As filed with the Securities and Exchange Commission on , 1998
Registration No.
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GALEY & LORD, INC. Delaware 2211 56-1593207
GALEY & LORD INDUSTRIES, INC. Delaware 2211 56-1593208
G&L SERVICE COMPANY, NORTH Delaware 2325 56-1976012
AMERICA, INC.
SWIFT TEXTILES, INC. Delaware 2211 58-1189307
SWIFT DENIM SERVICES, INC. Delaware 2211 13-3898788
(Exact Name of Each Registrant (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
as Specified in its Charter) Incorporation or Organization) Classification Code Number) Identification Number)
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980 Avenue of the Americas
New York, NY 10018
(212) 465-3000
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Each Registrants' Principal Executive Offices)
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Arthur C. Wiener, Chairman of the Board
980 Avenue of the Americas
New York, NY 10018
(212) 465-3000
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
Copy to:
Howard S. Jacobs, Esq.
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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Title Of Each Class Proposed Proposed Maximum Amount of
Of Securities To Amount To Be Maximum Aggregate Offering Registration
Be Registered Registered Offering Price Per Unit Price(1) Fee(2)
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9 1/8% Senior Subordinated
Notes Due 2008 ............ $300,000,000 100% $300,000,000 $88,500
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Subsidiary Guarantees of
the 9 1/8% Senior
Subordinated Notes Due
2008(3) ................... (3) (3) (3) (3)
Total ....................... $300,000,000 100% $300,000,000 $88,500
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Each Registrant other than Galey & Lord, Inc. is a subsidiary of Galey &
Lord, Inc. and is guaranteeing payment of the Notes. Pursuant to Rule
457(n) under the Securities Act of 1933, no registration fee is required
with respect to these guarantees.
(3) No separate consideration will be received from purchasers of the Notes
with respect to these guarantees.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
(GALEY&LORD icon)
Galey & Lord, Inc.
Offer to Exchange up to
$300,000,000 of its 9 1/8% Senior Subordinated Notes Due 2008
for any and all of its outstanding
$300,000,000 9 1/8% Senior Subordinated Notes Due 2008
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998,
UNLESS EXTENDED.
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Galey & Lord, Inc. (the "Company") hereby offers, upon the terms and
subject to the conditions set forth in this Prospectus and accompanying Letter
of Transmittal (which together constitute the "Exchange Offer"), to exchange an
aggregate of up to $300.0 million principal amount of its 9 1/8% Senior
Subordinated Notes Due 2008 (the "Exchange Notes") for an identical face amount
of the issued and outstanding 9 1/8% Senior Subordinated Notes Due 2008 (the
"Initial Notes"; the Initial Notes and the Exchange Notes being referred to
collectively as the "Notes") of the Company from the holders thereof. As of the
date of this Prospectus, the aggregate principal amount of Initial Notes
outstanding is $300.0 million. The terms of the Exchange Notes are identical in
all material respects to the terms of the Initial Notes, except that the
Exchange Notes have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and therefore will not bear legends restricting
their transfer and will not contain certain provisions providing for an
increase of interest rate on the Initial Notes under certain circumstances
relating to the Registration Rights Agreement (as defined herein), which
provisions will terminate as to all of the Notes upon the consummation of the
Exchange Offer.
Interest on the Exchange Notes will be payable in cash semi-annually on
March 1 and September 1 of each year, commencing
September 1, 1998. The Notes will mature on March 1, 2008, unless previously
redeemed, and will not be subject to any sinking fund requirement. The Exchange
Notes will be redeemable in cash at the option of the Company, in whole or in
part, at any time on or after March 1, 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest thereon to the date of redemption.
Prior to March 1, 2001, the Company, at its option, may redeem in the aggregate
up to 35% of the original principal amount of the Notes at 109.125% of the
aggregate principal amount so redeemed, plus accrued and unpaid interest
thereon to the redemption date with the Net Cash Proceeds (as defined herein)
of one or more Public Equity Offerings (as defined herein), provided that at
least 65% of the original principal amount of the Exchange Notes remains
outstanding after each such redemption. See "Description of the Notes --
Optional Redemption."
The Exchange Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined herein) of the Company and its subsidiaries and senior in right of
payment to any subordinated indebtedness of the Company. The Exchange Notes
will be unconditionally guaranteed, on an unsecured senior subordinated basis,
by the Company's existing and future Domestic Restricted Subsidiaries (as
defined herein) (each such guarantee a "Note Guarantee" and each such guarantor
a "Note Guarantor"). The Exchange Notes will be effectively subordinated to all
existing and future liabilities of the Company's subsidiaries that are not Note
Guarantors. Currently, no indebtedness of the Company is subordinated to the
Exchange Notes. As of December 27, 1997, after giving effect to the Acquisition
(as defined herein) and the financing thereof (including the sale of the
Initial Notes and the use of the net proceeds therefrom), the Company and its
subsidiaries would have had approximately $397.1 million aggregate principal
amount of Senior Indebtedness outstanding. In addition, the Company would have
had $75.4 million of additional borrowing availability under the Senior Credit
Facility (as defined herein). See "Pro Forma Capitalization of the Company" and
"Description of the Exchange Notes -- Ranking of the Exchange Notes."
In the event of a Change of Control (as defined herein), holders of the
Exchange Notes will have the right to require the Company to purchase their
Exchange Notes at 101% of the aggregate principal amount thereof plus accrued
and unpaid interest thereon to the purchase date. See "Description of the
Exchange Notes -- Change of Control." In addition, the Company is obligated in
certain instances to make offers to purchase the Exchange Notes at a purchase
price in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest thereon to the purchase date with the Net Available Cash (as
defined herein) from certain asset sales. See "Description of the Exchange
Notes -- Certain Covenants -- Limitation on Sales of Assets and Subsidiary
Stock."
The Initial Notes were issued and sold on February 24, 1998, in a
transaction not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof (the "Initial Notes
Offering"). In general, the Initial Notes may not be offered or sold unless
registered under the Securities Act or unless offered or sold pursuant to an
exemption from, or in a transaction not subject to, the Securities Act. The
Exchange Notes are being offered hereby to satisfy certain obligations of the
Company and the Note Guarantors contained in the Registration Rights Agreement.
Based on interpretations by the staff of the Securities and Exchange Commission
(the "Commission") set forth in no-action letters issued to third parties, the
Company believes that the Exchange Notes issued pursuant to the Exchange Offer
in exchange for Initial Notes may be offered for resale, resold or otherwise
transferred by any holder thereof (other than any holder that is a
broker-dealer or an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business,
such holder has no arrangement or understanding with any person to participate
in the distribution of such Exchange Notes and neither such holder nor any such
other person is engaging in or intends to engage in a distribution of the
Exchange Notes. However, the Company has not sought, and does not intend to
seek, its own no-action letter, and there can be no assurance that the
Commission would make a similar determination with respect to the Exchange
Offer. Notwithstanding the foregoing, each broker-dealer that receives Exchange
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with any resale of Exchange Notes received in
exchange for Initial Notes where such Initial Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Initial Notes acquired directly from the Company). The
Company has agreed that, for a period of 180 days after the Expiration Date (as
defined herein), it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution".
The Initial Notes are designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market of the
National Association of Securities Dealers, Inc. There is no established
trading market for the Exchange Notes. The Company does not currently intend to
list the Exchange Notes on any securities exchange or to seek approval for
quotation through any automated quotation system. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Exchange
Notes. The certificates representing the Exchange Notes will be issued in fully
registered form.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Notes being tendered for exchange. Initial Notes tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date. The Company will not receive any proceeds from the Exchange
Offer. The Company and the Note Guarantors will pay certain expenses incident
to the Exchange Offer. The Exchange Offer will expire at 5:00 p.m., New York
City time, on 1998 (the "Expiration Date"). The Company does not currently
intend to extend the Expiration Date.
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See "Risk Factors" beginning on page 17 for a discussion of certain
factors that should be considered by holders of the Initial Notes prior to
tendering Initial Notes in the Exchange Offer.
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THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
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AVAILABLE INFORMATION
The Company is subject to the periodic reporting and other informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files reports and other information with
the Commission. Such reports and other information filed with the Commission
may be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W, Washington, D.C. 20549, or
at its regional offices located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can be obtained from the public reference
section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates and may also be accessed electronically by means of the
Commission's website at (http://www.sec.gov). Such materials can also be
inspected at the offices of the New York Stock Exchange (the "NYSE"), 20 Broad
Street, New York, New York 10005.
This Prospectus constitutes a part of a registration statement on Form S-4
(the "Registration Statement") filed by the Company and the Note Guarantors
with the Commission under the Securities Act. As permitted by the rules and
regulations of the Commission, this Prospectus does not contain all of the
information contained in the Registration Statement and the exhibits and
schedules thereto, and reference is hereby made to the Registration Statement
and the exhibits and schedules thereto for further information with respect to
the Company, the Note Guarantors and the Exchange Notes. Statements contained
herein concerning the provisions of any documents filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of
such document so filed. Each such statement is qualified in its entirety by
such reference.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
hereby incorporated into this Prospectus and shall be deemed to be a part
hereof:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
September 27, 1997, as amended;
(ii) the Company's Quarterly Report on Form 10-Q for the quarter ended
December 27, 1997; and
(iii) the Company's Current Reports on Form 8-K filed with the Commission on
January 15, 1998, February 9, 1998 and March 10, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the consummation of the Exchange Offer shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
Copies of all documents incorporated by reference into this Prospectus,
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference therein), will be provided without charge to each
person to whom this Prospectus is delivered, upon oral or written request by
such person to Michael R. Harmon, Galey & Lord, Inc., P.O. Box 35528,
Greensboro, North Carolina 27425-0528, telephone number (336)665-3037.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements, other than statements of historical facts, included in this
Prospectus that address activities, events or developments that the Company
expects, believes, intends or anticipates will or may occur in the future, are
forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of
which might not even be anticipated. Future events and actual results,
financial and otherwise, could differ materially from those set forth in or
contemplated by the forward-looking statements herein. Important factors that
could contribute to such differences are set forth herein under "Risk Factors,"
including, but not limited to, "Substantial Leverage," "Subordination,"
"Restrictions Imposed by the Senior Credit Facility and the Indenture,"
"Holding Company Structure; Limitations on Access to Cash Flow," "Risks
Relating to the Acquisition," "Cyclical and Competitive Nature of Textile
Industry," "Raw Material Price Volatility and Availability," "Government
Policy; Import Regulations," "Reliance on Significant Customers," "Devaluation
and Currency Risks," "Foreign Sales and Operations Risks," "Risk of
Environmental Liability; Other Governmental Regulations," and "Absence of
Public Market for the Exchange Notes."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and consolidated and pro forma financial statements, including the
notes thereto, appearing elsewhere in this Prospectus. Unless the context
otherwise requires, as used in this Prospectus, the term "Company" includes
Galey & Lord, Inc. ("Galey & Lord") and its subsidiaries ("Subsidiaries") after
the Acquisition (as defined herein), except that in "Summary Unaudited Pro
Forma Combined Financial Information of the Company," "Summary Historical
Financial Information," "Summary Historical Financial Information of Galey &
Lord," "Summary Historical Financial Information of the Acquired Business,"
"Pro Forma Capitalization of the Company," "Unaudited Pro Forma Combined
Financial Information of the Company," "Selected Historical Financial
Information of Galey & Lord," "Selected Historical Financial Information of the
Acquired Business," and "Management Discussion and Analysis of Financial
Condition and Results of Operations," the term "Galey & Lord" refers to Galey &
Lord, Inc. and its Subsidiaries prior to the Acquisition and the term "Acquired
Business" refers to the Acquired Business (as defined herein) prior to the
Acquisition. References to Galey & Lord's and the Company's fiscal years refer
to the years ended October 2, 1993, October 1, 1994, September 30, 1995,
September 28, 1996 and September 27, 1997. References to fiscal years of the
Acquired Business refer to years ended June 30. Investors should carefully
consider the information set forth under the caption "Risk Factors."
THE COMPANY
Overview
The Company is a leading global manufacturer of textiles for sportswear,
including cotton casuals, denim and corduroy, as well as a major international
manufacturer of workwear fabrics. The Company also is a manufacturer of dyed
and printed fabrics for use in home fashions. In order to offer customers a
complete package of fabrics and garments from one source, the Company has
established garment manufacturing operations, which the Company believes
provide a competitive advantage over other fabric manufacturing companies.
The Company believes that it is the market leader in producing innovative
woven sportswear fabrics as a result of its expertise in sophisticated and
diversified finishing. Fabrics are designed in close partnership with customers
to capture a large share of the middle and high end of the bottomweight woven
market. The Company sells its woven sportswear products to a diversified
customer base, including Levi Strauss & Co. ("Levi's"), Haggar Corp.
("Haggar"), Farah, Inc. ("Farah"), Polo Ralph Lauren Corporation ("Polo Ralph
Lauren"), Jones Apparel Group, Inc. ("Jones Apparel Group"), Calvin Klein, Inc.
("Calvin Klein") and Liz Claiborne, Inc. ("Liz Claiborne"), as well as to
private label manufacturers for chain stores and suppliers of mail order
catalogs.
In January 1998, the Company acquired (the "Acquisition") the apparel
fabrics business (the "Acquired Business") of Dominion Textile Inc.
("Dominion"), including its Swift denim ("Swift") and Klopman International
S.p.A. workwear and careerwear ("Klopman") divisions. On a pro forma combined
basis for the twelve months ended December 27, 1997 after giving effect to the
Acquisition, the Company's net sales were $1.1 billion and, on a pro forma
combined basis for the year ended September 27, 1997 and the three months ended
December 27, 1997, in each case after giving effect to the Acquisition, the
Company's Adjusted Pro Forma EBITDA (as defined herein) was $137.4 million and
$30.6 million respectively.
Galey & Lord, Inc. is a Delaware corporation. Its principal executive
offices are located at 980 Avenue of the Americas, New York, New York 10018,
and its telephone number is (212) 465-3000.
Product Overview
Cotton Casuals. The Company is the largest domestic producer by capacity
of cotton and cotton blended fabrics used in apparel, with approximately 35% of
U.S. production. These fabrics are primarily used for the production of men's
and women's pants and shorts. The Company's technical expertise in finishing
enables it to provide a number of value-added fabrics to differentiate itself
from its competitors, including an extensive range of faced finished flannel
and suede finished fabrics. For the twelve months ended December 27, 1997, net
sales of cotton casual fabric were $282.5 million.
Denim. As a result of the Acquisition, the Company is the world's second
largest producer of denim, operating under the tradename Swift Denim. The
Company offers 100% cotton denim, cotton blended denim and denim that
stretches. These products are manufactured in a full range of colors, weights
and finishes for apparel
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and non-apparel uses, such as home furnishings. Most of the Company's denim is
value-added and sold primarily to the middle to high end of the market. For the
twelve months ended December 27, 1997, net sales of denim were; in each case
after giving effect to the Acquisition, the Company's $455.7 million.
Corduroy. The Company is the only vertically integrated manufacturer of
corduroy in the U.S and is the largest domestic manufacturer. The Company
manufactures corduroy in various wales and weights primarily for the production
of apparel. The Company's strategy is to manufacture corduroy and other fabrics
with the same equipment, thereby enabling the Company to schedule its
production to meet customers' seasonal demands economically and efficiently.
For the twelve months ended December 27, 1997, net sales of corduroy were $98.8
million.
Workwear. As a result of the Acquisition, the Company is a leading
international supplier of workwear and careerwear fabrics, and the only
manufacturer with facilities in both North America and Europe. The Company
produces high performance workwear fabrics that retain their comfort,
appearance and performance over an extended wear life. These fabrics are
distributed primarily to the industrial laundry, hospitality, and healthcare
markets. For the twelve months ended December 27, 1997, net sales of workwear
and careerwear fabrics were $195.5 million.
G&L Service Company. In June 1996, in response to a growing trend by the
Company's customers to outsource their production, the Company acquired garment
manufacturing facilities located in Piedras Negras, Mexico. At these
facilities, employees sew and finish pants and shorts for the casual wear
market. To meet increasing demand, the Company is constructing an additional
garment manufacturing facility in Monclova, Mexico. These facilities, operated
as G&L Service Company, North America, Inc. ("G&L Service Company"), allow the
Company to offer its customers a finished package of fabric and garments from
one source. This provides customers with logistical and quality benefits that
result in goods reaching the market in a more timely manner. The Company
believes that offering its customers a single source of supply represents a
significant change in the current manufacturing chain that will lead to an
increase in the Company's apparel business in the future. In its first eighteen
months of operations G&L Service Company has succeeded in attracting customers
such as Levi's, Polo Ralph Lauren, Liz Claiborne, Jones Apparel Group and
Calvin Klein. For the twelve months ended December 27, 1997, net sales of G&L
Service Company were $26.6 million.
Industry Trends
Several trends have affected the domestic and global fabric and apparel
businesses recently, including the expansion of North American apparel
production, the increase in casual dress in and away from the workplace and the
move toward vertical integration of fabric production with garment production.
Since the mid-1980s there has been a dramatic shift in apparel sourcing
from the Far East to Mexico and the Caribbean. In 1985 Mexico and the Caribbean
supplied the U.S. with approximately 8% of its apparel imports. This percentage
rose to approximately 38% during 1997. During that same time period, apparel
imports from the Far East to the U.S. declined from 75% to approximately 36%.
Over 80% of the imports from Mexico and the Caribbean use U.S. made fabric. The
Company believes that this trend can be attributed to (i) the beneficial impact
of U.S. trade policy, including NAFTA and the U.S. "807" and "807A" tariff
programs (under which many of the Company's customers benefit from favorable
duty and, in certain instances, quota treatment on garments assembled
offshore), together with (ii) customer demands for more rapid delivery time
which can be better met with imports from North American locations rather than
from the Far East.
The Company believes there is a growing trend in the U.S. toward casual
dress which is expected to help cotton casual, denim and corduroy sales. An
increasing number of employers continue to institute casual dress policies,
whether full time or for special occasions, such as "casual Fridays." In
addition, the Company believes that the number of people who work at home is
increasing and that outside the workplace, people's social activities are
focusing on a more casual lifestyle. According to NPD Group, Inc., an
independent market research firm, the retail dollar volume for men's casual
attire grew 7.3% annually between 1991 and 1997 and the retail dollar volume of
women's casual attire grew 4.9% annually in the same period in comparison to
the retail dollar volume for total tailored apparel, which grew 2.1% over the
same period. In 1997, 65% of the retail dollars spent on casual and tailored
apparel was attributed to casual apparel. This trend benefits the Company by
increasing the demand for, and consequently, sales of, the Company's cotton
casual, denim and corduroy products.
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Recent trends in the garment industry have resulted in certain apparel
manufacturers and marketeers adopting new supply, sourcing and purchasing
strategies. The recent shift in fabric and garment production levels from the
Far East to North America has created new sourcing strategies. To meet customer
demands for simplified relationships with contractors and vendors, certain
fabric manufacturers have become increasingly vertically integrated,
developing, producing, finishing and merchandising garments for customers,
either through owned or contracted garment assembly operations. The effect of
these new strategies has been to allow apparel marketeers to bring their
products to market on a more timely basis, thereby minimizing inventory risks
and responding more effectively to shifts in consumer demand. The Company
believes that G&L Service Company's garment assembly operations position it to
satisfy these customer demands and manage the production of finished apparel
for customers.
Strategy
The Company's strategy is (i) to be either first or second in each of the
product categories it offers, (ii) to make products that can be distinguished
from those made by its competitors, (iii) to continue to modernize its
facilities in order to maintain its competitive position, and (iv) to further
integrate the manufacture of garments with the manufacture of fabrics in order
to increase strategic relationships with customers and increase market share.
Key tactics of the Company's strategy include:
Emphasizing Innovative Products and Services. Historically, product
development was split between fabric and garment manufacturers. Through its
state-of-the-art facilities, the Company is able to combine these two steps
into one. This permits the Company to present fully developed commercially made
sample garments which assists the Company's customers in reducing their product
development cycle times and allows the Company to develop more innovative
products.
Emphasizing Customer Service. The Company is committed to being an
industry leader in providing superior customer service. The key elements of
this tactic include (i) providing timely and complete order delivery, (ii)
building partnerships with customers, (iii) providing electronic data
information services, and (iv) providing inventory management support.
Capitalizing on the Changing Manufacturing Chain. The Company believes
that a significant change is occurring in the apparel manufacturing chain. Many
of the Company's customers are either dependent on, or increasing their
dependency on, outsourcing their garment manufacturing requirements. The
Company's ability to provide customers with a "package" utilizing Company
fabrics and finished garments allows customers to avoid dealing with multiple
contractors to bring their products to market. By reducing the number of
vendors with which its customers are required to enter into commercial
relationships, the Company has simplified the customers' sourcing process. The
Company believes that this method will be the manufacturing chain of the future
and that it is on the cutting edge in supplying these services from its owned
and operated garment facilities located in Mexico.
Expanding International Operations. Through the expansion of international
manufacturing capabilities and sales offices, the Company is better able to
service both local markets in various parts of the world, as well as its U.S.
customers as they expand globally. As a result of the Acquisition, the Company
acquired manufacturing facilities in Canada, Italy, and Tunisia, as well as
sales offices in Eastern and Western Europe, South America and Asia, to
complement its previously existing manufacturing facilities in the U.S. and
Mexico.
Increasing Manufacturing Efficiencies. The Company has made significant
investments in its manufacturing operations to provide for the flexible
production of its broad line of value-added fabrics and to reduce production
costs. As a result of these investments, the Company has experienced a 93%
increase in net sales per average number of employees from approximately
$68,000 per employee during fiscal 1988 to approximately $131,000 per employee
during fiscal 1997 (excluding G&L Service Company and the Acquired Business).
The Acquisition
In January 1998, the Company purchased the Acquired Business for a cash
purchase price (the "Purchase Price") of $464.5 million. The Purchase Price and
related fees and expenses were financed with borrowings of (i) approximately
$205.8 million under the Company's Senior Credit Facility (the "Senior Credit
Facility") with
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First Union National Bank ("FUNB") and (ii) $275.0 million under a senior
subordinated facility (the "Bridge Financing Facility"). The Company used the
net proceeds from the Initial Notes Offering to repay (i) the Bridge Financing
Facility and (ii) a portion of the outstanding amount under the revolving line
of credit provided for under the Senior Credit Facility.
The Company believes that the Acquisition will enhance its competitive
position and business prospects as follows:
Expanded Global Marketing Synergies. As a result of the Acquisition, the
worldwide marketing capabilities of the Company have been greatly expanded.
Newly acquired sales offices will enable the Company to market products
internationally which have previously been marketed primarily in the U.S. These
new sales offices include locations in Eastern and Western Europe, South
America and Asia.
Expanded Global Manufacturing. Prior to the Acquisition, the Company's
manufacturing facilities were based in the U.S. and Mexico. As a result of the
Acquisition, the Company acquired manufacturing facilities in Canada, Italy,
and Tunisia, as well as the U.S. These operations are expected to provide
improved access to growing global markets for the Company's products. For
example, the Company intends to transfer technology to its Italian
manufacturing operations to enable these operations to produce cotton casual
fabrics as well as their traditional workwear fabrics.
Cost Rationalization. The Company believes that it can rationalize
operating costs following the Acquisition through the elimination of
duplicative corporate and back-office operations, the reduction of real
property expenses and the rationalization of other functions. Historically,
Galey & Lord has maintained one of the lowest selling, general and
administrative expense ("SG&A") ratios in the industry. The Company believes
that significant opportunities exist to lower Swift's and Klopman's SG&A costs.
Greater Critical Mass. The Acquisition has significantly increased the
Company's revenue base. After giving pro forma effect to the Acquisition, the
Company's net sales for the twelve months ended December 27, 1997 were $1.1
billion. The Company believes that its increased size, marketing resources,
production capacity and product offering will create additional marketing and
other growth opportunities.
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
THE EXCHANGE OFFER
The Exchange Offer:................ The Company is offering to exchange
pursuant to the Exchange Offer up to
$300.0 million aggregate principal amount
of its 9 1/8% Senior Subordinated Notes
Due 2008 for like aggregate principal
amount of its outstanding 9 1/8% Senior
Subordinated Notes Due 2008. The terms of
the Exchange Notes are identical in all
material respects (including principal
amount, interest rate and maturity) to the
terms of the Initial Notes for which they
may be exchanged pursuant to the Exchange
Offer, except that the Exchange Notes are
freely transferable by holders thereof
(other than as provided herein), and are
not subject to any covenant regarding
registration under the Securities Act. See
"The Exchange Offer."
Interest Payments:................. Interest on the Exchange Notes shall
accrue from the last Interest Payment Date
(March 1 or September 1) on which interest
was paid on the Notes so surrendered or,
if no interest has been paid on such
Notes, from February 24, 1998.
Minimum Condition:................. The Exchange Offer is not conditioned
upon any minimum aggregate principal
amount of Initial Notes being tendered for
exchange.
Expiration Date; Withdrawal
of Tender:......................... The Exchange Offer will expire at 5:00
p.m., New York City time, on , 1998
(the "Expiration Date"). The Company does
not currently intend to extend the
Expiration Date. Tenders may be withdrawn
at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. See
"The Exchange Offer -- Expiration Date;
Extension; Termination; Amendment" and
"Withdrawal of Rights."
Conditions to the Exchange Offer:... The Exchange Offer is subject to certain
conditions, including that the Exchange
Offer not violate any applicable law,
statute, rule, regulation or
interpretation of the Staff of the
Commission, that all necessary
governmental approvals are obtained and
that one or more of the following events
do not occur: (i) a general suspension of,
shortening of hours for, or limitation on
prices for, trading in securities on any
national securities exchange or in the
over-the-counter market, (ii) a
declaration of a banking moratorium or any
suspension of payments in respect of banks
by Federal or state authorities in the
United States, (iii) a commencement of a
war, armed hostilities or other
international or national crisis directly
or indirectly involving the United States
or (iv) a limitation by any governmental
authority on, or other event having
reasonable likelihood of affecting, the
extension of credit by banks or other
lending institutions in the United States.
See "The Exchange Offer -- Certain
Conditions to the Exchange Offer."
5
<PAGE>
<CAPTION>
<S> <C>
Procedures for Tendering
Initial Notes:..................... Each holder of Initial Notes wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance with
the instructions contained herein and
therein, and mail or otherwise deliver
such Letter of Transmittal, together with
the Initial Notes and any other required
documentation, to the Exchange Agent (as
defined herein) at the address set forth
herein. See "The Exchange Offer --
Procedures for Tendering Initial Notes"
and "Plan of Distribution."
Use of Proceeds:................... There will be no proceeds to the Company
from the exchange of Notes pursuant to the
Exchange Offer.
Special Procedures for
Beneficial Owners:................. Any beneficial owner whose Initial Notes
are registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee who wishes to tender should
contact such registered holder promptly
and instruct such registered holder to
tender on such beneficial owner's own
behalf. If such beneficial owner wishes to
tender on such beneficial owner's own
behalf, such beneficial owner must, prior
to completing and executing the Letter of
Transmittal and delivering the Initial
Notes, either make appropriate
arrangements to register ownership of the
Initial Notes in such beneficial owner's
name or obtain a properly completed bond
power from the registered holder. The
transfer of registered ownership may take
considerable time. See "The Exchange Offer
-- Procedure for Tendering Initial Notes."
Guaranteed Delivery Procedures:.... Holders of Initial Notes who wish to
tender their Initial Notes and whose
Initial Notes are not entirely available
or who cannot deliver their Initial Notes,
the Letter of Transmittal or any other
documents required by the Letter of
Transmittal to the Exchange Agent prior to
the Expiration Date must tender their
Initial Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery
Procedures."
Acceptance of Initial Notes and
Delivery of the Exchange Notes:..... The Company will accept for exchange any and
all Initial Notes which are properly tendered
in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the
Exchange Offer will be delivered promptly
following the Expiration Date. See "The
Exchange Offer -- Expiration Date; Extension;
Termination; Amendment" and "Acceptance of
Initial Notes for Exchange; Delivery of
Exchange Notes."
Effect on the Holders of
Initial Notes:..................... As a result of the making of, and upon
acceptance for exchange of all validly
tendered Initial Notes pursuant to the
terms of, the Exchange Offer, the Company
and the Note Guarantors will have
fulfilled the covenant contained in the
Registration Rights Agreement (the
"Registration Rights Agreement") dated
February 24, 1998 among
6
<PAGE>
<CAPTION>
<S> <C>
the Company, the Note Guarantors and
First Union Capital Markets, a division
of Wheat First Securities, Inc. (the
"Initial Purchaser") and, accordingly,
there will be no increase in the interest
rate on the Initial Notes pursuant to the
terms of the Registration Rights
Agreement, and the holders of the Initial
Notes will have no further registration
or other rights under the Registration
Rights Agreement other than those which
survive the Exchange Offer. Holders of
the Initial Notes who do not tender their
Initial Notes in the Exchange Offer will
continue to hold such Initial Notes and
will be entitled to all the rights and
subject to all the limitations applicable
thereto under the Indenture dated
February 24, 1998 among the Company, as
issuer, the Note Guarantors, as
guarantors, and SunTrust Bank, Atlanta,
as Trustee, relating to the Initial Notes
and the Exchange Notes (the "Indenture"),
except for any such rights under the
Registration Rights Agreement that by
their terms terminate or cease to have
further effectiveness as a result of the
making of, and the acceptance for
exchange of all validly tendered Initial
Notes pursuant to, the Exchange Offer.
All untendered Initial Notes will
continue to be subject to the
restrictions on transfer provided for in
the Initial Notes and the Indenture. To
the extent that the Initial Notes are
tendered and accepted in the Exchange
Offer, the trading market for untendered
Initial Notes could be adversely
affected.
Consequence of Failure
to Exchange:....................... Initial Notes that are not exchanged for
Exchange Notes pursuant to the Exchange
Offer will continue to be subject to the
restrictions on transfer of such Initial
Notes as set forth in the legend thereon
and in the Indenture. The Company and the
Note Guarantors do not currently
anticipate that they will register any
Initial Notes and the related Note
Guarantees which are not exchanged
pursuant to the Exchange Offer under the
Securities Act after the Expiration Date.
Federal Income Tax Consequences:... The exchange pursuant to the Exchange
Offer should not result in gain or loss to
the holders or the Company for federal
income tax purposes. See "Certain United
States Federal Income Tax Considerations."
Exchange Agent:.................... SunTrust Bank, Atlanta (the "Exchange
Agent") is serving as exchange agent in
connection with the Exchange Offer.
SunTrust Bank, Atlanta also serves as the
Trustee under the Indenture. See "The
Exchange Offer -- Exchange Agent."
TERMS OF THE EXCHANGE NOTES
Securities Offered:................ $300.0 million aggregate principal
amount of 9 1/8% Senior Subordinated Notes
Due 2008.
Issuer:............................ The Exchange Notes will be obligations
of Galey & Lord, Inc.
7
<PAGE>
<CAPTION>
<S> <C>
Maturity Date:..................... March 1, 2008.
Interest Payment Dates:............ March 1 and September 1 of each year,
commencing September 1, 1998.
Optional Redemption:............... The Exchange Notes will be redeemable in
cash at the option of the Company, in
whole or in part, at any time on or after
March 1, 2003, at the redemption prices
set forth herein, plus accrued and unpaid
interest thereon to the date of
redemption. Prior to March 1, 2001, the
Company, at its option, may redeem in the
aggregate up to 35.0% of the original
principal amount of the Exchange Notes at
109.125% of the aggregate principal amount
so redeemed, plus accrued and unpaid
interest thereon to the redemption date
with the Net Cash Proceeds (as defined
herein) of one or more Public Equity
Offerings (as defined herein) following
which there is a Public Market (as defined
herein), provided that at least 65.0% of
the original principal amount of the
Exchange Notes remains outstanding after
the occurrence of each such redemption and
each such redemption occurs within 60 days
following the closing of the related
Public Equity Offering.
Ranking:........................... The Exchange Notes will be general
unsecured obligations of the Company,
subordinated in right of payment to all
existing and future Senior Indebtedness of
the Company and its Subsidiaries and
senior in right of payment to any
subordinated Indebtedness of the Company.
The Exchange Notes will be effectively
subordinated to all existing and future
liabilities of the Company's Subsidiaries
that are not Note Guarantors (as defined
herein). As of December 27, 1997, after
giving effect to the Acquisition and the
financing thereof (including the
Offering), the Company and its
Subsidiaries would have had $397.1 million
aggregate principal amount of Senior
Indebtedness outstanding. See "Description
of the Exchange Notes -- Ranking of the
Exchange Notes."
Note Guarantees:................... The Notes will be unconditionally
guaranteed, on an unsecured senior
subordinated basis, by Galey & Lord
Industries, Inc., G&L Service Company,
North America, Inc., Swift Textiles, Inc.,
Swift Denim Services, Inc. and all other
future direct and indirect Domestic
Restricted Subsidiaries of the Company.
The Note Guarantees will be subordinated
to all Senior Indebtedness of the
respective Note Guarantors. See
"Description of the Exchange Notes -- Note
Guarantees" and " -- Ranking of Note
Guarantees."
Change of Control:................. In the event of a Change of Control (as
defined herein), holders of the Exchange
Notes will have the right to require the
Company to purchase their Exchange Notes
at 101% of the aggregate principal amount
thereof plus accrued and unpaid interest
thereon to the purchase date. See
"Description of the Exchange Notes --
Change of Control."
8
<PAGE>
<CAPTION>
<S> <C>
Asset Sale Proceeds:............... The Company is obligated in certain
instances to make offers to purchase the
Exchange Notes at a purchase price in cash
equal to 100% of the principal amount
thereof plus accrued and unpaid interest
thereon to the purchase date with the Net
Available Cash (as defined herein) from
certain asset sales. See "Description of
the Exchange Notes -- Limitation on Sales
of Assets and Subsidiary Stock."
Certain Covenants:................. The Indenture pursuant to which the
Exchange Notes will be issued will contain
covenants for the benefit of the holders
of Exchange Notes that, among other
things, restrict the ability of the
Company and its Restricted Subsidiaries
(as defined herein) to: (i) incur
additional Indebtedness, (ii) pay
dividends or make distributions, (iii)
incur liens, (iv) transfer or sell assets,
(v) enter into transactions with
affiliates, (vi) issue or sell stock of
Restricted Subsidiaries or (vii) merge or
consolidate the Company or Restricted
Subsidiaries. See "Description of the
Exchange Notes -- Certain Covenants."
Absence of Public Market:.......... The Initial Notes are designated for
trading in the PORTAL market. There is no
established trading market for the
Exchange Notes. The Company does not
currently intend to list the Exchange
Notes on any securities exchange or to
seek approval for quotation through any
automated quotation system. Accordingly,
there can be no assurance as to the
development or liquidity of any market for
the Exchange Notes. The certificates
representing the Exchange Notes will be
issued in fully registered form.
RISK FACTORS
Holders of the Initial Notes should carefully consider the matters set
forth under "Risk Factors," as well as the other information and financial
statements and data included in this Prospectus, prior to tendering Initial
Notes in the Exchange Offer.
</TABLE>
9
<PAGE>
SUMMARY FINANCIAL DATA
SUMMARY UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION OF THE COMPANY
The following unaudited pro forma combined financial information gives
effect to the Acquisition and the financing thereof (including the Offering) as
if they had occurred at December 27, 1997, in the case of the Unaudited Pro
Forma Combined Balance Sheet Data of the Company, and at the beginning of each
of the periods presented in the case of the Unaudited Pro Forma Combined
Statement of Operations Data and Other Data of the Company. The pro forma
combined financial information is presented for illustrative purposes only and
is not necessarily indicative of what the Company's actual financial position
or results of operations would have been had the Acquisition and the financing
thereof occurred as of the above-referenced dates or of the financial position
or results of operations that may be reported by the Company in the future. The
pro forma combined financial information should be read in conjunction with the
historical consolidated financial statements of Galey & Lord and the historical
combined financial statements of the Acquired Business, the notes thereto and
the other information contained elsewhere in this Prospectus. Such financial
information has been derived from Galey & Lord's audited financial statements
for its fiscal year ended September 27, 1997 and its unaudited financial
statements for the three months ended December 27, 1997 and from the Acquired
Business' combined audited financial statements for its fiscal year ended June
30, 1997 and its unaudited financial statements for the three months ended
September 30, 1996 and 1997 and the three months ended December 31, 1997. See
"Unaudited Pro Forma Combined Financial Information of the Company," "Selected
Historical Financial Information of Galey & Lord," "Selected Historical
Financial Information of the Acquired Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Index to
Financial Statements."
<TABLE>
<CAPTION>
Pro Forma
-----------------------------------------
Three
Year Ended Months Ended
September 27, 1997 December 27, 1997
-------------------- ------------------
Statement of Operations Data: (in thousands)
<S> <C> <C>
Net sales ........................................................... $1,103,583 $261,343
Cost of sales ....................................................... 981,643 234,848
Restructuring ....................................................... 17,816 --
---------- --------
Gross profit ........................................................ 104,124 26,495
Selling, general and administrative expenses ........................ 56,508 11,226
Amortization of goodwill ............................................ 4,381 1,096
---------- --------
Operating income .................................................... 43,235 14,173
Interest expense .................................................... 58,815 15,591
Other expense (income), net ......................................... (456) 2,060
Costs related to the change in control .............................. -- 1,959
Share in net income of associated companies ......................... 6,038 638
---------- --------
Income (loss) before income taxes ................................... (9,086) (4,799)
Income tax expense (benefit) ........................................ (5,369) (3,007)
---------- --------
Net income (loss) ................................................... $ (3,717) $ (1,792)
========== ========
Other Data:
Depreciation and amortization ....................................... $ 46,179 $ 11,953
Capital expenditures ................................................ 52,957 10,984
Pro forma EBITDA (1) ................................................ 117,068 26,861
Adjusted Pro Forma EBITDA (2) ....................................... 137,413 30,612
Cash interest expense ............................................... 56,117 14,717
Ratio of total debt to Adjusted Pro Forma EBITDA .................... 4.89x 5.69x
Ratio of Adjusted Pro Forma EBITDA to cash interest expense ......... 2.45x 2.08x
Ratio of earnings to fixed charges (3) .............................. -- --
</TABLE>
<TABLE>
<CAPTION>
As of December 27,
1997
-------------------
<S> <C>
(in thousands)
Balance Sheet Data:
Working capital ............................... $ 282,627
Total assets .................................. 1,031,024
Long-term debt (less current portion) ......... 690,661
Total debt .................................... 697,082
Stockholders' equity .......................... 103,786
</TABLE>
10
<PAGE>
- ----------
(1) EBITDA is defined as income (loss) before income taxes, interest expense,
other (income) expense, depreciation and amortization expense, noncash
compensation expense, write-off of merger costs, Bridge Financing Facility
interest expense, loss on foreign currency hedges, costs related to the
change of control and provision for restructuring. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness; however, EBITDA should not be
considered as an alternative to net income (loss) as a measure of
operating results or to cash flows as a measure of liquidity in accordance
with generally accepted accounting principles. Pro forma EBITDA is
calculated as follows:
<TABLE>
<CAPTION>
Three
Year Ended Months Ended
September 27, 1997 December 27, 1997
-------------------- ------------------
<S> <C> <C>
Historical EBITDA ....................................... $104,407 $24,002
Pro forma adjustments:
Duplicative corporate overhead expense(a) ............ 10,196 2,243
Duplicative Swift overhead expense(b) ................ 3,365 841
Additional Galey & Lord overhead expenses(c) ......... (900) (225)
-------- -------
Total pro forma adjustments ....................... 12,661 2,859
-------- -------
Pro forma EBITDA ........................................ $117,068 $26,861
======== =======
</TABLE>
----------
(a) Reflects the elimination of corporate historical overhead expenses
allocated to the Acquired Business.
(b) Reflects the elimination of certain overhead functions performed by
Swift that will be performed by the corporate function at the Company.
(c) Reflects additional corporate overhead expenses expected to be incurred
by the Company as a result of the Acquisition.
(2) The Company believes the following additional adjustments are relevant to
evaluating its future operating performance. The following additional
adjustments, which eliminate the impact of certain nonrecurring charges
and reflect the estimated impact of business and operating strategy, are
based on estimates and assumptions made and believed to be reasonable by
the Company and are inherently uncertain and subject to change. There can
be no assurance that the estimated impact of the Company's business and
operating strategy will be realized or that there will not be delays in
achieving the estimated improvements or enhancements described below. The
following calculation should not be viewed as indicative of actual or
future results. The following table reflects the effects of these items:
<TABLE>
<CAPTION>
Three
Year Ended Months Ended
September 27, 1997 December 27, 1997
-------------------- ------------------
<S> <C> <C>
Pro forma EBITDA ..................................... $117,068 $26,861
Additional adjustments:
Tralee savings(a) .................................. 6,500 1,625
Swift savings(b) ................................... 5,521 --
Other personnel reductions(c) ...................... 1,273 318
Exclude Home Fashion Fabrics (as defined herein) bad
debt(d) .......................................... 2,988 --
Society Hill improvements(e) ....................... 4,063 1,808
-------- -------
Total additional adjustments .................... 20,345 3,751
-------- -------
Adjusted Pro Forma EBITDA ............................ $137,413 $30,612
======== =======
</TABLE>
----------
(a) In October 1997, the Acquired Business' plant located in Tralee,
Ireland was closed. This adjustment gives effect to the lower cost of
materials that the Company anticipates will be realized from the
purchase of materials from third party suppliers rather than having
materials produced at the Tralee, Ireland plant.
(b) This adjustment gives effect to cost reductions at Swift which the
Company believes can be realized from reductions in personnel beyond
those taken into account in calculating pro forma EBITDA and from
savings realized from purchasing materials at lower costs. As of the
date of this Memorandum, these additional savings are being realized.
(c) This adjustment gives effect to cost reductions that the Company
believes can be derived from further Company wide reductions in
personnel which have not yet been specifically identified.
(d) This adjustment reflects the write off of a bad debt taken due to the
bankruptcy of a Home Fashion Fabrics customer. The Company believes
that this write off was unusual based on historic trends.
11
<PAGE>
(e) This adjustment gives effect to the improvements in operating
efficiencies at the Company's Society Hill, South Carolina plant, which
the Company believes will be realized as a result of the addition of a
new continuous dye-range at this plant in January 1998.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before taxes plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (which includes
amortization of deferred financing costs), whether expensed or
capitalized, and that portion of rental expense estimated to be
attributable to interest. For the fiscal year ended September 27, 1997 and
the three months ended December 27, 1997, the Company's pro forma earnings
were insufficient to cover pro forma fixed charges by $9,086 and $4,799
respectively.
12
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical financial information at the end of and
for each of the fiscal years ended September 30, 1995, September 28, 1996 and
September 27, 1997 with respect to Galey & Lord and June 30, 1995, 1996 and
1997 with respect to the Acquired Business has been derived from audited
financial statements contained elsewhere in this Prospectus, except for the
June 30, 1995 balance sheet of the Acquired Business which has been derived
from the audited financial statements of Dominion, and should be read in
conjunction with such financial statements and the notes thereto and the other
financial information contained elsewhere herein. The summary historical
financial information at the end of and for the three month periods ended
December 28, 1996 and December 27, 1997 with respect to Galey & Lord and at the
end of and for the six month periods ended December 31, 1996 and 1997 with
respect to the Acquired Business has been derived from unaudited financial
statements contained elsewhere in this Prospectus except for the Acquired
Business' December 31, 1996 balance sheet which has been derived from the
unaudited financial statements of Dominion, and, in the opinion of the
Company's management, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation, in all material
respects, of the results of operations and financial position at the end of and
for each of the interim periods presented. Interim period results are not
necessarily indicative of results to be expected for a complete fiscal year.
See "Available Information," "Selected Historical Financial Information of
Galey & Lord," "Selected Historical Financial Information of the Acquired
Business," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Index to Financial Statements."
