exchange offer. The Cayman
Islands currently has no income, corporation or capital gains tax and no estate
duty, inheritance or gift tax.
FTL-Cayman has received an undertaking from the Governor-in-Council of the
Cayman Islands to the effect that, for a period of 20 years from the date of the
granting of the undertaking, no law which is enacted after that date in the
Cayman Islands imposing any tax to be levied on any profits, income, gains or
appreciation will apply to FTL-Cayman or its operations and that no such tax or
any tax in the nature of estate duty or inheritance tax will be payable on or in
respect of the notes.
62
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account under
the exchange offer must acknowledge that it will deliver a prospectus as part of
any resale of the exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer as part of
resales of exchange notes received in exchange for outstanding notes where the
outstanding notes were acquired as a result of market-making activities or other
trading activities. We have agreed that for a period of 90 days after the
expiration date, we will make this prospectus, as amended or supplemented,
available to any broker-dealer for use upon any such resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers or any other holder of exchange notes. Broker-dealers may sell
exchange notes received by them for their own account in the exchange 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 these methods of resale. They may make those resales at market
prices prevailing at the time of resale, at prices related to the prevailing
market prices or negotiated prices. They may make those resales directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any of these broker-dealers and the
purchasers of any such exchange notes. Any broker-dealer that resells exchange
notes that were received by it for its own account in the exchange offer and any
broker or dealer that participates in a distribution of the exchange notes may
be deemed to be an "underwriter" within the meaning of the Securities Act. Any
profit on the resale of exchange notes and any commissions or concessions
received by the broker-dealers may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver a prospectus 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.
We will promptly send additional copies of this prospectus and any amendment
or supplement to this prospectus to any broker-dealer that requests these
documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer other than commissions or concessions of any
brokers or dealers. We will indemnify the holders of the notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at January 2, 1999 and December 31, 1997, and
for each of the three years in the period ended January 2, 1999, and have
audited the balance sheet of Fruit of the Loom, Ltd. at January 2, 1999 and
January 31, 1998. We have included and incorporated by reference our financial
statements, and incorporated by reference our schedule and have included Fruit
of the Loom, Ltd.'s balance sheet, in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's reports, given on
their authority as experts in accounting and auditing.
LEGAL MATTERS
John J. Ray III, our Vice President, General Counsel and Secretary, will
pass upon the validity of the securities offered by this prospectus and Katten
Muchin & Zavis, Chicago, Illinois, and Truman Bodden & Company, Cayman Islands,
will pass upon income tax matters relating to the exchange offer and the
exchange notes. Mr. Ray holds options to purchase a total of 107,000 shares of
our common stock.
63
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Condensed Consolidated Balance Sheet (Unaudited) -- April 3, 1999.......................................... F-3
Condensed Consolidated Statement of Operations (Unaudited) for the Three Months Ended April 3, 1999 and
March 28, 1998........................................................................................... F-4
Condensed Consolidated Statement of Common Stockholders' Equity (Unaudited) for the Three Months Ended
April 3, 1999 and March 28, 1998......................................................................... F-5
Condensed Consolidated Statement of Cash Flows (Unaudited) for the Three Months Ended April 3, 1999 and
March 28, 1998........................................................................................... F-6
Notes to Condensed Consolidated Financial Statements (Unaudited)........................................... F-7
Report of Ernst & Young LLP, Independent Auditors.......................................................... F-17
Consolidated Balance Sheet -- January 2, 1999 and December 31, 1997........................................ F-18
Consolidated Statement of Operations for the Years Ended January 2, 1999, December 31, 1997 and December
31, 1996................................................................................................. F-19
Consolidated Statement of Stockholders' Equity for the Years Ended January 2, 1999, December 31, 1997 and
December 31, 1996........................................................................................ F-20
Consolidated Statement of Cash Flows for the Years Ended January 2, 1999, December 31, 1997 and December
31, 1996................................................................................................. F-21
Notes to Consolidated Financial Statements................................................................. F-22
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet (Unaudited) -- April 3, 1999 and January 2, 1999...................... F-73
Condensed Consolidated Statement of Operations (Unaudited) for the Three Months Ended April 3, 1999 and
March 28, 1998........................................................................................... F-74
Condensed Consolidated Statement of Common Stockholders' Equity (Unaudited) for the Three Months Ended
April 3, 1999 and March 28, 1999......................................................................... F-75
Condensed Consolidated Statement of Cash Flows (Unaudited) for the Three Months Ended April 3, 1999 and
March 28, 1998........................................................................................... F-76
Notes to Condensed Consolidated Financial Statements (Unaudited)........................................... F-77
FRUIT OF THE LOOM, LTD.
FINANCIAL STATEMENTS
Report of Independent Auditors............................................................................. F-84
Balance Sheet -- January 2, 1999 and January 31, 1998...................................................... F-85
Notes to Balance Sheet -- January 2, 1999 and January 31, 1998............................................. F-86
</TABLE>
F-1
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<S> <C>
Basis of Presentation................................................................. P-1
Pro Forma Condensed Consolidated Balance Sheet -- April 3, 1999....................... P-2
Pro Forma Condensed Consolidated Statement of Operations for the Three Months Ended
April 3, 1999....................................................................... P-3
Pro Forma Condensed Consolidated Statement of Operations for the Year Ended January 2,
1999................................................................................ P-4
Notes to Pro Forma Condensed Consolidated Financial Statements........................ P-5
</TABLE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<S> <C>
Basis of Presentation................................................................. P-8
Pro Forma Condensed Consolidated Balance Sheet -- April 3, 1999....................... P-9
Pro Forma Condensed Consolidated Statement of Operations for the Three Months Ended
April 3, 1999....................................................................... P-10
Pro Forma Condensed Consolidated Statement of Operations for the Year Ended January 2,
1999................................................................................ P-11
Notes to Pro Forma Condensed Consolidated Financial Statements........................ P-12
</TABLE>
F-2
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
APRIL 3,
1999
------------
(UNAUDITED)
<S> <C>
ASSETS
Current Assets
Cash and cash equivalents (including restricted cash)............................................. $ 20,400
Notes and accounts receivable (less allowance for possible losses of $10,000)..................... 107,100
Inventories
Finished goods.................................................................................. 533,900
Work in process................................................................................. 209,800
Materials and supplies.......................................................................... 73,800
------------
Total inventories............................................................................. 817,500
Other............................................................................................. 52,200
------------
Total current assets.......................................................................... 997,200
------------
Property, Plant and Equipment....................................................................... 1,260,100
Less accumulated depreciation..................................................................... 766,600
------------
Net property, plant and equipment............................................................. 493,500
------------
Other Assets
Goodwill (less accumulated amortization of $342,800).............................................. 679,600
Deferred income taxes............................................................................. 35,000
Other............................................................................................. 168,900
------------
Total other assets............................................................................ 883,500
------------
$ 2,374,200
------------
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt.............................................................. $ 270,500
Trade accounts payable............................................................................ 66,800
Other accounts payable and accrued expenses....................................................... 261,500
------------
Total current liabilities..................................................................... 598,800
------------
Noncurrent Liabilities
Long-term debt.................................................................................... 979,000
Other............................................................................................. 267,500
------------
Total noncurrent liabilities.................................................................. 1,246,500
------------
Preferred Stock..................................................................................... 71,700
------------
Common Stockholders' Equity......................................................................... 457,200
------------
$ 2,374,200
------------
------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
APRIL 3, MARCH 28,
1999 1998
---------- ----------
<S> <C> <C>
Net sales................................................................................. $ 408,700 $ 457,200
Cost of sales............................................................................. 314,300 309,500
---------- ----------
Gross earnings.......................................................................... 94,400 147,700
Selling, general and administrative expenses.............................................. 80,900 83,100
Goodwill amortization..................................................................... 6,600 6,600
---------- ----------
Operating earnings...................................................................... 6,900 58,000
Interest expense.......................................................................... (21,600) (24,700)
Other income -- net....................................................................... 5,500 4,300
---------- ----------
Earnings (loss) before income tax provision............................................. (9,200) 37,600
Income tax provision...................................................................... (500) 6,400
---------- ----------
Net earnings (loss)..................................................................... (8,700) 31,200
Preferred stock dividends................................................................. 300 --
---------- ----------
Earnings (loss) applicable to common stock.............................................. $ (9,000) $ 31,200
---------- ----------
---------- ----------
Earnings (loss) per common share.......................................................... $ (0.13) $ .43
---------- ----------
---------- ----------
Earnings (loss) per common share -- assuming dilution..................................... $ (0.13) $ .43
---------- ----------
---------- ----------
Average common shares..................................................................... 70,400 71,800
---------- ----------
---------- ----------
Average common shares -- assuming dilution................................................ 70,400 72,300
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
AND CAPITAL IN OTHER
COMMON EXCESS OF RETAINED COMPREHENSIVE
SHARES PAR VALUE EARNINGS INCOME TOTAL
----------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997.................... 71,901 $ 319,000 $ 140,700 $ (37,600) $ 422,100
----------
Class A shares issued upon exercise of
options................................... 62 1,700 1,700
----------
Restricted stock --
Compensation earned....................... 400 400
----------
Class A shares repurchased.................. (121) (3,000) (3,000)
----------
Net earnings................................ 31,200 31,200
Foreign currency translation adjustments --
net....................................... (11,900) (11,900)
----------
Comprehensive earnings...................... 19,300
----------- -------------- ---------- -------------- ----------
BALANCE, MARCH 28, 1998....................... 71,842 $ 318,100 $ 171,900 $ (49,500) $ 440,500
----------- -------------- ---------- -------------- ----------
----------- -------------- ---------- -------------- ----------
BALANCE, JANUARY 2, 1999...................... 72,150 $ 326,700 $ 276,600 $ (54,400) $ 548,900
----------
Restricted stock --
Compensation earned....................... 500 500
----------
Shares forfeited.......................... (16)
Class B shares exchanged for exchangeable
participating preferred stock of the
Company................................... (5,229) (71,700) (71,700)
----------
Net loss.................................... (8,700) (8,700)
Foreign currency translation adjustments --
net....................................... (11,500) (11,500)
----------
Comprehensive loss.......................... (20,200)
----------
Preferred stock dividends................... (300) (300)
----------- -------------- ---------- -------------- ----------
BALANCE, APRIL 3, 1999........................ 66,905 $ 255,500 $ 267,600 $ (65,900) $ 457,200
----------- -------------- ---------- -------------- ----------
----------- -------------- ---------- -------------- ----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
APRIL 3, MARCH 28,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)................................................................... $ (8,700) $ 31,200
Adjustments to reconcile to net cash used for operating activities:
Preferred stock dividends........................................................... (300) --
Depreciation and amortization....................................................... 30,800 32,000
Deferred income tax provision....................................................... 1,700 (100)
Increase in working capital......................................................... (77,700) (231,300)
Other -- net........................................................................ (21,400) (23,300)
----------- -----------
Net cash used for operating activities............................................ (75,600) (191,500)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................................................. (6,700) (6,400)
Proceeds from asset sales............................................................. 5,700 21,600
Other -- net.......................................................................... (21,200) (1,200)
----------- -----------
Net cash provided by (used for) investing activities.............................. (22,200) 14,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.............................................. 239,700 --
Proceeds under line-of-credit agreements.............................................. 189,700 284,100
Payments under line-of-credit agreements.............................................. (302,500) (96,400)
Principal payments on long-term debt and capital leases............................... (10,100) (8,400)
Common stock issued................................................................... -- 1,400
Common stock repurchased.............................................................. -- (3,000)
----------- -----------
Net cash provided by financing activities......................................... 116,800 177,700
----------- -----------
Net increase in Cash and cash equivalents (including restricted cash)................... 19,000 200
Cash and cash equivalents (including restricted cash) at beginning of period............ 1,400 16,100
----------- -----------
Cash and cash equivalents (including restricted cash) at end of period.................. $ 20,400 $ 16,300
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. On March 4, 1999 Fruit of the Loom, LTD. ("FTL, Ltd."), a Cayman Islands
company, became the parent holding company of Fruit of the Loom, Inc. ("FTL,
Inc." or the "Company") pursuant to a reorganization (the "Reorganization")
approved by the stockholders of FTL, Inc. on November 12, 1998. Ownership of
essentially all of the businesses or subsidiaries of the Company located
outside the United States, other than certain interests of the Company in
Canada and Mexico and the beneficial ownership of certain trademarks, will
be transferred to FTL, Ltd. when the Reorganization is fully implemented.
The condensed consolidated financial statements contained herein should be
read in conjunction with the consolidated financial statements and related
notes contained in the Company's Annual Report on Form 10-K for the year
ended January 2, 1999. The information furnished herein reflects all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the results of
operations of the interim periods. Operating results for the three months
ended April 3, 1999 are not necessarily indicative of results that may be
expected for the full year.
In connection with the Reorganization, all outstanding shares of Class A
common stock of FTL, Inc. were automatically converted into Class A ordinary
shares of FTL, Ltd., and all outstanding shares of Class B common stock of
FTL, Inc. were automatically converted into shares of exchangeable
participating preferred stock of FTL, Inc. (the "FTL, Inc. Preferred
Stock"). The FTL, Inc. Preferred Stock (5,229,000 shares outstanding) in the
aggregate (i) has a liquidation value of $71,700,000, which is equal to the
fair market value of the FTL, Inc. Class B common stock based upon the
$13.71 average closing price of FTL, Inc. Class A common stock on the New
York Stock Exchange for the 20 trading days prior to March 4, 1999, (ii) is
entitled to receive cumulative cash dividends of 4.5% per annum of the
liquidation value, payable quarterly, (iii) is exchangeable at the option of
the holder, in whole or from time to time in part, at any time for 4,981,000
FTL, Ltd. Class A ordinary shares, (iv) is convertible at the option of the
holder, in whole or from time to time in part, at any time for 4,981,000
shares of FTL, Inc. common stock, (v) participates with the holders of FTL,
Inc. common stock in all dividends and liquidation payments in addition to
its preference payments on an as converted basis, (vi) is redeemable by FTL,
Inc., at its option, after three years at a redemption price equal to the
then fair market value of FTL, Inc. Preferred Stock as determined by a
nationally recognized investment banking firm, and (vii) has the right to
vote on all matters put to a vote of the holders of FTL, Inc. common stock,
voting together with such holders as a single class, and is entitled to the
number of votes which such holder would have on an as converted basis.
The fixed dividend on the FTL, Inc. Preferred Stock of 4.5% of the
liquidation preference of $71,700,000 equals $3,200,000 on an annual basis.
In addition, preferred stockholders participate in FTL, Inc.'s earnings
after provision for the fixed preferred stock dividend. Participation in
earnings is determined as the ratio of preferred shares outstanding to the
total of preferred and common shares outstanding (7.2% at April 3, 1999).
Preferred stockholder participation in losses is limited to the preferred
stockholders' prior participation in earnings. Because FTL, Inc. had a loss
in the three months ended April 3, 1999, the minority interest participation
is limited to the fixed preferred dividend of $300,000 for the period.
Effective January 1, 1998, the Company changed its year end from December 31
to a 52 or 53 week year ending on the Saturday nearest December 31. All
quarterly reporting periods are prepared on a 4-4-5 accounting cycle with
each quarter ending on the Saturday nearest the calendar quarter end.
F-7
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
2. No dividends were declared on the Company's common stock for the three-month
periods ended April 3, 1999 and March 28, 1998.
3. The Company's effective income tax rate of 5.0% for the first three months
of 1999 differed from the Federal statutory rate of 35% primarily due to the
impact of foreign earnings, certain of which are taxed at lower rates than
in the United States, partially offset by goodwill amortization, a portion
of which is not deductible for Federal income taxes, and a provision for
interest on prior years' taxes.
The Company's effective income tax rate of 17% for the first three months of
1998 differed from the Federal statutory rate of 35% primarily due to the
impact of foreign earnings, certain of which are taxed at lower rates than
in the United States, partially offset by goodwill amortization, a portion
of which is not deductible for Federal income taxes, and state income taxes.
4. In 1995, management announced plans to close certain manufacturing
operations and to take other actions to reduce costs and improve operations.
As a result, the Company recorded charges of approximately $372,900,000
($287,400,000 after tax) related to impairment write-downs of goodwill,
costs associated with the closing or realignment of certain domestic
manufacturing facilities and attendant personnel reductions and charges
related to inventory write-downs and valuations, foreign operations and
other corporate issues.
A rollforward of the 1995 special charges from January 2, 1999 through April
3, 1999 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE BALANCE
JANUARY 2, CASH INCOME OTHER APRIL 3,
1999 PAYMENTS (EXPENSE) ACTIVITY 1999
----------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Impairment write down of goodwill............................... $ -- $ -- $ -- $ -- $ --
Closing or realignment of manufacturing operations
Loss on disposal of closed facilities, improvements and
equipment................................................... -- -- -- -- --
Changes in estimates of insurance liabilities................. 9,500 2,300 -- -- 7,200
Costs related to expected increases in workers' compensation
and health and welfare costs -- -- -- -- --
Costs related to termination of certain lease obligations..... -- -- -- -- --
Costs related to severance of the hourly workforce............ -- -- -- -- --
Other......................................................... 200 -- -- -- 200
----------- ----------- --- --- ---------
9,700 2,300 -- -- 7,400
Severance....................................................... -- -- -- -- --
Other asset write downs, valuation reserves and other
reserves...................................................... -- -- -- -- --
Changes in estimates of certain retained liabilities of former
subsidiaries.................................................. 10,500 3,500 -- -- 7,000
Termination of management agreement............................. -- -- -- -- --
----------- ----------- --- --- ---------
$ 20,200 $ 5,800 $ -- $ -- $ 14,400
----------- ----------- --- --- ---------
----------- ----------- --- --- ---------
</TABLE>
F-8
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
In the fourth quarter of 1997, the Company recorded charges for costs
related to the closing and disposal of a number of domestic manufacturing
and distribution facilities, impairment of manufacturing equipment and other
assets and certain European manufacturing and distribution facilities, and
other costs associated with the Company's world-wide restructuring of
manufacturing and distribution facilities. These and other special charges
totalled $441,700,000 ($372,200,000 after tax).
A rollforward of the 1997 special charges from January 2, 1999 through April
3, 1999 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE BALANCE
JANUARY 2, CASH INCOME OTHER APRIL 3,
1999 PAYMENTS (EXPENSE) ACTIVITY 1999
---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Closing and disposal of U.S. manufacturing and
distribution facilities
Loss on sale of facilities, improvements and
equipment:
Sewing, finishing and distribution
facilities................................. $ 60,100 $ -- $ -- $ -- $ 60,100
Impairment of mills to be sold............... 75,400 -- -- -- 75,400
Lease residual guarantees.................... 61,000 8,400 -- -- 52,600
Other equipment.............................. 6,200 -- -- -- 6,200
---------- ----------- ----------- ---------- ----------
202,700 8,400 -- -- 194,300
Severance costs................................ 200 -- -- -- 200
Other accruals................................. 2,400 -- -- -- 2,400
---------- ----------- ----------- ---------- ----------
205,300 8,400 -- -- 196,900
---------- ----------- ----------- ---------- ----------
Impairment of European manufacturing and
distribution facilities
Impairment of long lived assets................ -- -- -- -- --
Other accruals................................. 1,100 -- -- 100 1,000
---------- ----------- ----------- ---------- ----------
1,100 -- -- 100 1,000
---------- ----------- ----------- ---------- ----------
Pro Player incentive compensation agreement...... -- -- -- -- --
---------- ----------- ----------- ---------- ----------
Other asset write-downs and reserves
Inventory valuation provisions................. -- -- -- -- --
Other accruals................................. 11,300 200 -- 1,800 9,300
---------- ----------- ----------- ---------- ----------
11,300 200 -- 1,800 9,300
---------- ----------- ----------- ---------- ----------
Changes in estimates of certain retained
liabilities of former subsidiaries............. 10,600 -- -- -- 10,600
---------- ----------- ----------- ---------- ----------
Total pretax charges....................... $ 228,300 $ 8,600 $ -- $ 1,900 $ 217,800
---------- ----------- ----------- ---------- ----------
---------- ----------- ----------- ---------- ----------
</TABLE>
During the first quarter of 1998, the Company sold certain inventory which
had been written down as part of the 1997 special charges. Amounts received
for the inventory sold were in excess of amounts estimated, resulting in
reductions in cost of sales and increases to earnings before income tax
expense of $4,900,000 in the first quarter of 1998.
F-9
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
5. The Company and its subsidiaries are involved in certain legal proceedings
and have retained liabilities, including certain environmental liabilities,
such as those under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), its regulations and
similar state statutes ("Superfund Legislation"), in connection with the
sale of certain discontinued operations, some of which were significant
generators of hazardous waste. The Company and its subsidiaries have also
retained certain liabilities related to the sale of products in connection
with the sale of certain discontinued operations. The Company's retained
liability reserves at April 3, 1999 related to discontinued operations
consist primarily of certain environmental reserves of approximately
$30,900,000 and product liability reserves of approximately $4,000,000.
During 1998, the Company purchased insurance coverage for potential cleanup
cost expenditures from approximately the level of current environmental
reserves up to $100,000,000 for certain sites with on-going remediation,
pollution liability coverage for claims arising out of pollution conditions
at owned locations including continuing operations, sold facilities and
non-owned sites and product liability coverage for claims arising out of
products manufactured by the sold operations. Management believes that
adequate reserves have been established to cover potential claims based on
facts currently available and current Superfund and CERCLA Legislation.
Generators of hazardous wastes which were disposed of at offsite locations
which are now superfund sites are subject to claims brought by state and
Federal regulatory agencies under Superfund Legislation and by private
citizens under Superfund Legislation and common law theories. Since 1982,
the United States Environmental Protection Agency (the "EPA") has actively
sought compensation for response costs and remedial action at offsite
disposal locations from waste generators under the Superfund Legislation,
which authorizes such action by the EPA regardless of fault, legality of
original disposal or ownership of a disposal site. The EPA's activities
under the Superfund Legislation can be expected to continue during the
remainder of 1999 and future years.
On February 24, 1999, the Board of Directors, excluding Mr. Farley,
authorized the Company to guarantee a bank loan of $65,000,000 to Mr. Farley
in connection with Mr. Farley's refinancing and retirement of his
$26,000,000 and $12,000,000 loans previously guaranteed by the Company and
other indebtedness of Mr. Farley. The Company's obligations under the
guarantee are secured by 2,507,512 shares of FTL, Inc. Preferred Stock and
all of Mr. Farley's assets. In consideration of the guarantee, which is
scheduled to expire in September 2000, Mr. Farley pays an annual guarantee
fee equal to 2% of the outstanding principal balance of the loan. The Board
of Directors received an opinion from an independent financial advisor that
the terms of the transaction are commercially reasonable. In addition, in
October 1998, the Company advanced $3,500,000 to Mr. Farley which was repaid
in March 1999.
The Company has negotiated grants from the governments of the Republic of
Ireland, Northern Ireland and Germany. The grants are being used for
employee training, the acquisition of property and equipment and other
governmental business incentives such as general employment. At April 3,
1999, the Company had a contingent liability to repay, in whole or in part,
grants received of approximately $28,200,000 in the event that the Company
does not meet defined average employment levels or terminates operations in
the Republic of Ireland, Northern Ireland and Germany.
On July 1, 1998, the New England Health Care Employees Pension Fund filed a
purported class action on behalf of all those who purchased Fruit of the
Loom, Inc. Class A Common Stock and publicly traded options between July 24,
1996 and September 5, 1997 (the "Class Period") against the Company and
William Farley, Bernhard Hansen, Richard C. Lappin, G. William Newton,
Burgess D.
F-10
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Ridge, Larry K. Switzer and John D. Wigodsky, each of whom are current or
former officers of the Company, in the United States District Court for the
Western District of Kentucky ("New England Action"). The plaintiff claims
that the defendants engaged in conduct violating Section 10(b) of the
Securities Exchange Act of 1934, as amended (the "Act"), and that the
Company and Mr. Farley are also liable under Section 20(a) of the Act.
According to the plaintiff, the Company, with the knowledge and assistance
of the individual defendants, made certain material misrepresentations and
failed to disclose certain material facts about the Company's condition and
prospects during the Class Period, causing the plaintiff and the class to
buy Company stock or options at artificially inflated prices. The plaintiff
also alleges that during the Class Period, the individual defendants sold
stock of the Company while possessing material non-public information. The
plaintiff asks for unspecified amounts as damages, interest and costs and
ancillary relief. The defendants filed a motion to dismiss the action, which
is fully briefed and awaiting court action. The defendants filed a motion to
change venue from Bowling Green, Kentucky, and such motion is not yet fully
briefed.
Management believes that the suit is without merit, and management and the
Company intend to defend it vigorously. Management believes, based on
information currently available, that the ultimate resolution of this
litigation will not have a material adverse effect on the financial
condition or results of the operations of the Company, but the ultimate
resolution of the suit, if unfavorable, could be material to the results of
operations of a particular future period.
On August 26, 1998, Carol Bradley filed a purported derivative action on
behalf of the Company, against William Farley, Richard C. Lappin, Omar Z. Al
Askari, Dennis S. Bookshester, Henry A. Johnson, Mark H. McCormack, Larry K.
Switzer, A. Lorne Weil and Sir Brian Wolfson, each of whom is a current or
former director of the Company, and the Company, as a nominal defendant, in
the Warren Circuit Court of the State of Kentucky. The plaintiff asserts
various common law claims against the individual defendants including, inter
alia, breach of fiduciary duty, waste of corporate assets, breach of
contract and constructive fraud claims. The plaintiff also asserts an
insider trading claim against defendants Farley, Lappin and Switzer. The
claims asserted against the individual defendants are based on the same
alleged misrepresentations and omissions which form the basis of the claims
asserted by the plaintiff in the New England Action as described above. The
plaintiff seeks unspecified compensatory and punitive damages, attorneys'
fees and costs and ancillary relief.
On September 18, 1998, defendant Farley, with the consent of the Company,
removed the action to the United States District Court for the Western
District of Kentucky. Those defendants subsequently filed a motion to
dismiss on the ground that the plaintiff failed to make an appropriate
demand on the Company prior to filing the action. That motion is fully
briefed and awaiting court action.
F-11
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
6. The following table sets forth the computation of basic and diluted earnings
per common share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
APRIL 3, MARCH 28,
1999 1998
--------- -----------
<S> <C> <C>
NUMERATOR
For basic earnings per share --
Net earnings (loss) applicable to common stock..................... $ (9,000) $ 31,200
Add back dividends on exchangeable preferred assumed to be
converted........................................................ -- --
--------- -----------
For diluted earnings per share --
Earnings (loss) applicable to common stock after assumed
conversion....................................................... $ (9,000) $ 31,200
--------- -----------
--------- -----------
DENOMINATOR
For basic earnings per common share -- weighted average shares
outstanding........................................................ 70,400 71,800
Effect of dilutive employee stock options............................ -- 500
Effect of dilutive exchangeable preferred............................ -- --
--------- -----------
For diluted earnings per common share -- weighted average shares
outstanding and assumed conversions................................ 70,400 72,300
--------- -----------
--------- -----------
Earnings (loss) per common share..................................... $ (0.13) $ 0.43
--------- -----------
--------- -----------
Earnings (loss) per common share -- assuming dilution................ $ (0.13) $ 0.43
--------- -----------
--------- -----------
</TABLE>
Because diluted EPS increases in the first quarter of 1999 from a loss of
$(0.13) to a loss of $(0.12), the effect of the assumed conversion of
exchangeable preferred stock (1,700,000 weighted average shares) is
antidilutive and has been ignored in the computation of diluted EPS.
Therefore, diluted EPS is reported as a loss of $(0.13) in the first quarter
of 1999. The effect of employee stock options was not material in 1999. All
employee stock options were converted to options to purchase FTL, Ltd. Class
A ordinary shares effective March 4, 1999.
7. The Company is offering $250,000,000 in aggregate principal amount of Senior
Notes due 2006. The Notes will be fully and unconditionally guaranteed on a
senior unsecured basis, jointly and severally, by each of the Guarantor
Subsidiaries pursuant to the Subsidiary Guarantees. The Subsidiary
Guarantees will remain in effect only during Non-Investment Grade Rating
Periods. The Notes will be senior unsecured obligations of the Company and
will rank PARI PASSU with all other senior unsecured obligations of the
Company. The Subsidiary Guarantees will be senior unsecured obligations of
the Guarantor Subsidiaries and will rank PARI PASSU with all other senior
unsecured obligations of the Guarantor Subsidiaries. The Notes will also be
effectively subordinated to all liabilities, including trade payables, of
the Non-Guarantor Subsidiaries and, during Investment Grade Rating Periods,
will be effectively subordinated to all liabilities of the Guarantor
Subsidiaries, including trade payables.
Substantially all of the Company's operating income and cash flow is
generated by its subsidiaries. As a result, funds necessary to meet the
Company's debt service obligations are provided in part by distributions or
advances from its subsidiaries. Under certain circumstances, contractual and
legal restrictions, as well as the financial condition and operating
requirements of the Company's subsidiaries could limit the Company's ability
to obtain cash from its subsidiaries for the purpose of meeting its
F-12
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
debt service obligations, including the payment of principal and interest on
the Notes. There are currently no significant restrictions on the ability of
the Guarantor Subsidiaries to make distributions to the Company.
The supplemental guarantor condensed consolidating financial statements
present:
1. Supplemental condensed consolidating balance sheet as of April 3, 1999, and
supplemental condensed consolidating statements of operations and cash flows
for the three months ended April 3, 1999;
2. Fruit of the Loom, Inc. and Guarantor Subsidiaries and the combined
Non-Guarantor Subsidiaries with their investments in subsidiaries accounted
for using the equity method; and
3. Elimination entries necessary to consolidate the Company and all of its
subsidiaries.
Separate financial statements of the Guarantor Subsidiaries are not
presented because the Guarantor Subsidiaries are jointly, severally and
unconditionally liable under the guarantees, and the Company believes the
supplemental guarantor condensed consolidated financial statements as
presented are more meaningful in understanding the financial position of the
Company and its Guarantor Subsidiaries.
F-13
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
APRIL 3, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, ELIMINATIONS
NON-GUARANTOR INC. AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATION CONSOLIDATED
-------------- --------------------- -------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (including
restricted cash)........................ $ 3,400 $ 17,000 $ $ 20,400
Notes and accounts receivable (less
allowance for possible losses of
$10,000)................................ 74,500 32,600 107,100
Inventories
Finished goods.......................... 78,000 455,900 533,900
Work in process......................... 13,800 196,000 209,800
Materials and supplies.................. 7,700 66,100 73,800
-------------- ----------- -------------- ------------
Total inventories..................... 99,500 718,000 817,500
Other..................................... 1,700 50,500 52,200
-------------- ----------- -------------- ------------
Total current assets.................. 179,100 818,100 997,200
-------------- ----------- -------------- ------------
Property, Plant and Equipment............... 199,300 1,060,800 1,260,100
Less accumulated depreciation............. 80,400 686,200 766,600
-------------- ----------- -------------- ------------
Net property, plant and equipment..... 118,900 374,600 493,500
-------------- ----------- -------------- ------------
Other Assets
Goodwill (less accumulated amortization of
$342,800)............................... -- 679,600 679,600
Affiliate notes and accounts receivable... 17,900 -- (17,900) --
Investment in subsidiaries................ -- 225,600 (225,600) --
Deferred income taxes..................... -- 35,000 -- 35,000
Other..................................... 2,900 166,000 168,900
-------------- ----------- -------------- ------------
Total other assets.................... 20,800 1,106,200 (243,500) 883,500
-------------- ----------- -------------- ------------
$ 318,800 $ 2,298,900 $ (243,500) $2,374,200
-------------- ----------- -------------- ------------
-------------- ----------- -------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt...... $ 600 $ 269,900 $ $ 270,500
Trade accounts payable.................... 11,500 55,300 66,800
Other accounts payable and accrued
expenses................................ 26,200 235,300 261,500
-------------- ----------- -------------- ------------
Total current liabilities............. 38,300 560,500 598,800
-------------- ----------- -------------- ------------
Noncurrent Liabilities
Long-term debt............................ 54,800 924,200 979,000
Affiliate notes and accounts payable...... -- 17,900 (17,900) --
Other..................................... 100 267,400 267,500
-------------- ----------- -------------- ------------
Total noncurrent liabilities.......... 54,900 1,209,500 (17,900) 1,246,500
-------------- ----------- -------------- ------------
Preferred Stock............................. -- 71,700 -- 71,700
-------------- ----------- -------------- ------------
Common Stockholders' Equity................. 225,600 457,200 (225,600) 457,200
-------------- ----------- -------------- ------------
$ 318,800 $ 2,298,900 $ (243,500) $2,374,200
-------------- ----------- -------------- ------------
-------------- ----------- -------------- ------------
</TABLE>
F-14
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED APRIL 3, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, ELIMINATIONS
NON-GUARANTOR INC. AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATION CONSOLIDATED
-------------- --------------------- -------------- ------------
<S> <C> <C> <C> <C>
Net sales................................... $ 78,500 $ 336,700 $ (6,500) $ 408,700
Cost of sales............................... 56,600 264,200 (6,500) 314,300
------- -------- ------- ------------
Gross earnings...................... 21,900 72,500 94,400
Selling, general and administrative
expenses.................................. 15,000 65,900 80,900
Goodwill amortization....................... -- 6,600 6,600
------- -------- ------- ------------
Operating earnings.................. 6,900 -- 6,900
Interest expense............................ (1,000) (20,600) (21,600)
Affiliated interest income (expense)........ (200) 200 --
Equity in earnings of Non-Guarantor
Subsidiaries.............................. -- 5,000 (5,000) --
Other income (expense) -- net............... (500) 6,000 5,500
------- -------- ------- ------------
Earnings (loss) before income tax
provision......................... 5,200 (9,400) (5,000) (9,200)
Income tax provision........................ 200 (700) (500)
------- -------- ------- ------------
Net earnings (loss)................. $ 5,000 $ (8,700) $ (5,000) $ (8,700)
------- -------- ------- ------------
------- -------- ------- ------------
</TABLE>
F-15
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED APRIL 3, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FRUIT OF THE LOOM,
COMBINED INC. ELIMINATIONS
NON-GUARANTOR AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
-------------- --------------------- --------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)...................... $ 5,000 $ (8,700) $ (5,000) $ (8,700)
Adjustments to reconcile to net cash used
for operating activities:
Equity in earnings of Non-Guarantor
Subsidiaries......................... -- (5,000) 5,000 --
Preferred stock dividends.............. -- (300) (300)
Depreciation and amortization.......... 3,300 27,500 30,800
Deferred income tax provision.......... -- 1,700 1,700
Increase in working capital............ (8,900) (68,800) (77,700)
Other -- net........................... (7,200) (14,200) (21,400)
-------------- ---------- --------------- ------------
Net cash used for operating
activities......................... (7,800) (67,800) (75,600)
-------------- ---------- --------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..................... (600) (6,100) (6,700)
Proceeds from assets sales............... -- 5,700 5,700
Affiliate notes and accounts receivable.. 14,800 -- (14,800) --
Other -- net............................. (6,800) (14,400) (21,200)
-------------- ---------- --------------- ------------
Net cash provided by (used for)
investing activities............... 7,400 (14,800) (14,800) (22,200)
-------------- ---------- --------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term
debt................................... -- 239,700 239,700
Proceeds under line-of-credit
agreements............................. 8,600 181,100 189,700
Payments under line-of-credit
agreements............................. (6,500) (296,000) (302,500)
Principal payments on long-term debt and
capital leases......................... (100) (10,000) (10,100)
Affiliate notes and accounts payable..... -- (14,800) 14,800 --
-------------- ---------- --------------- ------------
Net cash provided by financing
activities......................... 2,000 100,000 14,800 116,800
-------------- ---------- --------------- ------------
Net increase in cash and cash equivalents
(including restricted cash).............. 1,600 17,400 19,000
Cash and cash equivalents (including
restricted cash) at beginning of
period................................... 1,800 (400) 1,400
-------------- ---------- --------------- ------------
Cash and cash equivalents (including
restricted cash) at end of period........ $ 3,400 $ 17,000 $ $ 20,400
-------------- ---------- --------------- ------------
-------------- ---------- --------------- ------------
</TABLE>
F-16
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors of
Fruit of the Loom, Inc.
We have audited the accompanying consolidated balance sheet of Fruit of the
Loom, Inc. and Subsidiaries as of January 2, 1999 and December 31, 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended January 2, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Fruit of the Loom, Inc. and Subsidiaries at January 2, 1999 and December 31,
1997, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended January 2, 1999, in conformity with
generally accepting accounting principles.
As discussed in the Notes to Consolidated Financial Statements, the Company
changed its method of accounting for inventories in 1997.
