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Filed Pursuant to Rule 424(b)(3)
File No. 333-23167
PROSPECTUS
SYNTHETIC INDUSTRIES, INC.
OFFER TO EXCHANGE ITS
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007 (SERIES B)
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/4% SENIOR SUBORDINATED NOTES DUE 2007 (SERIES A)
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ALTHOUGH THE NOTES ARE TITLED "SENIOR," (A) THE COMPANY HAS NOT ISSUED, AND
DOES NOT HAVE ANY CURRENT FIRM ARRANGEMENTS TO ISSUE, ANY SIGNIFICANT
INDEBTEDNESS SUBORDINATE TO THE NOTES, AND (B) THE NOTES ARE SUBORDINATE TO ALL
OF THE CURRENTLY OUTSTANDING INDEBTEDNESS OF THE COMPANY AND ITS SUBSIDIARIES.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS
WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON JULY 14, 1997, UNLESS EXTENDED.
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SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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Synthetic Industries, Inc., a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and in the accompanying Letter of Transmittal (the "Letter of
Transmittal") (which together constitute the "Exchange Offer"), to exchange up
to $170,000,000 aggregate principal amount of its 9 1/4% Senior Subordinated
Notes due 2007 (Series B) (the "New Notes"), the offer and sale of which has
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like principal amount of its outstanding
9 1/4% Senior Subordinated Notes due 2007 (Series A) (the "Old Notes"), of which
$170,000,000 aggregate principal amount is outstanding. The Old Notes and the
New Notes are together referred to herein as the "Notes."
The terms of the New Notes are identical in all material respects to the
terms of the Old Notes, except that the offer and sale of New Notes have been
registered under the Securities Act. The New Notes, therefore, will not be
subject to certain restrictions on transfer applicable to the Old Notes and will
not be entitled to registration rights or other rights under the Registration
Rights Agreement (as defined below). See "The Exchange Offer." The New Notes are
being offered for exchange in order to satisfy certain obligations of the
Company under the Registration Rights Agreement, dated as of February 11, 1997
(the "Registration Rights Agreement"), between the Company and the Initial
Purchaser (as defined herein) of the Old Notes. The New Notes will be issued
under, and be entitled to the benefits of, the same Indenture (as defined
herein) as the Old Notes and the New Notes and the Old Notes will for all
purposes be deemed to be a single series of debt securities under the Indenture.
In the event that the Exchange Offer is consummated, any Old Notes which remain
outstanding after consummation of the Exchange Offer and the New Notes issued in
the Exchange Offer will vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding principal
amount of Notes have taken certain actions or exercised certain rights under the
Indenture. See "Description of the New Notes" and "Description of the Old
Notes."
continued on next page
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JUNE 16, 1997.
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Interest on the New Notes is payable semiannually on February 15 and August
15 of each year (each, an "Interest Payment Date"), commencing on the first such
date following the original issuance date of the New Notes. The New Notes will
mature on February 15, 2007. The New Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or after February 15, 2002 at
the redemption prices set forth herein, plus accrued and unpaid interest, if
any, thereon (plus Liquidated Damages (as defined herein), if any) to the date
of redemption. Notwithstanding the foregoing, on or prior to February 15, 2000,
the Company may redeem at any time or from time to time up to 35% of the
aggregate principal amount of the New Notes originally issued at a redemption
price of 109.25% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon (plus Liquidated Damages, if any) to the redemption
date, with the net proceeds of one or more Public Equity Offerings (as defined
herein); provided, however, that at least $110.5 million in aggregate principal
amount of the New Notes remain outstanding following each such redemption. Upon
the occurrence of a Change of Control (as defined herein), the Company will be
required to make an offer to repurchase all or any part of the New Notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon (plus Liquidated Damages, if any) to the date of
repurchase. See "Description of the New Notes." There can be no assurance that
the Company would have sufficient resources to repurchase the Notes upon the
occurrence of a Change of Control. See "Risk Factors -- Risk of Default due to
Repurchase of Notes Upon Change of Control."
The Indenture governing the Notes limits the amount of indebtedness,
including significant Senior Debt (as defined herein), which the Company may
incur. See "Description of the New Notes -- Certain Covenants -- Limitation on
the Incurrence of Indebtedness and Issuance of Disqualified Stock." As of March
31, 1997, the Company and its subsidiaries had outstanding approximately $35
million of Senior Debt. The Company does not have any current or pending
arrangements or agreements to incur any additional Senior Debt.
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The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Securities and Exchange
Commission (the "Commission") as set forth in certain No-Action Letters issued
to Morgan Stanley & Co. Incorporated (available June 5, 1991) (the "Morgan
Stanley Letter"), Exxon Capital Holdings Corp. (available April 13, 1988), and
Shearman & Sterling (available July 2, 1993), and certain other interpretive
letters addressed to third parties in other transactions. However, the Company
has not sought its own interpretive letter and there can be no assurance that
the staff of the Division of Corporation Finance of the Commission would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based on these interpretations by the
staff of the Division of Corporation Finance of the Commission, and subject to
the two immediately following sentences, the Company believes that New Notes
issued pursuant to this Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business and that
such holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. However, any holder of Old Notes that is an
"affiliate" of the Company or that intends to participate in the Exchange Offer
for the purpose of distributing New Notes, or any broker-dealer who purchased
Old Notes from the Company to resell pursuant to Rule 144A under the Securities
Act ("Rule 144A") or any other available exemption under the Securities Act, (a)
will not be able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the Morgan Stanley Letter and
the other above-mentioned interpretive letters, (b) will not be permitted or
entitled to tender such Old Notes in the Exchange Offer and (c) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Notes unless such sale is
made pursuant to an exemption from such requirements. In addition, as described
below, if any broker-dealer holds Old Notes acquired for its own account as a
result of market-making or other trading activities and exchanges such Old Notes
for New Notes, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such New
Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. 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 on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company believes that broker-dealers who acquired Old
Notes for their own accounts, as a result of market-making activities or other
trading activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
New Notes received in exchange for Old Notes where such Old Notes were acquired
by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New Notes
for a period ending 180 days
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(subject to extension under certain limited circumstances described below) after
the Expiration Date (as defined below) or, if earlier, when all such New Notes
have been disposed of by such Participating Broker-Dealer. However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of New Notes received in exchange for Old Notes pursuant to the
Exchange Offer must notify the Company, or cause the Company to be notified, on
or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such
notice may be given in the space provided for that purpose in the Letter of
Transmittal or may be delivered to the Exchange Agent at one of the addresses
set forth herein under "The Exchange Offer -- Exchange Agent." See "Plan of
Distribution." Any Participating Broker-Dealer who is an "affiliate" of the
Company may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange Offer -- Resales of
New Notes."
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Notes pursuant to this Prospectus until the Company has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be. If the Company gives such notice to suspend the
sale of the New Notes, it shall extend the 180-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Notes by the number of days in the period from
and including the date of the giving of such notice to and including the date
when the Company shall have made available to Participating Broker-Dealers
copies of the supplemented or amended Prospectus necessary to resume resales of
the New Notes or to and including the date on which the Company has given notice
that the use of the applicable Prospectus may be resumed, as the case may be.
Prior to the Exchange Offer, there has been no public market for the Old
Notes or the New Notes. Although the Initial Purchaser has informed the Company
that it currently intends to make a market in the New Notes, it is not obligated
to do so, and any such market-making activities with respect to the New Notes
may be discontinued at any time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
The Company currently does not intend to apply for listing of the New Notes on
any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and will be subject to the
limitations applicable thereto under the Indenture (except for those rights
which terminate upon consummation of the Exchange Offer). Following consummation
of the Exchange Offer, the holders of Old Notes will continue to be subject to
the existing restrictions upon transfer thereof and the Company will have no
further obligation to such holders (other than to the Initial Purchaser under
certain limited circumstances) to provide for registration under the Securities
Act of the Old Notes held by them. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Old Notes
could be adversely affected. See "Risk Factors -- Certain Consequences of a
Failure to Exchange Old Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
Old Notes may be tendered for exchange on or prior to 12:00 midnight, New
York City time, on July 14, 1997 (such time on such date being hereinafter
called the "Expiration Date"), unless the Exchange Offer is extended by the
Company (in which case the term "Expiration Date" shall mean the latest
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date and time to which the Exchange Offer is extended). Tenders of Old Notes may
be withdrawn at any time on or prior to the Expiration Date. The Exchange Offer
is not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain events and
conditions which may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement. Old Notes may be tendered in whole or in part
in a principal amount of $1,000 and integral multiples thereof. The Company has
agreed to pay all expenses of the Exchange Offer. See "The Exchange
Offer -- Fees and Expenses." Each New Note will bear interest from the most
recent date to which interest has been paid or duly provided for on the Old Note
surrendered in exchange for such New Note or, if no such interest has been paid
or duly provided for on such Old Note, from February 11, 1997. Holders of the
Old Notes whose Old Notes are accepted for exchange will not receive accrued
interest on such Old Notes for any period from and after the last Interest
Payment Date to which interest has been paid or duly provided for on such Old
Notes prior to the original issue date of the New Notes or, if no such interest
has been paid or duly provided for, will not receive any accrued interest on
such Old Notes, and will be deemed to have waived the right to receive any
interest on such Old Notes accrued from and after such Interest Payment Date or,
if no such interest has been paid or duly provided for, from and after February
11, 1997.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of June 16, 1997.
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. No dealer-manager is being used in connection with this
Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of the Old Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance with
any provision of any applicable security law.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the Commission's Regional Offices in New York (Seven World
Trade Center, 13th Floor, New York, New York 10048), and Chicago (Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661). Copies of
these materials may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, such reports, proxy statements and other information may be
electronically accessed at the Commission's site on the World Wide Web located
at http://www.sec.gov. Such reports, proxy statements and other information
concerning the Company may also be inspected at the offices of the Nasdaq
National Market, 1735 K Street, N.W., Washington, D.C. 20006.
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments thereto, the "Registration Statement") filed by
the Company with the Commission under the Securities Act. This Prospectus, which
forms a part of the Registration Statement, does not contain all the information
set forth in the Registration Statement, certain parts of which have been
omitted in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and related exhibits and
schedules filed therewith for further information with respect to the Company
and the New Notes offered hereby. Statements contained herein concerning the
provisions of any contract, agreement or other document are not necessarily
complete and, in each instance, reference is made to the copy of such document
filed or incorporated by reference as an exhibit to the Registration Statement
or otherwise filed by the Company with the Commission and each such statement is
qualified in its entirety by such reference. The Registration Statement and the
exhibits and schedules thereto may be inspected and copied at the public
reference facilities maintained by the Commission at the addresses set forth
above.
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Prospectus, including, without
limitation, statements under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business" regarding the
Company's financial position, business strategy and plans and objectives of
management of the Company for future operations, constitute forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Cautionary statements
describing important factors that could cause actual results to differ
materially from the Company's expectations are disclosed under the caption "Risk
Factors" and elsewhere in this Prospectus, including, without limitation, in
conjunction with the forward-looking statements included in this Prospectus. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by such cautionary statements.
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and financial
data, including the Consolidated Financial Statements and notes thereto,
appearing elsewhere in this Prospectus. The terms "SI" and "Company" refer to
Synthetic Industries, Inc. and its subsidiaries, unless otherwise stated or
indicated by the context. References to a "fiscal" year refer to the Company's
fiscal year which ends on September 30 (e.g., "fiscal 1996" means the Company's
fiscal year ended September 30, 1996).
THE COMPANY
Synthetic Industries, Inc. ("SI" or the "Company") is one of the world's
leading producers of polypropylene fabrics and fibers for the home furnishing,
construction, environmental, recreational and agricultural industries. The
Company manufactures and sells more than 2,000 products in over 65 end-use
markets. The Company believes that it is the second largest producer of carpet
backing in the world and is the largest producer of synthetic fiber additives
for concrete reinforcement through its Fibermesh(R) line of products. SI also
produces polypropylene products for the geotextile and erosion control markets
and is a leader in designing innovative products for specialty applications. The
Company's products are engineered to meet specific customer criteria such as
strength, flexibility, resistance to sunlight and water/air permeability. The
Company aims to compete in markets in which it can be the primary or secondary
provider of such products, with over 93% of its products meeting this criterion.
The Company's consolidated sales have grown from $196 million in fiscal 1992 to
$300 million in fiscal 1996.
The Company's products are sold along three principal product lines: carpet
backing, construction and civil engineering products, and technical textiles.
The Company has a worldwide presence in carpet backing, a woven fabric used in
all modern tufted carpets, and is one of the two leading manufacturers in the
U.S. that produce a broad range of primary and secondary carpet backing. Carpet
backing accounted for approximately 49% of the Company's fiscal 1996 sales. The
Company's construction and civil engineering products are its fastest growing
product line and include fiber additives for concrete reinforcement and
environmental and geotextile products used in roadways, landfills and building
sites to stabilize soils and control erosion. The Company's sales to the
construction and civil engineering market have grown from approximately $35
million in fiscal 1992 to approximately $97 million in fiscal 1996. These
products represented approximately 32% of the Company's total sales in fiscal
1996, up from approximately 18% of total sales in fiscal 1992. The Company's
technical textile products are comprised of specialty fabrics, industrial yarns
and fibers used in diverse applications such as filtration (e.g., wastewater
treatment, air filtration and bauxite mining), agriculture (e.g., shade cloth
and ground cover) and recreation (e.g., swimming pool covers and trampoline
mats). These products are highly engineered to meet niche customer applications
and represented approximately 19% of fiscal 1996 sales. The Company's products
are principally sold through direct sales to customers by the Company's sales
force and through a broad network of distributors located across North and South
America, Europe and the Pacific Rim.
Management believes that the Company has a reputation in its markets as a
high quality, cost-efficient manufacturer. The Company is committed to
maintaining its market leadership and reputation for innovation through capital
investment in facilities and state-of-the-art equipment, by hiring and training
skilled employees and through process control standards and productivity
improvements. SI invested approximately $113 million in expansion capital during
the five year period ended September 30, 1996, primarily for equipment purchases
to increase manufacturing capacity. This investment included a $35 million,
130,000 square foot expansion of its largest manufacturing facility completed in
August 1996 which, based on existing product prices and demand, should increase
the Company's sales by as much as $30 million for fiscal 1997. The Company
anticipates that ongoing maintenance capital expenditures will be less than $5
million per year. Additional capital expenditures, if any, will be focused on
expansion opportunities, subject to market conditions. The Company is one of the
largest independent consumers of polypropylene in the world. The Company
believes its position as a vertically-integrated manufacturer -- performing each
step in the conversion of polypropylene into value-added end
products -- provides a competitive advantage by allowing
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the Company to manufacture high quality products to customer's specifications,
while controlling manufacturing costs. See "Business -- The Company."
The Company's principal business strategy is to leverage its market
presence in its core businesses into additional growth while maintaining its
market position as a high quality, cost-efficient manufacturer. The primary
components of this strategy are:
- Expand Penetration of Existing Markets. The Company is committed to
expanding sales in markets where it currently has a leadership position
by increasing market penetration through the offering of a broader
product line to meet its customers' varied needs and by expanding its
customer base. The Company is pursuing this goal through: (i) the
expansion of geographical coverage of its sales efforts; (ii) the
development of applications-oriented marketing efforts that focus on the
Company's product solutions as alternatives to traditional industry
practices; (iii) increased customer acceptance of its products created
through stringent quality standards and industry accreditation for its
test labs; and (iv) the use of in-house technical consultants to educate
industry leaders as to the cost savings offered by the Company's products
as compared to traditional solutions. The Company has experienced success
with this strategy, as evidenced by the growth of its civil engineering
product line for which sales have increased from approximately $31
million in fiscal 1994 to approximately $55 million in fiscal 1996.
Within this product line, the Company has focused on the roadway and
building sites, erosion control and waste containment sectors. Among
other products, nonwoven geotextile sales to the roadway and building
site markets have grown from approximately $13 million in fiscal 1994 to
approximately $19 million in fiscal 1996. In addition, the Company has
expanded its presence in international markets primarily through
additional distribution arrangements, increased marketing efforts focused
primarily on major international construction projects and the expansion
of its international sales force. As a result, total international sales
increased from approximately $25 million in fiscal 1994 to approximately
$33 million in fiscal 1996. See "Business -- Business Strategy -- Expand
Penetration of Existing Markets."
- Develop Innovative Products. The Company seeks to develop innovative
products and modify existing products in response to specific customer
needs and to establish new markets through the development of novel
applications for its existing products. By increasing its expenditures
for research, product development and marketing, the Company believes it
will be able to capitalize on its manufacturing strengths and
distribution network to introduce new value added products and extend
product lines to complement its existing product base. For example,
within the Company's Fibermesh(R) product line, a specially designed
Fibermesh(R) MD product provides after-crack strength retention to
concrete, thus mitigating immediate failure of the concrete. Since its
introduction in 1991, sales of Fibermesh(R) MD have grown to
approximately $27 million in fiscal 1996. See "Business -- Business
Strategy -- Develop Innovative Products."
- Strengthen Market Position in Carpet Backing. The Company intends to
increase its carpet backing market share through: (i) continued capital
investment in state-of-the-art equipment for additional carpet backing
production capacity; (ii) expansion of sales in the growing commercial
carpet sector of the domestic market; and (iii) the continued development
and strengthening of its relationships with key customers. As an example
of this strategy, in August 1996 the Company completed an expansion at
its largest facility that has increased the Company's current capacity in
carpet backing by approximately 16%. See "Business -- Business
Strategy -- Strengthen Market Position in Carpet Backing."
- Continue to Improve Manufacturing Efficiencies and Expand Manufacturing
Capacity. The Company has continued to invest in capital improvements and
new facilities to expand capacity, add new capabilities and enhance
production technologies, and in August 1996 completed a major expansion
at its largest manufacturing facility in order to take advantage of
opportunities in both the carpet backing and geotextile markets. The
Company plans to continue to spend additional capital to increase its
manufacturing capability for primary and secondary carpet backing and
woven and nonwoven
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geotextiles, subject to prevailing market conditions. See "Business -- Business
Strategy -- Continue to Improve Manufacturing Efficiencies and Expand
Manufacturing Capacity."
- Pursue Strategic Acquisitions. The Company is continually evaluating the
potential acquisition of companies, technologies or products which will
complement its existing product lines and manufacturing and distribution
strengths. Acquisition opportunities will be evaluated based on the
strategic fit, the expected return on capital invested and the ability of
management to improve the profitability of acquired operations through
cost reductions and other synergies with existing operations. See
"Business -- Business Strategy -- Pursue Strategic Acquisitions."
While the Company's sales have grown in each of the past five years, the
Company's operating income has fluctuated due to a variety of factors,
principally related to changes in the cost of polypropylene, the Company's
primary raw material. The Company believes that the sales prices of its products
will adjust over time to reflect changes in polypropylene costs, although such
cost changes favorably affected operating results for fiscal 1994 and adversely
affected operating results for fiscal 1995 and the first half of fiscal 1996. In
the second half of fiscal 1996, these movements positively affected the
Company's operating income, which increased by 97% to approximately $29 million
for the third and fourth quarters of fiscal 1996 from approximately $15 million
for the comparable periods of fiscal 1995. These favorable conditions continued
in the first two quarters of fiscal 1997 with operating income increasing 83% to
$16,678 from $9,091 for the same period of fiscal 1996.
The Company was incorporated in 1969 to produce polypropylene-based primary
carpet backing and acquired in 1976 by a group of private investors. In December
1986, the Company was acquired by Synthetic Industries, L.P., a Delaware limited
partnership (the "Partnership"), which was the sole stockholder until the
completion of the Company's initial public offering in November 1996. The
Partnership currently owns approximately 67% of the issued and outstanding
shares of Common Stock. See "The Company" and "Business -- History."
The principal executive offices of the Company are located at 309 LaFayette
Road, Chickamauga, Georgia 30707, and the Company's telephone number is (706)
375-3121.
RECENT DEVELOPMENTS
On February 11, 1997, the Company issued $170 million aggregate principal
amount of Old Notes (the "Old Notes Offering"). The net proceeds of the Old
Notes Offering were used by the Company to (i) repurchase an aggregate of
$132,597,000 principal amount of the Company's 12 3/4% Senior Subordinated
Debentures due December 1, 2002 (the "Debentures") and pay premiums and consent
fees related thereto pursuant to an Offer to Purchase and Consent Solicitation
(the "Purchase Offer") to repurchase all of the Company's outstanding $140
million principal amount of Debentures and (ii) to reduce the Company's
indebtedness under the Company's Fourth Amended and Restated Revolving Credit
and Security Agreement, dated as of October 20, 1995, as subsequently amended
(the "Credit Facility"), among the Company, the financial institutions party
thereto, as the lenders (the "Lenders"), and BankBoston, as agent for the
Lenders.
On February 27, 1997, the Company acquired all of the equipment and certain
other assets of a needlepunch nonwoven manufacturer, for approximately $9.4
million in cash. Pro forma results of operations are not presented because the
effects of the acquisition are not significant.
On June 9, 1997, the Company filed a registration statement with the
Commission relating to a distribution of shares of its common stock, par value
$1.00 per share (the "Common Stock"), held by Synthetic Industries, L.P., a
Delaware limited partnership (the "Partnership"), its majority stockholder. The
filing was made pursuant to a proposed plan of withdrawal and dissolution of the
Partnership (the "Plan") to provide liquidity for holders of its limited
partnership units (the "Limited Partners"). The preliminary Plan, which must be
approved by the Limited Partners, provides for (1) withdrawal of all or a
specified portion of the shares of Common Stock currently held by the
Partnership by Limited Partners who elect to participate in an underwritten
secondary offering of the shares so withdrawn within 180 days following adoption
of the Plan
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<PAGE> 10
and (2) the subsequent dissolution of the Partnership through one or more
liquidating distributions of the portion of the shares remaining in the
Partnership after the secondary offering. The secondary offering is currently
planned to occur prior to January 1998 and the subsequent distribution(s) to
commence 270 days following the secondary offering. See "Risk Factors -- Risk of
Default due to Repurchase of Notes Upon Change of Control."
THE EXCHANGE OFFER
The Exchange Offer......... Up to $170,000,000 aggregate principal amount of
New Notes are being offered in exchange for a like
aggregate principal amount of Old Notes. Old Notes
may be tendered for exchange in whole or in part in
a principal amount of $1,000 and integral multiples
thereof. The Company is making the Exchange Offer
in order to satisfy its obligations under the
Registration Rights Agreement relating to the Old
Notes. For a description of the procedures for
tendering Old Notes, see "The Exchange
Offer -- Procedures for Tendering Old Notes."
Expiration Date............ 12:00 midnight, New York City time, on July 14,
1997 unless the Exchange Offer is extended by the
Company (in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is extended). See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
Certain Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain
conditions. The Company reserves the right in its
sole and absolute discretion, subject to applicable
law and the terms of the Registration Rights
Agreement, at any time and from time to time, (i)
to delay the acceptance of the Old Notes for
exchange, (ii) to terminate the Exchange Offer if
certain specified conditions have not been
satisfied, (iii) to extend the Expiration Date of
the Exchange Offer and retain all Old Notes
tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Old Notes to
withdraw their tendered Old Notes, or (iv) to waive
any condition or otherwise amend the terms of the
Exchange Offer in any respect. If the Exchange
Offer is amended in a manner determined by the
Company to constitute a material change, or if the
Company waives a material condition of the Exchange
Offer, the Company will promptly disclose such
amendment by means of a prospectus supplement that
will be distributed to the registered holders of
the Old Notes, and the Company will extend the
Exchange Offer to the extent required by Rule 14e-1
under the Exchange Act. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments"
and "-- Certain Conditions to the Exchange Offer."
Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time
on or prior to the Expiration Date by delivering a
written notice of such withdrawal to the Exchange
Agent in conformity with certain procedures set
forth below under "The Exchange Offer -- Withdrawal
Rights."
Procedures for Tendering
Old Notes................ Tendering holders of Old Notes must complete and
sign a Letter of Transmittal in accordance with the
instructions contained therein and forward the same
by mail, facsimile or hand delivery, together with
any other required documents, to the Exchange Agent
(as defined below), either with the Old Notes to be
tendered or in compliance with the
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<PAGE> 11
specified procedures for guaranteed delivery of Old
Notes. Certain brokers, dealers, commercial banks,
trust companies and other nominees may also effect
tenders by book-entry transfer. Holders of Old
Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish
to tender Old Notes pursuant to the Exchange Offer.
See "The Exchange Offer -- Procedures for Tendering
Old Notes." Letters of Transmittal and certificates
representing Old Notes should not be sent to the
Company. Such documents should only be sent to the
Exchange Agent. Questions regarding how to tender
and requests for information should be directed to
the Exchange Agent. See "The Exchange Offer --
Exchange Agent."
Resales of New Notes....... The Company is making the Exchange Offer in
reliance on the position of the staff of the
Division of Corporation Finance of the Commission
as set forth in certain No-Action Letters issued to
Morgan Stanley & Co. Incorporated (available June
5, 1991) (the "Morgan Stanley Letter"), Exxon
Capital Holdings Corp. (available April 13, 1988),
and Shearman & Sterling (available July 2, 1993),
and certain other interpretive letters addressed to
third parties in other transactions. However, the
Company has not sought its own interpretive letter
and there can be no assurance that the staff of the
Division of Corporation Finance of the Commission
would make a similar determination with respect to
the Exchange Offer as it has in such interpretive
letters to third parties. Based on these
interpretations by the staff of the Division of
Corporation Finance of the Commission and subject
to the two immediately following sentences, the
Company believes that New Notes issued pursuant to
this Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise
transferred by a holder thereof (other than a
holder who is a broker-dealer) without further
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that such New Notes are acquired in the
ordinary course of such holder's business and that
such holder is not participating, and has no
arrangement or understanding with any person to
participate, in a distribution (within the meaning
of the Securities Act) of such New Notes. However,
any holder of Old Notes that is an "affiliate" of
the Company or that intends to participate in the
Exchange Offer for the purpose of distributing the
New Notes, or any broker-dealer who purchased the
Old Notes from the Company to resell pursuant to
Rule 144A or any other available exemption under
the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in
the Morgan Stanley Letter and the other
above-mentioned interpretive letters, (b) will not
be permitted or entitled to tender such Old Notes
in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any sale
or other transfer of such Old Notes unless such
sale is made pursuant to an exemption from such
requirements. In addition, as described below, if
any broker-dealer holds Old Notes acquired for its
own account as a result of market-making or other
trading activities and exchanges such Old Notes for
New Notes, then such broker-dealer must deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resales of
such New Notes.
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<PAGE> 12
Each holder of Old Notes who wishes to exchange Old
Notes for New Notes in the Exchange Offer will be
required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to
be received by it are being acquired in the
ordinary course of its business, (iii) it has no
arrangement or understanding with any person to
participate in a distribution (within the meaning
of the Securities Act) of such New Notes, and (iv)
if such holder is not a broker-dealer, such holder
is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the
Securities Act) of such New Notes. Each
broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes for its
own account as the result of market-making
activities or other trading activities and must
agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resale of such New Notes. 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 on
the position taken by the staff of the Division of
Corporation Finance of the Commission in the
interpretive letters referred to above, the Company
believes that broker-dealers who acquired Old Notes
for their own accounts as a result of market-making
activities or other trading activities
("Participating Broker-Dealers") may fulfill their
prospectus delivery requirements with respect to
the New Notes received upon exchange of such Old
Notes (other than Old Notes which represent an
unsold allotment from the original sale of the Old
Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus
prepared for an exchange offer so long as it
contains a description of the plan of distribution
with respect to the resale of such New Notes.
Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with
resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such
Participating Broker-Dealer for its own account as
a result of market-making or other trading
activities. Subject to certain provisions set forth
in the Registration Rights Agreement and to the
limitations described below under "The Exchange
Offer -- Resale of New Notes," the Company has
agreed that this Prospectus, as it may be amended
or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with
resales of such New Notes for a period ending 180
days (subject to extension under certain limited
circumstances) after the Expiration Date or, if
earlier, when all such New Notes have been disposed
of by such Participating Broker-Dealer. However, a
Participating Broker-Dealer who intends to use this
Prospectus in connection with the resale of New
Notes received in exchange for Old Notes pursuant
to the Exchange Offer must notify the Company, or
cause the Company to be notified, on or prior to
the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the
space provided for that purpose in the Letter of
Transmittal or may be delivered to the Exchange
Agent at one of the addresses set forth herein
under "The Exchange Offer -- Exchange Agent." See
"Plan of Distribution." Any Participating
Broker-Dealer who is an "affiliate" of the Company
may not rely on such interpretive letters and must
comply with the registration and prospectus
delivery requirements of the Securities
11
<PAGE> 13
Act in connection with any resale transaction. See
"The Exchange Offer -- Resales of New Notes."
Exchange Agent............. The exchange agent with respect to the Exchange
Offer is United States Trust Company of New York
(the "Exchange Agent"). The addresses, and
telephone and facsimile numbers of the Exchange
Agent are set forth in "The Exchange
Offer -- Exchange Agent" and in the Letter of
Transmittal.
Use of Proceeds............ The Company will not receive any cash proceeds from
the issuance of the New Notes offered hereby. See
"Use of Proceeds."
Certain United States
Federal Income Tax
Considerations........... King & Spalding, counsel to the Company, has
advised the Company that, in its opinion, the
exchange of Old Notes for New Notes will not be a
taxable event to holders for federal income tax
purposes. However, holders of Old Notes
contemplating acceptance of the Exchange Offer
should consult their own tax advisors with respect
to their particular circumstances. See "Certain
United States Federal Income Tax Considerations."
THE NEW NOTES
Securities Offered......... Up to $170,000,000 aggregate principal amount of
the Company's 9 1/4% Senior Subordinated Notes due
2007 (Series B) which have been registered under
the Securities Act.
Although the Notes are titled "Senior," (a) the
Company has not issued, and does not have any
current firm arrangements to issue, any significant
indebtedness subordinate to the Notes, and (b) the
Notes are subordinate to all of the currently
outstanding indebtedness of the Company and its
subsidiaries.
The New Notes will be issued and the Old Notes were
issued under an Indenture, dated as of February 11,
1997 (the "Indenture"), between the Company and
United States Trust Company of New York, as Trustee
(the "Trustee"). The New Notes and any Old Notes
which remain outstanding after consummation of the
Exchange Offer will for all purposes be deemed to
be a single series of debt securities under the
Indenture and, accordingly, will vote together as a
single class for purposes of determining whether
holders of the requisite percentage in outstanding
principal amount thereof have taken certain actions
or exercised certain rights under the Indenture.
See "Description of the New Notes -- General."
The terms of the New Notes are identical in all
material respects to the terms of the Old Notes,
except that the offer and sale of the New Notes
have been registered under the Securities Act. The
New Notes, therefore, will not be subject to
certain restrictions on transfer applicable to the
Old Notes and will not be entitled to registration
rights or other rights under the Registration
Rights Agreement. See "The Exchange
Offer -- Purpose of the Exchange Offer,"
"Description of the New Notes" and "Description of
the Old Notes."
Maturity Date.............. February 15, 2007.
Interest Payment Dates..... February 15 and August 15 of each year, commencing
August 15, 1997.
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<PAGE> 14
Denominations.............. The New Notes will be issued in minimum
denominations of $1,000 and integral multiples of
$1,000 in excess thereof.
Optional Redemption........ The New Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or
after February 15, 2002, at the redemption prices
set forth herein, plus accrued and unpaid interest,
if any, thereon (plus Liquidated Damages, if any)
to the date of redemption. Notwithstanding the
foregoing, on or prior to February 15, 2000, the
Company may redeem at any time or from time to time
up to 35% of the aggregate principal amount of the
New Notes originally issued at a redemption price
of 109.25% of the principal amount thereof, plus
accrued and unpaid interest, if any, thereon (plus
Liquidated Damages, if any) to the redemption date,
with the net proceeds of one or more Public Equity
Offerings; provided, however, that at least $110.5
million in aggregate principal amount of the New
Notes remain outstanding following each such
redemption. See "Description of the New Notes --
Optional Redemption."
Change of Control Offer.... Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
repurchase all or any part of the New Notes at a
price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any,
thereon (plus Liquidated Damages, if any) to the
date of repurchase. See "Description of the New
Notes -- Repurchase at the Option of
Holders -- Change of Control."
Ranking.................... The New Notes will be general unsecured obligations
of the Company, subordinated in right of payment to
all existing and future Senior Debt of the Company,
including all obligations of the Company under the
Credit Facility. As of March 31, 1997, the Company
had outstanding approximately $35 million of Senior
Debt. The New Notes will be effectively
subordinated to all Indebtedness of the Company's
subsidiaries (none at March 31, 1997). See
"Capitalization" and "Description of the New
Notes -- Subordination."
Certain Covenants.......... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries (as defined
herein) to incur additional Indebtedness, pay
dividends or make other distributions, repurchase
any capital stock or subordinated Indebtedness,
make certain investments, create certain liens,
enter into certain transactions with affiliates,
sell assets or enter into certain mergers and
consolidations. See "Description of the New
Notes -- Certain Covenants."