13
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION OF GALEY & LORD
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Year Ended Three Months Ended
--------------------------------------------------- ------------------------------
September 30, September 28, September 27, December 28, December 27,
1995(2) 1996(3) 1997(4) 1996 1997
--------------- --------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data(1):
Net sales ......................... $502,220 $ 411,455 $ 493,362 $ 110,928 $127,147
Cost of sales ..................... 451,314 367,992 439,207 98,360 117,351
-------- --------- --------- --------- --------
Gross profit ...................... 50,906 43,463 54,155 12,568 9,796
Selling, general and adminis-
trative expenses ................ 15,877 13,526 18,123 3,361 3,387
Amortization of goodwill .......... 1,119 1,298 1,679 418 421
Business closing charge ........... 12,065 -- -- -- --
-------- --------- --------- --------- --------
Operating income .................. 21,845 28,639 34,353 8,789 5,988
Interest expense .................. 13,103 11,579 12,326 3,052 3,500
Bridge Financing Facility
interest expense ................ -- -- -- -- 379
Write-off of merger costs ......... -- 1,600 -- -- --
Loss on foreign currency
hedges .......................... -- -- -- -- 2,745
-------- --------- --------- --------- --------
Income (loss) before income
taxes and extraordinary
items ........................... 8,742 15,460 22,027 5,737 (636)
Income tax expense
(benefit) ....................... 3,390 5,982 8,350 2,215 (526)
-------- --------- --------- --------- --------
Income (loss) before
extraordinary items and
accounting change ............... 5,352 9,478 13,677 3,522 (110)
Extraordinary items ............... (1,342) -- -- -- (524)
-------- --------- --------- --------- --------
Net income (loss) ................. $ 4,010 $ 9,478 $ 13,677 $ 3,522 $ (634)
======== ========= ========= ========= ========
Basic earnings per
share (5):
Earnings (loss) before
extraordinary items ............. $ .45 $ .81 $ 1.18 $ .30 $ (.01)
======== ========= ========= ========= ========
Average common shares
outstanding ..................... 11,744 11,699 11,610 11,576 11,664
======== ========= ========= ========= ========
Diluted earnings per
share (5):
Earnings (loss) before
extraordinary items ............. $ .44 $ .80 $ 1.14 $ .30 $ (.01)
======== ========= ========= ========= ========
Average common shares
outstanding ..................... 12,037 11,910 11,986 11,839 11,664
======== ========= ========= ========= ========
Other Data:
Depreciation and
amortization .................... $ 11,024 $ 11,638 $ 15,183 $ 3,611 $ 4,119
Capital expenditures .............. 14,795 13,524 36,626 5,747 8,086
EBITDA (6) ........................ 44,934 40,535 50,086 12,515 10,204
EBITDA margin ..................... 8.9% 9.9% 10.2% 11.3% 8.0%
Ratio of earnings to fixed
charges (7) ..................... 1.62x 2.19x 2.56x 2.64x --
Balance Sheet Data:
(at period end)
Working capital ................... $135,011 $107,679 $130,505 $123,407 $163,269
Total assets ...................... 305,039 304,876 349,191 315,629 5 13,671
Long-term debt .................... 162,084 149,265 176,755 162,846 360,004
Stockholder's equity .............. 81,879 89,645 104,317 93,282 103,786
</TABLE>
14
<PAGE>
- ----------
(1) Galey & Lord uses a 52-53 week fiscal year. All fiscal years presented were
52-week years.
(2) Includes the business closing charge related to closing Galey & Lord's
printed apparel fabrics businesses. See Note C to Galey & Lord's
consolidated financial statements.
(3) Includes the write-off of merger costs associated with the termination of
the previously announced merger of Galey & Lord and the Graniteville
Company.
(4) Selling, general and administrative expenses include a $3.0 million pre-tax
charge taken due to the bankruptcy of a Home Fashion Fabrics customer.
(5) The earnings per share accounts have been restated as required to comply
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share". For further discussion, see Note J to Galey & Lord's financial
statements for the year ended September 27, 1997.
(6) EBITDA is defined as income (loss) before income taxes, interest expense,
other (income) expense, depreciation and amortization expense, noncash
compensation expense, write-off of merger costs, Bridge Financing Facility
interest expense, loss on foreign currency hedges, costs related to the
change of control and provision for restructuring. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness; however, EBITDA should not be
considered as an alternative to net income (loss) as a measure of
operating results or to cash flows as a measure of liquidity in accordance
with generally accepted accounting principles.
(7) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before income taxes plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense (which
includes amortization of deferred financing costs), whether expensed or
capitalized, and that portion of rental expense estimated to be
attributable to interest. For the three months ended December 27, 1997,
earnings were insufficient to cover fixed charges by $636.
15
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION OF THE ACQUIRED BUSINESS
(in thousands)
<TABLE>
<CAPTION>
Year Ended Six Months Ended
------------------------------------------ ----------------------------------
June 30, June 30, June 30, December 31, December 31,
1995 1996 1997 1996 1997
------------ ------------ ---------------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ........................................ $633,690 $650,863 $ 610,573 $304,875 $ 286,364
Cost of sales .................................... 529,724 577,239 552,670 (1) 273,626 250,731
Restructuring charges ............................ -- 3,558 17,816 -- --
-------- -------- ------------ -------- ----------
Gross profit ..................................... 103,966 70,066 40,087 31,249 35,633
Selling, general and administrative
expenses ........................................ 52,451 55,771 52,312 26,088 22,273
Amortization of goodwill ......................... 1,990 1,992 1,988 1,026 1,014
-------- -------- ------------ -------- ----------
Operating income (loss) .......................... 49,525 12,303 (14,213) 4,135 12,346
Interest expense, net ............................ 28,732 18,737 17,413 9,122 8,693
Other expense (income), net ...................... 1,497 712 74 1,158 (743)
Share in net income of associated
companies ....................................... (6,308) (8,326) (7,410) (3,983) (2,036)
Costs related to the change of control ........... -- -- -- -- 16,470
-------- -------- ------------ -------- ----------
Income (loss) before income taxes and
extraordinary items ............................. 25,604 1,180 (24,290) (2,162) (10,038)
Income tax expense (benefit) ..................... 6,577 (3,588) (10,184) (3,170) (2,717)
-------- -------- ------------ -------- ----------
Income (loss) before extraordinary items ......... 19,027 4,768 (14,106) 1,008 (7,321)
Extraordinary loss, net .......................... -- 2,223 -- -- --
-------- -------- ------------ -------- ----------
Net income (loss) ................................ $ 19,027 $ 2,545 $ (14,106) $ 1,008 $ (7,321)
======== ======== ============ ======== ==========
Other Data:
Depreciation and amortization .................... $ 32,143 $ 34,403 $ 35,471 $ 17,732 $ 16,709
Capital expenditures ............................. 27,062 52,580 17,164 7,005 6,379
EBITDA (2) ....................................... 87,976 58,590 49,734 25,850 31,091
EBITDA margin .................................... 13.9% 9.0% 8.2% 8.5% 10.9%
Ratio of earnings to fixed charges (3) ........... 1.85x 1.06x -- -- --
Balance Sheet Data:
(at period end)
Working capital .................................. $173,881 $184,973 $ 171,566 $184,347 $ (47,834)(4)
Total assets ..................................... 626,273 632,952 591,113 607,904 529,979
Long-term debt ................................... 233,325 247,897 197,972 202,009 144 (4)
Stockholders' equity ............................. 210,640 211,638 221,513 256,260 196,193
</TABLE>
- ----------
(1) Includes $3,250 of restructuring charges recorded in cost of sales.
(2) EBITDA is defined as income (loss) before income taxes, interest expense,
other (income) expense, depreciation and amortization expense, noncash
compensation expense, write-off of merger costs, Bridge Financing Facility
interest expense, loss on foreign currency hedges, costs related to the
change of control and provision for restructuring. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness; however, EBITDA should not be
considered as an alternative to net income (loss) as a measure of
operating results or to cash flows as a measure of liquidity in accordance
with generally accepted accounting principles.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before income taxes plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense (which
includes amortization of deferred financing costs), whether expensed or
capitalized, and that portion of rental expense estimated to be
attributable to interest. For the year ended June 30, 1997 and the six
months ended December 31, 1996 and 1997, earnings were insufficient to
cover fixed charges by $24,290, $2,162 and $10,038, respectively.
(4) Reflects the reclassification to short-term indebtedness of long-term
indebtedness that was retired in January 1998.
16
<PAGE>
RISK FACTORS
In addition to the other information set forth and incorporated by
reference herein, holders of Initial Notes should carefully consider the
following information in evaluating the Company and its business prior to
tendering Initial Notes in the Exchange Offer.
Substantial Leverage
The Company has substantial indebtedness and, as a result, significant
debt service obligations. As of December 27, 1997, after giving pro forma
effect to the Acquisition and the financing thereof (including the Initial
Notes Offering), the Company would have had approximately $697.1 million of
indebtedness, which would have represented 87.0% of its total capitalization,
and would have had approximately $75.4 million of additional borrowing
availability under the Senior Credit Facility. See "Pro Forma Capitalization of
the Company." In addition, the Indenture and the Company's other debt
instruments allow the Company to incur additional indebtedness under certain
circumstances. The ability of the Company to make payments with respect to the
Exchange Notes and to satisfy its other debt obligations will depend on the
Company's future operating performance, which will be affected by prevailing
economic conditions and financial, business and other factors, certain of which
are beyond the Company's control.
As a result of the financing of the Acquisition, the Company's interest
expense will increase compared to prior years. The Company believes, based on
current circumstances, that the Company's cash flow, together with available
borrowings under the Senior Credit Facility, will be sufficient to permit the
Company to meet its operating expenses and to service its debt requirements as
they become due for the foreseeable future. Significant assumptions underlie
this belief, including, among other things, that the Company will succeed in
implementing its business strategy and that there will be no material adverse
developments in the business, liquidity or capital requirements of the Company.
If the Company is unable to service its indebtedness, it will be required to
adopt alternative strategies, which may include actions such as reducing or
delaying capital expenditures, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms.
The degree to which the Company is leveraged could have important
consequences to holders of the Exchange Notes, including (i) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flows from
operations may be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for its
operations; (iii) certain of the Company's indebtedness contain financial and
other restrictive covenants, including those restricting the incurrence of
additional indebtedness, the creation of liens, the payment of dividends, sales
of assets and minimum net worth requirements; (iv) certain of the Company's
borrowings are and will continue to be at variable rates of interest which
exposes the Company to the risk of greater interest rates; (v) the Company may
be more leveraged than certain of its competitors, which may place the Company
at a relative competitive disadvantage; and (vi) the Company's high degree of
indebtedness could make it more vulnerable in the event of a downturn in its
business. As a result of the Company's level of indebtedness, its financial
capacity to respond to market conditions, extraordinary capital needs and other
factors may be limited.
Subordination
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Exchange Notes will be subordinated to the
prior payment in full of all existing and future Senior Indebtedness of the
Company, including all amounts owing under the Senior Credit Facility. The
Exchange Notes will be effectively subordinated to all existing and future
liabilities of the Company's Subsidiaries that are not Note Guarantors. As of
December 27, 1997, after giving pro forma effect to the Acquisition and the
financing thereof (including the Initial Notes Offering), the aggregate amount
of such Senior Indebtedness of the Company would have been approximately $397.1
million, including secured debt outstanding under the Senior Credit Facility.
In addition, the Company would have had approximately $75.4 million of
additional borrowing availability under the Senior Credit Facility.
Consequently, in the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding with respect to Galey & Lord or any of the
Note Guarantors, assets of Galey & Lord or such Note Guarantor, as the case may
be, will be available to pay obligations under the Exchange Notes or the Note
17
<PAGE>
Guarantee of such Note Guarantor, as the case may be, only after all Senior
Indebtedness has been paid in full, and there can be no assurance that there
will be sufficient assets to pay amounts due on all or any of the Exchange
Notes or Note Guarantees, as the case may be. In addition, under certain
circumstances, Galey & Lord and the Note Guarantors may be prohibited by the
Indenture from paying amounts due in respect of the Exchange Notes or the Note
Guarantees, or from purchasing, redeeming or otherwise acquiring Exchange
Notes, if a payment or non-payment default exists with respect to certain
Senior Indebtedness. See "Description of the Exchange Notes -- Ranking of the
Exchange Notes" and "Description of the Exchange Notes -- Ranking of Note
Guarantees."
Restrictions Imposed by the Senior Credit Facility and the Indenture
The Senior Credit Facility and the Indenture contain a number of
significant covenants that, among other things, limit or restrict the ability
of the Company to dispose of assets, incur additional indebtedness, repay other
indebtedness, pay dividends, enter into certain investments or acquisitions,
repurchase or redeem capital stock, engage in mergers or consolidations, or
engage in certain transactions with subsidiaries and affiliates and otherwise
restrict corporate activities. There can be no assurance that such limitations
and restrictions will not adversely affect the Company's ability to finance its
future operations or capital needs or engage in other business activities that
may be in the interest of the Company. In addition, the Senior Credit Facility
also requires the Company to maintain compliance with certain financial ratios.
The ability of the Company to comply with such ratios may be affected by events
beyond the Company's control. A breach of any of these covenants or the
inability of the Company to comply with the required financial ratios could
result in a default under the Senior Credit Facility. In the event of any such
default, the lenders under the Senior Credit Facility could elect to declare
all borrowings outstanding under the Senior Credit Facility together with
accrued interest and other fees, to be due and payable, to require the Company
to apply all of its available cash to repay such borrowings or to prevent the
Company from making debt service payments on the Exchange Notes. If the Company
were unable to repay any such borrowings when due, the lenders could proceed
against their collateral. If the indebtedness under the Senior Credit Facility
or the Exchange Notes were to be accelerated, there can be no assurance that
the assets of the Company would be sufficient to repay such indebtedness in
full. See "Description of the Exchange Notes" and "Description of Senior Credit
Facility."
Holding Company Structure; Limitations on Access to Cash Flow
The Company conducts all of its operations through subsidiaries.
Accordingly, the primary internal source of the Company's cash and its ability
to service debt, including the Exchange Notes, are dependent upon the earnings
of its Subsidiaries and the distribution of those earnings to, or upon loans or
other payments of funds by those Subsidiaries to, the Company. The Company may
not be able to compel certain of its Subsidiaries to make distributions to
service the Exchange Notes. Because the Company is an equity holder of each of
its Subsidiaries, the Company's claims as such will generally rank junior to
all other creditors of and claimants against its Subsidiaries. However, all of
the Company's currently existing domestic Subsidiaries have guaranteed the
Exchange Notes and all other future domestic Subsidiaries that are designated
by the Company as Restricted Subsidiaries (as defined herein) are required to
guarantee the Exchange Notes. Other Subsidiaries of the Company, including its
foreign Subsidiaries, are not required to guarantee the Exchange Notes, and the
Company's existing foreign Subsidiaries have not provided any such guarantees.
Risks Relating to the Acquisition
The Acquisition has significantly increased the size of the Company's
operations which has substantially increased the demands placed upon the
Company's management, including demands resulting from the need to integrate
the accounting systems, management information systems and other operations of
the Acquired Business with those of the Company. Successful integration of the
Acquired Business' operations will depend primarily on the Company's ability to
manage effectively the Acquired Business' manufacturing operations and to
eliminate redundancies and excess costs. The success of the Company's
integration of the Acquired Business may depend on the retention of certain
current management personnel of the Acquired Business. There can be no
assurance that such individuals will remain with the Company. The integration
of the Acquired Business may result in unforeseen difficulties that require a
disproportionate amount of management's attention and the Company's resources.
There can be no assurance that the Company will be able to integrate
effectively the operations of the Acquired Business. Failure to integrate
effectively the operations of the Acquired Business with those of the Company
would have a material adverse effect on the Company.
18
<PAGE>
Cyclical and Competitive Nature of Textile Industry
Demand for textile products, including those offered by the Company both
prior to and following consummation of the Acquisition, tends to fluctuate with
the general business cycle of the U.S. economy. In addition, the popularity,
supply and demand for particular textile products may change significantly from
year to year based on prevailing fashion trends and other factors. These
factors have contributed to fluctuations in the sales and profitability of
certain textile products and in the Company's results of operations. A decline
in the demand for textile products, an increase in the supply of textile
products due to expansion of capacity within the domestic or foreign textile
industry, changes in fashion trends or deteriorating economic conditions could
have a material adverse effect on the Company's results of operations and
financial condition.
The textile industry is highly competitive. The Company's competitors
include large, vertically integrated textile companies and numerous smaller
companies. Increases in domestic capacity and imports of foreign-made textile
and apparel products are a source of significant competition. Competition in
the form of imported textile and apparel products, pricing strategies of
domestic and global competitors and the proliferation of newly styled fabrics
competing for fashion acceptance have been factors affecting the Company's
business environment. The primary competitive factors in the textile industry
are quality, price, manufacturing flexibility, delivery time, customer service,
product styling and differentiation. Competition among U.S. and foreign
manufacturers is also affected by changing relative labor and raw material
costs, lead times, political instability and infrastructure deficiencies of
newly industrialized countries, ecological concerns, human resource laws,
fluctuating currency exchange rates, individual government policies, and
international agreements regarding textile and apparel trade. The importance of
these factors is determined by the needs of particular customers and the
characteristics of particular products. The failure of the Company to compete
effectively with respect to any of these key factors or to keep pace with
rapidly changing markets could have a material adverse effect on the Company's
business. See "Business -- Competition."
Raw Material Price Volatility and Availability
The Company's principal raw materials are cotton and polyester. The price
of cotton is subject to the quantity of plantings, crop and weather conditions,
agricultural policies, domestic uses, exports and market conditions. The price
of polyester is determined by supply and demand and other uses of the petroleum
used to produce polyester. Accordingly, the costs of the Company's raw
materials fluctuate significantly from time to time. While the Company
continually strives to reduce its raw material costs, such efforts may not
always be sufficient to offset price increases in these raw materials.
Moreover, no assurance can be given that the Company will be able to pass any
cost increases on to its customers. The Company typically does not engage in
hedging transactions with respect to raw material purchases. Failure to engage
in such hedging transactions may result in increased raw material price
volatility. There can be no assurance that, in the event the Company engages in
hedging transactions with respect to raw material purchases in the future, such
transactions would ameliorate raw material price volatility or that such
transactions would not result in trading losses. Although the Company believes
that sources of its principal raw materials will continue to be adequate to
meet requirements and that alternative sources are available, it is possible
that events beyond its control could have an adverse effect on the cost or
availability of raw materials. See "Business -- Raw Materials and Services."
Government Policy; Import Regulations
U.S. agricultural policies affect both the availability and price of
cotton. To the extent these policies change, there may be an adverse effect on
the Company.
The extent of import protection afforded by the U.S. government to
domestic textile producers has been, and is likely to remain, subject to
considerable domestic political deliberation. In view of the number of foreign
producers of textile products that compete with certain of the Company's
products and the labor cost advantages enjoyed by many of them, substantial
elimination of import protection for domestic textile manufacturers could have
a material adverse effect on the Company's business. In January 1995, a new
multilateral trade organization, the World Trade Organization ("WTO"), was
formed by the members of the General Agreement on Tariffs and Trade ("GATT").
The WTO's Agreement on Textiles and Clothing (the "ATC") requires WTO members
to integrate textile and apparel products fully into GATT and to phase out
quotas and reduce tariffs on these items
19
<PAGE>
over a ten-year period ending December 2004. The selection of products at each
phase is made by each importing country and must be drawn from each of the four
main textile groups: tops and yarns, fabrics, made-up textile products and
clothing. The elimination of quotas and the reduction of tariffs under the ATC
may result in increased imports of certain textile products and apparel into
North America. These factors could make the Company's products less competitive
against low cost imports from third world countries. See "Business --
Competition."
The North American Free Trade Agreement ("NAFTA"), which became effective
January 1, 1994, will phase out duties and eliminate quotas on certain textile
and apparel products shipped between Mexico, the U.S. and Canada that meet
certain origin criteria. NAFTA's yarn forward rule of origin assures that only
those textile and apparel products produced in NAFTA countries benefit from the
phasing out of duties and quotas. In addition, many of the Company's customers
take advantage of the U.S. "807" and "807A" tariff programs. These programs
accord favorable duty and, in certain instances, quota treatment to garments
assembled offshore. There can be no assurance that changes to these trade laws
will not have a material adverse effect on the Company's results of operations
and financial condition. See "Business -- Industry Trends" and "Business --
Competition."
Reliance on Significant Customers
Levi's, which historically has been a significant customer of the Company,
accounted for approximately 21.6% of Galey & Lord's net sales in fiscal 1997
and 21.1% of the Acquired Business' net sales in the twelve months ended
September 30, 1997. Pro forma for the Acquisition, Levi's would have accounted
for 21.4% of the Company's net sales in fiscal 1997. No other single customer
accounted for more than 8% of the Company's net sales in these periods.
Although the loss of Levi's as a customer, or a significant reduction in its
purchases from the Company, could have a material adverse effect on the
Company's business, the fabric purchasing decisions at the Levi's jeans,
Dockers and Slates divisions of Levi's are made independently of each other,
and the loss of business from any one division would not necessarily affect the
Company's orders from other divisions.
Devaluation and Currency Risks
As a result of the Acquisition, an increasing portion of the Company's
revenues and expenses will be denominated in non-U.S. currencies. Periodically,
the Company hedges against foreign currency risks. Because of the Company's
constantly changing currency exposure and the fact that all foreign currencies
do not fluctuate in the same manner against the U.S. dollar, the Company cannot
quantify the effect of exchange rate fluctuations on its future financial
condition or results of operations.
Foreign Sales and Operations Risks
As a result of the Acquisition, an increasing portion of the Company's
revenues is attributable to foreign sales and operations. The Company's
business in foreign markets is subject to the risks customarily associated with
such activities, including currency fluctuations, economic, tax and regulatory
policies of local governments and the laws and policies of the U.S. affecting
foreign trade and investment. Earnings of the Company's foreign Subsidiaries
are subject to foreign income taxes that could reduce cash flow available to
meet required debt service and other obligations of the Company.
Risk of Environmental Liability; Other Governmental Regulations
The Company is subject to federal, state and local laws, regulations,
ordinances and requirements in the various countries in which it operates and
to certain agreements with government authorities that (i) govern activities or
operations involving discharges to the environment, as well as storage,
handling and disposal practices for solid and hazardous wastes and substances
and (ii) impose liability for the costs of remediating sites of past spills,
disposals or other releases of hazardous materials (together, "Environmental
Laws"). Under applicable Environmental Laws, the Company may be responsible for
remediation of environmental conditions and may be subject to associated
liabilities relating to its facilities and the land on which its facilities are
or had been situated, regardless of whether the Company leases or owns the
facilities or land in question and regardless of whether such environmental
conditions were created by the Company or by a prior owner or tenant. The
Company is currently participating in two such remediation efforts, the
aggregate costs of which are not expected to be material. While the Company
believes that it is in material compliance with applicable Environmental Laws,
20
<PAGE>
there can be no assurance that any failure to comply, or compliance in the
future, with such Environmental Laws or liabilities arising under such
Environmental Laws will not have a material adverse effect on the Company's
business, financial condition or results of operations. See "Business --
Government Regulation."
The operations of the Company are also governed by laws and regulations
relating to workplace safety and worker health which, among other things,
establish cotton dust, formaldehyde, asbestos and noise standards and regulate
the use of hazardous chemicals in the workplace. While the Company believes
that it is in material compliance with applicable laws and regulations relating
to workplace safety and worker health, there can be no assurance that
compliance with the foregoing environmental or health and safety laws and
regulations will not adversely affect the Company's operations. The Company
cannot predict what environmental or health and safety legislation or
regulations will be enacted in the future or how existing or future laws or
regulations will be enforced, administered or interpreted, nor can it predict
the amount of future expenditures which may be required in order to comply with
any such environmental or health and safety laws or regulations. See "Business
- -- Government Regulation."
Potential Inability to Repurchase Exchange Notes Upon a Change of Control
Upon the occurrence of a Change of Control, each holder of the Exchange
Notes may require the Company to purchase all or a portion of such holder's
Exchange Notes at a purchase price of 101% of the principal amount of the
Exchange Notes, together with accrued or unpaid interest, if any, to the
purchase date. In such circumstances, the Company may be required to (i) repay
all or a portion of the outstanding principal of, and pay any accrued interest
on, its Senior Indebtedness, including indebtedness under the Senior Credit
Facility or (ii) obtain any requisite consent from its lenders to permit the
purchase of the Exchange Notes. If the Company is unable to repay all of such
indebtedness or is unable to obtain the necessary consents, the Company may be
unable to offer to purchase the Exchange Notes, which would constitute an Event
of Default under the Indenture. There can be no assurance that the Company will
have sufficient funds available at the time of any Change of Control to make
any debt payment (including purchases of the Exchange Notes) as described above
or that the Company would be able to refinance its outstanding indebtedness in
order to permit it to purchase the Exchange Notes or, if such refinancing were
to occur, that such financing would be on terms favorable to the Company. See
"Description of the Exchange Notes -- Change of Control."
The events that constitute a Change of Control under the Indenture may
also be events of default under the Senior Credit Facility or other Senior
Indebtedness of the Company. Such events may permit the holders under such debt
instruments to reduce the borrowing base thereunder or accelerate the debt and,
if the debt is not paid, to enforce security interests on, or commence
litigation that could ultimately result in a sale of, substantially all of the
assets of the Company, thereby limiting the Company's ability to raise cash to
purchase the Exchange Notes.
Fraudulent Conveyance
The incurrence by the Company of indebtedness such as the Exchange Notes
may be subject to review under relevant state and federal fraudulent conveyance
laws if a bankruptcy case or lawsuit is commenced by or on behalf of unpaid
creditors of the Company. Under these laws, if a court were to find that, after
giving effect to the sale of the Exchange Notes and the application of the net
proceeds therefrom, either (a) the Company incurred such indebtedness with the
intent of hindering, delaying or defrauding creditors or contemplated
insolvency with a design to prefer one or more creditors to the exclusion in
whole or in part of others or (b) the Company received less than reasonably
equivalent value or consideration for incurring such indebtedness and (i) was
insolvent or rendered insolvent by reason of such transaction, (ii) was engaged
in a business or transaction for which the assets remaining with the Company
constituted unreasonably small capital or (iii) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they
matured, such court may subordinate such indebtedness to presently existing and
future indebtedness of the Company, avoid the issuance of such indebtedness and
direct the repayment of any amounts paid thereunder to the Company's creditors
or take other action detrimental to the holders of such indebtedness.
The Company's obligations under the Exchange Notes will be guaranteed by
the Note Guarantors. The incurrence by a Note Guarantor of a Note Guarantee may
be subject to review under relevant state and federal fraudulent conveyance
laws if a bankruptcy case or lawsuit is commenced by or on behalf of unpaid
creditors
21
<PAGE>
of such Note Guarantor. Under these laws, if a court were to find that either
(a) a Note Guarantee was incurred by a Note Guarantor with the intent of
hindering, delaying or defrauding creditors or such Note Guarantor contemplated
insolvency with a desire to prefer one or more creditors to the exclusion in
whole or in part of others or (b) such Note Guarantor received less than
reasonably equivalent value or consideration for incurring such Note Guarantee
and (i) was insolvent or rendered insolvent by reason of such transaction, (ii)
was engaged in a business or transaction for which the assets remaining with
such Note Guarantor constituted unreasonably small capital or (iii) intended to
incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, such court may subordinate such Note Guarantee to
presently existing and future indebtedness of such Note Guarantor, avoid the
issuance of such Note Guarantee and direct the repayment of any amounts paid
thereunder to such Note Guarantor's creditors or take other action detrimental
to the holders of such Note Guarantee. A legal challenge of a Note Guarantee on
fraudulent conveyance grounds, may, among other things, focus on the benefits,
if any, realized by the Note Guarantor as a result of the issuance by the
Company of the Exchange Notes.
To the extent any Note Guarantee were avoided as a fraudulent conveyance
or held unenforceable for any other reason, holders of the Exchange Notes would
cease to have any claim in respect of such Note Guarantor and would be
creditors solely of the Company and any Note Guarantor whose Note Guarantee was
not avoided or held unenforceable. In such event, the claims of the holders of
the applicable Exchange Notes against the issuer of an invalid Note Guarantee
would be subject to the prior payment of all liabilities and preferred stock
claims of such Note Guarantor. There can be no assurance that, after providing
for all prior claims and preferred stock interests, if any, there would be
sufficient assets to satisfy the claims of the holders of the applicable
Exchange Notes relating to any voided portions of any of the Note Guarantees.
The measure of insolvency for purposes of determining whether a transfer
is avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured.
Based upon financial and other information currently available to it, the
Company believes that the indebtedness retired with the proceeds of the Initial
Notes Offering was, and the Exchange Notes and the Note Guarantees are being,
incurred for proper purposes and in good faith and that at the time it incurred
the indebtedness retired with the proceeds of the Initial Notes Offering the
Company was, and at the time the Exchange Notes and the Note Guarantees are
issued the Company and each Note Guarantor, as the case may be, will be (i)
neither insolvent nor rendered insolvent thereby, (ii) in possession of
sufficient capital to run its business effectively and (iii) incurring debts
within its ability to pay as the same mature or become due. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." In reaching these conclusions, the Company
has relied upon various valuations and estimates of future cash flow that
necessarily involve a number of assumptions and choices of methodology. No
assurance can be given, however, that the assumptions and methodologies chosen
by the Company would be adopted by a court or that a court would concur with
the Company's conclusions.
Consequences of a Failure to Exchange Initial Notes
The Initial Notes have not been registered under the Securities Act or any
state securities laws and therefore 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. Initial Notes
that 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 Initial Notes that remain
outstanding will not be entitled to any rights under the Registration Rights
Agreement that by their terms terminate or cease to have further effectiveness
as a result of the making of this Exchange Offer, including an increase in the
interest rates on the Initial Notes. The Company does not currently anticipate
that it will register the Initial Notes under the Securities Act.
The Initial Notes were issued to, and the Company believes are currently
owned by, a small number of beneficial owners. Although the Initial Notes have
been designated for trading in the PORTAL market, to the
22
<PAGE>
extent that Initial Notes are tendered and accepted in connection with the
Exchange Offer, any trading market for Initial Notes that remain outstanding
after the Exchange Offer could be adversely affected.
Absence of Public Market for the Exchange Notes
The Exchange Notes are being offered to the holders of the Initial Notes.
The Company does not intend to apply for a listing of the Exchange Notes on a
securities exchange. There is currently no established market for the Exchange
Notes and there can be no assurance as to the liquidity of markets that may
develop for the Exchange Notes, the ability of the holders of the Exchange
Notes to sell their Exchange Notes or the price at which such holders would be
able to sell their Exchange Notes. If such markets were to exist, the Exchange
Notes could trade at prices that may be lower than the initial market values
thereof depending on many factors, including prevailing interest rates and the
markets for similar securities.
The liquidity of, and trading market for, the Exchange Notes also may be
adversely affected by general declines in the market for similar securities.
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Notes
pursuant to the Exchange Offer. The Company incurred $275.0 million of
indebtedness under the Bridge Financing Facility dated as of December 19, 1997,
as amended on January 29, 1998, the proceeds of which were utilized to
partially finance the Acquisition. The Company applied the proceeds of the
Initial Notes Offering, estimated to be $289.3 million (net of the Initial
Purchaser's discount and estimated offering expenses), to repay (i) the Bridge
Financing Facility and (ii) a portion of the outstanding amount under the
revolving line of credit provided for under the Senior Credit Facility. The
Bridge Financing Facility was scheduled for maturity on December 19, 2007 and
bore interest at an initial rate equal to LIBOR plus 4.50% per annum, which
increased by .25% per annum each month commencing January 19, 1998 until the
repayment of the Bridge Financing Facility. The Senior Credit Facility
constituting term loans in an amount equal to $265.0 million and a revolving
line of credit of up to $225.0 million was used to refinance the Company's
prior senior credit facility with FUNB, to fund the Acquisition, to pay for
certain closing costs and expenses related to the Acquisition and for general
corporate and working capital purposes. At the time of the Initial Notes
Offering, the revolving line of credit, which expires on March 27, 2004, bore
interest at a weighted rate equal to 7.96% per annum.
23
<PAGE>
PRO FORMA CAPITALIZATION OF THE COMPANY
The following table sets forth the historical capitalization of each of
Galey & Lord and the Acquired Business as of December 27, 1997 and December 31,
1997, respectively, and the pro forma capitalization of the Company as of
December 27, 1997, adjusted to give effect to the Acquisition and the financing
thereof (including the Initial Notes Offering), as if the Acquisition and the
financing thereof had occurred at December 27, 1997.
The following table should be read in conjunction with the historical
financial statements of Galey & Lord and the Acquired Business, the unaudited
pro forma combined financial information, the notes thereto and the other
information contained elsewhere in this Prospectus. See "Available
Information," "Unaudited Pro Forma Combined Financial Information of the
Company," "Unaudited Pro Forma Combined Balance Sheet," "Unaudited Pro Forma
Combined Statement of Operations," "Selected Historical Financial Information
of Galey & Lord," "Selected Historical Financial Information of the Acquired
Business," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Index to Financial Statements."
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------ --------------------------------
Acquired
Galey & Lord Business Adjustments Combined
-------------- ------------- ------------------ -----------
(in thousands)
<S> <C> <C> <C> <C>
Short-term borrowings ........................ $ -- $ 789 $ -- $ 789
-------- ---------- ----------- --------
Long-term debt (including current portion):
Senior Credit Facility ...................... 206,300 -- 178,781 (1) 385,081
Bridge Financing Facility ................... 145,618 -- (145,618)(2) --
9 1/8% Senior Subordinated Notes ............ -- -- 300,000 (3) 300,000
South Carolina JEDA Bonds ................... 6,300 -- -- 6,300
Acquired Business' share in general corporate
long-term debt ............................. -- 189,557 (189,557)(4) --
Other long-term debt ........................ 3,217 1,695 -- 4,912
-------- ---------- ----------- --------
Total long-term debt ....................... 361,435 191,252 143,606 696,293
-------- ---------- ----------- --------
Stockholders' equity:
Common stock ................................ 121 -- -- 121
Additional paid-in capital .................. 35,980 355,285 (355,285)(5) 35,980
Retained earnings (deficit) ................. 69,932 (137,354) 137,354 (5) 69,932
Treasury stock .............................. (2,247) -- -- (2,247)
Currency translation adjustment ............. -- (21,738) 21,738 (5) --
-------- ---------- ----------- --------
Total stockholders' equity ................. 103,786 196,193 (196,193) 103,786
-------- ---------- ----------- --------
Total capitalization ..................... $465,221 $ 388,234 $ (52,587) $800,868
======== ========== =========== ========
</TABLE>
- ----------
(1) Represents additional borrowings under the Senior Credit Facility as part
of the funding for the Acquisition.
(2) Represents the repayment of the Bridge Financing Facility from the proceeds
of the Initial Notes.
(3) Represents the issuance of the Initial Notes.
(4) Represents the Acquired Business' share in long-term debt that was not
assumed by the Company.
(5) Represents the elimination of the Acquired Business' historical equity.
24
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE COMPANY
The following unaudited pro forma combined financial statements of the
Company give effect to the Acquisition and the financing thereof (including the
Initial Notes Offering) as if they had occurred at December 27, 1997 in the
case of the Unaudited Pro Forma Combined Balance Sheet and at the beginning of
each of the periods presented in the case of the Unaudited Pro Forma Combined
Statement of Operations. Such financial statements have been derived from Galey
& Lord's audited financial statements for its fiscal year ended September 27,
1997 and its unaudited financial statements for the three months ended December
27, 1997 and from the Acquired Business' combined audited financial statements
for its fiscal year ended June 30, 1997 and its unaudited financial statements
for the three months ended September 30, 1996, September 30, 1997 and December
31, 1997.
The Acquisition was accounted for using the purchase method of accounting.
The total cost of the Acquisition has been preliminarily allocated to the
assets acquired and liabilities assumed based upon their respective fair values
as determined through preliminary appraisals and internal estimates that the
Company believes are reasonable. The actual allocation of purchase cost,
however, and the resulting effect on income may differ from the pro forma
amounts included herein.
The following unaudited pro forma combined financial information is
presented for illustrative purposes only, does not purport to be indicative of
the Company's financial position or results of operations as of the date
hereof, or as of or for any other future date, and is not necessarily
indicative of what the Company's actual financial position or results of
operations would have been had the foregoing transactions occurred on December
27, 1997, September 28, 1997 or September 29, 1996, nor does it give effect to
(i) any transactions other than the foregoing transactions and those described
in the accompanying notes to unaudited pro forma combined financial information
of the Company or (ii) Galey & Lord's or the Acquired Business' results of
operations since December 27, 1997 and December 31, 1997, respectively.
The following unaudited pro forma combined financial information is based
upon the historical financial statements of Galey & Lord and the Acquired
Business and should be read in conjunction with such historical financial
statements, the notes thereto and the other information contained elsewhere in
this Prospectus. See "Available Information," "Selected Historical Financial
Information of Galey & Lord," "Selected Historical Financial Information of the
Acquired Business," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Index to Financial Statements."
25
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 27, 1997
(in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------- -------------------------------------
Galey & Lord Acquired Business
(December 27, 1997) (December 31, 1997) Adjustments Combined
--------------------- --------------------- ----------------------- -------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash ....................................... $ 6,198 $ 16,655 $ (3,238)(1) $ 19,615
Accounts receivable ........................ 87,043 109,601 (1,259)(1) 201,885
6,500 (2a)
Inventories ................................ 95,934 83,318 (3,030)(2b) 176,222
Income taxes receivable .................... 2,516 -- -- 2,516
Prepaid expenses and other current
assets ................................... 2,973 9,009 (3,446)(2c) 11,589
4,138 (2h)
(1,085)(1)
--------- -------- ------------ ---------
Total current assets ..................... 194,664 218,583 (1,420) 411,827
Property, plant and equipment, net ......... 133,779 229,885 61,316 (2d) 424,980
Note receivable ............................ 141,000 -- (141,000)(3a) --
Goodwill, net .............................. 37,567 61,077 (61,077)(2e) 145,658
108,091 (2)
Other assets, net .......................... 6,661 20,434 (858)(1) 48,559
9,639 (3b)
12,683 (2f)
--------- -------- ------------ ---------
Total assets ............................. $513,671 $ 529,979 $ (12,626) $1,031,024
======== ========== ============ ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings ...................... $ -- $ 789 $ -- $ 789
Accounts payable ........................... 21,440 25,306 -- 46,746
Accrued expenses ........................... 8,524 42,491 (3,807)(1) 72,324
25,116(2g)
Income taxes payable ....................... -- 6,723 (3,014)(1) 3,709
Current portion of long-term debt .......... 1,431 191,108 (189,557)(1) 5,632
2,650 (4)
-------- -------- ------------- ----------
Total current liabilities ................ 31,395 266,417 (168,612) 129,200
Long-term debt ............................. 360,004 144 330,513 (4) 690,661
Deferred income taxes ...................... 18,486 28,658 24,790 (2h) 71,934
Other non-current liabilities .............. -- 38,567 (3,124)(1) 35,443
-------- ---------- -------------- ----------
Total liabilities ........................ 409,885 333,786 183,567 927,238
-------- ---------- ------------ ----------
Stockholders' equity:
Common stock ............................... 121 -- -- 121
Additional paid-in capital ................. 35,980 355,285 (355,285)(5) 35,980
Retained earnings .......................... 69,932 (137,354) 137,354(5) 69,932
Treasury stock ............................. (2,247) -- -- (2,247)
Currency translation adjustment ............ -- (21,738) 21,738(5) --
-------- ---------- ------------ ----------
Total stockholders' equity ............... 103,786 196,193 (196,193) 103,786
-------- ---------- ------------ ----------
Total liabilities and stockholders'
equity .................................. $513,671 $ 529,979 $ (12,626) $1,031,024
======== ========== ============ ==========
</TABLE>
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(1) Certain assets and liabilities primarily related to the operations of the
corporate function of Dominion Textile Inc. were historically allocated to
the Acquired Business on a different basis than allocated pursuant to the
agreement by which the Acquisition was effected. The following adjusts
these allocations to that specified in the above described agreement.
<TABLE>
<S> <C> <C>
Historical net assets of the Acquired Business ......... $196,193
Adjustments to the net assets of the Acquired Business
Cash ................................................ (3,238)
Accounts receivable ................................. (1,259)
Other current assets ................................ (1,085)
Other assets, net ................................... (858)
Accrued expenses .................................... 3,807
Income taxes payable ................................ 3,014
Other non-current liabilities ....................... 3,124
------
Net adjustments ........................................ 3,505
Long-term debt not assumed ............................. 189,557
--------
Book value of net assets acquired ...................... $389,255
========
</TABLE>
(2) The Purchase Price has been preliminarily allocated as follows:
<TABLE>
<S> <C> <C>
Purchase Price ................................................ $464,524
Less net book value of assets acquired ........................ 389,255
--------
Excess of cost over net book value of assets acquired ......... $ 75,269
Adjustments to record assets and liabilities acquired at
estimated fair value:
Accounts receivable ........................................ 6,500 (a)
Inventory .................................................. (3,030)(b)
Deferred costs recorded in other current assets ............ (3,446)(c)
Property, plant and equipment .............................. 61,316 (d)
Intangibles ................................................ (61,077)(e)
Investments and advances ................................... 12,683 (f)
Accrued liabilities ........................................ (25,116)(g)
Deferred taxes ............................................. (20,652)(h)
32,822
--------
Excess of cost over fair value of net assets acquired
(goodwill) ................................................... $108,091
========
</TABLE>
(a) Represents a receivable from the seller of the Acquired Business for
certain shared tax benefits.
(b) Reflects the write-down of raw materials inventory to fair value.
(c) Reflects the adjustment to write off the unamortized balance of debt
issuance costs of the Acquired Business.
(d) Reflects a preliminary adjustment to record the Acquired Business' fixed
assets at fair value. The preliminary adjustment is based upon
preliminary appraisals and internal estimates and is allocated as
follows:
<TABLE>
<S> <C>
Land ............................ $14,720
Buildings ....................... 26,445
Machinery and Equipment ......... 20,151
-------
$61,316
=======
</TABLE>
(e) Reflects the write-off of the goodwill of the Acquired Business.
(f) Reflects the adjustment to record the joint venture investment at fair
value.
27
<PAGE>
(g) Reflects the assumption of the following liabilities:
<TABLE>
<S> <C>
Severance and other employee benefits ....................... $ 7,582
Acquisition related tax liabilities ......................... 2,800
Liability for unfavorable cotton commitments ................ 7,647
Future lease costs associated with facilities of the Acquired
Business that will no longer be used ....................... 3,318
Professional fees ........................................... 700
Other ....................................................... 3,069
-------
$25,116
=======
</TABLE>
(h) To record the deferred tax liability related to the temporary difference
between the financial statement carrying amount as adjusted and the tax
basis of the assets of the Acquired Business at an assumed income tax
rate of 38.8%. Of this amount, $4,138 was recorded as a current
deferred tax asset and $24,790 was recorded as a long-term deferred tax
liability.
(3) Reflects the adjustments to record the following:
<TABLE>
<S> <C> <C>
Additional borrowings under the Senior Credit Facility ......... $ 178,781
Gross proceeds from the issuance and sale of the
Initial Notes ................................................ 300,000
Total cash paid for the Acquired Business ...................... 464,524
Less: Amounts paid during the December quarter ................. (141,000)(a)
--------
Cash paid at closing ........................................... (323,524)
Repayment of the Bridge Financing Facility ..................... (145,618)
Financing costs ................................................ (9,639)(b)
---------
Net cash adjustment ............................................ --
=========
</TABLE>
(a) On December 19, 1997, Galey & Lord paid $141,000 to DT Acquisition, Inc.
("DTA"), an affiliate of Polymer Group, Inc, for funds to effect DTA's
initial acquisition of Dominion. In return, Galey & Lord received a
note from DTA that was to be canceled at the time the Acquisition was
consummated.
(b) Total financing costs incurred were $16,300 of which $6,661 were paid in
the December 1997 quarter.
(4) Reflects the adjustment to long-term debt for total debt outstanding
immediately after the Acquisition.