ERNST & YOUNG LLP
Chicago, Illinois
February 16, 1999, except for
"Subsequent Events" note, as to
which the date is March 25, 1999
F-17
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 2, DECEMBER 31,
1999 1997
------------ ------------
<S> <C> <C>
(IN THOUSANDS OF DOLLARS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including restricted cash).............................. $ 1,400 $ 16,100
Notes and accounts receivable (less allowance for possible losses of $12,000,000
and $11,900,000, respectively)................................................... 109,700 98,100
Inventories
Finished goods................................................................... 500,700 570,400
Work in process.................................................................. 183,100 212,300
Materials and supplies........................................................... 58,200 64,800
------------ ------------
742,000 847,500
Other.............................................................................. 41,100 53,900
------------ ------------
Total current assets........................................................... 894,200 1,015,600
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Land............................................................................... 14,400 14,700
Buildings, structures and improvements............................................. 303,300 330,500
Machinery and equipment............................................................ 862,500 882,800
Construction in progress........................................................... 11,900 4,200
------------ ------------
1,192,100 1,232,200
Less accumulated depreciation...................................................... 758,200 717,800
------------ ------------
Net property, plant and equipment.............................................. 433,900 514,400
------------ ------------
OTHER ASSETS
Goodwill (less accumulated amortization of $336,200,000 and $309,600,000,
respectively).................................................................... 686,300 712,900
Net deferred income taxes.......................................................... 36,700 30,300
Other.............................................................................. 238,700 209,900
------------ ------------
Total other assets............................................................. 961,700 953,100
------------ ------------
$ 2,289,800 $2,483,100
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt............................................... $ 270,500 $ 28,200
Trade accounts payable............................................................. 119,700 234,100
Acme Boot guarantee................................................................ -- 67,000
Other accounts payable and accrued expenses........................................ 226,700 195,900
------------ ------------
Total current liabilities...................................................... 616,900 525,200
------------ ------------
NONCURRENT LIABILITIES
Long-term debt..................................................................... 856,600 1,192,800
Other.............................................................................. 267,400 343,000
------------ ------------
Total noncurrent liabilities................................................... 1,124,000 1,535,800
------------ ------------
COMMON STOCKHOLDERS' EQUITY
Common stock and capital in excess of par value, $.01 par value; authorized, Class
A, 200,000,000 shares, Class B, 30,000,000 shares; issued and outstanding:
Class A Common Stock, 66,465,255 and 66,216,720 shares, respectively............... 323,000 315,300
Class B Common Stock, 5,684,276 Shares............................................. 3,700 3,700
Retained earnings.................................................................. 276,600 140,700
Accumulated other comprehensive income............................................. (54,400) (37,600)
------------ ------------
Total common stockholders' equity.............................................. 548,900 422,100
------------ ------------
$ 2,289,800 $2,483,100
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-18
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
<S> <C> <C> <C>
JANUARY 2, DECEMBER 31, DECEMBER 31,
1999 1997 1996
------------ ------------ ------------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales.............................................................. $ 2,170,300 $2,139,900 $2,447,400
Cost of sales.......................................................... 1,564,800 1,644,400 1,724,500
------------ ------------ ------------
Gross earnings....................................................... 605,500 495,500 722,900
Selling, general and administrative expenses........................... 344,000 751,800 378,000
Goodwill amortization.................................................. 26,600 26,800 26,700
Impairment write down of goodwill...................................... -- 4,600 --
------------ ------------ ------------
Operating earnings (loss)............................................ 234,900 (287,700) 318,200
Interest expense....................................................... (97,300) (84,700) (103,600)
Other income (expense) -- net.......................................... 5,400 (79,300) (36,400)
------------ ------------ ------------
Earnings (loss) from continuing operations before income tax
provision.......................................................... 143,000 (451,700) 178,200
Income tax provision................................................... 7,100 (66,300) 31,600
------------ ------------ ------------
Earnings (loss) from continuing operations........................... 135,900 (385,400) 146,600
Discontinued operations -- LMP litigation............................ -- (102,200) --
------------ ------------ ------------
Net earnings (loss).................................................... $ 135,900 $ (487,600) $ 146,600
------------ ------------ ------------
------------ ------------ ------------
Earnings (loss) per common share:
Continuing operations................................................ $ 1.89 $ (5.18) $ 1.92
Discontinued operations -- LMP litigation............................ -- (1.37) --
------------ ------------ ------------
Net earnings (loss).................................................... $ 1.89 $ (6.55) $ 1.92
------------ ------------ ------------
------------ ------------ ------------
Earnings (loss) per common share -- assuming dilution:
Continuing operations................................................ $ 1.88 $ (5.18) $ 1.90
Discontinued operations -- LMP litigation............................ -- (1.37) --
------------ ------------ ------------
Net earnings (loss).................................................... $ 1.88 $ (6.55) $ 1.90
------------ ------------ ------------
------------ ------------ ------------
Average common shares outstanding
Basic................................................................ 72,000 74,400 76,400
------------ ------------ ------------
------------ ------------ ------------
Diluted.............................................................. 72,300 74,400 77,100
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
F-19
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON
STOCK
AND CAPITAL
IN ACCUMULATED
EXCESS OF OTHER
COMMON PAR RETAINED COMPREHENSIVE
SHARES VALUE EARNINGS INCOME TOTAL
----------- ----------- --------- ----------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995............... 75,960 $ 470,000 $ 481,700 $ (22,500) $ 929,200
---------
Class A shares issued upon exercise of
options.............................. 1,059 22,500 22,500
---------
Class A shares issued under stock grant
plan -- net.......................... 50 1,400 1,400
---------
Class A shares repurchased............. (440) (16,600) (16,600)
---------
Net earnings........................... 146,600 146,600
Foreign currency translation
adjustments -- net................... 12,500 12,500
Minimum pension liability adjustment... (900) (900)
Unrealized loss on available-for-sale
securities -- net of taxes of
$500,000............................. (900) (900)
---------
Comprehensive income -- 1996........... 157,300
----------- ----------- --------- ----------- ---------
BALANCE, DECEMBER 31, 1996............... 76,629 477,300 628,300 (11,800) 1,093,800
---------
Class A shares issued upon exercise of
options.............................. 564 14,100 14,100
---------
Class A shares issued under stock grant
plan -- net.......................... 37 1,200 1,200
---------
Class A shares repurchased............. (5,329) (173,600) (173,600)
---------
Net loss............................... (487,600) (487,600)
Foreign currency translation
adjustments -- net................... (27,600) (27,600)
Minimum pension liability adjustment... 900 900
Reclassify loss on available-for-sale
securities -- net of taxes of
$500,000 to net earnings............. 900 900
---------
Comprehensive loss -- 1997............. (513,400)
----------- ----------- --------- ----------- ---------
BALANCE, DECEMBER 31, 1997............... 71,901 319,000 140,700 (37,600) 422,100
---------
Class A shares issued upon exercise of
options.............................. 332 9,100 9,100
---------
Class A shares issued under stock grant
plan -- net.......................... 38 1,600 1,600
---------
Class A shares repurchased............. (121) (3,000) (3,000)
---------
Net earnings........................... 135,900 135,900
Foreign currency translation
adjustments -- net................... (6,400) (6,400)
Minimum pension liability adjustment... (10,400) (10,400)
---------
Comprehensive income -- 1998........... 119,100
----------- ----------- --------- ----------- ---------
BALANCE, JANUARY 2, 1999................. 72,150 $ 326,700 $ 276,600 $ (54,400) $ 548,900
----------- ----------- --------- ----------- ---------
----------- ----------- --------- ----------- ---------
</TABLE>
See accompanying notes.
F-20
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
<S> <C> <C> <C>
JANUARY 2, DECEMBER 31, DECEMBER 31,
1999 1997 1996
----------- ------------ ------------
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)................................................... $ 135,900 $ (487,600) $ 146,600
Adjustments to reconcile net earnings (loss) to net cash
provided by (used for) operating activities:
Impairment write down of goodwill................................... -- 4,600 --
Depreciation and amortization....................................... 111,300 154,200 155,700
Deferred income tax provision....................................... (6,100) (64,600) 23,200
Decrease (increase) in notes and accounts receivable................ (6,600) 69,200 93,700
Decrease (increase) in inventories.................................. 98,000 (183,000) 60,200
Increase (decrease) in trade accounts payable....................... (114,400) 122,200 51,800
Other working capital changes....................................... 13,200 86,100 (7,700)
Special charges related to long-term items.......................... -- 261,300 --
Acme Boot charge.................................................... -- 32,000 35,000
Net payments on retained liabilities related to former
subsidiaries...................................................... (13,400) (19,600) (18,000)
Other-net........................................................... (86,000) (94,200) (26,800)
----------- ------------ ------------
Net cash provided by (used for) operating activities............ 131,900 (119,400) 513,700
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................................. (41,900) (55,400) (44,500)
Proceeds from asset sales............................................. 86,400 4,300 17,300
Payment on Acme Boot debt guarantee................................... (65,900) -- --
Proceeds from sale of Hosiery Division................................ -- -- 73,800
Other-net............................................................. (28,000) (13,700) (15,300)
----------- ------------ ------------
Net cash provided by (used for) investing activities............ (49,400) (64,800) 31,300
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.............................. -- 97,800 63,000
Proceeds under line-of-credit agreements.............................. 874,000 1,245,800 488,500
Payments under line-of-credit agreements.............................. (836,200) (981,900) (979,600)
Principal payments on long-term debt and capital leases............... (138,800) (17,600) (125,500)
Common stock issued................................................... 6,800 11,100 17,400
Common stock repurchased.............................................. (3,000) (173,600) (16,600)
----------- ------------ ------------
Net cash provided by (used for) financing activities............ (97,200) 181,600 (552,800)
----------- ------------ ------------
Net decrease in cash and cash equivalents
(including restricted cash)........................................... (14,700) (2,600) (7,800)
Cash and cash equivalents (including restricted cash)
at beginning of year.................................................. 16,100 18,700 26,500
----------- ------------ ------------
Cash and cash equivalents (including restricted cash)
at end of year........................................................ $ 1,400 $ 16,100 $ 18,700
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
See accompanying notes.
F-21
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries other than
its special purpose entity which is not consolidated (see "Sale of Accounts
Receivable"). All material intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates depending upon certain risks and uncertainties. Potential risks and
uncertainties include such factors as the financial strength of the retail
industry (particularly the mass merchant channel), the level of consumer
spending for apparel, demand for the Company's activewear screenprint products,
the competitive pricing environment within the basic apparel segment of the
apparel industry, the Company's ability to develop, market and sell new
products, the success of planned advertising, marketing and promotional
campaigns, international activities, legal proceedings, other contingent
liabilities and the actual fair values of assets held for sale, impaired assets
and leased assets covered by residual value guarantees.
INVENTORIES. Inventory costs include material, labor and factory overhead.
Inventories are stated at the lower of cost (first-in, first-out) or market.
During the fourth quarter of 1997, the Company changed its method of
determining the cost of inventories from the LIFO method to the FIFO method as
it experienced reduced costs from offshore assembly operations and expects
continuing cost reductions. The cost of inventories on a LIFO basis at December
31, 1997 was approximately equal to their replacement cost. Accordingly, the
Company believes that the FIFO method will result in a better measurement of
operating results. All previously reported results were restated to reflect the
retroactive application of this accounting change as required by generally
accepted accounting principles. The accounting change increased the net loss for
1997 by $27,800,000, or $.37 per share. Due principally to the effect of LIFO
reserve liquidations, net earnings previously reported for 1996 were reduced by
$4,600,000 or $.06 per share.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment is stated at
cost. Impaired assets are stated at fair value less estimated selling costs.
Depreciation, which includes amortization of assets under capital leases, is
based on the straight-line method over the estimated useful lives of depreciable
assets. Interest costs incurred in the construction or acquisition of property,
plant and equipment are capitalized. Buildings, structures and improvements are
depreciated over 20 years. Machinery and equipment is depreciated over periods
not exceeding 10 years.
GOODWILL. Goodwill is amortized using the straight-line method over periods
ranging from 20 to 40 years.
DERIVATIVE COMMODITY INSTRUMENTS. Cotton futures contracts are the primary
derivative commodity instruments utilized by the Company. These instruments are
designated and effective as hedges of a portion of the probable periodic cotton
purchases that would otherwise expose the Company to the risk of increases in
the price of cotton consumed in manufacturing the Company's products. The
contract terms match the Company's purchasing cycle. Options (caps and floors)
are also used but are not currently material to the Company's financial
condition or net income. Futures contracts are closed by cash settlement. Open
futures contracts are marked to market. Realized and unrealized gains and losses
are deferred and recognized in earnings as cotton costs are recovered through
sales of the Company's products
F-22
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
(the deferral accounting method). Deferred realized gains and losses are
included as a component of inventory. Deferred unrealized gains and losses are
included in other liabilities or assets and in cash flows from investing
activities.
DERIVATIVE FINANCIAL INSTRUMENTS. Interest rate swap agreements are the
primary derivative financial instruments utilized by the Company. These
instruments limit the Company's risk of exposure to increases in interest rates
on selected portions of its variable rate debt. These agreements involve the
exchange of amounts based on a variable interest rate for amounts based on fixed
interest rates over the life of the agreement without an exchange of the
notional amount upon which the payments are based. The differential to be paid
or received as interest rates change is accrued and recognized as an adjustment
of interest expense related to the debt (the accrual accounting method). The
related amount payable to or receivable from counterparties is included in
interest payable. The fair values of the swap agreements are not recognized in
the financial statements.
DEFERRED GRANTS. The Company has negotiated grants from the governments of
the Republic of Ireland, Northern Ireland and Germany. The grants are being used
for employee training, the acquisition of property and equipment and other
governmental business incentives such as general employment. Employee training
grants are recognized in income in the year in which the costs to which they
relate are incurred by the Company. Grants for the acquisition of property and
equipment are netted against the related capital expenditure. Grants for
property and equipment under operating leases are amortized to income as a
reduction of rents paid. Unamortized amounts netted against fixed assets under
these grants at January 2, 1999 and December 31, 1997 were $19,400,000 and
$28,000,000, respectively.
SOFTWARE COSTS. Costs associated with the application development stage of
significant new computer software applications for internal use are deferred and
amortized over periods ranging from three to five years. Costs associated with
the preliminary and post implementation stages of these projects are expensed as
incurred.
STOCK-BASED COMPENSATION. The Company accounts for stock based compensation
in accordance with APB 25. The Company typically grants stock options for a
fixed number of shares to employees with an exercise price equal to the fair
value of the shares at the date of grant. Accordingly, the Company typically
recognizes no compensation expense for these stock option grants.
PENSION PLANS. The Company maintains pension plans which cover
substantially all employees. The plans provide for benefits based on an
employee's years of service and compensation. The Company funds the minimum
contributions required by the Employee Retirement Income Security Act of 1974.
EARNINGS PER SHARE. In 1997, the Financial Accounting Standards Board
issued FAS 128, EARNINGS PER SHARE. FAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the FAS 128
requirements.
IMPAIRMENT. When indicators of impairment are present, the Company
evaluates the carrying value of property, plant and equipment and intangibles in
relation to the operating performance and future undiscounted cash flows of the
underlying businesses. The Company adjusts the net book value of the
F-23
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
underlying assets if the sum of expected future cash flows is less than book
value. Assets to be disposed of are adjusted to fair value less cost to sell if
less than book value.
EMPLOYEE BONUS PLANS AND OTHER INCENTIVE COMPENSATION. The Company has a
performance based management incentive plan for officers and key employees of
the Company based upon performance related criteria determined at the discretion
of the Compensation Committee of the Board of Directors. The Company accrues
amounts based on anticipated performance for the current year and awards are
made in the first quarter of the succeeding year.
RECLASSIFICATIONS. Certain prior year amounts have been reclassified to
conform with the current year presentation.
SPECIAL CHARGES
1997 SPECIAL CHARGES
In the fourth quarter of 1997, the Company recorded charges for costs related to
the closing and disposal of a number of domestic manufacturing and distribution
facilities, impairment of manufacturing equipment and other assets and certain
European manufacturing and distribution facilities, and other costs associated
with the Company's world-wide restructuring of manufacturing and distribution
facilities. These
F-24
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
and other special charges totalled $441,700,000 ($372,200,000 after tax)
categorized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
FUTURE TOTAL
CASH NONCASH CHARGES
---------- ---------- ----------
<S> <C> <C> <C>
CLOSING AND DISPOSAL OF U.S. MANUFACTURING AND DISTRIBUTION FACILITIES
Loss on sale of facilities, improvements and equipment:
Sewing and finishing..................................................... $ -- $ 30,500 $ 30,500
Distribution facilities.................................................. -- 36,100 36,100
Impairment of mills to be sold........................................... -- 75,400 75,400
Lease residual guarantees................................................ 61,000 -- 61,000
Other equipment.......................................................... -- 29,600 29,600
---------- ---------- ----------
61,000 171,600 232,600
Severance costs............................................................ 8,400 -- 8,400
Other accruals............................................................. 6,500 3,900 10,400
---------- ---------- ----------
75,900 175,500 251,400
---------- ---------- ----------
IMPAIRMENT OF EUROPEAN MANUFACTURING AND DISTRIBUTION FACILITIES
Impairment of long lived assets............................................ -- 42,800 42,800
Other accruals............................................................. 1,300 -- 1,300
---------- ---------- ----------
1,300 42,800 44,100
---------- ---------- ----------
PRO PLAYER INCENTIVE COMPENSATION AGREEMENT.................................. 22,000 -- 22,000
---------- ---------- ----------
OTHER ASSET WRITE DOWNS AND RESERVES
Inventory valuation provisions............................................. -- 49,800 49,800
Other accruals............................................................. 39,200 14,600 53,800
---------- ---------- ----------
39,200 64,400 103,600
---------- ---------- ----------
CHANGES IN ESTIMATES OF RETAINED LIABILITIES OF FORMER SUBSIDIARIES.......... 12,600 8,000 20,600
---------- ---------- ----------
Total pretax charges................................................... $ 151,000 $ 290,700 $ 441,700
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Each of these categories is discussed below.
During the three years ended December 31, 1997, the Company moved
substantially all of its sewing and finishing operations to locations in the
Caribbean and Central America as part of its strategy to reduce its cost
structure and remain a low cost producer in the U.S. markets it serves. The
Company closed or committed to cease operations at nine sewing and finishing
facilities in 1997. Accordingly, the Company terminated 176 salaried and 6,975
production personnel related to closed operations. Terminated personnel were
notified of their separation in 1997 and the plant closings and attendant
personnel reductions were substantially completed in 1997. The decision to move
substantially all of the Company's sewing and finishing operations outside the
United States resulted in the need to realign certain other domestic
manufacturing operations and required the Company to dispose of certain
production equipment. The Company realigned its operations by shifting
production at the remaining domestic and offshore locations (including
contractors) in order to balance its production capabilities. Management
committed to dispose
F-25
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
of these sewing and finishing facilities in late November and December 1997 and
has ceased production at eight of the nine facilities by January 2, 1999.
Equipment is being sold or scrapped and real estate is being sold. The Company
expects to complete these asset sales in 1999. Impairment charges related to
sewing and finishing facilities that the Company had not ceased operating at
December 31, 1997 totalled $7,000,000. The redirection of the physical flow of
goods in the Company's manufacturing processes prompted a reassessment of the
Company's domestic distribution network. Management committed to dispose of
certain distribution assets in December 1997. The Company has ceased operating
at four of seven locations. The Company expects to complete the asset sales in
1999. Impairment charges related to distribution assets that the Company had not
ceased operating at December 31, 1997 totalled $34,000,000. The Company's plans
for further efficiencies in its manufacturing operations and its commitment to
reduce the capital intensity of its business resulted in a decision to dispose
of three of its U.S. based yarn mills. Management committed to dispose of these
assets in December 1997. To avoid further impairment, the Company continues to
operate these impaired mills as going concerns as efforts to sell them progress.
Management expects to complete these asset sales in 1999. Impairment charges
related to these yarn mills totalled $75,400,000. FAS 121 requires that all
long-lived assets to be disposed of be measured at the lower of their carrying
amount or estimated fair value, less estimated selling costs. It is the
Company's intention to dispose of the facilities and equipment for which
impairment charges have been recorded and the Company believes it has the
ability to dispose of the assets in less than 30 days from the time a buyer
agrees to purchase the assets and still meet production and distribution needs.
As a result of the offshore migration of its sewing and finishing operations and
related decisions to close or dispose of certain manufacturing and distribution
facilities, the Company evaluated its operating lease structure and the ability
of the lessor to recover its costs in the used equipment market and concluded
that residual values guaranteed by the Company will be substantially in excess
of fair market values. See "LEASE COMMITMENTS." Charges related to loss on
disposal of facilities, improvements and equipment totalled $232,600,000.
Severance costs consisted of salary and fringe benefits (FICA and
unemployment taxes, health insurance, life insurance, dental insurance,
long-term disability insurance and participation in the Company's pension plan).
These charges were recorded in the fourth quarter of 1997 as required by FAS
121, EITF 94-3 or other authoritative literature. Assets held for sale included
in other noncurrent assets in the accompanying Consolidated Balance Sheet
totalled $83,600,000 and $104,700,000 at January 2, 1999 and December 31, 1997,
respectively.
As part of its review of its manufacturing, distribution, and logistics
organization, facilities and costs beginning in the third quarter of 1997, the
Company also considered the strategic position and cost effectiveness of its
organization and facilities in Europe where industry trends similar to those in
the U.S. (such as movement of certain operations to low cost countries) were
emerging. This review indicated that certain of the Company's European
manufacturing and distribution assets to be held and continued to be used might
be impaired. Estimates of undiscounted cash flows indicated that the carrying
amounts of these assets were not likely to be recovered. Therefore, as required
by FAS 121, these assets were written down to their estimated fair values, less
estimated selling costs.
F-26
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
The Company recorded charges for other asset write downs and reserves
totalling $103,600,000 comprised of the following (in millions of dollars).
<TABLE>
<CAPTION>
OTHER
TOTAL ASSET RESERVES AND
CHARGES WRITE DOWN ACCRUALS
----------- ------------- -------------
<S> <C> <C> <C>
Inventory obsolescence....................................................... $ 10.1 $ 10.1 $ --
Inventory shrinkage.......................................................... 19.5 19.5 --
Inventory mark down.......................................................... 20.2 20.2 --
Software costs............................................................... 7.1 -- 7.1
Severance.................................................................... 6.1 -- 6.1
Professional fees............................................................ 6.6 -- 6.6
Various contract commitments................................................. 12.1 -- 12.1
Other charges................................................................ 21.9 8.3 13.6
----------- ----- -----
$ 103.6 $ 58.1 $ 45.5
----------- ----- -----
----------- ----- -----
</TABLE>
Provisions to inventory reserves largely resulted from conditions associated
with the acceleration of the offshore movement of the Company's sewing and
finishing operations which began late in the third quarter of 1997. Provisions
for inventory obsolescence reflected made in U.S.A. labels and polybags and
other supplies on hand that were made obsolete because remaining planned
domestic production would be insufficient to utilize them.
The provision for inventory shrinkage reflected the greatly extended
pipeline for the Company's in-transit inventories, new freight channels and the
difficulty of accounting for inventories at contractor facilities, as well as
start-up operations at Company-owned facilities, in foreign locations. The
estimated inventory shrinkage provision was based on analyses of in-transit
inventory reconciliations, and in the fourth quarter of 1997, the Company
identified book to physical adjustments related to inventories at foreign
contractor locations. Inventory shrinkage experienced in 1997 was $26,000,000,
compared with $18,900,000 in 1996 and $17,600,000 in 1995.
The inventory markdown provision reflected quality issues related to
start-up operations resulting from acceleration of the offshore movement of
sewing and finishing operations and, unrelated to the offshore move, a shift in
customer demand to upsized garments as opposed to more traditional sizing.
The Company incurred software costs during 1997 related to business process
reengineering and information technology transformation. Substantially all of
these costs were incurred and expensed in the fourth quarter in accordance with
EITF 97-13 issued November 20, 1997.
Severance costs were accrued for the termination of certain executive
officers with employment agreements as well as other corporate executives.
Legal, accounting and consulting fees were incurred in connection with the
proposed recapitalization of the Company announced February 11, 1998. See
"SUBSEQUENT EVENTS." The Company also incurred costs associated with a proposed
new venture that was cancelled in the fourth quarter of 1997 and other matters.
Contract commitment charges consist of lease commitments on office space no
longer occupied, minimum liabilities under royalty agreements whose sales
minimums will not be met, a loss on a firm
F-27
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
commitment to purchase cloth in 1998, estimated fees to amend certain debt and
lease covenants and, as a result of the European restructuring, estimated
obligations to repay employment grants in Europe.
Other charges totalling $21,900,000 consist of an impairment write down of
goodwill along with accruals related to various asset valuation, state and local
tax, financing and other issues related to the Company's world-wide
restructuring efforts.
In the fourth quarter of 1997, the Company recorded a $22,000,000 charge for
incentive compensation anticipated to be earned at its Pro Player subsidiary
(none of which was paid in 1997). The Company recorded charges totalling
$20,600,000 related to changes in estimates of environmental and other retained
liabilities of former subsidiaries. Environmental charges reflected an increase
in estimated environmental costs of $8,600,000 and a reduction in expected
recoveries of $8,000,000. See "CONTINGENT LIABILITIES." The remaining $4,000,000
reflects the projected costs to the Company of pension obligations of certain
former subsidiaries as estimated based on settlement negotiations begun with the
Pension Benefit Guarantee Corporation in late December 1997.
The above charges were recorded in the accompanying Consolidated Statement
of Operations as follows (in thousands of dollars):
<TABLE>
<CAPTION>
SELLING, IMPAIRMENT
GENERAL AND WRITE
COST OF ADMINISTRATIVE DOWN OTHER
SALES EXPENSE OF GOODWILL EXPENSE TOTAL
--------- ------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Closing and disposal of U.S. manufacturing and
distribution facilities.......................... $ -- $ 251,400 $ -- $ -- $ 251,400
Impairment of European manufacturing and
distribution facilities.......................... -- 44,100 -- -- 44,100
Pro Player incentive compensation agreement........ -- 22,000 -- -- 22,000
Other asset write downs and reserves............... 49,800 37,400 4,600 11,800 103,600
Changes in estimates of retained liabilities of
former subsidiaries.............................. -- -- -- 20,600 20,600
--------- ------------- ----------- --------- ----------
$ 49,800 $ 354,900 $ 4,600 $ 32,400 $ 441,700
--------- ------------- ----------- --------- ----------
--------- ------------- ----------- --------- ----------
</TABLE>
These charges were based on management's best estimates of the potential
market values, timing and costs related to the above actions. Of the Special
Charges, cash charges totalled approximately $151,000,000 to be paid in 1998 and
future years, $10,900,000 of which relate to restructuring charges as defined by
EITF No. 94-3. The Company paid $28,200,000 of these cash charges and finalized
its estimate of these special charges in 1998. Approximately $25,400,000 is
estimated to be paid in 1999 and a total of approximately $61,200,000 is
estimated to be paid in future years. See "SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--USE OF ESTIMATES."
F-28
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
Following is a summary of the 1997 special charges and related reserve
balances at December 31, 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE
1997 OTHER BALANCE AT
SPECIAL CASH ACTIVITY DECEMBER 31,
CHARGES PAYMENTS IN 1997 1997
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
CLOSING AND DISPOSAL OF U.S. MANUFACTURING AND DISTRIBUTION
FACILITIES
Loss on sale of facilities, improvements and equipment:
Sewing, finishing and distribution facilities................ $ 66,600 $ -- $ -- $ 66,600
Impairment of mills to be sold............................... 75,400 -- -- 75,400
Lease residual guarantees.................................... 61,000 -- -- 61,000
Other equipment.............................................. 29,600 -- 22,100 7,500
---------- ----------- --------- ------------
232,600 -- 22,100 210,500
Severance costs................................................ 8,400 -- -- 8,400
Other accruals................................................. 10,400 -- -- 10,400
---------- ----------- --------- ------------
251,400 -- 22,100 229,300
---------- ----------- --------- ------------
IMPAIRMENT OF EUROPEAN MANUFACTURING AND DISTRIBUTION FACILITIES
Impairment of long lived assets................................ 42,800 -- 42,800 --
Other accruals................................................. 1,300 -- -- 1,300
---------- ----------- --------- ------------
44,100 -- 42,800 1,300
---------- ----------- --------- ------------
PRO PLAYER INCENTIVE COMPENSATION AGREEMENT...................... 22,000 -- -- 22,000
---------- ----------- --------- ------------
OTHER ASSET WRITE DOWNS AND RESERVES
Inventory valuation provisions................................. 49,800 -- -- 49,800
Other accruals................................................. 53,800 7,400 9,200 37,200
---------- ----------- --------- ------------
103,600 7,400 9,200 87,000
---------- ----------- --------- ------------
CHANGES IN ESTIMATES OF RETAINED LIABILITIES OF FORMER
SUBSIDIARIES................................................... 20,600 -- 8,000 12,600
---------- ----------- --------- ------------
Total pretax charges....................................... $ 441,700 $ 7,400 $ 82,100 $ 352,200
---------- ----------- --------- ------------
---------- ----------- --------- ------------
</TABLE>
Other activity in 1997 represents assets written off.
F-29
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
1997 SPECIAL CHARGES
A rollforward of the 1997 special charges through January 2, 1999 is
presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE AT CASH INCOME OTHER BALANCE AT
DECEMBER 31, PAYMENTS (EXPENSE) ACTIVITY JANUARY 2,
1997 IN 1998 IN 1998 IN 1998 1999
------------ ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
CLOSING AND DISPOSAL OF U.S. MANUFACTURING AND DISTRIBUTION
FACILITIES
Loss on sale of facilities, improvements and equipment:
Sewing, finishing and distribution facilities............ $ 66,600 $ 100 $ -- $ 6,400 $ 60,100
Impairment of mills to be sold........................... 75,400 -- -- -- 75,400
Lease residual guarantees................................ 61,000 -- -- -- 61,000
Other equipment.......................................... 7,500 -- -- 1,300 6,200
------------ ----------- ----------- --------- ----------
210,500 100 -- 7,700 202,700
Severance costs............................................ 8,400 5,100 3,100 -- 200
Other accruals............................................. 10,400 5,800 1,000 1,200 2,400
------------ ----------- ----------- --------- ----------
229,300 11,000 4,100 8,900 205,300
------------ ----------- ----------- --------- ----------
IMPAIRMENT OF EUROPEAN MANUFACTURING AND DISTRIBUTION
FACILITIES
Impairment of long lived assets............................ -- -- -- -- --
Other accruals............................................. 1,300 -- -- 200 1,100
1,300 -- -- 200 1,100
PRO PLAYER INCENTIVE COMPENSATION AGREEMENT.................. 22,000 -- 22,000 -- --
OTHER ASSET WRITE DOWNS AND RESERVES
Inventory valuation provisions............................. 49,800 -- 5,900 43,900
Other accruals............................................. 37,200 16,700 5,300 3,900 11,300
------------ ----------- ----------- --------- ----------
87,000 16,700 11,200 47,800 11,300
------------ ----------- ----------- --------- ----------
CHANGES IN ESTIMATES OF RETAINED LIABILITIES OF FORMER
SUBSIDIARIES............................................... 12,600 500 1,500 -- 10,600
------------ ----------- ----------- --------- ----------
Total pretax charges................................... $ 352,200 $ 28,200 $ 38,800 $ 56,900 $ 228,300
------------ ----------- ----------- --------- ----------
------------ ----------- ----------- --------- ----------
</TABLE>
Other activity in 1998 principally related to inventory reserves established
which were relieved as the inventory was sold and fixed asset write-offs as the
assets were sold.
During the first quarter of 1998, the Company sold certain inventory which
had been written down as part of the 1997 special charges. Amounts received for
the inventory sold were in excess of amounts estimated, resulting in increases
to earnings before income tax expense of $5,100,000 in the first nine months of
1998, substantially all of which occurred in the first quarter of 1998. In the
fourth quarter of 1998, the Company reversed the $22,000,000 charge as it
determined it was no longer probable it would have to pay the incentive
compensation at its Pro Player subsidiary. Also in the fourth quarter of 1998,
the
F-30
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
Company finalized certain other estimates recorded in connection with the
special charges recorded in 1997 which increased earnings before income tax
expense by $11,700,000. The increases to earnings were recorded in the
accompanying Consolidated Statement of Operations as follows (in thousands of
dollars):
<TABLE>
<S> <C>
Cost of sales...................................................... $ 6,900
Selling, general and administrative expenses....................... 30,400
Other expenses..................................................... 1,500
---------
Total.......................................................... $ 38,800
---------
---------
</TABLE>
The Company continued to operate certain assets held for sale during 1998 so
that they may be sold as "ongoing operations". Accordingly, the Company did not
depreciate these facilities during 1998, resulting in lower depreciation expense
of approximately $10,000,000 than if the Company had recorded depreciation.
1995 SPECIAL CHARGES
In the fourth quarter of 1995, management announced plans to close certain
manufacturing operations and to take other actions to reduce costs and
streamline operations. Accordingly, the Company identified for termination 194
salaried and 5,926 production personnel related to closed operations. Terminated
personnel were notified of their separation in 1995 and the plant closings and
attendant personnel reductions were substantially completed in 1995. Of the
terminated personnel, all production and 180 of the salaried personnel were
terminated in 1995; the remaining 14 salaried personnel were terminated in 1996.
As a result, the Company recorded charges of approximately $372,900,000
($287,400,000 after tax) related to impairment write downs of goodwill, costs
associated with the closing or realignment of certain domestic manufacturing
facilities and attendant personnel reductions and charges related to inventory
write downs and valuations, foreign operations and other corporate issues. These
actions were taken in an effort to substantially reduce the Company's cost
structure, streamline operations and further improve customer service. The
Company realigned its operations by shifting production at the remaining
domestic operations in order to balance its production capabilities.
During 1995, management reviewed the operations of Salem and Gitano and
decided to discontinue the use of the SALEM brand and redeployed the tangible
assets relating to the Salem business to other brands within the Company's
licensed sports apparel business. In addition, the Company determined that
significant changes and investment would be necessary to restructure the Gitano
business and implemented a plan to improve Gitano's profitability. The Company
determined that the carrying value of the intangible assets related to the Salem
and Gitano businesses were not expected to be recovered by their future
undiscounted cash flows. Future cash flows were based on forecasted trends for
the particular businesses and assumed capital spending in line with expected
requirements. Accordingly, impairment write downs of goodwill of $158,500,000
reflect the write-off of all goodwill related to the Salem and Gitano
businesses. See "ACQUISITIONS."
During the fourth quarter of 1995, the Company recorded charges of
approximately $82,800,000 related to the closing or realignment of certain
domestic manufacturing operations, the closing of certain leased facilities, the
write-off of fixed assets related to these facilities and changes in estimates
of the cost
F-31
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
of certain of the Company's insurance obligations. The detail of these changes
is presented below (in thousands of dollars):
<TABLE>
<S> <C>
Loss on disposal of closed facilities, improvements and
equipment........................................................ $ 29,000
Changes in estimates of insurance liabilities...................... 21,800
Costs related to expected increases in workers' compensation and
health and welfare costs......................................... 8,000
Costs related to termination of certain lease agreements........... 7,300
Costs related to the severance of the hourly workforce............. 6,700
Other.............................................................. 10,000
---------
$ 82,800
---------
---------
</TABLE>
These charges were recorded in the fourth quarter of 1995 as required by
EITF No. 94-3 or other authoritative literature. All facilities, improvements
and equipment closed in 1995 were sold to third parties or relinquished in
settlement of lease terminations. Transactions to dispose of substantially all
of these assets occurred in 1995 and 1996.
The Company recorded charges of approximately $5,800,000 related to the cost
of providing severance and benefits to employees affected by the facility
closings as well as certain administrative headcount reductions. The severance
and other benefits provided consisted of salary and fringe benefits (FICA and
unemployment taxes, health insurance, life insurance, dental insurance,
long-term disability insurance and participation in the Company's pension plan).
The Company recorded charges of approximately $91,100,000 related to other asset
write downs, valuation reserves and other reserves as a result of reductions in
its product offerings, changes in its operations and termination or modification
of certain license and other agreements. In addition, the Company recorded
charges of approximately $19,200,000 related to changes in estimates of certain
retained liabilities of former subsidiaries. Also, the Company adopted a plan to
realign certain of its corporate headquarters functions and to terminate its
relationship for management services with FII and, accordingly, recorded charges
of approximately $15,500,000 related to lease termination, severance benefits
and other costs. These charges included certain valuation reserves and the
impact of license agreements which relate specifically to the SALEM and GITANO
brands. The total impact of the charges in 1995 (including the write down of
goodwill) pertaining to the SALEM and GITANO brands was $164,100,000. See
"RELATED PARTY TRANSACTIONS."
The above charges were recorded as $158,500,000 of impairment write down of
goodwill, $146,700,000 of increases to cost of sales, $47,000,000 of increases
to selling general and administrative expenses and $20,700,000 of increases to
other expense in the 1995 Consolidated Statement of Operations. These charges
were based on management's best estimates of the potential costs related to the
aforementioned actions. Finalization of many of the Special Charges estimated at
December 31, 1995 occurred during 1996. Of the Special Charges, approximately
$23,000,000, $4,800,000 and $33,300,000 were paid in 1998, 1997 and 1996 and
$20,200,000 remain to be paid in 1999 and future years.
F-32
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
A rollforward of the 1995 special charges by year through January 2, 1999 is
presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE
1995 CASH OTHER BALANCE AT
SPECIAL PAYMENTS ACTIVITY DECEMBER 31,
CHARGES IN 1995 IN 1995 1995
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Impairment write down of goodwill............................... $ 158,500 $ -- $ 156,400 $ 2,100
---------- ----------- ---------- ------------
Closing or realignment of manufacturing operations:
Loss on disposal of closed facilities, improvements and
equipment................................................... 29,000 -- 27,200 1,800
Changes in estimates of insurance liabilities................. 21,800 -- -- 21,800
Costs related to expected increases in workers' compensation
and health and welfare costs................................ 8,000 -- -- 8,000
Costs related to termination of certain lease obligations..... 7,300 900 -- 6,400
Costs related to severance of the hourly workforce............ 6,700 6,700 -- --
Other......................................................... 10,000 300 -- 9,700
---------- ----------- ---------- ------------
82,800 7,900 27,200 47,700
Severance..................................................... 5,800 1,100 -- 4,700
Other asset write downs, valuation reserves and other
reserves...................................................... 91,100 8,600 19,400 63,100
Changes in estimates of certain retained liabilities of former
subsidiaries.................................................. 19,200 -- -- 19,200
Termination of management agreement............................. 15,500 -- -- 15,500
---------- ----------- ---------- ------------
$ 372,900 $ 17,600 $ 203,000 $ 152,300
---------- ----------- ---------- ------------
---------- ----------- ---------- ------------
</TABLE>
F-33
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE AT CASH INCOME OTHER BALANCE AT
DECEMBER 31, PAYMENTS (EXPENSE) ACTIVITY DECEMBER 31,
1995 IN 1996 IN 1996 IN 1996 1996
------------ ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Impairment write down of goodwill......................... $ 2,100 $ -- $ -- $ 2,100 $ --
------------ ----------- ----------- --------- ------------
Closing or realignment of manufacturing operations:
Loss on disposal of closed facilities, improvements and
equipment............................................. 1,800 300 -- 200 1,300
Changes in estimates of insurance liabilities........... 21,800 7,800 -- -- 14,000
Costs related to expected increases in workers'
compensation and health and welfare costs............. 8,000 1,800 300 -- 5,900
Costs related to termination of certain lease
obligations........................................... 6,400 5,500 (1,200) -- 2,100
Costs related to severance of the hourly workforce...... -- -- -- -- --
Other................................................... 9,700 2,000 4,700 -- 3,000
------------ ----------- ----------- --------- ------------
47,700 17,400 3,800 200 26,300
Severance................................................. 4,700 4,400 -- -- 300
Other asset write downs, valuation reserves and other
reserves................................................ 63,100 2,800 6,600 44,500 9,200
Changes in estimates of certain retained liabilities of
former subsidiaries..................................... 19,200 -- 3,000 -- 16,200
Termination of management agreement....................... 15,500 8,700 -- -- 6,800
------------ ----------- ----------- --------- ------------
$ 152,300 $ 33,300 $ 13,400 $ 46,800 $ 58,800
------------ ----------- ----------- --------- ------------
------------ ----------- ----------- --------- ------------
</TABLE>
F-34
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE AT CASH INCOME OTHER BALANCE AT
DECEMBER 31, PAYMENTS (EXPENSE) ACTIVITY DECEMBER 31,
1996 IN 1997 IN 1997 IN 1997 1997
------------ ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Impairment write down of goodwill................... $ -- $ -- $ -- $ -- $ --
------------ ----------- ----------- --------- ------------
Closing or realignment of manufacturing operations:
Loss on disposal of closed facilities,
improvements and equipment...................... 1,300 700 -- 400 200
Changes in estimates of insurance liabilities..... 14,000 -- -- -- 14,000
Costs related to expected increases in workers'
compensation and health and welfare costs....... 5,900 700 -- -- 5,200
Costs related to termination of certain lease
obligations..................................... 2,100 1,100 -- -- 1,000
Costs related to severance of the hourly
workforce....................................... -- -- -- -- --
Other............................................. 3,000 300 -- -- 2,700
------------ ----------- ----------- --------- ------------
26,300 2,800 -- 400 23,100
Severance........................................... 300 100 -- -- 200
Other asset write downs, valuation reserves and
other reserves.................................... 9,200 600 2,000 2,700 3,900
Changes in estimates of certain retained liabilities
of former subsidiaries............................ 16,200 -- -- -- 16,200
Termination of management agreement................. 6,800 1,300 5,500 -- --
------------ ----------- ----------- --------- ------------
$ 58,800 $ 4,800 $ 7,500 $ 3,100 $ 43,400
------------ ----------- ----------- --------- ------------
------------ ----------- ----------- --------- ------------
</TABLE>
F-35
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE AT CASH INCOME OTHER BALANCE AT
DECEMBER 31, PAYMENTS (EXPENSE) ACTIVITY JANUARY 2,
1997 IN 1998 IN 1998 IN 1998 1999
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Impairment write down of goodwill............................. $ -- $ -- $ -- $ -- $ --
------------ ----------- ----- --- -----------
Closing or realignment of manufacturing operations:
Loss on disposal of closed facilities, improvements and
equipment................................................. 200 200 -- -- --
Changes in estimates of insurance liabilities............... 14,000 4,500 -- -- 9,500
Costs related to expected increases in workers' compensation
and health and welfare costs.............................. 5,200 5,200 -- -- --
Costs related to termination of certain lease obligations... 1,000 900 100 -- --
Costs related to severance of the hourly workforce.......... -- -- -- -- --
Other....................................................... 2,700 2,500 -- -- 200
------------ ----------- ----- --- -----------
23,100 13,300 100 -- 9,700
Severance..................................................... 200 200 -- -- --
Other asset write downs, valuation reserves and other
reserves.................................................... 3,900 3,800 100 -- --
Changes in estimates of certain retained liabilities of former
subsidiaries................................................ 16,200 5,700 -- -- 10,500
Termination of management agreement........................... -- -- -- -- --
------------ ----------- ----- --- -----------
$ 43,400 $ 23,000 $ 200 $ -- $ 20,200
------------ ----------- ----- --- -----------
------------ ----------- ----- --- -----------
</TABLE>
F-36
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SPECIAL CHARGES -- (CONTINUED)
Other activity in 1995 principally consisted of goodwill and fixed asset
write offs and sales of inventory which had been written down as part of the
special charges. In 1996 and 1997, other activity of $46,800,000 and $3,100,000
principally related to inventory reserves established which were relieved as the
inventory was sold.