Absence of Market for the
New Notes................ The New Notes will be a new issue of securities for
which there currently is no market. Although Bear,
Stearns & Co. Inc., the initial purchaser of the
Old Notes (the "Initial Purchaser"), has informed
the Company that it currently intends to make a
market in the New Notes, it is not obligated to do
so, and any such market making may be discontinued
at any time without notice. Accordingly, there can
be no assurance as to the development or liquidity
of any market for the New Notes. The Company
currently does not intend to apply for listing of
the New Notes on any securities exchange or for
quotation through the National Association of
Securities Dealers Automated Quotation System.
For further information regarding the New Notes, see "Description of the
New Notes."
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<PAGE> 15
RISK FACTORS
Prospective investors should carefully review the information set forth
below, in addition to the other information set forth in this Prospectus, in
evaluating an investment in the Notes.
RISK OF INCREASE IN RAW MATERIAL PRICES AND LIMITED AVAILABILITY OF RAW
MATERIALS
Polypropylene, a petroleum derivative, is the basic raw material used in
the manufacture of substantially all of the Company's products, accounting for
approximately 50% of the Company's cost of sales. The price of polypropylene is
primarily a function of manufacturing capacity, demand and the prices of
petrochemical feedstocks, crude oil and natural gas liquids. Historically, the
market price of polypropylene has fluctuated, such as in fiscal 1995 when the
average market cost of polypropylene was approximately 50% higher than in fiscal
1994. A significant increase in the price of polypropylene that cannot be passed
on to customers could have a material adverse effect on the Company's results of
operations and financial condition. There can be no assurance that the price of
polypropylene will not increase in the future or that the Company will be able
to pass on any such increase to its customers. In addition, significant
increases in demand for, or a significant disruption in supply of,
polypropylene, without a corresponding expansion of polypropylene manufacturing
capacity, could result in production shortages. Historically, the creation of
such additional facilities has helped to relieve supply pressures although there
can be no assurance that this will continue to be the case.
The Company's major suppliers of polypropylene are Fina Oil & Chemical
Company, Lyondell Polymers Company, Huntsman Polypropylene and Union Carbide.
The loss of any one of the Company's suppliers could adversely affect the
Company's business until alternative supply arrangements were secured. In
addition, there is no assurance that any new supply agreement entered into by
the Company would have terms comparable to those contained in current supply
arrangements. See "Business -- Raw Materials".
RISK OF HIGH LEVERAGE
The Company is highly leveraged. As of March 31, 1997, the Company had
outstanding consolidated long-term debt (including current maturities) of
approximately $212 million. The degree to which the Company is leveraged could
have important consequences to holders of Notes, including: (i) impairment of
the Company's ability to obtain additional financing in the future; (ii)
reduction of funds available to the Company for its operations and general
corporate purposes or for capital expenditures, as a result of the dedication of
a substantial portion of the Company's net cash flow from operations to the
payment of principal of and interest on the Company's indebtedness, including
indebtedness under the Notes; (iii) the possibility of an event of default under
financial and operating covenants contained in the Company's debt instruments,
including the Indenture, which, if not cured or waived, could possibly have a
material adverse effect on the Company; (iv) a relative competitive disadvantage
if the Company is substantially more leveraged than its competitors; and (v) an
inability to adjust to rapidly changing market conditions and consequent
vulnerability in the event of a downturn in general economic conditions or its
business because of the Company's reduced financial flexibility. The Company's
ability to make scheduled payments or to refinance its obligations with respect
to its indebtedness depends on its financial and operating performance, which,
in turn, is subject to prevailing economic conditions and to financial, business
and other factors beyond its control. Although the Company's cash flow from its
operations has historically been sufficient to meet its debt service
obligations, there can be no assurance that the Company's operating results will
continue to be sufficient for payment of the Company's indebtedness, including
indebtedness under the Notes. See "Capitalization" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources". Substantially all of the assets of the Company and its
subsidiaries secure the Company's Fourth Amended and Restated Revolving Credit
and Security Agreement, dated as of October 20, 1995, as subsequently amended
(the "Credit Facility"), among the Company, the financial institutions party
thereto as the lenders (the "Lenders"), and Bank Boston, as agent for the
Lenders. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
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<PAGE> 16
RISK OF SUBORDINATION OF NOTES TO SENIOR DEBT
The Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt of the
Company, including obligations under the Credit Facility. As of March 31, 1997,
the Company had outstanding Senior Debt of approximately $35 million. Subject to
certain limitations, the Indenture will permit the Company to incur additional
indebtedness, including Senior Debt. See "Description of the New
Notes -- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Disqualified Stock." In addition, the Notes will be effectively subordinated to
indebtedness of the Company's subsidiaries. The indebtedness under the Credit
Facility will also become due prior to the time the principal obligations under
the Notes become due. As a result of the subordination provisions contained in
the Indenture, in the event of a liquidation or insolvency of the Company, the
assets of the Company will be available to pay obligations on the Notes only
after all Senior Debt has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes then outstanding.
In addition, substantially all of the assets of the Company and its subsidiaries
may in the future be pledged to secure other indebtedness of the Company. See
"Description of the New Notes."
RISK OF DEFAULT DUE TO REPURCHASE OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to repurchase all or any part of the Notes at a price equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if any,
thereon (plus Liquidated Damages, if any) to the date of repurchase. The Board
of Directors of the Company does not have the power to waive any of the Change
of Control provisions of the Indenture. Certain events involving a Change of
Control may result in an event of default under the Credit Facility and may
result in an event of default under other indebtedness of the Company that may
be incurred in the future. An event of default under the Credit Facility or
other future Senior Debt could result in an acceleration of such indebtedness,
in which case the subordination provisions of the Notes would require payment in
full (or provision therefor) of such Senior Debt before the Company may
repurchase or make other payments in respect of the Notes. See "Description of
the New Notes -- Repurchase at the Option of Holders -- Change of Control" and
" -- Subordination of Notes." There can be no assurance that the Company would
have sufficient resources to repurchase the Notes or pay its obligations if the
indebtedness under the Credit Facility or other future Senior Debt were
accelerated upon the occurrence of a Change of Control. In addition, provisions
in the Credit Facility limiting the total amount of indebtedness that the
Company can incur at any one time may restrict the Company from repurchasing the
Notes in the future, whether upon a Change of Control or otherwise, and in any
event, the Change of Control provisions may not afford any protection to the
holders of Notes in a highly leveraged transaction if such transaction does not
result in a Change of Control as defined in the Indenture. The inability to
repay Senior Debt of the Company, if accelerated, and to repurchase all of the
tendered Notes upon a Change of Control would constitute an event of default
under the Indenture. These provisions may be deemed to have anti-takeover
effects and may delay, defer or prevent a merger, tender offer or other takeover
attempt. No assurance can be given that the terms of any future indebtedness
will not contain cross default provisions based upon Change of Control or other
defaults under such debt instruments.
Approximately 67% of the Company's outstanding Common Stock is currently
held by the Partnership. The Partnership has proposed to its approximately 1,850
Limited Partners a plan of withdrawal and dissolution of the Partnership (the
"Plan"). The Plan provides for (1) a withdrawal of all or a specified portion of
the shares of Common Stock currently held by the Partnership by Limited Partners
who elect to participate in an underwritten secondary offering of the shares so
withdrawn within 180 days following adoption of the Plan and (2) the subsequent
dissolution of the Partnership through one or more liquidating distributions of
the portion of the shares remaining in the Partnership after the secondary
offering. The secondary offering is currently planned to occur prior to January
1998 and the subsequent distribution(s) to commence 270 days following the
secondary offering. The Company has filed a registration statement with the
Commission relating to the distributions of shares of Common Stock in the Plan.
If, as a result of purchases of Common Stock in the proposed secondary offering
and/or the subsequent distribution(s), any Person or group (as such term is used
Sections 13(d) and 14(d) of the Exchange Act), becomes the "beneficial owner"
(generally as defined in
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<PAGE> 17
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly of more
than 50% of the total voting power of the Voting Stock of the Company, a Change
of Control would occur. Currently, none of the Limited Partners, if distributed
Common Stock in respect to its limited partner interests as of the date hereof,
would own more than 14,400 shares, or 0.17% of the total shares of Common Stock
outstanding. See "Recent Developments" and "Descriptions of the New
Notes -- Repurchase at the Option of Holder -- Change of Control" and
"-- Certain Definitions."
MARKETS FOR COMPANY PRODUCTS ARE HIGHLY COMPETITIVE
The markets for the Company's products are highly competitive. In the
manufacture and sale of carpet backing, which represented approximately 49% of
the Company's total net sales for the fiscal years ended 1996 and 1995,
respectively, the Company competes primarily with Amoco Fabrics and Fibers Co.
("Amoco"), a subsidiary of Amoco Corporation, and, to a lesser extent, certain
other companies. Amoco has the leading position in the carpet backing market
worldwide. In the manufacture and sale of the Company's other products, the
Company generally competes with a number of other companies, including, in some
cases, Amoco. Several of these competitors, particularly Amoco, are
significantly larger and have substantially greater resources than the Company.
The pricing policies of the Company's competitors have at certain times in the
past limited the Company's ability to increase its sales prices or caused the
Company to lower its sales prices. See "Business -- Products," " -- Marketing
and Sales" and " -- Raw Materials".
LOSS OF SIGNIFICANT CUSTOMER COULD ADVERSELY AFFECT THE COMPANY
For the fiscal years ended 1996 and 1995, Shaw Industries, Inc. ("Shaw"), a
major carpet manufacturer and long-time customer of the Company, was the
Company's largest single customer, accounting for approximately 18% of the
Company's total net sales and approximately 36% and 37%, respectively, of the
Company's carpet backing sales. If Shaw were to significantly reduce or
terminate its purchases of carpet backing from the Company, the Company's
results of operations and financial condition could be materially adversely
affected. The Company has no other customers that account for greater than 10%
of its total net sales. In fiscal 1996 and fiscal 1995, the Company's ten
largest customers for carpet backing accounted for approximately 78% and 77%,
respectively, of its total net sales to the carpet industry. See "Business --
Marketing and Sales -- Carpet Backing".
CONSEQUENCES OF ADOPTION OF ENVIRONMENTAL REGULATION
Certain local governments have adopted ordinances prohibiting or
restricting the use or disposal of certain polypropylene products. Widespread
adoption of such prohibitions or restrictions could adversely affect demand for
the Company's products and thereby have a material adverse effect upon the
Company. In addition, a decline in consumer preference for polypropylene
products due to environmental considerations could have a material adverse
effect upon the Company.
CERTAIN CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES
The issuance of the Old Notes was not registered under the Securities Act
or any state securities laws and therefore the Old Notes may not be offered,
sold or otherwise transferred except in compliance with the registration
requirements of the Securities Act and any other applicable securities laws, or
pursuant to an exemption therefrom or in a transaction not subject thereto, and
in each case in compliance with certain other conditions and restrictions,
including the Company's and the Trustee's right in certain cases to require the
delivery of opinions of counsel, certifications and other information prior to
any such transfer. Old Notes which remain outstanding after consummation of the
Exchange Offer will continue to bear a legend reflecting such restrictions on
transfer. In addition, upon consummation of the Exchange Offer, holders of Old
Notes which remain outstanding will not be entitled to any rights to have the
sale of such Old Notes registered under the Securities Act or to any similar
rights under the Registration Rights Agreement (subject to certain limited
exceptions applicable solely to the Initial Purchaser). The Company currently
does not intend to register under the Securities Act the sale of any Old Notes
which remain outstanding after consummation of the Exchange Offer (subject to
such limited exceptions, if applicable).
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<PAGE> 18
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Notes could be adversely
affected. In addition, although the Old Notes are eligible for trading in the
Private Offerings, Resale and Trading through Automatic Linkages ("PORTAL")
market, and Old Notes which remain outstanding after the consummation of the
Exchange Offer will continue to be so eligible, to the extent that Old Notes are
tendered and accepted in connection with the Exchange Offer, any trading market
for Old Notes which remain outstanding after the Exchange Offer could be
adversely affected.
The New Notes and any Old Notes which remain outstanding after consummation
of the Exchange Offer will constitute a single series of debt securities under
the Indenture and, accordingly, will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding principal amount thereof have taken certain actions or exercised
certain rights under the Indenture. See "Description of the New
Notes -- General."
THE COMPANY
The Company is one of the world's leading producers of polypropylene
fabrics and fibers for the home furnishing, construction, environmental,
recreational and agricultural industries. The Company manufactures and sells
more than 2,000 products in over 65 end-use markets. The Company believes that
it is the second largest producer of carpet backing in the world and is the
largest producer of synthetic fiber additives for concrete reinforcement through
its Fibermesh(R) line of products. SI also produces polypropylene products for
the geotextile and erosion control markets and is a leader in designing
innovative products for specialty applications. The Company's products are
engineered to meet specific customer criteria such as strength, flexibility,
resistance to sunlight and water/air permeability. The Company aims to compete
in markets in which it can be the primary or secondary provider of such
products, with over 93% of its products meeting this criterion. The Company's
consolidated sales have grown from $196 million in fiscal 1992 to $300 million
in fiscal 1996.
Approximately 67% of the issued and outstanding capital stock of the
Company is owned by Synthetic Industries, L.P., a Delaware limited partnership
(the "Partnership"). SI Management L.P., a Delaware limited partnership (the
"General Partner"), is the sole general partner of the Partnership and controls
the management and affairs of the Partnership and therefore the Company. SI
Management L.P. is controlled indirectly by Leonard Chill, Ralph Kenner, William
Gardner Wright, Jr. and W. Wayne Freed, current executive officers of the
Company, and Jon P. Beckman, a former executive officer of the Company. See
"Management -- Executive Officers and Directors of the Company" and "Certain
Relationships and Related Transactions."
The principal executive offices of the Company are located at 309 LaFayette
Road, Chickamauga, Georgia 30707, and the Company's telephone number is (706)
375-3121.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes in exchange for
Old Notes as described in this Prospectus, the Company will receive Old Notes in
like principal amount. The Old Notes surrendered in exchange for the New Notes
will be retired and canceled. Accordingly, the issuance of the New Notes will
not result in any change in the indebtedness of the Company.
The net proceeds to the Company from the sale of the Old Notes was
approximately $164.5 million. The Company used the net proceeds to fund the
Purchase Offer and to repay outstanding indebtedness under the Credit Facility.
The Credit Facility expires on October 1, 2001. On March 31, 1997, approximately
$30,000 was outstanding under the Credit Facility, at interest rates ranging
from 8.3% to 9.5%.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997. The information presented below should be read in conjunction with
"Selected Consolidated Financial Information", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and notes thereto appearing elsewhere in this Prospectus.
The exchange of the New Notes for the Old Notes will have no effect on the cash
position or capitalization of the Company.
<TABLE>
<CAPTION>
MARCH 31,
1997
--------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE
AND PER SHARE
DATA)
<S> <C>
Cash........................................................ $ 1,190
Long-term debt(1):
Credit Facility(2):
Secured Revolving Credit portion.......................... $ 4,618
Term loan portion......................................... 25,000
12 3/4% Senior Subordinated Debentures due 2002............. 7,403
9 1/4% Senior Subordinated Debentures due 2007.............. 170,000
Capitalized lease obligation................................ 4,397
Other....................................................... 1,299
--------
Total long-term debt...................................... 212,717
Less current portion........................................ 688
--------
Long term debt, net....................................... 212,029
--------
Stockholders' equity:
Common Stock $1.00 par value; 25,000,000 shares
authorized; 8,656,250 shares issued and
outstanding(3)......................................... 8,656
Additional paid-in capital................................ 94,325
Cumulative translation adjustments........................ 143
Deficit................................................... (12,357)
--------
Total stockholder's equity........................ 90,767
--------
Total capitalization........................................ $302,796
========
</TABLE>
- ---------------
(1) For a description of the Company's long-term debt, see Note 6 of Notes to
Consolidated Financial Statements.
(2) At March 31, 1997, the amount available under the Credit Facility was
$19,051. The Company is currently in the process of renegotiating the Credit
Facility.
(3) Excludes 638,397 shares of Common Stock at March 31, 1997 which are subject
to options granted under the Stock Option Plans, 327,289 of which are
subject to currently exercisable options.
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND FINANCIAL RATIOS)
The statement of operations data for the fiscal years ended September 30,
1994, 1995 and 1996 and the balance sheet data as of September 30, 1995 and 1996
are derived from the Consolidated Financial Statements of the Company that have
been audited by Deloitte & Touche LLP, independent auditors, and are included
elsewhere in this Prospectus. The statement of operations data for the years
ended September 30, 1992 and 1993 and the balance sheet data as of September 30,
1992, 1993 and 1994 are derived from audited financial statements of the Company
that are not included herein. The statement of operations and balance sheet data
as of and for the three and six month periods ended March 31, 1996 and 1997 have
been derived from the unaudited interim financial statements of the Company and
include, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to fairly present the data for such
periods. The pro forma financial data is provided for informational purposes
only, is unaudited and is not necessarily indicative of future results or what
the operating results would have been had the transactions actually been
consummated as of the beginning of the periods indicated. The following Selected
Consolidated Financial Information should be read in conjunction with the
Consolidated Financial Statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus. The exchange of the New Notes for the Old
Notes will have no effect on the cash position or capitalization of the Company.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED THREE MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31, ENDED MARCH 31,
----------------------------------------------------- -------------------- -----------------
1992 1993 1994 1995(1) 1996 1996 1997 1996 1997
-------- -------- -------- -------- --------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $195,739 $210,516 $234,977 $271,427 $ 299,532 $129,217 $ 146,215 $64,609 $75,358
Cost of sales................ 133,690 142,181 152,305 194,706 208,321 96,087 101,166 46,170 51,123
-------- -------- -------- -------- --------- -------- --------- ------- -------
Gross profit................. 62,049 68,335 82,672 76,721 91,211 33,130 45,049 18,439 24,235
Selling, general and
administrative expenses.... 31,795 35,799 39,403 45,468 50,145 22,743 27,075 12,056 14,256
Amortization of
intangibles................ 2,598 2,615 2,499 2,566 2,592 1,296 1,296 648 648
-------- -------- -------- -------- --------- -------- --------- ------- -------
Operating income............. 27,656 29,921 40,770 28,687 38,474 9,091 16,678 5,735 9,331
Interest expense............. 17,865 20,854 20,011 22,514 22,773 11,390 10,775 5,710 5,365
Amortization of deferred
financing costs............ 1,636 933 739 737 699 348 339 175 163
-------- -------- -------- -------- --------- -------- --------- ------- -------
Income (loss) from continuing
operations before provision
(benefit) for income taxes
and extraordinary item..... 8,155 8,134 20,020 5,436 15,002 (2,647) 5,564 (150) 3,803
Provision (benefit) for
income taxes............... 4,560 4,472 8,600 3,500 6,900 (340) 2,500 260 1,643
-------- -------- -------- -------- --------- -------- --------- ------- -------
Income (loss) from continuing
operations before
extraordinary item......... 3,595 3,667 11,420 1,936 8,102 (2,307) 3,064 (410) 2,160
Net income (loss)(2)......... $ (3,972) $(12,310) $ 11,420 $ 1,936 $ 8,102 $ (2,307) $ (8,886) $ (410) $(9,790)
======== ======== ======== ======== ========= ======== ========= ======= =======
OTHER FINANCIAL DATA:
EBITDA(3).................... $ 36,937 $ 41,061 $ 52,421 $ 42,887 $ 54,074 $ 16,774 $ 25,366 $ 9,584 $13,715
Depreciation and
amortization............... 10,978 12,073 12,390 14,937 16,299 8,031 9,027 4,023 4,547
Capitalization expenditures
Maintenance................ 1,857 1,770 1,970 1,406 2,563 1,026 1,473 533 1,160
Expansion.................. 20,245 9,989 29,896 11,907 31,690 12,624 17,436 5,723 8,925
-------- -------- -------- -------- --------- -------- --------- ------- -------
Total.................. 22,102 11,759 31,866 13,313 34,253 13,650 18,909 6,256 10,085
Ratio of earnings to fixed
charges(4)................. 1.37x 1.33x 1.84x 1.21x 1.58x .79x 1.47x .98x 1.64x
PRO FORMA FINANCIAL DATA(5):
Interest expense............. $ 18,121 $ 9,575
Net income(6)................ 10,952 3,798
Net income per share(6)...... 1.24 .43
Weighted average shares
outstanding................ 8,805,502 8,805,502
Ratio of EBITDA to interest
expense.................... 3.0x 2.6x
Ratio of earnings to fixed
charges(4)................. 1.93x 1.64x
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF
---------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 33,980 $ 42,055 $ 44,114 $ 69,039 $ 64,077 $ 89,877
Total assets............................................ 254,581 260,372 287,933 312,300 324,058 370,778
Long-term debt, net..................................... 158,638 164,723 172,490 192,048 194,353 212,029
Stockholders' equity.................................... 56,700 44,423 55,817 57,756 65,844 90,767
</TABLE>
- ---------------
(1) Fiscal 1995 results of operations include a pre-tax charge of $2,852 to
increase the allowance for doubtful accounts due to a customer who
experienced severe financial difficulty. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
(2) Net loss for the three and six month periods ended March 31, 1997 includes
an extraordinary loss of $11,950 from the early extinguishment of debt. Net
income for fiscal 1993 includes (i) an extraordinary loss of $8,892 from the
early extinguishment of debt, (ii) a charge of $8,500 for the cumulative
effect of an accounting change relating to the adoption of SFAS No. 109,
"Accounting for Income Taxes", and (iii) a gain of $1,420 on the disposal of
discontinued operations. Net income for fiscal 1992 includes a loss from
discontinued operations of $553 and a loss on the disposal of discontinued
operations of $7,014.
(3) Represents income before interest, taxes, depreciation, and amortization.
EBITDA is presented because it provides useful information regarding a
company's ability to service and/or incur debt. EBITDA should not be
considered in isolation from or as a substitute for net income, cash flows
from operating activities and other consolidated income or cash flow
statement data prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
(4) The ratio of earnings to fixed charges represents the number of times fixed
charges are covered by earnings. For purposes of computing this ratio,
earnings consist of earnings from continuing operations before income taxes
plus fixed charges. Fixed charges consists of interest expense, including
such portion of rental expense which the Company estimates to be
representative of the interest factor attributable to such rental expense,
and amortization of deferred financing costs.
(5) Pro forma financial data reflects the reduction in interest expense after
giving effect to the November 1, 1996 underwritten public offering of
2,875,000 shares of Common Stock ("the Common Stock Offering"), the Purchase
Offer and the Old Notes Offering calculated as of the beginning of the
period indicated. See "Use of Proceeds".
(6) Pro forma net income and pro forma net income per share do not reflect an
after tax extraordinary loss on early extinguishment of debt of $11,950
resulting from the Purchase Offer.
20
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the information
contained in the Consolidated Financial Statements, including the notes thereto,
and the other financial information appearing elsewhere in this Prospectus.
Dollar amounts are in thousands. The following discussion includes
forward-looking statements that involve certain risks and uncertainties. See
"Risk Factors".
INTRODUCTION
The Company's net sales in recent years have increased due to a variety of
factors, including generally increasing sales volumes as a result of growing
demand for the Company's products and the Company's ability to expand its
markets through development of new products.
The Company's products are sold along three principal product lines: carpet
backing, construction and civil engineering products, and technical textiles.
The following table summarizes net sales growth for each of these product lines
during the fiscal years ended September 30, 1994, 1995 and 1996 and the six
month periods ended March 31, 1996 and 1997:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, SIX MONTHS ENDED MARCH 31,
------------------------------------------------------ -----------------------------------
1994 1995 1996 1996 1997
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Carpet backing..................... $117,791 50.1% $133,025 49.0% $146,491 48.9% $ 68,889 53.3% $ 77,128 52.7%
Construction and civil
engineering...................... 68,706 29.3 82,933 30.6 97,043 32.4 34,456 26.7 40,444 27.7
Technical textiles................. 48,480 20.6 55,469 20.4 55,998 18.7 25,872 20.0 28,643 19.6
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Net sales.......................... $234,977 100.0% $271,427 100.0% $299,532 100.0% $129,217 100.0% $146,215 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
The Company's carpet backing business has grown at a faster rate than that
of the industry as a whole, principally due to recent market share gains in the
consumer carpet backing market and increased penetration of the commercial
carpet backing market. The Company's construction and civil engineering business
has grown significantly over the past three years due to increased acceptance of
the Company's proprietary concrete reinforcement products, the expansion of this
product line to offer a full range of geosynthetic products to the markets the
Company serves and other innovative product offerings. Over the past three
years, the Company has streamlined its technical textile business and exited
several product lines which did not meet the Company's strategic sales and
profitability objectives. The Company believes that it has positioned its
technical textile business for increased sales and profitability.
While the Company's sales have grown in each of the past three years, the
Company's gross profit has fluctuated due to a variety of factors, primarily
related to changes in the price of polypropylene. Polypropylene is the basic raw
material used in the manufacture of substantially all of the Company's products,
accounting for approximately 50% of the Company's costs of goods sold. The
Company believes that the selling prices of its products have adjusted over time
to reflect changes in polypropylene prices, although such price changes
favorably affected gross profit for fiscal 1994 and adversely affected gross
profit for fiscal 1995. In the first six months of fiscal 1997 and for fiscal
1996, the Company's polypropylene prices were lower, on average, than for the
corresponding periods in the previous year. The benefit of this average cost
decrease, coupled with higher sales volume in each respective period, resulted
in a gross profit improvement. Gross profit for the first six months of fiscal
1997 was $45,049, compared to $33,130 for the same period of fiscal 1996, an
increase of $11,919, or 36.0%. As a percentage of sales, gross profit increased
to 30.8% from 25.6%. Gross profit for fiscal 1996 was $91,211, compared to
$76,721 for the same period of fiscal 1995, an increase of $14,490, or 18.9%. As
a percentage of sales, gross profit increased to 30.5% from 28.3%.
The Company has not experienced any shortage of supply of polypropylene;
however, continuous increases in demand or major supply disruptions without
offsetting increases in manufacturing capacities could cause future supply
shortages. Higher prices of polypropylene, however, without offsetting selling
price increases could have a significant negative effect on the Company's
results of operations and financial condition.
21
<PAGE> 23
According to a September 1996 report by Chemical Data Inc. ("Chem Data"), a
monthly petrochemical and plastics analysis publication, current annual
polypropylene capacity in North America is 12.6 billion pounds per year, up from
11.4 billion pounds at December 31, 1995. Total average annual capacity will
rise to 14.0 billion pounds per year for 1997 and 14.6 billion pounds per year
for 1998. Historically, the creation of additional capacity has helped to
relieve supply pressures although there can be no assurance that this will
continue to be the case.
The Company historically has operated at or near full capacity on a 24-hour
per day, seven days per week, 350 days per year schedule. Reflecting this level
of capacity utilization, the Company invested approximately $113,000 on its six
manufacturing facilities during the five year period ended September 30, 1996,
including the completion in August 1996 of a major $35,000 expansion at its
largest manufacturing facility. Based on existing product prices and demand,
this expansion should increase the Company's sales by as much as $30,000 for
fiscal 1997.
The following table sets forth the percentage relationships to net sales of
certain income statement items. See "Selected Consolidated Financial
Information", as well as the Consolidated Financial Statements, the notes
thereto and other financial information included elsewhere in the Prospectus for
more detailed financial information.
<TABLE>
<CAPTION>
THREE MONTHS
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31, DECEMBER 31,
-------------------------- ---------------- --------------
1994 1995 1996 1996 1997 1996 1997
------ ------ ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................... 64.8 71.7 69.5 74.4 69.2 71.5 67.8
----- ----- ----- ----- ----- ----- -----
Gross profit.................... 35.2 28.3 30.5 25.6 30.8 28.5 32.2
Selling expenses.................. 9.3 9.0 9.2 9.3 9.7 9.7 9.6
General and administrative
expenses........................ 7.5 7.8 7.6 8.4 8.8 9.0 9.3
Amortization of intangibles....... 1.0 0.9 0.9 1.0 0.9 1.0 0.9
----- ----- ----- ----- ----- ----- -----
Operating income................ 17.4 10.6 12.8 6.9 11.4 8.8 12.4
Interest expense.................. 8.5 8.3 7.6 8.8 7.4 8.8 7.1
Amortization of deferred financing
costs........................... 0.3 0.3 0.2 0.3 0.2 0.3 0.2
----- ----- ----- ----- ----- ----- -----
Income (loss) before provision
(benefit) for income taxes
and extraordinary item....... 8.6 2.0 5.0 (2.2) 3.8 (0.3) 5.1
Provision (benefit) for income
taxes........................... 3.7 1.3 2.3 (0.3) 1.7 0.4 2.2
----- ----- ----- ----- ----- ----- -----
Income (loss) before
extraordinary item........... 4.9% 0.7% 2.7% (1.9)% 2.1% (0.7)% 2.9%
===== ===== ===== ===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 as Compared to Three Months Ended March 31,
1996
Net sales for the second quarter of fiscal 1997 were $75,358 compared to
$64,609 for the same period of fiscal 1996, an increase of $10,749, or 16.6%.
Carpet backing sales for the second quarter of fiscal 1997 were $40,206 compared
to $35,336 for the same period of fiscal 1996, an increase of $4,870, or 13.8%.
Construction and civil engineering product sales for the second quarter of
fiscal 1997 were $19,675 compared to $15,056 for the same period of fiscal 1996,
an increase of $4,619, or 30.7%. Technical textile sales for the second quarter
of fiscal 1997 were $15,477 compared to $14,217 for the same period of fiscal
1996, an increase of $1,260, or 8.9%.
Gross profit for the second quarter of fiscal 1997 was $24,235 compared to
$18,439 for the same period of fiscal 1996, an increase of $5,796, or 31.4%. As
a percentage of sales, gross profit increased to 32.2% from 28.5%. This increase
was primarily due to increased sales volume and lower average polypropylene
costs. See "-- Introduction."
22
<PAGE> 24
Selling expenses for the second quarter of fiscal 1997 were $7,246 compared
to $6,236 for the same period of fiscal 1996, an increase of $1,010, or 16.2%.
This increase was primarily due to increased expenditures associated with higher
sales volume as well as increased marketing expenses. These expenses are related
to the Company's expectation of higher sales in fiscal 1997 resulting from the
completion of the fiscal 1996 capacity expansion program. As a percentage of
sales, selling expenses decreased from 9.7% to 9.6%.
General and administrative expenses for the second quarter of fiscal 1997
were $7,010 compared to $5,820 for the same period of fiscal 1996, an increase
of $1,190, or 20.4%. As a percentage of sales, general and administrative
expenses increased from 9.0% to 9.3%. The increase in general and administrative
expenses was primarily due to infrastructure expenditures, which included an
increased investment in the Company's Management Information System, to support
anticipated Company growth.
Operating income for the second quarter of fiscal 1997 was $9,331 compared
to $5,735 for the same period of fiscal 1996, an increase of $3,596, or 62.7%.
As a percentage of sales, operating income increased to 12.4% in fiscal 1997
from 8.8% in fiscal 1996. This increase was primarily due to higher sales
volumes and lower average raw material costs offset by slightly increased
general and administrative costs.
Interest expense for the second quarter of fiscal 1997 was $5,365 compared
to $5,710 for the same period of fiscal 1996, a decrease of $345, or 6.0%, due
to interest income of $223 as well as lower interest on the outstanding debt and
the prepayment of the Credit Facility.
The effective income tax rate before the effect of extraordinary items for
the second quarter of fiscal 1997 was 43%, due primarily to the effect of
nondeductible expenses, including the amortization of goodwill, on taxable
income in fiscal 1997.
Income before extraordinary loss for the second quarter of fiscal 1997 was
$2,160 compared to net loss of $410 for the same period of fiscal 1996, an
increase of $2,570. Earnings before interest, taxes, depreciation and
amortization ("EBITDA") for the second quarter of fiscal 1997 were $13,715
compared to $9,584 for the same period of fiscal 1996, an increase of $4,131, or
43.1%. The increase in income, as well as EBITDA, was primarily due to higher
sales volumes and lower average raw material costs offset by slightly increased
general and administrative costs.
Six Months Ended March 31, 1997 as Compared to Six Months Ended March 31, 1996
Net sales for the first six months of fiscal 1997 were $146,215 compared to
$129,217 for the same period of fiscal 1996, an increase of $16,998, or 13.2%.
Carpet backing sales for the first six months of fiscal 1997 were $77,128
compared to $68,889 for the same period of fiscal 1996, an increase of $8,239,
or 12.0%. Construction and civil engineering product sales for the first six
months of fiscal 1997 were $40,747 compared to $34,456 for the same period of
fiscal 1996, an increase of $6,291, or 18.3%. Technical textiles sales for the
first six months of fiscal 1997 were $28,340 compared to $25,872 for the same
period of fiscal 1996, an increase of $2,458, or 9.5%.
Gross profit for the first six months of fiscal 1997 was $45,049 compared
to $33,130 for the same period of fiscal 1996, an increase of $11,919, or 36.0%.