<TABLE>
<S> <C>
Additional borrowings under the Senior Credit Facility ........ $ 178,781
Gross proceeds from the issuance and sale of the
Initial Notes ................................................ 300,000
Less repayment of the Bridge Financing Facility ............... (145,618)
----------
Total adjustment to debt ...................................... 333,163
Adjustment to current portion of long-term debt ............... (2,650)
Adjustment to long-term debt .................................. $ (330,513)
----------
--
==========
</TABLE>
(5) Reflects the adjustment to eliminate the Acquired Business' net equity.
28
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Year Ended September 27, 1997
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
--------------------------------------------- ---------------------------------
Galey & Lord Acquired Business
(Year Ended (Year Ended
September 27, 1997) September 30, 1997) Adjustments Combined
--------------------- --------------------- ----------------- -------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ................................. $ 493,362 $ 610,221 $ -- $1,103,583
Cost of sales ............................. 439,207 547,631 (5,195)(1) 981,643
Restructuring charges ..................... -- 17,816 -- 17,816
--------- --------- ---------- ----------
Gross profit ............................. 54,155 44,774 5,195 104,124
Selling, general and administrative
expenses ................................. 18,123 51,046 (12,661)(2) 56,508
Amortization of goodwill .................. 1,679 1,987 715 (1) 4,381
--------- --------- ---------- ----------
Operating income (loss) .................. 34,353 (8,259) 17,141 43,235
Other (income) expense:
Interest expense, net .................... 12,326 17,055 29,434 (3) 58,815
Other expense (income), net .............. -- (456) -- (456)
Share in net income of associated
companies .............................. -- (6,669) 631 (4) (6,038)
--------- --------- ---------- ----------
Income (loss) before income taxes ......... 22,027 (18,189) (12,924) (9,086)
Income tax expense (benefit) .............. 8,350 (9,227) (4,492)(6) (5,369)
--------- --------- ---------- ----------
Net income (loss) ......................... $ 13,677 $ (8,962) $ (8,432) $ (3,717)
========= ========= ========== ==========
Basic earnings per share:
Earnings (loss) before
extraordinary items .................... $ 1.18 $ (.32)
========= ==========
Average common shares
outstanding ............................ 11,610 11,610
========= ==========
Diluted earnings per share:
Earnings (loss) before
extraordinary items .................... $ 1.14 $ (.32)
========= ==========
Average common shares
outstanding ............................ 11,986 11,610
========= ==========
Other Operating Data:
Depreciation and amortization ............. $ 15,183 $ 34,845 $ (3,849) $ 46,179
Capital expenditures ...................... 36,626 16,331 -- 52,957
EBITDA (7)(8) ............................. 50,086 54,321 12,661 117,068
Cash interest expense ..................... 12,027 15,695 28,395 56,117
Ratio of EBITDA to cash interest
expense (9) .............................. 4.16x 3.46x 2.09x
Ratio of earnings to fixed charges
(10) ..................................... 2.56x -- --
</TABLE>
29
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
Three Months Ended December 27, 1997
(in thousands, except for per share data )
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------------- -------------------------------
Galey & Lord Acquired Business
(Three Months Ended (Three Months Ended
December 27, 1997) December 31, 1997) Adjustments Combined
--------------------- -------------------- ----------------- -----------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ................................. $127,147 $ 134,196 $ -- $261,343
Cost of sales ............................. 117,351 118,359 (862)(1) 234,848
-------- --------- ---------- --------
Gross profit ............................ 9,796 15,837 862 26,495
Selling, general and administrative
expenses ................................ 3,387 10,698 (2,859)(2) 11,226
Amortization of goodwill .................. 421 517 158 (1) 1,096
-------- --------- ---------- --------
Operating income ........................ 5,988 4,622 3,563 14,173
Other (income) expense:
Interest expense, net ................... 3,879 4,269 7,443 (3) 15,591
Other expense (income), net ............. 2,745 (685) -- 2,060
Share in net income of associated
companies .............................. -- (797) 159 (4) (638)
Costs related to the change of
control ................................ -- 16,470 (14,511)(5) 1,959
-------- --------- ---------- --------
Income (loss) before income taxes ......... (636) (14,635) 10,472 (4,799)
Income tax expense (benefit) .............. (526) (2,540) 59 (6) (3,007)
-------- --------- ---------- --------
Net income (loss) ......................... $ (110) $ (12,095) $ 10,413 $ (1,792)
======== ========= ========== ========
Basic earnings per share:
Earnings (loss) before
extraordinary items .................... $ (.01) $ (.15)
======== ========
Average common shares
outstanding ............................ 11,644 11,664
======== ========
Diluted earnings per share:
Earnings (loss) before
extraordinary items .................... $ (.01) $ (.15)
======== ========
Average common shares
outstanding ............................ 11,664 11,664
======== ========
Other Operating Data:
Depreciation and amortization ............. $ 4,119 $ 8,379 $ (545) $ 11,953
Capital expenditures ...................... 8,086 2,898 -- 10,984
EBITDA (7)(8) ............................. 10,204 13,798 2,859 26,861
Cash interest expense ..................... 3,827 3,929 6,961 14,717
Ratio of EBITDA to cash interest
expense (9) ............................. 2.67x 3.51x 1.83x
Ratio of earnings to fixed charges
(10) .................................... -- -- --
</TABLE>
30
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(1) Reflects incremental depreciation and amortization expense as a result of
the preliminary adjustment to fair value of the Acquired Business'
property, plant and equipment and the excess of cost over fair market
value of the net assets acquired as follows:
<TABLE>
<CAPTION>
Estimated Year Ended Three Months Ended
Useful Life September 27, 1997 December 27, 1997
------------- -------------------- -------------------
<S> <C> <C> <C>
Depreciation adjustment on
Acquired Business' property,
plant and equipment ......... 9.8 years $ (5,195) $ (862)
Amortization of excess of cost
over fair value of net assets
acquired .................... 40 years $ 715 $ 158
</TABLE>
(2) Reflects the elimination of the following:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
September 27, 1997 December 27, 1997
-------------------- -------------------
<S> <C> <C>
Duplicative corporate overhead expenses (a) ......... $10,196 $2,243
Duplicative Swift overhead expenses (b) ............. 3,365 841
Additional Galey & Lord overhead
expenses (c) ...................................... (900) (225)
------- ------
$12,661 $2,859
======= ======
</TABLE>
(a) Represents the elimination of the Dominion corporate historical overhead
expenses allocated to the Acquired Business.
(b) Reflects the elimination of certain overhead functions performed by
Swift that will be performed by the corporate function at the Company.
(c) Reflects additional corporate overhead expenses expected to be incurred
by the Company as a result of the Acquisition.
(3) Reflects an adjustment to record additional interest expense and
amortization of debt issuance costs incurred in connection with the
additional debt. Interest expense is calculated based on an average
interest rate of 9.1%. For each .125% change in the assumed effective
interest rate, interest expense would change by $420 for the year ended
September 27, 1997 and $113 for the three months ended December 31, 1997.
(4) To reflect the amortization of the excess of the fair value of the
investment in associated companies over the portion of the historical net
equity attributable to Galey & Lord at the time of the Acquisition. Such
excess is being amortized over 20 years.
(5) During the December 1997 quarter, Dominion incurred certain severance and
other costs specifically related to its acquisition by DTA. This entry
reflects the elimination of those costs that were not identifiable with
the businesses being acquired by Galey & Lord.
(6) Reflects the income tax expense (benefit) related to the effects of the pro
forma adjustments based upon an assumed composite income tax rate of
38.8%.
(7) EBITDA is defined as income (loss) before income taxes, interest expense,
other (income) expense, depreciation and amortization expense, noncash
compensation expense, write-off of merger costs, Bridge Financing Facility
interest expense, loss on foreign currency hedges, costs related to the
change of control and provision for restructuring. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness; however, EBITDA should not be
considered as an alternative to net income (loss) as a measure of
operating results or to cash flows as a measure of liquidity in accordance
with generally accepted accounting principles.
31
<PAGE>
Pro forma EBITDA for the year ended September 27, 1997 is calculated as
follows:
<TABLE>
<CAPTION>
Pro Forma
Acquired -------------------------
Galey & Lord Business Adjustments Combined
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Income (loss) before income taxes ......... $22,027 $ (18,189) $ (12,924) $ (9,086)
Interest expense, net ..................... 12,326 17,055 29,434 58,815
Other (income) expense .................... -- (456) -- (456)
Depreciation and amortization ............. 15,183 34,845 (3,849) 46,179
Noncash compensation expense .............. 550 -- -- 550
Provision for restructuring* .............. -- 21,066 -- 21,066
------- --------- --------- --------
EBITDA .................................... $50,086 $ 54,321 $ 12,661 $117,068
======= ========= ========= ========
</TABLE>
Pro forma EBITDA for the three months ended December 27, 1997 is
calculated as follows:
<TABLE>
<CAPTION>
Pro Forma
Acquired --------------------------
Galey & Lord Business Adjustments Combined
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Income (loss) before income taxes .............. $ (636) $ (14,635) $ 10,472 $ (4,799)
Interest expense, net .......................... 3,879 4,269 7,443 15,591
Other (income) expense ......................... 2,745 (685) -- 2,060
Depreciation and amortization .................. 4,119 8,379 (545) 11,953
Noncash compensation expense ................... 97 -- -- 97
Costs related to the change of control ......... -- 16,470 (14,511) 1,959
------- --------- --------- --------
EBITDA ......................................... $10,204 $ 13,798 $ 2,859 $ 26,861
======= ========= ========= ========
</TABLE>
* Includes $3,250 recorded as part of cost of sales.
(8) Pro forma EBITDA, as presented, includes the effect of the pro forma
adjustments and does not reflect certain additional adjustments which the
Company believes are relevant to evaluating its future operating
performance of the Company. The following additional adjustments, which
eliminate the impact of certain nonrecurring charges and reflect the
estimated impact of the Company's business and operating strategy, are
based on estimates and assumptions made and believed to be reasonable by
the Company and are inherently uncertain and subject to change. There can
be no assurance that the estimated impact of the Company's business and
operating strategy will be realized or that there will not be delays in
achieving the estimated improvements or enhancements described below. The
following calculation should not be viewed as indicative of actual or
future results. The following table reflects the effects of these items:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
September 27, 1997 December 27, 1997
-------------------- -------------------
<S> <C> <C>
Pro forma EBITDA ................................... $117,068 $26,861
Additional adjustments:
Tralee savings(a) ................................ 6,500 1,625
Swift savings(b) ................................. 5,521 --
Other personnel reductions(c) .................... 1,273 318
Exclude Home Fashion Fabrics bad debt(d) ......... 2,988 --
Society Hill improvements(e) ..................... 4,063 1,808
-------- -------
Total additional adjustments .................. 20,345 3,751
-------- -------
Adjusted Pro Forma EBITDA .......................... $137,413 $30,612
======== =======
</TABLE>
32
<PAGE>
----------
(a) In October 1997, the Acquired Business' plant located in Tralee,
Ireland was closed. This adjustment gives effect to the lower cost of
materials that the Company anticipates will be realized from the
purchase of materials from third party suppliers rather than having
materials produced at the Tralee, Ireland plant.
(b) This adjustment gives effect to cost reductions at Swift which the
Company believes can be realized from reductions in personnel beyond
those taken into account in calculating pro forma EBITDA and from
savings realized from purchasing materials at lower costs. As of the
date of this Memorandum, these additional savings are being realized.
(c) This adjustment gives effect to cost reductions that the Company
believes can be derived from further Company wide reductions in
personnel which have not yet been specifically identified.
(d) This adjustment reflects the write-off of a bad debt taken due to the
bankruptcy of a Home Fashion Fabrics customer. The Company believes
that this write-off was unusual based on historic trends.
(e) This adjustment gives effect to the improvements in operating
efficiencies at the Company's Society Hill, South Carolina plant, which
the Company believes will be realized as a result of the addition of a
new continuous dye-range at this plant in January 1998.
(9) Cash interest expense is calculated as total interest expense less
amortization of debt issuance costs.
(10) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before income taxes plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense (which
includes amortization of deferred financing costs), whether expensed or
capitalized, and that portion of rental expense estimated to be
attributable to interest. For the Acquired Business for the year ended
September 30, 1997 and on a pro forma basis for the Company for the fiscal
year ended September 27, 1997, earnings were insufficient to cover fixed
charges by $18,189 and $9,086, respectively. For the Company, for the
Acquired Business and on a pro forma basis for the Company for the
December 1997 quarter, earnings were insufficient to cover fixed charges
by $636, $14,635 and $4,799, respectively.
33
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF GALEY & LORD
The selected financial information presented below at the end of and for
each of the fiscal years ended October 2, 1993, October 1, 1994, September 30,
1995, September 28, 1996 and September 27, 1997 has been derived from the
audited consolidated financial statements of Galey & Lord. The selected
information for the three months ended December 28, 1996 and December 27, 1997
has been derived from unaudited financial statements of Galey & Lord and, in
the opinion of the Company, reflects all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such data on a
basis consistent with that of the audited data presented herein. The results of
operations for interim periods are not necessarily indicative of the results to
be expected for a full year. The following selected financial information
should be read in conjunction with Galey & Lord's Consolidated Financial
Statements and Notes thereto as of and for the fiscal years ended September 30,
1995, September 28, 1996 and September 27, 1997 and for the three months ended
December 28, 1996 and December 27, 1997 and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein.
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------------------------------
October 2, October 1, September 30, September 28, September 27,
1993 1994 (2) 1995 (3) 1996 (4) 1997 (5)
-------------- ------------ --------------- --------------- ---------------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data (1):
Net sales ............................... $385,841 $451,130 $502,220 $ 411,455 $ 493,362
Cost of sales ........................... 344,007 396,911 451,314 367,992 439,207
-------- -------- -------- --------- ---------
Gross profit ............................ 41,834 54,219 50,906 43,463 54,155
Selling, general and administrative
expenses ............................... 13,799 14,705 15,877 13,526 18,123
Amortization of goodwill ................ 145 549 1,119 1,298 1,679
Business closing charge ................. -- -- 12,065 -- --
-------- -------- -------- --------- ---------
Operating income ........................ 27,890 38,965 21,845 28,639 34,353
Interest expense ........................ 6,465 8,276 13,103 11,579 12,326
Bridge Financing Facility interest
expense ................................ -- -- -- -- --
Write-off of merger costs ............... -- -- -- 1,600 --
Loss on foreign currency hedges ......... -- -- -- -- --
-------- -------- -------- --------- ---------
Income (loss) before income taxes
and extraordinary items ................ 21,425 30,689 8,742 15,460 22,027
Income tax expense (benefit) ............ 8,014 11,803 3,390 5,982 8,350
-------- -------- -------- --------- ---------
Income (loss) before extraordinary
items and accounting change ............ 13,411 18,886 5,352 9,478 13,677
Extraordinary loss, net ................. -- -- (1,342) -- --
Cumulative effect of change in
accounting method ...................... -- (1,603) -- -- --
-------- -------- -------- --------- ---------
Net income (loss) ....................... $ 13,411 $ 17,283 $ 4,010 $ 9,478 $ 13,677
======== ======== ======== ========= =========
Basic earnings per share (6):
Earnings (loss) before
extraordinary items .................. $ 1.18 $ 1.64 $ .45 $ .81 $ 1.18
======== ======== ======== ========= =========
Average common shares
outstanding .......................... 11,373 11,526 11,744 11,699 11,610
======== ======== ======== ========= =========
Diluted earnings per share (6):
Earnings (loss) before
extraordinary items .................. $ 1.12 $ 1.57 $ .44 $ .80 $ 1.14
======== ======== ======== ========= =========
Average common shares
outstanding .......................... 11,965 12,066 12,037 11,910 11,986
======== ======== ======== ========= =========
Other Data:
Depreciation and amortization ........... $ 7,007 $ 8,487 $ 11,024 $ 11,638 $ 15,183
Capital expenditures .................... 11,736 22,361 14,795 13,524 36,626
EBITDA (7) .............................. 34,897 47,452 44,934 40,535 50,086
EBITDA margin ........................... 9.1% 10.5% 8.9% 9.9% 10.2%
Ratio of earnings to fixed
charges (8) ............................ 3.98x 4.37x 1.62x 2.19x 2.56x
Balance Sheet Data:
(at period end)
Working capital ......................... $ 98,806 $114,316 $135,011 $107,679 $130,505
Total assets ............................ 202,350 299,015 305,039 304,876 349,191
Long-term debt .......................... 95,223 149,899 162,084 149,265 176,755
Stockholders' equity .................... 59,067 77,719 81,879 89,645 104,317
<CAPTION>
Three Months Ended
----------------------------
December 28, December 27,
1996 1997
-------------- -------------
(in thousands, except for per
share data)
<S> <C> <C>
Statement of Operations
Data (1):
Net sales ............................... $ 110,928 $127,147
Cost of sales ........................... 98,360 117,351
--------- --------
Gross profit ............................ 12,568 9,796
Selling, general and administrative
expenses ............................... 3,361 3,387
Amortization of goodwill ................ 418 421
Business closing charge ................. -- --
--------- --------
Operating income ........................ 8,789 5,988
Interest expense ........................ 3,052 3,500
Bridge Financing Facility interest
expense ................................ -- 379
Write-off of merger costs ............... -- --
Loss on foreign currency hedges ......... -- 2,745
--------- --------
Income (loss) before income taxes
and extraordinary items ................ 5,737 (636)
Income tax expense (benefit) ............ 2,215 (526)
--------- --------
Income (loss) before extraordinary
items and accounting change ............ 3,522 (110)
Extraordinary loss, net ................. -- (524)
Cumulative effect of change in
accounting method ...................... -- --
--------- --------
Net income (loss) ....................... $ 3,522 $ (634)
========= ========
Basic earnings per share (6):
Earnings (loss) before
extraordinary items .................. $ .30 $ (.01)
========= ========
Average common shares
outstanding .......................... 11,576 11,664
========= ========
Diluted earnings per share (6):
Earnings (loss) before
extraordinary items .................. $ .30 $ (.01)
========= ========
Average common shares
outstanding .......................... 11,839 11,664
========= ========
Other Data:
Depreciation and amortization ........... $ 3,611 $ 4,119
Capital expenditures .................... 5,747 8,086
EBITDA (7) .............................. 12,515 10,204
EBITDA margin ........................... 11.3% 8.0%
Ratio of earnings to fixed
charges (8) ............................ 2.64x --
Balance Sheet Data:
(at period end)
Working capital ......................... $123,407 $163,269
Total assets ............................ 315,629 513,671
Long-term debt .......................... 162,846 360,004
Stockholders' equity .................... 93,282 103,786
</TABLE>
34
<PAGE>
- ----------
(1) Galey & Lord uses a 52-53 week fiscal year. All fiscal years presented were
52-week years.
(2) Includes the acquisition of Home Fashion Fabrics which occurred on April
29, 1994.
(3) Includes the business closing charge related to closing Galey & Lord's
printed apparel fabrics businesses. See Note C to Galey & Lord's
consolidated financial statements.
(4) Includes the write-off of merger costs associated with the termination of
the previously announced merger of Galey & Lord and the Graniteville
Company.
(5) Selling, general and administrative expenses include a $3.0 million pre-tax
charge taken due to the bankruptcy of a Home Fashion Fabrics customer.
(6) The earnings per share amounts have been restated as required to comply
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." For further discussion, see Note J to Galey & Lord's financial
statements for the year ended September 27, 1997.
(7) EBITDA is defined as income (loss) before income taxes, interest expense,
other (income) expense, depreciation and amortization expense, noncash
compensation expense, write-off of merger costs, Bridge Financing Facility
interest expense, loss on foreign currency hedges, costs related to the
change of control and provision for restructuring. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness; however, EBITDA should not be
considered as an alternative to net income (loss) as a measure of
operating results or to cash flows as a measure of liquidity in accordance
with generally accepted accounting principles.
(8) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (which includes
amortization of deferred financing costs), whether expensed or
capitalized, and that portion of rental expense estimated to be
attributable to interest. For the three months ended December 27, 1997,
earnings were insufficient to cover charges by $636.
35
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF THE ACQUIRED BUSINESS
The selected financial information presented below at the end of and for
each of the fiscal years ended June 30, 1993 and 1994 has been derived from the
audited consolidated financial statements of Dominion Textile Inc. The selected
financial information presented below at the end of and for each of the fiscal
years ended June 30, 1995, 1996 and 1997 has been derived from the audited
Combined Financial Statements of the Acquired Business. The selected
information for the six months ended December 31, 1996 and 1997 has been
derived from unaudited financial statements of the Acquired Business and, in
the opinion of the Company, reflects all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such data on a
basis consistent with that of the audited data presented herein. The results of
operations for interim periods are not necessarily indicative of the results to
be expected for a full year. The following selected financial information
should be read in conjunction with the Acquired Business' Combined Financial
Statements and Notes thereto as of and for the fiscal years ended June 30,
1995, 1996 and 1997 and for the six months ended December 31, 1996 and 1997 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended
--------------------------------------------------------------------
June 30, June 30, June 30, June 30, June 30,
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ ----------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales ............................... $566,934 $566,959 $633,690 $650,863 $ 610,573
Cost of sales ........................... 454,175 466,692 529,724 577,239 552,670(1)
Restructuring charges ................... -- -- -- 3,558 17,816
-------- -------- -------- -------- -------------
Gross profit ............................ 112,759 100,267 103,966 70,066 40,087
Selling, general and adminis-
trative expenses ...................... 52,502 50,152 52,451 55,771 52,312
Amortization of goodwill ................ 1,987 1,989 1,990 1,992 1,988
-------- -------- -------- -------- -------------
Operating income (loss) ................. 58,270 48,126 49,525 12,303 (14,213)
Interest expense, net ................... 31,957 27,625 28,732 18,737 17,413
Other expense (income), net ............. 5,275 (8,701) 1,497 712 74
Share in net income of associated
companies ............................. (5,548) (4,982) (6,308) (8,326) (7,410)
Costs related to the change of
control ............................... -- -- -- -- --
-------- -------- -------- -------- -------------
Income (loss) before income
taxes and extraordinary items ......... 26,586 34,184 25,604 1,180 (24,290)
Income tax expense (benefit) ............ 13,903 11,756 6,577 (3,588) (10,184)
-------- -------- -------- -------- -------------
Income (loss) before
extraordinary items ................... 12,683 22,428 19,027 4,768 (14,106)
Extraordinary loss, net ................. -- -- -- 2,223 --
Cumulative effect of accounting
change ................................ -- 11,491 -- -- --
-------- -------- -------- -------- -------------
Net income (loss) ....................... $ 12,683 $ 10,937 $ 19,027 $ 2,545 $ (14,106)
======== ======== ======== ======== =============
Other Data:
Depreciation and amortization ........... $ 30,079 $ 30,660 $ 32,143 $ 34,403 $ 35,471
Capital expenditures .................... 20,429 24,092 27,062 52,580 17,164
EBITDA (2) .............................. 93,897 83,768 87,976 58,590 49,734
EBITDA margin ........................... 16.6% 14.8% 13.9% 9.0% 8.2%
Ratio of earnings to fixed
charges (3) ........................... 1.80x 2.18x 1.85x 1.06x --
Balance Sheet Data:
(at period end)
Working capital ......................... $112,250 $153,181 $173,881 $184,973 $ 171,566
Total assets ............................ 621,397 630,765 626,273 632,952 591,113
Long-term debt .......................... 208,524 255,696 233,325 247,897 197,972
Stockholders' equity .................... 193,472 167,931 210,640 211,638 221,513
<CAPTION>
Six Months Ended
--------------------------------
Dec. 31, Dec. 31,
1996 1997
------------ -------------------
(in thousands)
<S> <C> <C>
Statement of Operations Data:
Net sales ............................... $304,875 $ 286,364
Cost of sales ........................... 273,626 250,731
Restructuring charges ................... -- --
-------- ----------
Gross profit ............................ 31,249 35,633
Selling, general and adminis-
trative expenses ...................... 26,088 22,273
Amortization of goodwill ................ 1,026 1,014
-------- ----------
Operating income (loss) ................. 4,135 12,346
Interest expense, net ................... 9,122 8,693
Other expense (income), net ............. 1,158 (743)
Share in net income of associated
companies ............................. (3,983) (2,036)
Costs related to the change of
control ............................... -- 16,470
-------- ----------
Income (loss) before income
taxes and extraordinary items ......... (2,162) (10,038)
Income tax expense (benefit) ............ (3,170) (2,717)
-------- ----------
Income (loss) before
extraordinary items ................... 1,008 (7,321)
Extraordinary loss, net ................. -- --
Cumulative effect of accounting
change ................................ -- --
-------- ----------
Net income (loss) ....................... $ 1,008 $ (7,321)
======== ==========
Other Data:
Depreciation and amortization ........... $ 17,732 $ 16,709
Capital expenditures .................... 7,005 6,379
EBITDA (2) .............................. 25,850 31,091
EBITDA margin ........................... 8.5% 10.9%
Ratio of earnings to fixed
charges (3) ........................... -- --
Balance Sheet Data:
(at period end)
Working capital ......................... $184,347 $ (47,834)(4)
Total assets ............................ 607,904 529,979
Long-term debt .......................... 202,009 144 (4)
Stockholders' equity .................... 256,260 196,193
</TABLE>
36
<PAGE>
(1) Includes $3,250 of restructuring charges recorded in cost of sales.
(2) EBITDA is defined as income (loss) before income taxes, interest expense,
other (income) expense, depreciation and amortization expense, noncash
compensation expense, write-off of merger costs, Bridge Financing Facility
interest expense, loss on foreign currency hedges, costs related to the
change of control and provision for restructuring. EBITDA is presented
because it is a widely accepted financial indicator of a company's ability
to service and/or incur indebtedness; however, EBITDA should not be
considered as an alternative to net income (loss) as a measure of
operating results or to cash flows as a measure of liquidity in accordance
with generally accepted accounting principles.
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income (loss) before income taxes plus fixed charges (excluding
capitalized interest). Fixed charges consist of interest expense (which
includes amortization of deferred financing costs), whether expensed or
capitalized, and that portion of rental expense estimated to be
attributable to interest. For the fiscal year ended June 30, 1997 and the
six months ended December 31, 1996 and 1997, earnings were insufficient to
cover fixed charges by $24,290, $2,162 and $10,038 respectively.
(4) Reflects the reclassification to short-term indebtedness of long-term
indebtedness that was retired in January 1998.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations of Galey & Lord
Galey & Lord's operations are classified into two business segments:
apparel fabrics, comprised of woven fabrics and G&L Service Company, and home
fabrics, comprised of Home Fashion Fabrics. Results for fiscal year 1995, 1996
and 1997 and for the three month periods ended December 28, 1996 and December
27, 1997 for each segment are shown below:
<TABLE>
<CAPTION>
Fiscal Year Ended Three Months Ended
------------------------------------------------------ ------------------------------
September 30, September 28, September 27, December 28, December 27,
1995 1996 1997 1996 1997
--------------- --------------- ----------------- -------------- -------------
(in millions except percentages)
<S> <C> <C> <C> <C> <C>
Net Sales Per Segment
Apparel fabrics ..................... $ 443.5(1) $ 364.2 $ 456.6 $ 103.1 $ 113.7
Home fabrics ........................ 58.7 47.3 36.8 7.8 13.4
---------- ------- --------- ------- -------
Total ............................... $ 502.2 $ 411.5 $ 493.4 $ 110.9 $ 127.1
========== ======= ========= ======= =======
Operating Income (Loss) Per
Segment
Apparel fabrics ..................... $ 29.2(1) $ 29.9 $ 36.8 $ 8.9 $ 5.1
% of apparel fabrics net sales..... 6.6%(1) 8.2% 8.1% 8.7% 4.5%
Home fabrics ........................ $ 4.7 $ (1.3) $ (2.4)(2) $ (.1) $ .9
% of home fabrics net sales ....... 8.0% (2.7)% (6.8)%(2) (2.0)% 6.5%
Business closing charge ............. $ (12.1) $ -- $ -- $ -- $ --
----------- ------- --------- ------- --------
Total ............................... $ 21.8 $ 28.6 $ 34.4 $ 8.8 $ 6.0
% of total net sales .............. 4.3% 7.0% 7.0% 7.9% 4.7%
</TABLE>
- ----------
(1) Net sales and operating income for the apparel fabrics segment for fiscal
1995 include the results for the printed apparel fabrics businesses, which
were closed on September 19, 1995.
(2) Operating income for the home fabrics segment for fiscal 1997 includes a
$3.0 million pre-tax charge taken due to the bankruptcy of a Home Fashion
Fabrics customer.
Galey & Lord's order backlog at December 27, 1997 was $168.4 million, a 1%
increase from the December 28, 1996 backlog of $166.9 million. Apparel fabrics
backlog increased 2% over the December 28, 1996 level while home fabrics
backlog decreased 12% primarily due to a decline in orders from a Home Fashion
Fabrics customer which filed for bankruptcy protection during the June quarter
1997. The customer was subsequently sold and Galey & Lord is selling to the new
owner under standard credit terms.
December 1997 Quarter Compared To December 1996 Quarter
Net Sales
Net sales for the December 1997 quarter (the first quarter of fiscal 1998)
were $127.1 million, a 14.6% increase over the December 1996 quarter (first
quarter of fiscal 1997) sales of $110.9 million. Apparel fabrics sales
increased $10.6 million or 10.3% during the December 1997 quarter while home
fabrics net sales increased $5.6 million or 71.8% during the December 1997
quarter. The increase in apparel fabrics net sales in the December 1997 quarter
reflected an increase in volume and improved selling prices over the December
1996 quarter. The increase in home fabrics sales was due to a stronger market
for home decorative fabrics as well as strong demand in the home furnishings
market for unfinished fabrics (greige goods).
Operating Income
Operating income was $6.0 million or 4.7% of net sales for the first
quarter of fiscal 1998 as compared to $8.8 million or 7.9% of net sales for the
first quarter of fiscal 1997. The $3.8 million decline in apparel fabrics
operating income for the first quarter of fiscal 1998 as compared to the first
quarter of fiscal 1997 was primarily a result of higher sales levels that
caused the Company's dyeing and finishing plant to operate beyond its rated
capacity, resulting in manufacturing inefficiencies and excess cost for
overtime. In addition, the decline
38
<PAGE>
was partially attributable to the Company's Mexican garment manufacturing
operation which was impacted by increased labor costs during the December 1997
quarter as compared to December 1996 quarter. Home fabrics operating income
increased $1.0 million for the first quarter of fiscal 1998 as compared to the
first quarter of fiscal 1997. The home fabrics operating income improvement was
attributable to a strong demand for home fabrics goods which resulted in
increased sales volume, improved selling prices and improved margins.
Interest Expense
Interest expense was $3.5 million for the December 1997 quarter as
compared to $3.1 million for the December 1996 quarter. The increase in
interest expense was primarily due to higher working capital requirements and
capital expenditures in the first quarter of fiscal 1998 as compared to the
first quarter of fiscal 1997. Both of these items increased to support higher
sales and the future growth of the Company.
Net Income
The Company had a net loss for the first quarter of fiscal 1998 of $0.6
million as compared to net income for the first quarter of fiscal 1997 of $3.5
million. Net income for the first quarter of fiscal 1998 was adversely impacted
by nonrecurring charges of $4.0 million pre-tax related to the Acquisition.
These charges included (i) a $2.7 million pre-tax charge related to hedging the
Canadian dollar against currency fluctuations, allowing the Company to fix the
purchase price for the Acquired Business which was based in Canadian dollars,
(ii) a $0.4 million pre-tax charge for interest on the Bridge Financing, and
(iii) a $0.9 million pre-tax ($0.5 million after tax) extraordinary charge due
to the write-off of fees and expenses related to the Company's old credit
facility which was refinanced in December in order to provide funds for the
Acquisition. Excluding these charges, net income for the first quarter of
fiscal 1998 would have been $1.8 million.
Fiscal 1997 Compared To Fiscal 1996
Net Sales
Net sales for fiscal 1997 were $493.4 million compared to $411.5 million
for fiscal 1996. The $81.9 million increase in net sales resulted from a $92.4
million increase in apparel fabrics net sales, which was partially offset by a
$10.5 million decline in home fabrics net sales. The increase in apparel
fabrics net sales resulted from a stronger business environment during fiscal
1997 as compared to fiscal 1996 when Galey & Lord's customers were adjusting
their inventory levels due to a slow retail environment. The decrease in home
fabrics sales was due to a continued weak market for home decorative prints as
well as Galey & Lord's decision to significantly reduce its sales of unfinished
fabric in the home fabrics business because of a lack of profitability for
unfinished fabrics in the home furnishings market.
Operating Income
Operating income for fiscal 1997 was $34.4 million compared to $28.6
million in fiscal 1996. The increase in apparel fabrics operating income was
primarily a result of higher sales volume. Home fabrics operating income was
adversely impacted by a $3.0 million pre-tax charge taken due to the bankruptcy
of a Home Fashion Fabrics customer. Excluding this charge, home fabrics
operating income would have increased $1.9 million to $.6 million for fiscal
1997. This improvement resulted from the reduction of sales of unfinished
fabrics and improved gross margins on home fabrics finished goods sales.
Interest Expense
Interest expense was $12.3 million in fiscal 1997 compared to $11.6
million in fiscal 1996. The increase was due to higher debt levels and higher
interest rates in fiscal 1997 compared to fiscal 1996. The increased debt was
due to higher working capital requirements and capital expenditures in fiscal
1997 as compared to fiscal 1996. Both of these items increased to support
higher sales and the future growth of Galey & Lord. The average interest rate
paid by Galey & Lord on its bank debt in fiscal 1997 was 6.9% as compared to
6.7% in fiscal 1996.
39
<PAGE>
Net Income
Net income for fiscal 1997 was $13.7 million which included the $3.0
million pre-tax ($1.8 million after-tax) bad debt charge taken due to the
bankruptcy of a Home Fashion Fabrics customer. Excluding this charge, net
income would have been $15.7 million in fiscal 1997. Net income for fiscal 1996
was $9.5 million which included the pre-tax charge of $1.6 million ($1.0
million after-tax) for the write-off of fees and expenses related to the
termination of the proposed Graniteville merger. Excluding these charges, net
income would have been $10.5 million in fiscal 1996.
Fiscal 1996 Compared To Fiscal 1995
Net Sales
Net sales for fiscal 1996 were $411.5 million compared to $502.2 million
for fiscal 1995. The decrease in net sales was due to the elimination of $33.8
million of net sales from the printed apparel fabrics businesses which were
closed in September 1995, a $45.5 million decline in other apparel fabrics
sales and an $11.4 million decline in home fabrics sales. The decline in other
apparel fabrics sales occurred primarily in the December quarter 1995 and March
quarter 1996 as Galey & Lord's customers adjusted their inventory levels due to
a slow retail environment. The remainder of fiscal 1996 showed improvement with
net sales returning to a more normal level in the June and September quarters.
Operating Income
Operating income for fiscal 1996 was $28.6 million compared to $21.8
million in fiscal 1995. Fiscal 1995 operating income was impacted by a $12.1
million pre-tax business closing charge related to the closing of Galey &
Lord's printed apparel fabrics businesses and a $13.4 million operating loss
related to the printed apparel fabrics businesses. Excluding these items,
operating income for Galey & Lord's ongoing businesses for fiscal 1995 was
$47.3 million. The decrease in operating income, excluding prints, was
primarily a result of lower gross margins resulting from the lower sales volume
and the impact of lower volume on manufacturing costs during the first two
quarters of fiscal 1996.
Interest Expense
Interest expense was $11.6 million in fiscal 1996 compared to $13.1
million in fiscal 1995. The decrease was due to lower average debt levels
during the year, a reduction in interest rates resulting from a lower spread
over LIBOR achieved in the refinancing of Galey & Lord's bank debt completed in
April 1995 and decreases in LIBOR and prime market interest rates on which
Galey & Lord's bank loans are based. The average interest rate paid by Galey &
Lord on its bank debt in fiscal 1996 was 6.7% as compared to 7.3% in fiscal
1995.
Results of Operations of the Acquired Business
The Acquired Business' operations are classified into two main business
groups: denim fabrics, comprised of Swift, and workwear and careerwear fabrics,
comprised of Klopman. Results for 1995, 1996 and 1997 and for the six months
ended December 31, 1996 and December 31, 1997 are shown below:
<TABLE>
<CAPTION>
Fiscal Year Ended Six Months Ended
------------------------------------- ------------------------------
June 30, June 30 June 30, December 31, December 31,
1995 1996 1997 1996 1997
----------- ----------- ------------ -------------- -------------
(unaudited in millions except
(in millions except percentages) percentages)
<S> <C> <C> <C> <C> <C>
Net sales
Swift ......................... $ 477.2 $ 512.5 $ 471.6 $ 238.8 $ 222.5
Klopman ....................... 156.0 138.4 138.4 66.1 63.9
Other ......................... 0.5 -- 0.6 -- --
------- -------- ------- -------- -------
Total ......................... $ 633.7 $ 650.9 $ 610.6 $ 304.9 $ 286.4
======= ======== ======= ======== =======
Operating income (loss) ......... $ 49.5 $ 12.3 $ (14.2) $ 4.1 $ 12.3
% of total net sales .......... 7.8% 1.9% (2.3%) 1.3% 4.3%
Net income (loss) ............... $ 19.0 $ 2.5 $ (14.1) $ 1.0 $ (7.3)
% of total net sales .......... 3.0% 0.4% (2.3%) 0.3% (2.5%)
</TABLE>
40
<PAGE>
Six Months Ended December 31, 1997 Compared to Six Months Ended December 31,
1996
Net Sales
Net sales for the six months ended December 31, 1997 decreased 6.1% from
net sales for the six months ended December 31, 1996 to $286.4 million
primarily due to lower average selling prices at Swift and the impact of
translation exchange on Klopman's results. Gross profit increased 14.1% to
$35.6 million due to lower raw material costs and cost reductions at both Swift
and Klopman. The Acquired Business also benefited from lower selling and
administrative expenses which decreased $3.8 million or 14.6% in the six months
ended December 31, 1997 compared to the six months ended December 31, 1996. As
a result of these factors, operating income for the six months ended December
31, 1997 increased $8.2 million to $12.3 million. A net loss of $7.3 million
was incurred in the six months ended December 31, 1997 compared to a net profit
of $1.0 million for the six month period ended December 31, 1996 as a result of
the $16.5 million charge related to the Acquisition.
Interest Expense
Interest expense was $8.7 million during the six months ended December 31,
1997 compared to $9.1 million during the six months ended December 31, 1996.
This decrease was primarily due to lower levels of net average borrowings
outstanding in the September 1997 quarter compared to the same period in 1996.
Operations
Swift
For the six months ended December 31, 1997, Swift's net sales decreased by
$16.3 million or 6.7% to $222.5 million due to inventory corrections at certain
customers and to lower average selling prices. Despite lower sales in the six
months ended December 31, 1997, Swift's operating performance significantly
improved over the six months ended December 31, 1996 as it benefited from lower
raw material costs and overhead reductions. In addition, the manufacturing
interruptions due to cotton quality problems experienced at the Erwin plant
impacted results for the six months ended December 31, 1996.
Share in net earning of associated companies totaled $2.0 million in the
six months ended December 31, 1997 compared to $4.0 million during the six
months ended December 31, 1996. Results reflect the share of earnings in the
Acquired Business' European denim affiliate which in 1997 was hurt by weak
market conditions in Europe and the Far East.
Klopman
Sales of Klopman totaled $63.9 million for the six months ended December
31, 1997, a decrease of 3.2% from the six months ended December 31, 1996.
Exclusive of translation exchange impact, sales rose 11.1%. The increase was
primarily volume-driven as Klopman continued to penetrate new market segments,
in particular protectivewear and casual apparel. Average selling prices were
marginally lower for the six months ended December 31, 1997 compared to the six
months ended December 31, 1996 as some workwear segments experienced
competitive price pressures. Such pressures were partially offset by a more
favorable product mix.
Fiscal 1997 Compared to Fiscal 1996
Net Sales
In fiscal 1997, sales for the Acquired Business decreased by $40.3
million, or 6.2%, to $610.6 million. Gross profit before special items
decreased to $61.2 million in fiscal 1997 from $73.6 million in fiscal 1996.
These decreases are attributable to Swift. Selling and administrative expenses
were lower by 6.2% as both Swift and Klopman benefited from their cost
reduction programs. Operating income before special items decreased by $9.0
million, or 56.8%, to $6.9 million. The Acquired Business reported a net loss
of $14.1 million in fiscal 1997 and net income, before an extraordinary item,
of $4.8 million in fiscal 1996. The net loss in fiscal 1997 was primarily
attributable to a $15.1 million charge at Klopman, a $2.7 million prorated
restructuring charge related to Dominion's worldwide cost reduction programs,
and a $3.3 million rationalization and manufacturing inefficiency charge at
Swift. An after-tax extraordinary item of $2.2 million, representing a
pro-rated portion of the cost for early extinguishment of debt, reduced net
income in fiscal 1996 to $2.5 million.
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Interest Expense
Interest expense was $17.4 million in fiscal 1997 compared to $18.7
million in fiscal 1996. This reduction was due primarily to lower debt
allocated to the Acquired Business as a result of the sale of certain
businesses by the Acquired Business' parent company in August 1996.
Operations
Swift
In fiscal 1997, Swift's net sales were $471.6 million, a decrease of 8.0%
from $512.5 million achieved in fiscal 1996. The decrease was due to lower
volumes (down 4.5%) and lower average selling prices (down 3.6%).
During the December 1996 quarter, growth in retail demand for denim
apparel began to slow resulting in an excess supply environment for the North
American denim industry. Retailers, apparel manufacturers and denim producers
worked together to reduce inventory levels throughout the value chain. To bring
output in line with demand, denim manufacturers curtailed production in the
December 1996 quarter and in the first half of the 1997 calendar year.
Swift's strategic partnerships with major high-end brand leaders and its
broad distribution offset in part these difficult market conditions. As a
result, Swift's production was only reduced in the March 1997 quarter. Swift
operated a full schedule in the June 1997 quarter.
The denim industry also experienced severe price pressures in basic denim
caused by the addition of capacity in North America and in Mexico toward the
end of the 1996 calendar year. Although Swift is positioned primarily in the
value-added segment, a portion of its product mix is basic denim. As pricing
became more competitive, Swift's margins were negatively impacted.
Swift benefited from lower cotton costs in fiscal 1997 (down 4.6%), but
these were partially offset by manufacturing problems at the Erwin facility
associated with cotton quality and a more demanding product mix. The difficult
operating and market conditions that Swift experienced in fiscal 1997 prompted
an in-depth review and analysis of its operations. Organizational changes and
cost reduction initiatives have been implemented. A pre-tax rationalization
charge of $3.3 million, included in cost of goods sold, was taken in the March
1997 quarter to cover severance payments and other costs.
The Acquired Business' share in the net income of associated companies was
$7.4 million in fiscal 1997, 10.8% below the $8.3 million achieved in fiscal
1996. As in North America, denim growth in Europe has slowed in recent years,
resulting in higher inventories. In fiscal 1997, Swift Europe's Tunisia
facility initiated a modernization program designed to improve its flexibility
and ability to produce a more demanding product mix. This program is being
financed from internally generated funds.
Klopman
In fiscal 1997, Klopman's net sales of $138.4 million were flat compared
to fiscal 1996. Volumes increased 6.0% but were offset by average selling
prices which decreased 6.6% as a result of the previous year's rollback of
price increases and currency impacts.
In fiscal 1997, cost reduction programs implemented during fiscal 1996
significantly reduced Klopman's volume breakeven. This achievement, coupled
with lower raw material costs, contributed to a significant margin improvement
in fiscal 1997.
In order to further improve its cost competitiveness and profitability,
Klopman is accelerating its greige fabric outsourcing strategy and announced a
restructuring of its greige manufacturing activities. Klopman downsized its
plant in Frosinone, Italy and closed its plant in Tralee, Ireland on October
31, 1997. To compensate for these changes, a higher percentage of its greige
fabric will be sourced from low-cost countries. A provision of $15.1 million
was taken in the June 1997 quarter for Klopman's restructuring. The initial
negative cash flow impact due to severance and closure costs is estimated to be
$8.6 million while the restructuring is expected to generate annual savings
after local taxes of $4.0 million.