During 1996, the Company finalized certain of the estimates recorded in
connection with the special charges taken in 1995 which reduced cost of sales by
$3,400,000, selling, general and administrative expenses by $6,400,000 and other
expense by $3,600,000. Of this amount, $3,800,000 related to closing or
realignment of manufacturing operations, principally reflecting the favorable
settlement from subletting leased facilities and decreases in actual COBRA costs
incurred over amounts estimated. The favorable settlement from subletting leased
facilities and decreases in actual COBRA costs incurred over amounts estimated
are included in "other" within "Closing or realignment of manufacturing
operations" in the rollforward for the year ended December 31, 1996. In
addition, estimates of other asset write downs and reserves were reduced by
$6,600,000 and primarily resulted from favorable renegotiation of royalty
contracts. Further, changes in estimates of certain retained liabilities of
former subsidiaries were reduced by $3,000,000, reflecting favorable settlement
of product liability lawsuits.
During 1997, the Company finalized certain of the estimates recorded in
connection with the special charges taken in 1995 which reduced selling, general
and administrative expenses by $7,500,000 in the first quarter of 1997. The
adjustments to reserves consisted of $5,500,000 resulting from a favorable lease
renegotiation and $2,000,000 related to a reduction in bad debt reserves due to
improvement in customer financial performance. See "SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES -- USE OF ESTIMATES."
The remaining reserve balance of $20,200,000 at January 2, 1999 will be
relieved as costs are incurred and consists principally of insurance liabilities
of $9,500,000 and environmental charges of $10,500,000, both of which are
expected to be utilized in 1999 and 2000. The remaining reserve balance is
expected to be completely utilized by the end of 2000.
SALE OF HOSIERY DIVISION
In November 1996, the Company completed the sale of a substantial portion of
its hosiery manufacturing operations and related assets for $73,800,000 in cash.
The sale resulted in a pretax gain of $4,200,000 or $.03 per share -- assuming
dilution after tax. The purchaser also entered into a ten year licensing
agreement with the Company granting the purchaser an exclusive royalty-bearing
license to use the Fruit of the Loom tradename and trademark for the
manufacture, sale and distribution of athletic, casual and dress socks for
adults and children.
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Short-term investments
(consisting primarily of certificates of deposit, overnight deposits or
Eurodollar deposits) totalling $1,400,000 and $1,300,000 were included in cash
and cash equivalents at January 2, 1999 and December 31, 1997, respectively as
restricted cash. These investments were carried at cost, which approximated
quoted market value.
F-37
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SALE OF ACCOUNTS RECEIVABLE
Under a three-year receivables purchase agreement entered into in December
1996, the Company, through a wholly-owned, bankruptcy remote, special purpose
entity ("SPE"), can sell up to a $250,000,000 undivided interest in a defined
pool of its trade accounts receivable. The maximum amount outstanding as defined
under the agreement varies based upon the level of eligible receivables.
Prior to January 1, 1997, the Company accounted for these sales in
accordance with FAS 77 REPORTING BY TRANSFERORS FOR TRANSFERS OF RECEIVABLES
WITH RECOURSE, under which accounts of the SPE were consolidated. Effective
January 1, 1997, the Company adopted FAS 125 ACCOUNTING FOR TRANSFERS AND
SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES, for sales of
trade accounts receivable. Adoption of FAS 125 had no impact on net income in
1997 or 1998. Under FAS 125 and EITF 97-6, however, the Company no longer
consolidates the SPE. Rather, the SPE is reflected as an equity basis investment
as of December 31, 1997, in the accompanying Consolidated Balance Sheet.
At January 2, 1999 and December 31, 1997, $220,700,000 and $183,000,000,
respectively, of trade accounts receivable were sold to the unconsolidated SPE.
Receivables purchased by the SPE are pooled for later sale to the ultimate
purchaser under the agreement. Proceeds of $208,800,000 and $214,800,000
remained outstanding as of the respective balance sheet dates from prior sales
of undivided interests in receivables owned by the SPE. Due to collections on
the Company's receivables after the sale date, a portion of the proceeds
remaining outstanding at each year end from sales by the SPE represented
advances from the ultimate purchaser in excess of amounts allowable under the
agreement. These advances, totalling $55,900,000 and $83,100,000, respectively,
were included in Trade accounts payable in the accompanying Consolidated Balance
Sheet.
Sales of trade accounts receivable are reflected as a reduction of notes and
accounts receivable in the accompanying Consolidated Balance Sheet, and the
proceeds received from sales to the ultimate purchaser are included in cash
flows from operating activities in the accompanying Consolidated Statement of
Cash Flows. Proceeds from receivable sales are less than the face amount of
trade accounts receivable sold by a discounted amount which closely approximates
the purchaser's financing cost of issuing its own commercial paper backed by
these and other accounts receivable.
The full amount of the allowance for possible losses has been retained by
the SPE and classified as a recourse liability because the SPE, as agent for the
purchaser, retains the same risk of credit loss, including collection and
administrative responsibilities, as if the receivables had not been sold. The
fair value of the recourse liabilities transferred to the SPE totalled
$15,000,000 and $29,800,000 at January 2, 1999 and December 31, 1997,
respectively, and approximated the allocated allowance for possible losses given
the short-term nature of the transferred receivables.
The discount and fees under this agreement are variable based on the general
level of interest rates. Rates ranged from 4.73% to 6.11% during 1998 and from
5.14% to 5.92% during 1997 on the amount of the undivided interest sold plus
certain administrative and servicing fees typical in such transactions. These
costs were approximately $11,900,000 and $11,800,000 in 1998 and 1997 and were
charged to Other expense -- net in the accompanying Consolidated Statement of
Operations. The Company receives compensation for servicing that is
approximately equal to its cost of servicing the accounts receivable.
Accordingly, no servicing asset or liability is recorded.
F-38
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
JANUARY 2, DECEMBER 31,
INTEREST RATE 1999 1997
------------- ------------ ------------
<S> <C> <C> <C>
Senior Secured
Capitalized lease obligations, maturing 1999-2017(1)................ 4.25 - 11.13% $ 50,900 $ 50,300
------------ ------------
Senior Unsecured
Fixed rate Canadian debt (11)....................................... 6.97% -- 105,900
Foreign Credit Facilities, maturing 2000............................ Variable(2) 11,900 7,000
Term Loan, maturing 1999-2002(7).................................... Variable(3) 80,000 100,000
Irish Term Loan..................................................... Variable(4) 12,700 23,400
Fixed rate debt, maturing 1999(6)................................... 7.97% 249,800 249,600
Bank Credit Agreement, maturing 2002(7)............................. Variable(5) 347,500 312,200
Nonredeemable fixed rate debt, maturing 2003(7)(8).................. 6.61% 149,300 149,200
Fixed rate debt, maturing 2011(9)................................... 12.6 76,900 75,400
Nonredeemable fixed rate debt, maturing 2023(7)(10)................. 7.49 148,100 148,000
------------ ------------
Total Senior Unsecured............................................ 1,076,200 1,170,700
------------ ------------
Total................................................................. 1,127,100 1,221,000
------------ ------------
Less current maturities............................................... (270,500) (28,200)
------------ ------------
Total long-term debt.................................................. $ 856,600 $1,192,800
------------ ------------
------------ ------------
</TABLE>
- ------------------------
(1) Represents the principal portion on capitalized lease obligations. The
capitalized leases are secured by the related property under lease.
(2) Interest ranged from 5.59% to 7.24% during 1998 and 5.24% to 6.44% during
1997. The weighted average interest rate for borrowings outstanding at
January 2, 1999 was approximately 5.71%.
(3) Interest ranged from 6.05% to 7.75% during 1998 and 6.11% to 6.39% during
1997.
(4) Interest ranged from 6.35% to 6.82% during 1998 and 6.30% to 6.82% during
1997. The weighted average interest rate for borrowings outstanding at
January 2, 1999 was approximately 6.60%.
(5) Interest ranged from 5.58% to 8.50% during 1998 and 5.93% to 8.50% during
1997.
(6) Net of unamortized discount of $200 and $400 in fiscal 1998 and 1997,
respectively (nominal rate 7.875%).
(7) The obligations of the Company under the Bank Credit Agreement, the Foreign
Credit Facilities and the Irish Term Loan are guaranteed by certain of the
Company's subsidiaries and as long as the Company's senior unsecured debt
rating is below BBB- by S&P and Baa3 by Moody's, this fixed rate debt will
share the guarantees of the certain subsidiaries and the additional
collateral granted under the Bank Credit Agreement. At January 2, 1999, the
Company's senior unsecured debt ratings were BB+ by S&P and Ba1 by Moody's.
On March 11, 1999 S&P reduced the Company's senior unsecured debt ratings to
BB.
(8) Net of unamortized discount of $700 and $800 in fiscal 1998 and 1997,
respectively (nominal rate 6.5%).
F-39
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT -- (CONTINUED)
(9) Net of unamortized discount of $48,100 and $49,600 in fiscal 1998 and 1997,
respectively (nominal rate 7%). This fixed rate obligation ranks pari passu
with the Company's Bank Credit Agreement.
(10) Net of unamortized discount of $1,900 and $2,000 in fiscal 1998 and 1997
(nominal rate 7.375%).
(11) The Canadian Debt was repaid in March 1998.
The Bank Credit Agreement provides the Company with a $680,000,000 line of
credit which consists of a $600,000,000 revolving line of credit and an
$80,000,000 Term Loan. In addition to the borrowed amounts reflected above, at
January 2, 1999 and December 31, 1997, $22,100,000 and $22,200,000, respectively
of letters of credit were outstanding under the Bank Credit Agreement. The
letters of credit were issued to secure various insurance, debt and other
obligations and all such obligations are reflected in the accompanying
Consolidated Balance Sheet. Borrowings under the Bank Credit Agreement bear
interest at a rate approximating the prime rate (7.75% at January 2, 1999) plus
a specified number of basis points (ranging from 0 to 50) or, at the election of
the Company, at rates approximating LIBOR (5.06% at January 2, 1999) plus a
specified number of basis points (ranging from 67.5 to 200). The Company also
pays a facility fee under the Bank Credit Agreement (ranging from 20 to 50 basis
points) on the aggregate commitments thereunder. The interest rate spreads and
the facility fee are based on the Company's senior unsecured debt ratings and
subject to increase or decrease by amendment to the Bank Credit Agreement. The
weighted average interest rate for borrowings outstanding under the Bank Credit
Agreement at January 2, 1999 was approximately 6.28%. Borrowings under the Bank
Credit Agreement are guaranteed by certain of the Company's subsidiaries. The
Bank Credit Agreement provides that, as long as the senior unsecured debt rating
of the Company continues to be below BBB- by S&P and Baa3 by Moody's, the
obligations of the Company under the Bank Credit Agreement will be secured by
(i) a pledge of 100% of the capital stock of the material domestic subsidiaries
of the Company and 65% of the stock of the material foreign subsidiaries of the
Company and (ii) additional collateral in the form of industrial development
bonds issued and owned by certain of the subsidiaries of the Company. If the
Company's senior unsecured debt rating is BB- or below by S&P and Ba3 or below
by Moody's, the Company has agreed to further secure its obligations under the
Bank Credit Agreement by a pledge of all its assets.
The Company has an additional $115,000,000 of letter of credit facilities
from its bank lenders. At January 2, 1999 and December 31, 1997, approximately
$60,500,000 and $77,500,000, respectively, of letters of credit were issued
under these facilities, to secure various insurance, debt, trade and other
obligations, of which $31,500,000 and $67,100,000 of these obligations are
reflected in the accompanying Consolidated Balance Sheet as of January 2, 1999
and December 31, 1997, respectively.
The Bank Credit Agreement imposes certain limitations on, and requires
compliance with covenants from, the Company and its subsidiaries including,
among other things: (i) maintenance of certain financial ratios and compliance
with certain financial tests and limitations; (ii) limitations on incurrence of
additional indebtedness and granting of certain liens and guarantees; (iii)
restrictions on mergers, sale and leaseback transactions, asset sales,
investments and transactions with affiliates; (iv) limitations on dividend
payments, and (v) provisions for the acceleration of the amounts outstanding
thereunder should a change in ownership occur, unless waived by the required
lenders. The Bank Credit Agreement also allows the Company to pay dividends on
its common stock so long as, among other things, the aggregate amount of such
dividends paid since September 19, 1997 through January 2, 1999 does not exceed
$350,000,000.
F-40
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT -- (CONTINUED)
The aggregate amount of scheduled annual maturities of long-term debt for
each of the next five years is: $270,500,000 in 1999; $45,400,000 in 2000;
$21,000,000 in 2001; $368,600,000 in 2002; and $151,300,000 in 2003.
Cash payments of interest on debt were $100,500,000, $86,700,000, and
$101,600,000 in 1998, 1997, and 1996, respectively. These amounts exclude
immaterial amounts of interest capitalized in each year.
FINANCIAL INSTRUMENTS
During 1996, the Company entered into interest rate swaps to help manage its
interest rate exposures and its mix of fixed and floating interest rates. The
Company is party to interest rate swap contracts for $50,000,000 which expired
in 1998 and $50,000,000 expiring in 1999 that have the effect of converting
floating rate debt based on three month LIBOR rates into fixed rate debt. The
average annual variable rate received in 1998 and 1997 was 5.62% and 5.70%,
respectively. The average annual fixed rate paid in 1998 and 1997 was 5.20% and
5.05%, respectively.
The fair values of financial guarantees and letters of credit approximate
the face value of the underlying instruments.
The fair values of the Company's non-publicly traded long-term debt were
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. Fair
values for publicly traded long-term debt were based on quoted market prices
when available. At January 2, 1999 and December 31, 1997, the fair value of the
Company's long-term debt was approximately $1,165,200,000 and $1,267,400,000,
respectively.
The Company monitors its positions with, and the credit quality of, the
financial institutions which are counter parties to its off-balance sheet
financial instruments and does not anticipate nonperformance of the counter
parties. The Company does not require collateral from its counter parties and
management believes that the Company would not realize a material loss in the
event of nonperformance by the counter parties.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables. The
Company sells its products to most major discount and mass merchandisers,
wholesale clubs and screen printers as well as many department, specialty, drug
and variety stores, national chains, supermarkets and sports specialty stores.
The Company performs ongoing credit evaluations of its customers and generally
does not require collateral or other security to support customer receivables.
The Company's ten largest customers accounted for approximately 44.3% of net
sales in 1998 and approximately 34.4% of accounts receivable (including accounts
receivable sold) at January 2, 1999. The Company routinely assesses the
financial strength of its customers and, as a consequence, management believes
that its trade receivable credit risk exposure is limited.
CONTINGENT LIABILITIES
The Company and its subsidiaries are involved in certain legal proceedings
and have retained liabilities, including certain environmental liabilities such
as those under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, its regulations and similar state statutes
("Superfund Legislation"), in connection with the sale of certain operations.
The Company is responsible for several sites that require varying levels of
inspection, maintenance, environmental monitoring and remedial or corrective
action. Reserves for estimated losses from environmental remediation
F-41
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
obligations generally are recognized no earlier than the completion of the
remedial feasibility study. The Company has established procedures to evaluate
its potential remedial liabilities and routinely reviews and evaluates sites
requiring remediation, giving consideration to the nature, extent and number of
years of the Company's alleged connection with the site. The Company's retained
liability reserves at January 2, 1999 are set forth in the table below. The
reserves consist primarily of certain environmental and product liability
reserves of $34,400,000 and $4,000,000, respectively. The Company's retained
liability reserves principally pertain to eight specifically identified
environmental sites and product liabilities. Anticipated expenditures associated
with four sites and the total product liabilities each individually represent
10% or more of the reserves and in aggregate represent approximately 62% of the
total reserves. The Company has certain amounts of environmental and other
insurance which may cover expenditures in connection with environmental sites
and product liabilities. The Company, on October 28, 1997, filed suit against
numerous insurance carriers seeking reimbursement for past and future remedial,
defense and tort claim costs at a number of sites. Carriers in this matter have
denied coverage and are defending against the Company's claims. During 1998, the
Company purchased insurance coverage for potential cleanup cost expenditures
from approximately the level of the current environmental reserves up to
$100,000,000 for certain sites with on-going remediation, pollution liability
coverage for claims arising out of pollution conditions at owned locations
including continuing operations, sold facilities and non-owned sites and product
liability coverage for claims arising out of products manufactured by the sold
operations. Where the Company believes that both the amount of a particular
environmental liability and the timing of the payments are reliably
determinable, the cost in current dollars is inflated at 2.5% until the expected
time of payment and then discounted to present value at 7.5%. The undiscounted
aggregate costs to be paid subsequent to January 2, 1999 for environmental
liabilities are approximately $44,100,000. None of the product liability
reserves for future expenditures have been inflated or discounted. Management
believes that adequate reserves have been established to cover potential claims
based on facts currently available and current Superfund and CERCLA Legislation.
However, determination of the Company's responsibility at a particular site and
the method and ultimate cost of remediation require a number of assumptions
which make estimates inherently difficult, and the ultimate outcome may differ
from current estimates. Current estimates of payments before recoveries by year
for the next five years and thereafter are noted below (in thousands of
dollars). The reserves are reduced by cash expenditures incurred at specific
sites or product cases.
<TABLE>
<CAPTION>
YEAR ENVIRONMENTAL PRODUCT TOTAL
- ---------------------------------------------------------- ------------- ----------- ---------
<S> <C> <C> <C>
1999...................................................... $ 9,200 $ 500 $ 9,700
2000...................................................... 5,400 500 5,900
2001...................................................... 2,500 500 3,000
2002...................................................... 2,900 500 3,400
2003...................................................... 3,700 500 4,200
Thereafter................................................ 10,700 1,500 12,200
------------- ----------- ---------
Total:.................................................... $ 34,400 $ 4,000 $ 38,400
------------- ----------- ---------
------------- ----------- ---------
</TABLE>
The Company has provided the foregoing information in accordance with Staff
Accounting Bulletin 92. In addition, in 1996 the Company elected to early adopt
Statement of Position 96-1, ENVIRONMENTAL REMEDIATION LIABILITIES, the impact of
which was not material to the Company. Owners and operators of hazardous waste
sites, generators and transporters of hazardous wastes are subject to claims
brought by State and Federal regulatory agencies under Superfund Legislation and
by private citizens under
F-42
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
Superfund Legislation and common law theories. Since 1982, the United States
Environmental Protection Agency (the "EPA") has actively sought compensation for
response costs and remedial action at disposal locations from liable parties
under the Superfund Legislation, which authorizes such action by the EPA
regardless of fault, legality of original disposal or ownership of a disposal
site. The EPA's activities under the Superfund Legislation can be expected to
continue during 1999 and future years.
In June 1994, pursuant to authorization from the Company's Board of
Directors, the Company guaranteed a loan from a bank in an amount up to
$12,000,000 to Mr. William Farley, the Company's Chairman and Chief Executive
Officer. In exchange for the guarantee, the Company receives an annual fee from
Mr. Farley equal to 1% of the value of the loan covered by the guarantee. The
guarantee is secured by a second lien on certain shares of the Company held by
the bank for other loans made to Mr. Farley.
In November 1997, the Board of Directors, excluding Mr. Farley and other
employee Directors, upon recommendation of a Special Committee of the Board of
Directors, comprised of Messrs. Al Askari and Wolfson, guaranteed a bank loan to
Mr. Farley in the amount of $26,000,000. The proceeds of this loan were used by
Mr. Farley to purchase all of the Zero Coupon Convertible Subordinated
Debentures due 2012 of Farley Inc. held by non-affiliated third parties. Mr.
Farley owns 100% of Farley Inc. In consideration of the guarantee, which is
scheduled to expire in November 2000, Mr. Farley pays the Company an annual
guarantee fee equal to 1 1/8% of the outstanding principal balance of the loan.
The loan is secured by a second lien on 2,507,512 shares of Class B Common Stock
of the Company held by Mr. Farley and the assets held for the benefit of Mr.
Farley under the Company's Senior Executive Officer Deferred Compensation Trust.
The Special Committee received an opinion from an independent financial advisor
that the terms of the transaction are commercially reasonable. See "SUBSEQUENT
EVENTS."
The Company has negotiated grants from the governments of the Republic of
Ireland, Northern Ireland and Germany. The grants are being used for employee
training, the acquisition of property and equipment and other governmental
business incentives such as general employment. At January 2, 1999, the Company
had a contingent liability to repay, in whole or in part, grants received of
approximately $37,800,000 in the event that the Company does not meet defined
average employment levels or terminates operations in the Republic of Ireland,
Northern Ireland and Germany. See "SUBSEQUENT EVENTS".
In connection with the Company's transaction with Acme Boot Company, Inc.
("Acme Boot") during 1993, the Company guaranteed, on an unsecured basis, the
repayment of debt incurred by Acme Boot under Acme Boot's bank credit facility
which was secured by substantially all the assets of Acme Boot and its
subsidiaries and provided for up to $30,000,000 of loans and letters of credit.
Farley Inc. owns 100% of the common stock of Acme Boot.
Also, in April 1995, Acme Boot entered into an additional secured credit
facility with its bank which provided for up to $37,000,000 in borrowings. The
Company guaranteed, on an unsecured basis, repayment of debt incurred or created
under this new credit facility. In exchange for the additional guarantee, the
Company received $6,000,000 of initial liquidation preference of Acme Boot
Series C Redeemable Junior Preferred Stock.
As a result of the operating performance of Acme Boot and management's
assessment of existing facts and circumstances of Acme Boot's financial
condition, the Company provided a reserve of $35,000,000 at the end of 1996 for
loss on the Acme Boot debt guarantees and increased its reserve by
F-43
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
$32,000,000 at the end of the third quarter of 1997 to fully reserve the
Company's $67,000,000 exposure under the Acme Boot guarantees.
In addition, through July 1998, the Company loaned Acme Boot $9,000,000 to
provide Acme Boot with supplemental working capital. These loans were made in
the form of demand notes payable and were senior to all other outstanding
indebtedness of Acme Boot. These loans were repaid by Acme Boot upon the sale of
its business in the third quarter of 1998.
In June 1998, Acme Boot entered into agreements with unrelated parties for
the sale of certain assets and its business. Financing for the sale of the
business was completed in the third quarter of 1998, at which time the Company
paid $65,900,000 to satisfy the Acme Boot guarantees in full. Other income
(expense)-- net for 1998 in the accompanying Consolidated Statement of
Operations includes income of $6,400,000 from the sale of Acme Boot and the
settlement of this liability. See "RELATED PARTY TRANSACTIONS."
On July 1, 1998, the New England Health Care Employees Pension Fund filed a
purported class action on behalf of all those who purchased Fruit of the Loom,
Inc. Class A Common Stock and publicly traded options between July 24, 1996 and
September 5, 1997 (the "Class Period") against the Company and William Farley,
Bernhard Hansen, Richard C. Lappin, G. William Newton, Burgess D. Ridge, Larry
K. Switzer and John D. Wigodsky, each of whom is a current or former officer of
the Company, in the United States District Court for the Western District of
Kentucky (the "New England Action"). The plaintiff claims that the defendants
engaged in conduct violating Section 10(b) of the Securities Exchange Act of
1934, as amended (the "Act"), and that the Company and Mr. Farley are also
liable under Section 20(a) of the Act. According to the plaintiff, the Company,
with the knowledge and assistance of the individual defendants, made certain
material misrepresentations and failed to disclose certain material facts about
the Company's condition and prospects during the Class Period, causing the
plaintiff and the class to buy Company stock or options at artificially inflated
prices. The plaintiff also alleges that during the Class Period, the individual
defendants sold stock of the Company while possessing material non-public
information. The plaintiff asks for unspecified amounts as damages, interest and
costs and ancillary relief. The defendants filed a motion to dismiss the action,
which is fully briefed and awaiting court action. The defendants filed a motion
to change venue from Bowling Green, Kentucky, and such motion is not yet fully
briefed.
Management believes that the suit is without merit, and management and the
Company intend to defend it vigorously. Management believes, based on
information currently available, that the ultimate resolution of this litigation
will not have a material adverse effect on the financial condition or results of
the operations of the Company, but the ultimate resolution of the suit, if
unfavorable, could be material to the results of operations of a particular
future period.
On August 26, 1998, Carol Bradley filed a purported derivative action on
behalf of the Company, against William Farley, Richard C. Lappin, Omar Z. Al
Askari, Dennis S. Bookshester, Henry A. Johnson, Mark H. McCormack, Larry K.
Switzer, A. Lorne Weil and Sir Brian Wolfson, each of whom is a current or
former director of the Company, and the Company, as a nominal defendant, in the
Warren Circuit Court of the State of Kentucky. The plaintiff asserts various
common law claims against the individual defendants including, inter alia,
breach of fiduciary duty, waste of corporate assets, breach of contract and
constructive fraud claims. The plaintiff also asserts an insider trading claim
against defendants Farley, Lappin and Switzer. The claims asserted against the
individual defendants are based on the same alleged misrepresentations and
omissions which form the basis of the claims asserted by the plaintiff in the
New England Action as described above. The plaintiff seeks unspecified
compensatory and punitive damages,
F-44
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONTINGENT LIABILITIES -- (CONTINUED)
attorney's fees and costs and ancillary relief. On September 18, 1998, defendant
Farley, with the consent of the Company, removed the action from state court to
the United States District Court for the Western District of Kentucky. Those
defendants subsequently filed a motion to dismiss on the ground that the
plaintiff failed to make an appropriate demand on the Company prior to filing
the action. That motion is currently being briefed.
In August 1994, the Company acquired Pro Player, Inc. ("Pro Player") for
approximately $55,700,000, including approximately $14,200,000 of Pro Player
debt which was repaid by the Company. The Company had compensation agreements
with the former principals of Pro Player who became employees of the business
upon the Company's acquisition. The compensation agreements provided for these
former employees to receive compensation up to a maximum of $47,100,000, based
in part on the attainment of certain levels of operating performance by the
acquired entity in 1998 and 1999. In the fourth quarter of 1997, the Company
recorded a $22,000,000 charge related to this compensation agreement, based on
its assessment of the probability that Pro Player's operating performance would
result in such amount being earned. During the fourth quarter of 1998, the
Company determined that it was no longer probable that the $22,000,000 would be
paid and reversed the 1997 charge, resulting in a $22,000,000 reduction in
selling, general and administrative expense in 1998.
LEASE COMMITMENTS
The Company and its subsidiaries lease certain manufacturing, warehousing
and other facilities and equipment. The leases generally provide for the lessee
to pay taxes, maintenance, insurance and certain other operating costs of the
leased property. The leases on most of the properties contain renewal
provisions.
In September 1994, the Company entered into a five year operating lease
agreement with two automatic annual renewal options, primarily for certain
machinery and equipment. The total cost of the assets to be covered by the lease
is limited to $175,000,000. At January 2, 1999 and December 31, 1997,
approximately $30,400,000 was available and unused under this facility. This
availability expires March 31, 1999. The lease provides for a substantial
residual value guarantee by the Company at the end of the initial lease term and
includes purchase and renewal options at fair market values. The table of future
minimum operating lease payments which follows excludes any payment related to
the residual value guarantee which is due upon termination of the lease. The
Company has the right to exercise a purchase option with respect to the leased
equipment or the equipment can be sold to a third party. The Company is
obligated to pay the difference between the maximum amount of the residual value
guarantee and the fair market value of the equipment at the termination of the
lease. As a result of the migration of its sewing and finishing operations to
the Caribbean and Central America and related decisions to close or dispose of
certain manufacturing and distribution facilities, the Company evaluated its
operating lease structure and the ability of the lessor to recover its costs in
the used equipment market and concluded that residual values guaranteed by the
Company will be substantially in excess of fair market values. Accordingly, a
provision of $61,000,000 was included in the 1997 special charges.
F-45
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LEASE COMMITMENTS -- (CONTINUED)
Following is a summary of future minimum payments under capitalized leases
and under operating leases that have initial or remaining noncancelable lease
terms in excess of one year at January 2, 1999 (in thousands of dollars):
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
----------- -----------
<S> <C> <C>
FISCAL YEAR
1999................................................................ $ 3,900 $ 32,500
2000................................................................ 3,900 26,000
2001................................................................ 3,900 8,600
2002................................................................ 3,900 5,300
2003................................................................ 3,900 3,000
Years subsequent to 2003............................................ 63,200 19,600
----------- -----------
Total minimum lease payments.......................................... 82,700 $ 95,000
-----------
-----------
Imputed interest...................................................... 31,800
-----------
Present value of minimum capitalized lease payments................... 50,900
Current portion....................................................... 500
-----------
Long-term capitalized lease obligations............................... $ 50,400
-----------
-----------
</TABLE>
Assets recorded under capital leases are included in Property, Plant and
Equipment as follows (in thousands of dollars):
<TABLE>
<CAPTION>
JANUARY 2, DECEMBER 31,
1999 1997
----------- ------------
<S> <C> <C>
Land............................................................... $ 8,300 $ 7,800
Buildings, structures and improvements............................. 23,500 22,800
Machinery and equipment............................................ 3,800 3,800
----------- ------------
35,600 34,400
Accumulated amortization........................................... (17,000) (15,800)
----------- ------------
$ 18,600 $ 18,600
----------- ------------
----------- ------------
</TABLE>
Rental expense for operating leases amounted to $38,100,000, $36,500,000 and
$35,900,000 in 1998, 1997 and 1996, respectively.
STOCK PLANS
The Company has a number of compensation plans that provide a variety of
stock-based incentive awards to Directors, officers and key employees. Various
plans provide for granting non-qualified stock options, stock appreciation
rights, restricted stock, deferred stock, bonus stock awards in lieu of
obligations, dividend equivalents, other stock-based awards and performance or
annual incentive awards that may be settled in cash, stock or other property. As
of January 2, 1999 a total of 11,850,000 shares of the Company's Class A Common
Stock were reserved for issuance under these plans, including option and
F-46
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONTINUED)
other awards outstanding totalling 8,381,000 shares. Each plan is administered
by the Compensation Committee of the Board of Directors (the "Compensation
Committee").
Under the Company's stock-based compensation plans, stock options may be
granted to eligible employees of the Company and its subsidiaries, at a price
not less than the market price on the date of grant. Options granted vest, may
be exercised and expire at such time as prescribed by the Compensation
Committee. No option granted is exercisable beyond ten years from the grant
date. The Compensation Committee may, at its discretion, accelerate the
exercisability, the lapsing of restrictions or the expiration of deferral or
vesting periods of any award. Such accelerated exercisability, lapse, expiration
and vesting occurs automatically under certain plans in the event of a change of
control of the Company.
Following is a summary of option activity for the three years ended January
2, 1999.
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
----------- ----------- ---------- ----------- ----------- -----------
Outstanding, beginning of year.................... 6,015,400 $ 29.04 5,079,400 $ 23.63 4,169,900 $ 19.80
Granted........................................... 4,037,100 21.00 2,086,800 39.61 2,215,400 27.62
Exercised......................................... (332,100) 20.59 (563,800) 19.69 (1,050,500) 16.33
Cancelled/expired................................. (1,502,800) 33.66 (587,000) 28.81 (255,400) 25.98
----------- ---------- -----------
Outstanding, end of year.......................... 8,217,600 24.53 6,015,400 29.04 5,079,400 23.63
----------- ---------- -----------
----------- ---------- -----------
Exercisable:
At end of year.................................. 3,097,100 24.61 2,071,100 22.17 1,391,900 19.60
Upon completion of additional service........... 5,120,500 24.48 3,944,300 32.65 3,187,500 24.57
Upon completion of additional service and
achievement of specified performance
targets....................................... -- -- -- -- 500,000 28.88
----------- ---------- -----------
Total outstanding............................... 8,217,600 24.53 6,015,400 29.04 5,079,400 23.63
----------- ---------- -----------
----------- ---------- -----------
Weighted average fair value of options granted
during the year............................... $ 7.89 $ 15.79 $ 11.36
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The following information is as of January 2, 1999.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED REMAINING WEIGHTED
OPTIONS AVERAGE CONTRACTUAL OPTIONS AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
- ---------------------------------------------------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
$ 6.38 to $14.50.................................... 43,500 $ 13.18 5.5 Years 23,000 $ 12.79
$15.13 to $19.19.................................... 4,705,300 18.14 5.6 Years 1,468,100 17.51
$23.88 to $27.06.................................... 1,509,000 25.84 7.5 Years 927,700 25.87
$30.13 to $42.00.................................... 1,959,800 39.10 8.1 Years 678,300 39.69
----------- ----------
8,217,600 3,097,100
----------- ----------
----------- ----------
</TABLE>
F-47
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONTINUED)
In 1998, the Company's Board of Directors approved the repricing of certain
of the Company's stock options that had been granted to employees other than
executive officers and that had exercise prices higher than the then market
price of Class A Common Stock. The Company took this action as a means of
reestablishing the long-term incentive benefits for which the stock option plans
were originally designed. In exchange for the previously granted stock options
the Company granted fewer new stock options at an exercise price equal to the
market price of the Class A Common Stock on the date of the exchange using a
replacement formula based on the modified Black-Scholes Option Pricing Model.
Consequently, the repricing resulted in no additional compensation expense to
the Company. Options granted in 1998 included 720,992 options granted in the
exchange.
Following is a summary of activity in nonvested stock under the Company's
compensation plans for the three years ended January 2, 1999. Nonvested stock
includes restricted stock units and performance shares granted under the plans.
Nonvested stock grants generally vest over periods ranging from two to three
years. The Compensation Committee may, at its discretion, accelerate the vesting
of any award. Vested awards under certain plans may be settled either by
issuance of Class A Common Stock or in cash based on the market price of Class A
Common Stock on the vesting date.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Outstanding, beginning of year............................................. 147,300 558,100 270,700
Granted.................................................................... 111,800 142,100 474,400
Earned upon completion of service.......................................... (55,900) (56,200) (16,200)
Earned upon completion of service and achievement of specified performance
targets.................................................................. -- (392,800) (139,700)
Forfeited.................................................................. (39,800) (103,900) (31,100)
---------- ----------- -----------
Outstanding, end of year................................................... 163,400 147,300 558,100
---------- ----------- -----------
---------- ----------- -----------
Weighted average grant date fair value of nonvested stock granted during
the year................................................................. $ 15.37 $ 38.98 $ 25.69
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
The Company has elected to follow APB 25 and related Interpretations in
accounting for its stock compensation plans because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, the Company records no compensation expense for
options granted under any of its stock plans because the exercise price of the
stock options is equal to or less than the market price of the underlying Class
A Common Stock on the date granted. For other stock-based compensation awards,
the Company recognized compensation costs under APB 25 totaling $1,900,000,
$2,200,000 and $15,700,000 in 1998, 1997 and 1996 respectively.
FAS 123 requires the Company to disclose pro forma net earnings and earnings
per share determined as if the Company had accounted for stock-based
compensation awards granted after December 31, 1994, under the fair value method
of that statement. The fair values of options under FAS 123 were estimated at
each grant date using a Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest rates of 4.81% in 1998, 6.13%
in 1997, and 5.65% in 1996, a dividend yield of zero, a volatility factor of the
expected market price of the Company's common stock of .45 in 1998, .33 in 1997
and .36 in 1996, and an expected option life of five years.
F-48
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK PLANS -- (CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For the following pro forma disclosures, the estimated fair value of options
and other stock-based awards is amortized to expense over the award's vesting
period (in thousands of dollars, except per share information):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
Pro forma net earnings (loss)............................................... 123,300 $ (503,800) $ 141,500
Pro forma earnings (loss) per share:
Basic..................................................................... $ 1.71 $ (6.77) $ 1.85
Assuming dilution......................................................... $ 1.71 $ (6.77) $ 1.84
</TABLE>
STOCKHOLDERS' EQUITY
Holders of Class A Common Stock are entitled to receive, on a cumulative
basis, the first dollar per share of dividends declared. Thereafter, holders of
Class A Common Stock and Class B Common Stock will share ratably in any
dividends declared. Each share of Class A Common Stock is entitled to one vote
and each share of Class B Common Stock is entitled to five votes. The Class B
Common Stock is convertible into the Class A Common Stock on a share for share
basis. During 1997, 1,006,700 Class B shares were converted to Class A shares.
F-49
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCKHOLDERS' EQUITY -- (CONTINUED)
The components of other comprehensive income are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
UNREALIZED
LOSSES ON
MINIMUM CURRENCY AVAILABLE-FOR-
PENSION TRANSLATION SALE
LIABILITY ADJUSTMENTS SECURITIES TOTAL
---------- ----------- ------------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995................................... $ (600) $ (21,900) $ -- $ (22,500)
Minimum pension liability adjustment......................... (900) (900)
Currency translation adjustment.............................. 12,500 12,500
Unrealized losses on available-for-sale securities........... (1,400) (1,400)
Deferred taxes relating to unrealized losses on
available-for-sale securities.............................. 500 500
---------- ----------- ------------- ----------
Balance, December 31, 1996................................... (1,500) (9,400) (900) (11,800)
Minimum pension liability adjustment......................... 900 900
Currency translation adjustment.............................. (27,600) (27,600)
Reclassification of available-for-sale securities to
trading.................................................... 1,400 1,400
Reclassification of deferred taxes on available-for-sale
securities to trading...................................... (500) (500)
---------- ----------- ------------- ----------
Balance, December 31, 1997................................... (600) (37,000) -- (37,600)
Minimum pension liability adjustment......................... (10,400) (10,400)
Currency translation adjustment.............................. (6,400) (6,400)
---------- ----------- ------------- ----------
Balance, January 2, 1999..................................... $ (11,000) $ (43,400) $ -- $ (54,400)
---------- ----------- ------------- ----------
---------- ----------- ------------- ----------
</TABLE>
In November 1996 the Company's Board of Directors authorized the repurchase
of up to $200,000,000 of the Company's common stock in open market and privately
negotiated transactions. In December 1996, the Company repurchased 440,400
shares of its Class A Common Stock at an aggregate cost of $16,600,000. In 1997,
the Company repurchased 5,329,000 shares of its Class A Common Stock at an
aggregate cost of $173,600,000. In early January, 1998, the Company purchased an
additional 120,900 shares of its Class A Common Stock at an aggregate cost of
$3,000,000. Total purchases under the program were 5,890,300 shares at an
aggregate cost of $193,200,000.