As a percentage of sales, gross profit increased to 30.8% from 25.6%. This
increase was primarily due to increased sales volume and lower average
polypropylene costs.
Selling expenses for the first six months of fiscal 1997 were $14,184
compared to $11,952 for the same period of fiscal 1996, an increase of $2,232,
or 18.7%. This increase was primarily due to increased expenditures associated
with higher sales volume as well as increased marketing expenses. These expenses
are related to the Company's expectation of higher sales in fiscal 1997
resulting from the completion of the fiscal 1996 capacity expansion program. As
a percentage of sales, selling expenses increased from 9.3% to 9.7%.
General and administrative expenses for the first six months of fiscal 1997
were $12,891 compared to $10,791 for the same period of fiscal 1996, an increase
of $2,100, or 19.5%. As a percentage of sales, general and administrative
expenses increased from 8.4% to 8.8%. The increase in general and administrative
expenses was primarily due to infrastructure expenditures, which included an
increased investment in the Company's Management Information System, to support
anticipated Company growth.
Operating income for the first six months of fiscal 1997 was $16,678
compared to $9,091 for the same period of fiscal 1996, an increase of $7,587, or
83.5%. As a percentage of sales, operating income increased to
23
<PAGE> 25
11.4% in fiscal 1997 from 6.9% in fiscal 1996. This was primarily due to higher
sales volumes and lower average raw material costs offset by slightly increased
selling and general and administrative costs.
Interest expense for the first six months of fiscal 1997 was $10,775
compared to $11,390 for the same period of fiscal 1996, a decrease of $615, or
5.4%, due to interest income of $395 as well as a lower interest rate on the
outstanding debt and the prepayment of the Credit Facility.
The effective income tax rate before the effect of the extraordinary item
for the first six months of fiscal 1997 was 45% due primarily to the effect of
nondeductible expenses, including the amortization of goodwill, on taxable
income in fiscal 1997.
Income before extraordinary loss for the first six months of fiscal 1997
was $3,064 compared to net loss of $2,307 for the same period of fiscal 1996, an
increase of $5,371. EBITDA for the first six months of fiscal 1997 were $25,366
compared to $16,774 for the same period of fiscal 1996, an increase of $8,592,
or 51.2%. The increase in income, as well as EBITDA, was primarily due to higher
sales volumes and lower average raw material costs offset by slightly increased
selling and general and administrative costs.
Fiscal 1996 Compared to Fiscal 1995
Net sales for fiscal 1996 were $299,532 compared to $271,427 for fiscal
1995, an increase of $28,105, or 10.4%. This increase was primarily due to
increased sales of carpet backing and construction and civil engineering
products. Carpet backing sales for fiscal 1996 were $146,491 compared to
$133,025 for fiscal 1995, an increase of $13,466, or 10.1%. This increase was
the result of higher unit volume in primary and secondary carpet backing,
partially offset by lower average selling prices. Construction and civil
engineering product sales for fiscal 1996 were $97,043 compared to $82,933 for
fiscal 1995, an increase of $14,110, or 17.0%. This increase was due to an
increase in sales of geotextile and erosion control fabrics of $13,018, or
30.7%, resulting primarily from nonwoven sales in the landfill and roadway and
building site markets. Technical textiles sales for fiscal 1996 were $55,998
compared to $55,469 for fiscal 1995, an increase of $529, or 1.0%.
Gross profit for fiscal 1996 was $91,211, compared to $76,721 for the same
period of fiscal 1995, an increase of $14,490, or 18.9%. As a percentage of
sales, gross profit increased to 30.5% from 28.3%. This increase was primarily
due to increased sales volume as well as lower average polypropylene costs. See
"-- Introduction."
Selling expenses for fiscal 1996 were $27,488 compared to $24,273 for the
same period of fiscal 1995, an increase of $3,215, or 13.2%. This increase was
primarily due to increased expenditures associated with higher sales volume as
well as increased marketing expenses. These expenses are related to the
Company's expectation of higher sales in 1997 resulting from the completion of
the 1996 capacity expansion program. As a percentage of sales, selling expenses
increased from 9.0% to 9.2%.
General and administrative expenses for fiscal 1996 were $22,657 compared
to $21,195 for the same period of fiscal 1995, an increase of $1,462, or 6.9%.
As a percentage of sales, general and administrative expenses decreased from
7.8% to 7.6%. In fiscal 1995, general and administrative expenses included a
pre-tax charge of $2,852 related to an increase in the allowance for doubtful
accounts taken to establish a reserve for a carpet backing customer who
experienced severe financial difficulties. Without this charge, fiscal 1995
general and administrative expenses as a percentage of sales would have been
6.8%. The increase in general and administrative expenses was primarily due to
infrastructure expenditures, which included an increased investment in the
Company's Management Information System, to support anticipated Company growth.
Operating income for fiscal 1996 was $38,474 as compared to $28,687 for
fiscal 1995, an increase of $9,787, or 34.1%. As a percentage of sales,
operating income increased to 12.8% in fiscal 1996 from 10.6% in fiscal 1995.
This was primarily due to factors discussed above.
Total interest expense for fiscal 1996 was $22,773 compared to $22,514 for
fiscal 1995, an increase of $259, or 1.2%, due to higher average total debt
outstanding.
The effective income tax rate was 46% and 64% in fiscal 1996 and 1995,
respectively. The decrease was primarily due to the effect of nondeductible
expenses, including the amortization of goodwill, on higher taxable income in
fiscal 1996.
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Net income for fiscal 1996 was $8,102 compared to net income of $1,936 for
fiscal 1995, an increase of $6,166, or 318.5%. EBITDA for fiscal 1996 was
$54,074 compared to $42,887 for fiscal 1995, an increase of $11,187, or 26.1%.
The increase in net income, as well as EBITDA, was primarily due to higher sales
volumes and lower average raw material cost partially offset by slightly lower
average selling prices, higher manufacturing costs associated with plant
shutdowns as a result of the winter ice storms in 1996 and increased selling and
general and administrative costs.
Fiscal 1995 Compared to Fiscal 1994
Net sales for fiscal 1995 were $271,427 compared to $234,977 for fiscal
1994, an increase of $36,450, or 15.5%. This increase was primarily due to unit
volume growth in certain product lines and higher average selling prices. Carpet
backing sales for fiscal 1995 were $133,025 compared to $117,791 for fiscal
1994, an increase of $15,234, or 12.9%. This increase was primarily due to
higher unit volume due in part to increased market share in both primary and
secondary carpet backing as well as higher selling prices as compared to fiscal
1994. Construction and civil engineering product sales for fiscal 1995 were
$82,933 compared to $68,706 for fiscal 1994, an increase of $14,227, or 20.7%.
This increase was primarily due to a significant growth in sales of geosynthetic
products as well as an increase in sales of Fibermesh(R) fibers. Technical
textiles sales for fiscal 1995 were $55,469 compared to $48,480 for fiscal 1994,
an increase of $6,989, or 14.4%. This increase was primarily due to unit volume
growth in the furniture and bedding markets.
Gross profit for fiscal 1995 was $76,721 compared to $82,672 for fiscal
1994, a decrease of $5,951, or 7.2%. As a percentage of sales, gross profit
decreased to 28.3% from 35.2%. This decrease was primarily due to the higher
polypropylene costs, offset partially by higher average selling prices. See
" -- Introduction".
Selling expenses for fiscal 1995 were $24,273 compared to $21,815 for
fiscal 1994, an increase of $2,458, or 11.3%. This increase was primarily due to
increased marketing efforts in the construction and civil engineering products
lines as a direct result of increased sales. However, as a percentage of sales,
selling expenses decreased from 9.3% to 8.9%.
General and administrative expenses for fiscal 1995 were $21,195 compared
to $17,588 for fiscal 1994, an increase of $3,607, or 20.5%. As a percentage of
sales, general and administrative expenses increased from 7.5% to 7.8%. This
increase was primarily due to a charge of $2,852 related to an increase in the
allowance for doubtful accounts during the fourth quarter of fiscal 1995. The
charge was taken to establish a reserve for accounts receivable for a carpet
backing customer who experienced severe financial difficulties. The Company
believes the reserve provided is adequate for this account to cover any future
potential losses and in the opinion of management, no significant future loss of
revenue is anticipated.
Operating income for fiscal 1995 was $28,687 compared to $40,770 for fiscal
1994, a decrease of $12,083, or 29.6%. As a percentage of sales, operating
income decreased to 10.6% from 17.4%. This decrease was primarily due to the
change in gross profit associated with higher raw material costs.
Total interest expense for fiscal 1995 was $22,514 compared to $20,011 for
fiscal 1994. This increase was due to a higher average total debt outstanding
and a higher base rate for the Credit Facility.
The effective income tax rate for fiscal 1995 was 64.3% compared to 43% for
fiscal 1994. The increase was primarily due to the effect of nondeductible
expenses, including the amortization of goodwill, on lower taxable income in
fiscal 1995.
Net income for fiscal 1995 was $1,936 compared to $11,420 for fiscal 1994,
a decrease of $9,484, or 83%. This decrease was primarily due to increased raw
material and interest costs.
LIQUIDITY AND CAPITAL RESOURCES
To finance its capital expenditures program and fund its operational needs,
the Company has relied upon cash provided by operations, supplemented as
necessary by bank lines of credit and long-term indebtedness. Cash (used in)
provided by operating activities was ($908) and $10,138 for the six months ended
March 31, 1997 and 1996, respectively, and $31,421 and ($35) for fiscal 1996 and
1995, respectively.
Cash used in operating activities for the six months ended March 31, 1997
resulted primarily from an increase in inventory of $20,501, due to seasonal
buildups, financed principally through income before
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extraordinary item $3,064 and noncash charges of $12,278, as well as an increase
in accounts payable of $8,459.
Cash provided by (used in) operating activities in fiscal 1996 and 1995
resulted primarily from net income of $8,102 and $1,936, respectively, after
deducting non-cash charges of $20,723 and $17,945 and net working capital
changes of approximately $2,596 and ($19,916), for each respective period. The
increase in cash provided by operating activities for fiscal 1996 as compared to
fiscal 1995 was principally due to fluctuations in net income and the Company's
working capital requirements. The changes included reduced inventory and
accounts payable balances in 1996 resulting primarily from lower inventory
quantities and lower polypropylene costs. The decrease in cash provided by
operating activities in fiscal 1995 as compared to fiscal 1994 was principally
due to lower net income and fluctuations in working capital requirements.
Working capital requirements increased primarily due to increases in accounts
receivable, inventory and accounts payable. The increase in accounts receivable
results from increased sales over the prior year particularly in certain
seasonal product lines. The increases in inventory and accounts payable resulted
from the effects of higher polypropylene costs, as well as increased units in
finished goods and raw materials. Working capital amounted to $89,877 and
$64,077 at March 31, 1997 and 1996, respectively, and $64,077 and $69,039 at
September 30, 1996 and 1995, respectively.
On February 11, 1997, the Company issued $170,000 aggregate principal
amount of 9 1/4% Senior Subordinated Notes due February 15, 2007 (the "Notes"),
which represent unsecured obligations of the Company. The Notes are redeemable
at the option of the Company at any time on or after February 15, 2002, at an
initial redemption price of 104.625% of their principal amount together with
accrued interest, with declining redemption prices thereafter. Interest on the
Notes are payable semi-annually on February 15 and August 15.
On November 1, 1996, the Company received net proceeds of approximately
$34,000 (after payment of underwriting discounts and commissions and expenses)
from the sale of 2,875,000 shares of Common Stock in an underwritten public
offering. These proceeds, together with the proceeds received from the February
11, 1997 issuance of $170,000 in aggregate principal amount of the Notes, were
utilized primarily to retire approximately $133,000 of the Company's 12 3/4%
Senior Subordinated Debentures due 2002 (the "Debentures"), pay the related
prepayment costs and fees associated with the refinancing of $15,920 and to
repay $20,000 of certain outstanding indebtedness under the Company's Fourth
Amended and Restated Revolving Credit and Security Agreement, dated as of
October 20, 1995, as subsequently amended, among the Company, the lenders party
thereto and BankBoston, as agent (the "Credit Facility"). In connection
therewith, the Company recorded an extraordinary loss of $11,950 net of tax
benefit of $7,481.
These net proceeds were also utilized to invest in capital expenditures of
$18,909 and, on February 27, 1997, to acquire all of the equipment and certain
other assets of a needlepunch nonwoven manufacturer, for approximately $9.4
million in cash. Pro forma results of operations are not presented because the
effects of the acquisition are not significant. Capital expenditures in fiscal
1996 and 1995 were approximately $34,200 and $13,300, respectively. The Company
expects to incur approximately $31,000 and $40,000 of additional capital
expenditures in fiscal 1997 and 1998, respectively, primarily to expand capacity
and to continue to reduce manufacturing costs, subject to prevailing market
conditions.
The Credit Facility provides for potential borrowing capacity of up to
$85,000 and is comprised of term loan borrowings of $45,000 and a revolving
credit loan portion (the "Revolver") of up to $40,000. The term loan balance at
March 31, 1997 was $25,000, of which $10,000 is payable in 1999 and $15,000 is
payable in 2000. The Lenders under the Credit Facility are BankBoston, Sanwa
Business Credit Corporation and South Trust Bank of Georgia, N.A. The Revolver
provides for availability based on a borrowing formula consisting of 85% of
eligible accounts receivable and 50% of eligible inventory, subject to certain
limitations and reserves. These reserves include outstanding letters of credit
of $1,100 and the remaining balance due under the Debentures of approximately
$7,400. Accordingly, at March 31, 1997, the maximum amount available for
borrowing under the Revolver was $19,051. The Credit Facility expires on October
1, 2001. The Company is currently in the process of renegotiating the Credit
Facility.
The Credit Facility permits borrowings which bear interest, at the
Company's option, (i) for domestic borrowings based on the lender's base rate
plus .75% or 1.00% for Revolver or term loan advances, respectively
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( 9.25% and 9.5% at March 31, 1997) or (ii) for Eurodollar borrowings, based on
the Interbank Eurodollar rate at the time of conversion plus 2.5% or 2.75% for
term loan or Revolver advances, respectively (8.3125% at March 31, 1997). The
Credit Facility provides for borrowings under letters of credit of up to $3,000,
which borrowings reduce amounts available under the Revolver. The Company is
required to pay a .375% fee on the unused portion of the commitment and an
agency fee of $150 per annum.
At March 31, 1997, the Company's total outstanding indebtedness amounted to
$212,717. Such indebtedness consists primarily of borrowings under the Credit
Facility of $29,618, $170,000 aggregate principal amount of the Notes, $7,403
aggregate principal amount of the Debentures and an outstanding capital lease
obligation of $4,397 dated as of May 28, 1996. Cash interest paid during the six
months ended March 31, 1997 and 1996 was $14,411 and $11,765, respectively, and
during fiscal 1996, 1995 and 1994 was $23,176, $22,334 and $19,787,
respectively.
Based on current levels of operations and anticipated growth, the Company's
management expects cash from operations to provide sufficient cash flow to
satisfy the debt service requirements of the long-term obligations, including
interest thereon, permit anticipated capital expenditures and fund the Company's
working capital requirements for the next twelve months.
INFLATION AND SEASONALITY
The Company does not believe that its operations have been materially
affected by inflation during the three most recent fiscal years. While the
Company does not expect that inflation will have a material impact upon
operating results, there is no assurance that its business will not be affected
by inflation in the future.
The Company's sales and income from continuing operations have historically
been higher in the third and fourth quarters of its fiscal year. While sales and
operating income in the carpet backing and technical textile product lines are
not greatly affected by seasonal trends, sales and operating income of
construction and civil engineering products are lower in the first and second
quarters of any given fiscal year due to the impact of adverse weather
conditions on the construction and civil engineering markets. Consequently, as
sales and operating income from construction and civil engineering products
continue to increase as a percentage of the Company's total sales, the
seasonality of these products' sales will affect total sales and quarterly
operating results of the Company to a greater degree.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standard Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" which is effective for the Company's fiscal year
ending September 30, 1997. SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. The Company
will account for stock-based compensation awards under the provisions of
Accounting Principles Board Opinion No. 25, as permitted by SFAS No. 123. In
accordance with SFAS No. 123, beginning in the fiscal year ending September 30,
1997, the Company will make pro forma disclosures relative to stock-based
compensation as part of the accompanying footnotes to the consolidated financial
statements.
In March 1997 the FASB issued SFAS No. 128, "Earnings Per Share." This new
standard requires presentation of both basic and diluted earnings per share
("EPS") on the face of the statements of operations and requires a
reconciliation of the numerators and denominators of basic and diluted EPS
calculations. This statement will be effective for the Company's first quarter
1998 consolidated financial statements. The adoption of this statement is not
expected to have a material impact on the Company's consolidated financial
statement.
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BUSINESS
THE COMPANY
The Company is one of the world's leading producers of polypropylene
fabrics and fibers for the home furnishing, construction, environmental,
recreational and agricultural industries. The Company manufactures and sells
more than 2,000 products in over 65 end-use markets. The Company believes that
it is the second largest producer of carpet backing in the world and is the
largest producer of synthetic fiber additives for concrete reinforcement through
its Fibermesh(R) line of products. SI also produces polypropylene products for
the geotextile and erosion control markets and is a leader in designing
innovative products for specialty applications. The Company's products are
engineered to meet specific customer criteria such as strength, flexibility,
resistance to sunlight and water/air permeability. The Company aims to compete
in markets in which it can be the primary or secondary provider of such
products, with over 93% of its products meeting this criterion. The Company's
consolidated sales have grown from $196 million in fiscal 1992 to $300 million
in fiscal 1996.
The Company's products are sold along three principal product lines: carpet
backing, construction and civil engineering products, and technical textiles.
The Company has a worldwide presence in carpet backing, a woven fabric used in
all modern tufted carpets, and is one of the two leading manufacturers in the
U.S. that produce a broad range of primary and secondary carpet backing. Carpet
backing accounted for approximately 49% of the Company's fiscal 1996 sales. The
Company's construction and civil engineering products are its fastest growing
product line and include fiber additives for concrete reinforcement and
environmental and geotextile products used in roadways, landfills and building
sites to stabilize soils and control erosion. The Company's sales to the
construction and civil engineering market have grown from approximately $35
million in fiscal 1992 to approximately $97 million in fiscal 1996. These
products represented approximately 32% of the Company's total sales in fiscal
1996, up from approximately 18% of total sales in fiscal 1992. The Company's
technical textile products are comprised of specialty fabrics, industrial yarns
and fibers used in diverse applications such as filtration (e.g., wastewater
treatment, air filtration and bauxite mining), agriculture (e.g., shade cloth
and ground cover) and recreation (e.g., swimming pool covers and trampoline
mats). These products are highly engineered to meet niche customer applications
and represented approximately 19% of fiscal 1996 sales. The Company's products
are principally sold through direct sales to customers by the Company's sales
force and through a broad network of distributors located across North and South
America, Europe and the Pacific Rim.
Management believes that the Company has a reputation in its markets as a
high quality, cost-efficient manufacturer. The Company is committed to
maintaining its market leadership and reputation for innovation through capital
investment in facilities and state-of-the-art equipment, by hiring and training
skilled employees and through process control standards and productivity
improvements. SI invested approximately $113 million in capital improvements in
its facilities and equipment during the five year period ended September 30,
1996, including the completion in August 1996 of a major $35 million, 130,000
square foot expansion of its largest manufacturing facility. Based on existing
product prices and demand, this expansion should increase the Company's sales by
as much as $30 million for fiscal 1997. The Company anticipates that ongoing
maintenance capital expenditures will be less than $5 million per year.
Additional capital expenditures, if any, will be focused on expansion
opportunities, subject to market conditions. The Company is one of the largest
independent consumers of polypropylene in the world. The Company also believes
its position as a vertically-integrated manufacturer -- performing each step in
the conversion of polypropylene into value-added end products -- provides a
competitive advantage by allowing the Company to manufacture high quality
products to customer's specifications, while controlling manufacturing costs.
The Company's principal business strategy is to leverage its market
presence in its core businesses into additional growth while maintaining its
market position as a high quality, cost-efficient manufacturer. The primary
components of this strategy are to expand penetration of existing markets,
develop innovative products, strengthen market position in carpet backing,
continue to improve manufacturing efficiencies and expand manufacturing capacity
and pursue strategic acquisitions.
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HISTORY
The Company was founded in 1969 to produce polypropylene-based primary
carpet backing. Following the acquisition of the Company in 1976 by a group of
private investors, the Company diversified into the manufacture and sale of
polypropylene-based industrial fabrics and specialty yarns. Between 1981 and
1983, the Company entered the construction and civil engineering products
market, initially by manufacturing woven geotextiles and later through its
introduction of Fibermesh(R) fibers for concrete reinforcement. In 1985, the
Company added secondary carpet backing to its product offerings. In fiscal 1991,
the Company purchased a technical synthetic fabrics operation located in
Gainesville, Georgia, from Chicopee, a subsidiary of Johnson & Johnson (the
"Chicopee Acquisition"). In addition to broadening the Company's line of
geosynthetic products, the acquisition gave the Company access to new markets
for high performance geotextiles. As a result of improved fiber technology and
increased fiber manufacturing capabilities, the Company opened its sixth
facility, the nonwoven geotextile plant in Ringgold, Georgia in 1992, enabling
the Company to offer a full line of geotextile products.
On February 27, 1997, the Company acquired certain assets of the Spartan
Technologies division of Spartan Mills. The assets will be used primarily in the
manufacturing of nonwoven fabrics used in the geotextile and furniture and
bedding markets.
The Company was acquired by the Partnership in December 1986. Immediately
prior to the completion of the Common Stock Offering, all of the issued and
outstanding capital stock of the Company was owned by the Partnership. SI
Management L.P. (the "General Partner") is the sole general partner of the
Partnership. Synthetic Management G.P. is the sole general partner of SI
Management L.P. By virtue of these relationships, Synthetic Management G.P.
controls the management and affairs of the Partnership and, therefore, the
Company. See "Certain Relationships and Related Transactions."
On November 1, 1996, the Company sold 2,875,000 shares of Common Stock in
the Common Stock Offering. The net proceeds to the Company from the sale (after
payment of underwriting discounts and commissions and expenses) were
approximately $34 million. Immediately following the Common Stock Offering, the
Partnership owned 5,781,250 shares of Common Stock, or approximately 67% of the
issued and outstanding shares of Common Stock. Employees, officers and directors
have been granted options to purchase an additional 6.9% of Common Stock on a
fully diluted basis. See "The Company," "Principal Stockholders" and "Certain
Relationships and Related Transactions."
INDUSTRY OVERVIEW
The Company manufactures polypropylene fiber, most of which it consumes
internally to manufacture its products. Polypropylene fiber is the second
largest polymeric material used in synthetic fabrics, representing approximately
30% of the total U.S. synthetic fiber market, behind polyester and ahead of
nylon. According to the Society for the Plastics Industry ("SPI"), total
domestic production of polypropylene fiber was approximately 3 billion pounds in
1995 and grew at an annual rate of approximately 9.3% per year in the period
from 1993 to 1995.
The Company believes it is one of the largest manufacturers of
polypropylene fiber in the U.S. with approximately 8% of total domestic output.
The top ten manufacturers of polypropylene fiber in the United States generate
approximately 70% of the annual domestic output of polypropylene fiber. Most of
the large producers of polypropylene fiber, including the Company, are
vertically integrated, converting polypropylene into fiber which can be used to
manufacture fabrics or can be sold directly to other manufacturers. These large
producers often have significant shares of the markets in which they compete,
such as the Company's share of the primary and secondary carpet backing markets
and concrete fiber reinforcement market.
Most of the products manufactured by the Company are woven and nonwoven
polypropylene fabrics. Woven polypropylene fabrics are produced by weaving
narrow tapes of slit film, which are made by extruding polypropylene into long
sheets. Such fabrics are characterized by high strength to weight ratios. All of
the Company's carpet backing products and approximately 42% of its civil
engineering products are woven polypropylene fabrics. Nonwoven polypropylene
fabrics are produced by mechanically interlocking fibers with
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barbed needles. Several of the Company's technical textile products and 58% of
its civil engineering products, principally for waste containment, roadway and
building site applications, are nonwoven polypropylene fabrics.
Approximately 45% of the polypropylene fiber manufactured by the Company is
used by the Company to make carpet backing. The Carpet and Rug Institute ("CRI")
estimates that 1996 U.S. shipments of primary polypropylene carpet backing were
approximately 1.72 billion square yards. The Company believes that 1996 U.S.
shipments of secondary polypropylene carpet backing were 1.63 billion square
yards, or approximately 95% of primary carpet backing shipments. According to
CRI, growth of total domestic primary carpet backing shipments averaged 2.8% in
the period from 1993 to 1996. The growth rate of the Company's primary and
secondary carpet backing shipments has generally exceeded that of the market,
with an average annual increase in shipments of 8% for the period from fiscal
1993 to fiscal 1996.
Approximately 33% of the polypropylene fiber manufactured by the Company is
used to make construction and civil engineering products, of which approximately
22% and 11% are geotextiles and concrete reinforcing fibers, respectively.
According to Industrial Fabrics Association International, approximately 414
million square yards of woven and nonwoven geotextiles were shipped domestically
in 1995 for the civil engineering fabric market. According to industry sources,
domestic shipments of woven and nonwoven geotextiles are expected to grow at an
average annual rate of approximately 6% over the next five years. The growth
rate of the Company's civil engineering product lines has outpaced that of the
market with average annual growth in shipments of 27% for the period from fiscal
1994 to fiscal 1996. In addition, the Company believes that its Fibermesh(R)
products currently have a 65% share of the fiber reinforced concrete market.
Fibermesh(R) concrete reinforcing fiber shipments grew at an average annual rate
of 8% for the period from fiscal 1994 to fiscal 1996.
Approximately 22% of the polypropylene fiber manufactured by the Company is
used to make technical textiles. The technical textiles market consists of a
large number of relatively stable product lines with annual sales in each
product line of approximately $10 million to $12 million. The Company expects to
generate growth in its technical textiles sales through new products such as
building product components and nonwoven furniture construction fabrics.
BUSINESS STRATEGY
The Company's goals are to maintain steady growth in its core business,
develop innovative and value-added products to expand its product lines,
penetrate new international markets, and continue to create new high margin
niche products out of engineered fabrics and fibers. The Company seeks to be the
leading or second supplier in its chosen markets by delivering high-quality
products at competitive prices. Key elements of the Company's strategy to
achieve these goals are:
Expand Penetration of Existing Markets
The Company is committed to expanding sales in markets where it currently
has a leadership position by increasing market penetration through the offering
of a broader product line to meet its customers' varied needs and by expanding
its customer base. The Company is pursuing this goal through (i) the expansion
of geographical coverage of its sales effort; (ii) the development of
applications-oriented marketing efforts that focus on the Company's product
solutions as alternatives to traditional industry practices; (iii) increased
customer acceptance of its products created through stringent quality standards
and industry accreditation for its test labs; and (iv) the use of in-house
technical consultants to educate industry leaders as to the cost savings offered
by the Company's products as compared to traditional solutions.
The Company believes that it has significant expansion opportunities for
its existing products. The Company is developing comprehensive marketing efforts
to increase sales of its products in existing markets and to penetrate new
domestic and international markets, particularly Europe and the Pacific Rim, by
increasing awareness of its products among existing and potential customers. The
Company focuses on education of its customers' engineering support personnel,
advertising and application-oriented marketing efforts as it seeks to expand
acceptance of its products. The Company has experienced success with this
strategy, as evidenced by the growth of its civil engineering product line for
which sales have increased from
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$31.4 million in fiscal 1994 to $55.4 million in fiscal 1996. Within this
product line, the Company has focused on the roadway and building site, erosion
control and waste containment sectors. Among the Company's other products,
nonwoven geotextile sales to the roadway and building site markets have grown
from $12.5 million in fiscal 1994 to $19.2 million in fiscal 1996.
The Company has also expanded its presence in international markets
primarily through additional distribution arrangements, increased marketing
efforts focused primarily on major international construction projects and the
expansion of its international sales force. As a result, total international
sales increased from $25.0 million in fiscal 1994 to $33.3 million in fiscal
1996.
Develop Innovative Products
The Company seeks to develop innovative products and modify existing
products in response to specific customer needs and to establish new markets
through the development of novel applications for its existing products. By
increasing its expenditures for research, product development and marketing, the
Company believes it will be able to capitalize on its manufacturing strengths
and distribution network to introduce new value added products and extend
product lines to complement its existing product base. For example, within the
Company's Fibermesh(R) product line, a specially designed Fibermesh(R) MD
product provides after-crack strength retention to concrete, thus mitigating
immediate failure of the concrete. Since its introduction in 1991, sales of
Fibermesh(R) MD have grown to $26.5 million in fiscal 1996.
The redesign and enhancement of its core products have also resulted in the
development of high strength geotextiles and the Company's building material
products. These developments utilize existing weaving technology to permit
construction over extremely weak soils and to replace fiberglass in certain
construction applications such as wallboard. The Company's soil reinforcement
fibers are used in roadway construction and maintenance and its biotechnical
composite three dimensional mats enable vegetation to be grown on steep slopes
and in high-flow water channels. The Company believes that these products are
environmentally friendly, aesthetically pleasing and low-cost alternatives to
crushed rock. The Company has also developed a new line of products that are
manufactured using the same production techniques as nonwoven geotextiles but
are used as vinyl substrates and spill control products.
Strengthen Market Position in Carpet Backing
The Company intends to increase its carpet backing market share through (i)
continued capital investment in state-of-the-art equipment for additional carpet
backing production capacity, (ii) expansion of sales in the growing commercial
carpet sector of the domestic market and (iii) the continued development and
strengthening of its relationships with key customers. The Company's sales of
primary and secondary carpet backing have grown from $117.8 million in fiscal
1994 to $146.5 million in fiscal 1996. To support this growth, beginning in
fiscal 1994, the Company introduced a new production initiative supported by
capital expenditures in each of fiscal 1994, 1995 and 1996. Recent expenditures
include investments to expand capacity and improve production output through
installation of state-of-the-art equipment, including the Company's 88 loom, $35
million expansion at its largest manufacturing facility completed in August 1996
that has increased the Company's current capacity in carpet backing by
approximately 16.0%.
Despite the Company's recent strong growth, customer demand for the
Company's products has exceeded capacity. The Company believes it is well
positioned, based upon its relationships with its customers, the quality of its
products and its planned expansion in manufacturing capacity, to gain market
share. While the Company estimates that its share of the domestic residential
carpet backing market is 25%, in the growing commercial carpet segment of the
U.S. market, which currently represents approximately 25% of the total U.S.
carpet market, its share is less than 10%.
The Company has successfully cultivated long-term relationships with key
customers, which include nine of the top ten largest carpet manufacturers in the
world. The Company's success in developing and strengthening its relationships
with these and other key customers is attributable to its commitment to product
quality, dedication to customer technical service and sensitivity and
responsiveness to changing customer needs.
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Continue to Improve Manufacturing Efficiencies and Expand Manufacturing
Capacity
The Company is committed to implementing improvements throughout its
manufacturing system that will increase product volume and lower costs. The
Company's product design teams continuously seek to incorporate new operating
capabilities that enhance or maintain performance specifications while lowering
the cost of manufacturing its products. State-of-the-art equipment, much of
which has been developed with direct input from internal engineers, has been
modified and installed to exceed manufacturing processing specifications, to
continuously measure process parameters and to maintain very narrow tolerances,
resulting in less product variation. As a result, the Company has been able to
improve its manufacturing processes to utilize less labor and material and
produce higher quality fabrics. In addition, the Company maintains a human
resource program aimed at capturing productivity gains through team building,
formal training and employee empowerment.
The Company also believes that its sales are enhanced as a result of its
reputation for quality control and process improvement (especially in markets
where product reliability is critical, such as waste containment). For example,
the Company was the first geosynthetic manufacturer to have its own test
laboratories accredited by the Geosynthetic Research Institute which assures
that a quality system and laboratory infrastructure is in place to perform
specific tests required in the industry.
The Company believes that increasing manufacturing capacity at its existing
plants will provide the capability to gain market share in its current markets
and to continue to expand into new markets. The Company has invested
approximately $113 million in capital improvements and new facilities during the
five year period ended September 30, 1996 and continuously evaluates
opportunities to expand its existing production capacity, add new capabilities
and enhance production technologies. Specifically, in response to opportunities
in the nonwoven market, the Company constructed a state-of-the-art nonwoven
facility in 1992 which management believes to be one of the largest such
facilities in the United States. This facility today generates sales exceeding
$35 million per year as its products support the geotextile, furniture and
building materials markets. The Company's recently completed $35 million capital
expenditure will increase capacity for carpet backing and woven geotextile
production, thus expanding the Company's market base and should increase
consolidated sales over the next twelve months by a projected $30 million.
Included in this expansion is a 130,000 square foot building addition to the
Company's largest manufacturing facility, 88 new looms and related equipment to
support these looms. The Company plans to continue to spend additional capital
to increase its manufacturing capability for primary and secondary carpet
backing, and woven and nonwoven geotextiles, subject to prevailing market
conditions.