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Fiscal 1996 Compared to Fiscal 1995
Net Sales
Net sales of the Acquired Business increased by $17.2 million, or 2.7%, to
$650.9 million in fiscal 1996. Swift's net sales grew while Klopman's
decreased. Lower net sales at Klopman and high raw material costs at both units
contributed to the drop in the gross profit margin before special items which
fell from 16.4% in fiscal 1995 to 11.3% in fiscal 1996. Selling and
administrative expenses increased 6.3% in fiscal 1996 compared to fiscal 1995.
As a percentage of net sales, they were 8.6% in fiscal 1996 versus 8.3% in
fiscal 1995. Operating income before special items fell $33.6 million to $15.9
million. This poor operating performance as well as a $3.6 million
restructuring charge at Klopman accounted for a significant drop in net income
before extraordinary item to $4.8 million in fiscal 1996 from $19.0 million in
fiscal 1995. An after-tax extraordinary item of $2.2 million, representing a
pro-rated portion of the cost for early extinguishment of debt, reduced net
income in fiscal 1996 to $2.5 million.
Interest Expense
Interest expense was $18.7 million in fiscal 1996 compared to $28.7
million in fiscal 1995. This reduction was due primarily to lower debt
allocated to the Acquired Business as a result of the sale of certain
businesses by the Acquired Businesses' parent company in May 1995.
Operations
Swift
In fiscal 1996, Swift achieved record net sales of $512.5 million,
representing an increase of 7.4% over fiscal 1995. This increase was primarily
due to improvements in product mix. Swift's profitability was adversely
impacted by high cotton costs which were up 21% in fiscal 1996 compared to
fiscal 1995.
During the first calendar quarter of 1996, the North American denim
industry experienced an increase in inventory caused by new capacity coming on
stream. This situation was short-lived because of strong retail sales of denim
apparel which increased 12.2% in the first calendar quarter of 1996 over the
same quarter one year ago.
The Acquired Business' share in the net income of associated companies was
$8.3 million in fiscal 1996 compared to $6.3 million in fiscal 1995, an
increase of almost 32%.
Klopman
Klopman's fiscal 1996 net sales of $138.4 million showed a decrease of
11.3% from the level of $156.0 million reached in fiscal 1995. Several factors
contributed to lower sales, including aggressive pricing by competitors in the
basic workwear market, excess inventories at some garment manufacturers, weak
market conditions in certain countries, particularly Germany and France, and
high polyester and cotton costs.
Income Taxes
The tax benefits recorded in the six month period ended December 31, 1997
were below statutory rates. This occurred primarily because most of the charges
related to the change of control were not tax affected as they were incurred in
tax jurisdictions where existing tax loss carry-forwards made their utilization
uncertain. In the six month period ended December 31, 1997 certain non-taxable
income and the utilization of loss carry forwards by the Acquired Business
increased the level of tax benefits recorded above statutory rates.
The combined effective tax rate is impacted by the profitability of
Klopman, Swift Denim and Swift Europe. In fiscal 1997, the effective tax rate
totaled 42.0%, which was higher than the statutory rate. This was primarily a
result of losses at Klopman on which no tax benefits were recorded. Past losses
at Klopman have made the utilization of its available loss carry forwards
uncertain. The impact of certain non-taxable revenue and the utilization of
loss carry forwards available to the Acquired Business resulted in a tax
recovery of $3.6 million in fiscal 1996 and an effective tax rate in fiscal
1995 of 25.7%.
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Liquidity and Capital Resources
Galey & Lord
Working capital increased approximately $39.9 million to $163.3 million at
December 27, 1997 as compared to $123.4 million at December 28, 1996. The
increase in working capital was primarily attributable to a $12.0 million
decrease in the current portion of long-term debt, a $10.7 million increase in
inventories and a $10.0 million increase in accounts receivable. The $12.0
million decrease in the current portion of long-term debt was due to the early
repayment of the Company's term loan under its previous senior credit facility
which was refinanced on December 19, 1997, then subsequently refinanced on
January 29, 1998 as discussed above. The $10.7 million increase in inventories
primarily resulted from an increase in apparel fabrics inventories to support
higher apparel fabrics sales and an increase in G&L Service Company inventory
levels as it continues building its customer base. The $10.0 million increase
in accounts receivable was primarily a result of higher net sales over the same
period last year.
For the first three months of fiscal 1998, the Company spent approximately
$8.1 million for capital expenditures. The Company expects to spend
approximately $35 million on capital expenditures in fiscal 1998, including
expenditures for the Acquired Business subsequent to the Acquisition. These
expenditures will be primarily for the ongoing modernization of the Company's
weaving and dyeing and finishing facilities and for the expansion of the
Company's garment operations in Mexico. The Company expects to fund these
expenditures through funds from operations and borrowings under its Senior
Credit Facility.
Working capital increased approximately $22.8 million to $130.5 million at
September 27, 1997 as compared to $107.7 million at September 28, 1996. The
increase in working capital was primarily attributable to a $15.6 million
increase in inventories and a $6.5 million increase in accounts receivable,
partially offset by a $2.5 million increase in accounts payable. The $15.6
million increase in inventories resulted from the addition of G&L Service
Company inventory in fiscal 1997 and an increase in apparel inventories to
support higher apparel fabrics sales, partially offset by reductions in home
fabrics greige goods inventory levels. The $6.5 million increase in accounts
receivable was primarily a result of increased net sales over the prior year.
The increase in accounts payable resulted from higher outside cloth purchases
in fiscal 1997 due to higher sales volume and from normal fluctuations in the
timing of purchases and payments.
In fiscal 1997, Galey & Lord spent $36.6 million on capital expenditures,
a significant portion of which was used to expand and modernize the Company's
weaving and dyeing and finishing plants.
The Acquired Business
The net loss of $7.3 million incurred during the six month period ended
December 31, 1997 was largely responsible for the decline to $3.3 million in
net cash generation from operating activities versus the $15.3 million
generated during the same period in 1996.
In the six months ended December 31,1997, the Acquired Business spent $6.4
million for capital expenditures compared with $7.0 million in the same period
during 1996. These amounts were for maintenance capital at both Swift and
Klopman.
Cash and cash equivalents declined $20.1 million in the six months ended
December 31, 1997 to $16.7 million. Additionally, the allocated portion of
senior notes of Dominion Textile (USA) Inc. were reclassified by the Acquired
Business to current liabilities in connection with a decision to redeem these
notes in January 1998 prior to their maturity date. Financing for the note
redemption was provided by DTA. Exclusive of the above reclassification,
non-cash working capital totaled $127.4 million at December 31, 1997 compared
to $136.3 million at June 30, 1997. The decrease is mostly associated with
lower trade receivable levels at Swift due to lower sales activity in the
December 1997 quarter.
Cash generated from operating activities was $39.1 million in fiscal 1997,
$28.4 million in fiscal 1996 and $29.6 million in fiscal 1995. The increase in
fiscal 1997 was primarily attributable to a significant decrease in non-cash
working capital.
Capital expenditures totaled $17.2 million in fiscal 1997, $52.6 million
in fiscal 1996 and $27.1 million in fiscal 1995. Expenditures in fiscal 1997
were for maintenance of properties and facilities at both Swift and Klopman. In
fiscal 1996, the major portion of the expenditures, totaling $29.8 million, was
for expanding Swift's
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facilities in Drummondville, Quebec, and Erwin, North Carolina. In fiscal 1995,
$8.7 million was spent to modernize Klopman's plants in Frosinone, Italy and
Tralee, Ireland.
The Company
The Company expects to spend approximately $35.0 million for capital
expenditures in fiscal 1998, including expenditures for the Acquired Business
subsequent to the Acquisition. These expenditures will be primarily for the
ongoing modernization of the Company's weaving and dyeing and finishing
facilities and for the expansion of the Company's garment operations in Mexico.
During fiscal 1998, the Company will open its new garment manufacturing
facility in Monclova, Mexico. The new operations will be located in a leased
building; therefore, the capital requirements related to this expansion will be
limited to the purchase of the new equipment. The Company expects to fund these
expenditures through funds from operations and borrowings under the Senior
Credit Facility.
The Senior Credit Facility provides for (i) a revolving line of credit
under which the Company may borrow up to an amount (including letters of credit
up to an aggregate of $30.0 million) equal to the lesser of $225.0 million or a
borrowing base (comprised of eligible accounts receivable and eligible
inventory, as defined in the Senior Credit Facility) and (ii) term loans in the
aggregate principal amount of $265.0 million. Following completion of the
Acquisition on January 29, 1998, the Company had outstanding borrowings under
the revolving line of credit of $138.8 million with additional availability of
$57.9 million and had fully drawn down the term loans.
Under the Senior Credit Facility, the revolving line of credit expires on
March 27, 2004 and the principal amounts of the term loans are repayable in
quarterly payments through April 2006. The loans under the Senior Credit
Facility bear interest at floating rates based upon the interest rate option
elected by the Company.
The Company's obligations under the Senior Credit Facility are secured by
all of the assets (other than real property) of the Company and each of its
domestic Subsidiaries, and a pledge by the Company and each of its domestic
Subsidiaries of all the outstanding capital stock of its respective
wholly-owned domestic Subsidiaries and a pledge of 65% of the outstanding
voting capital stock, and 100% of the outstanding non-voting capital stock, of
any of its respective directly owned foreign Subsidiaries. In addition, payment
of all obligations under the Senior Credit Facility is guaranteed by each of
the Company's domestic Subsidiaries.
The Senior Credit Facility contains certain covenants, including, without
limitation, those limiting the Company's and its Subsidiaries' ability to incur
indebtedness, incur liens, sell or acquire assets or businesses, change the
nature of its business, make certain investments or pay dividends. In addition,
the Senior Credit Facility requires the Company to meet certain financial ratio
tests and limits the amount of capital expenditures which the Company and its
Subsidiaries may make in any fiscal year. See "Description of Senior Credit
Facility."
On December 19, 1997, the Company entered into the Bridge Financing
Facility with First Union Corporation ("First Union"), as agent and lender.
Under the Bridge Financing Facility, as amended on January 29, 1998, the
Company incurred $275.0 million of indebtedness, the proceeds of which were
utilized to partially finance the Acquisition. The Bridge Financing Facility
was scheduled for maturity on December 19, 2007 and bore interest at an initial
rate equal to LIBOR plus 4.50% per annum, which increased by .25% per annum
each month commencing January 19, 1998 until the repayment of the Bridge
Financing Facility. Payment of all obligations under the Bridge Financing
Facility was guaranteed by each of the Company's domestic Subsidiaries. The
Bridge Financing Facility contained certain covenants, including, without
limitation, those limiting the Company's and its subsidiaries' ability to incur
indebtedness, incur liens, sell assets or businesses, make investments, pay
dividends and enter into mergers. The Bridge Financing Facility was repaid with
the proceeds of the Initial Notes Offering.
The Initial Notes were issued on February 24, 1998 in the aggregate
principal amount of $300.0 million, mature on March 1, 2008 and accrue interest
at the rate of 9.125% per annum. The Notes are guaranteed by the Note
Guarantors and are redeemable at the Company's option at any time on or after
March 1, 2003, initially at 104.563% of their principal amount, declining to
103.042%, 101.521% and 100% of their principal amount on or after March 1,
2004, March 1, 2005 and March 1, 2006, respectively. The Indenture restricts
the ability of the Company and its Restricted Subsidiaries to: (i) incur
additional Indebtedness, (ii) pay dividends or make distributions, (iii) incur
liens, (iv) transfer or sell assets, (v) enter into transactions with
affiliates, (vi) issue or
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sell stock of Restricted Subsidiaries or (vii) merge or consolidate the Company
or Restricted Subsidiaries. Liquidated Damages on the Initial Notes initially
at the rate equal to $0.05 per week per $1,000 of principal amount and
increasing to $0.30 per week per $1,000 of principal amount will accrue if the
Exchange Offer is not completed within 30 business days of the date hereof.
During January 1996, Galey & Lord entered into an interest rate swap on
$25.0 million of its outstanding bank debt to fix the LIBOR interest rate on
which those borrowings are based. The interest rate swap assures that the
Company, under its Senior Credit Facility, will pay a maximum rate of 8.53%
(LIBOR fixed at 5.53% plus the maximum spread allowed under the credit
agreement of 3%) on the $25.0 million of bank debt for a five-year period. The
amount paid or received under the swap agreements is based on the changes in
actual interest rates and is recorded as an adjustment to interest expense. The
fair value of these interest rate swaps, as determined by a member of the
Company's bank group, at December 27, 1997, was $734,000 and was not recognized
in the financial statements. The Company is exposed to credit loss in the event
of nonperformance by the other parties to the interest rate swap agreements;
however, the Company does not anticipate nonperformance by any of the other
parties.
Pursuant to an agreement (the "Pension Funding Agreement"), dated January
29, 1998 with the Pension Benefit Guaranty Corporation ("PBGC"), the Company
will provide $5.0 million in additional funding to three defined benefit
pension plans previously sponsored by Dominion, $3.0 million of which was paid
at the closing of the Acquisition and the remaining $2.0 million of which is to
be paid in installments over the succeeding two years. The Pension Funding
Agreement also gives the PBGC a first priority lien of $10.0 million on certain
land and building assets of the Company to secure payment of any liability to
the PBGC that might arise if one or more of the pension plans were terminated.
The Company's obligations under the Pension Funding Agreement terminate upon
the earlier to occur of (a) the termination of the pension plans and (b) on or
after January 30, 2003, either (i) the pension plans are fully funded for two
consecutive years or (ii) the Company receives an investment grade rating on
its debt.
The Company anticipates that cash requirements, including working capital,
capital expenditures and required principal and interest payments due under the
Senior Credit Facility and interest payments due under the Notes, which will
represent significant liquidity requirements, will be met through funds
generated from operations and borrowings under the Company's Senior Credit
Facility. In addition, from time to time, the Company acquires various
equipment with borrowings under secured bank loans or through capital leases or
operating leases.
The Company has generally completed its assessment regarding the Year 2000
issue and has developed an implementation plan which utilizes internal
resources. Based on this assessment, programs have been established to prepare
its financial and other information and other computer based systems for 2000,
including replacing and/or updating existing systems. A significant portion of
the Company's systems were developed within the last ten years and already
encompass Year 2000 compliance. It is anticipated that the remaining systems
will be updated and tested well before 2000 without any material adverse effect
on the Company's business operations.
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THE EXCHANGE OFFER
General
The Company hereby offers, upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal
(which together constitute the Exchange Offer), to exchange up to $300.0
million aggregate principal amount of Exchange Notes for a like aggregate
principal amount of Initial Notes properly tendered on or prior to the
Expiration Date and not withdrawn as permitted pursuant to the procedures
described below. The Exchange Offer is being made with respect to all of the
Initial Notes.
As of the date of this Prospectus, the aggregate principal amount of the
Initial Notes outstanding is $300.0 million. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about , 1998, to all
holders of Initial Notes known to the Company. The Company's obligation to
accept Initial Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions set forth under " -- Certain Conditions to the Exchange
Offer" below. The Company currently expects that each of the conditions will be
satisfied and that no waivers will be necessary.
Purpose of the Exchange Offer
The Initial Notes were issued on February 24, 1998 in a transaction exempt
from the registration requirements of the Securities Act. Accordingly, the
Initial Notes may not be reoffered, resold, or otherwise transferred unless
registered under the Securities Act or any applicable securities law or unless
an applicable exemption from the registration and prospectus delivery
requirements of the Securities Act is available.
In connection with the issuance and sale of the Initial Notes, the Company
and the Note Guarantors entered into the Registration Rights Agreement, which
requires the Company and the Note Guarantors to file with the Commission a
registration statement relating to the Exchange Offer (the "Registration
Statement") not later than 75 days after the date of original issuance of the
Initial Notes, and to use their best efforts to cause the Registration
Statement to become effective under the Securities Act not later than 135 days
after the date of issuance original of the Initial Notes and the Exchange Offer
to be consummated not later than 30 business days after the date of the
effectiveness of the Registration Statement. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement.
The term "holder" with respect to the Exchange Offer, means any person in
whose name Initial Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered holder, or any person whose Initial Notes are held of record by The
Depository Trust Company (the "DTC"). Other than pursuant to the Registration
Rights Agreement, the Company is not required to file any registration
statement to register any outstanding Initial Notes. Holders of Initial Notes
who do not tender their Initial Notes or whose Initial Notes are tendered but
not accepted would have to rely on exemptions from the registration
requirements under the securities laws, including the Securities Act, if they
wish to sell their Initial Notes.
Terms of the Exchange
The Company hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of the
Initial Notes. The terms of the Exchange Notes are identical in all material
respects to the terms of the Initial Notes for which they may be exchanged
pursuant to this Exchange Offer, except that the Exchange Notes will generally
be freely transferable by holders thereof and will not be subject to any
covenant regarding registration. The Exchange Notes will evidence the same
indebtedness as the Initial Notes and will be entitled to the benefits of the
Indenture. See "Description of Exchange Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Notes being tendered for exchange.
The Company is making the Exchange Offer in reliance on the position of
the Commission as set forth in certain interpretive letters addressed to third
parties in other transactions. However, the Company has not sought its own
interpretive letters, and there can be no assurance that the Commission would
make a similar determination with respect to the Exchange Notes. Based on these
interpretations by the staff of the Commission, the Company believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for Initial
Notes may
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<PAGE>
be offered for sale, resold and otherwise transferred by any holder of such
Exchange Notes (other than any such holder that is a broker-dealer or an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holder's business and such holder has
no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes and neither such holder nor any other such
person is engaging in or intends to engage in a distribution of such Exchange
Notes. Since the Commission has not considered the Exchange Offer in the
context of a no-action letter, there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange
Offer. See " -- Resale of Exchange Notes" and "Plan of Distribution."
Interest on the Exchange Notes shall accrue from the last Interest Payment
Date on which interest was paid on the Initial Notes so surrendered or, if no
interest has been paid on such Notes, from February 24, 1998.
Tendering holders of the Initial Notes shall 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 the Initial Notes
pursuant to the Exchange Offer.
Expiration Date; Extension; Termination; Amendment
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998 (the "Expiration Date"). The Expiration Date will be at least
20 business days after the commencement of the Exchange Offer in accordance
with Rule 14e-1(a) under the Exchange Act. The Company expressly reserves the
right, at any time or from time to time, to extend the period of time during
which the Exchange Offer is open, and thereby delay acceptance for exchange of
any Initial Notes, by giving oral or written notice to the Exchange Agent and
by giving written notice of such extension to the holders thereof or by timely
public announcement no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. During any such
extension, all Initial Notes previously tendered will remain subject to the
Exchange Offer unless properly withdrawn. The Company does not anticipate
extending the Expiration Date.
The Company expressly reserves the right to (i) terminate the Exchange
Offer and not to accept for exchange any Initial Notes not theretofore accepted
for exchange upon the occurrence of any of the events specified below under "
- -- Certain Conditions to the Exchange Offer" which have not been waived by the
Company and (ii) amend the terms of the Exchange Offer in any manner which, in
its good faith judgment, is advantageous to the holders of the Initial Notes,
whether before or after any tender of the Notes. If any such termination or
amendment occurs, the Company will notify the Exchange Agent and will either
issue a press release or give oral or written notice to the holders of the
Initial Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day
excluding Saturday, Sunday or any other day which is a legal holiday under the
laws of Charlotte, North Carolina or New York, New York or is a day on which
banking institutions therein located are authorized or required by law or other
governmental action to close.
Procedures for Tendering Initial Notes
The tender to the Company of Initial Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Initial Notes for exchange pursuant to the Exchange Offer must transmit either
(i) a properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to the Exchange Agent,
at the address set forth below under " -- Exchange Agent" on or prior to the
Expiration Date, or (ii) if such Initial Notes are tendered pursuant to the
procedures for book-entry transfer set forth below under " -- Book-Entry
Transfer," a holder tendering Initial Notes may transmit an Agent's Message (as
defined herein) to the Exchange Agent in lieu of the Letter of Transmittal, in
either case on or prior to the Expiration Date. In addition, either (i)
certificates for such Initial Notes must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Initial Notes, if
such procedure is available, into the Exchange Agent's account at the DTC (the
"Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, along with the Letter of Transmittal or an Agent's
Message, as the case may be,
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must be received by the Exchange Agent prior to the Expiration Date, or (iii)
the holder must comply with the guaranteed delivery procedures described below.
The term "Agent's Message" means a message, transmitted to the Book-Entry
Transfer Facility and received by the Exchange Agent and forming a part of the
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the tendering holder that such holder
has received and agrees to be bound by the Letter of Transmittal and the
Company may enforce the Letter of Transmittal against such holder. THE METHOD
OF DELIVERY OF INITIAL NOTES, LETTERS OF TRANSMITTAL OR AGENT'S MESSAGE AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR INITIAL NOTES
SHOULD BE SENT TO THE COMPANY.
If tendered Initial Notes are registered in the name of the signer of the
Letter of Transmittal and the Exchange Notes to be issued in exchange therefor
are to be issued (and any untendered Initial Notes are to be reissued) in the
name of the registered holder (which term, for the purposes described herein,
shall include any participant in the Book-Entry Transfer Facility's systems
whose name appears on a security listing as the owner of Initial Notes), the
signature of such signer need not be guaranteed. In any other case, the
tendered Initial Notes must be endorsed or accompanied by written instruments
of transfer in form satisfactory to the Company and duly executed by the
registered holder, and the signature on the endorsement or instrument of
transfer must be guaranteed by a bank, broker, dealer, credit union, savings
association, clearing agency or other institution (each an "Eligible
Institution") that is a member of a recognized signature guarantee medallion
program within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Initial Notes not exchanged are to be delivered to an
address other than that of the registered holder appearing on the note register
for the Initial Notes, the signature in the Letter of Transmittal must be
guaranteed by an Eligible Institution.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly executed Letter of Transmittal
accompanied by the Initial Notes is received by the Exchange Agent, or (ii) a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided below) from an Eligible Institution is received by
the Exchange Agent. Issuances of Exchange Notes in exchange for Initial Notes
tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided below) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered Initial Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Letters of Transmittal or Initial Notes tendered for
exchange will be determined by the Company in its sole discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any and all tenders of any particular Initial Notes not
properly tendered and not to accept any particular Initial Notes for exchange
which acceptance might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities as to any particular Initial Notes or conditions of the Exchange
Offer either before or after the Expiration Date (including the right to waive
the ineligibility of any holder who seeks to tender Initial Notes in the
Exchange Offer). The interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of Initial Notes for exchange must
be cured within such reasonable period of time as the Company shall determine.
None of the Company, the Note Guarantors, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Initial Notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Initial Notes, such Initial Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered holder or holders appear
on the Initial Notes.
If the Letter of Transmittal or any Initial Notes or powers of attorney
are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
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By tendering, each holder will represent to the Company that, among other
things, (a) Exchange Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder, (b) neither the
holder nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and (c)
neither the holder nor any such other person is an "affiliate" of the Company
as defined under Rule 405 of the Securities Act, or if it is an affiliate, it
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable. Any holder of Initial Notes using the
Exchange Offer to participate in a distribution of the Exchange Notes (i)
cannot rely on the position of the staff of the Commission set forth in certain
no-action and interpretive letters and (ii) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Initial Notes where such Initial Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
Book-Entry Transfer
The Exchange Agent will make a request to establish an account with
respect to the Initial Notes at the Book-Entry Transfer Facility for purposes
of the Exchange Offer within two business days after the date of this
Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of Initial
Notes by causing the Book-Entry Transfer Facility to transfer such Initial
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Initial Notes may be effected through book-entry
transfer at the Book-Entry Transfer Facility, the Letter of Transmittal or
facsimile thereof, with any required signature guarantees, or an Agent's
Message in lieu of a Letter of Transmittal, and any other required documents,
must, in any case, be transmitted to and received by the Exchange Agent at one
of the addresses set forth below under " -- Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
Guaranteed Delivery Procedure
If a holder desires to accept the Exchange Offer and time will not permit
a Letter of Transmittal or Initial Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below, on or prior to the Expiration Date, a letter by
hand or mail, or sent by facsimile transmission (receipt confirmed by telephone
and an original delivered by guaranteed overnight courier) from an Eligible
Institution setting forth the name and address of the tendering holder, the
names in which the Initial Notes are registered and, if possible, the
certificate numbers of the Initial Notes to be tendered, and stating that the
tender is being made thereby and guaranteeing that within three business days
after the Expiration Date, the Initial Notes in proper form for transfer or a
Book-Entry Confirmation, will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Initial Notes being tendered by the
above-described method are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of the notice of guaranteed delivery ("Notice
of Guaranteed Delivery") which may be used by Eligible Institutions for the
purposes described in this paragraph are available from the Exchange Agent.
Withdrawal Rights
Tenders of Initial Notes may be withdrawn at any time prior to the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) or letter must be received
by the Exchange Agent at the address set forth herein prior to the Expiration
Date. Any such notice of withdrawal must (i) specify the name of the person
having tendered the Initial Notes to be withdrawn (the "Depositor"), (ii)
identify the Initial Notes to be withdrawn (including the certificate number or
numbers of such Initial Notes and the principal amount of each such Initial
Note), (iii) specify the principal amount of Initial
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Notes to be withdrawn, (iv) include a statement that such holder is withdrawing
his election to have such Initial Notes exchanged, (v) be signed by the holder
in the same manner as the original signature on the Letter of Transmittal by
which such Initial Notes were tendered or as otherwise described above
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee under the Indenture register the
transfer of such Initial Notes into the name of the person withdrawing the
tender and (vi) specify the name in which any such Initial Notes are to be
registered, if different from that of the Depositor. The Exchange Agent will
return the properly withdrawn Initial Notes promptly following receipt of
notice of withdrawal. If Initial Notes have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Initial Notes or otherwise comply with the
Book-Entry Transfer Facility procedure. All questions as to the validity, form
and eligibility of notices of withdrawals, including time of receipt, will be
determined by the Company and such determination will be final and binding on
all parties.
Any Initial Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Initial Notes
which have been tendered for exchange but which are not exchanged for any
reason will be returned to the holder thereof without cost to such holder (or,
in the case of Initial Notes tendered by Book-Entry Transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the Book-Entry
Transfer procedures described above, such Initial Notes will be credited to an
account with such Book-Entry Transfer Facility specified by the holder) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Initial Notes may be retendered by following
one of the procedures described under " -- Procedures for Tendering Initial
Notes" above at any time on or prior to the Expiration Date.
Acceptance of Initial Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, promptly after the Expiration Date, all Initial
Notes properly tendered and will issue the Exchange Notes promptly after such
acceptance. See " -- Certain Conditions to the Exchange Offer." For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Initial Notes for exchange when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
For each Initial Note accepted for exchange, the holder of such Initial
Note will receive an Exchange Note having a principal amount equal to the
principal amount (or portion thereof) of the Initial Note surrendered for
tender.
In all cases, issuance of Exchange Notes for Initial Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Initial Notes or
a timely Book-Entry Confirmation of such Initial Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal and all other required documents, or, in
the case of a Book-Entry Confirmation, an Agent's Message in lieu thereof. If
any tendered Initial Notes are not accepted for any reason set forth in the
terms and conditions of the Exchange Offer or if Initial Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Initial Notes will be returned without expense to
the tendering holder thereof (or, in the case of Initial Notes tendered by
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
above, such non-exchanged Initial Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration of the Exchange Offer.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, or any
extension of the Exchange Offer, the Company shall not be required to accept
for exchange, or to issue Exchange Notes in exchange for, any Initial Notes and
may terminate or amend the Exchange Offer (by oral or written notice to the
Exchange Agent or by a timely press release) if at any time before the
acceptance of such Initial Notes for exchange or the exchange of the Exchange
Notes for such Initial Notes, any of the following events occur:
(a) if, in the sole judgment of the Company, the Exchange Offer would
violate any law, statute, rule or regulation or an interpretation thereof
of the Staff of the Commission; or
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(b) any governmental approval has not been obtained, which approval the
Company, in its sole discretion, deems necessary for the consummation of
the Exchange Offer; or
(c) there shall have occurred (i) any general suspension of, shortening
of hours for, or limitation on prices for, trading in securities on any
national securities exchange or in the over-the-counter market (whether or
not mandatory), (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks by Federal or state authorities
in the United States (whether or not mandatory), (iii) a commencement of a
war, armed hostilities or other international or national crisis directly
or indirectly involving the United States, (iv) any limitation (whether or
not mandatory) by any governmental authority on, or other event having
reasonable likelihood of affecting, the extension of credit by banks or
other lending institutions in the United States, or (v) in the case of any
of the foregoing existing at the time of the commencement of the Exchange
Offer, a material acceleration or worsening thereof.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Initial Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Initial Notes). In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date
if any of the conditions set forth above occur. Moreover, regardless of whether
any of such conditions has occurred, the Company may amend the Exchange Offer
in any manner which, in its good faith judgment, is advantageous to holders of
the Initial Notes.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its sole discretion. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right, and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time. If the Company waives or amends
the foregoing conditions, it will, if required by law, extend the Exchange
Offer for a minimum of five business days from the date that the Company first
gives notice, by public announcement or otherwise, of such waiver or amendment,
if the Exchange Offer would otherwise expire within such five business-day
period. Any determination by the Company concerning the events described above
will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Initial Notes
tendered, and no Exchange Notes will be issued in exchange for any such Initial
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of
1939, as amended. In any such event, the Company is required to use every
reasonable effort to obtain the withdrawal of any stop order at the earliest
possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Initial Notes being tendered for exchange.
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Exchange Agent
SunTrust Bank, Atlanta has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below:
<TABLE>
<CAPTION>
By Hand/Overnight Courier: By Mail:
<S> <C>
SunTrust Bank, Atlanta SunTrust Bank, Atlanta
c/o First Chicago Trust Company 58 Edgewood Avenue, 4th Floor Annex
14 Wall Street -- 8th Floor Atlanta, Georgia 30303
New York, New York 10005 Attn: David M. Kaye
Attn: David M. Kaye Corporate Trust Division
Corporate Trust Division
</TABLE>
By Facsimile: (404) 332-3966
Attn: David M. Kaye
Corporate Trust Division
By Telephone: (404) 588-8060
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSIONS OF
INSTRUCTIONS VIA A FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
Solicitation of Tenders; Fees and Expenses
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others for
soliciting acceptances of the Exchange Offer. The Company will, however, 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 and other related documents to the beneficial owners
of the Initial Notes and in handling or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and the Note Guarantors and are estimated in
the aggregate to be approximately $225,000, which includes fees and expenses of
the Exchange Agent, Trustee, registration fees, accounting, legal printing and
related fees and expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of the Company since the respective dates as of
which information is given herein. The Exchange Offer is not being made to (nor
will tenders be accepted from or on behalf of) holders of Initial Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction. However,
the Company may, at its discretion, take such action as it may deem necessary
to make the Exchange Offer in any such jurisdiction and extend the Exchange
Offer to holders of Initial Notes in such jurisdiction. In any jurisdiction in
which the securities laws or blue sky laws of which require the Exchange Offer
to be made by a licensed broker or dealer, the Exchange Offer is being made on
behalf of the Company by one or more registered brokers or dealers which are
licensed under the laws of such jurisdiction.
Transfer Taxes
The Company will pay all transfer taxes, if any, applicable to the
exchange of Initial Notes pursuant to the Exchange Offer. If, however,
certificates representing Exchange Notes or Initial Notes for principal amounts
not
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tendered or accepted for exchange are to be delivered to, or are to be issued
in the name of, any person other than the registered holder of the Initial
Notes tendered, or if tendered Initial Notes, are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Initial Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
Accounting Treatment
The Exchange Notes will be recorded at the carrying value of the Initial
Notes as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company upon the exchange of Exchange Notes for Initial
Notes. Expenses incurred in connection with the issuance of the Exchange Notes
will be amortized over the term of the Exchange Notes.
Consequences of Failure to Exchange
Initial Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will continue to be subject to the restrictions on transfer of
such Initial Notes as set forth in the legend thereon and in the Indenture.
Initial Notes not exchanged pursuant to the Exchange Offer will continue to
remain outstanding in accordance with their terms. In general, the Initial
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Initial Notes under the
Securities Act.
Participation in the Exchange Offer is voluntary, and holders of Initial
Notes should carefully consider whether to participate. Holders of the Initial
Notes are urged to consult their financial and tax advisors in making their own
decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Initial Notes pursuant to the terms of, this Exchange Offer,
the Company and the Note Guarantors will have fulfilled a covenant contained in
the Registration Rights Agreement. Holders of Initial Notes who do not tender
their Initial Notes in the Exchange Offer will continue to hold such Initial
Notes and will be entitled to all the rights and subject to all the limitations
applicable thereto under the Indenture, except for any such rights under the
Registration Rights Agreement that by their terms terminate or cease to have
further effectiveness as a result of the making of this Exchange Offer. All
untendered Initial Notes will continue to be subject to the restrictions on
transfer set forth in the Indenture. To the extent that Initial Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
Initial Notes could be adversely affected.
The Company may in the future seek to acquire, subject to the terms of the
Indenture, untendered Initial Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plan to acquire any Initial Notes which are not tendered in the
Exchange Offer.
Resale of Exchange Notes
The Company is making the Exchange Offer in reliance on the position of
the Commission as set forth in certain 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 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 Commission, the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer in exchange for Initial Notes may be
offered for resale, resold and otherwise transferred by a holder (other than
any Holder that is a broker-dealer or an "affiliate" of the Company within the
meaning of Rule 405 of the Securities Act) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement or understanding with any
person to participate in the distribution of such Exchange Notes and neither
such holder nor any such other person is engaging in or intends to engage in a
distribution of the Exchange Notes. However, any holder who is an "affiliate"
of the Company or who has an arrangement or understanding with respect to the
distribution of the Exchange Notes to be acquired
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pursuant to the Exchange Offer, or any broker-dealer who purchased Initial
Notes from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act. A
broker-dealer who holds Initial Notes that were acquired for its own account as
a result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes. Each such broker-dealer that
receives Exchange Notes for its own account in exchange for Initial Notes,
where such Initial Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge in the
Letter of Transmittal that it will deliver a prospectus in connection with any
resale of such Exchange Notes. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the Exchange Notes may not be offered or sold unless they have
been registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company
and the Note Guarantors have agreed, pursuant to the Registration Rights
Agreement and subject to certain specified limitations therein, to register or
qualify the Exchange Notes for offer or sale under the securities or blue sky
laws of such jurisdictions as any holder of the Exchange Notes reasonably
requests in writing. Such registration or qualification may require the
imposition of restrictions or conditions (including suitability requirements
for offerees or purchasers) in connection with the offer or sale of any
Exchange Notes.
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BUSINESS
General
The Company is a leading global manufacturer of textiles for sportswear,
including cotton casuals, denim and corduroy, as well as a major international
manufacturer of workwear fabrics. The Company also is a manufacturer of dyed
and printed fabrics for use in home fashions. In order to offer customers a
complete package of fabrics and garments from one source, the Company has
established garment manufacturing operations, which the Company believes
provides a competitive advantage over other fabric manufacturing companies.
The Company believes that it is the market leader in producing innovative
woven sportswear fabrics as a result of its expertise in sophisticated and
diversified finishing. Fabrics are designed in close partnership with customers
to capture a large share of the middle and high end of the bottomweight woven
market. The Company sells its woven sportswear products to a diversified
customer base, including Levi's, Haggar, Farah, Polo Ralph Lauren, Jones
Apparel Group, Calvin Klein and Liz Claiborne, as well as to private label
manufacturers for chain stores and suppliers of mail order catalogs.
In January 1998, the Company acquired the apparel fabrics business of
Dominion, including its Swift denim and Klopman workwear and careerwear
divisions. On a pro forma combined basis for the twelve months ended December
27, 1997, after giving effect to the Acquisition, the Company's net sales were
$1.1 billion and, on a pro forma combined basis for the year ended September
27, 1997 and the three months ended December 27, 1997, in each case after
giving effect to the Acquisition, the Company's Adjusted Pro Forma EBITDA was
$137.4 million and $30.6 million, respectively.
Strategy
The Company's strategy is (i) to be either first or second in each of the
product categories it offers, (ii) to make products that can be distinguished
from those made by its competitors, (iii) to continue to modernize its
facilities in order to maintain its competitive position, and (iv) to further
integrate the manufacture of garments with the manufacture of fabrics in order
to increase strategic relationships with customers and increase market share.
Key tactics of the Company's strategy include:
Emphasizing Innovative Products and Services. Historically, product
development was split between fabric and garment manufacturers. Through its
state-of-the-art facilities, the Company is able to combine these two steps
into one. This permits the Company to present fully developed commercially made
sample garments which assists the Company's customers in reducing their product
development cycle times and allows the Company to develop more innovative
products.
Emphasizing Customer Service. The Company is committed to being an
industry leader in providing superior customer service. The key elements of
this tactic include (i) providing timely and complete order delivery, (ii)
building partnerships with customers, (iii) providing electronic data
information services, and (iv) providing inventory management support.
Capitalizing on the Changing Manufacturing Chain. The Company believes
that a significant change is occurring in the apparel manufacturing chain. Many
of the Company's customers are either dependent on, or increasing their
dependency on, outsourcing their garment manufacturing requirements. The
Company's ability to provide customers with a "package" utilizing Company
fabrics and finished garments allows customers to avoid dealing with multiple
contractors to bring their products to market. By reducing the number of
vendors with which its customers are required to enter into commercial
relationships, the Company has simplified the customers' sourcing process. The
Company believes that this method will be the manufacturing chain of the future
and believes that it is on the cutting edge in supplying these services from
its owned and operated garment facilities located in Mexico.
Expanding International Operations. Through the expansion of international
manufacturing capabilities and sales offices, the Company is better able to
service both local markets in various parts of the world, as well as its U.S.
customers as they expand globally. As a result of the Acquisition, the Company
acquired manufacturing facilities in the U.S., Canada, Italy, and Tunisia, as
well as sales offices in Eastern and Western Europe, South America and Asia, to
complement its previously existing manufacturing facilities in the U.S. and
Mexico.
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Increasing Manufacturing Efficiencies. The Company has made significant
investments in its manufacturing operations to provide for the flexible
production of its broad line of value-added fabrics and to reduce production
costs. As a result of these investments, the Company has experienced a 93%
increase in net sales per average number of employees from approximately
$68,000 per employee during fiscal 1988 to approximately $131,000 per employee
during fiscal 1997 (excluding G&L Service Company and the Acquired Business).
The Acquisition
In January 1998, the Company purchased the Acquired Business for a cash
purchase price of $464.5 million. The Purchase Price and related fees and
expenses were financed with borrowings of (i) approximately $205.8 million
under the Company's Senior Credit Facility and (ii) $275.0 million under the
Company's Bridge Financing Facility. The Company used the net proceeds from the
Initial Notes Offering to repay (i) the Bridge Financing Facility and (ii) a
portion of the outstanding amount under the revolving line of credit provided
for under the Senior Credit Facility.
The Company believes that the Acquisition will enhance its competitive
position and business prospects as follows:
Expanded Global Marketing Synergies. As a result of the Acquisition, the
worldwide marketing capabilities of the Company have been greatly expanded.
Newly acquired sales offices will enable the Company to market products
internationally which have previously been marketed primarily in the U.S. These
new sales offices include locations in Eastern and Western Europe, South
America and Asia.
Expanded Global Manufacturing. Prior to the Acquisition, the Company's
manufacturing facilities were based in the U.S. and Mexico. As a result of the
Acquisition, the Company acquired manufacturing facilities in Canada, Italy,
and Tunisia, as well as the U.S. These operations are expected to provide
improved access to growing global markets for the Company's products. For
example, the Company intends to transfer technology to its Italian
manufacturing operations to enable these operations to produce cotton casual
fabrics as well as their traditional workwear fabrics.
Cost Rationalization. The Company believes that it can rationalize
operating costs following the Acquisition through the elimination of
duplicative corporate and back-office operations, the reduction of real
property expenses and the rationalization of other functions. Historically,
Galey & Lord has maintained one of the lowest selling, general, and
administrative expense ratios in the industry. The Company believes that
significant opportunities exist to lower Swift's and Klopman's SG&A costs.
Greater Critical Mass. The Acquisition has significantly increased the
Company's revenue base. After giving pro forma effect to the Acquisition, the
Company's net sales for the twelve months ended December 27, 1997 were $1.1
billion. The Company believes that its increased size, marketing resources,
production capacity and product offering will create additional marketing and
other growth opportunities.
Industry Trends
Several trends have affected the domestic and global fabric and apparel
businesses recently, the most significant being the expansion of North American
apparel production, the increase in casual dress in and away from the workplace
and the move toward vertical integration of fabric production with garment
production.
Expansion of North American Apparel Production. Since the mid-1980s there
has been a dramatic shift in apparel sourcing from the Far East to Mexico and
the Caribbean as shown in the graph below. In 1985 Mexico and the Caribbean
supplied the U.S. with approximately 8% of its apparel imports. This percentage
rose to approximately 38% during 1997. During that same time period, apparel
imports from the Far East to the U.S. declined from 75% to approximately 36%.
Over 80% of the imports from Mexico and the Caribbean use U.S. made fabric. In
addition, Mexico has surpassed China as the leading exporter of apparel to the
U.S. A comparison of these two countries shows that on a square meters of
fabric basis, Mexican imports to the U.S. have risen from approximately 100
million square meters in 1986 to one billion square meters in 1996, with the
majority of this occurring since the enactment of NAFTA in 1994. The Company
believes that the foregoing trend can be attributed to (i) the beneficial
impact of U.S. trade policy, including NAFTA and the U.S. "807" and "807A"
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<PAGE>
tariff programs (under which many of the Company's customers benefit from
favorable duty and, in certain instances, quota treatment on garments assembled
offshore), together with (ii) customer demands for more rapid delivery time
which can be better met with imports from North American locations rather than
from the Far East.
(graph appears here with plot points to be provided)
Trend Toward Casual Dress. The Company believes there is a growing trend
in the U.S. toward casual dress which is expected to help cotton casual, denim
and corduroy sales. An increasing number of employers continue to institute
casual dress policies, whether full time or for special occasions, such as
"casual Fridays." In addition, the Company believes that the number of people
who work at home is increasing and that outside the workplace, people's social
activities are focusing on a more casual lifestyle. According to NPD Group,
Inc., an independent market research firm, the retail dollar volume for men's
casual attire grew 7.3% annually between 1991 and 1997 and the retail dollar
volume of women's casual attire grew 4.9% annually in the same period in
comparison to the retail dollar volume for total tailored apparel, which grew
2.1% over the same period. In 1997, 65% of the retail dollars spent on casual
and tailored apparel was attributed to casual apparel. This trend benefits the
Company by increasing the demand for, and consequently, sales of, the Company's
cotton casual, denim and corduroy products.
Apparel Production by Fabric Suppliers. Recent trends in the garment
industry have resulted in certain apparel manufacturers and marketeers adopting
new supply, sourcing and purchasing strategies. The recent shift in fabric and
garment production levels from the Far East to North America has created new
sourcing strategies. To meet customer demands for simplified relationships with
contractors and vendors, certain fabric manufacturers have become increasingly
vertically integrated, developing, producing, finishing and merchandising
garments for customers, either through owned or contracted garment assembly
operations. The effect of these new strategies has been to allow apparel
marketeers to bring their products to market on a more timely basis, thereby
minimizing inventory risks and responding more effectively to shifts in
consumer demand. The Company believes that G&L Service Company's garment
assembly operations position it to satisfy these customer demands and manage
the production of finished apparel for customers.
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<PAGE>
International Markets. The passage of NAFTA and GATT has provided U.S.
apparel retailers and manufacturers access to international markets which
previously had been generally unavailable to them. This movement into offshore
markets gives the Company a greater opportunity to market its products to
retailers and manufacturers through production by its offshore facilities.
Another aspect to the trend of international casual apparel growth relates to
the Company's belief that demand for casual apparel is increasing in the
industrialized countries of Europe as these countries continue to adopt U.S.
casual fashion trends.
Vendor Managed Inventory and Merchandising Programs. The Company believes
that apparel producers are actively looking for ways to achieve heightened
customer service by consolidating suppliers and taking advantage of
technological innovations. The Company is working with its customers to develop
electronic data information services that will aid in inventory management,
process controls, on-time deliveries and expansion of production facilities.