In March 1996 the Company adopted a stockholder rights plan (the "Rights
Plan") by which preferred stock purchase rights were distributed for each
outstanding share of the Company's Class A Common Stock and Class B Common
Stock. The Rights Plan provides for Series A Rights and Series B Rights. Each
Series A Right entitles holders of the Company's common stock to buy one
one-hundredth of a share of a new series of preferred stock at an exercise price
of $90. The Series A Rights will be exercisable only if a person or entity
acquires 15% or more of the Company's common stock or announces a tender offer
upon consummation of which such person or entity would own 15% or more of the
common stock.
Generally, if any person or entity becomes the beneficial owner of 15% or
more of the Company's common stock, each Series A Right not owned by such a
person or entity will enable its holder both to (i) purchase Class A Common
Stock of the Company having a value of $180 for a purchase price of $90 and (ii)
receive a Series B Right. In addition, in such case, if the Company is
thereafter involved in a merger or other business combination transaction with
another entity or sells 50% or more of its assets or earning power to another
person or entity, each Series B Right and each Series A Right that has not
F-50
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCKHOLDERS' EQUITY -- (CONTINUED)
previously been exercised will entitle its holder to purchase, at $90 per Series
A and Series B Right, common shares of such other entity having a value of twice
that price.
The Company generally will be entitled to amend the Rights Plan and redeem
the Series A Rights at $.01 per Series A Right at any time prior to the time a
person or group has acquired 15% of the Company's common stock. The Series B
Rights cannot be redeemed after the time they are issued. The foregoing
description of the Rights Plan does not purport to be complete and is qualified
in its entirety by reference to the Rights Plan.
Approximately 7.9% of the Company's common stock at January 2, 1999 was held
by Farley Inc. and Mr. Farley. Because these affiliates held all of the Class B
Common Stock of the Company outstanding, which has five votes per share, they
controlled approximately 30.0% of all voting rights of the Company. All actions
submitted to a vote of stockholders are voted on by holders of Class A Common
Stock and Class B Common Stock voting together as a single class, except for the
election of directors. With respect to the election of directors, holders of the
Class A Common Stock vote as a separate class and are entitled to elect 25% of
the total number of directors constituting the entire Board of Directors and, if
not a whole number, then the holders of the Class A Common Stock are entitled to
elect the nearest higher whole number of directors that is at least 25% of the
total number of directors. If, at the record date for any stockholder meeting at
which directors are elected, the number of shares of Class B Common Stock
outstanding is less than 12.5% of the total number of shares of both classes of
common stock outstanding, then the holders of Class A Common Stock would vote
together with the holders of Class B Common Stock to elect the remaining
directors to be elected at such meeting, with the holders of Class A Common
Stock having one vote per share and the holders of Class B Common Stock having
five votes per share. At January 2, 1999 Farley Inc. and Mr. Farley's combined
ownership of Class B Common Stock is approximately 7.9% of the total common
stock of the Company outstanding. As a result, Mr. Farley does not have the sole
ability to elect those members of the Company's Board of Directors who are not
separately elected by the holders of the Company's Class A Common Stock.
At January 2, 1999 and December 31, 1997, 35,000,000 shares of Preferred
Stock with a par value of $.01 per share were authorized, none of which have
been issued.
OPERATING SEGMENTS
The Company manufactures and markets basic family apparel with vertically
integrated operations in the Americas (North America, Central America and the
Caribbean) and in Europe. North America is the Company's principal market,
accounting for more than 80% of consolidated Net sales in each of the last three
years. For the North American market, capital intensive spinning, knitting and
cutting operations are located in the United States. Labor intensive sewing and
finishing operations are located in Central America and the Caribbean. For the
European market, manufacturing operations are concentrated in Ireland, but labor
intensive operations are being relocated to lower cost North African locations.
In North America the Company is organized into three operating segments
based on the products it offers. These segments are Retail Products and
Activewear, the Company's historic core businesses, and Licensed Sportswear.
Management allocates promotional efforts, working capital, and manufacturing and
distribution capacity based on its assessment of segment operating results and
market conditions. In Europe the Company is organized into a single geographic
operating segment. Employing an entirely separate management team, the Company
produces a different mix of garments in Ireland and North Africa for sale in
Europe.
F-51
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING SEGMENTS -- (CONTINUED)
Retail Products are offered principally under the Fruit of the Loom, BVD,
Munsingwear and Gitano brand names, through major discount and mass
merchandisers, wholesale clubs and other retailers. The Company offers a broad
array of men's and boys' underwear including briefs, boxer shorts, T-shirts and
A-shirts, colored and fashion underwear. Casualwear offerings include a
selection of basic styles of jersey and fleece tops, shorts and bottoms
selections for each of the men's, women's, boys' and girls' categories. The
Company designs, manufactures (including contract manufacturing) and markets
women's jeanswear and jeans related sportswear. Women's and girls' underwear
products include a variety of cotton, nylon and lycra panties and thongs.
Childrenswear offerings include decorated underwear (generally with pictures of
licensed movie or cartoon characters) and layette sets.
The Company's Activewear segment produces and sells blank T-shirts and
fleecewear under the SCREEN STARS brand name and premium fleecewear and T-shirts
under the FRUIT OF THE LOOM, LOFTEEZ and BEST BY FRUIT OF THE LOOM labels. These
products are manufactured in a variety of styles and colors and are sold to
distributors, screen printers and specialty retailers, who generally apply a
decoration prior to sale at retail.
The Company's Licensed Sportswear segment sells a wide variety of quality
decorated sportswear, including T-shirts, sweatshirts, shorts and outerwear to
retail stores and mass merchants, primarily under the PRO PLAYER and FANS GEAR
brands. Under its PRO PLAYER brand, the Company designs and markets heavyweight
jackets, lightweight jackets, headwear and other outerwear and T-shirts and
fleecewear bearing logos or insignia under licenses granted by major
professional sports leagues, professional players and many colleges and
universities in the United States.
European product offerings consist of T-shirts, fleecewear and polo shirts
sold to the imprint market, with distribution similar to the Company's
Activewear segment, and also to the retail market, primarily under the FRUIT OF
THE LOOM label.
Consolidated revenues and operating earnings (loss) in the following tables
correspond to Net sales and Operating earnings (loss) in the Company's
Consolidated Statement of Operations. Segment and other detail is derived from
the Company's internal management reporting system. Other revenues consist of
external sales of yarn and cloth. Other operating earnings consist of margin on
external sales of yarn and cloth and net external royalty income. Nonrecurring
items relate to the 1997 special charges and finalization of certain estimates
included in special charges. See "SPECIAL CHARGES." Nonrecurring items in 1997
include the effect of the change in the Company's method of determining the cost
of inventories. See "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- INVENTORIES."
The accounting policies of the reportable segments are the same as those
described in "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES." The Company evaluates
performance and allocates resources based on operating income. The Company does
not allocate interest expense to reportable segments.
Total foreign revenues as a percent of consolidated revenues totalled 16.7%
in 1998, 16.6% in 1997 and 15.0% in 1996. No individual foreign country
accounted for as much as 5% of consolidated revenues in any of the periods
reported. Sales to one Retail Products customer amounted to approximately 16.7%,
18.8% and 16.8% of consolidated net sales in 1998, 1997 and 1996, respectively.
Additionally, sales to a
F-52
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING SEGMENTS -- (CONTINUED)
second Retail Products customer amounted to approximately 12.0%, 14.7% and 12.2%
of consolidated net sales in 1998, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
OPERATING
REVENUES EARNINGS (LOSS)
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ IN MILLIONS
Retail Products........................................... $ 1,095.4 $ 1,101.9 $ 1,212.0 $ 102.8 $ 61.0 $ 151.3
Activewear................................................ 589.0 575.4 760.0 68.1 66.8 125.2
Sports & Licensing........................................ 185.5 208.7 211.3 7.8 5.9 16.2
Europe.................................................... 268.7 253.9 264.1 29.7 35.4 32.3
Other..................................................... 31.7 -- -- 15.8 14.5 10.1
Goodwill amortization..................................... -- -- -- (26.6) (26.8) (26.7)
Nonrecurring items........................................ -- -- -- 37.3 (444.5) 9.8
--------- --------- --------- --------- --------- ---------
Consolidated.............................................. $ 2,170.3 $ 2,139.9 $ 2,447.4 $ 234.9 $ (287.7) $ 318.2
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
Assets reported for Retail Products and for Activewear consist of accounts
receivable and finished goods inventories. Unallocated Retail Products and
Activewear assets consist primarily of property, plant and equipment and
goodwill. Depreciation expense is allocated to Retail Products and to Activewear
operating earnings even though property, plant and equipment is not identifiable
or allocable to those operating segments.
Consolidated long-lived assets, consisting of property, plant and equipment,
goodwill and other noncurrent assets, excluding deferred tax assets and
financial instruments, totalled $1,310,900,000 at January 2, 1999,
$1,401,800,000 at December 31, 1997 and $1,698,200,000 at December 31, 1996.
Long-lived assets in foreign countries (consisting of property, plant and
equipment) as a percent of consolidated totalled 12.9% at January 2, 1999, 11.3%
at December 31, 1997 and 13.2% at December 31,
F-53
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPERATING SEGMENTS -- (CONTINUED)
1996. Long-lived assets in the Republic of Ireland as a percent of consolidated
totalled 4.2% at January 2, 1999, 3.9% at December 31, 1997 and 5.6% at December
31, 1996.
<TABLE>
<CAPTION>
TOTAL ASSETS CAPITAL EXPENDITURES
------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<CAPTION>
$ IN MILLIONS
<S> <C> <C> <C> <C> <C> <C>
Retail Products............................................... $ 327.1 $ 327.9 $ 339.3 $ -- $ -- $ --
Activewear.................................................... 264.9 289.0 263.6 -- -- --
Unallocated Retail Products and Activewear.................... 1,506.3 1,648.5 1,756.3 33.4 51.4 40.6
Sports & Licensing............................................ 121.2 103.6 94.1 .9 .3 .4
Europe........................................................ 276.0 267.5 340.1 7.6 3.7 3.5
Sale of accounts receivable................................... (205.7) (153.4) (200.0) -- -- --
--------- --------- --------- --------- --------- ---------
Consolidated.................................................. $ 2,289.8 $ 2,483.1 $ 2,593.4 $ 41.9 $ 55.4 $ 44.5
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
<CAPTION>
($ IN MILLIONS)
<S> <C> <C> <C>
Retail Products....................................................................... $ 39.6 $ 70.3 $ 64.5
Activewear............................................................................ 24.0 35.7 42.7
Sports & Licensing.................................................................... 1.7 .8 .8
Europe................................................................................ 8.9 11.0 13.8
--------- --------- ---------
Consolidated.......................................................................... $ 74.2 $ 117.8 $ 121.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-54
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENSION PLANS
The following table sets forth the changes in the pension benefit obligation
and fair value of plan assets, the amounts recognized in the Company's
Consolidated Balance Sheet and the funded status of the plans (in thousands of
dollars):
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year......................................... $ 239,400 $ 226,600
Service cost.............................................................................. 9,700 11,100
Interest cost............................................................................. 17,900 17,700
Plan participants' contributions.......................................................... 400 400
Amendments................................................................................ (100) 800
Actuarial loss............................................................................ 25,000 4,000
Foreign currency translation.............................................................. 100 (1,000)
Benefits paid............................................................................. (25,500) (20,200)
---------- ----------
Projected benefit obligation at end of year............................................... $ 266,900 $ 239,400
---------- ----------
---------- ----------
Change in plan assets:
Fair value of plan assets at beginning of year............................................ $ 207,100 $ 196,100
Actual return on plan assets.............................................................. 14,300 13,900
Employer contribution..................................................................... 5,700 17,700
Plan participants' contributions.......................................................... 400 400
Foreign currency translation.............................................................. 100 (900)
Benefits paid............................................................................. (25,500) (20,200)
---------- ----------
Fair value of plan assets at end of year.................................................. $ 202,100 $ 207,000
---------- ----------
---------- ----------
Funded status............................................................................. $ (64,800) $ (32,400)
Unrecognized net actuarial loss........................................................... 44,800 15,000
Unrecognized prior service cost........................................................... 2,500 3,100
Accrued unrecognized net transition asset................................................. (2,800) (3,700)
---------- ----------
Net amount recognized..................................................................... $ (20,300) $ (18,000)
---------- ----------
---------- ----------
Amounts recognized in the statement of financial position consist of:
Prepaid pension cost...................................................................... $ 700 $ 300
Accrued benefit liability................................................................. (33,900) (29,000)
Intangible asset.......................................................................... 1,900 2,600
Accumulated other comprehensive income.................................................... 11,000 8,100
---------- ----------
Net amount recognized..................................................................... $ (20,300) $ (18,000)
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JANUARY 2, DECEMBER 31,
1999 1997
------------- ---------------
<S> <C> <C>
Weighted-average assumptions:
Discount rate........................................................................ 7.125% 7.50%
Rates of increase in compensation levels............................................. 4-7% 4-7%
Expected long-term rate of return on assets.......................................... 10% 10%
</TABLE>
F-55
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENSION PLANS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Components of net periodic benefit cost:
Service cost -- benefits earned during the period.............................. $ 9,700 $ 11,100 $ 12,100
Interest cost on projected benefit obligation.................................. 17,900 14,400 13,500
Expected return on plan assets................................................. (19,300) (15,600) (13,700)
Amortization of unrecognized net loss.......................................... 600 1,300 700
Amortization of prior service cost............................................. 500 300 200
Amortization of unrecognized January 1, 1987 net transition asset.............. (900) (1,300) (1,300)
Curtailment loss............................................................... (100) -- 400
--------- --------- ---------
Net periodic pension cost...................................................... $ 8,400 $ 10,200 $ 11,900
Effect of assumption of Acme Boot Pension Plan................................. -- (100) 1,500
--------- --------- ---------
Restated net periodic pension cost............................................. $ 8,400 $ 10,100 $ 13,400
--------- --------- ---------
--------- --------- ---------
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for those pension plans with accumulated benefit
obligations in excess of plan assets were $260,700,000, $229,200,000 and
$195,700,000, respectively, as of January 2, 1999, and $51,700,000, $51,200,000
and $39,400,000, respectively, as of December 31, 1997.
In April of 1998, Acme Boot Company, Inc. ("Acme") and the Company signed an
agreement with the Pension Benefit Guaranty Corporation (the "PBGC") which
settled a dispute between Acme and the PBGC as to whether Acme was a member of
the Company's "Control Group" for ERISA purposes as of May 21, 1993 and thus
liable to the PBGC for the unfunded benefit liabilities of the Acme Boot
Company, Inc. Pension Plan (the "Acme Plan"). Under the terms of the agreement,
the Company assumed the Acme Plan on June 26, 1998. All prior years have been
restated to reflect the assumption of the Acme Plan.
Plan assets for the Company's funded plans, which are primarily invested in
domestic debt securities, international and domestic equity securities, real
estate and venture capital funds, are commingled in a master trust which
includes the assets of the pension plan sponsored by the Company and a pension
plan sponsored by Farley Inc. (the "Master Trust"). The Company and Farley Inc.
are separate control groups for purposes of ERISA.
Included in the Master Trust assets at January 2, 1999 and December 31, 1997
were 647,852 shares (with a cost of $5,100,000 and a market value of $8,900,000
and $16,600,000, respectively) of the Company's Class A Common Stock. Of these
shares 426,843 shares are allocated to the Plan and 221,009 shares are allocated
to the Farley Inc. Retirement Plan.
As of January 2, 1999 and December 31, 1997, the Master Trust holds 348,012
shares (with a cost of $7,700,000 and a market value of $4,800,000 and
$8,900,000, respectively) of the Company's Class A Common Stock (these shares
are in addition to the 647,852 shares noted in the immediately preceding
paragraph) that are specifically identified to the retirement plan of Farley
Inc. Any change in market value associated with these shares is allocated
entirely to the Farley Inc. plan and does not affect the Master Trust Allocated
Assets.
The Company sponsors a 401(k) defined contribution plan for all non-highly
compensated domestic salaried employees. Eligible participants may contribute up
to 15% of their annual compensation subject
F-56
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PENSION PLANS -- (CONCLUDED)
to maximum amounts established by the United States Internal Revenue Service
(the "IRS"). The Company makes matching contributions which equal 50% of the
first 6% of annual compensation contributed to the plan by each employee,
subject to maximum amounts established by the IRS. The Company's contributions
under this Plan amounted to $800,000, $900,000 and $800,000 during 1998, 1997
and 1996, respectively.
DEPRECIATION EXPENSE
Depreciation expense, including amortization of capital leases, approximated
$74,200,000, $117,800,000 and $121,800,000 in 1998, 1997 and 1996, respectively.
ADVERTISING EXPENSE
Advertising, which is expensed as incurred, approximated $64,600,000,
$80,800,000, and $81,600,000 in 1998, 1997 and 1996, respectively.
INCOME TAXES
Income taxes are included in the Consolidated Statement of Operations as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
<S> <C> <C> <C>
JANUARY 2, DECEMBER 31, DECEMBER 31,
1999 1997 1996
----------- ------------ ------------
Income tax provision on earnings (loss) from continuing operations....... $ 7,100 $ (66,300) $ 31,600
Discontinued operations.................................................. -- -- --
----------- ------------ ------------
Total income tax provision............................................... $ 7,100 $ (66,300) $ 31,600
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
Included in earnings (loss) from continuing operations before income tax
provision are foreign earnings of $146,700,000, $57,900,000 and $92,800,000 in
1998, 1997 and 1996, respectively. These amounts include foreign taxable
earnings of $1,600,000 in 1996 and foreign taxable losses of $3,400,000 and
$46,400,000 in 1998 and 1997, respectively.
F-57
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES -- (CONTINUED)
The components of income tax provision related to earnings (loss) from
continuing operations were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------
<S> <C> <C> <C>
JANUARY 2, DECEMBER 31, DECEMBER 31,
1999 1997 1996
----------- ------------ ------------
Current:
Federal................................................................ $ 10,200 $ (1,700) $ 6,500
State.................................................................. 1,200 -- 1,900
Foreign................................................................ 1,800 -- --
----------- ------------ ------------
Total current............................................................ 13,200 (1,700) 8,400
----------- ------------ ------------
Deferred:
Federal................................................................ (6,500) (64,300) 19,200
State.................................................................. -- -- 3,700
Foreign................................................................ 400 (300) 300
----------- ------------ ------------
Total deferred........................................................... (6,100) (64,600) 23,200
----------- ------------ ------------
Total income tax provision............................................... $ 7,100 $ (66,300) $ 31,600
----------- ------------ ------------
----------- ------------ ------------
</TABLE>
The income tax rate on earnings (loss) from continuing operations before
cumulative effect of change in accounting principle differed from the Federal
statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------
<S> <C> <C> <C>
JANUARY 2, DECEMBER 31, DECEMBER 31,
1999 1997 1996
----------- -------------- ---------------
Federal statutory rate................................................... 35.0% (35.0)% 35.0%
Deferred tax asset valuation allowance................................... (11.3 ) 14.2 --
Reversal of income tax accruals.......................................... -- -- (13.5 )
Interest on prior years' taxes........................................... -- 5.4 --
Foreign operating earnings............................................... (30.3 ) (3.3 ) (10.5 )
Goodwill amortization.................................................... 6.5 2.4 5.3
State income taxes, net of Federal tax benefit........................... 3.5 -- 2.0
Other-net................................................................ 1.6 1.6 (0.6 )
----------- ----- -----
Effective rate......................................................... 5.0% (14.7 )% 17.7%
----------- ----- -----
----------- ----- -----
</TABLE>
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $379,300,000 at January 2, 1999. $259,200,000 of those earnings
are considered to be indefinitely reinvested and, accordingly, no provision for
U.S. 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 U.S. income taxes (subject to an adjustment for foreign tax
credits) and withholding taxes payable to the various foreign countries. In the
event that the other foreign entities' earnings were distributed, it is
estimated that U.S. federal and state income taxes, net of foreign credits, of
approximately $90,700,000 would be due, a portion of which may be offset for
financial statement reporting purposes by the reduction of the valuation
allowance provided against deferred tax assets.
F-58
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES -- (CONTINUED)
Deferred income taxes are provided for temporary differences between income
tax and financial statement recognition of revenues and expenses. Deferred tax
liabilities (assets) are comprised of the following (in thousands of dollars):
<TABLE>
<CAPTION>
JANUARY 2, DECEMBER 31,
1999 1997
---------- ------------
<S> <C> <C>
Depreciation and amortization.......................................................... $ 164,500 $ 155,800
Items includible in future tax years................................................... 102,400 81,100
---------- ------------
Gross deferred tax liabilities....................................................... 266,900 236,900
---------- ------------
Inventory valuation reserves........................................................... (33,600) (35,600)
Accrued employee benefit expenses...................................................... (31,400) (47,400)
Acquired tax benefits and basis differences............................................ (38,900) (49,600)
Allowance for possible losses on receivables........................................... (4,500) (5,400)
Fixed asset impairment................................................................. (59,400) (60,300)
Residual value guarantees of leased equipment.......................................... (22,900) (22,900)
NOL and tax credit carryforwards....................................................... (67,400) (4,500)
Items deductible in future tax years................................................... (93,600) (105,600)
---------- ------------
Gross deferred tax assets............................................................ (351,700) (331,300)
---------- ------------
Valuation allowance.................................................................. 48,100 64,100
---------- ------------
Net deferred tax (asset) liability................................................... $ (36,700) $ (30,300)
---------- ------------
---------- ------------
</TABLE>
As a result of the migration of certain of its operations to offshore
locations and the planned reorganization of the Company, future operations may
not generate sufficient U.S. sourced income to utilize all of the net deferred
tax benefits generated by operations through January 2, 1999. Consequently, the
Company recorded a deferred tax asset valuation allowance of $48,100,000 as of
January 2, 1999. The deferred tax asset valuation allowance decreased by
$16,000,000 during 1998 as a result of taxable earnings in 1998.
The Company has net operating loss carryforwards of approximately
$140,300,000 that expire in 2018. The Company also has alternative minimum tax
credit carryforwards of approximately $15,400,000 that have an unlimited
carryforward period. Finally, the Company has approximately $500,000 of research
and development and foreign tax credit carryforwards that expire in 2000.
In March 1992 the Company received a refund of approximately $60,000,000
relating to Federal income taxes paid by Northwest plus interest thereon
applicable to the tax years 1964-1968. However, in September 1992 the IRS issued
a statutory notice of deficiency in the amount of approximately $7,300,000 for
the taxable years from which the March 1992 refund arose, exclusive of interest
which would accrue from the date the IRS asserted the tax was due until payment.
In October 1994, the United States Tax Court ruled in favor of the Company in
the above case. On January 5, 1996, the United States Court of Appeals for the
Seventh Circuit affirmed the decision of the United States Tax Court. The IRS
had a period of 90 days from the date of the decision to petition for review by
the United States Supreme Court. The IRS did not petition for a review and,
accordingly, the case is now closed. Effective December 31, 1996, for Federal
income tax purposes, all years through December 31, 1991, were closed. As a
result, excess income tax liabilities totaling $24,100,000 for tax years through
December 31, 1991 were reversed and reduced income tax expense in 1996.
F-59
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES -- (CONTINUED)
Cash refunds of income taxes totalled $60,000,000 in 1998. Cash payments for
income taxes were $11,200,000 and $13,600,000 in 1997 and 1996, respectively.
OTHER INCOME (EXPENSE) -- NET
Principal components of net other income in 1998 included $8,000,000
recognized on a business interruption insurance claim stemming from Hurricane
Mitch, $6,400,000 from settlement of the Acme Boot debt guarantees and net gains
of $5,800,000 from property disposals, partially offset by accounts receivable
securitization costs of $11,900,000. Net other expense in 1997 consisted
principally of special charges totalling $32,400,000, a $32,000,000 provision
for loss based on the Company's analysis of its exposure under the Acme Boot
debt guarantees and accounts receivable securitization costs of $11,800,000. Net
other expense in 1996 consisted principally of a $35,000,000 provision for loss
based on the Company's analysis of its exposure under the Acme Boot debt
guarantees and accounts receivable securitization costs of $1,700,000. The Acme
Boot debt guarantees are discussed under "CONTINGENT LIABILITIES." Special
charges recorded in 1997 are discussed under "SPECIAL CHARGES." The Company's
receivable securitization program is discussed under "SALE OF ACCOUNTS
RECEIVABLE."
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- ----------
<S> <C> <C> <C>
NUMERATOR:
Earnings (loss) from continuing operations.................................. $ 135,900 $ (385,400) $ 146,600
Discontinued operations -- LMP litigation................................... -- (102,200) --
---------- ----------- ----------
Net earnings (loss)......................................................... $ 135,900 $ (487,600) $ 146,600
---------- ----------- ----------
---------- ----------- ----------
DENOMINATOR:
Denominator for basic earnings per share -- weighted average shares
outstanding............................................................... 72,000 74,400 76,400
Effect of dilutive employee stock options................................... 300 -- 700
---------- ----------- ----------
Denominator for diluted earnings per share -- weighted average shares
outstanding and assumed conversions....................................... 72,300 74,400 77,100
---------- ----------- ----------
---------- ----------- ----------
Earnings (loss) per common share:
Continuing operations..................................................... $ 1.89 $ (5.18) $ 1.92
Discontinued operations -- LMP litigation................................. -- (1.37) --
---------- ----------- ----------
Net earnings (loss)....................................................... $ 1.89 $ (6.55) $ 1.92
---------- ----------- ----------
---------- ----------- ----------
Earnings (loss) per common share -- assuming dilution:
Continuing operations..................................................... $ 1.88 $ (5.18) $ 1.90
Discontinued operations -- LMP litigation................................. -- (1.37) --
---------- ----------- ----------
Net earnings (loss)....................................................... $ 1.88 $ (6.55) $ 1.90
---------- ----------- ----------
---------- ----------- ----------
</TABLE>
F-60
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER SHARE -- (CONTINUED)
Because diluted EPS increases in 1997 from a loss of $6.55 to a loss of
$6.49, the effect of employee stock options (700,000 shares) are antidilutive
and are ignored in the computation of diluted EPS. Therefore, diluted EPS is
reported as a loss of $6.55 in 1997.
RELATED PARTY TRANSACTIONS
As a part of the 1995 special charge, the Company decided to integrate into
the Company's Bowling Green, Kentucky operations certain functions historically
performed by Farley Industries, Inc. ("FII") personnel. In connection with this
effort, the Board of Directors determined that the Company's management
agreement with FII should not be renewed for 1996 and that the general
management functions previously performed by FII under the agreement should be
assumed directly by the Company. Accordingly, effective January 1, 1996, the
Company severed its relationship with FII and directly employed certain persons
previously employed by FII who provide such services.
Pursuant to a determination by the non-management members of the Board of
Directors, the Company agreed to pay $3,500,000 to FII in consideration of FII's
transfer of its personnel and settlement of all obligations the Company owed to
FII. The non-management members of the Board of Directors determined that such
payment was fair and reasonable to the Company, basing their determination, in
part, upon the anticipated cost savings to the Company in 1996 and beyond from
the integration of FII functions into the Company, the cost of otherwise
creating the workforce necessary to provide the management services previously
provided by FII and the assistance of FII in effecting the transition of
functions and personnel (including certain executive officers) to the Company.
The Company agreed to pay up to approximately $4,000,000 to FII in 1996
($3,600,000 was actually paid in 1996), all of which relates to the severance of
certain FII employees who were not re-employed by the Company, including
severance payments under certain employment agreements to which the Company was
a party. The Company also agreed to reimburse FII for any direct ordinary and
reasonable costs and expenses associated with the transition of management
functions from FII into the Company in 1996. The severance and asset purchase
amounts were included in the Company's special charge accrued in the fourth
quarter of 1995. See "SPECIAL CHARGES."
Under the terms of the management agreement between FII and the Company, FII
provided the Company, to the extent that the Company requested, (i) general
management services which included, but were not limited to, financial
management, legal, tax, accounting, corporate development, human resource and
personnel advice; (ii) investment banking services in connection with the
acquisition or disposition of the assets or operations of a business or entity;
(iii) financing services in connection with the arrangement by FII of public or
private debt (including letter of credit facilities); and (iv) other financial,
accounting, legal and advisory services rendered outside the ordinary course of
the Company's business. FII is owned and controlled by Mr. Farley; its employees
provide services to companies owned or controlled by Mr. Farley, including,
prior to 1996, the Company. Certain of the executive officers of the Company
were employed by, and received their compensation from, FII. These officers
devoted their time as needed to those companies owned and controlled by Mr.
Farley and, accordingly, did not devote full time to any single company,
including the Company.
In consideration for investment banking and financing services, the Company
paid FII fees established by FII and determined to be reasonable by FII in
relation to (i) the size and complexity of the transaction; and (ii) the fees
customarily charged by other advisors for similar investment banking and
financing services; provided, such fees did not exceed two percent of the total
consideration paid or received by the
F-61
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RELATED PARTY TRANSACTIONS -- (CONTINUED)
Company or two percent of the aggregate amount available for borrowing or use
under the subject agreement or facility. Fees for investment banking and
financing services were generally payable to FII upon the closing of the subject
transaction or agreement.
Under the terms of the management agreement, the Company paid a fee to FII
based on FII's cost of providing management services. The Company paid
management fees to FII of approximately $8,100,000 in 1995.
The Company completed the sale of the stock of Acme Boot at book value,
which approximated fair market value, to an affiliate in June 1987 for an
aggregate of $38,400,000 of cash and preferred stock and subordinated debentures
of the affiliate. In the fourth quarter of 1993, the Company received
approximately $72,900,000 from Acme Boot representing the entire unpaid
principal and liquidation preference (including accrued interest and dividends)
on its investment in the securities of the affiliate. The Company recorded a
pretax gain of approximately $67,300,000 in connection with the investment in
Acme Boot upon the receipt of the above mentioned proceeds. In connection with
the 1993 transaction the Company guaranteed, on an unsecured basis, the
repayment of debt incurred by Acme under the Acme Boot Credit Facility and the
New Acme Credit Agreement. Farley Inc. owns 100% of the common stock of Acme
Boot. Mr. Farley holds 100% of the common stock of Farley Inc. Other expense-net
includes charges of $32,000,000 and $35,000,000 in 1997 and 1996, respectively,
related to the Company's evaluation of its exposure under the guarantee.
In addition, through July 1998, the Company loaned Acme Boot $9,000,000 to
provide Acme Boot with supplemental working capital. These loans were made in
the form of demand notes payable and were senior to all other outstanding
indebtedness of Acme Boot. These loans were repaid by Acme Boot upon the sale of
its business in the third quarter of 1998.
In June 1998, Acme Boot entered into agreements with unrelated parties for
the sale of certain assets and its business. Financing for the sale of the
business was completed in the third quarter of 1998, at which time the Company
paid $65,900,000 to satisfy the Acme Boot guarantees in full. Other income
(expense) -- net for 1998 in the accompanying Consolidated Statement of
Operations includes income of $6,400,000 from the sale of Acme Boot and the
settlement of this liability. See "CONTINGENT LIABILITIES."
In June 1994, pursuant to authorization from the Company's Board of
Directors, the Company guaranteed a loan from a bank in an amount up to
$12,000,000 to Mr. Farley. In exchange for the guarantee the Company receives an
annual fee from Mr. Farley equal to 1% of the value of the loan covered by the
guarantee. The guarantee is secured by a second lien on certain shares of the
Company held by the bank for other loans made to Mr. Farley.
On November 20, 1997, the Board of Directors, excluding Mr. Farley and other
employee Directors, upon recommendation of a Special Committee of the Board of
Directors, comprised of Messrs. Al Askari and Wolfson, guaranteed a bank loan to
Mr. Farley in the amount of $26,000,000. The proceeds of this loan were used by
Mr. Farley to purchase all of the Zero Coupon Convertible Subordinated
Debentures due 2012 of Farley Inc. held by non-affiliated third parties. In
consideration of the guarantee, Mr. Farley pays the Company an annual guarantee
fee equal to 1 1/8% of the outstanding principal balance of the loan. The loan
is secured by a second lien on 2,507,512 shares of Class B Common Shares of the
Company held by Mr. Farley and the assets held for the benefit of Mr. Farley
under the Company's Senior Executive Officer Deferred Compensation Trust. The
Special Committee received an opinion from an independent
F-62
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RELATED PARTY TRANSACTIONS -- (CONTINUED)
financial advisor that the terms of the transaction are commercially reasonable.
See "CONTINGENT LIABILITIES."
SUBSEQUENT EVENTS
On March 4, 1999, the Company became a subsidiary of Fruit of the Loom, Ltd.
("FTL Ltd."), a Cayman Islands holding company, pursuant to a reorganization
(the "Reorganization") approved by the stockholders of the Company on November
12, 1998. In connection with the Reorganization, all outstanding shares of Class
A Common Stock of the Company were automatically converted into Class A ordinary
shares of FTL, Ltd. ("FTL Ltd. Class A Shares") and all outstanding shares of
Class B Common Stock of the Company were automatically converted into shares of
exchangeable participating preferred stock of the Company ("Company Preferred
Stock"). The holders of the Company Preferred Stock also received, in the
aggregate, four Class B redeemable ordinary shares of FTL, Ltd. ("FTL Ltd. Class
B Shares"). Except as provided by law or FTL Ltd.'s Amended and Restated
Memorandum of Association, the FTL Ltd. Class B Shares, in the aggregate, have
voting rights equal to five times the number of shares of Company Preferred
Stock held by William Farley and his affiliates then outstanding. As of March
22, 1999, the record date for the FTL Ltd. annual meeting, there were 5,229,421
shares of Company Preferred Stock outstanding and 66,851,070 FTL Ltd. Class A
Shares outstanding. Each FTL Ltd. Class B Share had voting rights as of March
22, 1999 equivalent to 6,536,776.3 votes per share. All of the outstanding FTL
Ltd. Class A Shares and FTL Ltd. Class B Shares are entitled to vote at the
meeting. In connection with the Reorganization, the Rights Plan has been amended
and the existing rights expired immediately prior to the Merger. FTL, Ltd. does
not presently intend to adopt a plan similar to the Rights Plan.
In connection with the Reorganization, the Company is required to make an
offer, within 90 days of the consummation of the Merger, to purchase the entire
principal amount equal to $250,000,000 7 7/8% Senior Notes due October 15, 1999
(the "7 7/8% Senior Notes") at a price equal to 101% of the principal amount
thereof plus accrued and unpaid interest. If all holders of the 7 7/8% Senior
Notes accept such a purchase offer, the aggregate purchase price would be
$252,500,000 plus accrued and unpaid interest. On March 25, 1999, the Company
issued $250,000,000 8 7/8% Senior Notes due April 2006 (the "Senior Notes").
Proceeds from the Senior Notes were approximately $242,700,000 and were
initially used to repay outstanding borrowings under the Company's Bank Credit
Agreement. The availability under the Bank Credit Agreement created through this
repayment of outstanding borrowings is expected to be used to satisfy the
Company's repurchase obligations with respect to the 7 7/8% Senior Notes or to
repay the 7 7/8% Senior Notes at maturity.
On February 24, 1999, the Board of Directors, excluding Mr. Farley,
increased the guarantee to $65,000,000 in connection with Mr. Farley's
refinancing and retirement of the $26,000,000 and $12,000,000 loans and other
indebtedness of Mr. Farley. See "RELATED PARTY TRANSACTIONS." The Company's
obligations under the guarantee are secured by 2,507,512 shares of Company
Preferred Stock (issued subsequent to year end in connection with the
Reorganization) and all of Mr. Farley's assets. In consideration of the
guarantee, which is scheduled to expire in September 2000, Mr. Farley pays an
annual guarantee fee equal to 2% of the outstanding principal balance of the
loan. The Board of Directors received an opinion from an independent financial
advisor that the terms of the transaction are commercially reasonable. In
addition, in October 1998, the Company advanced $3,500,000 to Mr. Farley which
was repaid in March 1999.
F-63
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUBSEQUENT EVENTS -- (CONTINUED)
Subsequent to year-end, the Company has held negotiations with the
Industrial Development Agency of the Republic of Ireland. As a result of these
negotiations, the amount of the contingent liability the Company has to repay,
in whole or in part, for grants received has been reduced to approximately
$27,300,000 in the event that the Company does not meet revised defined average
employment levels or terminates operations in the Republic of Ireland, Northern
Ireland and Germany.
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company is offering $250,000,000 in aggregate principal amount of Senior
Notes due 2006. The Notes will be fully and unconditionally guaranteed on a
senior unsecured basis, jointly and severally, by each of the Guarantor
Subsidiaries pursuant to the Subsidiary Guarantees. The Subsidiary Guarantees
will remain in effect only during Non-Investment Grade Rating Periods. The Notes
will be senior unsecured obligations of the Company and will rank PARI PASSU
with all other senior unsecured obligations of the Company. The Subsidiary
Guarantees will be senior unsecured obligations of the Guarantor Subsidiaries
and will rank PARI PASSU with all other senior unsecured obligations of the
Guarantor Subsidiaries. The Notes will also be effectively subordinated to all
liabilities, including trade payables, of the Non-Guarantor Subsidiaries and,
during Investment Grade Rating Periods, will be effectively subordinated to all
liabilities of the Guarantor Subsidiaries, including trade payables.
Substantially all of the Company's operating income and cash flow is
generated by its subsidiaries. As a result, funds necessary to meet the
Company's debt service obligations are provided in part by distributions or
advances from its subsidiaries. Under certain circumstances, contractual and
legal restrictions, as well as the financial condition and operating
requirements of the Company's subsidiaries could limit the Company's ability to
obtain cash from its subsidiaries for the purpose of meeting its debt service
obligations, including the payment of principal and interest on the Notes. There
are currently no significant restrictions on the ability of the Guarantor
Subsidiaries to make distributions to the Company.
The supplemental guarantor condensed consolidating financial statements
present:
1. Supplemental condensed consolidating balance sheets as of January 2,
1999 and December 31, 1997 and supplemental condensed consolidating
statements of operations and cash flows for each of the three years ended
January 2, 1999 and December 31, 1997 and 1996;
2. Fruit of the Loom, Inc. and Guarantor Subsidiaries and the combined
Non-Guarantor Subsidiaries with their investments in subsidiaries accounted
for using the equity method; and
3. Elimination entries necessary to consolidate the Company and all of
its subsidiaries.
Separate financial statements of the Guarantor Subsidiaries are not
presented because the Guarantor Subsidiaries are jointly, severally and
unconditionally liable under the guarantees, and the Company believes the
supplemental guarantor condensed consolidated financial statements as presented
are more meaningful in understanding the financial position of the Company and
its Guarantor Subsidiaries.