Pursue Strategic Acquisitions
The Company is continually evaluating the potential acquisition of
companies, technologies or products which will complement its existing product
lines and manufacturing and distribution strengths. Acquisition opportunities
will be evaluated based on the strategic fit, the expected return on capital
invested and the ability of management to improve the profitability of acquired
operations through cost reductions and other synergies with existing operations.
PRODUCTS
The Company develops, manufactures and sells a wide array of
polypropylene-based industrial fibers and fabrics along its three principal
product lines: carpet backing, construction and civil engineering, which
comprises environmental/geotextile products and concrete reinforcement products,
and technical textiles. The Company manufactures five basic yarn and fiber
types, from which approximately 2,000 products are manufactured to serve in
excess of 65 end-use markets. The Company aims to compete in markets in which it
can be the primary or secondary provider of such products, with over 93% of its
products meeting this criterion. Although end-use applications are diverse, the
Company has been able to leverage its manufacturing expertise to introduce new
products that often define industry standards. Through research, internal
developments, marketing and acquisitions, the Company has developed or acquired
new technologies to capitalize on a broad range of new niche product
opportunities, enabling it to expand beyond its traditional
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<PAGE> 34
primary carpet backing business. Since 1981, the following product lines have
been added to the Company's portfolio: filtration, specialty yarns, geotextiles,
Fibermesh(R)concrete reinforcing fibers, secondary carpet backing, staple
fibers, erosion control fibers, soil reinforcing fibers and high performance
wovens and nonwovens. This diversification has contributed to average annual
sales increases of 23.4% for the period from fiscal 1987 to fiscal 1991 and 9.8%
for the period from fiscal 1992 to fiscal 1996.
Carpet Backing
Carpet backing is the Company's oldest and largest product line. Carpet
backing represented approximately 50.1%, 49.0% and 48.9%, or $117.8 million,
$133.0 million and $146.5 million of the Company's fiscal 1994, 1995 and 1996
net sales, respectively. The technology utilized in the Company's carpet backing
business has provided the basic woven fabric technology for the Company's other
product lines. For example, certain geotextiles, agriculture fabrics and
furniture construction fabrics are woven on the same looms used to weave carpet
backing.
The Company's carpet backing product line consists of woven primary and
secondary fabrics in a variety of styles and widths that are manufactured from
polypropylene raw materials. Primary carpet backing is a tightly woven material
into which carpet yarn is tufted in the manufacture of broadloom floorcoverings.
Secondary carpet backing, which forms the base of the carpet, is the coarser
woven fabric that is laminated to the back of tufted broadloom to insure both
carpet integrity and dimensional stability. The Company produces a broad range
of primary and secondary backing.
The Company believes it is the second largest producer of carpet backing in
the United States, where carpeting is the most popular floor covering material.
The total market for carpeting in the United States has grown approximately 4%
per year over the past decade. In recent years, the growth rate of the Company's
carpet backing sales has generally outpaced that of the market due to the
Company's ability to gain market share. Management believes that the Company's
growth rate has been limited by its production capacity.
Construction and Civil Engineering
The Company's construction and civil engineering product line has two
distinct segments: environmental and geotextile products and concrete
reinforcement fibers. Construction and civil engineering has achieved rapid
growth since 1993 when the Company enhanced its channels of distributions for
Fibermesh(R) and expanded into production of nonwoven geotextiles. Construction
and civil engineering products represented approximately 29.3%, 30.6% and 32.4%,
or $68.7 million, $82.9 million and $97.0 million of the Company's fiscal 1994,
1995 and 1996 net sales, respectively. Within this product line, geotextile
products principally serve the environmental market, with end uses such as
landfill containment and stabilization, erosion control and soil stabilization,
separation and reinforcement. The construction market includes subbase
reinforcement and stabilization for highway and commercial construction and
reinforcement of conventional and pre-cast concrete. Growth in sales in the
environmental/geotextiles sector for the period fiscal 1993 to fiscal 1996
averaged 48.3% annually. Fibermesh(R) concrete reinforcing fiber sales grew at
an average annual rate of 10.5% for the period from fiscal 1993 to fiscal 1996.
Environmental/Geotextile Products. The Company's environmental/geotextile
product line consists of erosion control fabrics, geotextiles, and soil fibers.
These products control erosion and capture sediment; provide filtration,
separation and reinforcement of soils; improve engineering properties of native
soils; protect landfill liners; and extend pavement life. The specifications of
the Company's geosynthetic fabrics and fibers vary depending on specific site
conditions, including such factors as slope angles, water flow velocities,
climate, runoff, soil profile and ultimate land use. The Company's geosynthetic
products generally comply with state agency guidelines pertaining to
geosynthetic products issued to date.
The Company produces a variety of nonwoven geotextiles for use in landfill
construction, asphalt roadway construction and drainage systems. The Company's
woven geotextiles are typically used in road and building construction to form a
separation barrier between unstable soils and aggregate foundations. The
Company's LANDLOK(R) erosion control products are used in water runoff channels
and in areas of exposed soil and shoreline erosion. These products hold the soil
in place, while allowing and supporting vegetative growth.
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<PAGE> 35
LANDLOK(R) products are an environmentally friendly and aesthetically pleasing
alternative to rock or concrete erosion control methods.
The Company has developed a strong market position in
environmental/geotextile products on the basis of sales growth and engineering
strengths. The Company believes it is now the fastest growing supplier of
geotextiles to this market, and has the broadest environmental/geotextile
product line in North America.
Environmental and economic concerns have contributed to an increase in
government mandates as well as industry practices to control surface runoff and
soil erosion and improve water quality. Geotextiles tend to be more durable,
easier to use, and more cost effective as compared to similar products made of
conventional materials. In highly populated urban areas with high concentrations
of roads and buildings the need for good conservation practices is becoming
increasingly acute. The Company believes that this market will continue to
expand as environmental concerns continue to grow, thereby increasing demand for
the Company's products. The Company believes its strength as a cost-effective
manufacturer of geotextiles will allow it to continue to increase sales of
current products, and introduce new products to this market.
Concrete Reinforcement. The Company pioneered the concept of using
polypropylene fibers as a secondary reinforcement for concrete and developed and
introduced Fibermesh(R) to the concrete industry in 1983. The Company believes
that its Fibermesh(R) products have a 65% share of the fiber treated segment of
the concrete industry. All concrete reinforcement fibers, including
Fibermesh(R), have only approximately 9% penetration of the total concrete
industry. Growth in this market will be based on increased acceptance of the use
of synthetic fibers for concrete reinforcement as a replacement for conventional
wire mesh. The Company estimates that 250 million cubic yards of concrete poured
annually in the United States could potentially benefit from the use of
Fibermesh(R) fibers.
The addition of Fibermesh polypropylene fibers to the concrete mixture
gives the concrete greater crack resistance and improved impact strength.
Primary applications for fiber reinforced concrete are commercial and
residential slabs, precast pipe and other products, shotcrete installations, and
whitetopped highways. Fibermesh(R) provides a cost-effective replacement for the
nonstructural wire mesh traditionally used in concrete construction and improves
the concrete's durability. Fibermesh(R) complies with construction guidelines
and specifications issued by all of the national building code associations. Of
the three synthetic fiber types used in fiber reinforced concrete, polypropylene
is recognized for its superior properties over nylon and polyester. Fibermesh(R)
is sold in fibrillated, monofilament and multi-denier designs, the latter of
which is protected by a U.S. patent.
Technical Textiles
Technical textiles produced by the Company are products and systems that
offer high performance solutions for niche markets. Technical textiles
represented approximately 20.6%, 20.4% and 18.7%, or $48.5 million, $55.5
million and $56.0 million of the Company's fiscal 1994, 1995 and 1996 net sales,
respectively. Technical textiles are sold to several niche markets, including
the furniture, filtration, agricultural and recreational industries, and each
product in those markets generally accounts for $10 to $12 million or less in
sales. The Company's technical textile products are generally differentiated on
the basis of product uniqueness, quality and service rather than price.
The Company's technical textiles consist of specialty fabrics, industrial
yarns and fibers. The specialty fabrics are manufactured in a variety of widths,
weights, permeability ranges and dimensional configurations primarily from
polypropylene and, to a minor extent, other synthetic fibers. Customers use
these fabrics to manufacture products used in diverse applications such as
filtration (e.g., bauxite mining, wastewater treatment, electrostatic-air
filters and chemical separation), agriculture (e.g., shade for foliage
protection and environmental screening), and recreation (e.g., swimming pool
covers and trampoline mats).
The Company also sells its industrial yarns and fibers directly to weavers,
knitters, and non-woven manufacturers who produce niche market products, such as
automobile upholstery, coat linings, geotextiles, air filters and water
filtration media.
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<PAGE> 36
Recent product line repackaging has created new business programs for the
Company, which programs are currently in the new product launch phase. These
programs include professional landscaping products, livestock maintenance
fabrics and building product components.
MARKETING AND SALES
Carpet Backing. The Company sells its carpet backing products to 91
customers in the carpet industry, most of whom are carpet manufacturers located
in the United States. In fiscal 1996, the Company's ten largest carpet backing
customers accounted for approximately 78% of its total net sales to the carpet
industry. In fiscal 1996, sales to Shaw, the Company's largest customer,
accounted for approximately 36% of net carpet backing sales and approximately
18% of the Company's total net sales. Shaw is estimated to have 27% of the
United States carpet market.
The Company's carpet backing products are sold primarily through the
Company's sales force that is directed from a central sales office in Calhoun,
Georgia. All of the sales managers have significant industry experience and
monitor ongoing product requirements, styling changes and competitive trends
affecting their customers.
Construction and Civil Engineering. The Company's geosynthetic products are
sold primarily in North America to regional and national distributors,
installers of landfill liners and various governmental transportation
departments, port authorities and waterway commissions. In fiscal 1996, the ten
largest geosynthetic product customers accounted for approximately 30% of the
Company's total net sales in this product line.
The Company's geosynthetic products are marketed by full-time salespeople
with expertise in civil engineering and agronomy who are directed from a central
office in Chattanooga, Tennessee. These salespeople, along with a technical
support staff at Company headquarters, provide design and field engineering
services to customers. They also are integral to the process of obtaining
required governmental permits for use of the products by end-users. In addition,
the Company has an ongoing marketing communications program to build awareness
of product capabilities and expand interest in and use of geotextiles.
Fibermesh(R) is sold through a direct sales force to ready-mix concrete
companies and precast concrete product manufacturers located primarily in the
United States and the United Kingdom. The Fibermesh(R) sales force operates out
of divisional offices in Austin, Texas, Denver, Colorado, Chattanooga, Tennessee
and Chesterfield, England. In addition, Fibermesh(R) is sold through a contract
with Master Builders, Inc., a construction industry product distributor. Other
construction industry product distributors market Fibermesh(R) in over 50
foreign countries. In fiscal 1996, the ten largest Fibermesh(R) customers
accounted for approximately 12% of the Company's total net sales of
Fibermesh(R).
Technical Textiles. The Company sells its specialty fabrics to a diverse
group of approximately 400 manufacturers located primarily in North and Central
America and the Pacific Rim countries. The Company sells its industrial yarns
and fibers to a diverse group of approximately 100 manufacturers located in
North America and Europe. In fiscal 1996, the Company's ten largest technical
textile customers accounted for approximately 26% of the Company's total net
sales of technical textiles. The Company's technical textiles are marketed by
salespersons through sales offices in Gainesville, Ringgold and Calhoun, Georgia
and Chesterfield, England.
COMPETITION
The markets for the Company's products are highly competitive. In the
manufacture and sale of carpet backing, which represented approximately 49% of
the Company's total net sales for each of fiscal 1996 and 1995, the Company
competes primarily with Amoco, and, to a lesser extent, Wayn-Tex Inc. and
certain other companies. Amoco has the dominant position in the carpet backing
market worldwide. In the United States, only the Company and Amoco produce a
broad range of primary and secondary carpet backing in a variety of styles and
widths. The Company competes in the carpet backing market primarily on the basis
of quality,
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<PAGE> 37
availability, service, price and product line variety, providing carpet
manufacturers with a reliable alternative source of supply to Amoco.
In the manufacture and sale of the Company's other products, the Company
generally competes with a number of other companies, some of which are
significantly larger and have substantially greater resources than the Company.
The Company's primary competitors in the construction and civil engineering
market are Amoco and Nicolon Corporation with respect to geotextiles, North
American Green, Inc. with respect to environmental and erosion control products,
and W.R. Grace & Co., which markets but does not manufacture concrete
reinforcement fibers, with respect to concrete reinforcement. The Company
competes in the concrete reinforcement fiber market primarily on the basis of
product design and technical service. In some applications, Fibermesh(R) also
competes with welded wire fabric on the basis of product performance and cost.
The Company competes in the construction and civil engineering market on the
basis of product line breadth and quality, price, and the custom design,
engineering and other services it provides to customers. With respect to
technical textiles, competitors vary depending upon the specific market niche.
The Company competes in each segment of the technical textiles market primarily
on the basis of service, quality, innovation and product line variety.
The pricing policies of the Company's competitors have at certain times in
the past limited the Company's ability to increase the prices or caused the
Company to lower the prices of certain of its products. See "-- Products,"
"-- Marketing and Sales" and "-- Raw Materials".
MANUFACTURING PROCESS
Polypropylene, a chemically inert plastic derived from petroleum, is the
basic raw material used in the manufacture of substantially all of the Company's
products. SI believes it is a technological leader in the conversion of
polypropylene into woven and nonwoven polypropylene products. The expertise of
the Company's research and development and marketing staff has enabled the
Company to develop innovative products, frequently in response to specific
customer needs.
Woven fabrics are produced by interlacing thousands of strands of extruded
yarn at right angles to one another. The manner in which the yarn is interlaced
determines the type of weave. Woven fabrics are characterized by strength and
dimensional stability. The Company's woven fabric products include primary and
secondary carpet backing, geotextiles, erosion control fabrics, and specialty
fabrics for the filtration, recreational, construction and agricultural markets.
Nonwoven fabrics are produced by first stacking several layers of webbed
short length fibers and then entangling the layers by punching barbed needles
through the layers. Nonwoven fabrics provide extensibility without rupture and
dimensionality. The Company's nonwoven fabric products include geotextiles,
erosion control fabrics, furniture and bedding construction fabrics, and spill
control fabrics.
The Company believes that it has state-of-the-art manufacturing capability
in both its woven and nonwoven product lines and is one of the most
cost-efficient producers in the markets in which it participates. The Company's
three primary manufacturing processes are extrusion, weaving and needlepunching.
Extrusion. Much of the Company's expertise has been developed in its
extrusion processes. Many of the product's specification properties are created
by engineering the polymeric raw materials during the extrusion process. In
addition to yarns and fibers for conventional end-uses, the Company has also
developed value-added products through the use of additives including those
which resist sunlight degradation. The Company owns and operates one of the
world's largest polypropylene staple fiber lines. Most of the Company's extruded
products are consumed internally and become value-added woven and nonwoven
fabrics, but some are sold to weavers, knitters, nonwovens producers and
convertors.
Weaving. The yarns produced in the Company's extrusion and yarn spinning
operations are woven on looms to produce the wide variety of fabrics that the
Company sells through all of its marketing divisions. Fabric properties are
engineered to industry specifications by altering constituent yarns and weave
patterns. Looms are generally interchangeable to weave carpet backing,
geotextiles and certain agricultural fabrics. The breadth of the Company's woven
product offerings was enhanced by the Chicopee Acquisition.
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<PAGE> 38
Needlepunching. In 1993, the Company constructed a state-of-the-art
needlepunched nonwovens fabric facility. This modern plant produces a new
generation of engineered cost-effective fabrics for the geotextile, furniture
construction and chemical spill cleanup markets. In February 1997, the Company
acquired certain assets of the Spartan Technologies division of Spartan Mills to
be used primarily in the manufacturing of needlepunched nonwoven fabrics used in
the geotextile and furniture and bedding markets.
The Company maintains a complete rigorous quality control program centered
around statistical process control and customer key measures. Each stage of the
process from the raw material to the final product is monitored using standard
procedures and test methods which satisfy the quality control standards
established by the International Standards Organization.
The Company's production equipment is capable of manufacturing a variety of
woven and nonwoven polypropylene products. This versatility enables the Company
to alter the product mix within its woven and nonwoven product lines in response
to market demand or to take advantage of specific profit opportunities.
The Company's plants are run on a continuous 24-hour per day basis, seven
days a week, 350 days per year. Orders are typically filled from inventory.
RESEARCH AND DEVELOPMENT
The Company's research and development is focused primarily on development
and as such the Company engages in product design, development and performance
validation to improve existing products and to create new products. The Company
expended approximately $2.0 million (approximately 0.7% of sales) and $1.9
million (approximately 0.7% of sales) on Company-sponsored research and
development activities in fiscal 1996 and fiscal 1995, respectively. As part of
a recently completed strategic review, the Company expects to increase research
and development expenses in fiscal 1997 to approximately $5.2 million.
INTERNATIONAL OPERATIONS
The Company conducts its foreign sales operations through subsidiaries in
Europe and a network of distributors worldwide. In fiscal 1996, the aggregate
sales (principally of construction and civil engineering products) by such
foreign subsidiaries and marketing divisions were approximately $5.5 million.
International sales from United States operations in fiscal 1996 were $27.8
million. Total international sales were 9.3% of consolidated net sales.
RAW MATERIALS
Polypropylene, which is a petroleum derivative, is the basic raw material
used in the manufacture of substantially all of the Company's products. The
Company currently purchases polypropylene in pellet form principally from four
suppliers, with Fina Oil & Chemical Company being the Company's largest supplier
of polypropylene. These purchases are generally made pursuant to long-standing
arrangements.
Polypropylene purchases account for approximately 50% of the Company's cost
of sales. Increases in the price of polypropylene without offsetting increases
in selling prices could have a significant negative effect on the Company's
results of operations and financial condition. The Company believes that the
sales prices of its products will adjust over time to reflect changes in
polypropylene costs. The Company has not experienced production curtailment due
to shortages of polypropylene supply at any time.
REGULATION
The Company is subject to federal, state and local laws and regulations
affecting its business, including those promulgated under the Occupational
Safety and Health Act and by the Environmental Protection Agency or similar
agencies. Many of the Company's construction and civil engineering products have
applications that are subject to building code association guidelines and
specifications and highway department guidelines. Obtaining the necessary
approvals can delay new product introductions in some areas. Moreover, the
enactment of new legislation or the issuance of new guidelines may require the
Company to
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<PAGE> 39
modify its existing geotextile and erosion control fabric products and may also
delay the Company's introduction of new geotextiles and erosion control fabric
products.
The Company's expenditures to date in connection with such federal, state
and local laws and regulations have not been material to its operations. The
Company believes it is currently in substantial compliance with applicable
governmental regulations.
ENVIRONMENTAL COMPLIANCE
The Company is subject to a broad range of federal, foreign, state and
local laws and regulations relating to the pollution and protection of the
environment. Among the many environmental requirements applicable to the Company
are laws relating to air emissions, wastewater discharges and the handling,
disposal or release of solid and hazardous substances and wastes. Based on
continuing internal review and advice from independent consultants, the Company
believes that it is currently in substantial compliance with applicable
environmental requirements. A cease-and-desist order was issued by the U.S. Army
Corps of Engineers on June 13, 1996, concerning the Chickamauga, Georgia
facility and the deposit of filling material into national wetlands without a
permit. The Company is working with the Army Corps of Engineers to create an
equivalent wetland area. The Company does not anticipate that such order will
have a material adverse effect on its operations.
The Company is also subject to laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), that
may impose liability retroactively and without fault for releases or threatened
releases of hazardous substances at on-site or off-site locations. The Company
is not aware of any releases for which it may be liable under CERCLA or any
analogous provision.
Actions by federal, state and local governments in the United States and
abroad concerning environmental matters could result in laws or regulations that
could increase the cost of producing the products manufactured by the Company or
otherwise adversely affect demand for its products. For example, certain local
governments have adopted ordinances prohibiting or restricting the use or
disposal of certain polypropylene products. Widespread adoption of such
prohibitions or restrictions could adversely affect demand for the Company's
products and thereby have a material adverse effect upon the Company. In
addition, a decline in consumer preference for polypropylene products due to
environmental considerations could have a material adverse effect upon the
Company.
Most of the Company's manufacturing processes are mechanical and are
therefore considered to be environmentally benign. Polypropylene resins are
readily recyclable, and the Company recycles post-industrial waste for certain
of the its products. In addition, each of the Company's manufacturing sites has
equipment and procedures for reclaiming a majority of internally generated
scrap, thus reducing the amount of waste sent to local landfills. As a result,
the Company does not currently anticipate any material adverse effect on its
operations, financial condition or competitive position as a result of its
efforts to comply with environmental requirements. Some risk of environmental
liability is inherent, however, in the nature of the Company's business, and
there can be no assurance that material environmental liabilities will not
arise. It is also possible that future developments in environmental regulation
could lead to material environmental compliance or cleanup costs.
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<PAGE> 40
PROPERTIES
The Company operates the following principal domestic manufacturing and
distribution facilities. All of the Company's owned properties are subject to
liens in favor of the lenders under the Credit Facility.
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE FOOTAGE OWNED OR
LOCATION PRINCIPAL FUNCTION OF FACILITY LEASED
-------- ------------------ -------------- --------
<S> <C> <C> <C>
Chickamauga, Georgia......... Manufacturing of carpet backing, geotextiles and 738,800 Owned
fibers
Dalton, Georgia.............. Distribution center and multi-product warehouse 216,000 Owned
Ringgold, Georgia............ Manufacturing of geotextiles 183,750 Owned
Chattanooga, Tennessee....... Manufacturing of specialty yarns 126,432 Owned
Alto, Georgia................ Manufacturing of certain yarns 92,400 Owned
Dalton, Georgia.............. Needlepunching of carpet backing 44,945 Owned
Gainesville, Georgia......... Manufacturing of certain fabrics 200,000 Leased
Dalton, Georgia.............. Woven, nonwoven and geotextile warehouse 185,000 Leased
124 Keene Street
Dalton, Georgia.............. Geosynthetic products and fiber warehouse 168,000 Leased
120 Keene Street
Chickamauga, Georgia......... Manufacturing of carpet backing, geotextiles and 143,736 Leased
fibers
Dalton, Georgia.............. Specialty yarn warehouse 104,827 Leased
Cleveland Highway
Cornelia, Georgia............ Assembly of certain fabrics 76,000 Leased
Westside, Georgia............ Carpet backing warehouse 86,440 Leased
Dalton, Georgia.............. Carpet backing warehouse 85,000 Leased
North Dug Gap
Dalton, Georgia.............. Geosynthetic products warehouse 36,000 Leased
Florence
Dalton, Georgia.............. Geosynthetic products warehouse 31,500 Leased
1408 Coronet
Claremont, North Carolina.... Nonwoven fabrics warehouse 14,000 Leased
Tupelo, Mississippi.......... Nonwoven fabrics warehouse 13,500 Leased
Chattanooga, Tennessee....... Corporate support offices 4,800 Leased
---------
Total................................................................ 2,551,130
=========
</TABLE>
ORDER BACKLOG
The Company generally sells its products pursuant to customer orders which
are satisfied either out of inventory or by the manufacture and shipment of the
product promptly following receipt of an order. Accordingly, the dollar amount
of backlog orders believed to be firm is not significant or indicative of the
Company's future sales and earnings.
EMPLOYEES
As of September 30, 1996, the Company employed 2,212 persons in the United
States, of whom 458 were salaried employees and the remainder were hourly
employees. None of the Company's employees are
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<PAGE> 41
unionized. The Company has never experienced any strikes and believes its
relations with employees to be satisfactory. The Company employs 13 persons in
the United Kingdom.
PATENTS AND TRADEMARKS
The Company owns or is licensed under several United States and foreign
patents. While these patents are helpful to the Company's business, it is
believed that a loss of patent exclusivity would not be materially adverse to
the Company's business.
The Company has registered several of its trademarks, including
FIBERGRIDS(R), FIBERMESH(R) and LANDLOK(R), with the United States Patent and
Trademark office and with several foreign trademark offices.
CLAIMS AND LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to litigation arising out of
their business operations. Most of such litigation involves claims for personal
injury, property damage, breach of contract and claims involving employee
relations and certain administrative proceedings. The Company believes such
claims are adequately covered by insurance or do not involve a risk of material
loss to the Company.
The General Partner, Synthetic Management G.P., Leonard Chill, Jon P.
Beckman, W. Wayne Freed, Ralph Kenner, W. Gardner Wright, Chill Investments,
Inc., Beckman Investments, Inc., Freed Investments, Inc., Kenner Investments,
Inc. and Wright Investments, Inc., as defendants, and the Partnership, as a
nominal defendant, have been named in two putative class action lawsuits filed
by a limited partner of the Partnership on behalf of himself, the other limited
partners and the Partnership. In the first action, filed on February 11, 1997 in
the Delaware Court of Chancery, the plaintiff has alleged, among other things,
breach of the defendants' fiduciary duty to achieve the highest possible value
for the limited partners in connection with the November 1, 1997 Common Stock
Offering of the Company by failing to explore alternative transactions that
could potentially threaten their positions with and control over the Company and
the benefits derived therefrom. The plaintiff seeks, among other things, removal
of the General Partner, dissolution of the Partnership, appointment of a
receiver, rescission of certain stock option grants and employment agreements
and compensatory damages in an undetermined amount. The second lawsuit was filed
in the U.S. District Court of the Northern District of California on May 1,
1997. In connection with a letter sent by the General Partner to the limited
partners, the plaintiff has alleged that the defendants have violated federal
securities laws by mailing a proxy solicitation to the limited partners without
first filing with the Commission, mailing out the solicitation without filing or
disseminating a proxy statement and failing to disclose numerous material facts
in the solicitation. The complaint seeks an injunction to remedy the alleged
violations of securities regulations and a declaratory judgment stating that the
defendants violated securities regulations. The Partnership is a principal
stockholder of the Company and certain members of the Company's management
control the General Partner. See "Certain Relationships and Related
Transactions." The Company is not named as a defendant in either lawsuit and the
Company does not believe that the ultimate resolutions will have a material
adverse effect on the Company.
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<PAGE> 42
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The following table sets forth certain information concerning each of the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
---- --- -------------------------
<S> <C> <C>
Leonard Chill..................... 64 President, Chief Executive Officer and Director
W. Wayne Freed.................... 61 Vice President -- Market Development
Ralph Kenner...................... 52 Vice President -- Manufacturing
William Gardner Wright, Jr........ 68 Vice President -- General Manager Carpet Backing
Division
Robert J. Breyley................. 68 Vice President -- Fibermesh(R) Division
W.O. Falkenberry.................. 54 Vice President -- Human Resources
C. Ted Koerner.................... 47 Vice President -- General Manager Construction/Civil
Engineering Products Group
John Michael Long................. 53 Vice President -- General Manager Technical Textiles
Group
Joseph Sinicropi.................. 43 Chief Financial Officer and Secretary
Bobby Callahan.................... 54 Controller
Joseph F. Dana(1)(2).............. 49 Director
Lee J. Seidler(1)................. 62 Director
William J. Shortt(1).............. 72 Director
Robert L. Voigt(1)................ 78 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee and Audit Committee.
(2) Effective July 1, 1997, Mr. Dana will become the Chief Operating Officer and
General Counsel of the Company.
Directors of the Company are elected each year at the annual meeting of
stockholders. The Company's officers serve at the discretion of the Board.
Leonard Chill joined the Company in December 1973 as President and was
appointed Chief Executive Officer in 1986. He has been a director since 1986.
From 1967 until joining the Company, he held a number of positions with Thiokol
Corporation in its Fibers Division, including that of General Manager. Mr. Chill
is also the sole director and sole stockholder of one of the general partners of
Synthetic Management G.P., the entity which is the sole general partner of the
general partner of the Partnership. See "The Company".
W. Wayne Freed joined the Company in 1981 and became Vice
President -- Market Development in 1987. Prior thereto, he had 28 years
experience in the textile industry. Mr. Freed is also the sole director and sole
stockholder of one of the general partners of Synthetic Management G.P.
Ralph Kenner has been Vice President -- Manufacturing since 1984. He joined
the Company in 1974 as Director, Industrial Relations and served in that
capacity until 1976. In 1976, he was appointed Plant Manager and served in that
capacity until 1984. Mr. Kenner is also the sole director and sole stockholder
of one of the general partners of Synthetic Management G.P.
William Gardner Wright, Jr. was Vice President -- Marketing and Sales from
1983 to 1996 at which time he was named Vice President -- General Manager of the
Carpet Backing Division. From 1977 until 1983, he was President of Synca
Marketing Corp., a textile sales agency which served as a sales agent for the
Company's primary carpet backing, as well as the products of other
manufacturers. Mr. Wright is a director of
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<PAGE> 43
the Sun Trust Bank of Northwest Georgia. Mr. Wright is also the sole director
and sole stockholder of one of the general partners of Synthetic Management G.P.
Robert J. Breyley joined the Company in 1984 and became Vice
President -- Fibermesh(R) Division in December 1984. Prior thereto, he held a
variety of managerial positions with Master Builders, Inc., a leading concrete
admixtures supplier. During his last six years with Master Builders, he was
Senior Vice President of Sales and Marketing.
W.O. Falkenberry joined the Company in 1993 as Vice President -- Human
Resources. Prior thereto, he was Director of Human Resources with the Champion
Products Division of the Sara Lee Corporation from 1989 to 1993.
C. Ted Koerner joined the Company in 1990 and became Vice
President -- Construction Products Division in 1993. He was named Vice
President -- General Manager of the Construction/Civil Engineering Products
Group in 1995. Prior thereto, Mr. Koerner was an engineer with the Ohio
Department of Transportation; a sales engineer, product supervisor and regional
engineer with Armco Steel Corporation; and a sales manager with National Seal
Corporation.
John Michael Long was Vice President -- Nonwoven Fabrics from 1991 to 1996
at which time he was named Vice President -- General Manager of the Technical
Textiles Group. Prior thereto, he held a variety of managerial positions with
Spartan Mills, a manufacturer of nonwoven geotextile fabrics. During his last
five years at Spartan, he was Vice President and General Manager.
Joseph Sinicropi joined the Company in 1995 as Chief Accounting Officer. He
was named Chief Financial Officer and Secretary in February 1996. Prior to
joining the Company, he was an audit senior manager in the international
accounting firm of Deloitte & Touche LLP from 1985 to 1995.
Bobby Callahan joined the Company in 1977 and has been Controller since
1980. Prior thereto, he held a variety of financial management positions in the
carpet industry.
Joseph F. Dana has been engaged in the private practice of law for over
twenty years and has been a member of the law firm Watson & Dana, LaFayette,
Georgia, since its formation in 1978. Mr. Dana has served as general counsel to
the Company since 1987 and has been a Director since 1993.
Lee J. Seidler was Senior Managing Director at Bear, Stearns & Co. Inc.
from 1981 to 1989. He is presently associated with Bear, Stearns & Co. Inc. as
Managing Director Emeritus. Mr. Seidler is a director of the Shubert Foundation,
The Shubert Organization, and Players International, Inc. and has been a
director of SafeCard Services, Inc. and Eastbank, N.A. He has been a Director
since 1993.
William J. Shortt retired from Johnson & Johnson in 1989. From 1977 to
1989, he was Director of Government and Trade Relations, Southeast at Johnson &
Johnson. Mr. Shortt has also been a director of Standard Telephone Company,
Standard Group Inc., and First National Bank of Habersham. He has been a
Director since 1993.
Robert L. Voigt served as a consultant to Dixie Yarns Inc. from 1985 until
his retirement at the end of 1991. Mr. Voigt also served as a director of Dixie
Yarns, Inc. from 1981 to 1987. He has been a Director since 1993.
Each of the executive officers, except Mr. Breyley, has an Employment
Agreement with the Company. There are no family relationships between any of the
above officers or directors of the Company.
DIRECTORS' COMPENSATION
Outside directors receive $15,000 per annum for services as a director and
$800 per meeting attended. Directors who are members of management do not
receive any meeting attendance fees or additional compensation for service as a
director or service on committees of the Board. All directors are reimbursed for
reasonable out-of-pocket expenses incurred in connection with their attendance
at meetings of the Board and its committees on which they serve.
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<PAGE> 44
Under the Company's 1994 Stock Option Plan for Non-Employee Directors (the
"Directors' Plan"), Messrs. Dana, Seidler, Shortt and Voigt were granted
non-qualified stock options (the "Directors' Options") to purchase 28,906,
57,813, 19,271 and 19,271 shares of Common Stock, respectively. The Directors'
Plan does not provide for any further grants of options thereunder.