The Company believes that its breadth of products, flexible production
capabilities, investments in technology and critical mass position the Company
well to increase its market share as major apparel producers continue to
consolidate and focus their supplier relationships.
Products
The following chart shows the Company's sales by product line on a pro
forma combined basis, after giving effect to the Acquisition, for the twelve
months ended December 27, 1997.*
(pie chart appears here with plot points to be provided)
- ----------
* Sales for Galey & Lord prior to the Acquisition are for the twelve months
ended December 27, 1997 and sales for the Acquired Business are for the
twelve months ended December 31, 1997.
Cotton Casuals
The Company is the largest domestic producer by capacity of cotton and
cotton blended fabrics used in apparel, with approximately 35% of U.S.
production. These fabrics are primarily used for the production of men's and
women's pants and shorts. Because of its capital investment in sophisticated
dyeing and finishing equipment, the Company is able to weave a limited number
of substrates and to finish each of them into a variety of esthetics. This
enables the Company to work with its customers to provide new products for the
marketplace that are unique. The Company's cotton casual fabrics are often
presented to customers in the form of commercially made sample garments rather
than in the traditional method of just showing fabrics. The Company believes
that by presenting fabrics in this manner customers are able to make purchasing
decisions earlier, thereby enabling them to bring products to market quicker
and more efficiently.
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<PAGE>
The Company's products are sold principally to manufacturers of men's wear
and women's wear. Fabrics produced for these markets are predominately 100%
cotton. The Company's leading men's wear customers are Levi's, Haggar, Farah
and Tropical Sportswear Int'l Corporation ("Tropical Sportswear Int'l"). The
Company's women's wear customers include brand name and private label
manufacturers and chain stores. They include Levi's, Polo Ralph Lauren, Calvin
Klein, Gap, Inc. ("Gap"), Banana Republic, Polo Jeans Co. and Liz Claiborne. In
addition, the Company sells to suppliers of mail order catalogs.
Denim
As a result of the Acquisition, the Company is the world's second largest
producer of denim, operating under the tradename Swift Denim. The Swift
division manufactures and markets a wide variety of denim products for apparel
and non-apparel uses, such as home furnishings. These products are manufactured
in a full range of colors, weights and finishes. Swift's product development
concentrates on high value-added products that are developed primarily for the
mid and upper ranges of distribution as determined by retail selling prices.
Swift has established leadership in developing differentiated denim products
such as black denim, ring spun denim, eco denim and rebel ring products. The
Company believes that domestically 44% of its products are in the mid range of
the market and that 52% of its products are in the upper range of the market,
giving it a 23% and 35% share of these market segments, respectively.
Swift enjoys a wide distribution, and its major customers include Levi's,
Polo Jeans Co., Calvin Klein, Tommy Hilfiger Corporation, Liz Claiborne, Gap
and H.D. Lee Co. Inc. It also is a supplier to private label programs through
Aalfs Manufacturing Inc. ("Aalfs"), Texas Apparel, Inc. and Border Corp. and
sells to mail order suppliers, Land's End, Inc., L.L. Bean Inc., Eddie Bauer,
Inc. and J. Crew Group Inc. Swift's international customers include Levi's,
Revelacion En El Vestir S.A., Fairsound U.S.A. Corp., Hoi Kosher Garment Fty.
Ltd. and Luen Fung (Hop Kee) Garment.
Corduroy
The Company is the only vertically integrated manufacturer of corduroy in
the U.S. and is the largest domestic manufacturer. It manufactures fabrics in a
variety of wales and weights. In addition to the traditional corduroy fabrics,
the Company uses its finishing expertise to differentiate its products and
produce new corduroy fabrics, including corduroy that stretches. Major
customers are Levi's, Haggar, Polo Ralph Lauren, H.D. Lee Co. Inc., as well as
Aalfs, Hagale Industries Inc., Oxford Industries, Inc., and Tropical Sportswear
Int'l who are private label and mail order suppliers.
Workwear
As a result of the Acquisition, the Company is a leading international
supplier of workwear and careerwear fabrics, and the only manufacturer with
facilities in both North America and Europe. The Company produces high
performance workwear fabrics that retain their comfort, appearance and
performance over an extended wear life. In 1995, the Klopman international
division introduced two high performance workwear fabrics, Superbandmaster 2000
and Indestructible 2000, the first significant new products in the market in
several years. These fabrics significantly extend the wear life of the garment
while maintaining comfort and appearance. The workwear and careerwear fabrics
are distributed primarily to the industrial laundry, hospitality, and
healthcare markets.
Fitness for use, continuity of color and customer service are the factors
most important to the Company's customers. The Company sells chemically treated
fabrics, including fabrics treated with FlamexTM, a fire retardant finish, and
BioguardTM, an anti-bacterial finish. Domestic customers for uniform fabrics
include Riverside Manufacturing Co., Garment Corporation of America, Superior
Surgical Mfg. Co., Inc., Landau Uniforms Corp., Cintas Corporation and Kellwood
Company. Klopman's international customers include Alexandra Workwear plc., CCM
Limited, Alsico NV, Mulliez Freres, Amuco International SpA and Van Moer.
G&L Service Company
In June 1996, the Company acquired garment manufacturing facilities
located in Piedras Negras, Mexico where employees sew and finish men's and
women's pants and shorts. G&L Service Company allows the Company to offer its
customers a finished package of fabric and garments from one source. This
provides customers with logistical and quality benefits that result in goods
reaching the market in a more timely manner. In its
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first eighteen months of operations, G&L Service Company has succeeded in
attracting customers such as Levi's, Polo Ralph Lauren, Liz Claiborne, Jones
Apparel Group and Calvin Klein.
Home Fashion Fabrics
The Company's Home Fashion Fabrics division sells dyed and printed fabrics
to the home furnishing trade for use in bedspreads, comforters, curtains and
accessories. The Company manufactures greige fabrics (undyed and unfinished
base fabrics) which it sends to independent contractors for dyeing and
finishing. Home Fashion Fabrics' major customers include Regency Home Fashions
Inc., Arley Corp., Burlington Industries Inc. ("Burlington"), CHF Industries
Inc., and American Home Ensembles Inc.
Manufacturing
The Company has spent $161.8 million over the last three fiscal years to
modernize its operations, which has increased productivity, lowered costs and
improved quality.
Cotton Casuals
The Company is a vertically integrated manufacturer of woven cotton and
cotton blended apparel fabrics with various plants involved in spinning,
weaving and dyeing and finishing. The spun yarn is woven into greige fabric
using high-speed air-jet looms. The Company dyes and finishes all of its woven
cotton casual fabrics at its Society Hill, South Carolina manufacturing
facility. The Company has significant assets devoted to creating value-added
fabrics, including an extensive range of faced finished flannel and suede
finished fabrics. The finishing process used by the Company depends upon the
type and style of fabrics being produced in accordance with customer
specifications. Fabrics are woven by the Company based on projected sales but
are dyed and finished according to customer purchase orders.
In order to operate its dyeing and finishing facility at optimum capacity,
the Company purchases a portion of its greige fabric requirements from outside
sources. During periods of lower demand for dyed and finished fabrics, the
Company reduces its purchases of greige fabrics from outside sources and uses
its internal capacity to supply market demands. The result of this strategy is
that Galey & Lord's spinning and weaving facilities have had only fourteen days
of unplanned curtailment since 1988.
Denim
Swift is the world's second largest producer of denim. The Company
believes that Swift is the world's largest producer of value-added denim. In
manufacturing denim, yarn is spun in its natural state, and then dyed prior to
being woven into fabric. The woven fabric is then finished in a variety of
ways.
Corduroy
The Company is the only vertically integrated manufacturer of corduroy in
the U.S. The Company's weaving and dyeing and finishing equipment and processes
may be used to produce both corduroy and other woven cotton casual apparel
fabrics. The ability to produce both types of fabric using substantially the
same equipment and processes allows the Company to schedule its production to
both economically and efficiently meet changes in demand which varies
seasonally (corduroy for the fall/winter selling season and cotton casual for
the spring/ summer selling season), and to maintain consistent levels of
production throughout the entire year.
Workwear
The Company's domestic workwear division uses a portion of the Company's
spinning, weaving and dyeing and finishing facilities to produce its products.
Klopman operates a spinning, weaving and dyeing and finishing plant in
Frosinone, Italy. The Company's European operations have executed a strategy to
purchase greige fabric worldwide in order to achieve more competitive costs.
G&L Service Company
Through its garment manufacturing facilities in Piedras Negras, Mexico,
the Company sews and finishes garments for its apparel customers. The location
of the Company's garment manufacturing facilities in Mexico allows the Company
to respond quickly to the needs of its U.S. apparel customers and to compete
effectively
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with competitors in the Far East who have longer lead times for delivery of
goods to the U.S. To meet increasing demand, the Company is constructing an
additional garment manufacturing facility in Monclova, Mexico.
Home Fashion Fabrics
The Company operates its own yarn and greige manufacturing facilities to
produce fabrics for the home furnishings trade. The Home Fashion Fabrics
division's weaving facility operates wide Sulzer looms, which allow it to
manufacture fabrics ranging from 48" to 127" in width. The Company believes
that having wide weaving capability is key to being able to offer the fabrics
required by the home furnishings trade for comforters and bedspreads. The
Company distinguishes itself by producing weave effects that simulate jacquard
loom fabrics which can be sold at lower prices. The Company utilizes these
looms to have the flexibility of producing the Company's core cotton casual
apparel fabrics as well as home fashion products. The Company purchases outside
dyeing and printing services from various suppliers to dye and print fabrics
according to customers' specifications.
Sales and Marketing
The Company's personnel work continually with customers to develop product
lines well in advance of actual shipment. Sales personnel often present fabrics
to customers in the form of commercially made sample garments rather than the
traditional method of just showing fabrics. The Company believes this enables
customers to bring products to market more quickly and efficiently.
The Company has separate sales and marketing groups for its Galey & Lord
cotton casuals, corduroy and workwear divisions, its Swift Denim U.S.A. group,
Klopman (which supplies workwear in Europe) and Swift Europe (which markets
denim in Europe). The Company believes in training individuals to sell and
market specific products as opposed to marketing fabrics generally.
Raw Materials and Services
The Company's principal raw materials are cotton and polyester. Cotton is
available from a large number of suppliers. The quantity of plantings, crop and
weather conditions, agricultural policies, domestic uses, exports and market
conditions can significantly affect the cost and availability of cotton, but,
to date, the Company has experienced no difficulty obtaining adequate supplies
of cotton. The Company enters into contracts for cotton several months in
advance of expected delivery to ensure availability. The prices associated with
these contracts may be either fixed at the time the contract is signed or at a
later date.
The U.S. restricts the importation of cotton. In order to make the price
of domestic cotton competitive with prices quoted in the world market, the U.S.
Department of Agriculture has adopted a program under which it pays rebates to
users of domestically produced cotton according to a formula based on relative
world and domestic cotton prices when domestic prices exceed world prices.
Additionally, under certain circumstances this program permits U.S.
manufacturers to import limited amounts of cotton.
The price of polyester is determined by supply and demand and other uses
of the petroleum used to produce polyester. While the Company currently
purchases polyester from two principal suppliers, polyester is readily
available from other suppliers. The Company has not experienced any difficulty
in obtaining sufficient quantities of polyester, and although no assurances can
be made, does not anticipate any difficulty in meeting its needs in the future.
The Company purchases spun yarn and greige fabric to supplement its own
production. These products are available from a number of suppliers.
The Company purchases its dyes and chemicals from several suppliers. Dyes
and chemicals are available from a large number of suppliers, and the Company
has not experienced any difficulty in obtaining sufficient quantities.
The Company in its home fashions business employs the services of several
outside processors to dye or print greige fabric in accordance with customers'
specifications. The Company has established strong relationships with the
outside processors and has not experienced any difficulty in meeting customer
delivery dates. These services are also available from other providers.
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Competition
General
The Company has numerous competitors in each of the categories in which it
competes.
Purchasing decisions by the Company's customers are influenced by a number
of factors, including quality, price, manufacturing flexibility, delivery time,
customer service, product styling and differentiation. Competition among U.S.
and foreign manufacturers is affected by changing relative labor and raw
material costs, lead times, political instability and infrastructure
deficiencies of newly industrializing countries, ecological concerns, human
resource laws, fluctuating currency exchange rates, individual government
policies and international agreements regarding textile and apparel trade.
U.S. government policy has been favorable to the U.S. textile industry.
The Company's customers receive favorable duty and, in certain instances, quota
treatment by taking advantage of the U.S. "807" and "807A" tariff programs, as
well as NAFTA. Under tariff program "807," garment textile components cut in
the U.S. and assembled offshore can be brought back into the U.S. subject to
existing quotas, with duty only imposed on the value added offshore. Under
tariff program "807A," which falls under the Caribbean Basin Initiative,
garments that are cut in the U.S. using U.S. fabric and trim and then assembled
in a beneficiary country benefit from preferential quota as well as duty
treatment upon import into the U.S.
The Company believes that it has benefited, and will continue to benefit,
from the 1994 implementation of NAFTA, which phases out duties and quotas on
certain textiles and apparel shipped between Mexico, the U.S. and Canada.
NAFTA's yarn forward rule of origin assures that only those textiles produced
in NAFTA countries benefit from the phasing out of duties and quotas.
The Company believes that GATT and the ATC will, for the most part, have a
negative effect on the domestic textile and apparel industry. The ten-year
phaseout of quotas under the ATC, which replaces the existing system of
bilateral import restrictions imposed under the Multifiber Arrangement, will
gradually allow more imports to enter the country. The Company, however, also
believes that there may be some benefits from GATT and the ATC, as they will
open foreign markets to the Company's customers which the Company believes will
allow it to supply customers in such foreign markets.
Cotton Casuals
There are several major domestic competitors in the finished cotton casual
apparel fabrics business, none of which dominates the market. The Company's
major competitors include Delta Woodside Industries, Inc., Graniteville
Company, a division of Avondale Mills, Inc. and Milliken & Company Inc. The
Company's technical expertise in finishing enables it to provide a number of
value-added fabrics to differentiate itself from its competitors, including an
extensive range of faced finished flannel and suede finished fabrics.
Denim
The U.S. denim market is highly concentrated with four denim manufacturers
supplying approximately 70% of the market. Cone Mills Corporation, Avondale
Mills, Inc. and Burlington are Swift's major competitors. In Europe, the
Company believes that Swift Europe is the leader in the value-added market with
a rich mix of differentiated products. Its principal competitors include
Kaihara in Japan, Hellenic Fabrics S.A. in Greece, Orta Anadolu in Turkey,
Atlantic Mills Ltd. in Ireland and Tavex Algodonera, S.A. in Spain.
Corduroy
The Company is the only vertically integrated domestic producer of
corduroy fabrics. Competition to the Company's corduroy business is mostly from
imported garments and, to a lesser extent, a domestic converter of fabrics.
Workwear
The Company's major domestic competitors in the workwear and careerwear
business are Graniteville Company, Riegel Textile Corp., a division of Mount
Vernon Mills, Inc., Milliken & Company Inc. and Spring Industries, Inc.
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Klopman is the leading pan-European manufacturer and distributor of
workwear and careerwear fabrics, holding a 40% market share based on the
Company's estimates. It competes with domestic suppliers in each country it
serves. Its major competitors in its principal markets are Lauffenm\)hle GmbH
(recently sold to Matfatial Industries of India), Carrington Career and
Workwear Fabrics and Royal Ten-Cate NV.
G&L Service Company
G&L Service Company competes with numerous garment manufacturers
throughout the world. Some of these competitors are larger and have greater
financial resources than G&L Service Company.
Home Fashion Fabrics
The Company's Home Fashion Fabrics division competes with a number of
printers and dyers offering similar services, including Raytex Finishing
Company, Santee Print Works, Inc. and Slater Screen Print Works.
Backlog
The Company's order backlog consists of orders that are not subject to
cancellation prior to shipment, although the Company has in the past
accommodated customer requests for order deferments due to unusual
circumstances. Galey & Lord's order backlog at December 27, 1997 was $168.4
million, a 1% increase from the December 28, 1996 backlog of $166.9 million.
Apparel fabrics backlog increased 2% as a result of a stronger business
environment than fiscal 1996. Home fabrics backlog decreased 12%, primarily due
to a decline in orders from a Home Fashion Fabrics customer who filed for
bankruptcy protection during the June quarter of 1997. The customer was
subsequently sold and the Company is selling to the new owner under standard
credit terms. The Acquired Business' order backlog at December 31, 1997 was
$99.4 million, a 7% decrease from the December 31, 1996 backlog of $106.6
million.
Employees
Prior to giving effect to the Acquisition, at December 27, 1997, the
Company had 3,859 U.S. employees none of whom were covered by a collective
bargaining agreement. Of these employees, 3,274 were employed in manufacturing
and 585 in administration and sales. Also, at December 27, 1997, G&L Service
Company had 2,433 employees in Mexico. The majority of these employees are
covered by a collective bargaining agreement which expires January 1, 1999. At
December 27, 1997, the Acquired Business had 2,821 U.S. employees, 680 Canadian
employees and 708 employees in operations elsewhere in the world, mainly in
Europe. Of these employees 2,633 were covered by collective bargaining
agreements. One collective bargaining agreement covering 1,250 employees,
expiring in 1998, has been renewed for a three year term effective January 31,
1998. Substantially all of the Company's employees are full-time.
The Company experienced labor disruptions at its facilities in Piedras
Negras, Mexico during the September quarter of fiscal 1997 due to concerns that
the union employees had relating to the election of their local union leader.
Throughout this time, the Company's relationship with the union remained
strong, and the Company believes that the labor problems have been resolved.
The Company has not subsequently experienced any additional labor disruptions.
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Properties
The following table sets forth the general location, principal uses and
approximate size of the Company's principal properties and whether such
properties are leased or owned:
<TABLE>
<CAPTION>
Approximate Leased
Area In Or
Facility Name Location Use Square Feet Owned
- ----------------------------- ----------------------- ---------------------------- ------------- --------------
<S> <C> <C> <C> <C>
Flint ....................... Gastonia, NC Spinning 250,000 Owned
Brighton .................... Shannon, GA Spinning and weaving 877,000 Owned
McDowell .................... Marion, NC Weaving 222,000 Owned
Society Hill ................ Society Hill, SC Dyeing and finishing 527,000 Owned
Society Hill II ............. Society Hill, SC Dyeing, finishing and 250,000 Owned
warehousing
Asheboro .................... Asheboro, NC Weaving and greige cloth 386,000 Owned
storage
Caroleen .................... Caroleen, NC Spinning 375,000 Owned
Corporate Offices ........... Greensboro, NC Corporate 24,000 Leased
Executive Offices ........... New York, NY Executive and sales office 22,000 Leased
Blue Warehouse .............. Society Hill, SC Greige and finished cloth 100,000 Owned
storage
Hermitage Warehouse ......... Rome, GA Cotton and yarn storage 45,000 Leased
Riverside Warehouse ......... Rome, GA Cotton and yarn storage 20,000 Leased
Red Warehouse ............... Marion, NC Yarn storage 33,000 Owned
Elm Street Warehouse ........ Greensboro, NC Finished cloth storage 108,000 Owned
G&L Service Company
(Dimmit Industries) ....... Piedras Negras, MX 6 sewing and garment 228,000 Leased
finishing facilities
Eagle Pass Facilities ....... Eagle Pass, TX 1 cutting and 1 16,000 Leased
warehousing facility
Swift Executive Offices ..... Atlanta, GA Executive offices 14,000 Leased
Swift Operations Offices Columbus, GA Operations and sales 27,000 Leased
Erwin Plant ................. Erwin, NC Spinning 1,325,000 Owned
Erwin Plant ................. Erwin, NC Weaving, dyeing and 343,000 Owned
finishing
6th Avenue Plant ............ Columbus, GA Spinning 963,000 Owned
Boland Plant ................ Columbus, GA Weaving, dyeing and 480,000 Owned
finishing
Drummondville Plant ......... Drummondville, Quebec Spinning, weaving, dyeing 523,000 Owned
and finishing
Klopman Plant ............... Frosinone, Italy Spinning, weaving, dyeing 861,000 Owned
and finishing
Sitex Plant ................. Sousse, Tunisia Spinning 456,000 Joint Venture
Sitex Plant ................. Ksar Hellal, Tunisia Weaving and finishing 771,000 Joint Venture
</TABLE>
The Company's factories worldwide (i) had a combined total of 1,671 air
jet looms and 846 Sulzer looms at December 31, 1997, (ii) spun 311.9 million
pounds of yarn during fiscal year 1997, (iii) wove 305.6 million linear yards
of fabric during fiscal year 1997, and (iv) finished 334.2 million linear yards
of fabric during fiscal year 1997.
The Company believes that its facilities are suitable to service its
current level of sales and have additional capacity to satisfy its foreseeable
needs. To meet increasing demand for the Company's garments, the Company is
constructing an additional garment manufacturing facility in Monclova, Mexico.
The Company's executive and sales offices, located at 980 Avenue of the
Americas, New York, New York, are occupied pursuant to a lease that expires in
2003. The lease for corporate offices in Greensboro, North Carolina also
expires in 2003, with a five-year renewal option.
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Government Regulation
The Company is subject to various environmental laws and regulations in
its operations governing the discharge, storage, handling and disposal of a
variety of substances in the North American and European countries in which it
operates. In particular, such laws include (i) in the United States, the
Federal Water Pollution Control Act, the Federal Clean Air Act, the Resource
Conservation Recovery Act (including amendments relating to underground tanks)
and the Federal "Superfund" program, and (ii) in Canada, the Canadian
Environmental Protection Act, the Hazardous Products Act, the Hazardous
Materials Information Review Act, the Fisheries Act, the Environmental
Protection Act (Ontario), the Water Resources Act (Ontario) and the
Environmental Quality Act (Quebec). In addition, the Company's operations are
governed by laws and regulations relating to workplace safety and worker health
in the North American and European countries in which it operates. In
particular, in the United States, the Occupational Safety and Health Act and
regulations thereunder, among other things, establish cotton dust,
formaldehyde, asbestos and noise standards, and regulate the use of hazardous
chemicals in the workplace. Additionally, in Canada the Occupational Health and
Safety Act (Ontario), the Act Respecting Occupational Health and Safety
(Quebec) and their respective regulations establish standards for dust, noise
and substances including, among others, asbestos and formaldehyde and regulate
the use of hazardous chemicals in the workplace.
South Carolina environmental authorities recently approved a closure plan
for an aeration pond at the Company's Society Hill facility that was formerly
used for wastewater treatment. The Company also intends to undertake the
remediation of environmental conditions at a site near its Erwin, North
Carolina facility. The Company does not expect the expenditures and capital
outlays involved in the implementation of these efforts to be material.
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MANAGEMENT
The following table sets forth information with respect to the current
directors, executive officers and certain other officers of the Company:
<TABLE>
<CAPTION>
Name Age Current Position
- ---------------------------- ----- ---------------------------------------------------
<S> <C> <C>
Arthur C. Wiener 60 Chairman of the Board, President, Chief Executive
Officer and Director
Robert McCormack 49 Executive Vice President and President -- Woven
Division, Apparel Marketing Group
Charles A. Blalock 50 Executive Vice President of Manufacturing
Michael R. Harmon 50 Executive Vice President, Chief Financial Officer,
Treasurer and Secretary
John Heldrich 45 Executive Vice President and President of Swift
Giuseppe Rodin- 59 President of Klopman
Lee Abraham 70 Director
Paul G. Gillease 65 Director
William deR. Holt 69 Director
Howard S. Jacobs 55 Director
William M.R. Mapel 66 Director
Stephen C. Sherrill 45 Director
David F. Thomas 48 Director
</TABLE>
Arthur C. Wiener has been Chairman of the Board of the Company since
February 1992 and President and Chief Executive Officer of the Company since
February 1988. He was Group Vice President of Burlington and President of
Burlington's Blended Division, the Company's predecessor, from October 1984 to
February 1988. Mr. Wiener was President of the Apparel Fabrics Marketing
Division of Dan River Inc., a textile manufacturer, from 1975 to October 1984.
He was employed by the Menswear Division of Burlington in various capacities
from 1966 to October 1975, including as President from 1973 to October 1975.
Robert McCormack has been Executive Vice President of the Company since
May 1992 and President of the Apparel Marketing Group of the Company's Woven
Division since April 1994. Mr. McCormack was Executive Vice President of the
Apparel Marketing Group of the Company's Woven Division from February 1988 to
April 1994. He was employed by Burlington as a merchandise manager from April
1986 to February 1988 and as a sales manager for finished goods from January
1985 to April 1986.
Charles A. Blalock has been Executive Vice President of Manufacturing of
the Company since March 1990. He was Plant Manager of the Company's dyeing and
finishing plant located in Society Hill, South Carolina from February 1988 to
March 1990. Mr. Blalock was employed by Burlington in various line and staff
positions from September 1972 to February 1988, including most recently as
Plant Manager of the dyeing and finishing plant located in Society Hill from
February 1987 to February 1988.
Michael R. Harmon has been Executive Vice President and Chief Financial
Officer of the Company since March 1991 and Secretary and Treasurer of the
Company since February 1988. He was Vice President of Finance of the Company
from February 1988 to March 1991. Mr. Harmon was employed by Burlington in
various accounting and financial capacities from May 1970 to February 1988,
most recently as Administrative Vice President and Controller from November
1987 to February 1988.
John Heldrich has been Executive Vice President of the Company since
February 1998 and President of Swift since August of 1994. He was President of
Swift Marketing Worldwide from July 1991 to August 1994. Mr. Heldrich was
President of the Fashion Apparel Division of Milliken & Company Inc. in New
York from 1987 through 1991. From May 1974 to 1987, Mr. Heldrich held various
marketing and manufacturing positions at Milliken & Company Inc. in New York,
Spartanburg, South Carolina, and the United Kingdom.
Giuseppe Rodino has been President of Klopman since January 1993. From
April 1991 to January 1993, Mr. Rodin- was General Manager of C.D.I. for Ring
Denim Fabrics and M.C.M for cotton fabrics for Leisurewear at the Imatessile
Group. From June 1989 to April 1991, Mr. Rodin- was Managing Director of Faema
S.p.A. Between 1966 and 1989, Mr. Rodin- held various sales and managerial
positions at Klopman Mills and Klopman in New York, Rome and London.
67
<PAGE>
Lee Abraham has been a director of the Company since February 1993. Mr.
Abraham served as Chairman and Chief Executive Officer of Associated
Merchandising Corporation, a retail merchandising and sourcing company, from
1977 until his retirement in January 1993. Mr. Abraham is a director of Liz
Claiborne, Inc., a sportswear apparel company; Salomon Smith Barney Income &
Equity Funds, a registered investment company; R.G. Barry Corporation, a
manufacturer of slippers; and Signet Group, plc, an owner and operator of
retail jewelry stores in the U.S. and the United Kingdom.
Paul G. Gillease has been a director of the Company since November 1993.
He has been a consultant for Guilford Mills, Inc., a manufacturer of knitted
textiles, since November 1993. Mr. Gillease was employed by E.I. Du Pont de
Nemours & Company Incorporated in various executive capacities from 1961 to his
retirement in October 1993, including most recently as Vice President and
General Manager responsible for textile fiber operations from October 1990 to
October 1993. Mr. Gillease is a director of Pillowtex, Inc., a home furnishings
manufacturer, and Guilford Mills, Inc.
William deR. Holt has been a director of the Company since April 1988. He
was employed for 37 years by Burlington in various capacities, including most
recently as a Group Vice President until his retirement in March 1988.
Howard S. Jacobs has been a director of the Company since February 1989.
He has been a member of the law firm of Rosenman & Colin LLP, New York, New
York, counsel to the Company, since March 1994. For more than five years prior
to March 1994, Mr. Jacobs was a member of two other law firms located in New
York City, each of which was former counsel to the Company.
William M.R. Mapel has been a director of the Company since February 1989.
Mr. Mapel was employed by Citibank, N.A. in various executive capacities from
1969 to his retirement in October 1988, including most recently as a Senior
Vice President and Chairman of the Policy Committee of the North American
Finance Group from 1986 to September 1988. Mr. Mapel is a director of NSC
Corporation, an environmental service company; Brundage, Story & Rose
Investment Trust, a registered investment company; and Churchill Capital
Partners, a registered investment company.
Stephen C. Sherrill has been a director of the Company since May 1993. Mr.
Sherrill was formerly a director of the Company from February 1988 to February
1992. Mr. Sherrill has been a principal of Bruckman, Rosser, Sherrill & Co.,
Inc., a private equity investment firm, since February 1995. For more than five
years prior to February 1995, Mr. Sherrill was a Managing Director or Vice
President of Citicorp Venture Capital, Ltd. ("CVC"), a venture capital and
leveraged buyout company which is a subsidiary of Citibank N.A. Mr. Sherrill is
a director of Jitney Jungle Stores of America Inc., a regional chain of grocery
stores; Windy Hill Pet Food Company, Inc., a manufacturer of pet food products;
and B&G Foods, Inc., a manufacturer, marketer and distributor of food products.
David F. Thomas has been a director of the Company since March 1996. Mr.
Thomas has been a Managing Director of CVC for more than five years and has
been the President of 399 Venture Partners, Inc., a venture capital and
leveraged buyout company which is a subsidiary of Citibank N.A. and an
affiliate of CVC, since December 1994. Mr. Thomas is a director of Anvil
Knitwear, Inc., a designer, manufacturer and marketer of activewear apparel;
Lifestyle Furnishings International Ltd., a manufacturer of residential
furniture and decorative home furnishings fabrics; Neenah Corporation, a
manufacturer of iron castings for use in municipal and industrial markets;
Plainwell, Inc., a producer and marketer of paper products; Stage Stores, Inc.,
an operator of retail apparel stores; and a number of private companies.
68
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of March 15, 1998
regarding the ownership of common stock of the Company by (i) each person who
is known to the management of the Company to have been the beneficial owner of
more than 5% of the outstanding shares of the Company's common stock, (ii) each
director and nominee for director, (iii) each executive officer and (iv) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Name and Address of Position with Amount and Nature of % of
Beneficial Owner the Company Beneficial Ownership Class
- ------------------------------------------------ ----------------------------- ----------------------------- ----------
<S> <C> <C> <C>
Citicorp Venture Capital, Ltd. ................ None 4,629,502 (1) 39.5%
399 Park Avenue
New York, New York 10043
FMR Corp. ..................................... None 1,089,600 (2) 9.3%
82 Devonshire Street
Boston, Massachusetts 02109
Dimensional Fund Advisors, Inc. ............... None 662,600 (3) 5.7%
1099 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Arthur C. Wiener .............................. Chairman of the Board, 1,026,700 (4)(5) 8.5%
980 Avenue of the Americas President and Chief
New York, New York 10018 Executive Officer
Lee Abraham ................................... Director 11,100 (5)(6) *
106 Barnes Road
Stamford, Connecticut 06902
Paul G. Gillease .............................. Director 12,792 (5)(6)(7) *
15 McMullen Farm Lane
West Chester, Pennsylvania 19382
William deR. Holt ............................. Director 20,400 (5)(6) *
206 Meadowbrook Terrace
Greensboro, North Carolina 27408
Howard S. Jacobs .............................. Director 23,600 (5)(6) *
575 Madison Avenue
New York, New York 10022
William M.R. Mapel ............................ Director 24,130 (5)(6) *
18 Stephanie Lane
Darien, Connecticut 06820
Stephen C. Sherrill ........................... Director 176,547 (5)(6) 1.5%
126 East 56th Street
New York, New York 10022
David F. Thomas ............................... Director 52,208 (5) *
399 Park Avenue
New York, New York 10043
Charles A. Blalock ............................ Executive Vice President 83,925 (8) *
7736 McCloud Road, Suite 300 of Manufacturing
Greensboro, North Carolina 27409
Michael R. Harmon ............................. Executive Vice President, 127,430 (9) 1.1%
7736 McCloud Road, Suite 300 Chief Financial Officer,
Greensboro, North Carolina 27409 Treasurer and Secretary
John Heldrich ................................. Executive Vice President 6,000 (10) *
5 Concourse Parkway, Suite 2300
Atlanta, Georgia 30328
Robert McCormack .............................. Executive Vice President 123,600 (11) 1.1%
980 Avenue of the Americas and President -- Woven
New York, New York 10018 Division, Apparel Marketing
Group
All directors and executive officers as a group
(12 persons) ................................. 1,688,432 (5) 13.6%
</TABLE>
- ----------
* Less than one percent (1%).
69
<PAGE>
(1) Based upon information contained in a Schedule 13G filed with the
Commission on March 13, 1998 (the "Schedule 13G") by Citicorp. CVC is a
wholly-owned subsidiary of Citibank, N.A.; Citibank, N.A. is a
wholly-owned subsidiary of Citicorp. The Schedule 13G indicates that
neither Citicorp nor Citibank, N.A. have any dispositive power or voting
power with respect to any of the shares except through CVC. Excludes
shares of Common Stock owned by employees of CVC, as to which CVC
disclaims beneficial ownership.
(2) Based upon information contained in a Schedule 13G filed by FMR Corp.
("FMR"), a holding company, with the Commission on February 11, 1997, as
amended on September 9, 1997 and February 10, 1998 (the "Schedule 13G").
Fidelity Management & Research Company ("Fidelity"), a wholly-owned
subsidiary of FMR and an investment adviser registered under the
Investment Advisors Act of 1940 is the beneficial owner of these shares as
a result of acting as investment adviser to various investment companies
including Fidelity Low-Priced Stock Fund, an investment company registered
under the Investment Company Act of 1940, which holds 694,300 of the
shares. Members of the Edward C. Johnson, 3d family and trusts for their
benefit own approximately 40% of the voting power of FMR. Through such
ownership and the execution of a certain shareholders' voting agreement,
members of the Johnson family, including Abigail Johnson, may be deemed to
form a controlling group with respect to FMR. Edward C. Johnson, 3d,
Chairman of FMR, and FMR through its control of Fidelity, each has sole
power to dispose of the 1,089,600 shares. Neither FMR nor Edward C.
Johnson, 3d has sole power to vote or direct the vote of any of the shares
owned directly by the Fidelity Funds, which power resides with the Funds'
Boards of Trustees.
(3) Based upon information contained in a Schedule 13G filed with the
Commission on February 10, 1998 (the "Schedule 13G") by Dimensional Fund
Advisors Inc. ("Dimensional"). The Schedule 13G indicates that Dimensional
has sole dispositive power with respect to all of the shares, sole voting
authority with respect to 441,800 of the shares, and no voting authority
with respect to 220,800 of the shares.
(4) Includes 8,000 shares held by the Wiener Foundation, a not-for-profit
corporation controlled by Mr. Wiener and his immediate family members.
(5) Includes shares subject to currently exercisable stock options as follows:
Mr. Wiener -- 428,700; Mr. Abraham -- 6,000; Mr. Gillease -- 6,000; Mr.
Holt -- 18,000; Mr. Jacobs -- 20,000; Mr. Mapel -- 8,000; Mr. Sherrill --
11,000; Mr. Thomas -- 9,000; and all directors and executive officers of
the Company as a group -- 687,700.
(6) Includes shares issued under and subject to the Company's 1996 Restricted
Stock Plan (the "Restricted Stock Plan") as follows: Mr. Abraham -- 3,600;
Mr. Gillease -- 5,435; Mr. Holt -- 2,400; Mr. Jacobs -- 3,600; Mr. Mapel
-- 3,600; and Mr. Sherrill -- 5,435.
(7) Includes 500 shares held by Mr. Gillease's wife.
(8) Includes (i) 12,025 shares held by Mr. Blalock's wife, (ii) 100 shares held
by Mr. Blalock's daughter, and (iii) 61,800 shares subject to currently
exercisable stock options.
(9) Includes (i) 21,919 shares held by Mr. Harmon's wife, (ii) 17,000 shares
held in a self-directed individual retirement account, (iii) 500 shares
held in trust for the benefit of Mr. Harmon's daughter, with Mr. Blalock
as trustee, and (iv) 62,600 shares subject to currently exercisable stock
options.
(10) Represents shares subject to currently exercisable stock options.
(11) Includes 50,600 shares subject to currently exercisable stock options.
Excludes 5,866 shares subject to currently exercisable stock options held
by Mr. McCormack's wife, as to which Mr. McCormack disclaims beneficial
ownership.
70
<PAGE>
DESCRIPTION OF SENIOR CREDIT FACILITY
The Company has entered into the Senior Credit Facility, dated as of
January 29, 1998, as amended, with a lender group led by FUNB, as agent and
lender. The Senior Credit Facility provides for (i) a revolving line of credit
under which the Company may borrow up to an amount (including letters of credit
up to an aggregate of $30.0 million) equal to the lesser of $225.0 million or a
borrowing base (comprised of eligible accounts receivable and eligible
inventory, as defined in the Senior Credit Facility), (ii) a term loan in the
principal amount of $155.0 million ("Term Loan B") and (iii) a term loan in the
principal amount of $110.0 million ("Term Loan C"). Under the Senior Credit
Facility borrowings were, and are required to be, used to refinance the
Company's prior senior credit facility with FUNB, to fund the Acquisition, to
pay for certain closing costs and expenses related to the Acquisition and for
general corporate and working capital purposes.
Under the Senior Credit Facility, the revolving line of credit expires on
March 27, 2004 and the principal amount of (i) Term Loan B is repayable in 24
quarterly payments of $387,500 until March 27, 2004 and, thereafter, four
quarterly payments of $36,425,000 until Term Loan B's maturity on April 2, 2005
and (ii) Term Loan C is repayable in 28 quarterly payments of $275,000 until
April 2, 2005 and, thereafter, four quarterly payments of $25,575,000 until
Term Loan C's maturity on April 1, 2006. Under the Senior Credit Facility, the
interest rate on the Company's borrowings under its revolving line of credit
and term loans initially is fixed at a per annum rate, at the Company's option,
of either LIBOR plus 2.25%, LIBOR plus 2.75% and LIBOR plus 3.00%,
respectively, or the greater of the prime rate or the federal funds rate plus
.50% plus a margin of 1.00% for revolving loans, 1.5% for Term Loan B and 1.75%
for Term Loan C for at least two full fiscal quarters following the closing of
the Acquisition. Thereafter, the revolving line of credit borrowings will bear
interest at a per annum rate, at the Company's option, of either (i) (a) the
greater of the prime rate or the federal funds rate plus .50% plus (b) a margin
of 0%, .25%, .50%, .75% or 1.00%, based on the Company achieving certain
leverage ratios (as defined in the Senior Credit Facility) or (ii) LIBOR plus a
margin of .75%, 1.00%, 1.25%, 1.50%, 1.75%, 2.00% or 2.25%, based on the
Company achieving certain leverage ratios. Term Loan B and Term Loan C will
bear interest at a per annum rate, at the Company's option, of (A) with respect
to Term Loan B either (i) (a) the greater of the prime rate or federal funds
rate plus .50%, plus (b) a margin of .25%, .50%, .75%, 1.00%, 1.25% or 1.50%,
based on the Company achieving certain leverage ratios or (ii) LIBOR plus a
margin of 1.50%, 1.75%, 2.00%, 2.25%, 2.50% or 2.75%, based on the Company
achieving certain leverage ratios or (B) with respect to Term Loan C, either
(i) (a)the greater of the prime rate or federal funds rate plus .50%, plus (b)
a margin of .50%, .75%, 1.00%, 1.25%, 1.50% or 1.75%, based on the Company
achieving certain leverage ratios, or (ii) LIBOR plus a margin of 1.75%, 2.00%,
2.25%, 2.50%, 2.75%, or 3.00%, based on the Company's achieving certain
leverage ratios.
The Company's obligations under the Senior Credit Facility are secured by
all of the assets (other than real property) of the Company and each of its
domestic Subsidiaries, and a pledge by the Company and each of its domestic
Subsidiaries of all the outstanding capital stock of its respective domestic
Subsidiaries and a pledge of 65% of the outstanding voting capital stock, and
100% of the outstanding non-voting capital stock, of any of its respective
directly owned foreign Subsidiaries. In addition, payment of all obligations
under the Senior Credit Facility is guaranteed by each of the Company's
domestic Subsidiaries. Under the Senior Credit Facility, the Company is
required to make mandatory prepayments of principal annually in an amount equal
to 50% of Excess Cash Flow (as defined in the Senior Credit Facility), and also
in the event of certain dispositions of assets or debt or equity issuances (all
subject to certain exceptions) in an amount equal to 100% of the net proceeds
received by the Company therefrom.
The Senior Credit Facility contains certain covenants, including, without
limitation, those limiting the Company's and its Subsidiaries' ability to incur
indebtedness, incur liens, sell or acquire assets or businesses, change the
nature of its business, make certain investments or pay dividends. In addition,
the Senior Credit Facility requires the Company to meet certain financial ratio
tests and limits the amount of capital expenditures which the Company and its
Subsidiaries may make in any fiscal year.
71
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
General
The Initial Notes have been, and the Exchange Notes are to be, issued
under the Indenture among the Company, Galey & Lord Industries, Inc.
("Industries"), G&L Service Company, Swift Textiles, Inc. ("Textiles"), Swift
Denim Services, Inc. ("Denim Services") and SunTrust Bank, Atlanta, as Trustee
(the "Trustee"). The terms of the Exchange 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 Exchange
Notes are subject to all such terms, and Holders of Exchange Notes are referred
to the Indenture and the Trust Indenture Act for a statement thereof.
The Exchange Notes will be unsecured senior subordinated obligations of
the Company. The Exchange Notes will be unconditionally guaranteed on an
unsecured senior subordinated basis by Industries, G&L Service Company,
Textiles, Denim Services and all other future direct and indirect Domestic
Restricted Subsidiaries of the Company (each a "Note Guarantee" and
collectively the "Note Guarantees") (Industries, G&L Service Company, Textiles,
Denim Services and each future Domestic Restricted Subsidiary of the Company
that provides a Note Guarantee are sometimes hereinafter referred to as a "Note
Guarantor" and collectively the "Note Guarantors"), and the Company will cause
each future Domestic Restricted Subsidiary to enter into a supplemental
indenture providing for a Note Guarantee.
The following is a summary of certain provisions of the Indenture and the
Exchange Notes, a copy of which Indenture has been filed as an exhibit to the
Registration Statement. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Indenture, including
the definitions of certain terms therein and those terms made a part thereof by
the Trust Indenture Act.
Principal of, premium, if any, and interest on the Exchange Notes will be
payable, and the Exchange Notes may be exchanged or transferred, at the office
or agency of the Company in the Borough of Manhattan, The City of New York
(which initially shall be the corporate trust office of the Trustee, at First
Chicago Trust Company, 14 Wall Street, 8th Floor, New York, New York 10005),
except that, at the option of the Company, payment of interest may be made by
check mailed to the address of the Holders as such address appears in the
Exchange Note register.
The Exchange Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and any integral multiple of $1,000. No
service charge shall be made for any registration of transfer or exchange of
Exchange Notes, but the Company may require payment of a sum sufficient to
cover any transfer tax or other similar governmental charge payable in
connection therewith.