F-64
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JANUARY 2, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, ELIMINATIONS
NON-GUARANTOR INC. AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
-------------- --------------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (including
restricted cash)....................... $ 1,800 $ (400) $ $ 1,400
Notes and accounts receivable (less
allowance for possible losses of
$12,000)............................... 65,100 44,600 109,700
Inventories
Finished goods......................... 80,700 420,000 500,700
Work in process........................ 13,700 169,400 183,100
Materials and supplies................. 5,700 52,500 58,200
-------------- ----------- --------------- ------------
Total inventories.................... 100,100 641,900 742,000
Other.................................... 1,500 39,600 41,100
-------------- ----------- --------------- ------------
Total current assets................. 168,500 725,700 894,200
-------------- ----------- --------------- ------------
Property, Plant and Equipment.............. 203,800 988,300 1,192,100
Less accumulated depreciation............ 82,100 676,100 758,200
-------------- ----------- --------------- ------------
Net property, plant and equipment.... 121,700 312,200 433,900
-------------- ----------- --------------- ------------
Other Assets
Goodwill (less accumulated amortization
of $336,200)........................... -- 686,300 686,300
Affiliate notes and accounts receivable.. 32,700 -- (32,700) --
Investment in subsidiaries............... -- 230,300 (230,300) --
Deferred income taxes.................... -- 36,700 36,700
Other.................................... 2,800 235,900 238,700
-------------- ----------- --------------- ------------
Total other assets................... 35,500 1,189,200 (263,000) 961,700
-------------- ----------- --------------- ------------
$ 325,700 $ 2,227,100 $ (263,000) $2,289,800
-------------- ----------- --------------- ------------
-------------- ----------- --------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt..... $ 600 $ 269,900 $ $ 270,500
Trade accounts payable................... 11,400 108,300 119,700
Other accounts payable and accrued
expenses............................... 26,200 200,500 226,700
-------------- ----------- --------------- ------------
Total current liabilities............ 38,200 578,700 616,900
-------------- ----------- --------------- ------------
Noncurrent Liabilities
Long-term debt........................... 57,100 799,500 856,600
Affiliate notes and accounts payable..... -- 32,700 (32,700) --
Other.................................... 100 267,300 267,400
-------------- ----------- --------------- ------------
Total noncurrent liabilities......... 57,200 1,099,500 (32,700) 1,124,000
-------------- ----------- --------------- ------------
Common Stockholders' Equity................ 230,300 548,900 (230,300) 548,900
-------------- ----------- --------------- ------------
$ 325,700 $ 2,227,100 $ (263,000) $2,289,800
-------------- ----------- --------------- ------------
-------------- ----------- --------------- ------------
</TABLE>
F-65
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF OPERATIONS
YEAR ENDED JANUARY 2, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, ELIMINATIONS
NON-GUARANTOR INC. AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
-------------- --------------------- --------------- ------------
<S> <C> <C> <C> <C>
Net sales.................................. $ 334,500 $ 1,876,400 $ (40,600) $2,170,300
Cost of sales.............................. 240,900 1,364,500 (40,600) 1,564,800
-------------- ----------- --------------- ------------
Gross earnings....................... 93,600 511,900 605,500
Selling, general and administrative
expenses................................. 61,700 282,300 344,000
Goodwill amortization...................... -- 26,600 26,600
-------------- ----------- --------------- ------------
Operating earnings................... 31,900 203,000 234,900
Interest expense........................... (9,300) (89,700) 1,700 (97,300)
Affiliated interest income (expense)....... (1,000) 1,000 --
Equity in earnings of Non-Guarantor
Subsidiaries............................. -- 3,600 (3,600) --
Other income (expense) -- net.............. (16,800) 23,900 (1,700) 5,400
-------------- ----------- --------------- ------------
Earnings before income tax
provision.......................... 4,800 141,800 (3,600) 143,000
Income tax provision....................... 1,200 5,900 7,100
-------------- ----------- --------------- ------------
Net earnings......................... $ 3,600 $ 135,900 $ (3,600) $ 135,900
-------------- ----------- --------------- ------------
-------------- ----------- --------------- ------------
</TABLE>
F-66
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF CASH FLOWS
YEAR ENDED JANUARY 2, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FRUIT OF THE LOOM,
COMBINED INC. ELIMINATIONS
NON-GUARANTOR AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
-------------- --------------------- --------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings......................................... $ 3,600 $ 135,900 $ (3,600) $ 135,900
Adjustments to reconcile to net cash provided by
(used for) operating activities:
Equity in loss of Non-Guarantor Subsidiaries....... -- (3,600) 3,600 --
Depreciation and amortization...................... 11,700 99,600 111,300
Deferred income tax provision...................... 200 (6,300) (6,100)
(Increase) decrease in working capital............. (16,100) 6,300 (9,800)
Other -- net....................................... (4,000) (95,400) (99,400)
-------------- ---------- --------------- ------------
Net cash provided by (used for) operating
activities..................................... (4,600) 136,500 131,900
-------------- ---------- --------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................. (7,700) (34,200) (41,900)
Proceeds from asset sales............................ -- 86,400 86,400
Payment on Acme Boot debt guarantee.................. -- (65,900) (65,900)
Affiliate notes and accounts receivable.............. (32,700) 48,600 (15,900) --
Investment in Non-Guarantor Subsidiary Common
Stock.............................................. -- (299,000) 299,000 --
Liquidation of investment in affiliated trust........ -- 100,800 (100,800) --
Other -- net......................................... -- (28,000) (28,000)
-------------- ---------- --------------- ------------
Net cash provided by (used for) investing
activities..................................... (40,400) (191,300) 182,300 (49,400)
-------------- ---------- --------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds under line-of-credit agreements............. 22,500 851,500 874,000
Payments under line-of-credit agreements............. (18,800) (817,400) (836,200)
Principal payments on long-term debt and capital
leases............................................. (211,900) (27,700) 100,800 (138,800)
Affiliate notes and accounts payable................. (48,600) 32,700 15,900 --
Non-Guarantor Subsidiary common stock issued to
parent............................................. 299,000 -- (299,000) --
Common stock issued.................................. -- 6,800 6,800
Common stock repurchased............................. -- (3,000) (3,000)
-------------- ---------- --------------- ------------
Net cash provided by (used for) financing
activities..................................... 42,200 42,900 (182,300) (97,200)
-------------- ---------- --------------- ------------
Net increase (decrease) in cash and cash equivalents
(including restricted cash).......................... (2,800) (11,900) (14,700)
Cash and cash equivalents (including restricted cash)
at beginning of period............................... 4,600 11,500 16,100
-------------- ---------- --------------- ------------
Cash and cash equivalents (including restricted cash)
at end of period..................................... $ 1,800 $ (400) $ $ 1,400
-------------- ---------- --------------- ------------
-------------- ---------- --------------- ------------
</TABLE>
F-67
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, ELIMINATIONS
NON-GUARANTOR INC. AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
-------------- --------------------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (including
restricted cash)....................... $ 4,600 $ 11,500 $ $ 16,100
Notes and accounts receivable (less
allowance for possible losses of
$11,900)............................... 66,000 32,100 98,100
Inventories
Finished goods......................... 77,500 492,900 570,400
Work in process........................ 17,100 195,200 212,300
Materials and supplies................. 5,800 59,000 64,800
-------------- ----------- --------------- ------------
Total inventories.................... 100,400 747,100 847,500
Other.................................... 1,800 52,100 53,900
-------------- ----------- --------------- ------------
Total current assets................. 172,800 842,800 1,015,600
-------------- ----------- --------------- ------------
Property, Plant and Equipment.............. 186,000 1,046,200 1,232,200
Less accumulated depreciation............ 65,500 652,300 717,800
-------------- ----------- --------------- ------------
Net property, plant and equipment.... 120,500 393,900 514,400
-------------- ----------- --------------- ------------
Other Assets
Goodwill (less accumulated amortization
of $311,400)........................... -- 712,900 712,900
Affiliate notes and accounts
receivable............................. -- 48,600 $ (48,600) --
Deferred income taxes.................... 100 30,200 30,300
Other.................................... 2,900 307,800 (100,800) 209,900
-------------- ----------- --------------- ------------
Total other assets................... 3,000 1,099,500 (149,400) 953,100
-------------- ----------- --------------- ------------
$ 296,300 $ 2,336,200 $ (149,400) $2,483,100
-------------- ----------- --------------- ------------
-------------- ----------- --------------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt..... $ 500 $ 27,700 $ $ 28,200
Trade accounts payable................... 18,400 215,700 234,100
Other accounts payable and accrued
expenses............................... 36,700 226,200 262,900
-------------- ----------- --------------- ------------
Total current liabilities............ 55,600 469,600 525,200
-------------- ----------- --------------- ------------
Noncurrent Liabilities
Long-term debt........................... 261,500 1,032,100 (100,800) 1,192,800
Affiliate notes and accounts payable..... 48,600 -- (48,600) --
Losses in excess of investment in
subsidiaries........................... -- 69,400 (69,400) --
Other.................................... -- 343,000 343,000
-------------- ----------- --------------- ------------
Total noncurrent liabilities......... 310,100 1,444,500 (218,800) 1,535,800
-------------- ----------- --------------- ------------
Common Stockholders' Equity
(Deficiency)............................. (69,400) 422,100 69,400 422,100
-------------- ----------- --------------- ------------
$ 296,300 $ 2,336,200 $ (149,400) $2,483,100
-------------- ----------- --------------- ------------
-------------- ----------- --------------- ------------
</TABLE>
F-68
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, ELIMINATIONS
NON-GUARANTOR INC. AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
-------------- --------------------- --------------- ------------
<S> <C> <C> <C> <C>
Net sales.................................. $ 329,900 $ 1,858,200 $ (48,200) $2,139,900
Cost of sales.............................. 279,100 1,413,500 (48,200) 1,644,400
-------------- ----------- --------------- ------------
Gross earnings....................... 50,800 444,700 495,500
Selling, general and administrative
expenses................................. 72,900 678,900 751,800
Goodwill amortization...................... -- 26,800 26,800
Impairment write down of goodwill.......... -- 4,600 4,600
-------------- ----------- --------------- ------------
Operating loss....................... (22,100) (265,600) (287,700)
Interest expense........................... (19,300) (71,800) 6,400 (84,700)
Affiliated interest income (expense)....... (1,100) 1,100 --
Equity in loss of Non-Guarantor
Subsidiaries............................. -- (42,200) 42,200 --
Other expense -- net....................... (1,900) (71,000) (6,400) (79,300)
-------------- ----------- --------------- ------------
Loss before income tax benefit....... (44,400) (449,500) 42,200 (451,700)
Income tax benefit......................... (2,200) (64,100) (66,300)
-------------- ----------- --------------- ------------
Loss from continuing operations...... (42,200) (385,400) 42,200 (385,400)
Discontinued operations -- LMP
litigation......................... -- (102,200) (102,200)
-------------- ----------- --------------- ------------
Net loss............................. $ (42,200) $ (487,600) $ 42,200 $ (487,600)
-------------- ----------- --------------- ------------
-------------- ----------- --------------- ------------
</TABLE>
F-69
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FRUIT OF THE LOOM,
COMBINED INC. ELIMINATIONS
NON-GUARANTOR AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
-------------- --------------------- --------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................................. $ (42,200) $ (487,600) $ 42,200 $ (487,600)
Adjustments to reconcile to net cash provided by
(used for) operating activities:
Equity in loss of Non-Guarantor Subsidiaries....... -- 42,200 (42,200) --
Impairment write-down of goodwill.................. -- 4,600 4,600
Depreciation and amortization...................... 12,200 142,000 154,200
Deferred income tax benefit........................ (200) (64,400) (64,600)
(Increase) decrease in working capital............. (4,500) 99,000 94,500
Special charges related to long-term items......... 60,300 201,000 261,300
Acme Boot charge................................... -- 32,000 32,000
Other -- net....................................... (19,800) (69,500) (89,300)
-------------- ---------- --------------- ------------
Net cash provided by (used for) operating
activities..................................... 5,800 (100,700) (94,900)
-------------- ---------- --------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................. (3,900) (51,500) (55,400)
Affiliate notes and accounts receivable.............. -- (7,500) 7,500 --
Other -- net......................................... 4,600 (38,500) (33,900)
-------------- ---------- --------------- ------------
Net cash provided by (used for) investing
activities..................................... 700 (97,500) 7,500 (89,300)
-------------- ---------- --------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt............. -- 97,800 97,800
Proceeds under line-of-credit agreements............. 1,600 1,244,200 1,245,800
Payments under line-of-credit agreements............. (13,700) (968,200) (981,900)
Principal payments on long-term debt and capital
leases............................................. (200) (17,400) (17,600)
Affiliate notes and accounts payable................. 7,500 -- (7,500) --
Common stock issued.................................. -- 11,100 11,100
Common stock repurchased............................. -- (173,600) (173,600)
-------------- ---------- --------------- ------------
Net cash provided by (used for) financing
activities..................................... (4,800) 193,900 (7,500) 181,600
-------------- ---------- --------------- ------------
Net increase (decrease) in cash and cash equivalents
(including restricted cash).......................... 1,700 (4,300) (2,600)
Cash and cash equivalents (including restricted cash)
at beginning of period............................... 2,900 15,800 18,700
-------------- ---------- --------------- ------------
Cash and cash equivalents (including restricted cash)
at end of period..................................... $ 4,600 $ 11,500 $ $ 16,100
-------------- ---------- --------------- ------------
-------------- ---------- --------------- ------------
</TABLE>
F-70
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONCLUDED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FRUIT OF THE LOOM,
COMBINED INC. ELIMINATIONS
NON-GUARANTOR AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
-------------- --------------------- --------------- ------------
<S> <C> <C> <C> <C>
Net sales.................................. $ 343,600 $ 2,156,800 $ (53,000) $2,447,400
Cost of sales.............................. 242,000 1,535,500 (53,000) 1,724,500
-------------- ----------- --------------- ------------
Gross earnings........................... 101,600 621,300 722,900
Selling, general and administrative
expenses................................. 72,700 305,300 378,000
Goodwill amortization...................... -- 26,700 26,700
-------------- ----------- --------------- ------------
Operating earnings....................... 28,900 289,300 318,200
Interest expense........................... (26,500) (83,100) 6,000 (103,600)
Affiliated interest income (expense)....... (1,000) 1,000 --
Equity in earnings of Non-Guarantor
Subsidiaries............................. -- 1,500 (1,500) --
Other income (expense) -- net.............. 200 (30,600) (6,000) (36,400)
-------------- ----------- --------------- ------------
Earnings before income tax expense....... 1,600 178,100 (1,500) 178,200
Income tax expense......................... 100 31,500 31,600
-------------- ----------- --------------- ------------
Net earnings............................. $ 1,500 $ 146,600 $ (1,500) $ 146,600
-------------- ----------- --------------- ------------
-------------- ----------- --------------- ------------
</TABLE>
F-71
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONCLUDED)
SUPPLEMENTAL CONDENSED CONSOLIDATING SUMMARY OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
COMBINED FRUIT OF THE LOOM, ELIMINATIONS
NON-GUARANTOR INC. AND GUARANTOR AND
SUBSIDIARIES SUBSIDIARIES RECLASSIFICATIONS CONSOLIDATED
-------------- --------------------- --------------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings............................. $ 1,500 $ 146,600 $ (1,500) $ 146,600
Adjustments to reconcile to net cash
provided by operating activities:
Equity in earnings of Non-Guarantor
Subsidiaries......................... -- (1,500) 1,500 --
Depreciation and amortization.......... 14,900 140,800 155,700
Deferred income tax expense............ 300 22,900 23,200
(Increase) decrease in working
capital.............................. (23,500) 221,500 198,000
Acme boot charge....................... -- 35,000 35,000
Other -- net........................... 23,600 (68,400) (44,800)
-------------- ---------- ------- ------------
Net cash used for operating
activities......................... 16,800 496,900 513,700
-------------- ---------- ------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..................... (3,600) (40,900) (44,500)
Proceeds from sale of hosiery division... -- 73,800 73,800
Affiliate notes and accounts receivable.. -- (9,200) 9,200 --
Other -- net............................. 600 1,400 2,000
-------------- ---------- ------- ------------
Net cash provided by investing
activities......................... (3,000) 25,100 9,200 31,300
-------------- ---------- ------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term
debt................................... 63,000 -- 63,000
Proceeds under line-of-credit
agreements............................. 24,500 464,000 488,500
Payments under line of credit
agreements............................. (49,800) (929,800) (979,600)
Principal payments on long-term debt and
capital leases......................... (65,800) (59,700) (125,500)
Affiliate notes and accounts payable..... 9,200 -- (9,200) --
Common stock issued...................... -- 17,400 17,400
Common stock repurchased................. -- (16,600) (16,600)
-------------- ---------- ------- ------------
Net cash used for financing
activities......................... (18,900) (524,700) (9,200) (552,800)
-------------- ---------- ------- ------------
Net decrease in Cash and cash equivalents
(including restricted cash).............. (5,100) (2,700) (7,800)
Cash and cash equivalents (including
restricted cash) at beginning of
period................................... 8,000 18,500 26,500
-------------- ---------- ------- ------------
Cash and cash equivalents (including
restricted cash) at end of period........ $ 2,900 $ 15,800 $ $ 18,700
-------------- ---------- ------- ------------
-------------- ---------- ------- ------------
</TABLE>
F-72
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
APRIL 3,
1999 JANUARY 2,
(UNAUDITED) 1999
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents (including restricted cash)............................... $ 20,400 $ 1,400
Notes and accounts receivable (less allowance for possible losses of $10,000 and
$12,000, respectively)............................................................ 107,100 109,700
Inventories
Finished goods.................................................................... 533,900 500,700
Work in process................................................................... 209,800 183,100
Materials and supplies............................................................ 73,800 58,200
------------ ------------
Total inventories............................................................... 817,500 742,000
Other............................................................................... 52,200 41,100
------------ ------------
Total current assets............................................................ 997,200 894,200
------------ ------------
Property, Plant and Equipment......................................................... 1,260,100 1,192,100
Less accumulated depreciation....................................................... 766,600 758,200
------------ ------------
Net property, plant and equipment............................................... 493,500 433,900
------------ ------------
Other Assets
Goodwill (less accumulated amortization of $342,800 and $336,200, respectively)..... 679,600 686,300
Deferred income taxes............................................................... 35,000 36,700
Other............................................................................... 168,900 238,700
------------ ------------
Total other assets.............................................................. 883,500 961,700
------------ ------------
$ 2,374,200 $ 2,289,800
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt................................................ $ 270,500 $ 270,500
Trade accounts payable.............................................................. 66,800 119,700
Other accounts payable and accrued expenses......................................... 261,500 226,700
------------ ------------
Total current liabilities....................................................... 598,800 616,900
------------ ------------
Noncurrent Liabilities
Long-term debt...................................................................... 979,000 856,600
Other............................................................................... 267,500 267,400
------------ ------------
Total noncurrent liabilities.................................................... 1,246,500 1,124,000
------------ ------------
Minority Interest..................................................................... 71,700 --
------------ ------------
Common Stockholders' Equity........................................................... 457,200 548,900
------------ ------------
$ 2,374,200 $ 2,289,800
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-73
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
<S> <C> <C>
APRIL 3, MARCH 28,
1999 1998
---------- ----------
Net sales................................................................................. $ 408,700 $ 457,200
Cost of sales............................................................................. 314,300 309,500
---------- ----------
Gross earnings.......................................................................... 94,400 147,700
Selling, general and administrative expenses.............................................. 80,900 83,100
Goodwill amortization..................................................................... 6,600 6,600
---------- ----------
Operating earnings...................................................................... 6,900 58,000
Interest expense.......................................................................... (21,600) (24,700)
Other income -- net....................................................................... 5,500 4,300
---------- ----------
Earnings (loss) before income tax provision............................................... (9,200) 37,600
Income tax provision...................................................................... (500) 6,400
Minority interest......................................................................... 300 --
---------- ----------
Net earnings (loss)..................................................................... $ (9,000) $ 31,200
---------- ----------
---------- ----------
Earnings (loss) per common share.......................................................... $ (0.13) $ .43
---------- ----------
---------- ----------
Earnings (loss) per common share-assuming dilution........................................ $ (0.13) $ .43
---------- ----------
---------- ----------
Average common shares..................................................................... 70,400 71,800
---------- ----------
---------- ----------
Average common shares-assuming dilution................................................... 70,400 72,300
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-74
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
AND CAPITAL IN OTHER
COMMON EXCESS OF RETAINED COMPREHENSIVE
SHARES PAR VALUE EARNINGS INCOME TOTAL
----------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997.................... 71,901 $ 319,000 $ 140,700 $ (37,600) $ 422,100
----------
Class A shares issued upon exercise of
options..................................... 62 1,700 1,700
----------
Restricted stock -- Compensation earned....... 400 400
----------
Class A shares repurchased.................... (121) (3,000) (3,000)
----------
Net earnings.................................. 31,200 31,200
Foreign currency translation Adjustments --
net......................................... (11,900) (11,900)
----------
Comprehensive earnings........................ 19,300
----------- -------------- ---------- -------------- ----------
BALANCE, MARCH 28, 1998....................... 71,842 $ 318,100 $ 171,900 $ (49,500) $ 440,500
----------- -------------- ---------- -------------- ----------
----------- -------------- ---------- -------------- ----------
BALANCE, JANUARY 2, 1999...................... 72,150 $ 326,700 $ 276,600 $ (54,400) $ 548,900
----------
Restricted stock --
Compensation earned......................... 500 500
----------
Shares forfeited............................ (16)
Fruit of the Loom, Inc. Class B shares
exchanged for Fruit of the Loom, Inc.
preferred stock............................. (5,229) (71,700) (71,700)
----------
Net loss...................................... (9,000) (9,000)
Foreign currency translation adjustments --
net......................................... (11,500) (11,500)
----------
Comprehensive loss............................ (20,500)
----------- -------------- ---------- -------------- ----------
BALANCE, APRIL 3, 1999........................ 66,905 $ 255,500 $ 267,600 $ (65,900) $ 457,200
----------- -------------- ---------- -------------- ----------
----------- -------------- ---------- -------------- ----------
</TABLE>
See accompanying notes.
F-75
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
APRIL 3, MARCH 28,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings (loss)................................................................... $ (9,000) $ 31,200
Adjustments to reconcile to net cash used for operating activities:
Depreciation and amortization....................................................... 30,800 32,000
Deferred income tax provision....................................................... 1,700 (100)
Increase in working capital......................................................... (77,700) (231,300)
Other -- net........................................................................ (21,400) (23,300)
----------- -----------
Net cash used for operating activities............................................ (75,600) (191,500)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................................................. (6,700) (6,400)
Proceeds from asset sales............................................................. 5,700 21,600
Other -- net.......................................................................... (21,200) (1,200)
----------- -----------
Net cash provided by (used for) investing activities.............................. (22,200) 14,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.............................................. 239,700 --
Proceeds under line-of-credit agreements.............................................. 189,700 284,100
Payments under line-of-credit agreements.............................................. (302,500) (96,400)
Principal payments on long-term debt and capital leases............................... (10,100) (8,400)
Common stock issued................................................................... -- 1,400
Common stock repurchased.............................................................. -- (3,000)
----------- -----------
Net cash provided by financing activities......................................... 116,800 177,700
----------- -----------
Net increase in Cash and cash equivalents (including restricted cash)................... 19,000 200
Cash and cash equivalents (including restricted cash) at beginning of period............ 1,400 16,100
----------- -----------
Cash and cash equivalents (including restricted cash) at end of period.................. $ 20,400 $ 16,300
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-76
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. On March 4, 1999 Fruit of the Loom, LTD. ("FTL, Ltd."), a Cayman Islands
company, became the parent holding company of Fruit of the Loom, Inc. ("FTL,
Inc.") pursuant to a reorganization (the "Reorganization") approved by the
stockholders of FTL, Inc. on November 12, 1998. Hereinafter the "Company"
refers to the operations of FTL, Inc. and subsidiaries through March 3, 1999
and the operations of FTL, Ltd. and subsidiaries from March 4, 1999.
Hereinafter FTL, Inc. refers to the domestic subsidiary that owned all of
the Company's operations as of April 3, 1999. Ownership of essentially all
of the businesses or subsidiaries of the Company located outside the United
States, other than certain interests of the Company in Canada and Mexico and
the beneficial ownership of certain trademarks, will be transferred from
FTL, Inc. to FTL, Ltd. when the Reorganization is fully implemented.
The condensed consolidated financial statements contained herein should be
read in conjunction with the consolidated financial statements and related
notes of the Company contained in FTL, Inc.'s Annual Report on Form 10-K for
the year ended January 2, 1999. The information furnished herein reflects
all adjustments (consisting of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the results
of operations of the interim periods. Operating results for the three months
ended April 3, 1999 are not necessarily indicative of results that may be
expected for the full year. The Condensed Consolidated Balance Sheet as of
January 2, 1999, and the unaudited condensed consolidated statements of
operations, common stockholders' equity and cash flows for the three months
ended March 28, 1998 are consolidated statements of FTL, Inc.
In connection with the Reorganization, all outstanding shares of Class A
common stock of FTL, Inc. were automatically converted into Class A ordinary
shares of FTL, Ltd., and all outstanding shares of Class B common stock of
FTL, Inc. were automatically converted into shares of exchangeable
participating preferred stock of FTL, Inc. (the "FTL, Inc. Preferred
Stock"). The holders of the FTL, Inc. Preferred Stock also received, in the
aggregate, four Class B redeemable ordinary shares of FTL, Ltd. Except as
provided by law or FTL Ltd.'s Amended and Restated Memorandum of
Association, the FTL Ltd. Class B shares, in the aggregate, have voting
rights equal to five times the number of shares of FTL, Inc. Preferred Stock
held by William Farley and his affiliates. Therefore, each FTL Ltd. Class B
share has voting rights equivalent to 6,536,776.3 votes.
The FTL, Inc. Preferred Stock (5,229,000 shares outstanding) in the
aggregate (i) has a liquidation value of $71,700,000, which is equal to the
fair market value of the FTL, Inc. Class B common stock based upon the
$13.71 average closing price of FTL, Inc. Class A common stock on the New
York Stock Exchange for the 20 trading days prior to March 4, 1999, (ii) is
entitled to receive cumulative cash dividends of 4.5% per annum of the
liquidation value, payable quarterly, (iii) is exchangeable at the option of
the holder, in whole or from time to time in part, at any time for 4,981,000
FTL, Ltd. Class A ordinary shares, (iv) is convertible at the option of the
holder, in whole or from time to time in part, at any time for 4,981,000
shares of FTL, Inc. common stock, (v) participates with the holders of FTL,
Inc. common stock in all dividends and liquidation payments in addition to
its preference payments on an as converted basis, (vi) is redeemable by FTL,
Inc., at its option, after three years at a redemption price equal to the
then fair market value of FTL, Inc. Preferred Stock as determined by a
nationally recognized investment banking firm, and (vii) has the right to
vote on all matters put to a vote of the holders of FTL, Inc. common stock,
voting together with such holders as a single class, and is entitled to the
number of votes which such holder would have on an as converted basis. The
minority interest in the Company is based on the liquidation preference of
$71,700,000.
F-77
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The fixed dividend on the FTL, Inc. Preferred Stock of 4.5% of the
liquidation preference of $71,700,000 equals $3,200,000 on an annual basis.
In addition, preferred stockholders participate in FTL, Inc.'s earnings
after provision for the fixed preferred stock dividend. Participation in
earnings is determined as the ratio of preferred shares outstanding to the
total of preferred and common shares outstanding (7.2% at April 3, 1999).
Preferred stockholder participation in losses is limited to the preferred
stockholders' prior participation in earnings. Because FTL, Inc. had a loss
in the three months ended April 3, 1999, the minority interest participation
is limited to the fixed preferred dividend of $300,000 for the period.
Effective January 1, 1998, the Company changed its year end from December 31
to a 52 or 53 week year ending on the Saturday nearest December 31. All
quarterly reporting periods are prepared on a 4-4-5 accounting cycle with
each quarter ending on the Saturday nearest the calendar quarter end.
2. No dividends were declared on the Company's common stock for the three-month
periods ended April 3, 1999 and March 28, 1998.
3. The Company's effective income tax rate of 5.0% for the first three months
of 1999 differed from the Federal statutory rate of 35% primarily due to the
impact of foreign earnings, certain of which are taxed at lower rates than
in the United States, partially offset by goodwill amortization, a portion
of which is not deductible for Federal income taxes, and a provision for
interest on prior years' taxes.
The Company's effective income tax rate of 17% for the first three months of
1998 differed from the Federal statutory rate of 35% primarily due to the
impact of foreign earnings, certain of which are taxed at lower rates than
in the United States, partially offset by goodwill amortization, a portion
of which is not deductible for Federal income taxes, and state income taxes.
4. In 1995, management announced plans to close certain manufacturing
operations and to take other actions to reduce costs and improve operations.
As a result, the Company recorded charges of approximately $372,900,000
($287,400,000 after tax) related to impairment write-downs of goodwill,
costs associated with the closing or realignment of certain domestic
manufacturing facilities and attendant personnel reductions and charges
related to inventory write-downs and valuations, foreign operations and
other corporate issues.
F-78
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
A rollforward of the 1995 special charges from January 2, 1999 through April
3, 1999 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE BALANCE
JANUARY 2, CASH INCOME OTHER APRIL 3,
1999 PAYMENTS (EXPENSE) ACTIVITY 1999
----------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Impairment write down of goodwill................ $ -- $ -- $ -- $ -- $ --
Closing or realignment of manufacturing
operations
Loss on disposal of closed facilities,
improvements and equipment................... -- -- -- -- --
Changes in estimates of insurance
liabilities.................................. 9,500 2,300 -- -- 7,200
Costs related to expected increases in workers'
compensation and health and welfare costs.... -- -- -- -- --
Costs related to termination of certain lease
obligations.................................. -- -- -- -- --
Costs related to severance of the hourly
workforce.................................... -- -- -- -- --
Other.......................................... 200 -- -- -- 200
----------- ----------- --- --- ---------
9,700 2,300 -- -- 7,400
Severance........................................ -- -- -- -- --
Other asset write downs, valuation reserves and
other reserves................................. -- -- -- -- --
Changes in estimates of certain retained
liabilities of former subsidiaries............. 10,500 3,500 -- -- 7,000
Termination of management agreement.............. -- -- -- -- --
----------- ----------- --- --- ---------
$ 20,200 $ 5,800 $ -- $ -- $ 14,400
----------- ----------- --- --- ---------
----------- ----------- --- --- ---------
</TABLE>
In the fourth quarter of 1997, the Company recorded charges for costs
related to the closing and disposal of a number of domestic manufacturing
and distribution facilities, impairment of manufacturing equipment and other
assets and certain European manufacturing and distribution facilities, and
other costs associated with the Company's world-wide restructuring of
manufacturing and distribution facilities. These and other special charges
totalled $441,700,000 ($372,200,000 after tax).
F-79
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
A rollforward of the 1997 special charges from January 2, 1999 through April
3, 1999 is presented below (in thousands of dollars):
<TABLE>
<CAPTION>
RESERVE RESERVE
BALANCE BALANCE
JANUARY 2, CASH INCOME OTHER APRIL 3,
1999 PAYMENTS (EXPENSE) ACTIVITY 1999
---------- ----------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Closing and disposal of U.S. manufacturing and
distribution facilities
Loss on sale of facilities, improvements and
equipment:
Sewing, finishing and distribution
facilities............................... $ 60,100 $ -- $ -- $ -- $ 60,100
Impairment of mills to be sold............. 75,400 -- -- -- 75,400
Lease residual guarantees.................. 61,000 8,400 -- -- 52,600
Other equipment............................ 6,200 -- -- -- 6,200
---------- ----------- --- --------- ----------
202,700 8,400 -- -- 194,300
Severance costs................................ 200 -- -- -- 200
Other accruals................................. 2,400 -- -- -- 2,400
---------- ----------- --- --------- ----------
205,300 8,400 -- -- 196,900
---------- ----------- --- --------- ----------
Impairment of European manufacturing and
distribution facilities
Impairment of long lived assets.............. -- -- -- -- --
Other accruals............................... 1,100 -- -- 100 1,000
---------- ----------- --- --------- ----------
1,100 -- -- 100 1,000
---------- ----------- --- --------- ----------
Pro Player incentive compensation agreement.... -- -- -- -- --
---------- ----------- --- --------- ----------
Other asset write-downs and reserves
Inventory valuation provisions............... -- -- -- -- --
Other accruals............................... 11,300 200 -- 1,800 9,300
---------- ----------- --- --------- ----------
11,300 200 -- 1,800 9,300
---------- ----------- --- --------- ----------
Changes in estimates of certain retained
liabilities of former subsidiaries........... 10,600 -- -- -- 10,600
---------- ----------- --- --------- ----------
Total pretax charges..................... $ 228,300 $ 8,600 $ -- $ 1,900 $ 217,800
---------- ----------- --- --------- ----------
---------- ----------- --- --------- ----------
</TABLE>
During the first quarter of 1998, the Company sold certain inventory which
had been written down as part of the 1997 special charges. Amounts received
for the inventory sold were in excess of amounts estimated, resulting in
reductions in cost of sales and increases to earnings before income tax
expense of $4,900,000 in the first quarter of 1998.
5. The Company and its subsidiaries are involved in certain legal proceedings
and have retained liabilities, including certain environmental liabilities,
such as those under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), its regulations
F-80
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
and similar state statutes ("Superfund Legislation"), in connection with the
sale of certain discontinued operations, some of which were significant
generators of hazardous waste. The Company and its subsidiaries have also
retained certain liabilities related to the sale of products in connection
with the sale of certain discontinued operations. The Company's retained
liability reserves at April 3, 1999 related to discontinued operations
consist primarily of certain environmental reserves of approximately
$30,900,000 and product liability reserves of approximately $4,000,000.
During 1998, the Company purchased insurance coverage for potential cleanup
cost expenditures from approximately the level of current environmental
reserves up to $100,000,000 for certain sites with on-going remediation,
pollution liability coverage for claims arising out of pollution conditions
at owned locations including continuing operations, sold facilities and
non-owned sites and product liability coverage for claims arising out of
products manufactured by the sold operations. Management believes that
adequate reserves have been established to cover potential claims based on
facts currently available and current Superfund and CERCLA Legislation.
Generators of hazardous wastes which were disposed of at offsite locations
which are now superfund sites are subject to claims brought by state and
Federal regulatory agencies under Superfund Legislation and by private
citizens under Superfund Legislation and common law theories. Since 1982,
the United States Environmental Protection Agency (the "EPA") has actively
sought compensation for response costs and remedial action at offsite
disposal locations from waste generators under the Superfund Legislation,
which authorizes such action by the EPA regardless of fault, legality of
original disposal or ownership of a disposal site. The EPA's activities
under the Superfund Legislation can be expected to continue during the
remainder of 1999 and future years.
On February 24, 1999, the Board of Directors, excluding Mr. Farley,
authorized the Company to guarantee a bank loan of $65,000,000 to Mr. Farley
in connection with Mr. Farley's refinancing and retirement of his
$26,000,000 and $12,000,000 loans previously guaranteed by the Company and
other indebtedness of Mr. Farley. The Company's obligations under the
guarantee are secured by 2,507,512 shares of FTL, Inc. Preferred Stock and
all of Mr. Farley's assets. In consideration of the guarantee, which is
scheduled to expire in September 2000, Mr. Farley pays an annual guarantee
fee equal to 2% of the outstanding principal balance of the loan. The Board
of Directors received an opinion from an independent financial advisor that
the terms of the transaction are commercially reasonable. In addition, in
October 1998, the Company advanced $3,500,000 to Mr. Farley which was repaid
in March 1999.
The Company has negotiated grants from the governments of the Republic of
Ireland, Northern Ireland and Germany. The grants are being used for
employee training, the acquisition of property and equipment and other
governmental business incentives such as general employment. At April 3,
1999, the Company had a contingent liability to repay, in whole or in part,
grants received of approximately $28,200,000 in the event that the Company
does not meet defined average employment levels or terminates operations in
the Republic of Ireland, Northern Ireland and Germany.
On July 1, 1998, the New England Health Care Employees Pension Fund filed a
purported class action on behalf of all those who purchased Fruit of the
Loom, Inc. Class A Common Stock and publicly traded options between July 24,
1996 and September 5, 1997 (the "Class Period") against the Company and
William Farley, Bernhard Hansen, Richard C. Lappin, G. William Newton,
Burgess D. Ridge, Larry K. Switzer and John D. Wigodsky, each of whom are
current or former officers of the Company, in the United States District
Court for the Western District of Kentucky ("New England Action"). The
plaintiff claims that the defendants engaged in conduct violating Section
10(b) of the
F-81
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Securities Exchange Act of 1934, as amended (the "Act"), and that the
Company and Mr. Farley are also liable under Section 20(a) of the Act.
According to the plaintiff, the Company, with the knowledge and assistance
of the individual defendants, made certain material misrepresentations and
failed to disclose certain material facts about the Company's condition and
prospects during the Class Period, causing the plaintiff and the class to
buy Company stock or options at artificially inflated prices. The plaintiff
also alleges that during the Class Period, the individual defendants sold
stock of the Company while possessing material non-public information. The
plaintiff asks for unspecified amounts as damages, interest and costs and
ancillary relief. The defendants filed a motion to dismiss the action, which
is fully briefed and awaiting court action. The defendants filed a motion to
change venue from Bowling Green, Kentucky, and such motion is not yet fully
briefed.
Management believes that the suit is without merit, and management and the
Company intend to defend it vigorously. Management believes, based on
information currently available, that the ultimate resolution of this
litigation will not have a material adverse effect on the financial
condition or results of the operations of the Company, but the ultimate
resolution of the suit, if unfavorable, could be material to the results of
operations of a particular future period.
On August 26, 1998, Carol Bradley filed a purported derivative action on
behalf of the Company, against William Farley, Richard C. Lappin, Omar Z. Al
Askari, Dennis S. Bookshester, Henry A. Johnson, Mark H. McCormack, Larry K.
Switzer, A. Lorne Weil and Sir Brian Wolfson, each of whom is a current or
former director of the Company, and the Company, as a nominal defendant, in
the Warren Circuit Court of the State of Kentucky. The plaintiff asserts
various common law claims against the individual defendants including, inter
alia, breach of fiduciary duty, waste of corporate assets, breach of
contract and constructive fraud claims. The plaintiff also asserts an
insider trading claim against defendants Farley, Lappin and Switzer. The
claims asserted against the individual defendants are based on the same
alleged misrepresentations and omissions which form the basis of the claims
asserted by the plaintiff in the New England Action as described above. The
plaintiff seeks unspecified compensatory and punitive damages, attorneys'
fees and costs and ancillary relief.
On September 18, 1998, defendant Farley, with the consent of the Company,
removed the action to the United States District Court for the Western
District of Kentucky. Those defendants subsequently filed a motion to
dismiss on the ground that the plaintiff failed to make an appropriate
demand on the Company prior to filing the action. That motion is fully
briefed and awaiting court action.