The purchase price of the shares of Common Stock subject to the Directors'
Options was determined by reference to the fair market value of the Common
Stock, as determined by the Compensation Committee, at the time Messrs. Dana,
Seidler, Shortt and Voigt became members of the Board. As of October 1, 1996,
100% of the number of shares of Common Stock subject to each Director Option are
vested and are exercisable. As a Company employee, Mr. Chill is not eligible to
participate in the Directors' Plan. In the event that the outstanding shares of
Common Stock are changed by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split, combination or exchange of
shares and the like, or dividends payable in Common Stock, an appropriate
adjustment shall be made by the Committee in the aggregate number of shares of
Common Stock available under the Directors' Plan and in the number of shares and
price per share subject to outstanding Directors' Options. The term of each
Directors' Option is ten years from the date of grant.
BOARD COMMITTEES
The Board has established a Compensation Committee, composed of Messrs.
Dana, Seidler, Shortt and Voigt, which establishes salary, incentives and other
forms of compensation and administers the Company's 1994 Stock Option Plan and
1996 Stock Option Plan and other incentive compensation and benefit plans
applicable to the Company's officers. The Board has also established an Audit
Committee, composed of Messrs. Dana, Seidler, Shortt and Voigt, which recommends
to the Board the selection of independent auditors, and reviews the scope and
results of the audit and other services provided by the independent auditors.
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<PAGE> 45
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the compensation paid
during each of the Company's last three completed fiscal years to the Chief
Executive Officer of the Company and each of the other four most highly
compensated executive officers of the Company as of September 30, 1996
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
FISCAL YEAR -------------------------------------- SECURITIES
NAME AND ENDED OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION SEPT. 30, SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
------------------ ----------- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Leonard Chill................ 1996 254,871 118,119 -- -- 9,924(1)
Chief Executive Officer and 1995 254,871 89,939 4,668 -- 10,044(1)
President 1994 247,447 127,260 3,989 -- 9,921(1)
Ralph Kenner................. 1996 145,973 55,063 -- -- 4,170(2)
Vice President -- 1995 145,973 41,926 2,344 -- 4,482(2)
Manufacturing 1994 125,973 66,660 2,300 -- 4,497(2)
William Gardner Wright,
Jr......................... 1996 235,664 81,920 -- -- 4,170(2)
Vice President -- General 1995 235,664 70,238 304 -- 4,005(2)
Manager -- Carpet Backing 1994 235,664 99,384 339 -- 4,497(2)
Division
Robert J. Breyley............ 1996 141,720 48,144 -- -- 4,170(2)
Vice President -- 1995 141,720 49,500 -- -- 3,329(2)
Fibermesh(R) Division 1994 141,720 72,000 -- -- 4,198(2)
W. Wayne Freed............... 1996 152,400 37,123 -- -- 4,170(2)
Vice President -- Market 1995 142,000 28,267 1,808 -- 4,090(2)
Development 1994 128,544 29,969 2,109 -- 3,808(2)
</TABLE>
- ---------------
(1) These amounts consist of $5,424 of insurance premiums paid by the Company
under a term life insurance policy in each of 1996, 1995 and 1994, and
$4,500, $4,620 and $4,497 contributed by the Company under its 401(k) plan
in 1996, 1995 and 1994, respectively.
(2) These amounts represent the annual contribution made by the Company under
its 401(k) Plan in the respective year.
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<PAGE> 46
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table sets forth options granted to the Named Executive
Officers during fiscal 1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5% 10%
---- ---------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Leonard Chill................... 34,875 17.8% $10.72 12/09/05 $235,058 $595,665
Ralph Kenner.................... 20,458 10.4 10.72 12/09/05 137,887 349,423
William Gardner Wright, Jr...... 20,458 10.4 10.72 12/09/05 137,887 349,423
Robert J. Breyley............... -- -- -- -- -- --
W. Wayne Freed.................. 20,458 10.4 10.72 12/09/05 137,887 349,423
</TABLE>
- ---------------
(1) These gains are based on arbitrary compounded rates of growth of stock
prices mandated by the Securities and Exchange Commission of 5% and 10% per
year from the date the option was granted over the full option term. These
rates do not represent the Company's estimate or projection of future prices
of the Common Stock. There is no assurance that the values that may be
realized by any Named Executive Officer upon exercise of his options will be
at or near the value estimated in the foregoing table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth option exercises by and the value of the
in-the-money unexercised options held at September 30, 1996:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(1) AT FY-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leonard Chill............... -- -- 27,602 117,680 $62,933 $268,310
Ralph Kenner................ -- -- 8,353 45,518 19,045 103,781
William Gardner Wright,
Jr........................ -- -- 8,353 45,518 19,045 103,781
Robert J. Breyley........... -- -- 2,421 7,264 5,520 16,562
W. Wayne Freed.............. -- -- 8,353 45,518 19,045 103,781
</TABLE>
- ---------------
(1) Any shares of Common Stock received upon the exercise of options are subject
to "lock-up" agreements with the underwriters of the Common Stock Offering.
(2) Based on the initial public offering price ($13.00 per share) less the
exercise price ($10.72 per share) payable for such shares.
EMPLOYMENT AGREEMENTS
Each of Messrs. Chill, Freed, Kenner and Wright (the "Executives") are
employed by the Company pursuant to individual employment agreements effective
as of September 6, 1996 (the "Effective Date"). The term of employment under
these agreements is three years from the Effective Date; provided that on each
anniversary of the month following the first Effective Date, and each successive
month, the term is automatically extended for one successive month, providing a
minimum remaining term of two years, unless either party terminates the
agreement by written notice. The current annual salaries for Messrs. Chill,
Freed, Kenner and Wright pursuant to these agreements are $270,163, $161,544,
$154,731 and $249,803, respectively, and are subject to annual review by the
Board.
The Company has the right to terminate the Executive's employment for
"cause" or "without cause", in each case as defined in the applicable employment
agreement. In the event that an Executive is terminated by
45
<PAGE> 47
the Company "without cause," other than following a "Change in Control" (as
defined below), the Executive is entitled to receive his base salary at the rate
in effect on the date of termination of employment for a period of two years
from the date of termination, any unpaid, accrued amounts under the annual
incentive plan, a pro rata payment under the annual incentive plan for the
termination year, a payment equal to the three year average of incentive
payments received under the Company's annual incentive plan and any stock option
rights due through the end of the term. Under each employment agreement, a
Change in Control occurs when (i) any person or group becomes the beneficial
owner of capital stock of the Company representing 35% of all the voting stock,
(ii) the members of the Board on the Effective Date cease to constitute a
majority of the Board, or (iii) the Company combines with another entity and a
person holds more than 35% of the voting stock of the Company or the Company's
directors, as of the date immediately before such combination, constitute less
than a majority of the board of directors of the combined entity.
If the Executive is terminated by the Company "without cause" prior to the
occurrence of a Change in Control and it can be shown such termination occurred
in connection with, prior to or in anticipation of the Change in Control, or if
the termination resulted from a Change in Control, the Executive is entitled to
(i) a lump sum payment equal to two times the Executive's annual base salary and
annual incentive plan for the year in which the Change in Control occurs or the
prior year, whichever is greater, (ii) unpaid, accrued amounts under the annual
incentive plan and a payment that equals the average of the incentive payment
received by the Executive under the annual incentive plan for the immediately
preceding three years and (iii) certain other supplemental insurance coverages,
for a maximum of 18 months (the "Change in Control Provision"). In the event of
a Change in Control, whether or not the Executive's employment continues with
the Company, all options granted to such Executive under any of the Management
Plans (as defined below) shall vest immediately on the date of the Change in
Control.
In the event that an Executive's employment is terminated for disability or
death, the Executive (or his estate) is to be paid (a) his base salary at the
rate in effect on the date of termination until the earlier of six months from
the date of termination or the date of commencement of long term disability
payments, if applicable, and (b) any unpaid, accrued amounts under the annual
incentive plan, and will receive any stock option rights to which such Executive
would otherwise be entitled. In the case of termination by reason of death, the
executive is also entitled to a payment under the annual incentive plan equal to
the pro rata amount due for the termination year.
OPTION PLANS
The Company's 1994 Stock Option Plan (the "1994 Plan") was adopted by the
Board upon the recommendations of a special committee consisting of Messrs.
Seidler, Shortt and Voigt, and approved by the Company's sole stockholder during
the fourth quarter of fiscal 1994. The Company's 1996 Stock Option Plan (the
"1996 Plan") was similarly adopted on May 15, 1996, as amended as of July 31,
1996.
Under the 1994 Plan and 1996 Plan (collectively, the "Management Plans")
incentive stock options ("ISOs"), as provided in Section 422A of the Internal
Revenue Code, and non-qualified stock options may be granted to any full-time
employee of the Company or its subsidiaries. The maximum aggregate number of
shares of Common Stock that may be issued under the 1994 Plan and 1996 Plan is
491,413 and 289,062, respectively. As of September 30, 1996, options to purchase
an aggregate of 491,413 shares of Common Stock had been granted under the 1994
Plan. Of such amount, Messrs. Chill, Wright, Freed, Kenner and other key
managers hold options to purchase 145,282, 53,871, 53,871, 53,871 and 130,648
shares of Common Stock, respectively. Mr. Beckman holds options for 53,871
common shares. As of September 30, 1996, the only options granted under the 1996
Plan were options to purchase 21,723 shares of Common Stock granted to Mr.
Sinicropi. Options may not be granted under the Management Plans after August
28, 2004. See "Principal Stockholders".
The purchase price of the shares of Common Stock subject to options under
the Management Plans must be no less than the fair market value of the Common
Stock at the date of grant, as determined by the Committee; provided, however,
that the purchase price of shares of Common Stock subject to ISOs granted to any
optionee who owns shares possessing more than 10% of the combined voting power
of the Company or any
46
<PAGE> 48
parent or subsidiary of the Company ("Ten Percent Stockholder") must not be less
than 110% of the fair market value of the Common Stock at the date of the grant.
The maximum term of an option may not exceed ten years from the date of grant,
except with respect to ISOs granted to Ten Percent Stockholders which must
expire within five years of the date of grant.
The Management Plans are administered by the Company's Compensation
Committee. Subject to the express provisions of the Management Plans, the
Compensation Committee has the discretion and authority to determine to whom
from among the eligible employees an option may be granted, the time or times at
which each option may be exercised, the number of shares of Common Stock subject
to each option and the terms and conditions of each stock option agreement
issued pursuant to the Management Plans; provided, however, that shares of
Common Stock subject to any such agreement shall vest and become exercisable at
a minimum rate of 25% per year over a four-year period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996 and 1995, the Company paid legal fees totaling
approximately $232,000 and $135,000 to the law firm of Watson & Dana. Mr. Dana,
a director of the Company and a member of the Compensation Committee, is a
member of Watson & Dana.
47
<PAGE> 49
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock as of February 28, 1997 by: (i) each
stockholder known by the Company to own beneficially 5% or more of the
outstanding shares of Common Stock; (ii) each director of the Company; (iii)
each of the Named Executive Officers; and (iv) all executive officers and
directors of the Company as a group. Unless otherwise indicated, the address for
each officer, director and 5% stockholder is c/o Synthetic Industries, Inc., 309
LaFayette Road, Chickamauga, Georgia 30707.
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENT
---- ---------------- -------
<S> <C> <C>
5% STOCKHOLDERS:
Synthetic Industries, L.P......................... 5,781,250(1) 67.53%
The Crabbe Huson Group, Inc.(2)................... 738,000(2) 8.62%
NAMED EXECUTIVE OFFICERS:
Leonard Chill..................................... 73,554(3)(4)(5) *
W. Wayne Freed.................................... 31,453(3)(4)(5) *
William Gardner Wright, Jr. ...................... 31,453(3)(4)(5) *
Ralph Kenner...................................... 31,453(3)(4)(5) *
Robert J. Breyley................................. 5,472(4)(6) *
DIRECTORS:
Joseph F. Dana.................................... 28,906(4) *
Lee J. Seidler.................................... 57,813(4) *
William J. Shortt................................. 19,271(4) *
Robert L. Voigt................................... 19,271(4) *
All executive officers and directors as a group
(14 persons)(5)(6)(7)........................... 322,834 3.77%
</TABLE>
- ---------------
* Less than 1.0%.
(1) Under certain conditions the Partnership has the right to cause the Company
to register the sale of its shares of Common Stock. See "Certain
Relationships and Related Transactions."
(2) The business address for The Crabbe Huson Group, Inc. is 121 S.W. Morrison,
Suite 1400, Portland, Oregon 97204. Information regarding The Crabbe Huson
Group, Inc. has been obtained by the Company from a Schedule 13G filed by
The Crabbe Huson Group, Inc. and certain related investment companies with
the Commission on or about February 7, 1997. The Crabbe Huson Group, Inc.
does not directly own any shares of Common Stock. It has shared voting and
investment power over 738,000 shares of Common Stock.
(3) Includes 9,632 shares as to which such person may be deemed to have
beneficial ownership as a result of his indirect beneficial ownership of
0.1666% of a partnership interest in the Partnership.
(4) Includes shares of Common Stock subject to options exercisable within 60
days, as follows: Leonard Chill -- 63,923 shares; W. Wayne Freed -- 21,821
shares; William Gardner Wright, Jr. -- 21,821 shares; Ralph Kenner -- 21,821
shares; Robert J. Breyley -- 4,842 shares; Joseph F. Dana -- 28,906 shares;
Lee J. Seidler -- 57,813 shares; William J. Shortt -- 19,271 shares; Robert
L. Voigt -- 19,271 shares.
(5) Does not include 5,781,250 shares (other than the 9,632 shares described in
footnote 3 above) as to which Messrs. Chill, Wright, Kenner and Freed may be
deemed to have beneficial ownership by virtue of their indirect control of
the Partnership. See "Certain Relationships and Related Transactions".
(6) Includes 630 shares as to which Mr. Breyley may be deemed to have beneficial
ownership as a result of his indirect beneficial ownership of 0.0109% of a
partnership interest in the Partnership.
(7) Does not include (i) an aggregate of 19,976 shares of Common Stock subject
to options exercisable within 60 days that are owned by employees of the
Company other than the executive officers and (ii) an aggregate of 280,875
shares of Common Stock subject to options that are not exercisable within 60
days that are owned by directors, officers and employees of the Company.
Includes an aggregate of 38,528 shares as to which Messrs. Chill, Wright,
Kenner and Freed may be deemed to have beneficial ownership as a result of
their indirect beneficial ownership of 0.1666% each of a partnership
interest in the Partnership.
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<PAGE> 50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner is the sole general partner of the Partnership.
Synthetic Management G.P. is the sole general partner of SI Management L.P. By
virtue of these relationships, Synthetic Management G.P. controls the management
and affairs of the Partnership and, therefore, the Company. The Partnership owns
5,781,250 shares of Common Stock, or approximately 67% of the issued and
outstanding shares of Common Stock, and therefore holds the voting power to
determine the outcome of all matters upon which stockholders vote.
The general partners of Synthetic Management G.P. are the following five
Delaware corporations: Chill Investments, Inc., Beckman Investments, Inc., Freed
Investments, Inc., Kenner Investments, Inc. and W.G. Wright Investments, Inc.
Each of Messrs. Chill, Beckman, Freed, Kenner and Wright is the sole director
and the sole stockholder of one of Synthetic Management G.P.'s general partners.
For further information concerning Messrs. Chill, Beckman, Freed, Kenner and
Wright, see "Management -- Executive Officers and Directors of the Company" and
"-- Executive Compensation".
The Company and the Partnership have entered into a Registration Rights
Agreement pursuant to which the Company has agreed that upon request of the
Partnership the Company will register under the Securities Act and applicable
state securities laws the sale of the Common Stock owned by the Partnership and
as to which registration has been requested. The Company's obligation is subject
to certain limitations relating to a minimum amount required for registration,
the timing of a registration and other similar matters. The Company is obligated
to pay any registration expenses incidental to such registration, excluding
underwriters' commissions and discounts. In connection with the Common Stock
Offering, the Company incurred approximately $300,000 of such registration
expenses on behalf of the Partnership. The above description is qualified in its
entirety by reference to the Registration Rights Agreement, a copy of which has
been filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1, filed with the Commission on September 13, 1996,
substantially in the form executed. The Partnership, however, is subject to a
lock-up agreement with the underwriters of the Common Stock Offering pursuant to
which the Partnership has agreed not to offer, sell, agree to sell, grant any
option for the sale of or otherwise dispose of, directly or indirectly, any
shares of Common Stock (or any security convertible into, exercisable for or
exchangeable for Common Stock) without the consent of Bear, Stearns & Co. Inc.
for a period of 270 days after November 1, 1996, and thereafter, until December
31, 1997, only pursuant to an underwritten public offering.
Lee J. Seidler, a director of the Company, is presently associated with
Bear, Stearns & Co. Inc. ("Bear Stearns") as Managing Director Emeritus and from
time to time receives fees in connection with consulting and referral services
to Bear Stearns, including the Common Stock Offering and the Old Notes Offering.
Mr. Seidler has received from Bear Stearns in connection with such services
approximately $200,000 since the beginning of the Company's current fiscal year.
Jon P. Beckman, a former executive officer of the Company and an affiliate
of the General Partner, is being retained as a consultant to the Company.
Pursuant to his consulting agreement with the Company, Mr. Beckman will receive,
until January 31, 2000, or upon earlier termination of his consulting agreement,
$125,000 per year and various insurance coverages, and will be authorized to
exercise all stock options awarded to him, subject to applicable vesting
provisions. Under this agreement, Mr. Beckman is required to provide the Company
with 20 hours of consultation per month, has released the Company from any
liability resulting from his employment and has also agreed not to compete
against the Company.
The Company leases office space under a five-year lease with William
Gardner Wright, Jr., one of the Company's executive officers. The term of the
lease expires on September 30, 1998 and the rent is approximately $4,000 per
month, which the Company believes is within prevailing market rates.
Pursuant to a licensing agreement with the Company, W. Wayne Freed, an
executive officer of the Company, receives royalties related to the manufacture
and sale of a certain product for which Mr. Freed owns all of the U.S. and
foreign patents. Under this agreement, Mr. Freed received royalties of $3,079
and
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<PAGE> 51
$12,269 in fiscal 1995 and 1996, respectively, and will continue to receive such
royalties until 2012 or the earlier termination of the license agreement.
See also the information and the transactions described under
"Management -- Compensation Committee Interlocks and Insider Participation".
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes, the Company entered into the
Registration Rights Agreement with the Initial Purchaser, pursuant to which the
Company agreed to use its best efforts to file with the Commission a
registration statement with respect to the exchange of the Old Notes for debt
securities with terms identical in all material respects to the terms of the Old
Notes, except that the offering of the New Notes would be registered under the
Securities Act and therefore the New Notes would not be subject to certain
restrictions on transfer applicable to the Old Notes and would not be entitled
to registration rights and other rights under the Registration Rights Agreement.
The New Notes offered hereby in exchange for Old Notes meet the above
requirements. Upon consummation of the Exchange Offer, holders of Old Notes will
not be entitled to any further registration rights under the Registration Rights
Agreement, except that the Initial Purchaser may have certain registration
rights under limited circumstances. See "Risk Factors -- Certain Consequences of
a Failure to Exchange Old Notes" and "Description of the Old Notes."
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Old Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $170,000,000 aggregate principal amount of New Notes for a like
aggregate principal amount of Old Notes properly tendered on or prior to the
Expiration Date (as defined below) and not properly withdrawn in accordance with
the procedures described below. The Company will issue, promptly after the
Expiration Date, an aggregate principal amount of up to $170,000,000 of New
Notes in exchange for a like principal amount of outstanding Old Notes tendered
and accepted in connection with the Exchange Offer. Holders may tender their Old
Notes in whole or in part in a principal amount of $1,000 and integral multiples
thereof.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered. As of the date of this Prospectus $170,000,000 aggregate
principal amount of the Old Notes is outstanding.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Old Notes which are not tendered for
exchange or are tendered but not accepted in connection with the Exchange Offer
will remain outstanding and be entitled to the benefits of the Indenture, but
will not be entitled to any further registration rights under the Registration
Rights Agreement, except that the Initial Purchaser may have certain
registration rights under limited circumstances.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof promptly after the Expiration
Date.
Holders who tender Old Notes in connection with the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes for New Notes in connection with the Exchange Offer. The Company will pay
all charges and expenses, other than certain applicable taxes described below,
in connection with the Exchange Offer. See "-- Fees and Expenses."
50
<PAGE> 52
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF OLD NOTES MUST MAKE THE OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF THEY CHOOSE TO DO SO, THE AGGREGATE AMOUNT OF OLD NOTES
TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND
CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION
AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 12:00 midnight, New York City time, on
July 14, 1997 unless the Exchange Offer is extended by the Company (in which
case the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended).
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law and the terms of the Registration Rights
Agreement, at any time and from time to time, (i) to delay the acceptance of the
Old Notes for exchange, (ii) to terminate the Exchange Offer (whether or not any
Old Notes have theretofore been accepted for exchange) if the Company
determines, in its sole and absolute discretion, that any of the events or
conditions referred to under "-- Certain Conditions to the Exchange Offer" have
occurred or exist or have not been satisfied, (iii) to extend the Expiration
Date of the Exchange Offer and retain all Old Notes tendered pursuant to the
Exchange Offer, subject, however, to the right of holders of Old Notes to
withdraw their tendered Old Notes as described under "-- Withdrawal Rights," and
(iv) to waive any condition or otherwise amend the terms of the Exchange Offer
in any respect. If the Exchange Offer is amended in a manner determined by the
Company to constitute a material change, or if the Company waives a material
condition of the Exchange Offer, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to the
registered holders of the Old Notes, and the Company will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company may choose to make any public announcement and
subject to applicable law, the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, New Notes for Old
Notes validly tendered and not withdrawn (pursuant to the withdrawal rights
described under "-- Withdrawal Rights") promptly after the Expiration Date.
In all cases, delivery of New Notes in exchange for Old Notes tendered and
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) Old Notes or a book-entry
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at The Depository Trust Company ("DTC"), (ii) the Letter of Transmittal
(or facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and (iii) any other documents required by the Letter of
Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Notes into the Exchange Agent's account at DTC.
Subject to the terms and conditions of the Exchange Offer, the Company will
be deemed to have accepted for exchange, and thereby exchanged, Old Notes
validly tendered and not withdrawn as, if and when the Company gives oral or
written notice to the Exchange Agent of the Company's acceptance of such Old
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Notes for exchange pursuant to the Exchange Offer. The Exchange Agent will act
as agent for the Company for the purpose of receiving tenders of Old Notes,
Letters of Transmittal and related documents, and as agent for tendering holders
for the purpose of receiving Old Notes, Letters of Transmittal and related
documents and transmitting New Notes to validly tendering holders. Such exchange
will be made promptly after the Expiration Date. If for any reason whatsoever,
acceptance for exchange or the exchange of any Old Notes tendered pursuant to
the Exchange Offer is delayed or the Company extends the Exchange Offer or is
unable to accept for exchange or exchange Old Notes tendered pursuant to the
Exchange Offer, then, without prejudice to the Company's rights set forth
herein, the Exchange Agent may, nevertheless, on behalf of the Company and
subject to Rule 14e-1(c) under the Exchange Act, retain tendered Old Notes and
such Old Notes may not be withdrawn except to the extent tendering holders are
entitled to withdrawal rights as described under "-- Withdrawal Rights."
Pursuant to the Letter of Transmittal, a holder of Old Notes will warrant
and agree in the Letter of Transmittal that such holder has full power and
authority to tender, exchange, sell, assign and transfer Old Notes, that the
Company will acquire good, marketable and unencumbered title to the tendered Old
Notes, free and clear of all liens, restrictions, charges and encumbrances, and
that the Old Notes tendered for exchange are not subject to any adverse claims
or proxies. The holder also will warrant and agree that it will, upon request,
execute and deliver any additional documents deemed by the Company or the
Exchange Agent to be necessary or desirable to complete the exchange, sale,
assignment, and transfer of the Old Notes tendered pursuant to the Exchange
Offer.
PROCEDURES FOR TENDERING OLD NOTES
VALID TENDER. Except as set forth below, in order for Old Notes to be
validly tendered pursuant to the Exchange Offer, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must be received by the
Exchange Agent at one of its addresses set forth under "-- Exchange Agent," and
either (i) tendered Old Notes must be received by the Exchange Agent, or (ii)
such Old Notes must be tendered pursuant to the procedures for book-entry
transfer set forth below and a book-entry confirmation must be received by the
Exchange Agent, in each case on or prior to the Expiration Date, or (iii) the
guaranteed delivery procedures set forth below must be complied with.
A tendering holder, if tendering less than all of such holder's Old Notes,
should fill in the amount of Old Notes being tendered in the appropriate box on
the Letter of Transmittal. The entire amount of Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. NO LETTER OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST
THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES
TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
BOOK-ENTRY TRANSFER. The Exchange Agent will establish an account with
respect to the Old Notes at DTC for purposes of the Exchange Offer within two
business days after the date of this Prospectus. Any financial institution that
is a participant in DTC's book-entry transfer facility system may make a
book-entry delivery of the Old Notes by causing DTC to transfer such Old Notes
into the Exchange Agent's account at DTC in accordance with DTC's procedures for
transfers. However, although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other required documents, must in any
case be delivered to and received by the Exchange Agent at one of its addresses
set forth under "-- Exchange Agent" on or prior to the Expiration Date, or the
guaranteed delivery procedure set forth below must be complied with.
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<PAGE> 54
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES. Certificates for the Old Notes need not be endorsed
and signature guarantees on the Letter of Transmittal are unnecessary unless (a)
a certificate for the Old Notes is registered in a name other than that of the
person surrendering the certificate or (b) such registered holder completes the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
in the Letter of Transmittal. In the case of (a) or (b) above, such certificates
for Old Notes must be duly endorsed or accompanied by a properly executed bond
power, with the endorsement or signature on the bond power and on the Letter of
Transmittal guaranteed by a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as an "eligible guarantor institution," including (as
such terms are defined therein): (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association (each, an "Eligible
Institution"), unless surrendered on behalf of such Eligible Institution. See
Instruction 1 to the Letter of Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Old Notes pursuant to
the Exchange Offer and the certificates for such Old Notes are not immediately
available or time will not permit all required documents to reach the Exchange
Agent on or before the Expiration Date, or the procedures for book-entry
transfer cannot be completed on a timely basis, such Old Notes may nevertheless
be tendered, provided that all of the following guaranteed delivery procedures
are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
is received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all
tendered Old Notes, in proper form for transfer, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof),
with any required signature guarantees and any other documents required by
the Letter of Transmittal, are received by the Exchange Agent within three
New York Stock Exchange trading days after the date of execution of such
Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Notes in
exchange for Old Notes tendered and accepted for exchange pursuant to the
Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Old Notes, or of a book-entry confirmation with respect to
such Old Notes, and a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees and any
other documents required by the Letter of Transmittal. Accordingly, the delivery
of New Notes might not be made to all tendering holders at the same time, and
will depend upon when Old Notes, book-entry confirmations with respect to Old
Notes and other required documents are received by the Exchange Agent.
The Company's acceptance for exchange of Old Notes tendered pursuant to any
of the procedures described above will constitute a binding agreement between
the tendering holder and the Company upon the terms and subject to the
conditions of the Exchange Offer.
DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Notes will be determined by the Company, in its sole
discretion, whose determination shall be final and binding on all parties. The
Company reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders determined by it not to be in proper form or the
acceptance of which, or exchange for, may, in the view of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer as set
forth under "-- Certain Conditions to the Exchange Offer" or any
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condition or irregularity in any tender of Old Notes of any particular holder
whether or not similar conditions or irregularities are waived in the case of
other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding. No tender of Old Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any duty to give any
notification of any irregularities in tenders or incur any liability for failure
to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by the Company,
proper evidence satisfactory to the Company, in its sole discretion, of such
person's authority to so act must be submitted.
A beneficial owner of Old Notes that are held by or registered in the name
of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF NEW NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Commission as set forth in
certain No-Action Letters issued to Morgan Stanley & Co. Incorporated (available
June 5, 1991) (the "Morgan Stanley Letter"), Exxon Capital Holdings Corp.
(available April 13, 1988), and Shearman & Sterling (available July 2, 1993),
and certain other interpretive letters addressed to third parties in other
transactions. However, the Company has not sought its own interpretive letter
and there can be no assurance that the staff of the Division of Corporation
Finance of the Commission would make a similar determination with respect to the
Exchange Offer as it has in such interpretive letters to third parties. Based on
these interpretations by the staff of the Division of Corporation Finance of the
Commission, and subject to the two immediately following sentences, the Company
believes that New Notes issued pursuant to this Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred by a
holder thereof (other than a holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holder's business and that such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Notes. However, any
holder of Old Notes that is an "affiliate" of the Company or that intends to
participate in the Exchange Offer for the purpose of distributing New Notes, or
any broker-dealer who purchased Old Notes from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act, (a) will
not be able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the Morgan Stanley Letter and
the other above-mentioned interpretive letters, (b) will not be permitted or
entitled to tender such Old Notes in the Exchange Offer and (c) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Notes unless such sale is
made pursuant to an exemption from such requirements. In addition, as described
below, if any broker-dealer holds Old Notes acquired for its own account as a
result of market-making or other trading activities and exchanges such Old Notes
for New Notes, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such New
Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives
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New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it acquired the Old Notes for its own account as the result of
market-making activities or other trading activities and must agree that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. 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 on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, the Company believes that broker-dealers who acquired Old Notes for their
own accounts as a result of market-making activities or other trading activities
("Participating Broker-Dealers") may fulfill their prospectus delivery
requirements with respect to the New Notes received upon exchange of such Old
Notes (other than Old Notes which represent an unsold allotment from the
original sale of the Old Notes) with a prospectus meeting the requirements of
the Securities Act, which may be the prospectus prepared for an exchange offer
so long as it contains a description of the plan of distribution with respect to
the resale of such New Notes. Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
during the period referred to below in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer for its own account as a result of market-making or
other trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement, the Company has agreed that this Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of such New Notes for a
period ending 180 days (subject to extension under certain limited circumstances
described below) after the Expiration Date or, if earlier, when all such New
Notes have been disposed of by such Participating Broker-Dealer. However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of New Notes received in exchange for Old Notes pursuant to the
Exchange Offer must notify the Company, or cause the Company to be notified, on
or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such
notice may be given in the space provided for that purpose in the Letter of
Transmittal or may be delivered to the Exchange Agent at one of the addresses
set forth herein under "-- Exchange Agent." See "Plan of Distribution." Any
Participating Broker-Dealer who is an "affiliate" of the Company may not rely on
such interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Notes pursuant to this Prospectus until the Company has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be. If the Company gives such notice to suspend the
sale of the New Notes, it shall extend the 180-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Notes by the number of days in the period from
and including the date of the giving of such notice to and including the date
when the Company shall have made available to Participating Broker-Dealers
copies of the supplemented or amended Prospectus necessary to resume resales of
the New Notes or to and including the date on which the Company has given notice
that the use of the applicable Prospectus may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date.
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In order for a withdrawal to be effective a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth under "-- Exchange Agent"
on or prior to the Expiration Date. Any such notice of withdrawal must specify
the name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if certificates for such Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the Old Notes, if different from that of the person who tendered
such Old Notes. If Old Notes have been delivered or otherwise identified to the
Exchange Agent, then prior to the physical release of such Old Notes, the
tendering holder must submit the serial numbers shown on the particular Old
Notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Old Notes tendered
for the account of an Eligible Institution. If Old Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "-- Procedures
for Tendering Old Notes," the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of Old Notes, in
which case a notice of withdrawal will be effective if delivered to the Exchange
Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of
tenders of Old Notes may not be rescinded. Old Notes properly withdrawn will not
be deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described above under "-- Procedures for
Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Notes which have been tendered
but which are withdrawn will be returned to the holder thereof promptly after
withdrawal.