Terms of the Exchange Notes
The Exchange Notes will be limited to $300.0 million aggregate principal
amount and will mature on March 1, 2008. The Exchange Notes will bear interest
at the rate per annum shown on the cover page hereof from the Issue Date, or
from the most recent date to which interest has been paid or provided for,
payable semiannually to Holders of record at the close of business on the
February 15 or August 15 immediately preceding the interest payment date on
March 1 and September 1 of each year, commencing September 1, 1998. The Company
will pay interest on overdue principal at 2.0% per annum in excess of such
rate, and it will pay interest on overdue installments of interest at such
higher rate to the extent lawful. Interest on the Exchange Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
Optional Redemption
Except as set forth in the following paragraph, the Exchange Notes will
not be redeemable at the option of the Company prior to March 1, 2003. On or
after March 1, 2003 the Exchange Notes will be redeemable in cash, at the
Company's option, in whole or in part, at any time or from time to time, upon
not less than 30 nor more than 60 days' prior notice mailed by first-class mail
to each Holder's registered address, at the following redemption prices
(expressed in percentages of principal amount), plus accrued and unpaid
interest thereon to the
72
<PAGE>
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on March 1 of the years set
forth below:
<TABLE>
<CAPTION>
Period Redemption Price
- --------------------------------------- -----------------
<S> <C>
2003 ......................... 104.563%
2004 ......................... 103.042%
2005 ......................... 101.521%
2006 and thereafter .......... 100.000%
</TABLE>
In addition, at any time and from time to time prior to March 1, 2001 the
Company, at its option, may redeem in the aggregate up to 35.0% of the original
principal amount of the Exchange Notes with the Net Cash Proceeds of one or
more Public Equity Offerings following which there is a Public Market, at a
redemption price (expressed as a percentage of principal amount) of 109.125% of
the aggregate principal amount so redeemed, plus accrued and unpaid interest
thereon to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date); provided, however, that at least 65.0% of the original principal
amount of the Exchange Notes must remain outstanding after each such
redemption; and provided, further, that each such redemption shall occur within
60 days of the date of closing of the related Public Equity Offering.
In the case of any partial redemption, selection of the Exchange Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Exchange Note of $1,000 in original principal amount
or less shall be redeemed in part. If any Exchange Note is to be redeemed in
part only, the notice of redemption relating to such Exchange Note shall state
the portion of the principal amount thereof to be redeemed. A new Exchange 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 Exchange Note.
Ranking of the Exchange Notes
The Indebtedness evidenced by the Exchange Notes will be senior
subordinated, general unsecured obligations of the Company. The payment of the
principal of, premium (if any) and interest on the Exchange Notes is
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all existing and future Senior Indebtedness, whether
outstanding on the Issue Date or thereafter incurred. In addition, the Exchange
Notes will be effectively subordinated to all Senior Indebtedness of Note
Guarantors and to all obligations of any other Subsidiaries of the Company,
including any obligation of a Receivables Subsidiary under a Receivables
Program.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Exchange Notes in accordance with the provisions of the
Indenture. The Exchange Notes will rank pari passu with or be senior to all
other Indebtedness of the Company. Although the Indenture limits the aggregate
amount of additional Indebtedness that the Company may incur, the Indenture
does not limit the amount of such Indebtedness that may be Senior Indebtedness
of the Company. Unsecured Indebtedness is not deemed to be subordinated or
junior to Secured Indebtedness merely because it is unsecured.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation, dissolution or reorganization of, or similar proceeding
relating to, the Company or its property, the holders of Senior Indebtedness
will be entitled to receive payment in full of such Senior Indebtedness before
the Exchange Noteholders are entitled to receive any payment, and until the
Senior Indebtedness is paid in full, any payment or distribution to which
Exchange Noteholders would be entitled but for the subordination provisions of
the Indenture will be made to holders of such Senior Indebtedness as their
interests may appear. If a distribution is made to Exchange Noteholders that,
due to the subordination provisions, should not have been made to them, such
Exchange Noteholders are required to hold it in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear.
Notwithstanding anything herein to the contrary, the Company may not pay
principal of, premium (if any) or interest on the Exchange Notes or make any
deposit pursuant to the provisions described under " --
73
<PAGE>
Defeasance" below and may not repurchase, redeem or otherwise retire any
Exchange Notes (collectively, "pay the Exchange Notes") if (i) any Designated
Senior Indebtedness is not paid when due or (ii) any other default on
Designated Senior Indebtedness occurs and the maturity of such Designated
Senior Indebtedness is accelerated in accordance with its terms unless, in
either case, the default has been cured or waived and any such acceleration has
been rescinded or such Designated Senior Indebtedness has been paid in full.
However, the Company may pay the Exchange Notes without regard to the foregoing
if the Company and the Trustee receive written notice approving such payment
from the Representative of the Designated Senior Indebtedness with respect to
which either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of
any default (other than a default described in clause (i) or (ii) of the second
preceding sentence) with respect to any Designated Senior Indebtedness pursuant
to which the maturity thereof may be accelerated immediately without further
notice (except such notice as may be required to effect such acceleration) or
the expiration of any applicable grace periods, the Company may not pay the
Exchange Notes for a period (a "Payment Blockage Period") commencing upon the
receipt by the Trustee (with a copy to the Company) of written notice (a
"Blockage Notice") of such default from the Representative of the holders of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Company from the Person or Persons who gave such Blockage Notice, (ii) because
a Representative of the holders of such Designated Senior Indebtedness has
notified the Trustee that the default giving rise to such Blockage Notice is no
longer continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full). Notwithstanding the provisions described in the immediately
preceding sentence (but subject to the first sentence of this paragraph),
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders have accelerated the maturity of such Designated Senior
Indebtedness, the Company may resume payments on the Exchange Notes after the
end of such Payment Blockage Period. The Exchange Notes shall not be subject to
more than one Payment Blockage Period in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period.
If payment of the Exchange Notes is accelerated because of an Event of
Default, the Company or the Trustee shall promptly notify the holders of
Designated Senior Indebtedness or the Representative of such holders of the
acceleration.
By reason of the subordination provisions contained in the Indenture, in
the event of an insolvency, bankruptcy, reorganization, or liquidation of the
Company, or upon the occurrence of a Change of Control or an Asset Sale
requiring repurchase by the Company of any Exchange Notes, there may not be
sufficient assets remaining to satisfy the claims of the Holders after
satisfying the claims of creditors of the Company who are holders of Senior
Indebtedness and claims of creditors of the Company's Subsidiaries. See "Risk
Factors -- Subordination of the Exchange Notes." As of December 27, 1997, after
giving effect to the Acquisition and the financing thereof (including the
Offering), the Company's Senior Indebtedness would have been $397.1 million.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company and its Restricted Subsidiaries may incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Senior Indebtedness. See " -- Certain
Covenants -- Limitation on Indebtedness."
The terms of the subordination provisions described above will not apply
to payment from money or the proceeds of U.S. Government Obligations held in
trust by the Trustee for the payment of principal of and interest on the
Exchange Notes pursuant to the provisions described under " -- Defeasance".
Note Guarantees
Each Note Guarantor will irrevocably and unconditionally guarantee on an
unsecured senior subordinated basis the performance and punctual payment when
due, whether at Stated Maturity, by acceleration or otherwise, of all
obligations of the Company under the Indenture and the Exchange Notes, whether
for principal of or interest on the Exchange Notes, expenses, indemnification
or otherwise (all such obligations guaranteed by a Note Guarantor being herein
called the "Guaranteed Obligations"). Each Note Guarantor will agree to pay, on
a senior subordinated basis and in addition to the amount stated above, any and
all expenses (including reasonable counsel fees and expenses) incurred by the
Trustee or the Holders in enforcing any rights under a Note Guarantee with
respect to a Note Guarantor.
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The obligations of a Note Guarantor under its Note Guarantee are senior
subordinated obligations. As such, the rights of Holders to receive payment by
a Note Guarantor pursuant to its Note Guarantee will be subordinate in right of
payment to the rights of holders of all Senior Indebtedness of the respective
Note Guarantors, including Guarantees of the Senior Credit Facility. As of
December 27, 1997, after giving effect to the financing of the Acquisition, the
Note Guarantors collectively had outstanding $405.1 million of Senior
Indebtedness (including the guarantees under the Senior Credit Facility). Each
Note Guarantee will be limited in amount to an amount not to exceed the maximum
amount that can be Guaranteed by the relevant Note Guarantor without rendering
such Note Guarantee voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally. See "Risk Factors -- Fraudulent Conveyance."
Each Note Guarantee is a continuing guarantee and shall (a) remain in full
force and effect until payment in full of all the Guaranteed Obligations, (b)
be binding upon each Note Guarantor and (c) inure to the benefit of and be
enforceable by the Trustee, the Holders and their successors, transferees and
assigns. Each Note Guarantee shall be a guarantee of payment and not of
collection.
In the event of a sale or other disposition of all of the assets of any
Note Guarantor by way of merger, consolidation, or otherwise, or a sale or
other disposition of all of the Capital Stock of any Note Guarantor, by way of
merger, consolidation or otherwise, such Note Guarantor (in the event of a sale
or other disposition of all of the Capital Stock of such Note Guarantor) will
be released and relieved of its obligations under its Note Guarantee or the
Person acquiring the property (in the event of a sale or other disposition of
all of the assets of such Note Guarantor) will not be required to enter into a
Note Guarantee; provided, in each case, that such transaction is carried out
pursuant to and in accordance with " -- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock" and, if applicable, " -- Merger and
Consolidation."
Ranking of Note Guarantees
The Note Guarantees are subordinated in right of payment, as set forth in
the Indenture, to the prior payment in full in cash of Senior Indebtedness of
the Company and of the relevant Note Guarantor, which will include Guarantees
of the Senior Credit Facility.
Upon any payment or distribution of the assets of a Note Guarantor upon a
total or partial liquidation, dissolution or reorganization of, or similar
proceeding relating to, such Note Guarantor or its property, the holders of
Senior Indebtedness of such Note Guarantor will be entitled to receive payment
in full of such Senior Indebtedness before the Noteholders are entitled to
receive any payment with respect to the relevant Note Guarantee, and until the
Senior Indebtedness of such Note Guarantor is paid in full, any payment or
distribution to which Exchange Noteholders would be entitled but for the
subordination provisions of the Indenture will be made to holders of such
Senior Indebtedness of such Note Guarantor as their interests may appear. If a
distribution is made to Exchange Noteholders that, due to the subordination
provisions, should not have been made to them, such Exchange Noteholders are
required to hold it in trust for the holders of Senior Indebtedness of such
Note Guarantor and pay it over to them as their interests may appear.
Notwithstanding anything herein to the contrary, a Note Guarantor may not
pay principal of, premium (if any) or interest on the Exchange Notes or make
any deposit pursuant to the provisions described under " -- Defeasance" below
and may not repurchase, redeem or otherwise retire any Exchange Notes
(collectively, "pay the Exchange Notes") if (i) any Designated Senior
Indebtedness of the relevant Note Guarantor is not paid when due or (ii) any
other default on Designated Senior Indebtedness of such Note Guarantor occurs
and the maturity of such Designated Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, the default has been cured or
waived and any such acceleration has been rescinded or such Designated Senior
Indebtedness has been paid in full. However, such Note Guarantor may pay the
Exchange Notes without regard to the foregoing if such Note Guarantor and the
Trustee receive written notice approving such payment from the Representative
of the Designated Senior Indebtedness of such Note Guarantor with respect to
which either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of
any default (other than a default described in clause (i) or (ii) of the second
preceding sentence) with respect to any Designated Senior Indebtedness of such
Note Guarantor pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
such Note Guarantor may not pay the Exchange Notes for the Payment Blockage
Period commencing upon the receipt by the Trustee (with a copy
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to such Note Guarantor) of a Blockage Notice from the Representative of the
holders of such Designated Senior Indebtedness and ending 179 days thereafter
(or earlier if such Payment Blockage Period is terminated (i) by written notice
to the Trustee and such Note Guarantor from the Person or Persons who gave such
Blockage Notice, (ii) because a Representative of the holders of such
Designated Senior Indebtedness has notified the Trustee that the default giving
rise to such Blockage Notice is no longer continuing or (iii) because such
Designated Senior Indebtedness has been repaid in full). Notwithstanding the
provisions described in the immediately preceding sentence (but subject to the
first sentence of this paragraph), unless the holders of such Designated Senior
Indebtedness of such Note Guarantor or the Representative of such holders have
accelerated the maturity of such Designated Senior Indebtedness, such Note
Guarantor may resume payments on the Exchange Notes after the end of such
Payment Blockage Period. Each Note Guarantee shall not be subject to more than
one Payment Blockage Period in any consecutive 360-day period, irrespective of
the number of defaults with respect to Designated Senior Indebtedness of a Note
Guarantor during such period.
By reason of the subordination provisions contained in the Indenture, in
the event that the Note Guarantors are required to make payments under the Note
Guarantees, there may not be sufficient assets remaining to satisfy the claims
of the Holders with respect to the Note Guarantees after satisfying the claims
of creditors of the Note Guarantors who are holders of Senior Indebtedness of
the Note Guarantors. Although the Indenture contains limitations on the amount
of additional Indebtedness that the Note Guarantors may incur, under certain
circumstances the amount of such Indebtedness could be substantial and, in any
case, such Indebtedness may be Senior Indebtedness. See " -- Certain Covenants
- -- Limitation on Indebtedness."
Book-Entry, Delivery and Form
Except as set forth below, the Exchange Notes initially will be
represented by one or more permanent global certificates in definitive, fully
registered form without interest coupons (each a "Global Exchange Note" and
collectively the "Global Exchange Notes") in minimum denominations of $1,000
and integral multiples in excess thereof. Each Global Exchange Note will be
deposited with the Trustee as custodian for the Depository Trust Company (the
"Depository") and registered in the name of the Depository or its nominee for
credit to the respective accounts of the purchasers at the Depository, Morgan
Guaranty Trust Company of New York, Brussels Office, as operator of the
Euroclear System (Euroclear) or Cedel Bank, Soci-t- Anonyme ("CEDEL"). Except
as set forth below, a Global Exchange Note may be transferred, in whole and not
in part, only to the Depository or another nominee of the Depository. Investors
may hold their beneficial interests in a Global Exchange Note directly through
the Depository if they have an account with the Depository or indirectly
through organizations which have accounts with the Depository.
Holders whose Initial Notes were issued in registered certificated form
without interest coupons (the "Certificated Initial Notes") are entitled to
receive Exchange Notes in registered certificated form without interest coupons
(the "Certificated Exchange Notes") instead of a beneficial interest in a
Global Exchange Note. Holders tendering Certificated Initial Notes who wish to
receive an interest in the Global Exchange Note may elect to do so by so
indicating in the Letter of Transmittal.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. The
Depository was created to hold securities of institutions that have accounts
with the Depository ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. Access to the
Depository's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Cross-market transfers between Depository participants, on the one hand,
and directly or indirectly through Euroclear or CEDEL participants, on the
other, will be effected in the Depository in accordance with Depository rules
or on behalf of Euroclear or CEDEL, as the case may be, by its respective
depositary; however, such cross-market transactions will require delivery of
instructions to Euroclear or CEDEL, as the case may be, by
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the counterparty in such system in accordance with its rules and procedures and
within its established deadlines (Brussels time). Euroclear or CEDEL, as the
case may be, will, if the transaction meets its settlement requirements,
deliver instructions to its respective depositary to take action to effect
final settlement on its behalf by delivering or receiving interests in a Global
Exchange Note in the Depository and making or receiving payment in accordance
with normal procedures for same-day funds settlement applicable to the
Depository. CEDEL participants and Euroclear participants may not deliver
instructions directly to the depositaries for CEDEL or Euroclear.
Because of time zone differences, the securities account of a Euroclear or
CEDEL participant purchasing an interest in a Global Exchange Note from a
Depository participant will be credited during the securities settlement
processing day (which must be a business day for Euroclear and CEDEL)
immediately following the Depository settlement date, and such credit will be
reported to the relevant Euroclear or CEDEL participant on such processing day.
Cash received in Euroclear or CEDEL as a result of sales of interests in a
Global Exchange Note by or through a Euroclear or CEDEL participant to a
Depository participant will be received with value on the Depository settlement
date but will be available in the relevant Euroclear or CEDEL cash account only
as of the business day following settlement in the Depository.
Upon the issuance of a Global Exchange Note, the Depository or its
custodian will credit, on its book-entry registration and transfer system, the
principal amount of the Exchange Notes represented by such Global Exchange Note
to the accounts of participants, including Euroclear and CEDEL. Ownership of
beneficial interests in a Global Exchange Note will be limited to participants
or persons that may hold interests through participants. Ownership of
beneficial interests in a Global Exchange Note will be shown on, and the
transfer of those ownership interests will be effected only through, records
maintained by the Depository or its nominee (with respect to participants'
interest) and such participants (with respect to the owners of beneficial
interests in the Global Exchange Note other than participants). The laws of
some jurisdictions may require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to transfer or pledge beneficial interests in a Global
Exchange Note.
So long as the Depository, or its nominee, is the registered holder and
owner of a Global Exchange Note, the Depository or such nominee, as the case
may be, will be considered the sole legal owner and holder of the related
Exchange Notes for all purposes of such Exchange Notes and the Indenture.
Except as set forth below, owners of beneficial interests in a Global Exchange
Note will not be entitled to have the Exchange Notes represented by such Global
Exchange Note registered in their names, will not receive or be entitled to
receive physical delivery of certificated Exchange Notes in definitive form and
will not be considered to be the owners or holders of any Exchange Notes under
a Global Exchange Note. The Company understands that under existing industry
practice, in the event an owner of a beneficial interest in a Global Exchange
Note desires to take any action that the Depository, as the holder of such
Global Exchange Note, is entitled to take, the Depository would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
Investors may hold their interests in a Global Exchange Note directly
through DTC if they are participants in DTC, or indirectly through
organizations which are participants in DTC, including CEDEL and Euroclear.
CEDEL and Euroclear will hold interests in a Global Exchange Note on behalf of
their participants through their respective depositaries, which in turn will
hold such interests in the Global Exchange Note in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank, New York
will initially act as a depositary for CEDEL and Chase Manhattan Bank, New York
will initially act as depositary for Euroclear.
Payment of principal of and interest on Exchange Notes represented by a
Global Exchange Note registered in the name of and held by the Depository or
its nominee will be made to the Depository or its nominee, as the case may be,
as the registered owner and holder of such Global Exchange Note.
The Company expects that the Depository or its nominee, upon receipt of
any payment of principal of or interest on a Global Exchange Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of a Global Exchange
Note as shown on the records of the Depository or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in a
Global Exchange Note held through such participants will be governed by
standing instructions and customary practices and will be the responsibility of
such participants. The Company will not have
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any responsibility or liability for any aspect of the records relating to, or
payments made on account of, beneficial ownership interests in a Global
Exchange Note for any Exchange Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for
any other aspect of the relationship between the Depository and its
participants or the relationship between such participants and the owners of
beneficial interests in a Global Exchange Note owning through such
participants.
Unless and until exchanged in whole or in part for Certificated Exchange
Notes, a Global Exchange Note may not be transferred except as a whole by the
Depository to a nominee of such Depository or by a nominee of such Depository
to such Depository or another nominee of such Depository.
Although the Depository, Euroclear and CEDEL have agreed to the foregoing
procedures in order to facilitate transfers of interests in a Global Exchange
Note among participants of the Depository, Euroclear and CEDEL they are under
no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Trustee nor the Company
will have any responsibility for the performance by the Depository, Euroclear
or CEDEL or their participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Exchange Notes
The Exchange Notes represented by a Global Exchange Note are exchangeable
for Certificated Exchange Notes in denominations of $1,000 and integral
multiples thereof if (i) the Depository notifies the Company that it is
unwilling or unable to continue as Depository for the Global Exchange Notes or
if at any time the Depository ceases to be a clearing agency registered under
the Exchange Act, (ii) the Company in its discretion at any time determines not
to have all of the Exchange Notes represented by the Global Exchange Notes or
(iii) a default entitling the holders of the Exchange Notes to accelerate the
maturity thereof has occurred and is continuing. Any Exchange Note that is
exchangeable pursuant to the preceding sentence is exchangeable for
Certificated Exchange Notes issuable in authorized denominations and registered
in such names as the Depository shall direct. Subject to the foregoing, a
Global Exchange Note is not exchangeable, except for a Global Exchange Note of
the same aggregate denomination to be registered in the name of the Depository
or its nominee.
Change of Control
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Exchange Notes at a purchase price in cash equal to
101% of the aggregate principal amount thereof plus accrued and unpaid interest
thereon, if any, to the purchase date (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date):
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted Holders, is or becomes
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause (i) such person shall
be deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 45.0%
of the total voting power of the Voting Stock of the Company; provided,
however, that the Permitted Holders beneficially own (as defined above),
directly or indirectly, in the aggregate a lesser percentage of the total
voting power of the Voting Stock of the Company than such other person and
do not have the right or ability by voting power, contract or otherwise to
elect or designate for election a majority of the Board of Directors;
(ii) the Company merges with or into another Person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially
all of its assets to any Person, or any Person merges with or into the
Company, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where
(x) the outstanding Voting Stock of the Company is converted into or
exchanged for (1) Voting Stock (other than Disqualified Stock) of the
surviving or transferee corporation and/or (2) cash, securities or other
property in an amount which could be paid by the Company as a Restricted
Payment under the Indenture and (y) immediately after such transaction no
"person" or "group" (within the meaning of Section 13(d) or 14(d) of the
Exchange Act) (other than the Permitted Holders) is the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person shall be deemed to have
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"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 (1) 45.0% or more of the
voting power of the Voting Stock of the surviving or transferee corporation
on a fully diluted basis, after giving effect to the conversion or exercise
of all outstanding warrants, options and other securities of such surviving
or transferee corporation, convertible into or exercisable for Voting Stock
of such surviving or transferee corporation (whether or not such securities
are then currently convertible or exercisable) and (2) a greater percentage
of the voting power of the Voting Stock of such surviving or transferee
corporation calculated on such fully diluted basis, than the percentage
beneficially owned by the Permitted Holders; or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (together with
any new directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by
a vote of 66 2/3% of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Exchange Notes at a purchase price in cash equal to
101% of the principal amount thereof plus accrued and unpaid interest, if any,
to the date of purchase (subject to the right of holders of record on the
relevant record date to receive interest on the relevant interest payment
date); (2) the circumstances and relevant facts regarding such Change of
Control (including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such Change of Control);
(3) the repurchase date (which shall be no earlier than 30 days nor later than
60 days from the date such notice is mailed); and (4) the instructions
determined by the Company, consistent with the covenant described hereunder,
that a Holder must follow in order to have its Exchange Notes purchased.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Exchange Notes pursuant to
this covenant described hereunder. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
Subject to the limitations discussed below, the Company could, in the
future, enter into certain transactions, including acquisitions, refinancings
or other recapitalizations, that would not constitute a Change of Control under
the Indenture, but that could increase the amount of indebtedness outstanding
at such time or otherwise affect the Company's capital structure or credit
ratings. Restrictions on the ability of the Company to incur additional
Indebtedness are contained in the covenant described under " -- Certain
Covenants -- Limitation on Indebtedness." Such restrictions can be waived only
with the consent of the holders of a majority in principal amount of the Notes
then outstanding. Except for the limitations contained in such covenants,
however, the Indenture will not contain any covenants or provisions that may
afford holders of the Exchange Notes protection in the event of a highly
leveraged transaction.
So long as any obligations of the Company remain outstanding under the
Senior Credit Facility or the commitments under the Senior Credit Facility have
not been terminated, the Senior Credit Facility prohibits (unless permitted by
the requisite percentage of lenders thereunder) the Company from purchasing any
Exchange Notes, or making any deposit with the Trustee pursuant to the
provisions described under " -- Defeasance". As of December 27, 1997, on a pro
forma basis, borrowings of $397.1 million were outstanding under the Senior
Credit Facility. The Senior Credit Facility also provides that the occurrence
of certain change of control events with respect to the Company will constitute
a default thereunder. In the event a Change of Control occurs at a time when
the Company is prohibited from purchasing Exchange Notes, the Company could
seek the consent of the lenders under the Senior Credit Facility to the
purchase of Exchange 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
Exchange Notes. In such case, the Company's failure to purchase tendered
Exchange Notes would constitute an Event of Default under the Indenture which
would,
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in turn, constitute a default under the Senior Credit Facility. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of Exchange Notes.
Future Senior Indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require the Company to
repurchase the Exchange Notes could cause a default under such Senior
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to Holders of Exchange Notes following the occurrence of a
Change of Control may be limited by the Company's then existing financial
resources. There can be no assurance that sufficient funds will be available
when necessary to make any required repurchases. The Company does not, as of
the date of this Prospectus, have any indebtedness outstanding that is pari
passu with the Exchange Notes that contains repurchase provisions in the event
of a Change of Control. The provisions under the Indenture relative to the
Company's obligation to make an offer to repurchase the Exchange Notes as a
result of a Change of Control may be waived or modified with the written
consent of the holders of a majority in principal amount of the Exchange Notes
then outstanding.
Certain Covenants
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness: The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness
(including without limitation, any Acquired Indebtedness) other than Permitted
Indebtedness. Notwithstanding the foregoing, in addition to Permitted
Indebtedness, the Company or any Restricted Subsidiary may Incur Indebtedness
(including, without limitation, Acquired Indebtedness) if (i) no Default or
Event of Default shall have occurred and be continuing on the date of the
proposed Incurrence thereof or would result as a consequence of such proposed
Incurrence and (ii) immediately after giving effect to such proposed
Incurrence, the Consolidated Coverage Ratio of the Company is at least 2.0 to
1.0.
Limitation on Restricted Payments: (a) The Company shall not, and shall
not permit any Restricted Subsidiary, directly or indirectly, to make a
Restricted Payment if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment: (1) a Default or Event of Default shall have
occurred and be continuing (or would result therefrom); (2) the Company or such
Restricted Subsidiary is not able to Incur, after giving effect to such
Restricted Payment, an additional $1.00 of Indebtedness pursuant to the second
sentence under " -- Limitation on Indebtedness;" or (3) the aggregate amount of
such Restricted Payment and all other Restricted Payments since the Issue Date
would exceed the sum of: (A) 50% of the Consolidated Net Income accrued on a
cumulative basis during the period (treated as one accounting period) beginning
on the first day of the fiscal quarter beginning immediately following the
Issue Date to the end of the most recent fiscal quarter ending at least 45 days
prior to the date of such Restricted Payment (or, in case such Consolidated Net
Income shall be a deficit, minus 100% of such deficit); (B) the aggregate Net
Cash Proceeds received by the Company from the issuance or sale of, or as a
capital contribution in respect of, its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company and other than an issuance or sale to an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees); (C) the amount by which
Indebtedness of the Company is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company) subsequent
to the Issue Date of any Indebtedness of the Company convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash, or the fair value of any other property,
distributed by the Company upon such conversion or exchange); (D) an amount
equal to the sum of (i) the net reduction in Investments in any Person
resulting from dividends, repayments of loans or advances or other transfers of
assets, in each case to the Company or any Restricted Subsidiary from such
Person, and (ii) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the fair market value of the net assets of an Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments previously made
(and treated as a Restricted Payment) by the Company or any Restricted
Subsidiary in such Unrestricted Subsidiary; and (E) $10.0 million.
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(b) The provisions of the foregoing paragraph (a) shall not prohibit: (1)
if no Default or Event of Default shall have occurred and be continuing, any
purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, or capital contribution in respect of, Capital Stock of the
Company (other than Disqualified Stock and other than Capital Stock issued or
sold to a Subsidiary of the Company); provided, however, that (A) such purchase
or redemption shall be excluded in the calculation of the amount of Restricted
Payments and (B) the Net Cash Proceeds from such sale or capital contribution
shall be excluded from the calculation of amounts under clause (3) (B) of
paragraph (a) above; (2) if no Default or Event of Default shall have occurred
and be continuing, any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be incurred under the
"Limitation on Indebtedness" covenant; provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
shall be excluded in the calculation of the amount of Restricted Payments; (3)
dividends paid within 60 days after the date of declaration thereof if at such
date of declaration such dividend would have complied with this covenant;
provided, however, that at the time of payment of such dividend, no other
Default shall have occurred and be continuing (or result therefrom); provided
further, that such dividend shall be included in the calculation of the amount
of Restricted Payments; and (4) if no Default or Event of Default shall have
occurred and be continuing or would result therefrom, any purchase of any
fractional share of Capital Stock of the Company resulting from (A) any
dividend or other distribution on outstanding shares of Capital Stock that is
payable in shares of such Capital Stock (including any stock split or
subdivision of the outstanding Capital Stock of the Company), (B) any
combination of all of the outstanding shares of Capital Stock of the Company,
(C) any reorganization or consolidation of the Company in any merger of the
Company with or into any other Person or (D) the conversion of any securities
of the Company into shares of Capital Stock of the Company; provided, however,
that such purchases shall be included in the calculation of the amount of
Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries:
The Company shall not, and shall not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary (a) to
pay dividends or make any other distributions on its Capital Stock or any other
interest or participation in, or measured by the profits of the Company or such
Restricted Subsidiary or pay any Indebtedness owed to the Company, (b) to make
any loans or advances to the Company or to any Restricted Subsidiary or (c) to
transfer any of its property or assets to the Company or to any Restricted
Subsidiary, except any encumbrance or restriction existing under or by reason
of (i) the Senior Credit Facility as in effect on the Issue Date; (ii) the
Notes, the Indenture or the Note Guarantees; (iii) a Receivables Program of a
Receivables Subsidiary; provided that such encumbrances and restrictions are
customarily required by the institutional sponsor or arranger at the time of
entering into such Receivables Program in similar types of documents relating
to the purchase of similar receivables in connection with the financing
thereof; (iv) any instrument governing Acquired Indebtedness, which encumbrance
or restriction is not applicable to any Person or the properties or assets of
any Person, other than the Person or the properties or assets of the Person so
acquired; (v) Refinancing Indebtedness Incurred pursuant to an agreement
referred to in clause (i), (ii), (iii) or (iv); provided, however, that the
encumbrances and restrictions contained in any such refinancing agreement are
no less favorable to the Noteholders than encumbrances and restrictions
contained in such agreements governing the Indebtedness being refinanced; (vi)
customary nonassignment provisions in leases governing leasehold interests to
the extent such provisions restrict the transfer of the lease or the property
leased thereunder; (vii) security agreements or mortgages securing Indebtedness
of a Restricted Subsidiary to the extent such restrictions restrict the
transfer of the property subject to such security agreements or mortgages; and
(viii) applicable law.
Limitation on Liens: The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, create, incur, assume or
permit to exist any Lien on or with respect to any property or asset (including
any document or instrument in respect of goods or accounts receivable) of the
Company or of any Restricted Subsidiary, whether now owned or hereafter
acquired, or assign or otherwise convey any right to receive any income or
profits therefrom, or file or permit the filing of, or permit to remain in
effect, any financing statement or other similar notice of any Lien with
respect to any such property, asset, income or profits under the Uniform
Commercial Code of any State or under any similar recording or notice statute,
other than Permitted Liens, unless (i) in the case of Liens securing
Indebtedness that is expressly subordinate or junior in right
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of payment to the Notes, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Liens and (ii) in all
other cases, the Notes are equally and ratably secured.
Limitation on Sales of Assets and Subsidiary Stock: (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Sale unless (i) the Company or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal to the
fair market value (including as to the value of all non-cash consideration) of
the shares and assets subject to such Asset Sale (which fair market value shall
be determined in good faith by the Board of Directors for any transaction (or
series of transactions) involving in excess of $1,000,000) and at least 75% of
the consideration received therefor by the Company or such Restricted
Subsidiary is in the form of cash or Cash Equivalents and is received at the
time of such sale and (ii) an amount equal to 100% of the Net Available Cash
from such Asset Sale is applied by the Company (or such Restricted Subsidiary,
as the case may be) (A) first, to the extent the Company elects (or is required
by the terms of any Senior Indebtedness), to prepay, repay, redeem or purchase
Senior Indebtedness and, in the case of any Senior Indebtedness under any
revolving credit facility, effect a permanent reduction in the availability
under such revolving credit facility, within 180 days from the date of such
Asset Sale and (B) second, to the extent of the balance of such Net Available
Cash after application in accordance with clause (A), to the extent the Company
elects, and within 180 days from the date of such Asset Sale, to (1) make an
investment in properties or assets that replace the properties or assets that
were the subject of such Asset Sale or in properties or assets that will be
used in a Related Business or (2) acquire the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock; provided that such Person is, at the time it becomes a Restricted
Subsidiary, engaged in a Related Business.
(b) Any Net Available Cash not applied within 180 days after the
consummation of an Asset Sale as provided in clauses (A) or (B) of paragraph
(a) above will be deemed to constitute "Excess Proceeds." When the aggregate
amount of Excess Proceeds exceeds $5,000,000, the Company will be obligated to
make offers to purchase the Notes in an amount equal to the amount of Excess
Proceeds (and not just the amount thereof that exceeds $5,000,000) at a
purchase price in cash equal to 100% of the principal amount thereof (without
premium) plus accrued and unpaid interest thereon to the purchase date in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in the Indenture. To the extent that the aggregate
amount of Notes tendered pursuant to an offer to purchase made pursuant to this
paragraph is less than the amount of Excess Proceeds, the Company may use such
deficiency, or a portion thereof, for general corporate purposes. If the
aggregate principal amount of Notes surrendered by Holders is greater than the
amount of Excess Proceeds, the Trustee shall select the Notes to be purchased
on a pro rata basis. Upon the completion of such an offer to purchase, the
amount of Excess Proceeds will be reset at zero, subject to any subsequent
Asset Sale.
(c) In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted under the caption "Certain Covenants --
Merger and Consolidation" below, the successor corporation shall be deemed to
have sold the properties and assets of the Company and its Subsidiaries not so
transferred for purposes of this covenant, and shall comply with the provisions
of this covenant with respect to such deemed sale as if it were an Asset Sale.
In addition, the fair market value of such properties and assets of the Company
or its Subsidiaries deemed to be sold shall be deemed to be Net Available Cash
for purposes of this covenant.
(d) If at any time any non-cash consideration received by the Company or
any Subsidiary in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash, then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Available Cash thereof
shall be applied in accordance with this covenant.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions: (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such
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Restricted Subsidiary than those that could be obtained at the time of such
transaction in arm's-length dealings with a Person who is not such an
Affiliate, (2) if such Affiliate Transaction involves an amount in excess of
$1,000,000, (i) are set forth in writing and (ii) have been approved by a
majority of the disinterested members of the Board of Directors and (3) if such
Affiliate Transaction involves an amount in excess of $5,000,000, have been
determined by a nationally recognized investment banking or accounting firm
having experience in such matters to be fair, from a financial point of view,
to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under " -- Limitation on Restricted Payments;" (ii) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans or similar employee benefit plans or arrangements approved by
the Board of Directors; (iii) the grant of stock options or similar rights to
employees and directors of the Company pursuant to plans approved by the Board
of Directors, (iv) loans or advances to employees in the ordinary course of
business in accordance with the past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed $2,000,000 in the aggregate
outstanding at any one time; (v) the payment of reasonable fees to directors of
the Company and its Restricted Subsidiaries who are not employees of the
Company or its Restricted Subsidiaries; and (vi) any Affiliate Transaction (x)
between the Company and a Restricted Subsidiary, (y) between Restricted
Subsidiaries or (z) between the Company or a Restricted Subsidiary and a Joint
Venture; provided that, no Affiliate of the Company other than a Restricted
Subsidiary owns any Capital Stock in or otherwise has a material financial
interest in any such Restricted Subsidiary or Joint Venture, as the case may
be.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries: The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of
any shares of its Capital Stock except to the Company or a Restricted
Subsidiary; provided, however, that this covenant will not prohibit the sale of
100% of the shares of the Capital Stock of any Restricted Subsidiary owned by
the Company or any Restricted Subsidiary effected in accordance with the
covenants described under " -- Limitation on Sales of Assets and Subsidiary
Stock" and " -- Merger and Consolidation."
Merger and Consolidation: The Company shall not, and shall not permit any
Restricted Subsidiary to, consolidate with or merge with or into any Person
(other than the consolidation or merger of a Wholly-Owned Restricted Subsidiary
with another Wholly-Owned Restricted Subsidiary or into the Company), or sell,
assign, convey, transfer, lease or otherwise dispose of (or permit any
Subsidiary to sell, assign, convey, transfer, lease or otherwise dispose of),
in one transaction or a series of transactions, all or substantially all its
assets (determined on a consolidated basis for the Company and its
Subsidiaries) to, any Person, unless: (i) the Company, in the case of a
transaction involving the Company, or such Restricted Subsidiary in the case of
a transaction involving a Restricted Subsidiary, shall be the resulting,
surviving or transferee Person or the resulting, surviving or transferee Person
(in either case, the "Successor Company") shall be a Person organized and
existing under the laws of the United States of America, any State thereof or
the District of Columbia and the Successor Company (if not the Company or such
Restricted Subsidiary) shall expressly assume, by an indenture supplemental
thereto, executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of the Company under the Notes and the Indenture,
or the obligation of such Restricted Subsidiary under its Note Guarantee, as
the case may be; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor Company
as a result of such transaction as having been Incurred by such Successor
Company at the time of such transaction), no Default shall have occurred and be
continuing, (iii) immediately after giving effect to such transaction, the
Company, if the transaction involves a Restricted Subsidiary, or the Successor
Company would be able to Incur an additional $1.00 of Indebtedness pursuant to
the second sentence under " -- Limitation on Indebtedness," (iv) in the case of
a transaction involving the Company, immediately after giving effect to such
transaction, the Successor Company shall have Consolidated Net Worth in an
amount that is not less than the Consolidated Net Worth of the Company prior to
such transaction; (v) if, as a result of any such transaction, property or
assets of the Company or a Restricted Subsidiary would become subject to a Lien
securing Indebtedness not excepted from the provisions of the Indenture
described above under the caption " -- Limitation on Liens," the Company, any
such Restricted Subsidiary or the Successor Company, as the case may be, shall
have secured the Notes and the relevant Note Guarantees, as required by such
provisions; and (vi) the Company shall have delivered to the Trustee an
Officers' Certificate
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and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indenture.
The Successor Company shall be the successor to the Company or such
Restricted Subsidiary, as the case may be, and shall succeed to, and be
substituted for, and may exercise every right and power of, the Company or such
Restricted Subsidiary under the Indenture, but the predecessor Company or
Restricted Subsidiary in the case of a conveyance, transfer or lease shall not
be released from the obligation to pay the principal of and interest on the
Exchange Notes.
Limitation on Layered Indebtedness: The Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, incur any
Indebtedness that is subordinate in right of payment to any other Indebtedness,
unless such Indebtedness is subordinate in right of payment to, or ranks pari
passu with, the Exchange Notes or, in the case of Restricted Subsidiaries that
are Note Guarantors, such Indebtedness is subordinate in right of payment to,
or ranks pari passu with, the Note Guarantees of such Note Guarantors.
The Note Guarantors will not, directly or indirectly, Guarantee any
Indebtedness of the Company that is subordinate in right of payment to any
other Indebtedness of the Company unless such Guarantee is subordinate in right
of payment to, or ranks pari passu with, the Note Guarantees of such Note
Guarantors.
Additional Subsidiary Guarantees: The Indenture will provide that in the
event that any Person shall become a Domestic Restricted Subsidiary, the
Company shall cause such Domestic Restricted Subsidiary (an "Additional
Guarantor") to concurrently guarantee (an "Additional Guarantee") the Company's
obligations under the Indenture and the Exchange Notes to the same extent that
the Note Guarantors have guaranteed the Company's obligations under the
Indenture and the Exchange Notes, it being understood that such Additional
Guarantee shall be subordinated in right of payment to Senior Indebtedness of
such Additional Guarantor including Guarantees constituting Senior
Indebtedness; provided, however, that each Additional Guarantor will be
automatically and unconditionally released and discharged from its obligations
under such Additional Guarantee only in accordance with the last paragraph set
forth under " -- Note Guarantees."
Commission Reports: Notwithstanding that the Company may not be required
to remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Commission and provide the
Trustee and Exchange Noteholders with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections,
such information, documents and other reports to be so filed and provided at
the times specified for the filing of such information, documents and reports
under such Sections. In addition, the Company will make available, upon
request, to any holder and any prospective purchaser of Exchange Notes the
information required pursuant to Rule 144A(d)(4) under the Securities Act
during any period in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act.
Defaults
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a
default in the payment of principal of any Note when due at its Stated
Maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise, (iii) the failure by the Company to comply with its obligations
under " -- Change of Control," and under " -- Certain Covenants" under " --
Merger and Consolidation," " -- Limitation on Sales of Assets and Subsidiary
Stock," " -- Limitation on Indebtedness," or " -- Limitation on Restricted
Payments" above, (iv) the failure by the Company to comply for 30 days after
notice with its other agreements contained in the Indenture, (v) Indebtedness
of the Company or any Significant Subsidiary is not paid within any applicable
grace period after final maturity or is accelerated by the holders thereof
because of a default and the total amount of such Indebtedness unpaid or
accelerated exceeds $10,000,000 (the "cross acceleration provision"), (vi)
certain events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary (the "bankruptcy provisions"), (vii) any judgment or
decree for the payment of money in excess of $10,000,000 is rendered against
the Company or a Significant Subsidiary, remains outstanding for a period of 60
days following such judgment and is not discharged, waived or stayed within 10
days (the "judgment default provision") or (viii) the Note Guarantee of any
Note Guarantor ceases to be in full force and effect (other than (x) in
accordance with the terms of such Note Guarantee or (y) with respect to any
Note Guarantor that is not a Significant Subsidiary, as a result of the
occurrence of an event described in clause (vi) of this paragraph) or any Note
Guarantor denies or disaffirms its obligations under its
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Note Guarantee. However, a default under clause (iv) will not constitute an
Event of Default until the Trustee or the holders of 25% in principal amount of
the outstanding Notes notify the Company of the default and the Company does
not cure such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing (other than an Event of
Default described in clause (vi) of the preceding paragraph with respect to the
Company), the Trustee or the holders of at least 25% in principal amount of the
outstanding Notes may declare the principal of and accrued but unpaid interest
on all the Notes to be due and payable. Upon such a declaration, such principal
and interest shall be due and payable immediately. If an Event of Default
described in clause (vi) of the preceding paragraph occurs and is continuing
with respect to the Company, the principal of and interest on all the Notes
will ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any holders of the
Notes. Under certain circumstances, the holders of a majority in principal
amount of the outstanding Notes may rescind any such acceleration with respect
to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a
Note may pursue any remedy with respect to the Indenture or the Notes unless
(i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the holders of a majority
in principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the
rights of any other holder of a Note or that would involve the Trustee in
personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may
withhold notice if and so long as a committee of its trust officers determines
that withholding notice is not opposed to the interest of the holders of the
Notes. In addition, the Company is required to deliver to the Trustee, within
120 days after the end of each fiscal year, a certificate indicating whether
the signers thereof know of any Default that occurred during the previous year.
The Company also is required to deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any event which would constitute
certain Defaults, their status and what action the Company is taking or
proposes to take in respect thereof.
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
Holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose Holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest
on any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under " -- Optional
Redemption," (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any Holder of the Notes to receive payment of
principal of and interest on such Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such Holder's Notes, (vii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions,
(viii) make any change to the subordination
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provisions of the Indenture that would adversely affect the Noteholders or (ix)
make any change in the Note Guarantees that would adversely affect the
Noteholders.
Without the consent of any Holder of the Notes, the Company and the
Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to provide for uncertificated
Exchange Notes in addition to or in place of Certificated Exchange Notes
(provided that the uncertificated Exchange Notes are issued in registered form
for purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Exchange Notes are described in Section 163(f)(2)(B) of the
Code), to add guarantees with respect to the Exchange Notes, to secure the
Exchange Notes, to add to the covenants of the Company for the benefit of the
Holders of the Exchange Notes or to surrender any right or power conferred upon
the Company, to make any change that does not adversely affect the rights of
any Holder of the Exchange Notes or to comply with any requirement of the
Commission in connection with the qualification of the Indenture under the
Trust Indenture Act. However, no amendment may be made to the subordination
provisions of the Indenture that adversely affects the rights of any holder of
Senior Indebtedness of the Company or a Note Guarantor then outstanding unless
the holders of such Senior Indebtedness (or their Representative) consent to
such change.
The consent of the Holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders of the Exchange Notes a notice briefly describing
such amendment. However, the failure to give such notice to all Holders of the
Exchange Notes, or any defect therein, will not impair or affect the validity
of the amendment.