F-82
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
6. The following table sets forth the computation of basic and diluted earnings
per common share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
APRIL 3, MARCH 28,
1999 1998
--------- -----------
<S> <C> <C>
NUMERATOR
For basic earnings per share --
Net earnings (loss)............................................................ $ (9,000) $ 31,200
Add back dividends on minority exchangeable preferred assumed to be
converted.................................................................... -- --
--------- -----------
For diluted earnings per share --
Earnings (loss) after assumed conversion....................................... $ (9,000) $ 31,200
--------- -----------
--------- -----------
DENOMINATOR
For basic earnings per common share -- weighted average shares outstanding....... 70,400 71,800
Effect of dilutive employee stock options........................................ -- 500
Effect of dilutive minority exchangeable preferred............................... -- --
--------- -----------
For diluted earnings per common share -- weighted average shares outstanding and
assumed conversions............................................................ 70,400 72,300
--------- -----------
--------- -----------
Earnings (loss) per common share................................................. $ (0.13) $ 0.43
--------- -----------
--------- -----------
Earnings (loss) per common share-assuming dilution............................... $ (0.13) $ 0.43
--------- -----------
--------- -----------
</TABLE>
Because diluted EPS increases in the first quarter of 1999 from a loss of
$(0.13) to a loss of $(0.12), the effect of the minority exchangeable
preferred stock (1,700,000 weighted average shares) is antidilutive and has
been ignored in the computation of diluted EPS. Therefore, diluted EPS is
reported as a loss of $(0.13) in the first quarter of 1999. The effect of
employee stock options was not material in 1999.
F-83
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and
Shareholder of Fruit of the Loom, Ltd.
We have audited the accompanying balance sheet of Fruit of the Loom, Ltd. as
of January 2, 1999 and January 31, 1998. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on the balance sheet 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 balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audits of the balance sheet provide a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Fruit of the Loom, Ltd. at January
2, 1999 and January 31, 1998 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
May 21, 1999
F-84
<PAGE>
FRUIT OF THE LOOM, LTD.
BALANCE SHEET
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 31,
1999 1998
----------- -------------
<S> <C> <C>
Shareholder's equity
Ordinary Shares, par value $.01, authorized 100 shares; issued 4......................... $ 100 $ 100
Subscription receivable.................................................................. (100) (100)
----- -----
Total shareholder's equity......................................................... $ -- $ --
----- -----
----- -----
</TABLE>
See accompanying notes.
F-85
<PAGE>
FRUIT OF THE LOOM, LTD.
NOTES TO BALANCE SHEET
JANUARY 2, 1999 AND JANUARY 31, 1998
1. GENERAL
Fruit of the Loom, Ltd. (FTL-Cayman) was incorporated on January 23, 1998
under the laws of the Cayman Islands. FTL-Cayman was formed to become the parent
holding company of Fruit of the Loom, Inc. (FTL-Delaware). The stockholders of
FTL-Delaware approved this reorganization (the "Reorganization") on November 12,
1998. FTL-Delaware is a marketing oriented, vertically integrated international
basic apparel company, emphasizing branded products for consumers ranging from
infants to senior citizens.
FTL-Cayman had no operations from the date of incorporation on January 23,
1998 to January 2, 1999.
FTL-Cayman operates on a 52 or 53 week year ending on the Saturday nearest
December 31.
2. FTL-DELAWARE PREFERRED STOCK/FTL-CAYMAN CLASS B SHARES
The FTL-Delaware exchangeable participating preferred stock (the
"FTL-Delaware Preferred Stock") to be issued to William Farley and affiliates
("Farley") in exchange for their FTL-Delaware Class B Stock, in the aggregate,
will (i) have a liquidation value equal to the fair market value of the FTL-
Delaware Class B Stock based upon the average closing price of the FTL-Delaware
Class A Stock on the New York Stock Exchange for the 20 trading days prior to
the date of the Reorganization, (ii) be entitled to receive cumulative cash
dividends of 4.5% per annum of the liquidation value, payable quarterly, (iii)
be exchangeable at the option of the holder, in whole or from time to time in
part, at any time for .9524 FTL-Cayman Class A Shares for each share of
FTL-Delaware Preferred Stock, (iv) be convertible at the option of the holder,
in whole or from time to time in part, at any time for .9524 shares of
FTL-Delaware common stock for each share of FTL-Delaware Preferred Stock, (v)
participate with the holders of FTL-Delaware common stock in all dividends and
liquidation payments in addition to its preference payments on an as converted
basis, (vi) be redeemable by FTL-Delaware, at its option, after three years at a
redemption price equal to the then fair market value of FTL-Delaware Preferred
Stock as determined by a nationally recognized investment banking firm, and
(vii) have the right to vote on all matters put to a vote of the holders of
FTL-Delaware common stock, voting together with such holders as a single class,
and be entitled to the number of votes which such holder would have on an as
converted basis.
The four (4) FTL-Cayman Class B Shares which will be purchased by Farley
immediately prior to the Reorganization have been designed to maintain the
relative voting rights that currently exist between the FTL-Delaware Class A
Stock and the FTL-Delaware Class B Stock. The four (4) FTL-Cayman Class B Shares
will (i) participate PARI PASSU, on a share for share basis, with the holders of
any other class of ordinary shares outstanding (including the FTL-Cayman Class A
Shares) upon the liquidation of FTL-Cayman and with respect to any dividends
declared by the Board of Directors of FTL-Cayman, (ii) vote together with the
FTL-Cayman Class A Shares on all matters (other than as required by Cayman
Islands law with respect to certain extraordinary transactions) having that
number of votes which is equal to the aggregate number of votes held by the
FTL-Delaware Class B Stock (I.E., an aggregate of approximately 30% of the
aggregate voting power), (iii) be redeemable proportionately upon the exchange,
transfer to a non-affiliate of Farley or redemption of the FTL-Delaware
Preferred Stock, and (iv) not be transferable except to affiliates of Farley.
F-86
<PAGE>
FRUIT OF THE LOOM, LTD.
NOTES TO BALANCE SHEET -- (CONTINUED)
JANUARY 2, 1999 AND JANUARY 31, 1998
3. ORDINARY SHARES
The authorized share capital of FTL-Cayman will be divided into 200,000,000
FTL-Cayman Class A Shares, 100 FTL-Cayman Class B Shares and 35,000,000
preference shares. The holders of FTL-Cayman Class A Shares will be entitled to
one vote per share. The voting rights of the four FTL-Cayman Class B Shares to
be issued to Farley will be equal to the aggregate number of votes held by the
holders of FTL-Delaware Class B Stock on the date the Reorganization is
consummated. All actions submitted to a vote of shareholders shall be voted on
by the holders of FTL-Cayman Class A Shares and FTL-Cayman Class B Shares,
voting together as a single class, except as otherwise set forth below or as
provided by law.
With respect to the election of directors, holders of FTL-Cayman Class A
Shares, voting as a separate class, will be entitled to elect 25% of the total
number of directors constituting the entire Board of Directors of FTL-Cayman for
so long as any FTL-Cayman Class B Shares are outstanding.
Holders of FTL-Cayman Class A Shares will be entitled to participate PARI
PASSU, on a share for share basis, with the holders of any other class of
ordinary shares outstanding, including the FTL-Cayman Class B Shares, with
respect to any dividends declared by the Board of Directors of FTL-Cayman. At
the time of the Reorganization, FTL-Cayman and FTL-Delaware will be party to
certain loan agreements and indentures which contain covenants that will
restrict their ability to pay dividends.
4. SUBSEQUENT EVENT
On March 4, 1999, FTL-Cayman became the parent holding company of
FTL-Delaware pursuant to the Reorganization. Ownership of essentially all of the
businesses or subsidiaries of FTL-Delaware located outside the United States,
other than certain interests of FTL-Delaware in Canada and Mexico and the
beneficial ownership of certain trademarks, will be transferred from
FTL-Delaware to FTL-Cayman when the Reorganization is fully implemented.
In connection with the Reorganization, all outstanding shares of Class A
common stock of FTL-Delaware were automatically converted into FTL-Cayman Class
A Shares, and all outstanding shares of Class B common stock of FTL-Delaware
were automatically converted into shares of FTL-Delaware Preferred Stock. The
holders of FTL-Delaware Preferred Stock also received, in the aggregate, four
FTL-Cayman Class B Shares. Except as provided by law or FTL-Cayman's Amended and
Restated Memorandum of Association, the FTL-Cayman Class B Shares, in the
aggregate, have voting rights equal to five times the number of shares of
FTL-Delaware Preferred Stock held by Farley. Therefore, each FTL-Cayman Class B
share has voting rights equivalent to 6,536,776.3 votes.
The FTL-Delaware Preferred Stock (5,229,000 shares outstanding) in the
aggregate (i) has a liquidation value of $71,700,000, which is equal to the fair
market value of the FTL-Delaware Class B common stock based upon the $13.71
average closing price of FTL-Delaware Class A common stock on the New York Stock
Exchange for the 20 trading days prior to March 4, 1999, (ii) is entitled to
receive cumulative cash dividends of 4.5% per annum of the liquidation value,
payable quarterly, (iii) is exchangeable at the option of the holder, in whole
or from time to time in part, at any time for 4,981,000 FTL-Cayman Class A
ordinary shares, (iv) is convertible at the option of the holder, in whole or
from time to time in part, at any time for 4,981,000 shares of FTL-Delaware
common stock, (v) participates with the holders of FTL-Delaware common stock in
all dividends and liquidation payments in addition to its preference payments on
an as converted basis, (vi) is redeemable by FTL-Delaware, at its option, after
three years at a redemption price equal to the then fair market value of
FTL-Delaware Preferred Stock as determined by a
F-87
<PAGE>
FRUIT OF THE LOOM, LTD.
NOTES TO BALANCE SHEET -- (CONTINUED)
JANUARY 2, 1999 AND JANUARY 31, 1998
nationally recognized investment banking firm, and (vii) has the right to vote
on all matters put to a vote of the holders of FTL-Delaware common stock, voting
together with such holders as a single class, and is entitled to the number of
votes which such holder would have on an as converted basis.
The fixed dividend on the FTL-Delaware Preferred Stock of 4.5% of the
liquidation preference of $71,700,000 equals $3,200,000 on an annual basis. In
addition, preferred stockholders participate in FTL-Delaware's earnings after
provision for the fixed preferred stock dividend. Participation in earnings is
determined as the ratio of preferred shares outstanding to the total of
preferred and common shares outstanding (7.2% at April 3, 1999). Preferred
stockholder participation in losses is limited to the preferred stockholders'
prior participation in earnings.
F-88
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
(NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
BASIS OF PRESENTATION
The accompanying unaudited Pro Forma Condensed Consolidated financial
statements of Fruit of the Loom, Inc. ("Fruit of the Loom" or the "Company")
give effect to (i) the acquisition of the Company in connection with the
Reorganization, whereby Fruit of the Loom, Ltd., a Cayman Islands company
("FTL-Cayman"), became the parent holding company of Fruit of the Loom, (ii) the
transfer to FTL-Cayman (or direct or indirect foreign subsidiaries of
FTL-Cayman) of substantially all of the businesses or subsidiaries of Fruit of
the Loom located outside the United States, other than certain interests of
Fruit of the Loom in Canada and Mexico and the beneficial ownership of certain
trademarks, as a result of the Reorganization and (iii) the issuance of
$250,000,000 Senior Notes due 2006 and use of proceeds as described in the
prospectus. The unaudited Pro Forma Condensed Consolidated Balance Sheet adjusts
the April 3, 1999 condensed consolidated balance sheet as though such
transactions occurred on April 3, 1999. The Pro Forma Condensed Consolidated
Statements of Operations adjust the historical condensed consolidated statement
of operations for the three months ended April 3, 1999 and the year ended
January 2, 1999 as though such transactions occurred on January 1, 1998. The
Reorganization will be accounted for at the historical cost basis of the
combining companies.
Upon consummation of the merger, each outstanding share of Class A common
stock, par value $.01 per share of Fruit of the Loom (other than those shares
held by the Company in its treasury) automatically converted into one Class A
ordinary share, par value of $.01 of FTL-Cayman, and each outstanding share of
Class B common stock, par value $.01 per share of Fruit of the Loom
automatically converted into one share of exchangeable participating preferred
stock, par value $.01 per share of Fruit of the Loom. The holders of Fruit of
the Loom Preferred Stock also own, in the aggregate, four Class B redeemable
ordinary shares, par value $.01 per share of FTL-Cayman.
The Pro Forma Condensed Consolidated financial statements should be read in
conjunction with the consolidated financial statements and the related notes
included herein. The pro forma financial information is not indicative of
FTL-Cayman's financial position that might have occurred had such transaction
actually occurred on the date indicated above.
P-1
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
APRIL 3, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FRUIT OF THE
LOOM, INC. PRO FORMA PRO FORMA PRO FORMA
2(A) TRANSFERS ADJUSTMENTS 2(B) FTL-DELAWARE
-------------- ----------- ----------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents........................... $ 20,400 $ (11,600) $ $ 8,800
Notes and accounts receivable (less allowance
for possible losses of $10,000).............. 107,100 (72,700) 34,400
Inventories.................................... 817,500 (161,200) 656,300
Other.......................................... 52,200 (7,600) 44,600
-------------- ----------- ------- -------------
Total current assets....................... 997,200 (253,100) 744,100
-------------- ----------- ------- -------------
Property, Plant and Equipment.................... 1,260,100 (290,300) 969,800
Less accumulated depreciation.................. 766,600 (122,400) 644,200
-------------- ----------- ------- -------------
Net property, plant and equipment.......... 493,500 (167,900) 325,600
-------------- ----------- ------- -------------
Other assets
Goodwill (less accumulated amortization of
$342,800).................................... 679,600 0 679,600
Net deferred income taxes...................... 35,000 0 35,000
Other.......................................... 168,900 (8,000) 160,900
-------------- ----------- ------- -------------
Total other assets......................... 883,500 (8,000) 875,500
-------------- ----------- ------- -------------
$2,374,200 $(429,000) $ $ 1,945,200
-------------- ----------- ------- -------------
-------------- ----------- ------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long term debt........... $ 270,500 $ (600) $ $ 269,900
Trade accounts payable......................... 66,800 (26,300) 40,500
Other accounts payable and accrued expenses.... 261,500 (27,700) 233,800
-------------- ----------- ------- -------------
Total current liabilities.................. 598,800 (54,600) 544,200
-------------- ----------- ------- -------------
Noncurrent Liabilities
Long-term debt................................. 979,000 (54,800) 2,100 2(e 926,300
Other.......................................... 267,500 0 267,500
-------------- ----------- ------- -------------
Total noncurrent liabilities............... 1,246,500 (54,800) 2,100 1,193,800
-------------- ----------- ------- -------------
STOCKHOLDERS' EQUITY
Common stock and capital in excess of par value
Common A....................................... 255,300 0 255,300
Common B....................................... 0 0 0
Preferred stock.................................. 71,700 0 71,700
Retained earnings................................ 267,700 0 (2,100) 2(e) 265,600
Due from parent.................................. 0 (333,400) (333,400)
Currency translation, pension and investment
adjustments.................................... (65,800) 13,800 (52,000)
-------------- ----------- ------- -------------
Total stockholders' equity................. 528,900 (319,600) (2,100) 207,200
-------------- ----------- ------- -------------
$2,374,200 $(429,000) $ $ 1,945,200
-------------- ----------- ------- -------------
-------------- ----------- ------- -------------
</TABLE>
See accompanying notes.
P-2
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED APRIL 3, 1999
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRUIT OF THE
LOOM, INC. PRO FORMA PRO FORMA
2(A) ADJUSTMENTS FTL-DELAWARE
-------------- ----------- -------------
<S> <C> <C> <C>
Net sales
Unrelated parties................................................. $ 408,700 $ (64,900) $ 343,800
Affiliates........................................................ 194,800 194,800
-------------- ----------- -------------
408,700 129,900 538,600
-------------- ----------- -------------
Cost of sales
Unrelated parties................................................. 314,300 (116,500) 197,800
Affiliates........................................................ 288,900 288,900
-------------- ----------- -------------
314,300 172,400 486,700
-------------- ----------- -------------
Gross earnings.................................................... 94,400 (42,500) 51,900
Selling, general and administrative expenses........................ 80,900 (16,400) 64,500
Goodwill amortization............................................... 6,600 6,600
-------------- ----------- -------------
Operating earnings (loss)......................................... 6,900 (26,100) (19,200)
Interest expense.................................................... (21,600) 300 (21,300)
Other income--net 5,500 (1,800) 3,700
-------------- ----------- -------------
Loss before income tax provision.................................. (9,200) (27,600) (36,800)
Income tax provision................................................ (500) (400) (900)
-------------- ----------- -------------
Net loss.......................................................... $ (8,700) $ (27,200) $ (35,900)
-------------- ----------- -------------
-------------- ----------- -------------
</TABLE>
See accompanying notes.
P-3
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED JANUARY 2, 1999
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRUIT OF THE
LOOM, INC. PRO FORMA PRO FORMA
2(A) ADJUSTMENTS FTL-DELAWARE
-------------- ------------ -------------
<S> <C> <C> <C>
Net sales
Unrelated parties................................................. $ 2,170,300 $ (268,700) $ 1,901,600
Affiliates........................................................ 803,100 803,100
-------------- ------------ -------------
2,170,300 534,400 2,704,700
-------------- ------------ -------------
Cost of sales
Unrelated parties................................................. 1,564,800 (454,300) 1,110,500
Affiliates........................................................ 1,233,400 1,233,400
-------------- ------------ -------------
1,564,800 779,100 2,343,900
-------------- ------------ -------------
Gross earnings.................................................... 605,500 (244,700) 360,800
Selling, general and administrative expenses........................ 344,000 (68,200) 275,800
Goodwill amortization............................................... 26,600 26,600
-------------- ------------ -------------
Operating earnings................................................ 234,900 (176,500) 58,400
Interest expense.................................................... (97,300) 2,000 (95,300)
Other income--net 5,400 (2,000) 3,400
-------------- ------------ -------------
Earnings (loss) before income tax provision....................... 143,000 (176,500) (33,500)
Income tax provision................................................ 7,100 1,500 5,600
-------------- ------------ -------------
Net earnings (loss)............................................... $ 135,900 $ (175,000) $ (39,100)
-------------- ------------ -------------
-------------- ------------ -------------
</TABLE>
See accompanying notes.
P-4
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PERCENTAGES, RATIOS, SHARE AND PER SHARE DATA)
1. FORMATION OF FTL-CAYMAN
FTL-Cayman was incorporated on January 23, 1998 to become the parent holding
company of Fruit of the Loom.
2. PLAN OF REORGANIZATION
Pro forma adjustments are made as follows:
(a) the unaudited Pro Forma Condensed Consolidated Balance Sheet adjusts
the April 3, 1999 condensed consolidated balance sheet as if the acquisition
occurred on April 3, 1999. The Pro Forma Condensed Consolidated Statement of
Operations adjusts the condensed consolidated statements of operations for
the three months ended April 3, 1999 and the year ended January 2, 1999 as
if the acquisition occurred on January 1, 1998.
(b) the unaudited Pro Forma Condensed Consolidated financial statements
have been prepared using a 4.5% cumulative cash dividend and an exchange
ratio of 0.9524 of FTL-Cayman Class A for each share of Company Preferred
Stock.
Footnotes (c) through (e) are based on a liquidation preference of $71,700,
calculated based upon the average daily closing stock price of the Company's
Class A Stock on the New York Stock Exchange for the 20 trading days prior to
the date of the Merger of $13.71.
(c) payment of 4.5% cumulative cash dividend on a liquidation preference
of $71,700.
<TABLE>
<CAPTION>
4/3/99 1/2/99
---------- ----------
<S> <C> <C>
Company loss from continuing operations(1)................................................ $ (32,900) $ (32,800)
Dividends................................................................................. 800 3,200
---------- ----------
Loss attributable to Common and Preferred Stockholders.................................... $ (33,700) $ (36,000)
---------- ----------
---------- ----------
Dividends................................................................................. $ 800 $ 3,200
Interest of Preferred Stockholders in loss attributable to Common and Preferred
Stockholders(2)......................................................................... 0 0
---------- ----------
Total interest of Preferred Stockholders.................................................. $ 800 $ 3,200
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(1) Fruit of the Loom's pro-forma loss shown above differs from amounts in the
historical financial statements. Fruit of the Loom's pro-forma loss reflects
the transfer of substantially all of our businesses or subsidiaries of Fruit
of the Loom located outside the United States to FTL-Cayman, other than
certain of Fruit of the Loom's interests in Canada and Mexico and the
beneficial ownership of certain trademarks. The pro forma loss shown above
excludes the pro forma adjustments described in Note 2(e). The earnings of
the interests of Fruit of the Loom which will be transferred to FTL-Cayman
and which have been excluded from Fruit of the Loom's loss from continuing
operations aggregated $24,200 for the three months ended April 3, 1999 and
$168,700 for the year ended January 2, 1999.
(2) Preferred Stockholders have a fixed dividend of 4.5% of the liquidation
preference of $71,700 which equals $3,200 on an annual basis. In addition,
Preferred Stockholders participate in 7.3% of Fruit of
P-5
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS, EXCEPT PERCENTAGES, RATIOS, SHARE AND PER SHARE DATA)
the Loom's earnings after provision for the fixed preferred stock dividend.
Participation in earnings (7.3%) is determined as the ratio of preferred
shares outstanding (5,229,000) to the total of preferred and common
outstanding shares (72,080,000), Preferred Stockholder participation in
losses is limited to the Preferred Stockholder's prior participation in
earnings.
(d) exchange of Fruit of the Loom Class B Stock for Company Preferred
Stock. Minority interest in the Company is based upon the liquidation
preference of $71,700.
(e) the Pro Forma Condensed Consolidated Balance Sheet as of April 3,
1999 reflects the repayment of the 7.875% Senior Notes maturing in October
1999 with availability under our Bank Credit Agreement created from the
application of the proceeds of the offering, and the debt issuance costs
associated with the issuance of the Senior Notes; the Pro Forma Condensed
Consolidated Statements of Operations for the three months ended April 3,
1999 and the year ended January 2, 1999 reflect additional interest expense
of $900 and $3,600, respectively, which includes the excess interest costs
to be incurred at 8.875% over interest incurred under the 7.875% Senior
Notes, the remaining $200 discount amortization on the 7.875% Senior Notes,
amortization of the $1,600 discount on the Senior Notes, and additional
interest expense of borrowing $10,800 under our Bank Credit Agreement at
6.4%. In addition, other expense in both periods includes (i) $2,000,
representing the premium which will have to be paid upon early redemption of
$204,400 of the 7.875% Senior Notes, and (ii) $300 for the three months
ended April 3, 1999 and $1,000 for the year ended January 2, 1999,
representing amortization of debt issuance costs incurred in connection with
the issuance of the Senior Notes. The condensed consolidated balance sheet
at April 3, 1999 also reflects the additional $10,800 borrowing under our
Bank Credit Agreement, the Senior Notes recorded net of the $1,600 discount,
the $2,000 premium and a $100 discount on the 7.875% Senior Notes.
(f) FTL-Delaware sells cut cloth to FTL-Cayman and purchases finished
goods from FTL-Cayman. Total sales and cost of sales of cut cloth aggregated
$194,800 and $182,800 for the three months ended April 3, 1999 and $803,100
and $779,700 the year ended January 2, 1999, respectively, and are included
in net sales and cost of sales from affiliates in the accompanying Pro Forma
Condensed Consolidated Statements of Operations. Actual additional costs
incurred by FTL-Cayman related to finished goods of $72,300 and $268,700 for
the three months ended April 3, 1999 and the year ended January 2, 1999 have
been reclassified from cost of sales-unrelated parties to cost of sales-
affiliates. In addition, cost of sales-affiliates for the three months ended
April 3, 1999 and the year ended January 2, 1999 includes $21,800 and
$161,600, respectively, representing the excess of FTL-Cayman's selling
price over its cost and $12,000 and $23,400, respectively, representing the
excess cost of cut cloth sold to FTL-Cayman by FTL-Delaware.
3. COMPANY PREFERRED STOCK/FTL-CAYMAN CLASS B SHARES
The FTL-Delaware Preferred Stock issued to Farley in exchange for Fruit of
the Loom Class B Stock, in the aggregate, (i) has a liquidation value of
$71,700, which is equal to the fair market value of Fruit of the Loom Class B
Stock based upon the average closing price of Fruit of the Loom Class A Stock on
the New York Stock Exchange for the 20 trading days prior to the date of the
Merger of $13.71, (ii) is entitled to receive cumulative cash dividends of 4.5%
per annum of the liquidation value, payable quarterly, (iii) is exchangeable at
the option of the holder, in whole or from time to time in part, at any time for
4,981,000 FTL-Cayman Class A Shares, (iv) is convertible at the option of the
holder, in whole or from time to time in part, at any time for 4,981,000 shares
of Fruit of the Loom common stock, (v) participates with the
P-6
<PAGE>
FRUIT OF THE LOOM, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS, EXCEPT PERCENTAGES, RATIOS, SHARE AND PER SHARE DATA)
holders of Fruit of the Loom common stock in all dividends and liquidation
payments in addition to its preference payments on an as converted basis, (vi)
is redeemable by Fruit of the Loom, at its option, after three years at a
redemption price equal to the then fair market value of Preferred Stock as
determined by a nationally recognized investment banking firm, and (vii) has the
right to vote on all matters put to a vote of the holders of FTL-Delaware common
stock, voting together with such holders as a single class, and is entitled to
the number of votes which such holder would have on an as converted basis.
The four FTL-Cayman Class B Shares which were purchased by Farley
immediately prior to the Reorganization have been designed to maintain the
relative voting rights that existed between Class A Stock and Class B Stock
immediately prior to the merger. The four FTL-Cayman Class B Shares (i)
participate equally on a share for share basis with the holders of any other
class of ordinary shares outstanding (including the FTL-Cayman Class A Shares)
upon the liquidation of FTL-Cayman and with respect to any dividends declared by
the Board of Directors of FTL-Cayman, (ii) vote together with the FTL-Cayman
Class A Shares on all matters (other than as required by Cayman Islands law with
respect to certain extraordinary transactions) having that number of votes which
is equal to the aggregate number of votes of the Class A Stock and Class B Stock
held by Farley immediately prior to the Merger (I.E., an aggregate of 28.6% of
the aggregate voting power), (iii) are redeemable proportionately upon the
exchange, transfer to a non-affiliate of Farley or redemption of Preferred
Stock, and (iv) are not be transferable except to affiliates of Farley.
4. ORDINARY SHARES
The authorized share capital of FTL-Cayman consists of 200,000,000
FTL-Cayman Class A Shares, 100 FTL-Cayman Class B Shares and 35,000,000
preference shares. The holders of FTL-Cayman Class A Shares will be entitled to
one vote per share. The voting rights of the four FTL-Cayman Class B Shares
issued to Farley are equal to the aggregate number of votes held by the holders
of Company Class B Stock on the date the Merger was consummated. All actions
submitted to a vote of shareholders shall be voted on by the holders of
FTL-Cayman Class A Shares and FTL-Cayman Class B Shares, voting together as a
single class, except as otherwise set forth below or as provided by law.
With respect to the election of directors, holders of FTL-Cayman Class A
Shares, voting as a separate class, are entitled to elect 25% of the total
number of directors constituting the entire Board of Directors of FTL-Cayman for
so long as any FTL-Cayman Class B Shares are outstanding.
Holders of FTL-Cayman Class A Shares are entitled to participate equally on
a share for share basis, with the holders of any other class of ordinary shares
outstanding, including the FTL-Cayman Class B Shares, with respect to any
dividends declared by the Board of Directors of FTL-Cayman. At the time of the
Reorganization, FTL-Cayman and the Company are party to certain loan agreements
and indentures which contain covenants that restrict their ability to pay
dividends.
P-7
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
(NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
BASIS OF PRESENTATION
The accompanying unaudited Pro Forma Condensed Consolidated financial
statements of Fruit of the Loom Ltd. and subsidiaries give effect to (i) the
acquisition of Fruit of the Loom in connection with the Reorganization, whereby
FTL-Cayman became the parent holding company of Fruit of the Loom, (ii) the
transfer to FTL-Cayman (or direct or indirect foreign subsidiaries of
FTL-Cayman) of substantially all of our businesses or subsidiaries located
outside the United States, other than certain of our interests in Canada and
Mexico and the beneficial ownership of certain trademarks, as a result of the
Reorganization and (iii) the issuance of $250,000,000 Senior Notes due 2006 and
use of proceeds as described in the prospectus. The unaudited Pro Forma
Condensed Consolidated Balance Sheet adjusts the April 3, 1999 consolidated
condensed balance sheet as though such transactions occurred on April 3, 1999.
The Pro Forma Condensed Consolidated Statements of Operations adjust the
historical condensed consolidated statement of operations for the three months
ended April 3, 1999 and the year ended January 2, 1999 as though such
transactions occurred on January 1, 1998. The Reorganization will be accounted
for at the historical cost basis of the combining companies.
Upon consummation of the Merger, each outstanding share of Class A Stock
(other than those shares held by Fruit of the Loom in its treasury)
automatically converted into one FTL-Cayman Class A Share, and each outstanding
share of Class B Stock automatically converted into one share of Fruit of the
Loom Preferred Stock. The holders of Preferred Stock also own, in the aggregate,
four FTL-Cayman Class B Shares.
The Pro Forma Condensed Consolidated financial statements should be read in
conjunction with the consolidated financial statements and the related notes
included herein. The pro forma financial information is not indicative of Fruit
of the Loom's financial position that might have occurred had such transaction
actually occurred on the date indicated above.
P-8
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
APRIL 3, 1999
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FRUIT OF THE
LOOM, INC. PRO FORMA
FTL-CAYMAN(1) (2)(A) ADJUSTMENTS PRO FORMA
--------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents............................. $ $ 20,400 $ $ 20,400
Notes and accounts receivable (less allowance for
possible losses of $10,000).................... 107,100 107,100
Inventories
Finished goods................................. 533,900 533,900
Work in process................................ 209,800 209,800
Materials and supplies......................... 73,800 73,800
--------------- ---------------- ----------- -----------
Total inventories............................ 817,500 817,500
Other............................................ 52,200 52,200
--------------- ---------------- ----------- -----------
Total current assets......................... 997,200 997,200
--------------- ---------------- ----------- -----------
Property, Plant and Equipment...................... 1,260,100 1,260,100
Less accumulated depreciation.................... 766,600 766,600
--------------- ---------------- ----------- -----------
Net property, plant and equipment............ 493,500 493,500
--------------- ---------------- ----------- -----------
Other assets
Goodwill (less accumulated amortization of
$342,800)...................................... 679,600 679,600
Deferred income taxes............................ 0 35,000 35,000
Other............................................ 168,900 168,900
--------------- ---------------- ----------- -----------
Total other assets........................... 883,500 883,500
--------------- ---------------- ----------- -----------
$ $2,374,200 $ $2,374,200
--------------- ---------------- ----------- -----------
--------------- ---------------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long term debt............. $ $ 270,500 $ $ 270,500
Trade accounts payable........................... 66,800 66,800
Other accounts payable and accrued expenses...... 261,500 261,500
--------------- ---------------- ----------- -----------
Total current liabilities.................... 598,800 598,800
--------------- ---------------- ----------- -----------
Noncurrent Liabilities
Long-term debt................................... 979,000 2,100 2(f 981,100
Other............................................ 267,500 267,500
--------------- ---------------- ----------- -----------
Total noncurrent liabilities................. 1,246,500 2,100 1,248,600
--------------- ---------------- ----------- -----------
Minority interest in subsidiary.................. 0 71,700 2(d 71,700
--------------- ---------------- ----------- -----------
STOCKHOLDERS' EQUITY
Common stock and capital in excess of par value
Common A....................................... 255,300 255,300
Common B....................................... 0 0
Preferred stock.................................. 0 71,700 (71,700) 0
Retained earnings................................ 267,700 (2,100) (f) 265,600
Currency translation, pension and investment
adjustments.................................... (65,800) (65,800)
--------------- ---------------- ----------- -----------
Total stockholders' equity................... 528,900 (73,800) 455,100
--------------- ---------------- ----------- -----------
$ $2,374,200 $ $2,374,200
--------------- ---------------- ----------- -----------
--------------- ---------------- ----------- -----------
</TABLE>
P-9
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED APRIL 3, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRUIT OF THE
LOOM, INC. PRO FORMA
FTL-CAYMAN(1) (2)(A) ADJUSTMENTS(2)(B) PRO FORMA
--------------- ---------------- ----------------- -----------
<S> <C> <C> <C> <C>
Net sales..................................... $ $ 408,700 $ $ 408,700
Cost of sales................................. 314,300 314,300
--------------- -------- ------- -----------
Gross earnings.............................. 94,400 94,400
Selling, general and administrative
expenses.................................... 80,900 80,900
Goodwill amortization......................... 6,600 6,600
--------------- -------- ------- -----------
Operating earnings.......................... 6,900 6,900
Interest expense.............................. (21,600) (900) 2(f) (22,500)
Other income--net 5,500 (2,300) 2(f) 3,200
--------------- -------- ------- -----------
Loss before income tax provision and
minority interest in consolidated
subsidiaries.............................. (9,200) (3,200) (12,400)
Income tax provision.......................... (500) (200) (700)
Minority interest in net earnings of
subsidiaries................................ 0 800 2(c 800
--------------- -------- ------- -----------
Net loss.................................... $ (8,700) (3,800) (12,500)
---------------
---------------
Preferred stock dividends..................... 300 (300) 0
-------- ------- -----------
Loss available to common shareholders......... $ (9,000) $ (3,500) $ (12,500)
-------- ------- -----------
-------- ------- -----------
Loss per common share--Basic.................. $ (.13) $ (.19)
-------- -----------
-------- -----------
Loss per common share--Diluted................ $ (.13) $ (.19)
-------- -----------
-------- -----------
Average common shares outstanding
Basic....................................... 70,400 (3,486) 66,914
-------- ------- -----------
-------- ------- -----------
Diluted..................................... 70,400 (3,486) 2(c) 66,914
-------- ------- -----------
-------- ------- -----------
</TABLE>
See accompanying notes.
P-10
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
YEAR ENDED JANUARY 2, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FRUIT OF THE PRO FORMA
FTL-CAYMAN(1) LOOM, INC.(2)(A) ADJUSTMENTS(2)(B) PRO FORMA
--------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
Net sales.................................. $ $ 2,170,300 $ $ 2,170,300
Cost of sales.............................. 1,564,800 1,564,800
--------------- ---------------- -------- ------------
Gross earnings........................... 605,500 605,500
Selling, general and administrative
expenses................................. 344,000 344,000
Goodwill amortization...................... 26,600 26,600
--------------- ---------------- -------- ------------
Operating earnings......................... 234,900 234,900
Interest expense........................... (97,300) (3,600) 2(f) (100,900)
Other income -- net 5,400 (3,000) 2(f) 2,400
--------------- ---------------- -------- ------------
Earnings before income tax provision and
minority interest in consolidated
subsidiaries........................... 143,000 (6,600) 136,400
Income tax provision....................... 7,100 (300) 6,800
Minority interest in net earnings of
subsidiaries............................. 0 3,200 2(c 3,200
--------------- ---------------- -------- ------------
Net earnings (loss)...................... $ 135,900 (9,500) 126,400
---------------
---------------
Preferred stock dividends.................. 0 0 0
---------------- -------- ------------
Earnings available to common
shareholders............................. $ 135,900 $ (9,500) $ 126,400
---------------- -------- ------------
---------------- -------- ------------
Earnings per common share.................. $ 1.89 $ 1.89
---------------- ------------
---------------- ------------
Earnings per common share -- assuming
dilution 1.88 $ 1.80
---------------- ------------
---------------- ------------
Average common shares outstanding
Basic.................................... 72,000 (5,229) 2(c) 66,771
---------------- -------- ------------
---------------- -------- ------------
(5,229) 2(c)
Diluted.................................. 72,300 4,981 2(e 72,052
---------------- -------- ------------
---------------- -------- ------------
</TABLE>
See accompanying notes.
P-11
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PERCENTAGES, RATIOS, SHARE AND PER SHARE DATA)
1. FORMATION OF FTL-CAYMAN
FTL-Cayman was incorporated on January 23, 1998 to become the parent holding
company of Fruit of the Loom. The balances of FTL-Cayman reported in the
unaudited Pro Forma Condensed Consolidated Balance Sheet as of April 3, 1999
reflect the initial capitalization of FTL-Cayman.
2. PLAN OF REORGANIZATION
Pro forma adjustments are made as follows:
(a) the unaudited Pro Forma Condensed Consolidated Balance Sheet adjusts
the April 3, 1999 condensed consolidated balance sheet as if the acquisition
occurred on April 3, 1999. The Pro Forma Condensed Consolidated Statement of
Operations adjusts the condensed consolidated statements of operations for
the three months ended April 3, 1999 and the year ended January 2, 1999 as
if the acquisition occurred on January 1, 1998. The Reorganization will be
accounted for at the historical cost basis of the combining companies.
(b) the unaudited Pro Forma Condensed Consolidated financial statements
have been prepared using a 4.5% cumulative cash dividend and an exchange
ratio of 0.9524 of FTL-Cayman Class A for each share of Fruit of the Loom
Preferred Stock.
Footnotes (c) through (e) are based on a liquidation preference of $71,700,
calculated based upon the average daily closing stock price of Fruit of the
Loom's Class A Stock on the New York Stock Exchange for the 20 trading days
prior to the date of the merger of $13.71.
(c) payment of 4.5% cumulative cash dividend on a liquidation preference
of $71,700.
<TABLE>
<CAPTION>
4/3/99 1/2/99
---------- ----------
<S> <C> <C>
Company loss from continuing operations(1)................................................ $ (32,900) $ (32,800)
Dividends................................................................................. 800 3,200
---------- ----------
Loss attributable to Common and Preferred Stockholders.................................... $ (33,700) $ (36,000)
---------- ----------
---------- ----------
Dividends................................................................................. $ 800 $ 3,200
Interest of Preferred Stockholders in loss attributable to Common and Preferred
Stockholders(2)......................................................................... 0 0
---------- ----------
Total interest of Preferred Stockholders................................................ $ 800 $ 3,200
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(1) FTL-Delaware's pro-forma loss shown above differs from amounts in the
historical financial statements. Fruit of the Loom's pro-forma loss reflects
the transfer of substantially all of our businesses or subsidiaries located
outside the United States to FTL-Cayman, other than certain of our interests
in Canada and Mexico and the beneficial ownership of certain trademarks. The
pro forma loss shown above excludes the pro forma adjustments described in
Note 2(f). The earnings of the interests of Fruit of the Loom which will be
transferred to FTL-Cayman and which have been excluded from Fruit of the
Loom's loss from continuing operations aggregated $24,200 for the three
months ended April 3, 1999 and $168,700 for the year ended January 2, 1999.
P-12
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS, EXCEPT PERCENTAGES, RATIOS, SHARE AND PER SHARE DATA)
(2) Preferred Stockholders have a fixed dividend of 4.5% of the liquidation
preference of $71,700, which equals $3,200 on an annual basis. In addition,
Preferred Stockholders participate in 7.3% of our earnings after provision
for the fixed preferred stock dividend. Participation in earnings (7.3%) is
determined as the ratio of preferred shares outstanding (5,229,000) to the
total of preferred and common outstanding shares (72,080,000). Preferred
Stockholder participation in losses is limited to his or her prior
participation in earnings. As we had pro forma losses in the three months
ended April 3, 1999 and the year ended January 2, 1999, the minority
interest participation is limited to the fixed preferred dividend of $800
and $3,200 in the three months ended April 3, 1999 and the year ended
January 2, 1999, respectively.