INTEREST ON THE NEW NOTES
Each New Note will bear interest at the rate of 9 1/4% per annum from the
most recent date to which interest has been paid or duly provided for on the Old
Note surrendered in exchange for such New Note or, if no interest has been paid
or duly provided for on such Old Note, from February 11, 1997. Interest on the
New Notes will be payable semiannually on February 15 and August 15 of each
year, commencing on August 15, 1997.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the New Notes or, if no
such interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and will be deemed to have waived the right to
receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after February 11, 1997.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Old Notes for any New Notes, and, as described
below, may terminate the Exchange Offer (whether or not any Old Notes have
theretofore been accepted for exchange) or may waive any conditions to or amend
the Exchange Offer, if any of the following conditions have occurred or exists
or have not been satisfied:
(a) there shall have been instituted, threatened or be pending any
action or proceeding before or by any court, governmental, regulatory or
administrative agency or instrumentality, or by any other person, in
connection with the Exchange Offer that is, or is reasonably likely to be,
or which would or might be, in the sole judgment of the Company, materially
adverse to the business, operations, properties, condition (financial or
otherwise), assets, liabilities or prospects of the Company and its
subsidiaries, taken as a
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whole, or which would or might, in the sole judgment of the Company,
prohibit, prevent, restrict or delay consummation of the Exchange Offer or
have a material adverse effect on the contemplated benefits of the Exchange
Offer to the Company; or
(b) there shall have occurred any material adverse development, in the
sole judgment of the Company, with respect to any action or proceeding
concerning the Company and its subsidiaries, taken as a whole; or
(c) there exists an order, statute, rule, regulation, executive order,
stay, decree, judgment or injunction that shall have been proposed,
enacted, entered, issued, promulgated, enforced or deemed applicable by any
court or governmental, regulatory or administrative agency or
instrumentality that, in the sole judgment of the Company, would or might
prohibit, prevent, restrict or delay consummation of the Exchange Offer, or
that is, or is reasonably likely to be, in the sole judgment of the
Company, materially adverse to the business, operations, properties,
condition (financial or otherwise), assets, liabilities or prospects of the
Company and its subsidiaries, taken as a whole; or
(d) there shall have occurred or be likely to occur any event
affecting the business or financial affairs of the Company or any of its
subsidiaries that, in the sole judgment of the Company, would or might
prohibit, prevent, restrict or delay consummation of, or could materially
impair the contemplated benefits to the Company of, the Exchange Offer; or
(e) there shall have occurred (1) any general suspension of, or
limitation on prices for, trading in securities in the United States
securities or financial markets, (2) any significant adverse change in the
price of the Notes or in the United States securities or financial markets,
(3) a material impairment in the trading market for debt securities, (4) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States (whether or not mandatory), (5) any
limitation (whether or not mandatory) by a government authority, or other
event that, in the reasonable judgment of the Company, might affect the
extension of credit by banks or other lending institutions in the United
States; or
(f) a commencement of war, armed hostilities or other national or
international crisis directly or indirectly involving the United States; or
(g) in the case of any of the foregoing existing on the date hereof, a
material acceleration or worsening thereof.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, the Company may, subject to applicable law, terminate the Exchange
Offer (whether or not any Old Notes have theretofore been accepted for exchange)
or may waive any such condition or otherwise amend the terms of the Exchange
Offer in any respect. If the Exchange Offer is amended in a manner determined by
the Company to constitute a material change, or if the Company waives a material
condition of the Exchange Offer, the Company will promptly disclose such
amendment or waiver by means of a prospectus supplement that will be distributed
to the registered holders of the Old Notes, and the Company will extend the
Exchange Offer to the extent required by Rule 14e-1 under the Exchange Act.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as Exchange
Agent for the Exchange Offer. Delivery of the Letters of Transmittal and any
other required documents, questions, requests for assistance, and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent as follows:
By Mail:
United States Trust Company of New York
P.O. Box 843
Cooper Station
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New York, New York 10276
Attention: Corporate Trust Services
By Hand:
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Lower Level Corporate Trust Window
By Overnight Delivery and By Hand After 4:30 P.M.:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Redemption Unit
Facsimile Transmissions:
(212) 780-0592
Attention: Customer Service
To Confirm by Telephone:
(800) 548-6565
Delivery to other than one of the above addresses or facsimile number will
not constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Notes, and in handling or tendering for their
customers.
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes in connection with the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The Old Notes were issued and New Notes will be issued pursuant to the
Indenture, dated as of February 11, 1997 (the "Indenture"), among the Company
and United States Trust Company of New York, as trustee (the "Trustee"). The
terms of the New Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). The New Notes are subject to all such terms, and
Holders of New Notes are referred to the Indenture and the Trust Indenture Act
for a statement thereof. The following summary of certain provisions of the New
Notes and the Indenture does not purport to be complete and is qualified in its
entirety by reference to the New Notes and the Indenture, including the
definitions therein of certain terms used below. Copies of the Indenture will be
made available to prospective purchasers of New Notes as set forth below under
"--Additional Information." The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions."
Capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned to them in the Indenture.
The Old Notes and the New Notes will constitute a single series of debt
securities under the Indenture. If the Exchange Offer is consummated, holders of
the Old Notes who do not exchange their Old Notes for New Notes will vote
together with the holders of New Notes for all relevant purposes under the
Indenture. In that regard, the Indenture requires that certain actions by the
holders thereunder (including acceleration following an Event of Default) must
be taken, and certain rights must be exercised, by specified minimum percentages
of the aggregate principal amount of the outstanding debt securities of the
relevant series. In determining whether holders of the requisite percentage in
principal amount have given any notice, consent or waiver or taken any other
action permitted under the Indenture, any Old Notes which remain outstanding
after the Exchange Offer will be aggregated with the New Notes and the holders
of such Old Notes and the New Notes will vote together as a single series for
all such purposes. Accordingly, all references herein to specified percentages
in aggregate principal amount of the outstanding Notes shall be deemed to mean,
at any time after the Exchange Offer is consummated, such percentage in
aggregate principal amount of the Old Notes and the New Notes then outstanding.
The New Notes will be general unsecured obligations of the Company and will
be subordinated in right of payment to the prior payment in full of all Senior
Debt of the Company and senior or pari passu in right of payment to all existing
and future subordinated Indebtedness of the Company, in each case, whether
outstanding on the date of the Indenture or incurred thereafter. See
"-- Subordination".
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be limited in aggregate principal amount to $170.0
million and will mature on February 15, 2007. Interest on the New Notes will
accrue at the rate of 9 1/4% per annum and will be payable semi-annually in
arrears on February 15 and August 15 of each year, commencing on August 15,
1997, to Holders of record on the immediately preceding February 1 and August 1.
Interest on the New Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from February 11, 1997.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The New Notes will be payable as to principal, premium, if any, interest
and Liquidated Damages, if any, at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest and Liquidated Damages, if any, may
be made by check mailed to the Holders of the New Notes at their respective
addresses set forth in the register of Holders of New Notes; provided that all
payments with respect to Global New Notes will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Trustee maintained for such
purpose. The New Notes will be issued in registered form, without coupons, and
in denominations of $1,000 and integral multiples thereof.
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The Trustee is Paying Agent and Registrar under the Indenture. The Company
may act as Paying Agent or Registrar under the Indenture, and the Company may
change the Paying Agent or Registrar without notice to the Holders of the New
Notes.
OPTIONAL REDEMPTION
The New Notes will not be redeemable at the Company's option prior to
February 15, 2002. Thereafter, the New Notes will be subject to redemption at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest, if any,
thereon (plus Liquidated Damages, if any) to the applicable redemption date, if
redeemed during the twelve-month period beginning on February 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2002........................................................ 104.6250%
2003........................................................ 103.0834%
2004........................................................ 101.5417%
2005 and thereafter......................................... 100.0000%
</TABLE>
Notwithstanding the foregoing, on or prior to February 15, 2000, the
Company may redeem at any time or from time to time up to 35% of the aggregate
principal amount of the New Notes originally issued at a redemption price of
109.25% of the principal amount thereof, plus accrued and unpaid interest, if
any, thereon (plus Liquidated Damages, if any) to the redemption date, with the
net proceeds of one or more Public Equity Offerings; provided that at least
$110.5 million in aggregate principal amount of the New Notes remain outstanding
following each such redemption; provided, further, that notice of such
redemption shall be given not later than 45 days, and such redemption shall
occur not earlier than 30 days or later than 60 days, after the date of the
closing of any such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time, selection
of New Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
New Notes are listed, or, if the New Notes are not so listed, on a pro rata
basis, by lot or by such method as the Trustee shall deem fair and appropriate,
unless otherwise provided in the Indenture, provided that no New Notes of $1,000
or less shall be redeemed in part. Notices of redemption shall be mailed by
first class mail to each Holder of New Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date (unless the
Company shall default in the payment of the redemption price, together with
accrued and unpaid interest and Liquidated Damages, if any, to the redemption
date), interest ceases to accrue on New Notes or portions thereof called for
redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the New Notes. However, as described below, the Company
may be obligated, under certain circumstances, to make an offer to purchase (i)
all outstanding New Notes at a redemption price of 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, thereon (plus Liquidated
Damages, if any) to the date of purchase, upon a Change of Control; and (ii)
outstanding New Notes with a portion of the Net Proceeds of Asset Sales at a
redemption price of 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, thereon (plus Liquidated Damages, if any) to the date
of purchase. See "--Repurchase at the Option of Holders -- Change of Control"
and "-- Asset Sales."
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REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of New Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's New Notes pursuant to
the offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, thereon (plus Liquidated Damages, if any) to the date
of purchase (the "Change of Control Payment"). Notice of a Change of Control
Offer shall be prepared by the Company and shall be mailed by the Company with a
copy to the Trustee or at the option of the Company and at the expense of the
Company by the Trustee within 30 days following a Change of Control to each
Holder of the New Notes and such Change of Control Offer must remain open for at
least 30 and not more than 40 days (unless required by applicable law). In
addition, the Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the New Notes in connection with a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment New Notes or portions thereof tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all New Notes or portions
thereof so tendered and (iii) deliver or cause to be delivered to the Trustee
the New Notes so accepted together with an Officers' Certificate stating the New
Notes or portions thereof accepted for payment by the Company. The Paying Agent
will promptly mail to each Holder of New Notes so accepted the Change of Control
Payment for such New Notes, and the Trustee will promptly authenticate and mail
(or cause to be transferred by book-entry) to each Holder a new Note equal in
principal amount to any unpurchased portion of the New Notes surrendered, if
any; provided that each such new Note will be in a principal amount of $1,000 or
an integral multiple thereof. Prior to complying with the provisions of this
covenant, and in any event within 90 days following a Change of Control, the
Company shall either repay all outstanding Senior Debt of the Company or obtain
the requisite consents, if any, under all agreements governing outstanding
Senior Debt of the Company to permit the repurchase of New Notes required by
this covenant. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
With respect to the sale of assets referred to in the definition of "Change
of Control", the phrase "all or substantially all" as used in the Indenture
varies according to the facts and circumstances of the subject transaction, has
no clearly established meaning under New York law (which governs the Indenture)
and is subject to judicial interpretation. Accordingly, in certain circumstances
there may be a degree of uncertainty in ascertaining whether a particular
transaction would involve a disposition of "all or substantially all" of the
assets of a person and therefore it may be unclear whether a Change of Control
has occurred and whether the New Notes are subject to a Change of Control Offer.
The Credit Facility may prohibit the Company from purchasing any New Notes
at the time of a Change of Control. In addition, the Credit Facility may also
provide that certain change of control events with respect to the Company would
constitute a default thereunder. An event of default under the Credit Facility
could result in an acceleration of indebtedness, in which case the subordination
provisions of the New Notes would require payment in full (or provision
therefor) of such Senior Debt of the Company before repurchase or other payments
in respect of the New Notes. Any future credit agreements or other agreements
relating to Senior Debt to which the Company becomes a party may contain similar
restrictions and provisions. In the event a Change of Control occurs at a time
when the Company is prohibited from purchasing New Notes, the Company could seek
the consent of its lenders to the purchase of New Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such a consent or repay such borrowings, the Company will remain
prohibited from purchasing New Notes. In such case, the Company's failure to
purchase tendered New Notes would constitute an Event of Default under the
Indenture, which would, in turn, constitute a default under the Credit Facility.
In such circumstances, the subordination provisions in the Indenture would
likely restrict payments to the Holders of New Notes.
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<PAGE> 63
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, engage in any Asset Sale, unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets sold or otherwise
disposed of and (ii) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents; provided, however, that the amount of (a) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet or in
the notes thereto) of the Company or such Restricted Subsidiary (other than
liabilities that are by their terms subordinated in right of payment to the New
Notes) that are assumed by the transferee of any such assets and (b) any notes
or other obligations received by the Company or such Restricted Subsidiary from
such transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision.
Within 360 days after any Asset Sale, the Company may apply the Net
Proceeds from such Asset Sale to (i) permanently reduce Senior Debt, (ii)
permanently reduce Indebtedness of the Restricted Subsidiary that sold
properties or assets in the Asset Sale, or (iii) acquire properties and assets
to replace the properties and assets that were the subject of the Asset Sale or
properties and assets that will be used in the same or a similar line of
business as the Company was engaged in on the date of the Indenture. Pending the
final application of any such Net Proceeds, the Company may invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds
from the Asset Sale that are not applied as provided in the first sentence of
this paragraph will be deemed to constitute "Excess Proceeds." When the
aggregate cumulative amount of Excess Proceeds exceeds $10.0 million, the
Company shall make an offer to all Holders of New Notes (an "Asset Sale Offer")
to purchase the maximum principal amount of New Notes that may be purchased out
of the Excess Proceeds (and not solely the amount in excess of $10.0 million),
at an offer price in cash in an amount equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, and Liquidated Damages, if
any, to the date of purchase, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of New Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use such deficiency for general corporate purposes in any manner provided by
the Indenture. If the aggregate principal amount of New Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the New Notes to be purchased on a pro rata basis. Upon completion of such offer
to purchase, the amount of Excess Proceeds shall be reset at zero. The Asset
Sale Offer must be commenced within 30 days following the Asset Sale that
triggers the Company's obligation to make the Asset Sale Offer and remain open
for at least 30 and not more than 40 days (unless required by applicable law).
The Company will comply with the requirements of Rule 14e-1 under the Exchange
Act and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of New
Notes pursuant to an Asset Sale Offer. The agreements governing certain
outstanding Senior Debt of the Company will require that the Company and its
Subsidiaries apply all proceeds from asset sales to repay in full outstanding
obligations under such Senior Debt prior to the application of such proceeds to
repurchase outstanding New Notes.
SUBORDINATION
The payment of principal of, premium, if any, interest and Liquidated
Damages, if any, on the New Notes will be subordinated in right of payment, as
set forth in the Indenture, to the prior payment in full of all Senior Debt,
whether outstanding on the date of the Indenture or thereafter incurred, and
senior or pari passu in right of payment to, all subordinated Indebtedness of
the Company, whether outstanding on the date of the Indenture or thereafter
incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt of the Company will be
entitled to receive payment in full in cash or Cash Equivalents of all
Obligations due in respect of such Senior Debt of the Company (including
interest after the
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<PAGE> 64
commencement of any such proceeding at the rate specified in the applicable
Senior Debt of the Company) before the Holders of New Notes will be entitled to
receive any payment of principal of, premium, if any, interest and Liquidated
Damages, if any, on the New Notes, and until all Obligations with respect to
Senior Debt of the Company are paid in full in cash or Cash Equivalents, any
distribution to which the Holders of New Notes would be entitled shall be made
to the holders of Senior Debt of the Company; provided, that notwithstanding the
foregoing, Holders of New Notes may receive (i) securities that are subordinated
at least to the same extent as the New Notes to Senior Debt of the Company and
to any securities issued in exchange for Senior Debt of the Company and (ii)
payments made from the trust described under "-- Legal Defeasance and Covenant
Defeasance."
The Company also may not make any payment of principal of, premium, if any,
interest and Liquidated Damages, if any, on the New Notes (except in such
subordinated securities or from such trust) if (i) a default in the payment of
the principal of, premium, if any, interest on Designated Senior Debt of the
Company occurs and is continuing beyond any applicable period of grace or (ii)
any other default occurs and is continuing with respect to Designated Senior
Debt of the Company that permits holders of the Designated Senior Debt of the
Company as to which such default relates to accelerate its maturity and the
Trustee receives a written notice of such default (a "Payment Blockage Notice")
from the holders of any Designated Senior Debt of the Company. Payments on the
New Notes may and shall be resumed (i) in the case of a payment default, upon
the date on which such default is cured or waived or otherwise has ceased to
exist and (ii) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived or otherwise has ceased to exist or
179 days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt of the Company has
been accelerated. No new period of payment blockage may be commenced within 360
days after the receipt by the Trustee of any prior Payment Blockage Notice. No
non-payment default that existed or was continuing on the date of delivery of
any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice. Following the expiration of any period
during which the Company is prohibited from making payments on the New Notes
pursuant to a Payment Blockage Notice, the Company will be obligated to resume
making any and all required payments in respect of the New Notes, including
without limitation any missed payments.
The Indenture further requires that the Company promptly notify holders of
Senior Debt of the Company if payment of the New Notes is accelerated because of
an Event of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of New Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt. After giving
effect to the Common Stock Offering, the Purchase Offer and the Old Notes
Offering, the principal amount of Senior Debt of the Company outstanding as of
December 31, 1996 was approximately $27 million. The Indenture will limit,
subject to certain financial tests, the amount of additional Indebtedness,
including Senior Debt, that the Company and its Restricted Subsidiaries can
incur. See "-- Certain Covenants -- Limitation on the Incurrence of Indebtedness
and Issuance of Disqualified Stock."
CERTAIN COVENANTS
Limitation on Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any distribution on account of Equity Interests, other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company or dividends or distributions payable to the Company; (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of the Company or any Affiliate of the Company (other than any such Equity
Interests owned by the Company or a Wholly Owned Subsidiary of the Company that
is a Restricted Subsidiary); (iii) purchase, redeem, repay, defease or otherwise
acquire or retire for value any Indebtedness that is subordinated in right of
payment to the New Notes; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively
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referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "Limitation on the
Incurrence of Indebtedness and Issuance of Disqualified Stock;" and
(c) such Restricted Payment (the amount of any such payment, if other
than cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a resolution in an
Officers' Certificate delivered to the Trustee), together with the
aggregate of all other Restricted Payments made by the Company and its
Restricted Subsidiaries after the date of the Indenture (including
Restricted Payments permitted by the next succeeding paragraph other than
pursuant to clause (iii) thereof), shall not exceed the sum of (v) 50% of
the Consolidated Net Income of the Company for the period (taken as one
accounting period) commencing with the first full fiscal quarter after the
date of initial issuance of the New Notes and ending on the last day of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, 100% of such
deficit as a negative number), plus (w) 100% of the aggregate net cash
proceeds received by the Company from the issue or sale since the date of
initial issuance of the New Notes of Equity Interests of the Company or of
debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or convertible debt securities)
sold to a Subsidiary of the Company and other than Disqualified Stock or
debt securities that have been converted into Disqualified Stock), plus (x)
the aggregate cash received by the Company as capital contributions to the
Company after the date of initial issuance of the New Notes (other than
from a Subsidiary), plus (y) any cash received by the Company after the
date of initial issuance of the New Notes as a dividend or distribution
from any of its Unrestricted Subsidiaries or from the sale of any of its
Unrestricted Subsidiaries less the cost of disposition and taxes, if any
(but in each case excluding any such amounts included in Consolidated Net
Income), plus (z) $5.0 million.
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company, or the defeasance, redemption or repurchase
of subordinated Indebtedness in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company) of
Equity Interests of the Company (other than any Disqualified Stock) or out of
the net proceeds of a substantially concurrent cash capital contribution
received by the Company; provided that the amount of any such proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or other
acquisition shall be excluded from clause (w) of the preceding paragraph; (iii)
the repayment, defeasance, redemption or repurchase of subordinated Indebtedness
with the net proceeds from an incurrence of Refinancing Indebtedness in a
Permitted Refinancing; and (iv) the purchase, redemption or retirement by the
Company of shares of its common stock held by an employee or former employee of
the Company or any of its Restricted Subsidiaries issued under the Management
Plans pursuant to the terms of such Management Plans; provided that (a) the
purchase, redemption or retirement results from the retirement, death or
disability (as defined in the relevant Management Plan) of the employee or
former employee, and (b) the amount of any such payments in any fiscal year does
not exceed $1.0 million; provided, however, that at the time of, and after
giving effect to, any Restricted Payment permitted under clauses (i), (ii),
(iii) and (iv), no Default or Event of Default shall have occurred and be
continuing.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which
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<PAGE> 66
the calculations required by the covenant "Limitation on Restricted Payments"
were computed, which calculations may be based upon the Company's latest
available financial statements.
Limitation on the Incurrence of Indebtedness and Issuance of Disqualified
Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to (collectively, "incur" and, correlatively, "incurred" and "incurrence") any
Indebtedness (including, without limitation, Acquired Debt) and that the Company
and its Restricted Subsidiaries will not issue any Disqualified Stock and will
not permit any of their respective Subsidiaries (other than their Unrestricted
Subsidiaries) to issue any shares of preferred stock; provided, however, that
the Company may incur Indebtedness if the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred, determined on a pro forma basis (including
a pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred at the beginning of such four-quarter period,
would have been greater than 2.0 to 1.
The foregoing limitations do not apply to:
(i) Indebtedness incurred by the Company under the Credit Facility in
an aggregate principal amount not to exceed (a) the greater of (x) $125.0
million at any time outstanding (including any Indebtedness issued to
refinance, refund or replace such Indebtedness) or (y) $60.0 million plus
the sum of 85% of the amount of Eligible Receivables of the Company and 60%
of the amount of Eligible Inventory of the Company, in each case calculated
on a consolidated basis in accordance with GAAP, at any time outstanding
(including any Indebtedness issued to refinance, refund or replace such
Indebtedness) minus (b) the amount of any such Indebtedness retired with
Net Cash Proceeds from any Asset Sale;
(ii) additional Indebtedness incurred by the Company in respect of
Capital Lease Obligations or Purchase Money Obligations in an aggregate
principal amount not to exceed $15.0 million at any time outstanding;
(iii) Existing Indebtedness outstanding on the date of the Indenture;
(iv) Indebtedness represented by the New Notes and the Indenture;
(v) Hedging Obligations; provided, that the notional principal amount
of any Interest Rate Agreement does not significantly exceed the principal
amount of the Indebtedness to which such agreement relates; provided,
further, that any Currency Agreement does not increase the outstanding loss
potential or liabilities other than as a result of fluctuations in foreign
currency exchange rates;
(vi) Indebtedness of the Company to any of its Wholly Owned
Subsidiaries that is a Restricted Subsidiary, and Indebtedness of any
Wholly Owned Subsidiary of the Company that is a Restricted Subsidiary to
the Company or any of its Wholly Owned Subsidiaries that is a Restricted
Subsidiary (the Indebtedness incurred pursuant to this clause (vi) being
hereinafter referred to as "Intercompany Indebtedness"); provided, that, in
the case of Indebtedness of the Company such obligations shall be unsecured
and subordinated in all respects to the Company's obligations pursuant to
the New Notes; provided, further, that an incurrence of Indebtedness shall
be deemed to have occurred upon (a) any sale or other disposition of
Intercompany Indebtedness to a Person other than the Company or any of its
Restricted Subsidiaries, (b) any sale or other disposition of Equity
Interests of any Restricted Subsidiary of the Company which holds
Intercompany Indebtedness such that such Restricted Subsidiary ceases to be
a Restricted Subsidiary after such sale or other disposition, or (c)
designation of a Restricted Subsidiary as an Unrestricted Subsidiary;
(vii) in addition to Indebtedness specified in clauses (i) through
(vi) above and clauses (viii) and (ix) below, additional Indebtedness in an
aggregate principal amount not to exceed $15.0 million at any time
outstanding;
(viii) Indebtedness incurred by Synthetic Industries Europe Limited in
an aggregate principal amount not to exceed L500,000 at any time
outstanding; and
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(ix) the incurrence by the Company of Indebtedness issued in exchange
for, or the proceeds of which are used to extend, refinance, renew,
replace, defease or refund Indebtedness incurred pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of this
covenant or pursuant to clauses (iii) or (iv) of this covenant in whole or
in part (the "Refinancing Indebtedness"); provided, however, that (A) the
aggregate principal amount of such Refinancing Indebtedness shall not
exceed the aggregate principal amount of Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded; (B) the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; (C) if
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is pari passu with or subordinated in right of payment to the New
Notes, the Refinancing Indebtedness shall be pari passu with or
subordinated, as the case may be, in right of payment to the New Notes on
terms at least as favorable to the Holders of New Notes as those contained
in the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded (any such extension, refinancing,
renewal, replacement, defeasance or refunding being referred to as a
"Permitted Refinancing").
Limitation on Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any asset now owned or hereafter acquired or on
any income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to (i) pay dividends or
make any other distributions to the Company or any of its Restricted
Subsidiaries (a) on its Capital Stock or (b) with respect to any other interest
or participation in, or measured by, its profits, (ii) pay any indebtedness owed
to the Company or any of its Restricted Subsidiaries, (iii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iv) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the date of the Indenture,
(b) the Indenture and the New Notes, (c) applicable law, (d) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that
the Consolidated Cash Flow of such Person is not taken into account in
determining whether such acquisition was permitted by the terms of the
Indenture, (e) customary nonassignment provisions in leases entered into in the
ordinary course of business and consistent with past practices, (f) Purchase
Money Obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iv) above on the property
so acquired, or (g) Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Refinancing Indebtedness are no more
restrictive with respect to the provisions set forth in clauses (i), (ii), (iii)
and (iv) above than those contained in the agreements governing the Indebtedness
being refinanced.
Limitation on Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
Person or entity unless (i) the Company is the surviving corporation or the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other
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disposition shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the New Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately before or immediately after giving effect to such transaction no
Default or Event of Default shall have occurred and be continuing; and (iv) the
Company or any Person formed by or surviving any such consolidation or merger,
or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (a) will have a Consolidated Net Worth
(immediately after the transaction but prior to any purchase accounting
adjustments resulting from the transaction) equal to or greater than the
Consolidated Net Worth of the Company immediately preceding the transaction and
(b) will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
covenant entitled "Limitation on Incurrence of Indebtedness and Issuance of
Disqualified Stock."
Limitation on Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, sell, lease, license,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable arms' length transaction by the Company or such Restricted Subsidiary
with an unrelated Person and (ii) the Company delivers to the Trustee (a) with
respect to any Affiliate Transaction involving aggregate payments in excess of
$1.0 million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and such Affiliate Transaction is approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction involving aggregate payments in excess of $10.0 million,
an opinion as to the fairness to the Company or such Restricted Subsidiary from
a financial point of view issued by an investment banking firm of national
standing with expertise in underwriting non-investment grade debt securities;
provided, however, that (i) any reasonable employment agreement or stock option
agreement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary, (ii) transactions between or among the
Company and its Wholly Owned Subsidiaries that are Restricted Subsidiaries,
(iii) Restricted Payments, permitted by clauses (i) and (iv) of the second
paragraph of the covenant entitled "Limitation on Restricted Payments," (iv) the
payment of reasonable fees to directors of the Company or its Restricted
Subsidiaries and (v) Affiliate Transactions pursuant to agreements in effect on
the date of the Indenture and described in this Offering Memorandum and renewals
and extensions of such agreements on terms no less favorable to the Holders than
the terms of such original agreements and transactions, in each case, shall not
be deemed Affiliate Transactions.
Limitation on Layering Debt
The Indenture provides that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt of the Company and
senior in any respect in right of payment to the New Notes.
Reports
The Indenture provides that whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding, the
Company will furnish to the Holders of New Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its Subsidiaries and, with respect to the annual information
only, a report thereon by the Company's independent certified public accountants
and (ii) all reports that would be required to be filed with the Commission on
Form 8-K if the Company were required to file such reports. In addition, whether
or not required by the rules and regulations of the Commission, the Company will
file a copy of all such information with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to investors or prospective investors who request it in writing.
Payments for Consent
The Indenture prohibits the Company and any of its Subsidiaries from,
directly or indirectly, paying or causing to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any New Notes for or as
an inducement to any consent, waiver or amendment of any terms or provisions of
the New Notes unless such consideration is offered to be paid or agreed to be
paid to all Holders of the New Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, any of the New Notes, whether or
not prohibited by the subordination provisions of the Indenture; (ii) default in
payment when due (whether at maturity, upon redemption or repurchase, or
otherwise) of the principal of or premium, if any, on any of the New Notes,
whether or not prohibited by the subordination provisions of the Indenture;
(iii) failure by the Company to comply with the provisions described under the
covenants "Change of Control," "Asset Sales," and "Merger, Consolidation or Sale
of Assets;" (iv) failure by the Company or any Restricted Subsidiary for 30 days
after notice to comply with any of its covenants or agreements in the Indenture
or the New Notes other than those referred to in clauses (i), (ii) and (iii)
above; (v) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any Indebtedness for
money borrowed by the Company or any of its Restricted Subsidiaries (or the
payment of which is guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or guarantee now exists, or is created
after the date of the Indenture, which default (a) is caused by a failure to pay
principal of or premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case described in clauses (a) and (b) of this
subsection (v), the principal amount of any such Indebtedness, together with the
principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$10.0 million or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $10.0 million,
which judgments are not paid, discharged or stayed for a period of 60 days after
their entry; and (vii) certain events of bankruptcy or insolvency with respect
to the Company or any of its Significant Subsidiaries that is a Restricted
Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all of the principal amount of the New Notes, accrued and unpaid
interest thereon and all other Obligations thereunder to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company, any Significant Subsidiary that is a Restricted Subsidiary or any group
of Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding New Notes will become due and payable without
further action or notice. Holders of the New Notes may not enforce the Indenture
or the New Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
New Notes may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of the New Notes notice of any
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continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal, premium, interest or Liquidated Damages,
if any) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the New Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the New Notes. If an Event of Default occurs prior to
February 15, 2002, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the New Notes prior to such date, then the premium
specified in the Indenture shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the New Notes.
The Holders of a majority in aggregate principal amount of the New Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of principal, premium, interest or Liquidated Damages, if any on
the New Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, agent or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the New Notes, the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of New Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the New Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a waiver
is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding New Notes to
receive payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on such New Notes when such payments are due, (ii)
the Company's obligations with respect to the New Notes concerning issuing
temporary New Notes, registration of New Notes, mutilated, destroyed, lost or
stolen New Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith, and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the New Notes. In the event Covenant Defeasance occurs,
certain events (not including nonpayment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the New Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent certified public
accountants, to pay the principal of, premium, if any, interest and Liquidated
Damages, if any, on the outstanding New Notes on the Stated Maturity or on the
applicable redemption date, as the case may be; (ii) in the case of Legal
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee
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confirming that (a) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (b) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding New Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders of the
outstanding New Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Covenant Defeasance had not occurred; (iv)
no Default or Event of Default shall have occurred and be continuing on the date
of such deposit or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or any
of its Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound; (vi) the Company shall have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders of New Notes over the other creditors of
the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company; and (viii) the Company shall have delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer
or exchange any Note for a period of 15 days before a selection of New Notes to
be redeemed.
The registered Holder of a Note will be treated as its owner for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraphs and in the Indenture,
the Indenture or the New Notes may be amended or supplemented with the consent
of the Holders of at least a majority in principal amount of the New Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for New Notes), and any existing default or compliance with any
provision of the Indenture or the New Notes may be waived with the consent of
the Holders of a majority in principal amount of the then outstanding New Notes
(including consents obtained in connection with a tender offer or exchange offer
for New Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any New Notes held by a non-consenting Holder of New Notes):
(i) reduce the principal amount of New Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Note or alter the provisions with respect to the
redemption of the New Notes (other than provisions relating to the covenant
described above under "Asset Sales") or reduce the prices at which the Company
shall offer to purchase such New Notes pursuant to the covenants described under
"Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, interest or
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Liquidated Damages, if any, on the New Notes (except a rescission of
acceleration of the New Notes by the Holders of at least a majority in aggregate
principal amount of the New Notes and a waiver of the payment default that
resulted from such acceleration), (v) make any Note payable in money other than
that stated in the New Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of New
Notes to receive payments of principal of or premium, if any, interest or
Liquidated Damages, if any, on the New Notes, (vii) waive a redemption payment
with respect to any Note, (viii) make any change to the subordination provision
of the Indenture that adversely affects Holders of New Notes or (ix) make any
change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of New
Notes, the Company and the Trustee may amend or supplement the Indenture or the
New Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated New Notes in addition to or in place of certificated New Notes,
to provide for the assumption of the Company's obligations to Holders of the New
Notes in the case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the New Notes or
that does not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act.
THE TRUSTEE
United States Trust Company of New York is the Trustee under the Indenture
and has been appointed by the Company as Registrar and Paying Agent with respect
to the New Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding New
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case a Default or an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of New Notes, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person: (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Restricted Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Restricted Subsidiary of such specified Person and (ii) Indebtedness secured by
a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities (or the
equivalent) of a Person shall be deemed to be control.