Defeasance
The Company at any time may terminate all its obligations under the
Exchange Notes and the Indenture ("legal defeasance"), except for certain
obligations, including those respecting the defeasance trust and obligations to
register the transfer or exchange of the Exchange Notes, to replace mutilated,
destroyed, lost or stolen Exchange Notes and to maintain a registrar and paying
agent in respect of the Exchange Notes. The Company at any time may terminate
its obligations under "Change of Control" and under the covenants described
under " -- Certain Covenants" (other than the covenant described under " --
Merger and Consolidation"), the operation of the cross acceleration provision,
the bankruptcy provisions with respect to Significant Subsidiaries and the
judgment default provision described under " -- Defaults" above and the
limitations contained in clauses (iii) and (iv) under " -- Certain Covenants --
Merger and Consolidation" (and clause (iii) of the first paragraph under " --
Defaults" as it relates to clauses (iii) and (iv) under " -- Certain Covenants
- -- Merger and Consolidation") above ("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Exchange Notes may not be accelerated
because of an Event of Default with respect thereto. If the Company exercises
its covenant defeasance option, payment of the Exchange Notes may not be
accelerated because of an Event of Default specified in clause (iii), (iv) or
(viii) under " -- Defaults" above or because of the failure of the Company to
comply with clause (iii) or (iv) under " -- Certain Covenants -- Merger and
Consolidation" above. If the Company exercises its legal defeasance option or
its covenant defeasance option, each Note Guarantor will be released from all
its obligations with respect to its Note Guarantee.
In order to exercise either defeasance option, the Company must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Exchange Notes to redemption or maturity, as the case may be, and must comply
with certain other conditions, including delivery to the Trustee of an Opinion
of Counsel to the effect that holders of the Exchange Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such
deposit and defeasance and will be subject to Federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit and defeasance had not occurred (and, in the case of legal
defeasance only, such Opinion of Counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable Federal income tax law).
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Concerning the Trustee
SunTrust Bank, Atlanta is to be the Trustee under the Indenture and has
been appointed by the Company as Registrar and Paying Agent with regard to the
Exchange Notes.
The Holders of a majority in principal amount of the outstanding Exchange
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and is not cured), the Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any Holder of
Exchange Notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense and
then only to the extent required by the terms of the Indenture.
Governing Law
The Indenture provides that it and the Exchange Notes will be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
Certain Definitions
"Acquired Indebtedness" means, with respect to any Person, (i) any
Indebtedness or Disqualified Stock of any other Person existing at the time
such Person is merged with or into or becomes 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, and in either case for purposes of the Indenture shall be deemed to be
incurred by such specified Person at the time such other Person is merged with
or into or becomes a Restricted Subsidiary of such specified Person or at the
time such asset is acquired by such specified Person, as the case may be.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" (including with correlative meaning, the terms "controlling,"
"controlled by" and "under common control with") when used with respect to any
Person, means (i) the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise or (ii) the beneficial ownership of 10% or
more of the total voting power of the Voting Stock (on a fully diluted basis)
of such Person.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
be merged with or into the Company or any Restricted Subsidiary, or (b) the
acquisition by the Company or any Restricted Subsidiary of the assets of any
person (other than a Subsidiary of the Company) which constitute all or
substantially all of the assets of such Person or comprises any division or
line of business of such Person or any other properties or assets of such
Person other than in the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
lease, assignment, transfer or other disposition for value (including, without
limitation, pursuant to any amalgamation, merger or consolidation or pursuant
to any sale and leaseback transaction) by the Company or by any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Wholly-Owned Restricted Subsidiaries (any such transaction, a "disposition") of
(i) any of the stock of any of the Company's Subsidiaries, (ii) substantially
all of the assets of any division or line of business of the Company or of any
of its Subsidiaries, or (iii) any other assets (whether tangible or intangible)
of the Company or of any of its Subsidiaries; excluding (a) any disposition of
Cash Equivalents or inventory in the ordinary course of business or obsolete
equipment in the ordinary course of business consistent with past practices of
the Company or any of its Subsidiaries or the lease or sublease of any real or
personal property in the ordinary course of business, (b) dispositions of stock
or assets the aggregate value of which does not exceed $10,000,000 less the
aggregate value of all other dispositions of stock or assets made subsequent to
the Issue Date pursuant to this clause (b), (c) exchanges of properties or
assets for other properties or assets, excluding cash or Cash Equivalents but
including the Capital Stock of a Person if, as a result
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of such exchange, such Person becomes a Restricted Subsidiary; provided, that
the property or assets so acquired, or the property or assets of the Person the
Capital Stock of which is so acquired (1) are used in a Related Business and
(2) have a fair market value at least equal to the fair market value of the
assets or properties being exchanged (as evidenced by a resolution of the
Company's Board of Directors), (d) for purposes of " -- Certain Covenants --
Limitation on Sales of Assets and Subsidiary Stock" only, a disposition made in
accordance with " -- Certain Covenants -- Limitation on Restricted Payments,"
and (e) the sale or other transfer or disposition of Receivables and Related
Assets pursuant to a Receivables Program.
"Board of Directors" means, as the context requires, the Board of
Directors of the Company or the applicable Restricted Subsidiary, as the case
may be, or any committee thereof duly authorized to act on behalf of such
Board.
"Business Day" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of Charlotte, North Carolina or New York, New
York or is a day on which banking institutions therein located are authorized
or required by law or other governmental action to close.
"Capitalized Lease Obligation" means, as to any person, the obligations of
such Person under a lease that are required to be capitalized and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) the equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Cash Equivalents" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having the highest rating obtainable
from either Standard & Poor's Rating Group ("S&P") or Moody's Investors
Service, Inc. ("Moody's); (iii) commercial paper maturing no more than one year
from the date of creation thereof and, at the time of acquisition, having the
highest rating obtainable from either S&P's or Moody's; and (iv) certificates
of deposit or bankers' acceptances maturing within one year from the date of
acquisition thereof issued by any commercial bank organized under the laws of
the United States of America or any state thereof or the District of Columbia
that (a) is at least "adequately capitalized" (as defined in the regulations of
its primary Federal banking regulator) and (b) has Tier 1 capital (as defined
in such regulations) of not less than $100,000,000; (v) shares of any money
market mutual fund that (a) has its assets invested continuously in the types
of investments referred to in clauses (i) and (ii) above, (b) has net assets of
not less than $500,000,000, and (c) has the highest rating obtainable from
either S&P's or Moody's; and (vi) repurchase agreements with respect to, and
which are fully secured by a perfected security interest in, obligations of a
type described in clause (i) or clause (ii) above and are with any commercial
bank described in clause (iv) above.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of Consolidated EBITDA of the Company during the four full fiscal
quarters (the "Four Quarter Period") ending on or prior to the date of the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio (the "Transaction Date") to Consolidated Fixed Charges of the Company for
the Four Quarter Period. In addition to and without limitation of the
foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis, in accordance with Article 11 of Regulation S-X under the
Securities Act, for the period of such calculation to (a) the incurrence or
repayment of any Indebtedness of the Company or any of its Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the
proceeds thereof),
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occurred on the first day of the Four Quarter Period and (b) any Asset Sales or
Asset Acquisitions (including, without limitation, any Asset Acquisition giving
rise to the need to make such calculation as a result of the Company or one of
its Restricted Subsidiaries incurring, assuming or otherwise being liable for
Acquired Indebtedness and also including any Consolidated EBITDA attributable
to the assets which are the subject of the Asset Acquisition or Asset Sale
during the Four Quarter Period) occurring during the Four Quarter Period or at
any time subsequent to the last day of the Four Quarter Period and on or prior
to the Transaction Date, as if such Asset Sale or Asset Acquisition occurred on
the first day of the Four Quarter Period. If the Company or any of its
Restricted Subsidiaries directly or indirectly Guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of
such Guaranteed Indebtedness as if the Company or such Restricted Subsidiary,
as the case may be, had directly incurred or otherwise assumed such Guaranteed
Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for
purposes of determining the denominator (but not the numerator) of this
"Consolidated Coverage Ratio," (i) interest on outstanding Indebtedness
determined on a fluctuating basis as of the Transaction Date and which will
continue to be so determined thereafter shall be deemed to have accrued at a
fixed rate per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; (ii) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four Quarter
Period; and (iii) notwithstanding clause (i) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Rate or Currency Protection Agreements shall be
deemed to accrue at the rate per annum resulting after giving effect to the
operation of such agreements.
"Consolidated EBITDA" means, with respect to the Company, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes
of the Company and its Restricted Subsidiaries paid or accrued in accordance
with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or taxes attributable to
sales or dispositions outside the ordinary course of business), (B)
Consolidated Interest Expense and (C) Consolidated Non-Cash Charges less any
non-cash items increasing Consolidated Net Income for such period, all as
determined on a consolidated basis for the Company and its Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (a) Consolidated Interest Expense
(including any premium or penalty paid in connection with redeeming or retiring
Indebtedness of the Company and its Restricted Subsidiaries prior to the stated
maturity thereof pursuant to the agreements governing such Indebtedness), plus
(b) the product of (i) the amount of all dividend payments on any series of
Preferred Stock of the Company (other than dividends paid in Capital Stock that
is not Disqualified Stock) paid, accrued or scheduled to be paid or accrued
during such period times (ii) a fraction, the numerator of which is one and the
denominator of which is one minus the then-current effective consolidated
federal, state and local income tax rate of the Company, expressed as a
decimal.
"Consolidated Interest Expense" means, with respect to the Company for any
period, the sum of, without duplication: (i) the aggregate of all cash and
non-cash interest expense (minus amortization or write-off of deferred
financing costs included in cash or non-cash interest expense) of the Company
and its Restricted Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount, (b) the net costs under Interest Rate or
Currency Protection Agreements, (c) all capitalized interest and (d) the
interest portion of any deferred payment obligation; and (ii) the interest
component of Capitalized Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by the Company and its Restricted Subsidiaries during such
period as determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the aggregate net income
(or loss) of the Company and its Restricted Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP; provided that there
shall be excluded therefrom (a) after-tax gains and losses from Asset Sales or
abandonment or reserves relating thereto, (b) items classified as
extraordinary, nonrecurring or unusual gains, losses or charges, and the
related tax effects, each determined in accordance with GAAP, (c) the net
income of any Person acquired in a "pooling of interests" transaction accrued
prior to the date it becomes a Restricted Subsidiary of the Company or is
merged or consolidated with the Company or any Restricted Subsidiary of the
Company, (d) the net
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income (but not loss) of any Restricted Subsidiary of the Company to the extent
that the declaration of dividends or similar distributions by that Restricted
Subsidiary of that income is restricted by a contract, operation of law or
otherwise, (e) the net income of any Person, other than a Restricted Subsidiary
of the Company, except to the extent of cash dividends or distributions paid to
the Company or to a Wholly-Owned Restricted Subsidiary of the Company by such
Person, (f) any restoration to income of any contingency reserve, except to the
extent that provision for such reserve was made out of Consolidated Net Income
accrued at any time after September 30, 1997, (g) income or loss attributable
to discontinued operations (including, without limitation, operations disposed
of during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the Company by
consolidation or merger or as a transferee of the Company's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Restricted Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of
the most recent fiscal quarter of the Company ending at least 45 days prior to
the taking of any action for the purpose of which the determination is being
made, as (i) the par or stated value of all outstanding Capital Stock of the
Company plus (ii) paid-in capital or capital surplus relating to such Capital
Stock plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit and (B) any amounts attributable to Disqualified Stock.
"Consolidated Non-Cash Charges" means with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
the Company and its Restricted Subsidiaries reducing Consolidated Net Income of
the Company for such period, determined on a consolidated basis in accordance
with GAAP (excluding any such charges constituting an extraordinary item or
loss or any such charge which requires an accrual of or a reserve for cash
charges for any future period).
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means, in respect of the Company, the
Senior Credit Facility and any other Senior Indebtedness of the Company which,
at the date of determination, has an aggregate principal amount outstanding of,
or under which, at the date of determination, the holders thereof are committed
to lend up to, at least $20,000,000 and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness as
"Designated Senior Indebtedness" and, in respect of any Note Guarantor, any
Guarantee by such Note Guarantor of Designated Senior Indebtedness of the
Company.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable for Indebtedness or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the first anniversary of the
Stated Maturity of the Notes; provided, however, 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 first anniversary of the Stated Maturity of the Exchange
Notes shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are not more favorable to
the holders of such Capital Stock than the provisions described under "Change
of Control" and under " -- Certain Covenants -- Limitation on Sales of Assets
and Subsidiary Stock."
"Domestic Restricted Subsidiary" means any direct or indirect Restricted
Subsidiary of the Company that is organized under the laws of the United
States, any state thereof or the District of Columbia.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) in statements and
pronouncements of the Financial Accounting Standards Board, (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) in the published rules and regulations of the
Commission governing the inclusion of financial statements (including pro forma
financial statements) in periodic reports
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required to be filed pursuant to Section 13 of the Exchange Act, including
opinions and pronouncements in staff accounting bulletins and similar written
statements from the accounting staff of the Commission.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well,
to purchase assets, goods, securities or services, to take-or-pay or to
maintain financial statement conditions or otherwise) or (ii) entered into for
the purpose of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning.
"Holder" or "Exchange Noteholder" means the Person in whose name an
Exchange Note is registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Subsidiary at the time it becomes a Restricted Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination all indebtedness, obligations and liabilities of such Person (i)
for borrowed money, (ii) evidenced by bonds, debentures, notes or other similar
instruments, (iii) Capitalized Lease Obligations, (iv) notes payable and drafts
accepted representing extensions of credit, whether or not representing
obligations for borrowed money, of such Person, (v) any indebtedness,
obligation or liability of such Person owed for all or any part of the deferred
purchase price of property or services (excluding any such obligations incurred
under ERISA), which purchase price is (a) due more than six months (or a longer
period of up to one year, if such terms are available from suppliers in the
ordinary course of business) from the date of incurrence of the obligation in
respect thereof or (b) evidenced by a note or similar written instrument, (vi)
all indebtedness, obligations and liabilities secured by any Lien on any
property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person except that "Indebtedness" shall not
include trade payables and accrued liabilities Incurred in the ordinary course
of business for the purchase of goods or services which are not secured by a
Lien other than a Lien permitted pursuant to clause (ii) of the definition of
Permitted Liens and obligations under Interest Rate or Currency Protection
Agreements, (vii) Guarantees of such Person in respect of Indebtedness of other
Persons and (viii) all Disqualified Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Stock being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price, but excluding accrued dividends, if any. For purposes
hereof, the "maximum fixed repurchase price" of any Disqualified Stock which
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Disqualified Stock as if such Disqualified Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
fair market value of such Disqualified Stock, such fair market value to be
determined reasonably and in good faith by the board of directors of the issuer
of such Disqualified Stock.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company or its assets, or (ii) any liquidation, dissolution or other winding up
of the Company, whether voluntary or involuntary or whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors
or any other marshaling of assets or liabilities of the Company.
"Interest Rate or Currency Protection Agreement" of any Person means any
interest rate protection agreement (including, without limitation, interest
rate swaps, caps, floors, collars, derivative instruments and similar
agreements), and/or other types of interest hedging agreements and any currency
protection agreement (including foreign exchange contracts, currency swap
agreements or other currency hedging arrangements) in support of the Company's
business and not of a speculative nature.
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"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are,
in conformity with GAAP, recorded as accounts receivable on the balance sheet
of such Person) or other extensions of credit (including by way of Guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition of Capital Stock,
indebtedness or other similar instruments issued by such Person. For purposes
of the definition of "Unrestricted Subsidiary", the definition of "Restricted
Payment" and the covenant described under " -- Certain Covenants -- Limitation
on Restricted Payments", (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of any Subsidiary of the Company at the time
that such Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (x) the Company's "Investment" in such Unrestricted Subsidiary at the
time of such redesignation as a Restricted Subsidiary less (y) the portion
(proportionate to the Company's equity interest in such Unrestricted
Subsidiary) of the fair market value of the net assets of such Unrestricted
Subsidiary at the time of such redesignation as a Restricted Subsidiary; and
(ii) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case as
determined in good faith by the Board of Directors.
"Issue Date" means the date on which the Initial Notes were originally
issued.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form, and with
respect to which the Company and its Restricted Subsidiaries own less than a
majority of the aggregate voting power of all classes of the Capital Stock;
provided that, as to any such arrangement in corporate form, such corporation
shall not, as to any Person of which such corporation is a Subsidiary, be
considered to be a Joint Venture to which such Person is a party.
"Lien" means any mortgage, pledge, assignment, security interest,
encumbrance, lien or charge of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of the foregoing.
"Net Available Cash" means, with respect to any Asset Sale, payments in
cash or Cash Equivalents received therefrom net of bona fide direct costs of
sale, including, but not limited to, (i) income taxes reasonably estimated to
be actually payable as a result of such Asset Sale within two years of the date
of such Asset Sale, (ii) payment of the outstanding principal amount of,
premium or penalty, if any, and interest on, any Indebtedness that is secured
by a Lien on the stock or assets in question and that is required to be repaid
under the terms thereof as a result of such Asset Sale, (iii) out-of-pocket
expenses and fees relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees and sales commissions) and (iv)
any portion of cash proceeds which the Company determines in good faith should
be reserved for post-closing adjustments or liabilities relating to the Asset
Sale retained by the Company or any of its Restricted Subsidiaries, it being
understood and agreed that on the day that all such post-closing adjustments
have been determined, the amount (if any) by which the reserved amount in
respect of such Asset Sale exceeds the actual post-closing adjustments, payable
by the Company or any of its Restricted Subsidiaries, shall constitute Net
Available Cash on such date.
"Net Cash Proceeds" with respect to any issuance or sale of Capital Stock,
means the proceeds of such issuance or sale in the form of cash or Cash
Equivalents net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net
of taxes paid or payable as a result thereof.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Treasurer or the Secretary of the Company or any Restricted
Subsidiary, as the case may be.
"Officers' Certificate" means a certificate signed by two Officers.
"Permitted Holders" means (i) Citicorp Venture Capital, Ltd., (ii) FMR
Corp., (iii) Arthur C. Weiner, his family members and any trusts, the only
beneficiaries of which are Arthur C. Weiner or his family members and (iv)
partnerships, corporations or limited liability companies which control or are
controlled by the persons or entities described in clauses (i), (ii) or (iii).
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"Permitted Indebtedness" means each of the following:
(i) Indebtedness under the Notes, the Indenture and the Note Guarantees;
(ii) Indebtedness under the Senior Credit Facility; provided that the
aggregate principal amount of Indebtedness outstanding under the Senior
Credit Facility at any one time shall not exceed the greater of $490.0
million (less the then outstanding principal amount of Indebtedness arising
under any Receivables Program of the Company or any Restricted Subsidiary,
other than Indebtedness described in clause (v) or (vi) below) and the sum
of (x) 55% of the book value of the inventory of the Company and its
Restricted Subsidiaries and (y) 85% of the book value of the accounts
receivable of the Company and its Restricted Subsidiaries (other than
accounts receivable subject to any Receivables Program of the Company or
any Restricted Subsidiary), in each case determined in accordance with
GAAP;
(iii) other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(iv) Interest Rate or Currency Protection Agreements of the Company
covering Indebtedness of the Company or any of its Restricted Subsidiaries
and Interest Rate or Currency Protection Agreements of any Restricted
Subsidiary covering Indebtedness of such Restricted Subsidiary; provided,
however, that (a) such Interest Rate or Currency Protection Agreements are
entered into to protect the Company and its Subsidiaries from fluctuations
in interest rates on Indebtedness incurred in accordance with the Indenture
to the extent the notional principal amount of such Interest Rate or
Currency Protection Agreements does not exceed the principal amount of the
Indebtedness to which such Interest Rate or Currency Protection Agreements
relates and (b) such Interest Rate or Currency Protection Agreements do not
increase the Indebtedness of the Company and its Restricted Subsidiaries
outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and compensation payable
thereunder;
(v) Indebtedness of a Restricted Subsidiary to the Company or to a
Wholly-Owned Restricted Subsidiary for so long as such Indebtedness is held
by the Company or a Wholly-Owned Restricted Subsidiary, in each case
subject to no Lien held by a Person other than the Company or a
Wholly-Owned Restricted Subsidiary; provided that if as of any date any
Person other than the Company or a Wholly-Owned Restricted Subsidiary owns
or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
(vi) Indebtedness of the Company to a Wholly-Owned Restricted Subsidiary
for so long as such Indebtedness is held by a Wholly-Owned Restricted
Subsidiary, subject to no Lien; provided that (a) any Indebtedness of the
Company to any Wholly-Owned Restricted Subsidiary is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Notes and (b) if as of any date any Person other than a
Wholly-Owned Restricted Subsidiary owns or holds any such Indebtedness or
any Person holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the Company;
(vii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of day-light overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(viii) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(ix) Refinancing Indebtedness Incurred in respect of Indebtedness
originally incurred pursuant to the second sentence under "Limitation on
Indebtedness" or pursuant to this clause (ix) or clause (i) or (ii) of this
definition;
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(x) Additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $20,000,000 at
any one time outstanding for Capitalized Lease Obligations or for purposes
of financing the purchase price or construction cost of equipment, fixtures
or similar property;
(xi) Indebtedness Incurred by a Receivables Subsidiary, other than
Indebtedness described in clause (v) or (vi) above, in an amount not
exceeding 95% of the aggregate unpaid balance of the Receivables and
Related Assets of such Receivables Subsidiary at the time of such
Incurrence pursuant to a Receivables Program; and
(xii) Additional Indebtedness of the Company and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $20,000,000 at
any one time outstanding.
"Permitted Investment" means any of the following:
(i) Investments by the Company or any Restricted Subsidiary in any
Person that is or will become immediately after such Investment a
Restricted Subsidiary or that will merge or consolidate into the Company or
a Restricted Subsidiary;
(ii) Investments in the Company by any Restricted Subsidiary; provided
that any Indebtedness evidencing such Investment is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Notes and the Indenture;
(iii) Investments in cash and Cash Equivalents;
(iv) loans and advances to employees and officers of the Company and its
Subsidiaries in the ordinary course of business for bona fide business
purposes not in excess of $2,000,000 at any one time outstanding;
(v) Interest Rate or Currency Protection Agreements entered into in the
ordinary course of the Company's or its Restricted Subsidiaries' businesses
and otherwise in compliance with the Indenture;
(vi) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers;
(vii) consideration other than cash or Cash Equivalents received by the
Company or its Restricted Subsidiaries in connection with an Asset Sale
made in compliance with the "Limitation on Sales of Assets and Subsidiary
Stock" covenant;
(viii) Investments by the Company or a Restricted Subsidiary in a trust,
limited liability company, special purpose entity or other similar entity
in connection with a Receivables Program; provided, however, that (x) such
Investment is made by a Receivables Subsidiary and (y) the only assets
transferred to such trust, limited liability company, special purpose or
other similar entity consist of Receivables and Related Assets of such
Receivables Subsidiary; and
(ix) Investments not to exceed $10,000,000 at any one time outstanding.
"Permitted Liens" means any of the following:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or the Subsidiaries shall have set
aside on its books such reserves as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government performance
and return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
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(iv) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(v) easements, rights-of-way zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of the Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(vii) purchase money Liens to finance property or assets of the Company
or a Restricted Subsidiary acquired in the ordinary course of business;
provided, however, that (A) the related purchase money Indebtedness shall
not exceed the cost of such property or assets and shall not be secured by
any property or assets of the Company or any Restricted Subsidiary other
than the property and assets so acquired and (B) the Lien securing such
Indebtedness shall be created within 90 days of such acquisition;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or a Restricted Subsidiary, including rights of offset and set-off;
(xi) Liens securing Interest Rate or Currency Protection Agreements
which Interest Rate or Currency Protection Agreements relate to
Indebtedness that is incurred under the Indenture;
(xii) Liens securing Senior Indebtedness, including, without limitation,
Indebtedness under the Senior Credit Facility;
(xiii) Liens existing on the Issue Date and Liens to secure any
Refinancing Indebtedness which is incurred to refinance any Indebtedness
which has been secured by a Lien permitted under the "Limitation on Liens"
covenant and which Indebtedness has been incurred in accordance with the
"Limitation on Indebtedness" covenant; provided that such new Liens (A) are
no less favorable to the Holders of Exchange Notes and are not more
favorable to the lienholders with respect to such Liens than the Liens in
respect of the Indebtedness being refinanced and (B) do not extend to any
property or assets other than the property or assets securing the
Indebtedness refinanced or replaced by such Refinancing Indebtedness; and
(xiv) Liens securing Acquired Indebtedness incurred in accordance with
the second sentence of the "Limitation on Indebtedness" covenant; provided
that (A) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary and were not granted in connection with, or in
anticipation of the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary and (B) such Liens do not extend to or cover any
property or assets of the Company or any Restricted Subsidiary other than
the property or assets that secured the Acquired Indebtedness prior to the
time such Indebtedness became Acquired Indebtedness of the Company or a
Restricted Subsidiary and are no more favorable to the lienholders than the
Liens securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
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"Post-Petition Interest" means all interest accrued or accruing after the
commencement of any Insolvency or Liquidation Proceeding (and interest that
would accrue but for the commencement of any Insolvency or Liquidation
Proceeding) in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing any Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Stock" means, as applied to the Capital Stock of any
corporation, Capital Stock of any class or classes (however designated) which
is preferred as to the payment of dividends, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Principal" of an Exchange Note means the principal of the Exchange Note
plus the premium, if any, payable on the Exchange Note which is due or overdue
or is to become due at the relevant time.
"Public Equity Offering" means an underwritten primary public offering of
any class of common stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (i) an underwritten Public Equity
Offering of the Company has been consummated and (ii) at least 10% of the total
issued and outstanding common stock of the Company has been distributed by
means of an effective registration statement under the Securities Act or sales
pursuant to Rule 144 under the Securities Act.
"Receivables and Related Assets" means accounts receivable, instruments,
chattel paper, obligations, general intangibles and other similar assets,
including interest in merchandise or goods, the sale or lease of which give
rise to the foregoing, related contractual rights, guarantees, insurance
proceeds, collections, other related assets and proceeds of all the foregoing.
"Receivables Program" means, with respect to any Person, any accounts
receivable securitization program pursuant to which such Person pledges, sells
or otherwise transfers or encumbers its accounts receivable, including to a
trust, limited liability company, special purpose entity or other similar
entity.
"Receivables Subsidiary" means a Wholly-Owned Restricted Subsidiary (i)
created for the purpose of financing receivables created in the ordinary course
of business of the Company and its Subsidiaries and (ii) the sole assets of
which consist of Receivables and Related Assets of the Company and its
Subsidiaries and related Permitted Investments.
"Refinancing Indebtedness" means any Indebtedness of the Company or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries; provided
that: (i) the principal amount of such Refinancing Indebtedness does not exceed
the principal amount of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Refinancing Indebtedness has 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; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Exchange Notes, such Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Exchange Notes on terms at least as favorable to the Holders of
Exchange Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred either by the Company or by
the Restricted Subsidiary of the Company that is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Related Business" means the businesses of the Company and the Restricted
Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means any trustee, agent or representative (if any) for
an issue of Senior Indebtedness of the Company.
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"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Company or a Wholly-Owned
Restricted Subsidiary, and other than pro rata dividends or other distributions
made by a Restricted Subsidiary that is not a Wholly-Owned Restricted
Subsidiary to minority stockholders (or owners of an equivalent interest in the
case of a Subsidiary that is an entity other than a corporation)), (ii) the
purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company or any Restricted Subsidiary held by any Person
(other than the Company or a Wholly-Owned Restricted Subsidiary), or any
warrants, rights or options to acquire shares of any class of such Capital
Stock, (iii) the purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value, prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Subordinated Obligations
(other than the purchase, repurchase or other acquisition of Subordinated
Obligations purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year of
the date of acquisition) or (iv) the making of any Investment in any Person
(other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Credit Facility" means the Loan Agreement dated as of January 29,
1998 among the Company, the guarantors listed therein and FUNB as lender and
agent thereunder, pursuant to which the Company may borrow up to $490,000,000
in the aggregate at any one time outstanding, together with the documents
related thereto (including, without limitation, the Wachovia Letter of Credit,
any guarantee agreements and security documents), as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
adding Subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent,
lender or group of lenders.
"Senior Indebtedness" means with respect to any Person, (i) Indebtedness
of such Person, whether outstanding on the Issue Date or thereafter Incurred
and (ii) accrued and unpaid interest (including Post-Petition Interest) in
respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable unless, in the
instrument creating or evidencing any of the obligations referred to in clauses
(i) or (ii) or pursuant to which any such obligations are outstanding, it is
provided that such obligations are subordinate in right of payment to the
Notes; provided, however, that Senior Indebtedness shall not include (1) any
obligation of such Person to any Subsidiary, (2) any liability for Federal,
state, local or other taxes owed or owing by such Person, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course of
business (including Guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of such Person (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect to
any other Indebtedness or other obligation of such Person or (5) that portion
of any Indebtedness which at the time of Incurrence is Incurred in violation of
the "Limitation on Indebtedness" covenant.
"Significant Subsidiary" means any Subsidiary that would be a "Significant
Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X
promulgated by the Commission.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company or a
Restricted Subsidiary of the Company (whether outstanding on the Issue Date or
thereafter Incurred) which is subordinate or junior in right of payment to the
Notes or the Note Guarantees pursuant to a written agreement to that effect.
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"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of outstanding shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by (i) such
Person, (ii) such Person and one or more Subsidiaries of such Person or (iii)
one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by an registered broker
dealer or mutual fund distributor, (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above, (iv) investments in commercial paper, maturing not more
than 90 days after the date of acquisition, issued by a corporation (other than
an Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United States
of America with a rating at the time as of which any investment therein is made
of "P-l" (or higher) according to Moody's Investors Service, Inc. or "A-l" (or
higher) according to Standard and Poor's Ratings Group, and (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the
United States of America, or by any political subdivision or taxing authority
thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by
Moody's Investors Service, Inc.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that (A) either (1) the
Subsidiary to be so designated has total assets of $1,000 or less or (2) if
such Subsidiary has assets greater than $1,000, such designation would be
permitted under the covenant described under " -- Limitation on Restricted
Payments" and (B) such Subsidiary to be so designated and each of its
Subsidiaries has not at the time of such designation, and does not thereafter,
Incur any Indebtedness pursuant to which the lender has recourse to any of the
assets or properties of the Company or any of its Restricted Subsidiaries. The
Board of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
designation (x) the Company could Incur $1.00 of additional Indebtedness
pursuant to the second sentence under " -- Certain Covenants -- Limitation on
Indebtedness" and (y) no Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced by the Company to
the Trustee by promptly filing with the Trustee a copy of the board resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
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"Wachovia Letter of Credit" means that irrevocable letter of credit no. LC
968-044594 dated May 17, 1994, issued by Wachovia Bank of North Carolina,
National Association in favor of First Citizens Bank & Trust Company, as
trustee under those $7,200,000 South Carolina Jobs-Economic Development
Authority Tax-Exempt Adjustable Mode Economic Development Revenue Bonds (Galey
& Lord Industries, Inc. Project) Series 1994, for the account of Industries in
the original maximum amount of $7,830,000, as such letter of credit may be
modified, supplemented, extended and replaced from time to time.
"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 product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payments 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 Restricted Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares and shares held
by other Persons to the extent such shares are required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary) is owned by
the Company or one or more Wholly-Owned Restricted Subsidiaries.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain material U.S. federal
income tax consequences of the purchase, ownership and disposition of Notes by
Holders that acquire Notes at original issuance for cash at their face value.
This discussion does not address the tax consequences to subsequent purchasers
of Notes and is limited to investors who hold the Notes as capital assets.
Furthermore, this discussion does not address all aspects of U.S. federal
income taxation that may be applicable to investors in light of their
particular circumstances, or to investors subject to special treatment under
U.S. federal income tax law (including, without limitation, certain financial
institutions, insurance companies, tax-exempt entities, dealers in securities,
persons who have acquired Notes as part of a straddle, hedge, conversion
transaction or other integrated investment or persons whose functional currency
is not the U.S. dollar). This discussion is based on provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), United States Treasury
Department ("Treasury") regulations promulgated thereunder, and administrative
and judicial interpretations thereof, all as in effect on the date hereof and
all of which are subject to change, possibly with retroactive effect.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO SUCH INVESTOR OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
THE NOTES, INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR GIFT TAX LAWS,
ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND
ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
Tax Consequences of the Exchange Offer
The exchange of Initial Notes for Exchange Notes pursuant to the Exchange
Offer will not be considered a taxable exchange for U.S. federal income tax
purposes because the Exchange Notes will not differ materially in kind or
extent from the Initial Notes and because the exchange will occur by operation
of the terms of the Notes. Accordingly, such exchange will have no U.S. federal
income tax consequences to Holders of Initial Notes. A Holder's adjusted tax
basis and holding period in an Exchange Note will be the same as such Holder's
adjusted tax basis and holding period, respectively, in the Initial Note
exchanged therefor. All references to Notes under this heading "Certain U.S.
Federal Income Tax Considerations," apply equally to Exchange Notes.
Holders considering the exchange of Initial Notes for Exchange Notes
should consult their own tax advisors concerning the U.S. federal income tax
consequences in light of their particular situations as well as any
consequences arising under state, local or foreign income tax or other tax law.
U.S. Taxation of U.S. Holders
As used herein, the term "U.S. Holder" means a Holder of a Note that is,
for U.S. federal income tax purposes, (i) a citizen or resident of the U.S.,
(ii) a corporation or partnership created or organized in or under the laws of
the U.S. or of any political subdivision thereof, (iii) an estate the income of
which is subject to U.S. federal income taxation regardless of its source or
(iv) a trust, if a U.S. court is able to exercise primary supervision over the
administration of such trust and one or more U.S. fiduciaries have the
authority to control all substantial decisions of such trust; and the term
"Non-U.S. Holder" means a Holder of a Note that is not a U.S. Holder.
Payments of Interest
Stated interest payable on the Notes generally will be included in the
gross income of a U.S. Holder as ordinary interest income at the time accrued
or received, in accordance with such U.S. Holder's method of accounting for
U.S. federal income tax purposes.
Payments on Registration Default
Because the Notes provide for the payment of liquidated damages under
certain circumstances, the Notes may be subject to Treasury regulations
applicable to debt instruments that provide for one or more contingent
payments. See "Description of the Notes -- Registered Exchange Offer;
Registration Rights." Under such Treasury regulations, if the payment of such
liquidated damages is, as of the Issue Date, either a "remote" or "incidental"
contingency, the payment of liquidated damages would not be considered a
contingent payment and the U.S. federal income tax treatment of such liquidated
damages generally would be the same as that described
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under "Payments of Interest" above. The Company intends to take the position
that, solely for these purposes, the payment of liquidated damages is a remote
or incidental contingency; such determination is binding on a U.S. Holder
unless such holder discloses to the Internal Revenue Service (the "IRS") that
it is taking a contrary position.
If the Company becomes obligated to pay liquidated damages, a U.S. Holder
generally would be required to include the initial payment of liquidated
damages in income as ordinary income when received or accrued, in accordance
with such U.S. Holder's method of accounting for U.S. federal income tax
purposes. In addition, the Notes would be treated as having been reissued at
such time for their "adjusted issue price" (i.e., generally, the stated
principal amount of the Notes). If, at the time of such deemed reissuance, the
possibility that the Company would be required to make additional payments of
liquidated damages were not a remote or incidental contingency, a U.S. Holder
could be required to accrue the projected payments of liquidated damages into
income on a constant yield basis, which could result in a holder recognizing
income prior to the receipt of the related cash payment. Prospective investors
should consult their tax advisors regarding the U.S. federal income tax
consequences of the receipt of liquidated damages on the Notes.
Disposition of the Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of a Note (collectively, a "Disposition"), a U.S. Holder generally
will recognize capital gain or loss equal to the difference between the amount
realized by such U.S. Holder (except to the extent such amount is attributable
to accrued interest, which will be treated as ordinary interest income) and
such U.S. Holder's adjusted tax basis in the Note. Such capital gain or loss
generally will be long-term capital gain or loss if the holding period for the
Note exceeds one year at the time of the Disposition. Non-corporate taxpayers
may be taxed at reduced rates of federal income tax in respect of long-term
capital gains realized on a Disposition of Notes in certain instances (e.g.,
generally, long-term capital gain recognized by an individual U.S. Holder would
be subject to a maximum tax rate of 20% in respect of Notes held for more than
eighteen months, or to a maximum rate of 28% in respect of Notes held in excess
of one year but for eighteen months or less). Prospective investors should
consult their tax advisors regarding the tax consequences of realizing
long-term capital gains.
The exchange of a Certificated Note for an interest in a Global Note, and
the exchange of a new Note for the unredeemed portion of an original Note
partially redeemed with the proceeds of one or more Public Equity Offerings
pursuant to the terms of the Indenture, will not constitute a "significant
modification" of the Note for U.S. federal income tax purposes and,
accordingly, the Certificated Note or new Note received (as the case may be)
would be treated as a continuation of the original Note in the hands of such
U.S. Holder. As a result, there would be no U.S. federal income tax
consequences to a U.S. Holder who exchanges a Certificated Note for an interest
in a Global Note or exchanges an original Note for a new Note as part of a
partial redemption of Notes with the proceeds of one or more Public Equity
Offerings.
U.S. Taxation of Non-U.S. Holders
Payments of Interest
In general, payments of interest received by a Non-U.S. Holder will not be
subject to U.S. federal withholding tax, provided that (i) the Non-U.S. Holder
(a) does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote, (b) is
not a controlled foreign corporation that is related to the Company actually or
constructively through stock ownership, and (c) provides, under penalties of
perjury (either directly or through a financial institution that holds the Note
on behalf of the Non-U.S. Holder and that holds customers' securities in the
ordinary course of its trade or business), the Company or its agent with the
Non-U.S. Holder's (or, if different, the beneficial owner's) name and address
and certifies, under penalties of perjury, that it is not a U.S. Holder, (ii)
the interest received on the Note is effectively connected with the conduct by
the Non-U.S. Holder of a trade or business within the U.S. and the Non-U.S.
Holder complies with certain reporting requirements; or (iii) the Non-U.S.
Holder is entitled to the benefits of an income tax treaty under which the
interest is exempt from U.S. withholding tax and the Non-U.S. Holder complies
with certain reporting requirements. Payments of interest not exempt from U.S.
federal withholding tax as described above will be subject to such withholding
tax at the rate of 30% (subject to reduction under an applicable income tax
treaty).
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Disposition of the Notes
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(and generally no tax will be withheld) with respect to gain realized on the
Disposition of a Note, unless (i) the gain is effectively connected with a U.S.
trade or business conducted by the Non-U.S. Holder or (ii) the Non-U.S. Holder
is an individual who is present in the United States for 183 or more days
during the taxable year of the Disposition and certain other requirements are
satisfied. In addition, an exchange of a Certificated Note for an interest in a
Global Note or an exchange of the unredeemed portion of an original Note for a
new Note as part of a partial redemption of Notes with the proceeds of one or
more Public Equity Offerings will not constitute a taxable exchange of the note
for Non-U.S. Holders. See "U.S. Taxation of U.S. Holders -- Disposition of the
Notes."
Effectively Connected Income
If interest and other payments received by a Non-U.S. Holder with respect
to the Notes (including proceeds from the Disposition of the Notes) are
effectively connected with the conduct by the Non-U.S. holder of a trade or
business within the United States (or the Non-U.S. Holder is otherwise subject
to U.S. federal income taxation on a net basis with respect to such Holder's
ownership of the notes), such Non-U.S. Holder will generally be subject to the
rules described above under "U.S. Taxation of U.S. Holders" (subject to any
modification provided under an applicable income tax treaty). Such Non-U.S.
Holder may also be subject to the U.S. "branch profits tax" if such Holder is a
corporation.
U.S. Federal Estate Taxes
A Note beneficially owned by an individual who is a Non-U.S. Holder at the
time of his or her death generally will not be subject to U.S. federal estate
tax as a result of such death if (i) the Non-U.S. Holder does not actually or
constructively own 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote and (ii) interest payments
with respect to the Note would not have been, if received at the time of such
individual's death, effectively connected with the conduct of a U.S. trade or
business.
Backup Withholding and Information Reporting
Certain non-corporate U.S. Holders may be subject to backup withholding at
a rate of 31% on payments of principal, premium and interest on, and the
proceeds of the Disposition of, the Notes. In general, backup withholding only
will be imposed on a U.S. Holder if he, she or it (i) fails to furnish a
taxpayer identification number ("TIN"), which, for an individual, would be his
or her Social Security number, (ii) furnishes an incorrect TIN, (iii) is
notified by the IRS that he, she or it has failed to report payments of
interest or dividends or (iv) under certain circumstances, fails to certify,
under penalty of perjury that he, she or it (a) has furnished a correct TIN and
(b) has not been notified by the IRS that he, she or it is subject to backup
withholding tax for failure to report interest or dividend payments. In
addition, such payments of principal and interest to U.S. Holders will
generally be subject to information reporting. U.S. Holders should consult
their tax advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining such an exemption, if applicable.
Backup withholding generally will not apply to payments made to a Non-U.S.
Holder of a Note who provides the certification described under "U.S. Taxation
of Non-U.S. Holders -- Payments of Interest" or otherwise establishes an
exemption from backup withholding. Payments by a U.S. office of a broker or the
proceeds of a disposition of the Notes generally will be subject to backup
withholding at a rate of 31% unless the Non-U.S. Holder certifies it is a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption.
The amount of any backup withholding imposed on a payment to a Holder will
be allowed as a credit against such Holder's U.S. federal income tax liability
and may entitle such holder to a refund, provided that the required information
is furnished to the IRS.
Recently Issued Treasury Regulations
On October 6, 1997, Treasury issued final Treasury regulations governing
information reporting and the certification procedures regarding withholding
and backup withholding on certain amounts paid to Non-U.S. Holders after
December 31, 1998. The new Treasury regulations would alter the procedures for
claiming the
102
<PAGE>
benefits of an income tax treaty and may change the certification procedures
relating to the receipt by intermediaries of payments on behalf of a beneficial
owner of a Note. Prospective investors should consult their tax advisors
concerning the effect, if any, of such new Treasury regulations on an
investment in the Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Initial Notes where such Initial Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to such broker-dealer for use
in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at prevailing market prices at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit from any
such resale of Exchange 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.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Initial Notes) other than dealers' and brokers' discounts,
commissions and counsel fees and will indemnify the holders of the Initial
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the validity of the Exchange
Notes being offered hereby and certain other legal matters in connection with
the Exchange Offer will be passed upon for the Company by Rosenman & Colin LLP,
575 Madison Avenue, New York, New York 10022. Howard S. Jacobs, a member of
Rosenman & Colin LLP, is a director and the Assistant Secretary of the Company
and is the beneficial owner of 23,600 shares of the Company's Common Stock.
EXPERTS
The consolidated financial statements of Galey & Lord, Inc. at September
28, 1996 and September 27, 1997, and for each of the three years in the period
ended September 27, 1997, appearing in this Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The combined financial statements of the Acquired Business at June 30,
1996 and 1997, and for each of the three years in the period ended June 30,
1997, appearing in this Registration Statement have been audited by Deloitte &
Touche, independent chartered accountants, as set forth in their report thereon
appearing elsewhere herein which is based in part on the report of KPMG,
chartered accountants. The financial statements referred to above are included
in reliance upon such reports given upon the authority of such firms as experts
in accounting and auditing.
103
<PAGE>
GALEY & LORD, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
GALEY & LORD, INC.