(d) exchange of Company Class B Stock for Preferred Stock. Minority
interest in Fruit of the Loom is based upon the liquidation preference of
$71,700.
(e) As Preferred Stock is convertible into FTL-Cayman common stock,
conversion into 4,981,000 shares (using the conversion ratio of 0.9524 as
discussed in 2(b) above) would be assumed for earnings per share purposes,
if dilutive. For the three months ended April 3, 1999, assumption of
exchange of Preferred Stock into FTL-Cayman Class A Shares would be
anti-dilutive.
(f) the Pro Forma Condensed Consolidated Balance Sheet as of April 3,
1999 reflects the repayment of the 7.875% Senior Notes maturing in October
1999 with availability under our Bank Credit Agreement created by the
application of the proceeds of the offering, and the debt issuance costs
associated with the issuance of the Senior Notes; the Pro Forma Condensed
Consolidated Statements of Operations for the three months ended April 3,
1999 and the year ended January 2, 1999 reflect additional interest expense
of $900 and $3,600, respectively, which includes the excess interest costs
to be incurred at 8.875% over interest incurred under the 7.875% Senior
Notes, the remaining $200 discount amortization on the 7.875% Senior Notes,
amortization of the $1,600 discount on the Senior Notes and additional
interest expense of borrowing $10,800 under our Bank Credit Agreement at
6.4%. In addition, other expense in both periods includes (i) $2,000,
representing the premium which will have to be paid upon early redemption of
$204,400 of the 7.875% Senior Notes, and (ii) $300 for the three months
ended April 3, 1999 and $1,000 for the year ended January 2, 1999,
representing amortization of debt issuance costs incurred in connection with
the issuance of the Senior Notes. The condensed consolidated balance sheet
at April 3, 1999 also reflects the additional $10,800 borrowing under our
Bank Credit Agreement, the Senior Notes recorded net of the $1,600 discount,
the $2,000 premium and a $100 discount on the 7.875% Senior Notes.
3. FRUIT OF THE LOOM PREFERRED STOCK/FTL-CAYMAN CLASS B SHARES
Preferred Stock issued to Farley in exchange for his Class B Stock, in the
aggregate, (i) has a liquidation value of $71,700, which is equal to the fair
market value of the Class B Stock, based upon the average closing price of the
Class A Stock on the New York Stock Exchange for the 20 trading days prior to
the date of the Merger of $13.71, (ii) is entitled to receive cumulative cash
dividends of 4.5% per annum of the liquidation value, payable quarterly, (iii)
is exchangeable at the option of the holder, in whole or from time to time in
part, at any time for 4,981,000 FTL-Cayman Class A Shares, (iv) is convertible
at the option of the holder, in whole or from time to time in part, at any time
for 4,981,000 shares of Fruit of the Loom common stock, (v) participates with
the holders of Fruit of the Loom common stock in all dividends and liquidation
payments in addition to its preference payments on an as converted basis, (vi)
is redeemable by Fruit of the Loom, at its option, after three years at a
redemption price equal to the then fair market value
P-13
<PAGE>
FRUIT OF THE LOOM, LTD. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(IN THOUSANDS, EXCEPT PERCENTAGES, RATIOS, SHARE AND PER SHARE DATA)
of Preferred Stock as determined by a nationally recognized investment banking
firm, and (vii) has the right to vote on all matters put to a vote of the
holders of common stock, voting together with such holders as a single class,
and is entitled to the number of votes which such holder would have on an as
converted basis.
The four FTL-Cayman Class B Shares which were purchased by Farley
immediately prior to the Reorganization have been designed to maintain the
relative voting rights that existed between Fruit of the Loom Class A Stock and
Class B Stock immediately prior to the merger. The four FTL-Cayman Class B
Shares (i) participate equally, on a share for share basis, with the holders of
any other class of ordinary shares outstanding (including the FTL-Cayman Class A
Shares) upon the liquidation of FTL-Cayman and with respect to any dividends
declared by the Board of Directors of FTL-Cayman, (ii) vote together with the
FTL-Cayman Class A Shares on all matters (other than as required by Cayman
Islands law with respect to certain extraordinary transactions) having that
number of votes which is equal to the aggregate number of votes of Fruit of the
Loom Class A Stock and Fruit of the Loom Class B Stock held by Farley
immediately prior to the merger (I.E., an aggregate of 28.6% of the aggregate
voting power), (iii) are redeemable proportionately upon the exchange, transfer
to a non-affiliate of Farley or redemption of Fruit of the Loom Preferred Stock,
and (iv) are not transferable except to affiliates of Farley.
4. ORDINARY SHARES
The authorized share capital of FTL-Cayman consists of 200,000,000
FTL-Cayman Class A Shares, 100 FTL-Cayman Class B Shares and 35,000,000
preference shares. The holders of FTL-Cayman Class A Shares will be entitled to
one vote per share. The voting rights of the four FTL-Cayman Class B Shares
issued to Farley are equal to the aggregate number of votes held by the holders
of Fruit of the Loom Class B Stock on the date the merger was consummated. All
actions submitted to a vote of shareholders shall be voted on by the holders of
FTL-Cayman Class A Shares and FTL-Cayman Class B Shares, voting together as a
single class, except as otherwise set forth below or as provided by law.
With respect to the election of directors, holders of FTL-Cayman Class A
Shares, voting as a separate class, are entitled to elect 25% of the total
number of directors constituting the entire Board of Directors of FTL-Cayman for
so long as any FTL-Cayman Class B Shares are outstanding.
Holders of FTL-Cayman Class A Shares are entitled to participate equally, on
a share for share basis, with the holders of any other class of ordinary shares
outstanding, including the FTL-Cayman Class B Shares, with respect to any
dividends declared by the Board of Directors of FTL-Cayman. At the time of the
Reorganization, FTL-Cayman and Fruit of the Loom are party to certain loan
agreements and indentures which contain covenants that restrict their ability to
pay dividends.
P-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The by-laws of Fruit of the Loom, Inc. (the "Company") provide that the
Company shall, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, as amended from time to time, indemnify all persons
whom it may indemnify pursuant thereto.
Section 145 of the Delaware General Corporation Law permits a corporation,
under specified circumstances, to indemnify its directors, officers, employees
or agents against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties by
reason of the fact that they were or are directors, officers, employees, or
agents of the corporation, if such directors, officers, employees or agents
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action (i.e., one by or in the right of the
corporation) indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to be indemnified for such expenses despite such
adjudication of liability.
Section 4 of the Registration Rights Agreement filed as Exhibit 4.5 hereto
provides that each holder of the notes will indemnify and hold harmless the
Company; Fruit of the Loom, Ltd., a Cayman Islands company and the parent of the
Company ("FTL-Cayman"), and each of the Company's principal domestic
subsidiaries which will guarantee the exchange notes (the "Guarantor
Subsidiaries"), and each of their respective directors, officers or controlling
persons, from and against certain liabilities, including liabilities under the
Securities Act of 1933.
The Company's Certificate of Incorporation provides that the Company's
directors will not be personally liable to the Company stockholders for monetary
damages resulting from breaches of their fiduciary duty as directors except (a)
for any breach of the duty of loyalty to the Company or its stockholders, (b)
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (c) under Section 164 of the Delaware General
Corporation Law, which makes directors liable for unlawful dividends or unlawful
stock repurchase or redemptions or (d) for transactions from which directors
derive improper personal benefit.
The Company maintains insurance on behalf of any person who is or was a
director, employee or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the Company would have the power to indemnify
him against such liability under provisions of the Company's Certificate of
Incorporation.
The by-laws of FTL-Cayman and each of the Guarantor Subsidiaries provide
that FTL-Cayman and the Guarantor Subsidiaries shall, to the fullest extent of
the law, indemnify all persons whom they may indemnify pursuant to the corporate
law of their respective jurisdictions of incorporation. The charter provisions
of FTL-Cayman and the Guarantor Subsidiaries which relate to the liability of
directors for monetary damages resulting from their breach of their fiduciary
duty as directors are substantially similar to the Company's charter provisions
described above.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
4.1 Indenture, dated as of March 25, 1999 among the Company, FTL-Cayman, the
Guarantor Subsidiaries and The Bank of New York, as trustee (including
form of Note), incorporated by reference to Exhibit 4(c) to the
Company's quarterly report on Form 10-Q for the quarter ended April 3,
1999.
4.2 Form of Note (included in Exhibit 4.1).
4.3 Registration Rights Agreement dated as of March 18, 1999, among the
Company, FTL-Cayman, the Guarantor Subsidiaries and the Initial
Purchasers.
5 Opinion of John J. Ray III regarding the legality of the securities being
registered (including consent).*
8.1 Opinion of Katten Muchin & Zavis regarding United States federal income
tax consequences (including consent).
8.2 Opinion of Truman Bodden & Company regarding Cayman Islands tax
consequences (including consent).
12 Statement of computation of ratio of earnings to fixed charges.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of John J. Ray III (included in his opinion filed as Exhibit 5).
23.3 Consent of Katten Muchin & Zavis (included in their opinions filed as
Exhibit 8.1).
23.4 Consent of Truman Bodden & Company (included in their opinion filed as
Exhibit 8.2).
24 Powers of Attorney (included on the signature pages hereto).
25 Statement of Eligibility of The Bank of New York, as Trustee, under the
Trust Indenture Act of 1939, as amended.
99.1 Form of Letter of Transmittal.*
99.2 Form of Notice of Guaranteed Delivery.*
99.3 Form of Letter to Brokers, Dealers and other Nominees.*
99.4 Form of Letter to Clients.*
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
None.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually
II-2
<PAGE>
or in the aggregate, represent a fundamental change in the information
set forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of a registrant's annual report pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated
by reference in the 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.
(3) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrants pursuant to the foregoing provisions,
or otherwise, the registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(5) 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Fruit of the
Loom, Inc., a Delaware corporation, and Fruit of the Loom, Ltd., a Cayman
Islands corporation, certify that they have reasonable grounds to believe that
they meet all of the requirements for filing on Form S-4 and have duly caused
this Registration Statement to be signed on their behalf by the undersigned
thereunto duly authorized, in the City of Chicago, State of Illinois on the 24th
day of May, 1999.
<TABLE>
<S> <C> <C>
FRUIT OF THE LOOM, INC.
FRUIT OF THE LOOM, LTD.
By: /s/ G. WILLIAM NEWTON
------------------------------------------
G. William Newton
Its: VICE PRESIDENT -- FINANCE AND
ACTING CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints,
William Farley, G. William Newton, John J. Ray III and Mark D. Wood, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, to sign on his behalf, individually and in each capacity stated
below, all amendments and post-effective amendments to this Registration
Statement on Form S-4 (including any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933 and all amendments thereto) and to
file the same, with all exhibits thereto and any other documents in connection
therewith, with the Securities and Exchange Commission under the Securities Act
of 1933, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as each might or could do in person, thereby ratifying and confirming each act
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on May 24, 1999:
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman of the Board and
Chief Executive Officer,
/s/ WILLIAM FARLEY President and Chief
- ------------------------------ Operating Officer
William Farley (Principal Executive
Officer) and Director
Vice President -- Finance
/s/ G. WILLIAM NEWTON and Acting Chief
- ------------------------------ Financial Officer
G. William Newton (Principal Financial and
Accounting Officer)
/s/ OMAR Z. AL ASKARI
- ------------------------------ Director
Omar Z. Al Askari
/s/ DENNIS S. BOOKSHESTER
- ------------------------------ Director
Dennis S. Bookshester
/s/ HENRY A. JOHNSON
- ------------------------------ Director
Henry A. Johnson
/s/ MARK H. MCCORMACK
- ------------------------------ Director
Mark H. McCormack
/s/ A. LORNE WEIL
- ------------------------------ Director
A. Lorne Weil
/s/ SIR BRIAN G. WOLFSON
- ------------------------------ Director
Sir Brian G. Wolfson
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Aliceville
Cotton Mill, Inc., an Alabama corporation; The B.V.D. Licensing Corporation, a
Delaware corporation; Dekalb Knitting Corporation, Inc., an Alabama corporation;
Fayette Cotton Mill, Inc., an Alabama corporation; FOL Caribbean Corporation, a
Delaware corporation; Fruit of the Loom Arkansas, Inc., an Arkansas corporation;
Fruit of the Loom, Inc., a New York corporation; Fruit of the Loom Trading
Company, a Delaware corporation; FTL Regional Sales Company, Inc., a Delaware
corporation; FTL Sales Company, Inc. f/k/a Fruit of the Loom Sales Co., Inc., a
New York corporation; Fruit of the Loom, Texas, Inc., a Texas corporation;
Gitano Fashions Limited, a Delaware corporation; Greenville Manufacturing, Inc.,
a Mississippi corporation; Jet Sew Technologies, Inc., a New York corporation;
Leesburg Yarn Mills, Inc., an Alabama corporation; Martin Mills, Inc., a
Louisiana corporation; Rabun Apparel, Inc., a Georgia corporation; Russell
Hosiery Mills, Inc., a North Carolina corporation; Salem Sportswear Corporation,
a Delaware corporation; Salem Sportswear, Inc., a New Hampshire corporation;
Sherman Warehouse Corporation, a Mississippi corporation; Union Sales, Inc., a
Delaware corporation; Union Underwear Company, Inc., a New York corporation;
Union Yarn Mills, Inc., an Alabama corporation; Whitmire Manufacturing, Inc., a
South Carolina corporation; and Winfield Cotton Mill, Inc., an Alabama
corporation, certify that they have reasonable grounds to believe that they meet
all of the requirements for filing on Form S-4 and have duly caused this
Registration Statement to be signed on their behalf by the undersigned thereunto
duly authorized, in the City of Chicago, State of Illinois on the 24th day of
May, 1999.
<TABLE>
<S> <C> <C>
ALICEVILLE COTTON MILL, INC.
THE B.V.D. LICENSING CORPORATION
DEKALB KNITTING CORPORATION, INC.
FAYETTE COTTON MILL, INC.
FOL CARIBBEAN CORPORATION
FRUIT OF THE LOOM ARKANSAS, INC.
FRUIT OF THE LOOM, INC.
FRUIT OF THE LOOM TRADING COMPANY
FTL REGIONAL SALES COMPANY, INC.
FTL SALES COMPANY, INC. f/k/a FRUIT OF THE LOOM
SALES CO., INC.
FRUIT OF THE LOOM, TEXAS, INC.
GITANO FASHIONS LIMITED
GREENVILLE MANUFACTURING, INC.
JET SEW TECHNOLOGIES, INC.
LEESBURG YARN MILLS, INC.
MARTIN MILLS, INC.
RABUN APPAREL, INC.
RUSSELL HOSIERY MILLS, INC.
SALEM SPORTSWEAR CORPORATION
SALEM SPORTSWEAR, INC.
SHERMAN WAREHOUSE CORPORATION
UNION SALES, INC.
UNION UNDERWEAR COMPANY, INC.
WHITMIRE MANUFACTURING, INC.
WINFIELD COTTON MILL, INC.
By: /s/ G. WILLIAM NEWTON
------------------------------------------
G. William Newton
Its: SENIOR VICE PRESIDENT -- FINANCE AND
ACTING CHIEF FINANCIAL OFFICER
</TABLE>
II-5
<PAGE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints,
William Farley, G. William Newton, John J. Ray III and Mark D. Wood, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, to sign on his behalf, individually and in each capacity stated
below, all amendments and post-effective amendments to this Registration
Statement on Form S-4 (including any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933 and all amendments thereto) and to
file the same, with all exhibits thereto and any other documents in connection
therewith, with the Securities and Exchange Commission under the Securities Act
of 1933, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as each might or could do in person, thereby ratifying and confirming each act
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on May 24, 1999:
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
Chief Executive Officer,
/s/ WILLIAM FARLEY President and Chief
- ------------------------------ Operating Officer
William Farley (Principal Executive
Officer)
Senior Vice President --
Finance and Acting Chief
/s/ G. WILLIAM NEWTON Financial Officer
- ------------------------------ (Principal Financial and
G. William Newton Accounting Officer) and
Director
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Fruit of the
Loom Caribbean, Inc., a Delaware corporation, certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form S-4
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned thereunto duly authorized, in the City of Chicago, State of
Illinois on the 24th day of May, 1999.
<TABLE>
<S> <C> <C>
FRUIT OF THE LOOM CARIBBEAN, INC.
By: /s/ G. WILLIAM NEWTON
------------------------------------------
G. William Newton
Its: SENIOR VICE PRESIDENT -- FINANCE AND
ACTING CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints,
William Farley, G. William Newton, John J. Ray III and Mark D. Wood, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, to sign on his behalf, individually and in each capacity stated
below, all amendments and post-effective amendments to this Registration
Statement on Form S-4 (including any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933 and all amendments thereto) and to
file the same, with all exhibits thereto and any other documents in connection
therewith, with the Securities and Exchange Commission under the Securities Act
of 1933, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as each might or could do in person, thereby ratifying and confirming each act
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on May 24, 1999:
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
Chief Executive Officer,
/s/ WILLIAM FARLEY President and Chief
- ------------------------------ Operating Officer
William Farley (Principal Executive
Officer)
Senior Vice President --
Finance and Acting Chief
/s/ G. WILLIAM NEWTON Financial Officer
- ------------------------------ (Principal Financial and
G. William Newton Accounting Officer) and
Director
/s/ JOHN J. RAY III
- ------------------------------ Director
John J. Ray III
/s/ WALTER J. SLUZAS
- ------------------------------ Director
Walter J. Sluzas
</TABLE>
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pro-Player,
Inc., a New York corporation, certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-4 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Chicago, State of Illinois
on the 24th day of May, 1999.
<TABLE>
<S> <C> <C>
PRO-PLAYER, INC.
By: /s/ G. WILLIAM NEWTON
------------------------------------------
G. William Newton
Its: SENIOR VICE PRESIDENT -- FINANCE AND
ACTING CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints,
William Farley, G. William Newton, John J. Ray III and Mark D. Wood, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, to sign on his behalf, individually and in each capacity stated
below, all amendments and post-effective amendments to this Registration
Statement on Form S-4 (including any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933 and all amendments thereto) and to
file the same, with all exhibits thereto and any other documents in connection
therewith, with the Securities and Exchange Commission under the Securities Act
of 1933, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as each might or could do in person, thereby ratifying and confirming each act
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on May 24, 1999:
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
Chief Executive Officer,
/s/ WILLIAM FARLEY President and Chief
- ------------------------------ Operating Officer
William Farley (Principal Executive
Officer)
Senior Vice President --
Finance and Acting Chief
/s/ G. WILLIAM NEWTON Financial Officer
- ------------------------------ (Principal Financial and
G. William Newton Accounting Officer) and
Director
/s/ DOUGLAS R. KELLY
- ------------------------------ Director
Douglas R. Kelly
/s/ JOHN J. RAY III
- ------------------------------ Director
John J. Ray III
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Union Underwear
Company, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Chicago, State of Illinois on the 24th day of
May, 1999.
<TABLE>
<S> <C> <C>
UNION UNDERWEAR COMPANY, INC.
By: /s/ G. WILLIAM NEWTON
------------------------------------------
G. William Newton
Its: SENIOR VICE PRESIDENT -- FINANCE AND
ACTING CHIEF FINANCIAL OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints,
William Farley, G. William Newton, John J. Ray III and Mark D. Wood, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, to sign on his behalf, individually and in each capacity stated
below, all amendments and post-effective amendments to this Registration
Statement on Form S-4 (including any registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933 and all amendments thereto) and to
file the same, with all exhibits thereto and any other documents in connection
therewith, with the Securities and Exchange Commission under the Securities Act
of 1933, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully and to all intents and purposes
as each might or could do in person, thereby ratifying and confirming each act
that said attorneys-in-fact and agents may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on May 24, 1999:
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
Chief Executive Officer,
/s/ WILLIAM FARLEY President and Chief
- ------------------------------ Operating Officer
William Farley (Principal Executive
Officer)
Senior Vice President --
Finance and Acting Chief
/s/ G. WILLIAM NEWTON Financial Officer
- ------------------------------ (Principal Financial and
G. William Newton Accounting Officer) and
Director
</TABLE>
II-9
<PAGE>
- -------------------------------------------------------------------------------
Registration Rights Agreement
Dated as of March 18, 1999
among
Fruit of the Loom, Inc.,
Fruit of the Loom, Ltd.,
the Guarantor Subsidiaries named herein
and
the
Initial Purchasers named herein
- -------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into this 18th day of March, 1999, among Fruit of the Loom, Inc., a Delaware
corporation (the "Company"), Fruit of the Loom, Ltd., a Cayman Islands company
("FTL-Cayman"), each of the principal domestic subsidiaries of the Company
listed as signatories hereto (the "Guarantor Subsidiaries") and Credit Suisse
First Boston Corporation, NationsBanc Montgomery Securities LLC and Scotia
Capital Markets (USA), Inc. (collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated March 18,
1999, among the Company, FTL-Cayman, the Guarantor Subsidiaries and the Initial
Purchasers (the "Purchase Agreement"), which provides for, among other things,
the sale by the Company to the Initial Purchasers of an aggregate of $250
million aggregate principal amount of the Company's 8-7/8% Senior Notes due 2006
fully and unconditionally guaranteed by FTL-Cayman and the Guarantor
Subsidiaries (the "Securities"). In order to induce the Initial Purchasers to
enter into the Purchase Agreement, the Company, FTL-Cayman and the Guarantor
Subsidiaries have agreed to provide to the Initial Purchasers and their direct
and indirect transferees the registration rights set forth in this Agreement.
The execution of this Agreement is a condition to the closing under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended from time
to time.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"CLOSING DATE" shall mean the Closing Time as defined in the Purchase
Agreement.
"COMPANY" shall have the meaning set forth in the preamble hereof and
shall also include the Company's successors.
"DEPOSITARY" shall mean The Depository Trust Company, or any other
depositary appointed by the Company; PROVIDED, HOWEVER, that such
depositary must
<PAGE>
have an address in the Borough of Manhattan in the City of New York.
"EXCHANGE OFFER" shall mean the exchange offer by the Company,
FTL-Cayman and the Guarantor Subsidiaries of Exchange Securities for
Registrable Securities pursuant to Section 2.1 hereof.
"EXCHANGE OFFER REGISTRATION" shall mean a registration under the 1933
Act effected pursuant to Section 2.1 hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, in each case including the Prospectus contained therein, all
exhibits thereto and all documents incorporated by reference therein.
"EXCHANGE PERIOD" shall have the meaning set forth in Section 2.1
hereof.
"EXCHANGE SECURITIES" shall mean the 8-7/8% Senior Notes due 2006
issued by the Company and guaranteed by FTL-Cayman and the Guarantor
Subsidiaries under the Indenture containing terms identical to the
Securities in all material respects (except for references to certain
interest rate provisions, restrictions on transfers and restrictive
legends), to be offered to Holders of Securities in exchange for
Registrable Securities pursuant to the Exchange Offer.
"FTL-CAYMAN" shall have the meaning set forth in the preamble hereof.
"GUARANTOR SUBSIDIARIES" shall have the meaning set forth in the
preamble hereof.
"HOLDER" shall mean an Initial Purchaser, for so long as it owns any
Registrable Securities, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable Securities
under the Indenture.
"INDENTURE" shall mean the Indenture relating to the Securities, dated
as of March 25, 1999, among the Company, FTL-Cayman, each of the Guarantor
Subsidiaries and The Bank of New York, as trustee, as the same may be
amended, supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof.
"INITIAL PURCHASER" or "INITIAL PURCHASERS" shall have the meaning set
forth in the preamble hereof.
"ISSUE DATE" shall mean the date on which the Securities are
originally issued
<PAGE>
under the Indenture.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of Registrable Securities outstanding under the
Indenture; PROVIDED, that whenever the consent or approval of Holders of a
specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company, FTL-Cayman or other obligors
on the Securities or any Affiliate (as defined in the Indenture) of the
Company shall be disregarded in determining whether such consent or
approval was given by the Holders of such required percentage amount.
"OFFERING CIRCULAR" shall mean the final Offering Circular dated March
18, 1999 related to the sale of the Securities.
"PARTICIPATING BROKER-DEALER" shall mean Credit Suisse First Boston
Corporation and NationsBanc Montgomery Securities, LLC, and any other
broker-dealer which makes a market in the Securities and exchanges
Registrable Securities in the Exchange Offer for Exchange Securities.
"PERSON" shall mean an individual, partnership (general or limited),
corporation, limited liability company, trust or unincorporated
organization, or a government or agency or political subdivision thereof.
"PROSPECTUS" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to a prospectus,
including post-effective amendments, and in each case including all
material incorporated by reference therein.
"PURCHASE AGREEMENT" shall have the meaning set forth in the preamble
hereof.
"REGISTRABLE SECURITIES" shall mean the Securities; PROVIDED, HOWEVER,
that Securities shall cease to be Registrable Securities when (i) a
Registration Statement with respect to such Securities shall have been
declared effective under the 1933 Act and such Securities shall have been
disposed of pursuant to such Registration Statement, (ii) such Securities
have been sold to the public pursuant to Rule 144 (or any similar provision
then in force, but not Rule 144A) under the 1933 Act, (iii) such Securities
shall have ceased to be outstanding or (iv) the Securities have been
exchanged for Exchange Securities upon consummation of the Exchange Offer
and are thereafter freely tradeable by the holder thereof.
<PAGE>
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance by the Company, FTL-Cayman or any of the
Guarantor Subsidiaries with this Agreement, including without limitation:
(i) all SEC, stock exchange or National Association of Securities Dealers,
Inc. (the "NASD") registration and filing fees, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky
laws and compliance with the rules of the NASD (including reasonable fees
and disbursements of counsel for any underwriters or Holders in connection
with blue sky qualification of any of the Exchange Securities or
Registrable Securities and any filings with the NASD), (iii) all expenses
of any Persons in preparing or assisting in preparing, word processing,
printing and distributing any Registration Statement, any Prospectus, any
amendments or supplements thereto, any underwriting agreements, securities
sales agreements and other documents relating to the performance of and
compliance with this Agreement, (iv) all fees and expenses incurred in
connection with the listing, if any, of any of the Registrable Securities
on any securities exchange or exchanges, (v) all rating agency fees, (vi)
the fees and disbursements of counsel for the Company, FTL-Cayman and the
Guarantor Subsidiaries and of the independent public accountants of the
Company, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, (vii)
the fees and expenses of the Trustee, and any escrow agent or custodian,
(viii) the reasonable fees and disbursements of Mayer, Brown & Platt,
special counsel representing the Holders of Registrable Securities in
connection with any Shelf Registration Statement and (ix) any fees and
disbursements of the underwriters customarily required to be paid by
issuers or sellers of securities and the reasonable fees and expenses of
any special experts retained by the Company or FTL-Cayman in connection
with any Registration Statement, but excluding underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition
of Registrable Securities by a Holder.
"REGISTRATION STATEMENT" shall mean any Exchange Offer Registration
Statement or Shelf Registration Statement which covers any of the Exchange
Securities or Registrable Securities pursuant to the provisions of this
Agreement, and all amendments and supplements to any such Registration
Statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"SEC" shall mean the United States Securities and Exchange Commission
or any successor agency or government body performing the functions
currently performed by the United States Securities and Exchange
Commission.
"SECURITIES" shall have the meaning set forth in the preamble hereof.
"SHELF REGISTRATION" shall mean a registration effected pursuant to
Section 2.2
<PAGE>
hereof.
"SHELF REGISTRATION STATEMENT" shall mean a shelf registration
statement of the Company and FTL-Cayman pursuant to the provisions of
Section 2.2 of this Agreement which covers Registrable Securities on an
appropriate form under Rule 415 under the 1933 Act, or any similar rule
that may be adopted by the SEC, and all amendments and supplements to such
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"TRUSTEE" shall mean the trustee with respect to the Securities under
the Indenture.
2. REGISTRATION UNDER THE 1933 ACT.
2.1 EXCHANGE OFFER. The Company, FTL-Cayman and the Guarantor
Subsidiaries shall use their best efforts to (A) prepare and, as soon as
practicable but not later than 60 days following the Closing Date, file with the
SEC an Exchange Offer Registration Statement on an appropriate form under the
1933 Act with respect to a proposed Exchange Offer and the issuance and delivery
to the Holders, in exchange for the Registrable Securities, of a like principal
amount of Exchange Securities, (B) cause the Exchange Offer Registration
Statement to be declared effective under the 1933 Act within 120 days of the
Closing Date, (C) keep the Exchange Offer Registration Statement effective until
the closing of the Exchange Offer and (D) cause the Exchange Offer to be
consummated not later than 150 days following the Closing Date. The Exchange
Securities will be issued under the Indenture. Upon the effectiveness of the
Exchange Offer Registration Statement, the Company, FTL-Cayman and the Guarantor
Subsidiaries shall promptly commence the Exchange Offer, it being the objective
of such Exchange Offer to enable each Holder eligible and electing to exchange
Registrable Securities for Exchange Securities to transfer such Exchange
Securities from and after their receipt without any limitations or restrictions
under the 1933 Act and without material restrictions under the securities laws
of a substantial proportion of the several states of the United States.
In connection with the Exchange Offer, the Company, FTL-Cayman and the
Guarantor Subsidiaries shall:
(a) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(b) use their best efforts to keep the Exchange Offer open for
acceptance for a period of not less than 30 calendar days after the date
notice thereof is mailed to the Holders (or longer if required by
applicable law) (such period referred to herein as the
<PAGE>
"Exchange Period");
(c) utilize the services of the Depositary for the Exchange Offer;
(d) permit Holders to withdraw tendered Registrable Securities at any
time prior to 5:00 p.m. (Eastern Standard Time), on the last business day
of the Exchange Period, by sending to the institution specified in the
notice, a telegram, telex, facsimile transmission or letter setting forth
the name of such Holder, the principal amount of Registrable Securities
delivered for exchange, and a statement that such Holder is withdrawing his
election to have such Securities exchanged;
(e) notify each Holder that any Registrable Security not tendered
will remain outstanding and continue to accrue interest, but will not
retain any rights under this Agreement (except in the case of the Initial
Purchasers and Participating Broker-Dealers as provided herein); and
(f) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
As soon as practicable after the close of the Exchange Offer, the Company
shall:
(i) accept for exchange all Registrable Securities duly tendered and
not validly withdrawn pursuant to the Exchange Offer in accordance with the
terms of the Exchange Offer Registration Statement and the letter of
transmittal which shall be an exhibit thereto;
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver
Exchange Securities to each Holder of Registrable Securities so accepted
for exchange in a principal amount equal to the principal amount of the
Registrable Securities of such Holder so accepted for exchange.
Interest on each Exchange Security will accrue from the last date on which
interest was paid on the Registrable Securities surrendered in exchange therefor
or, if no interest has been paid on the Registrable Securities, from the Issue
Date. The Exchange Offer shall not be subject to any conditions, other than (i)
that the Exchange Offer, or the making of any exchange by a Holder, does not
violate applicable law or any applicable interpretation of the staff of the SEC,
(ii) the due tendering of Registrable Securities in accordance with the Exchange
Offer, and (iii) that each Holder of Registrable Securities exchanged in the
Exchange Offer shall have made certain customary representations, including
representations (i) that such
<PAGE>
Holder is not an affiliate of the Company, FTL-Cayman or any Guarantor
Subsidiary within the meaning of Rule 405 under the 1933 Act, (ii) that such
Holder is not a broker-dealer tendering Registrable Securities acquired
directly from the Company for its own account (unless it agrees to deliver a
prospectus meeting the requirements of the 1933 Act in connection with any
resale of Exchange Securities), (iii) that all Exchange Securities to be
received by it shall be acquired in the ordinary course of its business and
that at the time of the consummation of the Exchange Offer it shall have no
arrangement or understanding with any person to participate in the
distribution (within the meaning of the 1933 Act) of the Exchange Securities,
and (iv) any such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to render the use of
Form S-4 or other appropriate form under the 1933 Act available. To the
extent permitted by law, the Company shall inform the Initial Purchasers of
the names and addresses of the Holders to whom the Exchange Offer is made,
and the Initial Purchasers shall have the right to contact such Holders and
otherwise facilitate the tender of Registrable Securities in the Exchange
Offer.
2.2 SHELF REGISTRATION. In the event that (i) any changes in law, SEC
rules or regulations or applicable interpretations thereof by the staff of the
SEC do not permit the Company, FTL-Cayman and the Guarantor Subsidiaries to
effect the Exchange Offer as contemplated by Section 2.1 hereof, (ii) if for any
other reason the Exchange Offer Registration Statement is not declared effective
within 120 days following the original issue of the Registrable Securities or
the Exchange Offer is not consummated within 150 days after the original issue
of the Registrable Securities, (iii) upon the request of any Initial Purchaser
with respect to any Registrable Securities which it acquired directly from the
Company and, with respect to other Registrable Securities held by it, if such
Initial Purchaser is not permitted, in the opinion of counsel to such Initial
Purchaser, pursuant to applicable law or applicable interpretations of the Staff
of the SEC, to participate in the Exchange Offer and thereby receive securities
that are freely tradeable without restriction under the 1933 Act and applicable
blue sky or state securities laws or (iv) if a Holder is not permitted by
applicable law to participate in the Exchange Offer based upon written advice of
counsel to the effect that such Holder may not be legally able to participate in
the Exchange Offer or does not receive Exchange Securities pursuant to the
Exchange Offer which are fully tradeable by the Holder without restriction under
the 1933 Act and under applicable blue sky or state securities laws, then in
case of each of clauses (i) through (iv) the Company, FTL-Cayman and the
Guarantor Subsidiaries shall, at the Company's cost:
(a) As promptly as practicable, file with the SEC, and thereafter
shall use their best efforts to cause to be declared effective as promptly
as practicable but no later than 150 days after the Issue Date (or, in the
case of a request by any Initial Purchaser made later than 60 days after
the Issue Date, within 90 days of such request), a Shelf Registration
Statement relating to the offer and sale of the Registrable Securities by
the Holders from time to time in accordance with the methods of
distribution elected by the Majority Holders participating in the Shelf
Registration and set forth in such Shelf
<PAGE>
Registration Statement.
(b) Subject to Section 2.4(b), use their best efforts to keep the
Shelf Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders for a period of two
years from the date the Shelf Registration Statement is declared effective
by the SEC, or for such shorter period that will terminate when all
Registrable Securities covered by the Shelf Registration Statement have
been sold pursuant to the Shelf Registration Statement or cease to be
outstanding or otherwise to be Registrable Securities.
(c) Notwithstanding any other provisions hereof, use their best
efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming a part thereof and any
supplement thereto complies in all material respects with the 1933 Act and
the rules and regulations thereunder, (ii) any Shelf Registration Statement
and any amendment thereto does not, when it becomes effective, contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading and (iii) any Prospectus forming part of any Shelf
Registration Statement, and any supplement to such Prospectus (as amended
or supplemented from time to time), does not include an untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements, in light of the circumstances under which they were made,
not misleading.
The Company, FTL-Cayman and the Guarantor Subsidiaries further agree, if
necessary, to supplement or amend the Shelf Registration Statement, as required
by Section 3(b) below, and to furnish to the Holders of Registrable Securities
copies of any such supplement or amendment promptly after its being used or
filed with the SEC.
The Company, FTL-Cayman and the Guarantor Subsidiaries shall not be
required to include any Registrable Securities of a Holder in any Shelf
Registration Statement pursuant to this Agreement unless such Holder furnishes
to the Company, within 20 business days after receipt by such Holder of a
request therefor, such information as the Company may reasonably request for use
in connection with such Shelf Registration Statement.
2.3 EXPENSES. The Company and FTL-Cayman shall pay all Registration
Expenses in connection with the registration pursuant to Section 2.1 or 2.2
hereof. Except as provided herein, each Holder shall pay all expenses of its
counsel, underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
2.4 EFFECTIVENESS. (a) The Company, FTL-Cayman and the Guarantor
Subsidiaries will be deemed not to have used their best efforts to cause the
Exchange Offer Registration
<PAGE>
Statement or the Shelf Registration Statement, as the case may be, to become,
or to remain, effective during the requisite period if the Company,
FTL-Cayman or any of the Guarantor Subsidiaries voluntarily takes any
affirmative action that would, or omits to take any action which omission
would, result in any such Registration Statement not being declared effective
or in the holders of Registrable Securities covered thereby not being able to
exchange or offer and sell such Registrable Securities during that period as
and to the extent contemplated hereby, unless (i) such action is required by
applicable law or (ii) such action or omission is taken or made by the
Company, FTL-Cayman or the Guarantor Subsidiaries in good faith and for valid
business reasons (not including avoidance of the Company's, FTL-Cayman's or
the Guarantor Subsidiaries' obligations hereunder), as determined by the
Company's Board of Directors or a committee thereof, in its discretion,
including the acquisition or divestiture of a business or assets, so long as
each of the Company, FTL-Cayman and the Guarantor Subsidiaries complies with
the requirements of Section 3(k) hereof, if applicable.
(b) The Company, FTL-Cayman and the Guarantor Subsidiaries may suspend the
availability of the Shelf Registration Statement and the use of any Prospectus
which is a part thereof and shall not be required to amend or supplement such
Shelf Registration Statement (i) for one period not to exceed 60 days in any six
month period or (ii) for up to four periods not to exceed an aggregate of 90
days in any 12 month period, if such suspension is effected in good faith and
for valid business reasons (not including avoidance of the Company's,
FTL-Cayman's or the Guarantor Subsidiaries' obligations hereunder), as
determined by the Company's Board of Directors or a committee thereof, in its
discretion, including the acquisition or divestiture of a business or assets, so
long as each of the Company, FTL-Cayman and the Guarantor Subsidiaries promptly
complies with the requirements of Section 3(k) hereof, if applicable.
(c) An Exchange Offer Registration Statement pursuant to Section 2.1
hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will not
be deemed to have become effective unless it has been declared effective by the
SEC; PROVIDED, HOWEVER, that if, after it has been declared effective, the
offering of Registrable Securities pursuant to a Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of such
interference, until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume.