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"Asset Sale" means (i) the sale, lease, conveyance or other disposition
(collectively, "dispositions") of any assets (including by way of a
sale/leaseback transaction) other than dispositions of inventory in the ordinary
course of business, (ii) the issuance by any Restricted Subsidiary of the
Company of Equity Interests of such Restricted Subsidiary and (iii) the
disposition by the Company or any of its Restricted Subsidiaries of Equity
Interests of any Subsidiary, in the case of either clause (i), (ii) or (iii),
whether in a single transaction or a series of related transactions (a) that
have a Fair Market Value in excess of $2.0 million or (b) for net proceeds in
excess of $2.0 million. Notwithstanding the foregoing, the following will not be
deemed to be Asset Sales: (i) a disposition of assets by a Restricted Subsidiary
of the Company to the Company or a Wholly Owned Subsidiary of the Company that
is a Restricted Subsidiary or by the Company to a Wholly Owned Subsidiary of the
Company that is a Restricted Subsidiary, (ii) an issuance of Equity Interests by
a Restricted Subsidiary of the Company to the Company or to a Wholly Owned
Subsidiary of the Company that is a Restricted Subsidiary, (iii) a disposition
consisting of a Restricted Payment permitted by the covenant described above
under the caption "-- Limitation on Restricted Payments", (iv) the disposition
of all or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole governed by the covenants described above under
the captions "-- Repurchase at the Option of Holders -- Change of Control"
and/or "-- Merger, Consolidation or Sale of Assets," and (v) the sale of
equipment by the Company or a Restricted Subsidiary to a financial institution
in connection with the entering into by the Company or such Restricted
Subsidiary of a Capital Lease Obligation with respect to such equipment provided
that (a) such equipment was purchased by the Company or such Restricted
Subsidiary subsequent to the date of the Indenture and within eighteen months of
the incurrence of the Capital Lease Obligation and (b) at the time such
equipment was purchased the Company or such Restricted Subsidiary, as evidenced
by a resolution of its Board of Directors or an Officers' Certificate, intended
to finance such equipment through a sale/leaseback transaction resulting in the
incurrence of a Capital Lease Obligation.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means (i) any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, (ii) in the
case of a partnership, partnership interests (whether general or limited), and
(iii) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
Eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any domestic commercial bank having
capital and surplus in excess of $500 million, (iv) repurchase obligations with
a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) entered into with any financial institution
meeting the qualifications specified in clause (iii) above, (v) commercial paper
having the highest rating obtainable from Moody's Investors Service, Inc. or
Standard & Poor's Corporation and in each case maturing within six months after
the date of acquisition, and (vi) shares of any money market mutual fund, or
similar fund, in each case having assets in excess of $500 million, which
invests solely in investments of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, directly or indirectly, of all or substantially all of the
assets of the Company and its Restricted Subsidiaries to any Person or group (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company,
(iii) any Person or group (as defined above), other than the Partnership, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 50% of the total voting power of the Voting
Stock of the Company,
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including by way of merger, consolidation or otherwise, or (iv) the first day on
which a majority of the members of the Board of Directors of the Company are not
Continuing Directors.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement entered into by the Company or
any of its Restricted Subsidiaries designed to protect the Company or any of its
Restricted Subsidiaries against fluctuations in the price of commodities
actually used in the ordinary course of business of the Company and its
Restricted Subsidiaries.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period, plus (i) an amount
equal to any extraordinary, non-recurring or unusual loss plus any net loss
realized in connection with an asset sale, to the extent such losses were
deducted or otherwise excluded in computing Consolidated Net Income, plus (ii)
provision for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent such provision for taxes was
deducted or otherwise excluded in computing Consolidated Net Income, plus (iii)
Consolidated Interest Expense of such Person less consolidated interest income
for such period, to the extent such amount was deducted or otherwise excluded in
computing Consolidated Net Income, plus (iv) depreciation and amortization
(including amortization of goodwill, amortization of deferred debt expense and
other intangibles and amortization of deferred compensation in respect of
non-cash compensation but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash charges (excluding any such non-
cash charge to the extent it represents an accrual of a reserve for cash charges
in any future period or amortization of a prepaid cash expense that was paid in
a prior period) of such Person and its Restricted Subsidiaries for such period,
to the extent such depreciation and amortization were deducted or otherwise
excluded in computing Consolidated Net Income, plus (v) an amount equal to all
premiums on prepayments of debt, in each case, for such period without
duplication on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes, and the
depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary shall be added to Consolidated Net Income to compute Consolidated
Cash Flow only to the extent (and in the same proportion) the Net Income of such
Restricted Subsidiary was included in calculating the Consolidated Net Income of
such Person and only if a corresponding amount would be permitted at the date of
determination to be distributed by dividend to such Person by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate consolidated interest, whether expensed or capitalized,
paid, accrued or scheduled to be paid or accrued, of such Person and its
Restricted Subsidiaries for such period (including (i) amortization of original
issue discount and deferred financing costs and non-cash interest payments and
accruals, (ii) the interest portion of all deferred payment obligations,
calculated in accordance with the effective interest method and (iii) the
interest component of any payments associated with Capital Lease Obligations and
net payments (if any) pursuant to Hedging Obligations, in each case, to the
extent attributable to such period, but excluding (x) commissions, discounts and
other fees and charges incurred with respect to letters of credit and bankers'
acceptances financing and (y) any interest expense on Indebtedness of another
Person that is Guaranteed by such Person or secured by a Lien on assets of such
Person) determined in accordance with GAAP. Consolidated Interest Expense of the
Company shall not include any prepayment premiums or amortization of original
issue discount or deferred financing costs, to the extent such amounts are
incurred as a result of the prepayment on the date of this Indenture of any
Indebtedness of the Company with the proceeds of the New Notes.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP,
adjusted to exclude (only to the extent included and without duplication) (i)
all gains which are extraordinary, unusual or are non-recurring (including any
gain from the sale or other disposition of assets outside the ordinary course of
business or from the issuance or sale of capital stock),
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(ii) all gains resulting from currency or hedging transactions, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition and (iv) the cumulative effect of a
change in accounting principles; provided, that (a) the Net Income of any Person
that is not a Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of cash dividends
or cash distributions actually paid to the referent Person or a Wholly Owned
Subsidiary thereof that is a Restricted Subsidiary and (b) the Net Income of any
Person that is an Unrestricted Subsidiary shall be included only to the extent
of the amount of cash dividends or cash distributions paid to the referent
Person or a Restricted Subsidiary thereof.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Restricted Subsidiaries, and (z) all unamortized debt discount and
expense and unamortized deferred charges as of such date, all of the foregoing
determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facility" means the Fourth Amended and Restated Revolving Credit
and Security Agreement, dated as of October 20, 1995, by and among the Company,
the Subsidiaries of the Company set forth therein, the lenders party thereto and
The First National Bank of Boston, as agent, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Restricted Subsidiaries in the ordinary course of business
against fluctuation in the values of the currencies of the countries (other than
the United States) in which the Company or its Restricted Subsidiaries conduct
business.
"Default" means any event that is, or with the passage of time or the
giving of notice, or both, would be, an Event of Default.
"Designated Senior Debt" means (i) the Obligations of the Company with
respect to the Credit Facility and (ii) any other Senior Debt of the Company
permitted under the Indenture the principal amount of which at original issuance
is $20.0 million or more (other than Senior Debt that is comprised of Hedging
Obligations owing to a Person that is not a party to the Credit Facility).
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
or is convertible or exchangeable for Indebtedness at the option of the Holder
thereof, in whole or in part, on or prior to February 15, 2007; provided, that
any Capital Stock that would not constitute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the New Notes
shall not constitute Disqualified Stock if (i) the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the
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provisions in favor of Holders set forth under the "Asset Sale" and "Change of
Control" covenants, as the case may be, (ii) such Capital Stock specifically
provides that such Person will not repurchase or redeem any such stock pursuant
to such provision prior to the Company's repurchase of such New Notes as are
required to be repurchased pursuant to the "Asset Sale" and "Change of Control"
covenants, and (iii) such Capital Stock is redeemable within 90 days of the
"asset sale" or "change of control" events applicable to such Capital Stock.
"Eligible Inventory" means, with respect to the Company, the consolidated
finished goods, raw materials and work-in-process less any applicable reserves,
each of the foregoing determined in accordance with GAAP.
"Eligible Receivables" means the consolidated trade receivables of the
Company less the allowance for doubtful accounts, each of the foregoing
determined in accordance with GAAP.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than the Credit Facility) in existence on the date of the
Indenture, until such amounts are repaid.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under pressure or
compulsion to complete the transaction; provided that the Fair Market Value of
any such asset or assets shall be determined by the Board of Directors of the
Company, acting in good faith and by unanimous resolution, and which
determination shall be evidenced by an Officers' Certificate delivered to the
Trustee.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or if the
Company issues or redeems any preferred stock, in each case subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date of the event for which the calculation of the
Fixed Charge Coverage Ratio is made (the "Transaction Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable reference period. For purposes of making the
computation referred to above, acquisitions (including all mergers and
consolidations), dispositions and discontinuance of operations that have been
made by the Company or any of its Restricted Subsidiaries during the reference
period or subsequent to such reference period and on or prior to the Transaction
Date shall be calculated on a pro forma basis assuming that all such
acquisitions, dispositions and discontinuance of operations had occurred on the
first day of the reference period; provided, however, that Fixed Charges shall
be reduced by amounts attributable to operations that are so disposed of or
discontinued only to the extent that the obligations giving rise to such Fixed
Charges would no longer be obligations contributing to the Company's Fixed
Charges subsequent to the Transaction Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) Consolidated Interest Expense, (ii) commissions,
discounts and other fees and charges incurred with respect to letters of credit
and bankers' acceptances financing, (iii) any interest expense on Indebtedness
of another Person that is Guaranteed by such Person or secured by a Lien on
assets of such Person, and (iv) the product of (a) all cash or non-cash dividend
payments on any series of preferred stock of any Restricted Subsidiary of such
Person (other than preferred stock of such Person), times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory tax rate of such Person,
expressed as a decimal, determined, in each case, on a consolidated basis and in
accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other
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entity as have been approved by a significant segment of the accounting
profession, which are in effect in the United States on the date of the
Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) Interest Rate Agreements, (ii) Currency Agreements and
(iii) Commodity Agreements.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or bankers' acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee of any Indebtedness of such Person or any other Person.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement entered into by the Company or any of its Restricted Subsidiaries
designed to protect the Company or any of its Restricted Subsidiaries in the
ordinary course of business against fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees), advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant to
the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any sale of assets (including, without
limitation, dispositions pursuant to sale/leaseback transactions), or (b) the
disposition of any securities or the extinguishment of any Indebtedness of such
Person or any of its Restricted Subsidiaries, and (ii) any extraordinary gain
(but not loss), together with any related provision for taxes on such
extraordinary gain (but not loss).
"Net Proceeds" means the aggregate amount of consideration received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale in
the form of cash or Cash Equivalents (including, without limitation, any cash
received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of the direct costs relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees,
and sales commissions) and any relocation expenses incurred as a result thereof,
taxes paid or payable as a result thereof (after taking into account any
available tax credits or
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deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets
(including Equity Interests) the subject of such Asset Sale and any reserve for
adjustment in respect of the sale price of such asset or assets.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
or any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity;
and (iii) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"Obligations" means any principal, premium, interest (including
post-petition interest), penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any
Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer or President and the Chief Financial
Officer or chief accounting officer of such Person.
"Permitted Investments" means (i) any Investments in the Company or in a
Wholly Owned Subsidiary of the Company that is a Restricted Subsidiary; (ii) any
Investments in Cash Equivalents; (iii) Investments by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment (a) such Person becomes a Wholly Owned Subsidiary of the Company that
is a Restricted Subsidiary or (b) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Subsidiary of
the Company that is a Restricted Subsidiary; (iv) any Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
in compliance with the covenant set forth under "-- Repurchase at the Option of
Holders -- Asset Sales;" and (v) any Investment in an Unrestricted Subsidiary or
in an entity in which the Company or any Restricted Subsidiary has an Equity
Interest together with one or more other Persons, and which is formed after the
date of the Indenture for the purpose of engaging in a business (a) in which the
Company or its Restricted Subsidiaries are engaged on the date of the Indenture
or (b) which is related to a business in which the Company or its Restricted
Subsidiaries are engaged on the date of the Indenture, provided, that, at the
date any such Investment is made and after giving effect thereto, such
Investment, together with all other such Investments by the Company and its
Restricted Subsidiaries since the date of the Indenture, does not exceed $15.0
million.
"Permitted Liens" means (i) Liens in favor of the Company; (ii) Liens
securing Senior Debt of the Company that was permitted to be incurred pursuant
to the Indenture; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company, provided that such Liens were not created in
contemplation of such merger or consolidation and do not extend to any assets
other than those of the Person merged into or consolidated with the Company or
such Restricted Subsidiary; (iv) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the Company;
provided that such Liens were not created in contemplation of such acquisition;
(v) Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens existing on the date of the Indenture;
(vii) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (viii) Liens imposed by law,
such as mechanics', carriers', warehousemen's, materialmen's, and vendors'
Liens, incurred in good faith in the ordinary course of business with respect to
amounts not yet delinquent or being contested in good faith by appropriate
proceedings if a reserve or other appropriate provisions, if any, as shall be
required by GAAP shall have been made therefor; (ix) zoning restrictions,
easements, licenses, covenants, reservations,
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restrictions on the use of real property or minor irregularities of title
incident thereto that do not, in the aggregate, materially detract from the
value of the property or the assets of the Company or impair the use of such
property in the operation of the Company's business; (x) judgment Liens to the
extent that such judgments do not cause or constitute a Default or an Event of
Default; (xi) Liens to secure the payment of all or a part of the purchase price
of property or assets acquired or constructed in the ordinary course of business
on or after the date of the Indenture, provided that (a) such property or assets
are used in the same or similar line of business as the Company was engaged in
on the date of the Indenture, (b) at the time of incurrence of any such Lien,
the aggregate principal amount of the obligations secured by such Lien shall not
exceed the lesser of the cost or fair market value of the assets or property (or
portions thereof) so acquired or constructed, (c) each such Lien shall encumber
only the assets or property (or portions thereof) so acquired or constructed and
shall attach to such property within 120 days of the purchase or construction
thereof and (d) any Indebtedness secured by such Lien shall have been permitted
to be incurred under the "Limitation on the Incurrence of Indebtedness and
Issuance of Disqualified Stock" covenant and (xii) precautionary filings of any
financial statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction made in connection with Capital Lease Obligations permitted
to be incurred under the "Limitation on the Incurrence of Indebtedness and
Issuance of Disqualified Stock" covenant, provided that such Lien does not
violate clauses (a), (b) and (c) of clause (xi) hereof.
"Public Equity Offering" means a bona fide underwritten sale to the public
of Common Stock of the Company pursuant to a registration statement (other than
on Form S-8 or any other form relating to securities issuable under any benefit
plan of the Company) that is declared effective by the Commission and results in
aggregate gross proceeds to the Company of at least $15.0 million.
"Purchase Money Obligations" of any Person means any obligations of such
Person or any of its Restricted Subsidiaries to any seller or any other Person
incurred or assumed in connection with the purchase of real or personal property
to be used in the business of such Person or any of its subsidiaries within 180
days of such incurrence or assumption.
"Registration Rights Agreement" means that certain Registration Rights
Agreement, dated as of the date of the Indenture, among the Company and Bear,
Stearns & Co. Inc.
"Restricted Investment" means an Investment other than a Permitted
Investment. With respect to Unrestricted Subsidiaries or Restricted
Subsidiaries, the amount of Restricted Investments shall be calculated as the
greater of (i) the book value of assets contributed by the Company or a
Restricted Subsidiary or (ii) the Fair Market Value of the assets contributed by
the Company or a Restricted Subsidiary (as certified by a resolution of
independent directors of the Company if Fair Market Value or book value is
greater than $1.0 million).
"Restricted Subsidiary" means (i) any Subsidiary of the Company in
existence on the date of the Indenture, (ii) any Subsidiary of the Company
(other than a Subsidiary that is also a Subsidiary of an Unrestricted
Subsidiary) organized or acquired after the date of the Indenture, unless such
Subsidiary shall have been designated as an Unrestricted Subsidiary by
resolution of the Board of Directors as provided in and in compliance with the
definition of "Unrestricted Subsidiary" and (iii) any Unrestricted Subsidiary
which is designated as a Restricted Subsidiary by the Board of Directors of the
Company; provided that, immediately after giving effect to the designation
referred to in clause (iii), no Default or Event of Default shall have occurred
and be continuing and the Company could incur at least $1.00 of additional
Indebtedness under the first paragraph under the "Limitation on Incurrence of
Indebtedness and Issuance of Disqualified Stock" covenant. The Company shall
evidence any such designation to the Trustee by promptly filing with the Trustee
an Officers' Certificate certifying that such designation has been made and
stating that such designation complies with the requirements of the immediately
preceding sentence.
"Senior Debt" means with respect to the Company, (i) the Obligations of the
Company with respect to the Credit Facility and (ii) any other Indebtedness
permitted to be incurred by the Company under the terms of the Indenture, unless
the instrument under which such Indebtedness is incurred expressly provides that
it is pari passu with or subordinated in right of payment to the New Notes.
Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not
include (v) any obligation of the Company to, in respect of or
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imposed by any environmental, landfill, waste management or other regulatory
governmental agency, statute, law or court order, (w) any liability for federal,
state, local or other taxes owed or owing by the Company, (x) any Indebtedness
of the Company to any of the Company's Subsidiaries or other Affiliates, (y) any
trade payables or (z) any Indebtedness that is incurred in violation of the
Indenture on or after the date of the Indenture.
"Significant Subsidiary" means any Subsidiary of the Company that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Subsidiary" means, with respect to any Person (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person or a combination
thereof and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Persons or one or more Subsidiaries
of such Person or any combination thereof.
"Unrestricted Subsidiary" means, until such time as any of the following
shall be designated as a Restricted Subsidiary of the Company by the Board of
Directors of the Company as provided in and in compliance with the definition of
"Restricted Subsidiary," (i) any Subsidiary of the Company or of a Restricted
Subsidiary of the Company organized or acquired after the date of the Indenture
that is designated concurrently with its organization or acquisition as an
Unrestricted Subsidiary by resolution of the Board of Directors of the Company,
(ii) any Subsidiary of any Unrestricted Subsidiary, and (iii) any Restricted
Subsidiary of the Company that is designated as an Unrestricted Subsidiary by
resolution of the Board of Directors of the Company, provided that, (a)
immediately after giving effect to such designation, no Default or Event of
Default shall have occurred and be continuing, (b) any such designation shall be
deemed, at the election of the Company at the time of such designation, to be
either (but not both) (x) the making of a Restricted Payment at the time of such
designation in an amount equal to the Investment in such Subsidiary subject to
the restrictions contained in the "Limitation on Restricted Payments" covenant
or (y) the making of an Asset Sale at the time of such designation in an amount
equal to the Investment in such Subsidiary subject to the restrictions contained
in the "Asset Sales" covenant, and (c) such Subsidiary or any of its
Subsidiaries does not own any Capital Stock or Indebtedness of, or own or hold
any Lien on any property of, the Company or any other Subsidiary of the Company
that is not a Subsidiary of the Subsidiary to be so designated. A Person may be
designated as an Unrestricted Subsidiary only if and for so long as such Person
(i) has no Indebtedness other than Non-Recourse Debt; (ii) is a Person with
respect to which neither the Company nor any of its Restricted Subsidiaries has
any direct or indirect obligation (a) to subscribe for additional Equity
Interests or (b) to make any payment to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results; and (iii) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any of
its Restricted Subsidiaries. The Company shall evidence any designation pursuant
to clause (i) or (iii) of the first sentence hereof to the Trustee by filing
with the Trustee within 45 days of such designation an Officers' Certificate
certifying that such designation has been made and, in the case of clause (iii)
of the first sentence hereof, the related election of the Company in respect
thereof.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers,
general partners or trustees of any Person (irrespective of whether or not, at
the time, Capital Stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency) or, with respect to
a partnership (whether general or limited), any general partner interest in such
partnership.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including
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payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment, by (ii) the then outstanding principal amount of
such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
80% of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall be at the time beneficially
owned by such Person either directly or indirectly through Wholly Owned
Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Notes to be resold as
set forth herein will initially be issued in the form of one or more Global
Notes (the "Global Notes"). The Global Notes will be deposited on the date of
the closing of the sale of the New Notes offered hereby (the "Closing Date")
with, or on behalf of, the Depositary and registered in the name of Cede & Co.,
as nominee of the Depositary (such nominee being referred to herein as the
"Global Note Holder").
New Notes that are issued as described below under "-- Certificated
Securities," will be issued in registered form (the "Certificated Securities").
Upon the transfer of Certificated Securities, such Certificated Securities may,
unless the Global Notes have previously been exchanged for Certificated
Securities, be exchanged for an interest in a Global Note representing the
principal amount of New Notes being transferred.
The Depositary is a limited-purpose trust company which was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants with portions of the principal amount of the Global
Notes and (ii) ownership of the New Notes evidenced by the Global Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the laws of some
states require that certain Persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer New Notes
evidenced by the Global Notes will be limited to such extent.
So long as the Global Note Holder is the registered owner of any New Notes,
the Global Note Holder will be considered the sole owner or holder of such New
Notes outstanding under the Indenture. Beneficial owners of New Notes evidenced
by the Global Note will not be considered the owners or Holders thereof under
the Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. The ability of
a Person having a beneficial interest in New Notes represented by a Global Note
to pledge such interest to Persons or entities that do not participate in the
Depositary's system or to otherwise take actions in respect of such interest,
may be affected by the lack of a physical certificate evidencing such interest.
None of the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of New Notes by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such New Notes.
Payments in respect of the principal of, premium, if any, interest on any
New Notes registered in the name of a Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of such Global
Note Holder in its capacity as the registered holder under the Indenture. Under
the
80
<PAGE> 82
terms of the Indenture, the Company and the Trustee may treat the Persons in
whose names the New Notes, including the Global Notes, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, none of the Company nor the Trustee has
or will have any responsibility or liability for the payment of such amounts to
beneficial owners of New Notes (including principal, premium, if any, interest
and Liquidated Damages, if any).
The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payment, in amounts proportionate to their respective holdings in principal
amount of beneficial interests in the relevant security as shown on the records
of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of New Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in a
Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for New Notes in the form of Certificated Securities. Upon
any such issuance, the Trustee is required to register such New Notes in the
name of, and cause the same to be delivered to, such Person or Persons. In
addition, if (i) the Company notifies the Trustee in writing that the Depositary
is no longer willing or able to act as a depositary and the Company is unable to
appoint a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of New
Notes in the form of Certificated Securities under the Indenture, then, upon
surrender by the relevant Global Note Holder of its Global Note, New Notes in
such form will be issued to each Person that the Depositary identifies as the
beneficial owner of the related New Notes.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary in identifying the beneficial owners of the related New Notes and
each such Person may conclusively rely on, and shall be protected in relying on,
instructions from the Depositary for all purposes (including with respect to the
registration and delivery, and the respective principal amounts, of the New
Notes to be issued).
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Synthetic Industries, Inc., 309 LaFayette Road,
Chickamauga, Georgia, 30707 Attn: Joseph Sinicropi, Chief Financial Officer.
81
<PAGE> 83
DESCRIPTION OF THE OLD NOTES
The terms of the Old Notes are identical in all material respects to the
New Notes, except that the Old Notes have not been registered under the
Securities Act, are subject to certain restrictions on transfer and are entitled
to certain registration rights under the Registration Rights Agreement (which
rights will terminate upon consummation of the Exchange Offer, except to the
extent that the Initial Purchaser may have certain registration rights under
limited circumstances). In addition, the Old Notes and the New Notes will for
all purposes be deemed to be a single series of debt securities under the
Indenture. See "Description of the New Notes -- General." Accordingly, holders
of Old Notes should review the information set forth under "Risk
Factors -- Certain Consequences of a Failure to Exchange Old Notes" and
"Description of the New Notes."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
King & Spalding, counsel to the Company, has advised the Company that the
following discussion expresses its opinion as to the certain United States
federal income tax consequences of the exchange, holding and disposition of the
New Notes. This discussion is based on the Internal Revenue Code, Treasury
Regulations (including proposed regulations) promulgated thereunder,
administrative pronouncements and judicial decisions each as now in effect, all
of which are subject to change, possibly with retroactive effect. This
discussion does not purport to deal with all aspects of United States federal
income taxation that may be relevant to holders of New Notes in light of such
holders' personal circumstances. This summary deals only with United States
persons that will acquire New Notes pursuant to the terms of the Exchange Offer
and will hold New Notes as capital assets and does not address tax
considerations applicable to investors that may be subject to special tax rules,
such as financial institutions, S corporations, tax-exempt organizations,
insurance companies, dealers in securities or currencies, persons other than
United States persons or persons that will hold New Notes as a position in a
"straddle," as part of a hedging transaction for tax purposes, as part of a
"synthetic security" or other integrated investment (including a "conversion
transaction") or holders that have a "functional currency" other than the United
States dollar. No ruling on any of the issues discussed below will be sought
from the United States Internal Revenue Service (the "IRS").
EXCHANGE OF NEW NOTES
The exchange of Old Notes for the New Notes pursuant to the Exchange Offer
will not be treated as an "exchange" for federal income tax purposes, because
the New Notes do not differ materially in kind or extent from the Old Notes.
Rather, the new Notes received by a holder will be treated as a continuation of
the Old Notes in the hands of such holder. As a result, no gain or loss will be
recognized on the exchange of Old Notes for New Notes pursuant to the Exchange
Offer.
INTEREST ON NEW NOTES
A holder of a New Note generally will be required to report as ordinary
interest income for federal income tax purposes interest earned on the New Note
in accordance with the holder's method of tax accounting.
DISPOSITION OF NEW NOTES
A holder's tax basis for a New Note will be the holder's tax basis for the
Old Note immediately before the Exchange. A holder's tax basis for the Old Note
immediately before the Exchange generally will equal the cost of the Old Note to
the holder, reduced by any amortized bond premium (as described below) and any
payments other than interest made on the Old Note and increased by any market
discount (as described below) included in the holder's income. Upon the sale,
exchange or retirement of a New Note, a holder generally will recognize gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement (less the amount attributable to any accrued but unpaid interest
on the New Note, which amount will be taxable as interest if it has not been
included in income under such holder's method of accounting) and the holder's
tax basis in the New Note. Except as discussed below with respect to gain
attributable to market discount, gain or loss will be long-term capital gain or
loss if, on the date of the sale, a
82
<PAGE> 84
holder has a holding period for the New Note (which would include the holding
period of the Old Note) of more than one year. Otherwise, except as discussed
below with respect to gain, the gain or loss will be short-term capital gain or
loss.
AMORTIZABLE BOND PREMIUM AND MARKET DISCOUNT
A Note acquired with an adjusted basis (for purposes of determining loss on
a sale or exchange) in excess of the outstanding principal amount of the Note at
the time of acquisition will be considered to have amortizable bond premium. A
holder of a Note acquired with such premium generally may elect to amortize such
premium as an offset to interest income, using a constant yield method, over the
remaining term of the Note. Corresponding adjustments are made to such holder's
basis in the Note. This election would apply to all taxable debt instruments
held by such holder at the beginning of the taxable year in which the election
applies and to all taxable debt instruments thereafter acquired.
A Note acquired with an adjusted basis that is less than its outstanding
principal amount at the time of acquisition by more than a de minimis amount
will be considered to have "market discount" in the hands of the acquiring
holder. Under the de minimis exception, there is no market discount if the
excess of the outstanding principal amount of the Note over the holder's tax
basis in the Note is less than .25% of the principal amount multiplied by the
number of complete years after the acquisition date to the maturity date of the
Note. Market discount generally accrues ratably during the period immediately
after the date of acquisition to the maturity date of the Note, unless the
holder elects to accrue such discount on the basis of the constant interest
method.
The holder of a Note acquired at a market discount generally will be
required to treat all or a portion of the gain realized upon the sale or other
disposition of the Note as ordinary income to the extent of accrued market
discount not previously included in income, if any. If a holder's interest
expense deductions for a taxable year attributable to indebtedness treated as
incurred or continued to purchase or carry a Note exceed interest and market
discount included in income with respect to the Note for such taxable year, a
holder may be required to defer all or a portion of such excess. The rules
described above with respect to the recharacterization of gain realized on a
disposition of a Note and deferral of interest will not apply if the holder
elects to include market discount in income currently as it accrues. Such
election, if made, applies with respect to all market discount bonds acquired by
the holder on or after the first day of the first taxable year to which the
election applies and is irrevocable without the consent of the IRS.
Holders who were subject to the bond premium and market discount provisions
discussed above with respect to Old Notes will continue to be subject to those
provisions with respect to New Notes received in exchange for Old Notes under
the Exchange Offer. Holders should consult their own tax advisors regarding the
specific application of those provisions to Notes acquired at a premium or at a
discount.
BACKUP WITHHOLDING AND INFORMATION REPORTING
A 31% "backup" withholding and information reporting requirements apply to
certain holders with respect to certain payments of principal, interest and
premium on a debt instrument and proceeds from the sale, redemption, or
retirement of a debt instrument. A holder of a New Note may be subject to backup
withholding at the rate of 31% with respect to interest paid on the New Note and
proceeds from the sale, exchange, redemption or retirement of the New Note,
unless such holder (a) is a corporation or comes within certain other exempt
categories and, when required, demonstrates that fact or (b) provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A holder of a New Note who does not provide the Company with
his correct taxpayer identification number may be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
holder's federal income tax liability provided that the required information is
furnished to the IRS.
83
<PAGE> 85
EACH HOLDER SHOULD BE AWARE THAT THE FOREGOING DISCUSSION DOES NOT ADDRESS
ALL ASPECTS OF UNITED STATES FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A
PARTICULAR HOLDER IN LIGHT OF SUCH HOLDER'S PARTICULAR CIRCUMSTANCES. EACH
HOLDER SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE SPECIFIC FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE OWNERSHIP AND
DISPOSITION OF THE NEW NOTES.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by
Participating Broker-Dealers during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes if such Old Notes
were acquired by such Participating Broker-Dealers for their own accounts as a
result of market-making activities or other trading activities. The Company has
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
such New Notes for a period ending 180 days (subject to extension under certain
limited circumstances described herein) after the Expiration Date or, if
earlier, when all such New Notes have been disposed of by such Participating
Broker-Dealer. However, a Participating Broker-Dealer who intends to use this
Prospectus in connection with the resale of New Notes received in exchange for
Old Notes pursuant to the Exchange Offer must notify the Company, or cause the
Company to be notified, on or prior to the Expiration Date, that it is a
Participating Broker-Dealer. Such notice may be given in the space provided for
that purpose in the Letter of Transmittal or may be delivered to the Exchange
Agent at one of the addresses set forth herein under "The Exchange
Offer -- Exchange Agent." See "The Exchange Offer -- Resales of New Notes."
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. New Notes received by broker-dealers for their own
accounts in connection with the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account in connection with the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the New Notes will be passed upon
for the Company by King & Spalding, New York, New York.
EXPERTS
The Consolidated Financial Statements as of September 30, 1996 and 1995 and
for each of the three fiscal years in the period ended September 30, 1996,
appearing in this Prospectus and Registration Statement, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report thereon
appearing herein and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
84
<PAGE> 86
SYNTHETIC INDUSTRIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
(1) Consolidated Financial Statements as of September 30, 1996 and 1995 and for
each of the three years in the period ended September 30, 1996.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Stockholder's
Equity.................................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
(2) Unaudited Consolidated Financial Statements as of March 31, 1997 and 1996
and for the three and six month periods then ended.
<TABLE>
<S> <C>
Consolidated Balance Sheets................................. F-15
Consolidated Statements of Operations....................... F-16
Consolidated Statements of Cash Flows....................... F-17
Notes to Consolidated Financial Statements.................. F-18
</TABLE>
F-1
<PAGE> 87
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
Synthetic Industries, Inc.
Chickamauga, Georgia
We have audited the accompanying consolidated balance sheets of Synthetic
Industries, Inc. and its subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholder's equity
and cash flows for each of the three years in the period ended September 30,
1996. 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
misstatements. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Synthetic Industries, Inc. and
subsidiaries at September 30, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1996 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
November 12, 1996
F-2
<PAGE> 88
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 101 $ 108
Accounts receivable, net (Note 4)......................... 48,165 47,947
Inventory (Note 5)........................................ 39,142 45,597
Other current assets (Note 6)............................. 14,655 14,708
-------- --------
TOTAL CURRENT ASSETS.............................. 102,063 108,360
PROPERTY, PLANT AND EQUIPMENT, net (Note 7)................. 137,974 116,729
OTHER ASSETS (Note 8)....................................... 84,021 87,211
-------- --------
$324,058 $312,300
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 20,227 $ 24,021
Accrued expenses and other current liabilities............ 9,669 7,378
Income taxes payable (Note 11)............................ 1,407 1,455
Interest payable.......................................... 6,024 6,427
Current maturities of long-term debt (Note 9)............. 659 40
-------- --------
TOTAL CURRENT LIABILITIES......................... 37,986 39,321
LONG-TERM DEBT (Note 9)..................................... 194,353 192,048
DEFERRED INCOME TAXES (Note 11)............................. 25,875 23,175
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 3):
Common stock (par value $1.00 per share; authorized,
25,000,000; issued and outstanding, 5,781,250)......... 5,781 5,781
Additional paid-in capital................................ 63,519 63,519
Cumulative translation adjustments........................ 15 29
Deficit................................................... (3,471) (11,573)
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................ 65,844 57,756
-------- --------
$324,058 $312,300
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 89
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net sales............................... $ 299,532 $ 271,427 $ 234,977
--------- --------- ---------
Costs and expenses:
Cost of sales......................... 208,321 194,706 152,305
Selling expenses...................... 27,488 24,273 21,815
General and administrative expenses... 22,657 21,195 17,588
Amortization of excess of purchase
price over net assets acquired and
other intangibles.................. 2,592 2,566 2,499
--------- --------- ---------
261,058 242,740 194,207
--------- --------- ---------
Operating income................... 38,474 28,687 40,770
--------- --------- ---------
Other expenses:
Interest expense, net................. 22,773 22,514 20,011
Amortization of deferred financing
costs.............................. 699 737 739
--------- --------- ---------
23,472 23,251 20,750
--------- --------- ---------
Income before provision for income
taxes................................. 15,002 5,436 20,020
Provision for income taxes (Note 11).... 6,900 3,500 8,600
--------- --------- ---------
NET INCOME.............................. $ 8,102 $ 1,936 $ 11,420
========= ========= =========
Net income per common share (Note 3).... $ 1.37 $ .33 $ 1.93
========= ========= =========
Weighted average shares outstanding..... 5,930,502 5,930,502 5,930,502
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 90
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN TRANSLATION
STOCK CAPITAL ADJUSTMENTS DEFICIT TOTAL
------ ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1993 (Note 3)....... $5,781 $63,519 $ 52 $(24,929) $44,423
Net income.............................. -- -- -- 11,420 11,420
Foreign currency translation............ -- -- (26) -- (26)
------ ------- ---- -------- -------
Balance, September 30, 1994............. 5,781 63,519 26 (13,509) 55,817
Net income.............................. -- -- -- 1,936 1,936
Foreign currency translation............ -- -- 3 -- 3
------ ------- ---- -------- -------
Balance, September 30, 1995............. 5,781 63,519 29 (11,573) 57,756
Net income.............................. -- -- -- 8,102 8,102
Foreign currency translation............ -- -- (14) -- (14)
------ ------- ---- -------- -------
Balance, September 30, 1996............. $5,781 $63,519 $ 15 $ (3,471) $65,844
====== ======= ==== ======== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 91
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 8,102 $ 1,936 $ 11,420
Adjustments to reconcile net income to net cash provided
by (used in) operations:
Depreciation and amortization......................... 16,299 14,937 12,390
Deferred income taxes................................. 3,400 (355) 3,830
Provision for bad debts............................... 1,024 3,363 217
Loss on disposal of equipment......................... -- -- 266
Change in assets and liabilities:
Increase in accounts receivable..................... (1,247) (12,212) (2,861)
Decrease (increase) in inventory.................... 6,451 (13,076) (7,255)
Increase in other current assets.................... (647) (1,469) (632)
(Decrease) increase in accounts payable............. (3,801) 5,254 5,348
Increase in accrued expenses and other current
liabilities...................................... 2,291 434 533
(Decrease) increase in income taxes payable......... (48) 973 482
(Decrease) increase in interest payable............. (403) 180 224
-------- -------- --------
Cash provided by (used in) operating
activities..................................... 31,421 (35) 23,962
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............... (29,253) (13,313) (31,866)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under term loan............................... 19,500 11,000 --
Repayments under term loan............................... (500) (6,000) (6,000)
Net (repayment) borrowings under revolving credit line... (20,734) 8,598 13,802
Payment of capital lease obligation and other long term
debt.................................................. (342) (36) (31)
Deferred financing costs................................. (101) (221) --
-------- -------- --------
Cash (used in) provided by financing activities....... (2,177) 13,341 7,771
Effect of exchange rate changes on cash............... 2 (2) (3)
-------- -------- --------
NET DECREASE IN CASH....................................... (7) (9) (136)
CASH AT BEGINNING OF PERIOD................................ 108 117 253
-------- -------- --------
CASH AT END OF PERIOD...................................... $ 101 $ 108 $ 117
======== ======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.............................................. $ 23,176 $ 22,334 $ 19,787
Income taxes.......................................... 3,548 2,882 3,901
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITY
Capital lease obligation incurred for purchase of
equipment............................................. $ 5,000 $ -- $ --
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 92
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION
Synthetic Industries, Inc., a Delaware corporation (the "Company"),
manufactures and markets a wide range of polypropylene-based fabric and fiber
products designed for industrial applications. The Company's diverse mix of
products are marketed to the floor covering, construction and technical textile
markets for such end-use applications as carpet backing, geotextiles, erosion
control, concrete reinforcement and furniture construction fabrics. The Company
manufactures and sells more than 2,000 products in over 65 end-use markets
predominantly in North America, Europe and the Far East.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany transactions and balances have been eliminated.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment.
FOREIGN CURRENCY TRANSLATION
The assets and liabilities of foreign subsidiaries are translated at the
fiscal year-end rates of exchange, and the results of operations are translated
at the average rates of exchange for the years presented. Gains or losses
resulting from translating foreign currency financial statements are accumulated
in the cumulative translation adjustments account in the stockholder's equity
section of the accompanying consolidated balance sheets.
INVENTORY
Inventory is stated at the lower of cost, determined using the first-in,
first-out method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation is provided on the straight-line
method based on estimated useful lives, as follows:
<TABLE>
<S> <C>
Building and improvements.......................... 25 years
Machinery and equipment............................ 14 years
</TABLE>
Leasehold improvements are amortized over the shorter of the useful life of
the asset or the term of the lease. Expenses for repairs, maintenance and
renewals are charged to operations as incurred. Expenditures which improve an
asset or extend its useful life are capitalized. When properties are retired or
otherwise disposed of, the related cost and accumulated depreciation and
amortization are removed from the accounts and any gain or loss is included in
the results of operations.
Capitalized interest is charged to machinery and equipment and amortized
over the lives of the related assets. Interest capitalized during fiscal 1996,
1995 and 1994 was $392, $729 and $283, respectively.
INCOME TAXES
The Company accounts for income taxes using an asset and liability approach
in accordance with Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
Under SFAS No. 109, deferred income taxes are recognized for the
F-7
<PAGE> 93
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes of a change in tax rates is recognized in the statement
of operations in the period that includes the enactment date.
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED
The excess of purchase price over net assets acquired is amortized on a
straight-line basis over a period of 40 years. Excess of purchase price over net
assets acquired is assessed for recoverability on a regular basis. In evaluating
the value and future benefits of goodwill, its carrying value would be reduced
by the excess, if any, of the balance over management's best estimate of
undiscounted future operating income before amortization of the related
intangible assets over the remaining amortization period.
DEFERRED FINANCING COSTS AND INTANGIBLE ASSETS
Deferred financing costs are amortized over periods from 5 to 12 years.
Intangible assets consist primarily of a Fibermesh(R) trademark and patents on
civil engineering products, which are amortized on a straight-line basis over 40
and 15 years, respectively.
NET INCOME PER SHARE
Net income per share was computed by dividing net income by the weighted
average number of common shares and common equivalent shares outstanding during
each period, as adjusted for the stock splits. Common equivalent shares include
options calculated using the treasury stock method. Retroactive restatement has
been made to all share and per share amounts for the 115,741-for-1 stock split
effective October 30, 1996 (Note 3).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. SFAS No. 121 is effective for
financial statements for fiscal years beginning after December 15, 1995.
Management believes that the adoption of this standard will have no effect on
consolidated financial position or results of operations.
STOCK-BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" which will be effective for the Company beginning October 1, 1996.
SFAS No. 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. The Company will account for stock-
based compensation awards under the provisions of Accounting Principles Board
Opinion No. 25, as permitted by SFAS No. 123. In accordance with SFAS No. 123,
beginning in the fiscal year ended September 30, 1997,
F-8
<PAGE> 94
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company will make pro forma disclosures relative to stock-based compensation
as part of the accompanying footnotes to the consolidated financial statements.
RECLASSIFICATION OF PRIOR FINANCIAL STATEMENTS
Certain reclassifications have been made to previous years' financial
statements to conform with 1996 classifications.
3. RECAPITALIZATION AND INITIAL PUBLIC OFFERING
On July 31, 1996, the board of directors of the Company (the "Board")
approved an amendment to the Company's Certificate of Incorporation to effect a
recapitalization of the Company's Common Stock, pursuant to which the number of
authorized shares of the Company's Common Stock was increased to 25,000,000
shares (the "Recapitalization"). As part of the Recapitalization, the Board
approved a 115,740.74-for-1 stock split of the issued and outstanding shares of
Common Stock. The Recapitalization, including the stock split, became effective
immediately prior to the initial public offering. All share and per share
information included in the accompanying consolidated financial statements and
notes have been adjusted to give retroactive recognition to the stock split.
On November 1, 1996, the Company sold 2,875,000 shares of Common Stock in
an underwritten public offering. The net proceeds to the Company from the sale
(after payment of underwriting discounts and commissions and expenses) were
approximately $34,000. The net proceeds to the Company will be used to repay
certain outstanding indebtedness. Supplementary pro forma net income per share,
assuming the net proceeds were used to reduce outstanding bank indebtedness as
of the beginning of fiscal 1996, would have been $1.12.
4. ACCOUNTS RECEIVABLE
Accounts receivable are presented net of the allowances for doubtful
accounts of $3,036, $4,053 and $1,201 for fiscal 1996, 1995 and 1994,
respectively. Amounts written off against established allowances were $2,041,
$511 and $217 for the years ended September 30, 1996, 1995 and 1994,
respectively.
Most of the Company's carpet backing sales are with customers located in
Georgia. Net sales to one customer represented 18% of consolidated net sales for
all three fiscal years presented.
5. INVENTORY
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1996 1995
------- -------
<S> <C> <C>
Finished goods........................................... $22,555 $27,867
Work in progress......................................... 7,937 5,541
Raw materials............................................ 8,650 12,189
------- -------
$39,142 $45,597
======= =======
</TABLE>
6. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1996 1995
------- -------
<S> <C> <C>
Prepaid supplies......................................... $ 8,283 $ 7,192
Deferred tax assets...................................... 4,765 5,465
Other.................................................... 1,607 2,051
------- -------
$14,655 $14,708
======= =======
</TABLE>
F-9
<PAGE> 95
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Land................................................... $ 4,458 $ 3,511
Buildings and improvements............................. 29,298 23,457
Machinery and equipment and leasehold improvements..... 179,386 151,921
-------- --------
213,142 178,889
Accumulated depreciation............................... 75,168 62,160
-------- --------
$137,974 $116,729
======== ========
</TABLE>
Depreciation expense on property, plant and equipment was $13,008, $11,634
and $9,152 in fiscal 1996, 1995 and 1994, respectively.
8. OTHER ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Excess of purchase price over net assets acquired...... $ 99,818 $ 99,818
Intangible assets...................................... 3,546 3,546
Deferred financing costs............................... 12,331 12,230
-------- --------
115,695 115,594
Accumulated amortization............................... 31,674 28,383
-------- --------
$ 84,021 $ 87,211
======== ========
</TABLE>
The excess of purchase price over net assets acquired arose from the
purchase of the Company's Common Stock. The Company was acquired by Synthetic
Industries L.P., a Delaware limited partnership (the "Partnership") on December
4, 1986. This acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price was allocated to the net assets
acquired based on estimates by independent appraisals and other valuations of
fair market value as of December 4, 1986, and resulted in a purchase price in
excess of net assets acquired of $99,818.
Amortization expense was $3,291, $3,303 and $3,238 in fiscal 1996, 1995 and
1994, respectively.
9. LONG-TERM DEBT
Long-term debt consists of the following at September 30:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Secured revolving credit facility(a):
Secured revolving credit portion..................... $ 3,993 $ 24,727
Term loan portion.................................... 45,000 26,000
12 3/4% senior subordinated debentures(b).............. 140,000 140,000
Capital lease obligation (Note 10)..................... 4,698 --
Other.................................................. 1,321 1,361
-------- --------
195,012 192,088
Less current portion................................... 659 40
-------- --------
Total long-term portion................................ $194,353 $192,048
======== ========
</TABLE>
F-10
<PAGE> 96
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A. THE SECURED REVOLVING CREDIT FACILITY
On October 20, 1995, the Company and its lenders entered into a Fourth
Amended and Restated Revolving Credit Agreement (as amended to date, the "Credit
Facility"). The Company's term loan portion of the Credit Facility (the "Term
Loan") was increased to $45,000. The Credit Facility has a termination date of
October 20, 2001, and provides for Term Loan repayments of $10,000 in 1999 and
$17,500 in each of 2000 and 2001.
The revolving credit loan portion of the Credit Facility (the "Revolver")
provides for availability based on a borrowing formula consisting of 85% of
eligible accounts receivable and 50% of eligible inventory, subject to certain
limitations. The maximum amount available for borrowing under the Revolver is
increased to $40,000, of which $34,115 is available at September 30, 1996.
The Credit Facility permits borrowings which bear interest, at the
Company's option, (i) for domestic borrowings based on the lender's base rate
plus .75% or 1.00% for Revolver or Term Loan advances, respectively (9.0% and
9.25% at September 30, 1996) or (ii) for Eurodollar borrowings, based on the
Interbank Eurodollar rate at the time of conversion plus 2.5% or 2.75% for Term
Loan or Revolver advances, respectively (8.0938% at September 30, 1996).
The Credit Facility provides for borrowings under letters of credit of up
to $3,000, which borrowings reduce amounts available under the Revolver. At
September 30, 1996, there was $1,892 in letters of credit outstanding under the
Credit Facility. The Company is required to pay a .375% fee on the unused
portion of the commitment and an agency fee of $150 per annum.
The Credit Facility is collateralized by substantially all of the Company's
assets and contains covenants related to the maintenance of certain operating
and working capital levels and limitations as to the amount of capital
expenditures. The Company's ability to pay dividends on its Common Stock is
restricted by both the Credit Facility and the indenture relating to the Senior
Subordinated Debentures discussed below.
B. SENIOR SUBORDINATED DEBENTURES
On December 14, 1992, the Company issued $140,000 of 12 3/4% Senior
Subordinated Debentures due 2002 (the "Debentures"), which represent unsecured
obligations of the Company. The Debentures are redeemable at the option of the
Company at any time on or after December 1, 1997, initially at 106.375% of their
principal amount, together with accrued interest, with declining redemption
prices thereafter. Interest on the Debentures is payable semi-annually on June 1
and December 1.
The fair value of the Company's Debentures is estimated based on quoted
market prices for the Debentures in the over-the-counter market. The estimated
fair value of the Debentures at September 30, 1996 is 107.0% of their face
amount, or $149,800.
Approximate aggregate minimum annual payments due on long-term debt and the
capital lease obligation, for the subsequent five years are as follows: 1997,
$659; 1998, $718; 1999, $10,783; 2000, $22,347; 2001, $19,470; and thereafter,
$141,036.
10. COMMITMENTS AND CONTINGENCIES
A. LEASE COMMITMENTS
On May 15, 1996, the Company entered into a five year capital lease for
equipment which provides for payments over a five year period at an interest
rate of 8.42% The Company also leases certain factory and warehouse buildings
and equipment under long-term operating leases expiring through 2009.
F-11
<PAGE> 97
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under noncancellable lease obligations at
September 30, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASES LEASES
- ---- ------- ---------
<S> <C> <C>
1997........................................................ $ 986 $3,786
1998........................................................ 986 2,262
1999........................................................ 986 1,622
2000........................................................ 986 991
2001........................................................ 1,993 362
Thereafter.................................................. -- 817
------ ------
Total minimum lease payments................................ $5,937 $9,840
======
Less amount representing interest........................... 1,239
------
Present value of net minimum lease payments................. 4,698
Less current maturities of capital lease obligation......... 614
------
Capital lease obligation.................................... $4,084
======
</TABLE>
Total rental expense for the above operating leases and other short-term
leases for the fiscal years 1996, 1995 and 1994 was $4,499, $3,731 and $4,684,
respectively.
B. CAPITAL EXPENDITURES
In fiscal 1997, the Company plans a $40,000 expansion of its manufacturing
facilities, primarily to expand capacity and to continue to reduce manufacturing
costs, subject to prevailing market conditions, of which $7,084 is committed at
September 30, 1996.
C. LITIGATION
The Company and its subsidiaries are parties to litigation arising out of
their business operations. Most of such litigation involves claims for personal
injury, property damage, breach of contract and claims involving employee
relations and certain administrative proceedings. The Company believes such
claims are adequately covered by insurance or do not involve a risk of material
loss to the Company.
11. INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current:
Federal.................................................. $2,600 $3,180 $3,770
State.................................................... 600 400 1,000
Foreign.................................................. 300 275 --
------ ------ ------
3,500 3,855 4,770
------ ------ ------
Deferred:
Federal.................................................. 3,200 (218) 3,405
State.................................................... 200 (137) 425
------ ------ ------
3,400 (355) 3,830
------ ------ ------
$6,900 $3,500 $8,600
====== ====== ======
</TABLE>
F-12
<PAGE> 98
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of US income tax computed at the statutory rate and actual
tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Amount computed at statutory rate....... $5,250 $1,900 $7,007
State and local taxes -- less applicable
federal income tax benefit............ 550 270 747
Amortization of goodwill................ 873 873 871
Other nondeductible expenses............ 115 210 348
Other, net.............................. 112 247 (373)
------ ------ ------
$6,900 $3,500 $8,600
====== ====== ======
</TABLE>
The tax effects of significant items comprising the Company's net deferred
tax liability are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Property, plant and equipment........... $24,819 $22,121
Trademarks and patents.................. 1,056 1,054
------- -------
Total deferred tax liabilities.......... 25,875 23,175
------- -------
Receivables............................. 996 1,609
Inventory............................... 626 628
Accrued expenses........................ 1,829 1,581
AMT credit carryforward................. 1,314 1,647
------- -------
Total deferred tax assets............... 4,765 5,465
------- -------
Net deferred tax liability.............. $21,110 $17,710
======= =======
</TABLE>
The Company's United States income tax returns for fiscal years 1992 and
1993 have been examined and settled without material adjustment.
12. RETIREMENT PROGRAMS
For United States employees, the Company maintains a trusteed
profit-sharing plan (the "Plan") which is qualified under Section 401(k) of the
Internal Revenue Code. All full-time employees over the age of 21 who have been
employed continuously for at least one year are eligible for participation in
the Plan. The Company may, but has not elected to, contribute a portion of its
profits to the Plan, as determined by the Board. Employer contributions vest
over 1 to 5 years. The Company has elected to match employee contributions to
the Plan on a 50% basis but not to exceed 3% of the employee's annual
compensation. During fiscal years 1996, 1995 and 1994, the Company contributed
$999, $921 and $891, respectively. The Plan provides for the Company to bear the
expense of the administration of the Plan. Pension expense on the foreign plans
is not significant.
13. STOCK OPTIONS
In August 1994, the Company adopted a stock option plan (the "Directors'
Plan"), pursuant to which non-qualified stock options to purchase an aggregate
of 125,261 shares of Common Stock were granted to the four non-employee
Directors of the Company at an exercise price of $6.83 per share which was
determined by reference to the fair market value of the Company's equity at the
time such Directors joined the Board. The stock options will be fully vested by
October 1, 1996 and have a term which expires on August 4, 2004. The Directors'
Plan does not provide for any further grants of options thereunder.
F-13
<PAGE> 99
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1994, the Company adopted a stock option plan ( the "1994 Plan")
for its key employees which provides for the grant of incentive stock options,
within the meaning of Section 422A of the Internal Revenue Code, and
non-qualified stock options. The maximum aggregate number of shares of Common
Stock that may be issued under the 1994 Plan is 491,413 shares.
In December 1995 and 1994, stock options for 174,716 and 316,697 shares of
Common Stock were granted to various employees under the 1994 Plan at an
exercise price of $10.72 per share. The stock options vest and become
exercisable at a rate of 25% per year over a four-year period and expire ten
years from the date of grant. As of September 30, 1996, 79,173 options were
exercisable under the 1994 Plan.
In May 1996, as amended on July 31, 1996, the Company adopted a stock
option plan (the "1996 Plan"), which provides for the grant of incentive stock
options and non-qualified stock options to any full time employee of the Company
under terms substantially the same as the 1994 Plan. The maximum number of
shares of Common Stock that may be issued under the 1996 Plan is 289,062 shares.
Options to purchase an aggregate of 21,723 shares have been granted at an
exercise price of $10.72 per share.
The purchase price of the shares of Common Stock subject to options under
the 1994 and 1996 Plans must be no less than the fair market value of the Common
Stock at the date of grant, provided, however, that the purchase price of shares
of Common Stock subject to Initial Stock Offerings ("ISOs") granted to any
optionee who owns shares possessing more than 10% of the combined voting power
of the Company ("Ten Percent Stockholder") must not be less than 110% of the
fair market value of the Common Stock at the date of grant. The maximum term of
an option may not exceed ten years from the date of grant, except with respect
to ISOs granted to Ten Percent Stockholders which must expire within five years
of the date of grant.
F-14
<PAGE> 100
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
----------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 1,190 $ 101
Accounts receivable, net of allowance for doubtful
accounts of $3,461 and $3,036, respectively............ 50,645 48,165
Inventory (Note 3)........................................ 61,006 39,142
Other current assets (Note 4)............................. 19,143 14,655
--------- ---------
TOTAL CURRENT ASSETS.............................. 131,984 102,063
PROPERTY, PLANT AND EQUIPMENT, net (Note 5)................. 154,629 137,974
OTHER ASSETS................................................ 84,165 84,021
--------- ---------
$ 370,778 $ 324,058
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 28,686 $ 20,227
Accrued expenses and other current liabilities............ 10,345 9,669
Income taxes payable (Note 7)............................. -- 1,407
Interest payable.......................................... 2,388 6,024
Current maturities of long-term debt (Note 6)............. 688 659
--------- ---------
TOTAL CURRENT LIABILITIES......................... 42,107 37,986
LONG-TERM DEBT (Note 6)..................................... 212,029 194,353
DEFERRED INCOME TAXES (Note 7).............................. 25,875 25,875
--------- ---------
STOCKHOLDERS' EQUITY (Note 8):
Common stock (par value $1.00 per share; authorized,
25,000,000; issued and outstanding, 8,656,250 and
5,781,250 shares, respectively)........................ 8,656 5,781
Additional paid-in capital (Note 8)....................... 94,325 63,519
Cumulative translation adjustments........................ 143 15
Deficit................................................... (12,357) (3,471)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY........................ 90,767 65,844
--------- ---------
$ 370,778 $ 324,058
========= =========
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE> 101
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, SIX MONTHS ENDED MARCH 31,
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $ 75,358 $ 64,609 $ 146,215 $ 129,217
Costs and expenses:
Cost of sales......................... 51,123 46,170 101,166 96,087
Selling expenses...................... 7,246 6,236 14,184 11,952
General and administrative expenses... 7,010 5,820 12,891 10,791
Amortization of excess purchase price
over net assets acquired and other
intangibles........................ 648 648 1,296 1,296
---------- ---------- ---------- ----------
66,027 58,874 129,537 120,126
---------- ---------- ---------- ----------
Operating income................... 9,331 5,735 16,678 9,091
Other expenses:
Interest expense...................... 5,365 5,710 10,775 11,390
Amortization of deferred financing
costs.............................. 163 175 339 348
---------- ---------- ---------- ----------
5,528 5,885 11,114 11,738
---------- ---------- ---------- ----------
Income (loss) before income tax
provision (benefit) and extraordinary
item.................................. 3,803 (150) 5,564 (2,647)
Income tax provision (benefit) (Note
7).................................... 1,643 260 2,500 (340)
---------- ---------- ---------- ----------
Income (loss) before extraordinary
item.................................. 2,160 (410) 3,064 (2,307)
Extraordinary item -- Loss from early
extinguishment of debt (net of tax
benefit of $7,481).................... 11,950 -- 11,950 --
NET LOSS................................ $ (9,790) $ (410) $ (8,886) $ (2,307)
========== ========== ========== ==========
Net Income (loss) per share before
extraordinary item.................... $ 0.24 $ (0.07) $ 0.36 $ (0.39)
Extraordinary loss per share............ $ (1.33) -- $ (1.42) --
---------- ---------- ---------- ----------
Net loss per share...................... $ (1.09) $ (0.07) $ (1.06) $ (0.39)
========== ========== ========== ==========
Weighted average shares outstanding..... 8,957,155 5,930,502 8,413,922 5,930,502
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE> 102
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
---------------------
1997 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before extraordinary item............... $ 3,064 $ (2,307)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operations:
Depreciation and amortization of deferred financing and
organization costs and intangibles..................... 9,027 8,031
Provision for bad debts................................... 141 109
Deferred income taxes..................................... 3,110 (490)
Change in assets and liabilities, net of acquisition:
Decrease in accounts receivable........................... 58 4,697
(Increase) decrease in inventory.......................... (20,501) 4,287
Decrease in other current assets.......................... 577 900
Increase (decrease) in accounts payable................... 8,459 (3,110)
Increase (decrease) in accrued expenses and other current
liabilities............................................ 200 (397)
Decrease in income taxes payable.......................... (1,407) (1,207)
Decrease in interest payable.............................. (3,636) (375)
--------- --------
Cash (used in) provided by operating activities... (908) 10,138
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment................ (18,909) (13,650)
Investment in business (Note 9)........................... (9,354) --
Cash used in investing activities................. (28,263) (13,650)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under the term loan............................ -- 19,500
Repayments under term loan................................ (20,000) (500)
Net borrowings (repayments) under revolving credit line... 625 (15,176)
Issuance of 9 1/4% Senior subordinated debentures......... 170,000 --
Redemption of 12 3/4% Senior subordinated debentures...... (132,597) --
Repayment costs on early extinguishment of debt........... (15,920) --
Proceeds from underwritten public offering................ 33,681 --
Debt issuance costs....................................... (5,290) (98)
Repayments of capital lease obligations and other long
term debt.............................................. (323) (19)
--------- --------
Cash provided by financing activities.................. 30,176 3,707
Effect of exchange rate changes on cash................ 84 (37)
--------- --------
NET INCREASE IN CASH........................................ 1,089 158
CASH AT BEGINNING OF PERIOD................................. 101 108
--------- --------
CASH AT END OF PERIOD....................................... $ 1,190 $ 266
========= ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.................................................. $ 14,411 $ 11,765
Income taxes.............................................. 797 1,387
</TABLE>
See notes to consolidated financial statements.
F-17
<PAGE> 103
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
(INFORMATION AS OF MARCH 31, 1997 AND FOR THE PERIODS ENDING MARCH 31, 1997 AND
1996 IS UNAUDITED)
1. ORGANIZATION
Synthetic Industries, Inc., a Delaware corporation (the "Company"),
manufactures and markets a wide range of polypropylene-based fabric and fiber
products designed for industrial applications. The Company's diverse mix of
products are marketed to the floor covering, construction and technical textile
markets for such end-use applications as carpet backing, geotextiles, erosion
control, concrete reinforcement and furniture construction fabrics. The Company
manufactures and sells more than 2,000 products in over 65 end-use markets
predominately in North America, Europe and the Far East. Prior to November 1,
1996, the Company was a wholly owned subsidiary of Synthetic Industries L.P. As
a result of the underwritten public offering (Note 8) on November 1, 1996,
Synthetic Industries L.P. owns approximately 67% of the Company's outstanding
Common Stock as of March 31, 1997.
2. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements as of March 31, 1997 and for the
periods ended March 31, 1997 and 1996 included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the financial
position at March 31, 1997 and 1996, and the results of operations for the three
and six months then ended have been made on a consistent basis. Certain
information and footnote disclosures included in consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures herein are adequate to make the
information presented not misleading. It is suggested that these consolidated
financial statements be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the consolidated
financial statements of the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1996. Operating results for the three and six months
ended March 31, 1997 may not necessarily be indicative of the results that may
be expected for the full year.
3. INVENTORY
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
Finished goods.......................... $35,381 $22,555
Work in process......................... 9,854 7,937
Raw materials........................... 15,771 8,650
------- -------
$61,006 $39,142
======= =======
</TABLE>
4. OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
Prepaid supplies........................ $ 9,288 $ 8,283
Deferred tax assets..................... 9,136 4,765
Other................................... 719 1,607
------- -------
$19,143 $14,655
======= =======
</TABLE>
F-18
<PAGE> 104
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
Land.................................... $ 4,458 $ 4,458
Buildings and improvements.............. 29,298 $ 29,298
Machinery and equipment and leasehold
improvements....................... 203,433 179,386
-------- --------
237,189 213,142
Accumulated depreciation................ 82,560 75,168
-------- --------
$153,629 $137,974
======== ========
</TABLE>
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
--------- -------------
<S> <C> <C>
Secured revolving credit facility
Secured revolving credit portion...... $ 4,618 $ 3,993
Term loan portion..................... 25,000 45,000
9 1/4% Senior Subordinated Notes, due
2007.................................. 170,000 --
12 3/4% Senior Subordinated Debentures,
due 2002.............................. 7,403 140,000
Capital lease obligation................ 4,397 4,698
Other................................... 1,299 1,321
-------- --------
212,717 195,012
Less current portion.................... 688 659
-------- --------
Total long term portion................. $212,029 $194,353
======== ========
</TABLE>
On February 11, 1997 the Company issued $170,000 in aggregate principal
amount of 9 1/4% Senior Subordinated Notes due 2007 (the "Notes"), which
represent unsecured obligations of the Company. The Notes are redeemable at the
option of the Company at any time on or after February 15, 2002, initially at
104.625% of their amount, together with accrued interest, with declining
redemption prices thereafter. Interest on the Notes is payable semi-annually on
February 15 and August 15.
In connection with the issuance of the Notes, the Company redeemed
approximately $133,000 principal amount of its 12 3/4% Senior Subordinated
Debentures due 2002 (the "Debentures") at a redemption price of 111.07% of the
principal amount thereof. In addition, the Company repaid $20,000 of its
outstanding term loan borrowings as of March 5, 1997. In connection with the
early extinguishment of debt, the Company recorded an extraordinary loss of
$11,950 (representing call premium and prepayment fees of $15,920 and write off
of deferred financing costs of $3,511, net of an income tax benefit of $7,481)
during the second quarter of fiscal 1997.
On October 20, 1995, the Company and its lenders entered into the Fourth
Amended and Restated Revolving Credit Agreement (as amended to date, the
"Amended Credit Facility"). The Amended Credit Facility, with a termination date
of October 1, 2001, provided for potential borrowing capacity of up to $85,000
being comprised of term loan borrowings of $45,000 and a revolving credit loan
portion (the "Revolver") of $40,000. The term loan balance at March 31, 1997,
was $25,000, of which $10,000 is payable in 1999 and $15,000 is payable in 2000.
The Revolver provides for availability based on a borrowing formula consisting
of 85% of eligible accounts receivable and 50% of eligible inventory, subject to
certain limitations and reserves. These reserves include outstanding letters of
credit of $1,100 and the remaining balance due under the Debentures of $7,400.
Accordingly, at March 31, 1997, availability under the Revolver is $19,051.
F-19
<PAGE> 105
SYNTHETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The provision for income taxes before extraordinary item in the
consolidated statements of operations reflects the effective tax rate of 43% and
45% for the three and six months ended March 31, 1997.
This provision reflects the non-deductibility of certain expenses for
income tax purposes such as amortization of goodwill. Deferred income taxes
result from temporary differences between tax bases of assets and liabilities
and their reported amounts in the consolidated statements of operations.
8. UNDERWRITTEN PUBLIC OFFERING
On November 1, 1996, the Company sold 2,875,000 shares of Common Stock in
an underwritten public offering. The net proceeds to the Company from the sale
(after payment of underwriting discounts and expenses) were approximately
$34,000. As a result of its underwritten public offering, the Company currently
has 8,656,250 shares of Common Stock outstanding. Approximately 67% of the
issued and outstanding shares of Common Stock are owned by Synthetic Industries,
L.P.
9. BUSINESS ACQUISITION
On February 27, 1997, the Company acquired certain assets of the Spartan
Technologies division of Spartan Mills for approximately $9,400. The assets will
be used primarily in the manufacturing of nonwoven fabrics used in the
geotextile and furniture and bedding markets. The acquisition has been accounted
for using the purchase method of accounting, and, accordingly, the purchase
price has been allocated to the net assets acquired (accounts receivable,
inventory, and property, plant and equipment) based upon the fair market value
(which approximates cost) at the date of acquisition. The operating results of
the acquired business have been included in the consolidated statements of
operations from the date of acquisition.
F-20
<PAGE> 106
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
EXCHANGE OFFER OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF ITS AFFILIATES. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO
ANY PERSON IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 4
Special Note Regarding Forward-Looking
Statements.......................... 5
Prospectus Summary.................... 6
Risk Factors.......................... 14
The Company........................... 17
Use of Proceeds....................... 17
Capitalization........................ 18
Selected Consolidated Financial
Information......................... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 21
Business.............................. 28
Management............................ 41
Principal Stockholders................ 48
Certain Relationships and Related
Transactions........................ 49
The Exchange Offer.................... 50
Description of the New Notes.......... 59
Description of the Old Notes.......... 82
Certain United States Federal Income
Tax Considerations.................. 82
Plan of Distribution.................. 84
Legal Matters......................... 84
Experts............................... 84
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
SYNTHETIC INDUSTRIES, INC.
OFFER TO EXCHANGE ITS
9 1/4% SENIOR SUBORDINATED
NOTES DUE 2007
(SERIES B)
FOR ANY AND ALL OF ITS OUTSTANDING
9 1/4% SENIOR SUBORDINATED
NOTES DUE 2007
(SERIES A)
---------------------
PROSPECTUS
---------------------
JUNE 16, 1997
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