2.5 INTEREST. In the event that (a) the Exchange Offer Registration
Statement is not filed with the Commission on or prior to the 60th calendar day
following the Issue Date, (b) the Exchange Offer Registration Statement has not
been declared effective on or prior to the 120th calendar day following the
Issue Date, (c) the Exchange Offer is not consummated on or prior to the 150th
calendar day following the Issue Date or a Shelf Registration Statement is not
declared effective on or prior to the 150th calendar day following the Issue
Date (or, if a Shelf Registration Statement is required to be filed because of
the request of any Initial
<PAGE>
Purchaser made later than 60 days after the Issue Date, 90 days following the
request by any such Initial Purchaser that the Company and FTL-Cayman file
the Shelf Registration Statement), or (d) the Exchange Offer Registration
Statement or Shelf Registration Statement is declared effective but
thereafter ceases to be effective or usable within the applicable period as
provided in this Agreement except pursuant to Section 2.4(b) (each such event
referred to in clauses (a) through (d) above, a "Registration Default"), the
interest rate borne by the Securities (which is guaranteed by FTL-Cayman and
the Guarantor Subsidiaries under the Indenture) shall be increased by an
amount equal to one-quarter of one percent (0.25%) per annum upon the
occurrence of any Registration Default, which rate (as increased as
aforesaid) will increase by an additional one quarter of one percent (0.25%)
each 90-day period that such additional interest continues to accrue under
any such circumstance, with an aggregate maximum increase in the interest
rate equal to one percent (1%) per annum. Following the cure of all
Registration Defaults the accrual of additional interest will cease and the
interest rate will revert to the original rate. Upon (w) the filing of the
Exchange Offer Registration Statement after the 60-day period described in
clause (a) above, (x) the effectiveness of the Exchange Offer Registration
Statement after the 120-day period described in clause (b) above, (y) the
consummation of the Exchange Offer after the 150-day period or the
effectiveness of a Shelf Registration Statement after the 150-day period (or
the 90-day period, as applicable), as the case may be, described in clause
(c) above, or (z) after the period during which such Shelf Registration
Statement ceases to be effective or usable as described in clause (d) above,
and provided that none of the conditions set forth in clauses (a), (b), (c)
and (d) above continues to exist, a Registration Default will be deemed to be
cured.
2.6 SPECIFIC ENFORCEMENT. Without limiting the remedies available to the
Initial Purchasers and the Holders, the Company, FTL-Cayman and the Guarantor
Subsidiaries acknowledge that any failure by the Company, FTL-Cayman or the
Guarantor Subsidiaries to comply with their obligations under Section 2.1 and
Section 2.2 hereof may result in material irreparable injury to the Initial
Purchasers or the Holders for which there is no adequate remedy at law, that it
would not be possible to measure damages for such injuries precisely and that,
in the event of any such failure, the Initial Purchasers or any Holder may
obtain such relief as may be required to specifically enforce the Company's,
FTL-Cayman's or the Guarantor Subsidiaries' obligations under Section 2.1 and
Section 2.2 hereof.
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company, FTL-Cayman and the
Guarantor Subsidiaries with respect to Registration Statements pursuant to
Sections 2.1 and 2.2 hereof, the Company, FTL-Cayman and the Guarantor
Subsidiaries shall:
(a) prepare and file with the SEC a Registration Statement, within
the relevant time period specified in Section 2, on the appropriate form
under the 1933 Act, which form (i) shall be selected by the Company, (ii)
shall, in the case of a Shelf
<PAGE>
Registration, be available for the sale of the Registrable Securities
by the selling Holders thereof, (iii) shall comply as to form in all
material respects with the requirements of the applicable form and
include or incorporate by reference all financial statements required
by the SEC to be filed therewith or incorporated by reference therein,
and (iv) shall comply in all respects with the requirements of
Regulation S-T under the Securities Act, and use its best efforts to
cause such Registration Statement to become effective and remain
effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under
applicable law to keep such Registration Statement effective for the
applicable period; and cause each Prospectus to be supplemented by any
required prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 under the 1933 Act and comply with the provisions of the 1933
Act applicable to them with respect to the disposition of all Securities
covered by each Registration Statement during the applicable period in
accordance with the intended method or methods of distribution by the
selling Holders thereof described in this Agreement (including sales by any
Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities, at least five days prior to filing, that a Shelf
Registration Statement with respect to the Registrable Securities is being
filed and advising such Holders that the distribution of Registrable
Securities will be made in accordance with the method selected by the
Majority Holders participating in the Shelf Registration, (ii) furnish to
each Holder of Registrable Securities and to each underwriter of an
underwritten offering of Registrable Securities, if any, without charge, as
many copies of each Prospectus, including each preliminary Prospectus, and
any amendment or supplement thereto and such other documents as such Holder
or underwriter may reasonably request, including financial statements and
schedules and, if the Holder so requests, all exhibits in order to
facilitate the public sale or other disposition of the Registrable
Securities; and (iii) subject to the last paragraph of this Section 3,
hereby consent to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of Registrable Securities in
connection with the offering and sale of the Registrable Securities covered
by the Prospectus or any amendment or supplement thereto;
(d) use their best efforts to register or qualify the Registrable
Securities under all applicable state securities or "blue sky" laws of such
U.S. jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement and each underwriter of an underwritten offering of
Registrable Securities shall reasonably request by the time the applicable
Registration Statement is declared effective by the
<PAGE>
SEC, and do any and all other acts and things which may be reasonably
necessary or advisable to enable each such Holder and underwriter to
consummate the disposition in each such jurisdiction of such Registrable
Securities owned by such Holder; PROVIDED, HOWEVER, that the Company,
FTL-Cayman and the Guarantor Subsidiaries shall not be required to
(i) quality as a foreign corporation or as a dealer in securities in
any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), or (ii) take any action which would subject
it to general service of process or taxation in any such jurisdiction
where it is not then so subject;
(e) notify promptly each Holder of Registrable Securities under a
Shelf Registration or any Participating Broker-Dealer who has notified the
Company that it is utilizing the Exchange Offer Registration Statement as
provided in paragraph (f) below and, if requested by such Holder or
Participating Broker-Dealer, confirm such notice in writing promptly (i)
when a Registration Statement has become effective and when any
post-effective amendments and supplements thereto have become effective,
(ii) of any request by the SEC or any state securities authority for
post-effective amendments and supplements to a Registration Statement and
Prospectus or for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or any state
securities authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) in the case of a Shelf Registration, if, between the
effective date of a Registration Statement and the closing of any sale of
Registrable Securities covered thereby, the representations and warranties
of the Company and FTL-Cayman contained in any underwriting agreement,
securities sales agreement or other similar agreement, if any, relating to
the offering cease to be true and correct in all material respects, (v) of
the happening of any event or the discovery of any facts during the period
a Shelf Registration Statement is effective which makes any statement made
in such Registration Statement or the related Prospectus untrue in any
material respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements
therein not misleading and (vi) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities or the Exchange Securities, as the case may be, for
sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose;
(f) (A) in the case of the Exchange Offer Registration Statement, (i)
include in the Exchange Offer Registration Statement a section
entitled "Plan of Distribution" which section shall be reasonably
acceptable to the Initial Purchasers, and which shall contain a
summary statement of the positions taken or policies made by the staff
of the SEC with respect to the potential "underwriter" status of any
broker-dealer that holds Registrable Securities acquired for its own
account as a result of market-making activities or other trading
activities and that will be the beneficial owner (as defined in Rule
13d-3
<PAGE>
under the Exchange Act) of Exchange Securities to be received by
such broker-dealer in the Exchange Offer, whether such positions or
policies have been publicly disseminated by the staff of the SEC or
such positions or policies, in the reasonable judgment of the Initial
Purchasers and its counsel, represent the prevailing views of the
staff of the SEC, including a statement that any such broker-dealer
who receives Exchange Securities for Registrable Securities pursuant
to the Exchange Offer may be deemed a statutory underwriter and must
deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of such Exchange Securities, (ii) furnish
to each Participating Broker-Dealer who has delivered to the Company
the notice referred to in Section 3(e), without charge, as many copies
of each Prospectus included in the Exchange Offer Registration
Statement, including any preliminary prospectus, and any amendment or
supplement thereto, as such Participating Broker-Dealer may reasonably
request, (iii) subject to the last paragraph of this Section 3, hereby
consent to the use of the Prospectus forming part of the Exchange
Offer Registration Statement or any amendment or supplement thereto,
by any person subject to the prospectus delivery requirements of the
SEC, including all Participating Broker-Dealers, in connection with
the sale or transfer of the Exchange Securities covered by the
Prospectus or any amendment or supplement thereto, (iv) use their best
efforts to keep the Exchange Offer Registration Statement effective
and to amend and supplement the Prospectus contained therein in order
to permit such Prospectus to be lawfully delivered by all Persons
subject to the prospectus delivery requirements of the 1933 Act for
such period of time as such Persons must comply with such requirements
in order to resell the Exchange Securities and (v) include in the
transmittal letter or similar documentation to be executed by an
exchange offeree in order to participate in the Exchange Offer (x) the
following provision:
"If the exchange offeree is a broker-dealer holding Registrable
Securities acquired for its own account as a result of
market-making activities or other trading activities, it will
deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of Exchange Securities received in
respect of such Registrable Securities pursuant to the Exchange
Offer;" and
(y) a statement to the effect that by a broker-dealer making the
acknowledgment described in clause (x) and by delivering a Prospectus
in connection with the exchange of Registrable Securities, the
broker-dealer will not be deemed to admit that it is an underwriter
within the meaning of the 1933 Act; and
(B) in the case of any Exchange Offer Registration Statement, if
requested by any known Participating Broker-Dealer, each of the
Company and FTL-Cayman agrees to deliver to such Participating
Broker-Dealer upon the
<PAGE>
effectiveness of the Exchange Offer Registration Statement (i) an
opinion of Katten Muchin & Zavis in such form and to such effect
as is customary in connection with the preparation of a Registration
Statement, (ii) an officers' certificate substantially in the
form customarily delivered in a public offering of debt securities
and (iii) a comfort letter or comfort letters in customary form if
permitted by Statement on Auditing Standards No. 72 of the American
Institute of Certified Public Accountants (or if such a comfort
letter is not permitted, an agreed upon procedures letter in
customary form) at least as broad in scope and coverage as the comfort
letter or comfort letters delivered to the Initial Purchasers in
connection with the initial sale of the Securities to the Initial
Purchasers;
(g) (i) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (ii) in the case of a Shelf Registration, furnish
counsel for the Holders of Registrable Securities copies of any comment
letters received from the SEC or any other request by the SEC or any state
securities authority for amendments or supplements to a Registration
Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the
earliest possible moment;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, and each underwriter, if any, without charge, at
least one conformed copy of each Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules (without documents incorporated therein by reference and all
exhibits thereto, unless requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive legends; and enable such Registrable Securities
to be in such denominations (consistent with the provisions of the
Indenture) and registered in such names as the selling Holders or the
underwriters, if any, may reasonably request at least two business days
prior to the closing of any sale of Registrable Securities;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Sections
3(e)(ii), 3(e)(iii), 3(e)(v) and 3(e)(vi) hereof, use its best efforts to
prepare a supplement or post-effective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities or Participating
Broker-Dealers, such Prospectus will not contain at the time of such
delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the
<PAGE>
statements therein, in light of the circumstances under which they were
made, not misleading or will remain so qualified;
(l) obtain a CUSIP number for all Exchange Securities not later than
the effective date of a Registration Statement, and provide the Trustee
with printed certificates for the Exchange Securities in a form eligible
for deposit with the Depositary;
(m) (i) cause the Indenture to be qualified under the Trust Indenture
Act of 1939, as amended (the "TIA"), in connection with the registration of
the Exchange Securities or Registrable Securities, as the case may be, (ii)
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in
accordance with the terms of the TIA and (iii) execute, and use its best
efforts to cause the Trustee to execute, all documents as may be required
to effect such changes, and all other forms and documents required to be
filed with the SEC to enable the Indenture to be so qualified in a timely
manner;
(n) in the case of a Shelf Registration, enter into agreements
(including customary underwriting agreements) and take all other customary
and appropriate actions in order to expedite or facilitate the disposition
of such Registrable Securities and in such connection whether or not an
underwriting agreement is entered into and whether or not the registration
is an underwritten registration:
(i) make such representations and warranties to the Holders of
such Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters
in similar underwritten offerings as may be reasonably requested by
them;
(ii) obtain opinions of counsel to the Company and FTL-Cayman and
updates thereof (which opinions (in form, scope and substance) and
counsel shall be reasonably satisfactory to the managing underwriters,
if any, and the Holders of a majority in principal amount of the
Registrable Securities being sold) addressed to each selling Holder
and the underwriters, if any, covering the matters customarily covered
in opinions requested in sales of securities or underwritten offerings
and such other matters as may be reasonably requested by such Holders
and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to
the underwriters, if any, and use reasonable efforts to have such
letters addressed to the selling Holders of Registrable Securities (to
the extent consistent with Statement on Auditing Standards No. 72 of
the American Institute of Certified
<PAGE>
Public Accountants), such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort"
letters to underwriters in connection with similar underwritten
offerings and such other matters as reasonably requested by such
selling Holders and any underwriters;
(iv) enter into a securities sales agreement with the Holders and
an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Securities, which agreement shall
be in form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into, cause the same
to set forth indemnification provisions and procedures substantially
equivalent to the indemnification provisions and procedures set forth
in Section 4 hereof with respect to the underwriters and all other
parties to be indemnified pursuant to said Section or, at the request
of any underwriters, in the form customarily provided to such
underwriters in similar types of transactions; and
(vi) deliver such documents and certificates as may be reasonably
requested and as are customarily delivered in similar offerings to the
Holders of a majority in principal amount of the Registrable
Securities being sold and the managing underwriters, if any.
The above shall be done at (i) the effectiveness of such Registration
Statement (and each post-effective amendment thereto) and (ii) each closing
under any underwriting or similar agreement as and to the extent required
thereunder;
(o) in the case of a (i) Shelf Registration, or (ii) Prospectus
contained in an Exchange Offer pursuant to Section 2.1 which is required to
be delivered under the 1933 Act by a Participating Broker-Dealer who seeks
to sell Exchange Securities, make available for inspection by
representatives of the Holders of the Registrable Securities and any such
Participating Broker-Dealer, as the case may be, and any underwriters
participating in any disposition pursuant to a Shelf Registration Statement
and any counsel or accountant retained by such Holders, Participating
Broker Dealers or underwriters, all pertinent financial and other records,
pertinent corporate documents and properties of the Company or FTL-Cayman
reasonably requested by any such persons, and cause the respective
officers, directors, employees and any other agents of the Company or
FTL-Cayman to supply all information reasonably requested by any such
representative, underwriter, counsel or accountant in connection with a
Registration Statement or Prospectus, and make such representatives of the
Company or FTL-Cayman available for discussion of such documents as shall
be reasonably requested by the Initial Purchasers; PROVIDED, that any such
records, documents,
<PAGE>
properties and information that is designated in writing by the Company,
in good faith, as confidential at the time of delivery of such records,
documents, properties or information shall be kept confidential by any
such representative, underwriter, counsel or accountant and shall be
used only in connection with such Registration Statement or Prospectus,
unless such information has become available (not in violation of this
Agreement) to the public generally or through a third party without an
accompanying obligation of confidentiality, and except that such
representative, underwriter, counsel or accountant shall have no
liability, and shall not be in breach of this provision, if disclosure of
such confidential information is made in connection with a court proceeding
or required by law, and the Company shall be entitled to request that such
representative, underwriter, counsel or accountant sign a confidentiality
agreement to the foregoing effect;
(p) in the case of a Shelf Registration, a reasonable time prior to
filing any Shelf Registration Statement, any Prospectus forming a part
thereof, any amendment to such Shelf Registration Statement or any
amendment or supplement to such Prospectus, provide copies of such document
to the Holders of Registrable Securities, to counsel on behalf of the
Holders and to the underwriter or underwriters of an underwritten offering
of Registrable Securities, if any, make such changes in any such document
prior to the filing thereof as the Holders, the counsel to the Holders or
the underwriter or underwriters reasonably request and make the
representatives of the Company and FTL-Cayman available for discussion of
such document as shall be reasonably requested by the Holders of
Registrable Securities, or any underwriter;
(q) use their best efforts to cause the Exchange Securities or the
Registrable Securities, as the case may be, to be rerated (or reconfirmed
as applicable) by the appropriate rating agencies, if so requested by the
Initial Purchasers (on behalf of the Holders) in the case of an Exchange
Offer Registration Statement, or by the Majority Holders, or if requested
by the underwriter or underwriters of an underwritten offering of
Registrable Securities, if any;
(r) otherwise use their best efforts to comply with all applicable
rules and regulations of the SEC and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering
at least 12 months which shall satisfy the provisions of Section 11 (a) of
the 1933 Act and Rule 158 thereunder;
(s) cooperate and assist in any filings required to be made with the
NASD and, in the case of a Shelf Registration, in the performance of any
due diligence investigation by any underwriter and its counsel (including
any "qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD); and
<PAGE>
(t) upon consummation of an Exchange Offer, obtain a customary
opinion of counsel to the Company and FTL-Cayman addressed to the Trustee
for the benefit of all Holders of Registrable Securities participating in
the Exchange Offer, and which includes an opinion that (i) the Company has
duly authorized, executed and delivered the Exchange Securities and the
related indenture and (ii) each of the Exchange Securities (including the
guarantee thereof by FTL-Cayman and the Guarantor Subsidiaries) and related
indenture constitutes a legal, valid and binding obligation of the Company,
FTL-Cayman and each of the Guarantor Subsidiaries, enforceable against the
Company, FTL-Cayman and each of the Guarantor Subsidiaries in accordance
with their respective terms (with customary exceptions).
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable Securities to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable Securities as the Company may from time to time reasonably request
in writing.
If any of the Registrable Securities covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the underwriter or
underwriters and manager or managers that will manage such offering will be
selected by the Majority Holders of such Registrable Securities included in such
offering and must be acceptable to the Company. No Holder of Registrable
Securities may participate in any underwritten registration hereunder unless
such Holder (a) agrees to sell such Holder's Registrable Securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
In the case of a Shelf Registration Statement, each Holder agrees that,
upon receipt of any notice from the Company of the happening of any event or the
discovery of any facts, each of the kind described in Sections 3(e)(ii),
3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to a Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(k) hereof, and, if so directed by the Company, such
Holder will deliver to the Company (at its expense) all copies in such Holder's
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable Securities current at the time of
receipt of such notice. If the Company or FTL-Cayman shall give any such notice
to suspend the disposition of Registrable Securities pursuant to a Shelf
Registration Statement as a result of the happening of any event or the
discovery of any facts, each of the kind described in Sections 3(e)(ii),
3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, the Company, FTL-Cayman and the Guarantor
Subsidiaries shall be deemed to have used their best efforts to keep the Shelf
Registration Statement effective during such
<PAGE>
period of suspension provided that the Company, FTL-Cayman and the Guarantor
Subsidiaries shall use their best efforts to file and have declared effective
(if an amendment) as soon as practicable an amendment or supplement to the
Shelf Registration Statement and shall extend the period during which the
Shelf Registration Statement shall be maintained effective pursuant to this
Agreement by the number of days during the period from and including the date
of the giving of such notice to and including the date when the Holders shall
have received copies of the supplemented or amended Prospectus necessary to
resume such dispositions.
4. INDEMNIFICATION, CONTRIBUTION.
(a) The Company, FTL-Cayman and each of the Guarantor Subsidiaries agree,
jointly and severally, to indemnify and hold harmless each Holder, each
Participating Broker-Dealer, each Person who participates as an underwriter (any
such Person being an "Underwriter"), their respective affiliates, and each
Person, if any, who controls any of such parties within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act and each of their respective
directors, officers, employees and agents, as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement
(or any amendment or supplement thereto) pursuant to which Exchange
Securities or Registrable Securities were registered under the 1933 Act,
including all documents incorporated therein by reference, or the omission
or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arising out of any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (or any amendment or supplement
thereto) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; PROVIDED that (subject to Section
4(d) below) any such settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by any indemnified
party, except to the extent otherwise expressly provided in Section 4(c)
hereof), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any
<PAGE>
claim whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under subparagraph (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by such
Holder or Underwriter expressly for use in a Registration Statement (or any
amendment thereto) or any Prospectus (or any amendment or supplement thereto);
PROVIDED, FURTHER, that such indemnity with respect to any preliminary
prospectus or final Prospectus shall not inure to the benefit of any Holder or
Underwriter (or any persons controlling such Holder or Underwriter) (i) from
whom the person asserting such loss, claim, damage or liability purchased the
Securities which are the subject thereof if a prospectus was required to be
delivered under the 1933 Act and such person did not receive a copy of the final
Prospectus (or the final Prospectus as amended or supplemented) at or prior to
the confirmation of the sale of such Securities to such person in any case where
the Company complied with its obligations under Section 3(c) or 3(f)(A)(ii)
hereof, as applicable, and any such untrue statement or omission or alleged
untrue statement or omission of a material fact contained in such preliminary
prospectus (or any amendment or supplement thereto) or final Prospectus was
corrected in the final Prospectus (or the final Prospectus as amended or
supplemented) or (ii) if it resulted from the use of the Prospectus during a
period when the use of the Prospectus had been suspended in accordance with
Section 2.4(b) or Sections 3(e)(ii), 3(e)(iii), 3(e)(v) and 3(e)(vi) hereof;
PROVIDED, in each case, that Holders received prior notice of such suspension.
(b) Each Holder severally, but not jointly, agrees to indemnify and hold
harmless the Company, FTL-Cayman, the Guarantor Subsidiaries, each Underwriter
and the other selling Holders, and each of their respective directors and
officers, and each Person, if any, who controls the Company, FTL-Cayman, the
Guarantor Subsidiaries, any Underwriter or any other selling Holder within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any
and all loss, liability, claim, damage and expense described in the indemnity
contained in Section 4(a) hereof, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Shelf Registration Statement (or any amendment thereto) or any Prospectus
included therein (or any amendment or supplement thereto) in reliance upon and
in conformity with written information furnished to the Company expressly for
use in the Shelf Registration Statement (or any amendment thereto) or such
Prospectus (or any amendment or supplement thereto); PROVIDED, HOWEVER, that no
such Holder shall be liable for any claims hereunder in excess of the amount of
net proceeds received by such Holder from the sale of Registrable Securities
pursuant to such Shelf Registration Statement.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action or proceeding commenced
against it in respect of
<PAGE>
which indemnity may be sought hereunder, but failure so to notify an
indemnifying party shall not relieve such indemnifying party from any
liability hereunder to the extent it is not materially prejudiced as a result
thereof and in any event shall not relieve it from any liability which it may
have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such action;
PROVIDED, HOWEVER, that counsel to the indemnifying party shall not (except
with the consent of the indemnified party, which consent shall not be
unreasonably withheld) also be counsel to the indemnified party.
Notwithstanding the foregoing, if it so elects within a reasonable time after
receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties
defendant in such action (which approval shall not be unreasonably withheld),
unless such indemnified parties reasonably object to such assumption on the
ground that there may be legal defenses available to them which are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying party
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action. In no event
shall the indemnifying party or parties be liable for the fees and expenses
of more than one counsel (in addition to any local counsel) separate from
their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be
sought under this Section 4 (if the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim
and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel pursuant to Section 4(a)(iii) hereof, such indemnifying party agrees
that it shall be liable for any settlement of the nature contemplated by Section
4(a)(ii) effected without its written consent if (i) such settlement is entered
into more than 45 days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received notice of the terms of
such settlement at least 30 days prior to such settlement being entered into and
(iii) such indemnifying party shall not have reimbursed such indemnified party
in accordance with such request prior to the date of such settlement.
(e) The Guarantor Subsidiaries shall not be required by this Section 4 or
otherwise under this Agreement to make any payment to any Holder, Participating
Broker-Dealer or Underwriter or any person, if any, who controls any such
person, so long as and to the extent
<PAGE>
that the Company and FTL-Cayman pay and perform in full their obligations to
such person and controlling person under this Section 7 or otherwise under
this Agreement.
(f) If the indemnification provided for in this Section 4 is for any
reason unavailable to, or insufficient to hold harmless, an indemnified party in
respect of any losses, liabilities, claims, damages or expenses referred to
therein, then each indemnifying party shall contribute to the aggregate amount
of such losses, liabilities, claims, damages and expenses incurred by such
indemnified party, as incurred, (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company, FTL-Cayman and the
Guarantor Subsidiaries on the one hand and the Holders on the other hand, from
the offering of the Securities, the Exchange Securities and the Registrable
Securities (taken together) included in such offering or (ii) if the allocation
provided by clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company, FTL-Cayman and the
Guarantor Subsidiaries on the one hand, and the Holders on the other hand in
connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company, FTL-Cayman and the Guarantor
Subsidiaries from the offering of the Securities, the Exchange Securities and
the Registrable Securities (taken together) included in such offering shall in
each case be deemed to include the proceeds received by the Company in
connection with the offering of the Securities pursuant to the Purchase
Agreement.
The relative fault of the Company, FTL-Cayman and the Guarantor
Subsidiaries on the one hand and the Holders on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company or
FTL-Cayman or the Holders and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, FTL-Cayman and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 4. The aggregate
amount of losses, liabilities, claims, damages and expenses incurred by an
indemnified party and referred to above in this Section 4 shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever, based upon any such untrue or alleged
untrue statement or omission or alleged omission.
<PAGE>
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4, each Person, if any, who controls a Holder
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as such Holder, and each director of
the Company, FTL-Cayman or any Guarantor Subsidiary, each officer of the
Company, FTL-Cayman or any Guarantor Subsidiary who signed the Registration
Statement and each Person, if any, who controls the Company, FTL-Cayman or any
Guarantor Subsidiary within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company,
FTL-Cayman and the Guarantor Subsidiaries.
5. MISCELLANEOUS.
5.1 RULE 144 AND RULE 144A. For so long as the Company or FTL-Cayman is
subject to the reporting requirements of Section 13 or 15 of the 1934 Act, the
Company and FTL-Cayman each covenant that it will file the reports required to
be filed by either of them under the 1933 Act and Section 13(a) or 15(d) of the
1934 Act and the rules and regulations adopted by the SEC thereunder. If the
Company or FTL-Cayman ceases to be so required to file such reports, the Company
and FTL-Cayman each covenant that it will upon the request of any Holder of
Registrable Securities (a) make publicly available such information as is
necessary to permit sales of Registrable Securities pursuant to Rule 144 under
the 1933 Act, (b) deliver such information to a prospective purchaser as is
necessary to permit sales of Registrable Securities pursuant to Rule 144A under
the 1933 Act and it will take such further action as any Holder of Registrable
Securities may reasonably request, and (c) take such further action that is
reasonable in the circumstances, in each case, to the extent required from time
to time to enable such Holder to sell its Registrable Securities without
registration under the 1933 Act within the limitation of the exemptions provided
by (i) Rule 144 under the 1933 Act, as such Rule may be amended from time to
time, (ii) Rule 144A under the 1933 Act, as such Rule may be amended from time
to time, or (iii) any similar rules or regulations hereafter adopted by the
SEC. Upon the request of any Holder of Registrable Securities, the Company and
FTL-Cayman will deliver to such Holder a written statement as to whether the
Company and FTL-Cayman have complied with such requirements.
5.2 NO INCONSISTENT AGREEMENTS. Neither the Company nor FTL-Cayman has
entered into, and neither the Company nor FTL-Cayman will after the date of this
Agreement enter into, any agreement which is inconsistent with the rights
granted to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with the rights granted to the holders of
the Company's other issued and outstanding securities under any such agreements.
<PAGE>
5.3 AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given unless the Company has obtained the written consent of Holders of at least
a majority in aggregate principal amount of the outstanding Registrable
Securities affected by such amendment, modification, supplement, waiver or
departure.
5.4 NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (a) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 5.4, and (b) if to the Company, FTL-Cayman or the Guarantor
Subsidiaries, initially at the Company's address set forth in the Purchase
Agreement, and thereafter at such other address of which notice is given in
accordance with the provisions of this Section 5.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; two business days
after being deposited in the mail, postage prepaid, if mailed; when answered
back, if telexed; when receipt is acknowledged, if telecopied; and on the next
business day if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee under the
Indenture, at the address specified in such Indenture.
5.5 SUCCESSOR AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement. If any transferee of any
Holder shall acquire Registrable Securities, in any manner, whether by operation
of law or otherwise, such Registrable Securities shall be held subject to all of
the terms of this Agreement, and by taking and holding such Registrable
Securities such person shall be conclusively deemed to have agreed to be bound
by and to perform all of the terms and provisions of this Agreement, including
the restrictions on resale set forth in this Agreement and, if applicable, the
Purchase Agreement, and such person shall be entitled to receive the benefits
hereof.
5.6 THIRD PARTY BENEFICIARIES. The Initial Purchasers (even if the
Initial Purchasers are not Holders of Registrable Securities) shall be third
party beneficiaries to the agreements made hereunder between the Company,
FTL-Cayman and the Guarantor Subsidiaries, on the
<PAGE>
one hand, and the Holders, on the other hand, and shall have the right to
enforce such agreements directly to the extent they deem such enforcement
necessary or advisable to protect their rights or the rights of Holders
hereunder. Each Holder of Registrable Securities shall be a third party
beneficiary to the agreements made hereunder by the Company, FTL-Cayman and
the Guarantor Subsidiaries, and shall have the right to enforce such
agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights hereunder. Other than the foregoing
sentences, nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchasers, the Holders, including Participating Broker-Dealers, each
underwriter who participates in an offering of Registrable Securities, their
respective affiliates, and the Company, FTL-Cayman and the Guarantor
Subsidiaries and their respective successors and the controlling persons,
directors, officers, employees, and agents referred to in Section 4 and their
heirs and legal representatives, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole benefit of the Initial Purchasers, the Holders
and the Company, FTL-Cayman and the Guarantor Subsidiaries and the other
persons referenced by the preceding sentences and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation.
5.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
5.8 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
5.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.10 SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
5.11 EFECTIVENESS. This Agreement shall be effective upon original
issuance of the Securities.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
FRUIT OF THE LOOM, INC.
By:
--------------------------------
Name:
Title:
FRUIT OF THE LOOM, LTD.
By:
--------------------------------
Name:
Title:
Aliceville Cotton Mill, Inc. Jet Sew Technologies, Inc.
The B.V.D. Licensing Corporation Leesburg Yarn Mills, Inc.
DeKalb Knitting Corporation, Inc. Martin Mills, Inc.
Fayette Cotton Mill, Inc. Pro-Player, Inc.
FOL Caribbean Corporation Rabun Apparel, Inc.
Fruit of the Loom Arkansas, Inc. Russell Hosiery Mills, Inc.
Fruit of the Loom Caribbean, Inc. Salem Sportswear Corporation
Fruit of the Loom, Inc. (N.Y.) Salem Sportswear, Inc.
Fruit of the Loom Trading Company Sherman Warehouse Corporation
FTL Regional Sales Company, Inc. Union Sales, Inc.
FTL Sales Company, Inc. Union Underwear Company, Inc.
Fruit of the Loom, Texas, Inc. Union Yarn Mills, Inc.
Gitano Fashions Limited Whitmire Manufacturing, Inc.
Greenville Manufacturing, Inc. Winfield Cotton Mill, Inc.
By:
--------------------------------
Name:
Title:
Confirmed and accepted as
<PAGE>
of the date first above
written:
CREDIT SUISSE FIRST BOSTON CORPORATION
NATIONSBANC MONTGOMERY SECURITIES LLC
SCOTIA CAPITAL MARKETS (USA), INC.
BY: CREDIT SUISSE FIRST BOSTON CORPORATION
By: ----------------------------------
Name:
Title:
<PAGE>
Exhibit 8.1
May 24, 1999
Fruit of the Loom, Inc.
5000 Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606
Ladies and Gentlemen:
We have acted as counsel to Fruit of the Loom, Inc., a Delaware corporation
(the "Company"), in connection with the offer by the Company to exchange (the
"Exchange Offer") its 8-7/8% Senior Notes Due 2006 (the "Exchange Notes") for
all outstanding 8-7/8% Senior Notes Due 2006. 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 United States Federal Income Tax Considerations" 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 amended, existing Treasury regulations
thereunder, published rulings and practices of the Internal Revenue 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.
In rendering this opinion, with respect to questions of fact, we have
relied to the extent appropriate, without investigation, on the facts as stated
in the Registration Statement.
Based on the assumptions and subject to the qualifications and limitations
set forth therein, in our opinion the discussion set forth under the caption
"Certain United States Federal Income Tax Considerations" in the Registration
Statement accurately describes the material United States federal income tax
consequences of the acquisition, ownership and disposition of the Exchange
Notes. Such discussion is limited to the material United States federal income
tax consequences,
<PAGE>
Fruit of the Loom, Inc.
May 24, 1999
Page 2
and it does not purport to discuss all possible federal income tax consequences
or any state, local, or foreign tax consequences of the acquisition, ownership
and disposition of the Exchange 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.
Sincerely,
/s/ Katten Muchin & Zavis
<PAGE>
May 24, 1999
Fruit of the Loom, Inc.
5000 Sears Tower
233 S. Wacker Drive
Chicago, Illinois 60606
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as Cayman counsel for Fruit of the Loom, Inc., a
Delaware corporation (the "Company"), in connection with the preparation and
filing of a registration statement on Form S-4 (the "Registration
Statement"), with the Securities and Exchange Commission under the Securities
Act of 1933, as amended, relating to the exchange of up to an aggregate
principal amount of $250,000,000 of the Company's 8 7/8 % Senior Notes Due
2006 (the "Exchange Notes") for up to an aggregate principal amount of
$250,000,000 of its outstanding 8 7/8% Senior Notes Due 2006. Capitalized
terms used but not defined herein shall have the meanings as set forth in the
Registration Statement.
This letter is governed by the laws of the Cayman Islands, and is
subject to a number of qualifications, exceptions, and court decisions. It
should be noted that the 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.
Based on the assumptions and subject to the qualifications and
limitations set forth therein, (i) we adopt the discussion set forth under the
caption "Cayman Islands Taxation" in the Registration Statement as of 24 May,
1999 as our opinion with respect to the material Cayman Islands income tax
consequences of the Exchange Offer, and (ii) in our opinion such discussion
accurately describes the material Cayman Islands income tax consequences of the
acquisition, ownership and disposition of the Notes. Such discussion is limited
to the material Cayman Islands income tax consequences, and it does not purport
to discuss any possible foreign tax consequences of the acquisition, 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.
<PAGE>
Fruit of the Loom, Inc
May 24, 1999
Page 2
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.
Yours Faithfully,
/s/ Truman Bodden & Company
<PAGE>
EXHIBIT 12
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred stock dividends for
Fruit of the Loom, Inc. and subsidiaries for the periods indicated (in
millions of dollars).
<TABLE>
<CAPTION>
THREE
MONTHS YEAR ENDED
ENDED -----------------------------------------------------------------------
APRIL 3, JANUARY 2, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1999 1999 1999 1999
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense $ 21.6 $ 97.3 $ 84.7 $ 103.6 $ 116.9 $ 95.4
Amortization of debt issuance costs 0.6 1.4 1.3 2.1 2.5 3.0
Portion of rents representative of interest factor 4.2 15.7 14.6 14.8 12.2 6.7
Capitalized interest expense - 0.1 0.1 0.6 1.7 1.9
------ ------ ------- ------- ------- ------
Total fixed charges 26.4 114.5 100.7 121.1 133.3 107.0
Preferred Stock dividends 0.3 - - - - -
------ ------ ------- ------- ------- ------
$ 26.7 $114.5 $ 100.7 $ 121.1 $ 133.3 $107.0
------ ------ ------- ------- ------- ------
Earnings:
Earnings before income tax expense $ (9.2) $143.0 $(451.7) $ 178.2 $(247.5) $170.2
Interest expense 21.6 97.3 84.7 103.6 116.9 95.4
Amortization of debt issuance costs 0.6 1.4 1.3 2.1 2.5 3.0
Portion of rents representative of interest factor 4.2 15.7 14.6 14.8 12.2 6.7
Amortization of capitalized interest 0.2 0.5 1.2 1.2 1.2 1.1
------ ------ ------- ------- ------- ------
Total earnings (loss) $ 17.4 $257.9 $(349.9) $ 299.9 $(114.7) $276.4
------ ------ ------- ------- ------- ------
Ratio of earnings to fixed charges 0.7x 2.3x * x 2.5x * x 2.6x
Ratio of earnings to combined fixed charges and
preferred stock dividends 0.7x 2.3x * x 2.5x * x 2.6x
* Earnings were insufficient to cover fixed charges for the years ended December 31, 1997 and 1995 by $453.6 and $248.0,
respectively.
</TABLE>
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Prospectus of Fruit of the Loom,
Inc. relating to the exchange offer of $250,000,000 8 7/8% Senior Notes due 2006
and to the use of our report dated February 16, 1999, except for "Subsequent
Events" note, as to which the date is March 25, 1999, with respect to the
consolidated financial statements of Fruit of the Loom, Inc. and to the use of
our report dated May 21, 1999 with respect to the balance sheet of Fruit of the
Loom, Ltd..
We also consent to the incorporation by reference therein of our report dated
February 16, 1999, except for "Subsequent Events" note, as to which the date is
March 25, 1999 with respect to the consolidated financial statements and
schedule of Fruit of the Loom, Inc. included in its Annual Report (Form 10-K)
for the year ended January 2, 1999, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Chicago, Illinois
May 21, 1999
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
------------
FRUIT OF THE LOOM, INC.
(Exact name of obligor as specified in its charter)
Delaware 36-3361804
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
------------
FRUIT OF THE LOOM, LTD.
(Exact name of obligor as specified in its charter)
Cayman Islands None
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Table of Additional Registrants
-------------------------------
Aliceville Cotton Mill, Inc. Alabama 63-0398991
The B.V.D. Licensing Corporation Delaware 13-2873530
Dekalb Knitting Corporation, Inc. Alabama 61-1218696
Fayette Cotton Mill, Inc. Alabama 63-0400244
FOL Caribbean Corporation Delaware 61-1296288
Fruit of the Loom Arkansas, Inc. Arkansas 61-1167075
Fruit of the Loom Caribbean, Inc. Delaware 61-1153959
Fruit of the Loom, Inc. New York 05-0144075
Fruit of the Loom Trading Company Delaware 61-1207878
FTL Regional Sales Company, Inc. Delaware 61-1278881
FTL Sales Company, Inc. f/k/a
<PAGE>
Fruit of the Loom Sales Co., Inc. New York 13-5591934
Fruit of the Loom, Texas, Inc. Texas 61-1152526
Gitano Fashions Limited Delaware 36-3940847
Greenville Manufacturing, Inc. Mississippi 61-1221118
Jet Sew Technologies, Inc. New York 16-1442737
Leesburg Yarn Mills, Inc. Alabama 31-1298216
Martin Mills, Inc. Louisiana 72-0688301
Pro-Player, Inc. New York 13-3122774
Rabun Apparel, Inc. Georgia 58-2012332
Russell Hosiery Mills, Inc. North Carolina 56-0503626
Salem Sportswear Corporation Delaware 04-3119649
Salem Sportswear, Inc. New Hampshire 02-0359850
Sherman Warehouse Corporation Mississippi 64-0439662
Union Sales, Inc. Delaware 61-0909765
Union Underwear Company, Inc. New York 61-0505082
Union Yarn Mills, Inc. Alabama 63-0360168
Whitmire Manufacturing, Inc. South Carolina 61-1233121
Winfield Cotton Mill, Inc. Alabama 63-0400565
5000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
(Address of principal executive offices) (Zip code)
---------------
8-7/8% Senior Notes due April 15, 2006
(Title of the indenture securities)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-2-
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
- -------------------------------------------------------------------------------
Name Address
- -------------------------------------------------------------------------------
Superintendent of Banks of the 2 Rector Street, New York,
State of New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y. 10045
Federal Deposit Insurance Washington, D.C. 20429
Corporation
New York Clearing House Association New York, New York 10005
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16.LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(D).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 19th day of May, 1999.
THE BANK OF NEW YORK
By: /s/ MICHELE L. RUSSO
-----------------------------
Name: MICHELE L. RUSSO
Title: ASSISTANT TREASURER
-4-