Audited Consolidated Financial Statements
Report of Independent Auditors ......................................................... F-2
Consolidated Balance Sheets at September 28, 1996 and September 27, 1997 ............... F-3
Consolidated Statements of Operations for each of the three years ended September 27,
1997.................................................................................... F-4
Consolidated Statements of Cash Flows for each of the three years ended September 27,
1997.................................................................................... F-5
Consolidated Statements of Stockholders' Equity for each of the three years ended
September 27, 1997 .................................................................... F-6
Notes to Consolidated Financial Statements ............................................. F-7
Unaudited Consolidated Financial Statements
Unaudited Consolidated Balance Sheets at December 28, 1996, December 27, 1997
and September 27, 1997
....................................................................................... F-20
Unaudited Consolidated Statements of Operations for the three months ended
December 28, 1996 and December 27, 1997
....................................................................................... F-21
Unaudited Consolidated Statements of Cash Flows for the three months ended
December 28, 1996 and December 27, 1997
....................................................................................... F-22
Notes to Unaudited Consolidated Financial Statements ................................... F-23
ACQUIRED BUSINESS
Audited Combined Financial Statements
Independent Auditors' Report ........................................................... F-27
Combined Statements of Income and Deficit for each of the three years ended June 30,
1997 F-28
Combined Balance Sheets at June 30, 1996 and 1997 ...................................... F-29
Combined Statements of Cash Flows for each of the three years ended June 30, 1997 ...... F-30
Basis of Presentation .................................................................. F-31
Significant Accounting Policies ........................................................ F-33
Notes to the Combined Financial Statements ............................................. F-35
Unaudited Condensed Combined Interim Financial Statements
Unaudited Condensed Combined Statements of Income and Deficit for the
three-month and the six-month periods ended December 31, 1996 and 1997.................. F-48
Unaudited Condensed Combined Balance Sheets at June 30, 1997 and December 31, 1997 ..... F-49
Unaudited Condensed Combined Statements of Cash Flows for the three-month and six-month
periods ended December 31, 1996 and 1997 .............................................. F-50
Basis of Presentation .................................................................. F-51
Notes to the Unaudited Condensed Combined Financial Statements ......................... F-53
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
GALEY & LORD, INC.
We have audited the accompanying consolidated balance sheets of Galey &
Lord, Inc. as of September 28, 1996 and September 27, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended September 27, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Galey & Lord, Inc. at September 28, 1996 and September 27, 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 27, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note A to the consolidated financial statements, effective
October 1, 1995, the Company changed its method of accounting for stock-based
compensation.
ERNST & YOUNG LLP
Greensboro, North Carolina
October 30, 1997, except for Notes B and E as
to which the date is November 19, 1997 and for
the last paragraph of Note J as to which the
date is December 16, 1997
F-2
<PAGE>
GALEY & LORD, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except par value amounts)
ASSETS
<TABLE>
<CAPTION>
September 28, September 27,
1996 1997
--------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................................................... $ 3,799 $ 2,277
Trade accounts receivable, less deductions for doubtful receivables, discounts,
returns and allowances of $1,434 in 1996 and $4,687 in 1997 (Note E)............. 74,180 80,633
Sundry notes and accounts receivable .............................................. 164 206
Inventories (Notes D and E) ....................................................... 76,934 92,517
Income taxes receivable (Note F) .................................................. -- 1,412
Deferred income taxes (Note F) .................................................... 404 --
Prepaid expenses and other current assets ......................................... 1,853 3,894
--------- ---------
Total current assets ............................................................ 157,334 180,939
Property, plant and equipment, at cost (Note E):
Land .............................................................................. 1,529 1,529
Buildings ......................................................................... 34,954 43,654
Machinery, fixtures and equipment ................................................. 118,923 147,239
Equipment under capital leases .................................................... 6,793 4,762
--------- ---------
162,199 197,184
Less accumulated depreciation and amortization .................................... (55,178) (67,739)
--------- ---------
107,021 129,445
Deferred charges less accumulated amortization of $302 in 1996 and $380 in
1997 .............................................................................. 1,055 820
Intangibles less accumulated amortization of $3,730 in 1996 and $5,409 in
1997 .............................................................................. 39,466 37,987
--------- ---------
$ 304,876 $ 349,191
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note E) ........................................ $ 13,506 $ 13,281
Trade accounts payable ............................................................ 20,957 23,488
Accrued salaries and employee benefits ............................................ 10,766 9,450
Accrued liabilities ............................................................... 3,311 3,582
Income taxes payable (Note F) ..................................................... 1,115 --
Deferred income taxes ............................................................. -- 633
--------- ---------
Total current liabilities ....................................................... 49,655 50,434
Commitments and contingencies (Note I)
Long-term debt (Note E) ............................................................ 149,265 176,755
Other long-term liabilities ........................................................ 143 --
Deferred income taxes (Note F) ..................................................... 16,168 17,685
Stockholders' equity:
Common Stock-$.01 par value, authorized 25,000,000 shares; issued
11,951,844 shares in 1996 and 12,053,694 shares in 1997, outstanding
11,574,841 shares in 1996 and 11,664,490 shares in 1997 (Note J) ................ 120 121
Contributed capital in excess of par value ........................................ 34,687 35,877
Retained earnings ................................................................. 56,889 70,566
Less 377,003 Common Stock shares in 1996 and 389,204 Common Stock
shares in 1997 in treasury, at cost ............................................. (2,051) (2,247)
--------- ---------
Total stockholders' equity ...................................................... 89,645 104,317
--------- ---------
$ 304,876 $ 349,191
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GALEY & LORD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------------------
September 30, September 28, September 27,
1995 1996 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Net sales ..................................................... $502,220 $ 411,455 $ 493,362
Cost of sales ................................................. 451,314 367,992 439,207
-------- --------- ---------
Gross profit .................................................. 50,906 43,463 54,155
Selling, general and administrative expenses .................. 15,877 13,526 18,123
Amortization of goodwill ...................................... 1,119 1,298 1,679
Business closing charge ....................................... 12,065 -- --
-------- --------- ---------
Operating income .............................................. 21,845 28,639 34,353
Interest expense .............................................. 13,103 11,579 12,326
Write-off of merger costs ..................................... -- 1,600 --
-------- --------- ---------
Income before income taxes and extraordinary item ............. 8,742 15,460 22,027
Income tax expense:
Current ..................................................... 3,357 2,449 5,796
Deferred .................................................... 33 3,533 2,554
-------- --------- ---------
Total income tax expense ................................... 3,390 5,982 8,350
-------- --------- ---------
Income before extraordinary item .............................. 5,352 9,478 13,677
Extraordinary loss on extinguishment of debt (net of income tax
benefit of $770)............................................. (1,342) -- --
-------- --------- ---------
Net income .................................................... $ 4,010 $ 9,478 $ 13,677
======== ========= =========
Net income per common share:
Basic:
Average common shares outstanding ........................... 11,744 11,699 11,610
Income per share before extraordinary item .................. $ .45 $ .81 $ 1.18
Extraordinary item .......................................... (.11) -- --
-------- --------- ---------
Net income per common share -- basic ........................ $ .34 $ .81 $ 1.18
======== ========= =========
Diluted:
Average common shares outstanding ........................... 12,037 11,910 11,986
Income per share before extraordinary item .................. $ .44 $ .80 $ 1.14
Extraordinary item .......................................... (.11) -- --
-------- --------- ---------
Net income per common share -- diluted ...................... $ .33 $ .80 $ 1.14
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GALEY & LORD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------------------
September 30, September 28, September 27,
1995 1996 1997
--------------- --------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ......................................................... $ 4,010 $ 9,478 $ 13,677
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation of property, plant and equipment ..................... 9,905 10,340 13,504
Amortization of intangible assets ................................. 1,119 1,298 1,679
Amortization of deferred charges .................................. 441 221 299
Deferred income taxes ............................................. 33 3,533 2,554
Non-cash compensation ............................................. -- 258 550
(Gain) loss on disposals of property, plant and equipment ......... 234 22 147
Extraordinary loss from debt refinancing .......................... 1,342 -- --
Business closing charge ........................................... 12,065 -- --
Changes in assets and liabilities (net of acquisition):
Accounts receivable -- net ....................................... (311) 12,903 (6,453)
Sundry notes and accounts receivable ............................. 12 5 (42)
Inventories ...................................................... (10,480) 9,298 (15,583)
Prepaid expenses and other current assets ........................ 750 (1,190) (2,041)
Trade accounts payable ........................................... (2,568) 2,392 2,531
Accrued liabilities .............................................. (5,073) (1,532) (1,766)
Income taxes payable ............................................. (1,788) 2,590 (2,527)
---------- --------- ---------
Total adjustments .............................................. 5,681 40,138 (7,148)
---------- --------- ---------
Net cash provided by (used in) operating activities ............... 9,691 49,616 6,529
---------- --------- ---------
Cash flows from investing activities:
Acquisition of business -- net of cash acquired .................... -- (22,823) --
Property, plant and equipment expenditures ......................... (14,795) (13,524) (36,626)
Proceeds from sale of property, plant and equipment ................ 171 1,608 1,271
Other .............................................................. (26) (23) (199)
---------- --------- ---------
Net cash provided by (used in) investing activities ............... (14,650) (34,762) (35,554)
---------- --------- ---------
Cash flows from financing activities:
Increase (decrease) in revolving line of credit .................... 23,958 (1,400) 42,900
Principal payments on long-term debt ............................... (185,579) (11,588) (15,635)
Issuance of long-term debt ......................................... 166,000 -- --
Net proceeds from issuance of Common Stock ......................... 91 9 534
Tax benefit from exercise of stock options ......................... 59 5 107
Purchase of Treasury Stock ......................................... -- (1,984) (196)
Payment of bank fees and loan costs ................................ (1,121) (465) (64)
Other .............................................................. (65) (69) (143)
---------- --------- ---------
Net cash provided by (used in) financing activities ............... 3,343 (15,492) 27,503
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents ............... (1,616) (638) (1,522)
Cash and cash equivalents at beginning of period ................... 6,053 4,437 3,799
---------- --------- ---------
Cash and cash equivalents at end of period ......................... $ 4,437 $ 3,799 $ 2,277
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GALEY & LORD, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
Common Contributed Retained Treasury
Stock Capital Earnings Stock Total
-------- ------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1994 ........................... $119 $34,266 $43,401 $ (67) $ 77,719
Issuance of 32,200 shares of Common Stock upon
exercise of options ................................. -- 91 -- -- 91
Tax benefit from exercise of stock options ........... -- 59 -- -- 59
Net income for fiscal 1995 ........................... -- -- 4,010 -- 4,010
---- ------- ------- -------- --------
Balance at September 30, 1995 ........................ $119 $34,416 $47,411 $ (67) $ 81,879
Issuance of 10,100 shares of Common Stock upon
exercise of options ................................. 1 8 -- -- 9
Tax benefit from exercise of stock options ........... -- 5 -- -- 5
Compensation earned related to issuance of stock
options ............................................. -- 258 -- -- 258
Purchase of 197,003 shares of Treasury Stock ......... -- -- -- (1,984) (1,984)
Net income for fiscal 1996 ........................... -- -- 9,478 -- 9,478
---- ------- ------- -------- --------
Balance at September 28, 1996 ........................ $120 $34,687 $56,889 $ (2,051) $ 89,645
Issuance of 85,466 shares of Common Stock upon
exercise of options ................................. 1 263 -- -- 264
Issuance of 16,384 shares of Restricted Common
Stock ............................................... -- 270 -- -- 270
Tax benefit from exercise of stock options ........... -- 107 -- -- 107
Compensation earned related to issuance of stock
options ............................................. -- 550 -- -- 550
Purchase of 12,201 shares of Treasury Stock .......... -- -- -- (196) (196)
Net income for fiscal 1997 ........................... -- -- 13,677 -- 13,677
---- ------- ------- -------- --------
Balance at September 27, 1997 ........................ $121 $35,877 $70,566 $ (2,247) $104,317
==== ======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995, September 28, 1996 and September 27, 1997
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements include the
accounts of Galey & Lord, Inc. (the "Company") and its wholly-owned
subsidiaries, Galey & Lord Industries, Inc., G&L Service Company, North
America, Inc. and Dimmit Industries, S.A. de C.V. Intercompany items have been
eliminated in consolidation.
Cash Equivalents: The Company considers investments in marketable
securities with an original maturity of three months or less to be cash
equivalents.
Inventories: Inventories are stated at the lower of cost or market. Cost
of substantially all inventories is determined using the last-in, first-out
(LIFO) method.
Property, Plant and Equipment: Depreciation is provided over the estimated
useful lives of the respective assets using straight-line methods. Estimated
useful lives are 40 years for buildings and 5 to 15 years for machinery,
fixtures and equipment.
Revenue Recognition: The Company recognizes revenues from product sales
when goods are shipped or when ownership is assumed by the customer.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
Net Income Per Common Share: Net income per common share data is computed
based on the average number of shares of Common Stock and Common Stock
equivalents outstanding during the period.
Accounting for Stock-Based Compensation: Effective October 1, 1995, the
Company adopted the accounting provisions of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which
require that the Company recognize expense for the fair value of stock-based
compensation awarded during the year. In 1995, the Company accounted for stock
options in accordance with Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Under APB 25, compensation expense
is determined on the measurement date and compensation expense, if any, is
measured based on the award's intrinsic value, the excess of the market price
of the stock over the exercise price on the measurement date.
Income Taxes: The Company uses the liability method of accounting for
deferred income taxes which requires the recognition of deferred income tax
liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities.
Intangibles and Deferred Charges: The excess of the purchase cost over the
fair value of assets acquired is being amortized over 20 to 30 years. The
Company evaluates whether events and circumstances have occurred that indicate
the remaining estimated useful life of goodwill may warrant revision or that
the remaining balance of goodwill may not be recoverable. When factors indicate
that goodwill should be evaluated for possible impairment, the Company uses an
estimate of the undiscounted future cash flows over the remaining life to
determine whether goodwill is recoverable. The Company believes that no
material impairment of goodwill exists at September 27, 1997. Deferred debt
charges are being amortized over the lives of related debt.
Fiscal Year: The Company uses a 52-53 week fiscal year. The years ending
September 30, 1995, September 28, 1996 and September 27, 1997 were 52-week
years.
NOTE B -- BUSINESS ACQUISITIONS
On October 27, 1997, the Company entered into an agreement with Polymer
Group, Inc. and its affiliate, DT Acquisition, Inc. ("DTA"), to acquire from
DTA the apparel fabrics business (the "Dominion Acquisition")
F-7
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE B -- BUSINESS ACQUISITIONS -- Continued
of Dominion Textiles Inc. ("Dominion") in the event that DTA successfully
completes its tender offer to purchase the capital stock of Dominion.
Dominion's apparel fabrics business to be acquired by the Company primarily
consists of several direct and indirect subsidiaries and operating divisions of
Dominion which manufacture and market denim fabrics and fabrics for the
commercial uniform market. Under the current terms of DTA's tender offer,
Dominion's shareholders may tender their shares of Dominion's common stock for
CDN $14.50 and shares of Dominion's preferred stock for CDN $150.00 until 4
p.m. Toronto time on December 29, 1997. The completion of the tender offer and
the Dominion Acquisition are both subject to, among other things, certain
governmental and other regulatory approvals. It is currently anticipated that
the tender offer will be completed in December 1997. On November 19, 1997, the
Company entered into a forward exchange contract for CDN $370 million to
protect itself against Canadian dollar fluctuations.
The Company has obtained commitments to provide the financing to fully
fund the Dominion Acquisition. The total commitments of $720 million will
consist of approximately $470 million of senior financing provided by First
Union National Bank, including a revolving line of credit and a term loan,
which will be used to refinance the Company's existing senior bank credit
facility and to finance the Dominion Acquisition, and approximately $250
million of senior subordinated financing provided by First Union Corporation
which will be used to finance the Dominion Acquisition. The Company currently
anticipates that the Dominion Acquisition will be completed in January 1998.
On June 7, 1996, the Company, through its subsidiary, G&L Service Company,
North America, Inc. ("G&L Service Company") acquired the capital stock of
Dimmit Industries, S.A. de C.V. ("Dimmit") and certain related assets from
Farah Incorporated for approximately $22.8 million in cash including certain
costs related to the acquisition (the "Mexico Acquisition"). Dimmit is composed
of six manufacturing facilities located in Piedras Negras, Mexico and sews and
finishes pants and shorts for the men's casual wear market. Funding for the
Mexico Acquisition was provided through funds generated by operations, working
capital reductions and by the Company's current bank group through amendments
to the Company's term loan and revolving credit facility. These amendments
increased the Company's borrowing capacity by $20 million. In connection with
the Mexico Acquisition, which has been accounted for as a purchase transaction,
the Company acquired assets with an estimated fair value of approximately $12.7
million and assumed liabilities of approximately $1.1 million. The Company has
allocated the purchase price and has recorded goodwill of approximately $11.2
million for the excess of the purchase price over the fair value of the net
assets acquired. The goodwill amount is being amortized over a 20-year period.
The results of operations of G&L Service Company and Dimmit have been included
in the consolidated financial statements from the date of the Mexico
Acquisition.
On January 25, 1996, the Company and Triarc Companies, Inc. ("Triarc")
mutually agreed not to go forward with their previously announced merger of the
Company and the Graniteville Company, a subsidiary of Triarc, due to economic
conditions existing at that time in the retail, textile and apparel sectors.
The Company incurred fees and expenses related to the proposed merger of $1.6
million and took a charge during fiscal year 1996 for the write-off of those
costs.
NOTE C -- CLOSURE OF PRINTED APPAREL FABRICS BUSINESSES
On September 19, 1995, the Company closed its printed apparel fabrics
businesses, made up of Galey & Lord Prints and Galey & Lord Group II, due to
declining business conditions that the printed apparel fabrics businesses had
experienced since 1992. As a result of the closing, the Company ceased
operations at its Specialty Plant on that date and laid off approximately 450
employees located primarily in Society Hill, South Carolina and New York City.
In connection with this closing, the Company incurred in the September
quarter 1995 a $12.1 million business closing charge ($7.4 million or $.62 per
share after tax), consisting primarily of $3.2 million of severance and other
employee related costs associated with employee layoffs, all of which had been
paid as of September 27, 1997, $5.4 million of losses on the disposal of
machinery and equipment and $2.9 million of losses on the
F-8
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE C -- CLOSURE OF PRINTED APPAREL FABRICS BUSINESSES -- Continued
disposal of raw material and supply inventory. As of September 27, 1997, the
Company had incurred substantially all of the losses associated with the
disposal of its machinery and equipment and raw material and supply inventory.
The printed apparel fabrics businesses represented $33.8 million or 6.7% of the
Company's net sales in fiscal 1995 and had operating losses of $13.4 million in
fiscal 1995.
NOTE D -- INVENTORIES
Inventories at September 28, 1996 and September 27, 1997 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Raw materials ............................................... $ 2,361 $ 2,353
Stock in process ............................................ 13,396 13,359
Produced goods .............................................. 64,571 79,611
Dyes, chemicals and supplies ................................ 4,805 5,448
-------- --------
Total inventory at first-in, first-out (FIFO) cost .......... 85,133 100,771
Less LIFO and other reserves ................................ (8,199) (8,254)
-------- --------
$ 76,934 $ 92,517
======== ========
</TABLE>
Inventories valued using the LIFO method comprised approximately 97% of
inventories at September 28, 1996 and September 27, 1997.
NOTE E -- LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Revolving Credit Note, interest at LIBOR+.5%, LIBOR+.75%, LIBOR+1%,
LIBOR+1.25% or LIBOR+1.5%, in accordance with a pricing grid, or prime, due
on April 30, 2000, collateralized by trade accounts receivable, inventory,
machinery and equipment and intangibles ......................................... $108,200 $151,100
Term Loan, interest at LIBOR+.5%, LIBOR+.75%, LIBOR+1%, LIBOR+1.25% or
LIBOR+1.5%, in accordance with a pricing grid, or prime, due March 31, 2000,
collateralized by trade accounts receivable, inventory, machinery and equipment
and intangibles ................................................................. 45,000 31,000
SC JEDA tax exempt bonds, variable interest rate, reset weekly to market demand
for AA+ tax exempt bonds, quarterly interest payments through May 1, 2014,
principal due in 19 yearly installments of $300 through May 1, 2013, plus a final
payment of $1,500 on May 1, 2014, collateralized by wastewater treatment
facility ........................................................................ 6,600 6,300
Obligations under capital leases (Note I) ........................................ 2,971 1,636
-------- --------
162,771 190,036
Less current portion ............................................................ 13,506 13,281
-------- --------
Total long-term debt .......................................................... $149,265 $176,755
======== ========
</TABLE>
F-9
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE E -- LONG-TERM DEBT -- Continued
At September 27, 1997, the annual maturities of the principal amounts of
long-term debt excluding obligations under capital leases were (in thousands):
<TABLE>
<S> <C>
1998 ........................ $12,300
1999 ........................ 12,300
2000 ........................ 11,169
2001 ........................ 300
2002 ........................ 300
Thereafter .................. 4,800
</TABLE>
The Company has obtained commitments to provide the financing to fully
fund the Dominion Acquisition. The total commitment of $720 million will
consist of approximately $470 million of senior financing provided by First
Union National Bank, including a revolving line of credit and a term loan,
which will be used to refinance the Company's existing senior bank credit
facility and to finance the Dominion Acquisition, and approximately $250
million of senior subordinated financing provided by First Union Corp. which
will be used to finance the Dominion Acquisition.
On June 4, 1996, the Company amended its term loan and revolving credit
facility with its bank group led by First Union National Bank of North America,
as agent and lender. The amendment increased the Company's maximum allowable
borrowings under the revolving credit facility, which expires April 30, 2000,
from $150 million to $170 million. The term loan was restated to the
outstanding balance of $48 million and continues to require equal quarterly
principal payments of $3 million through the term loan's expiration on March
31, 2000. The amended term loan and revolving credit facility bear interest at
a per annum rate, at the Company's option, of either (i) the greater of the
prime rate or federal funds rate or (ii) LIBOR plus .5%, LIBOR plus .75%, LIBOR
plus 1.0%, LIBOR plus 1.25% or LIBOR 1.5%, in accordance with a pricing grid
based on certain financial ratios.
On May 13, 1997, the Company amended its term loan and revolving credit
facility with its bank group. The amendment modified the Company's current
covenants related to debt service, eliminated the covenant limiting the amount
of capital expenditures to be made and permits the Company to enter into a
trade receivables securitization.
The Company's obligations under the credit facility are secured by all of
the Company's inventory, equipment, accounts receivable and general
intangibles, and a pledge by the Company of all the outstanding capital stock
of its wholly-owned domestic subsidiaries, Galey & Lord Industries, Inc. and
G&L Service Company and a pledge of 65% of the outstanding capital stock of its
foreign subsidiary, Dimmit.
At September 27, 1997, the Company's term loan and revolving credit
borrowings were based on one and three-month market LIBOR rates averaging 5.76%
and on a prime rate of 8.5%. The Company's weighted average borrowing rate on
these loans at September 27, 1997 was 6.88%, which includes a spread of 1.0% on
the LIBOR borrowings.
On April 28, 1995, the Company refinanced its term loan and revolving
credit facility resulting in a one-time extraordinary charge of $1.3 million or
$.11 per share (net of taxes of $.8 million) in the June quarter 1995 to write
off fees associated with the previous loan agreements and pre-payment
penalties.
Under the Company's financing agreements, the Company has covenants
relating to debt service, working capital, leverage, fixed charges and net
worth. These agreements permit the Company to pay dividends on common stock
subject to the satisfaction of certain financial covenants.
During January 1996, the Company entered into interest rate swaps on $50
million of its outstanding bank debt to fix the LIBOR interest rate on which
those borrowings are based. The interest rate swaps assure that the Company
under its current credit agreement will pay a maximum rate of 6.77% (LIBOR
fixed at 5.27% plus the
F-10
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE E -- LONG-TERM DEBT -- Continued
maximum spread allowed under the credit agreement of 1.5%) on $25 million of
bank debt for a two-year period and 7.03% (LIBOR fixed at 5.53% plus the
maximum spread allowed under the credit agreement of 1.5%) on the other $25
million of debt for a five-year period. The amount paid or received under the
swap agreements is based on the changes in actual interest rates and is
recorded as an adjustment to interest expense. The fair value of these interest
rate swap agreements, as determined by a member of the Company's bank group, at
September 27, 1997 was $579,000 and was not recognized in the financial
statements. The Company is exposed to credit loss in the event of
nonperformance by the other parties to the interest rate swap agreements;
however, the Company does not anticipate nonperformance by any of the other
parties.
On May 17, 1994, the Company borrowed $7,200,000 in tax-exempt adjustable
mode economic development revenue bonds from the South Carolina Jobs-Economic
Development Authority. Bond proceeds were used to finance the construction and
equipping of a wastewater treatment facility for the Company's manufacturing
facilities in Society Hill, South Carolina. The bonds are secured by an
irrevocable standby letter of credit of $7,830,000 from Wachovia Bank of North
Carolina. The bonds require yearly principal payments of $300,000 for nineteen
years with a final payment of $1,500,000 due May 1, 2014. The coupon rate on
the bonds is reset weekly and interest is paid quarterly. As of September 27,
1997, the interest rate on the bonds was 6.22%.
NOTE F -- INCOME TAXES
At September 28, 1996 and September 27, 1997, the Company had $2.5 million
and $1.5 million, respectively, of deferred income tax assets and $19.8 million
and $18.3 million, respectively, of deferred income tax liabilities which have
been netted for presentation purposes. The significant components of these
amounts as shown on the balance sheet are as follows (in thousands):
<TABLE>
<CAPTION>
September 28, 1996 September 27, 1997
-------------------------- -------------------------
Current Noncurrent Current Noncurrent
Liability Liability Liability Liability
(Asset) (Asset) (Asset) (Asset)
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Inventory valuation ...................... $ 1,937 $ -- $ 1,947 $ --
Property, plant & equipment .............. --- 14,468 -- 16,116
Accruals and allowances .................. (2,502) -- (1,437) --
Goodwill ................................. -- 1,147 -- 1,592
Other .................................... 161 553 123 (23)
-------- ------- -------- -------
Current and noncurrent deferred income tax
liabilities (assets) .................... $ (404) $16,168 $ 633 $17,685
======== ======= ======== =======
</TABLE>
F-11
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE F -- INCOME TAXES -- Continued
The components of the provision for Federal and state income taxes for
1995, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current
Federal ....................... $2,921 $1,939 $4,861
State ......................... 436 454 731
------ ------ ------
3,357 2,393 5,592
Deferred
Federal ....................... (30) 3,194 2,202
State ......................... 63 339 352
------ ------ ------
33 3,533 2,554
------ ------ ------
Total Domestic Federal ......... 3,390 5,926 8,146
Foreign State .................. -- 56 204
------ ------ ------
$3,390 $5,982 $8,350
====== ====== ======
</TABLE>
Following is a reconciliation of the United States statutory tax rate to
the effective rate expressed as a percentage of pre-tax income:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
United States statutory tax rate ........... 35.0% 35.0% 35.0%
State taxes net of Federal benefit ......... 3.7 3.2 3.2
Foreign tax ................................ -- 0.4 0.9
Other ...................................... 0.1 0.1 (1.2)
---- ---- ----
38.8% 38.7% 37.9%
==== ==== ====
</TABLE>
NOTE G -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid (received) for interest and income taxes is as follows (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Interest .............. $12,680 $12,137 $11,213
Income taxes .......... $ 4,815 $ (70) $ 8,287
</TABLE>
NOTE H -- BENEFIT PLANS
Defined Benefit Pension Plans
The Company has a defined benefit pension plan covering qualified salaried
and wage employees. Effective April 1, 1992, the plan was modified to be
non-contributory and the benefit formula was amended to be based on the
employee's average compensation and years of service. Prior to April 1, 1992,
benefits were based on employee contributions to the plan. The Company's
funding policy is to contribute annually the amount recommended by the plan's
actuary. Plan assets, which consist of common stocks, bonds and cash
equivalents, are maintained in trust accounts.
The Company also has a nonqualified, unfunded supplementary retirement
plan under which the Company will pay supplemental pension benefits to key
executives in addition to the amount participants will receive under the
Company's retirement plan. The annual cost of this plan has been included in
the determination of the
F-12
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE H -- BENEFIT PLANS -- Continued
net periodic pension cost shown below and amounted to $158,000, $179,500 and
$241,025 for 1995, 1996 and 1997, respectively.
The following sets forth the funded status of the plans at September 28,
1996 and September 27, 1997 (in thousands):
Actuarial Present Value of Benefit Obligations:
<TABLE>
<CAPTION>
Defined Benefit Plan Supplemental Plan
----------------------- ---------------------
1996 1997 1996 1997
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Accumulated benefit obligation, including vested benefits of
$16,000, $18,142, $325 and $493, respectively.................... $ 16,042 $ 19,836 $ 325 $ 493
======== ======== ====== ======
Projected benefit obligation for service rendered to date ......... $ 19,686 $ 23,911 $ 768 $1,195
Less plan assets at fair value .................................... 17,240 23,074 -- --
-------- -------- ------ ------
Projected benefit obligation in excess of plan assets ............. 2,446 837 768 1,195
Unrecognized prior service cost ................................... 1,308 1,221 (207) (188)
Unrecognized net loss ............................................. (3,382) (2,203) (123) (328)
-------- -------- ------ ------
Pension liability (asset) recognized in the balance sheet ......... $ 372 $ (145) $ 438 $ 679
======== ======== ====== ======
</TABLE>
Net pension cost for the plans for the years ended September 30, 1995,
September 28, 1996 and September 27, 1997 included the following components (in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Service cost -- benefits earned during the period .......... $ 3,261 $ 3,227 $ 3,217
Interest cost on projected benefit obligation .............. 1,341 1,470 1,558
Return on assets ........................................... (1,467) (1,258) (3,789)
Net amortization and deferral .............................. 131 (257) 2,178
-------- -------- --------
Net periodic pension cost .................................. $ 3,266 $ 3,182 $ 3,164
======== ======== ========
</TABLE>
The projected benefit obligation for both plans at September 28, 1996 and
September 27, 1997 was determined using assumed discount rates of 8% and 7.5%,
respectively. The assumed long-term rate of increase in compensation was 5.5%
for all years presented, and the assumed long-term rate of return on plan
assets was 9% for 1995 and 1996 and 8.5% for 1997.
Defined Contribution Plan
The Company has a profit sharing plan covering qualified employees. The
plan includes a provision which allows employees to make pre-tax contributions
under Section 401(k) of the Internal Revenue Code. Employer contributions to
the plan are made at the discretion of the Company. The Company contributions
for 1995, 1996 and 1997 were approximately $0, $1.6 million and $1.7 million,
respectively.
In addition, the Company provides life and health benefits to
substantially all employees. Employees contribute a fixed amount weekly or
monthly as set forth in the plan with the balance paid by the Company. The
Company contributions for 1995, 1996 and 1997 were approximately $6.9 million,
$8.4 million and $6.3 million, respectively.
Deferred Compensation Plan
The Company has a nonqualified, unfunded deferred compensation plan which
provides certain key executives with a deferred compensation award which will
earn interest at the United States Treasury Bill rate. The award, which is
based on the year's operating results, was $0, $247,000 and $344,000 for 1995,
1996 and 1997, respectively. The plan participants will be vested in the awards
upon the completion of five years of service after
F-13
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE H -- BENEFIT PLANS -- Continued
the date of the award, upon normal retirement, upon involuntary termination
subject to certain limitations, upon permanent and total disability or death,
whichever occurs first. In the event of retirement or disability, any unpaid
deferred awards will be paid on the normal five-year maturity schedule. Upon
the death of a participant, the Company has the option to either immediately
pay the award to the participant's estate or pay the award on the normal
five-year maturity schedule.
NOTE I -- COMMITMENTS AND CONTINGENCIES
Future minimum commitments for all leases at September 27, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
----------- --------
<S> <C> <C>
1998 .................................................... $ 5,177 $1,172
1999 .................................................... 3,563 717
2000 .................................................... 2,800 --
2001 .................................................... 2,487 --
2002 .................................................... 2,022 --
Thereafter .............................................. 493 --
------- ------
Total minimum lease payments ............................ $16,542 $1,889
=======
Less amount representing interest ....................... 253
------
Present value of future minimum lease payments .......... 1,636
Less amounts due in one year ............................ 981
------
$ 655
======
</TABLE>
Approximately 16.1% of minimum lease payments on operating leases pertain
to real estate as of September 27, 1997. The remainder covers a variety of
machinery and equipment. Rental expense for all operating leases was
approximately $2.9 million, $4.3 million and $5.5 million in 1995, 1996 and
1997, respectively.
The Company is involved in various litigation arising in the ordinary
course of business. Although the final outcome of these matters cannot be
determined, based on the facts presently known, it is Management's opinion that
the final resolution of these matters will not have a material adverse effect
on the Company's financial position or results of operations.
NOTE J -- STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of (i) 25,000,000
shares of Common Stock, par value $.01 per share, of which 11,664,490 shares
are currently outstanding, (ii) 5,000,000 shares of Nonvoting Common Stock, par
value $.01 per share, none of which is issued or outstanding, and (iii)
5,000,000 shares of Preferred Stock, par value $.01 per share, none of which is
issued or outstanding.
The Company has a Stock Option Plan (the "Plan") authorizing the granting
of qualified and non-qualified stock options to officers, directors,
consultants and key employees of the Company. Effective February 11, 1997, the
Plan was amended to increase the number of shares of Company common stock
available for issuance from 1.6 million to 1.85 million. Options may be granted
through the plan's expiration in February 1999 at an exercise price of not less
than fair market value. Currently, the Company has both fixed stock options and
target stock price performance options outstanding under the Plan. As of
September 27, 1997, the Company had 192,130 shares available for the issuance
of stock options under the Plan.
Fixed Stock Options
The exercise price of each fixed option granted is equal to the market
price of the Company's common stock on the date of grant with a maximum term of
10 years. Options granted to directors vest 12 months from
F-14
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE J -- STOCKHOLDERS' EQUITY -- Continued
the date of grant while options granted to certain management employees vest
20% each year over a five-year period from the date of grant.
The fair value of each option granted after September 30, 1995 was
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions used for grants in 1996 and 1997: expected
dividend yield of 0% for both years; expected volatility of 34% for both years;
weighted average risk-free interest rate of 6.55% and 6.17%, respectively; and
expected lives of 5 to 7 years and 5 years, respectively.
A summary of the status of the Company's fixed stock options as of
September 28, 1996 and September 27, 1997 and changes during the years are
presented below:
<TABLE>
<CAPTION>
1996 1997
-------------------------------- -------------------------------
Number of Weighted Average Number of Weighted Average
Shares Exercise Price Shares Exercise Price
----------- ------------------ ----------- -----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year ................. 715,310 $ 8.80 682,210 $ 8.61
Granted ........................................ 14,500 10.10 4,500 16.46
Exercised ...................................... (10,100) .93 (84,800) 3.00
Forfeited or Canceled .......................... (37,500) 15.00 (19,350) 16.48
------- ------ ------- ------
Outstanding, end of year ....................... 682,210 $ 8.61 582,560 $ 9.22
======= ====== ======= ======
Options exercisable at year-end ................ 559,860 496,060
======= =======
Weighted average fair value of options granted
during the year calculated using Black-Scholes
model ........................................ $ 4.76 $ 5.75
</TABLE>
The following table summarizes information about fixed stock options
outstanding at September 27, 1997:
<TABLE>
<CAPTION>
Options Exercisable
-------------------------------
Number Weighted Avg. Number
Range of Outstanding Remaining Weighted Avg. Exercisable Weighted Avg.
Exercise Prices at 9/27/97 Contractual Life Exercise Price at 9/27/97 Exercise Price
- ------------------- ------------- ------------------ ---------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.43 25,200 1.5 Yrs. $ 0.43 25,200 $ 0.43
0.93 45,200 2.6 0.93 45,200 0.93
1.75 66,700 2.8 1.75 66,700 1.75
9.38 to 14.00 354,260 5.0 10.74 310,860 10.66
14.25 to 18.13 91,200 6.6 15.32 48,100 15.38
- ----------------- ------- -------------- ------ ------- ------
$0.43 to 18.13 582,560 4.7 $ 9.22 496,060 $ 8.51
</TABLE>
Target Stock Price Performance Options
The exercise price of each target stock price performance option granted
is equal to the market price of the Company's common stock on the date of grant
and vests as the Company's common stock price achieves certain pre-established
targets which were set on the date of grant. Some options vest in 20%
increments as the common stock price reaches each of five target prices,
$15.00, $17.50, $20.00, $22.50 and $25.00. Some options vest in 33 1/3%
increments as the common stock price reaches each of three target prices,
$17.50, $20.00 and $22.50. All options which have not vested within five years
of the date of grant will expire. All options which have vested expire ten
years from the date of grant.
The fair value of each option granted was estimated on the date of grant
using a modified Black-Scholes option-pricing model which, in addition to the
required inputs, takes into consideration the target stock price (or barrier)
which must be attained. The following assumptions were incorporated into the
model for options granted in 1996 and 1997: weighted average risk-free interest
rate of 6.57% and 5.84%, respectively; expected dividend yield of 0% for both
years; expected lives ranging from 2 to 5.5 years and 2.25 to 4.25 years,
respectively; and volatility of 34% for both years.
F-15
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE J -- STOCKHOLDERS' EQUITY -- Continued
A summary of the status of the Company's target stock price performance
options as of September 27, 1997 and changes during the year is presented
below:
<TABLE>
<CAPTION>
1996 1997
-------------------------------- -------------------------------
Number of Weighted Average Number of Weighted Average
Shares Exercise Price Shares Exercise Price
----------- ------------------ ----------- -----------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year ............... -- -- 475,000 $ 10.38
Granted ...................................... 475,000 $ 10.38 48,000 13.25
Exercised .................................... -- -- (666) 13.25
Forfeited or Canceled ........................ -- -- -- --
------- ------- ------- --------
Outstanding, end of year ..................... 475,000 $ 10.38 522,334 $ 10.64
======= =======
Options exercisable at year-end .............. 0 221,654
======= =======
Weighted average fair value of options granted
during the year calculated using modified
Black-Scholes model ........................ $ 3.05 $ 4.00
</TABLE>
As of September 27, 1997, the 522,334 target stock price performance
options outstanding under the Plan have a weighted-average remaining
contractual life of 8.8 years assuming all options vest.
1995 Fixed Stock Options
The following tables summarizes information about fixed stock options for
1995:
<TABLE>
<CAPTION>
1995
-----------------------------
Number of Price Per
Shares Share
----------- ---------------
<S> <C> <C>
Outstanding, beginning of year ......... 617,760 $ .43-20.75
Granted ................................ 129,750 14.25-19.25
Exercised .............................. (32,200) .43-11.50
Forfeited or Canceled .................. -- --
-------
Outstanding, end of year ............... 715,310 .43-20.75
=======
Exercisable, end of year ............... 454,760 .43-20.75
=======
</TABLE>
Effective December 16, 1997, the Company adopted Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share" (FAS 128). This
statement replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. FAS 128 is
effective for all interim and annual periods ending after December 15, 1997 and
prohibits early adoption. FAS 128 also requires all periods presented to be
restated after adoption of the statement. Because the Company's fiscal 1997
financial statements are being reissued subsequent to adoption and after
publication of December quarter 1997 earnings per share, the Company has
restated, where appropriate, all earnings per share amounts for all periods to
conform to the FAS 128 requirements.
NOTE K -- MAJOR CUSTOMER
Apparel fabrics had sales to Levi Strauss and related companies which
comprised 16.6%, 17.4%, and 21.6% of the Company's total sales for 1995, 1996
and 1997, respectively.
F-16
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE L -- CONCENTRATION OF CREDIT RISK
The Company manufactures and sells textile products to companies located
worldwide which are predominantly in the apparel and home fabrics industries.
The Company performs periodic credit evaluations of its customers' financial
condition and, although the Company does not generally require collateral, it
does require cash payments in advance when the assessment of credit risk
associated with a customer is substantially higher than normal. At September
27, 1997, all trade accounts receivable are from customers in the apparel and
home furnishings industry. Receivables generally are due within 60 days, and
credit losses have consistently been within management's expectations, other
than credit losses resulting from the Home Fashion Fabrics customer which filed
for bankruptcy protection during the June quarter 1997. All credit losses are
provided for in the financial statements.
NOTE M -- SEGMENT INFORMATION
The Company's operations are classified into two business segments,
apparel fabrics and home fabrics. The apparel fabrics segment sells to clothing
manufacturers worldwide and consists of woven fabrics and G&L Service Company.
The home fabrics segment produces fabrics for the domestic home furnishing
trade through the Home Fashion Fabrics Division.
F-17
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE M -- SEGMENT INFORMATION -- Continued
Information about the Company's operations in its different industry
segments for the past three years is as follows (in thousands) (see Note A).
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales
Apparel fabrics .......................................... $ 443,544 $364,157 $456,597
Home fabrics ............................................. 58,676 47,298 36,765
--------- -------- --------
Consolidated ............................................. $ 502,220 $411,455 $493,362
========= ======== ========
Operating Income
Apparel fabrics .......................................... $ 29,201 $ 29,924 $ 36,837
Home fabrics ............................................. 4,709 (1,285) (2,484)
Business closing charge .................................. (12,065) -- --
--------- -------- --------
Consolidated ............................................. 21,845 28,639 34,353
Interest expense .......................................... 13,103 11,579 12,326
Write-off of merger costs ................................. -- 1,600 --
--------- -------- --------
Income before income taxes ................................ $ 8,742 $ 15,460 $ 22,027
========= ======== ========
Identifiable Assets
Apparel fabrics .......................................... $ 219,208 $225,247 $279,307
Home fabrics ............................................. 77,863 75,148 65,885
Corporate (including cash and income tax assets) ......... 7,968 4,481 3,999
--------- -------- --------
Consolidated ............................................. $ 305,039 $304,876 $349,191
========= ======== ========
Depreciation and Amortization
Apparel fabrics .......................................... $ 8,633 $ 8,666 $ 12,129
Home fabrics ............................................. 2,832 3,193 3,353
--------- -------- --------
Consolidated ............................................. $ 11,465 $ 11,859 $ 15,482
========= ======== ========
Capital Expenditures
Apparel fabrics .......................................... $ 9,686 $ 11,259 $ 35,871
Home fabrics ............................................. 5,109 2,265 755
--------- -------- --------
Consolidated ............................................. $ 14,795 $ 13,524 $ 36,626
========= ======== ========
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("FAS 131"), effective for years beginning
after December 15, 1997, the Company's fiscal year 1999. FAS 131 requires that
a public company report financial and descriptive information about its
reportable operating segments pursuant to criteria that differ from current
accounting practice. Operating segments, as defined, are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The financial information to
be reported includes segment profit or loss, certain revenue and expense items
and segment assets and reconciliations to corresponding amounts in the general
purpose financial statements. FAS 131 also requires information about products
and services, geographic areas of operation, and major customers. The Company
has not completed its analysis of the effect of adoption on its financial
statement disclosure, however, the adoption of FAS 131 will not affect results
of operations or financial position, but may affect the disclosure of segment
information.
F-18
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE N -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The Company's unaudited consolidated results of operations are presented
below (in thousands except per share data):
<TABLE>
<CAPTION>
Fiscal 1996 Quarters
----------------------------------------------------------
December March June September
---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ................................. $85,134 $ 100,394 $ 115,437 $ 110,490
Cost of sales ............................. 78,663 89,560 102,042 97,727
------- --------- --------- ---------
Gross profit .............................. 6,471 10,834 13,395 12,763
Income tax expense (benefit) .............. (475) 1,587 2,588 2,282
Net income (loss) ......................... $ (753) $ 2,612 $ 4,051 $ 3,568
======= ========= ========= =========
Per share data -- basic:
Average common shares outstanding ......... 11,762 11,742 11,691 11,600
Net income (loss) -- basic ................ $ .(06) $ .22 $ .35 $ .31
========== ========= ========= =========
Per share data -- diluted:
Average common shares outstanding ......... 12,010 11,928 11,889 11,813
Net income (loss) -- diluted .............. $ .(06) $ .22 $ .34 $ .30
========== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1997 Quarters
-------------------------------------------------------------
December March June September
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales ................................. $ 110,928 $ 129,429 $ 135,113 $ 117,892
Cost of sales ............................. 98,360 115,567 118,839 106,441
--------- --------- --------- ---------
Gross profit .............................. 12,568 13,862 16,274 11,451
Income tax expense ........................ 2,215 2,398 2,599 1,138
Net income ................................ $ 3,522 $ 3,800 $ 4,184 $ 2,171
========= ========= ========= =========
Per share data -- basic:
Average common shares outstanding ......... 11,576 11,598 11,625 11,642
Net income -- basic ....................... $ .30 $ .33 $ .36 $ .19
========= ========= ========= =========
Per share data -- diluted:
Average common shares outstanding ......... 11,839 12,006 12,004 12,031
Net income -- diluted ..................... $ .30 $ .32 $ .35 $ .18
========= ========= ========= =========
</TABLE>
All quarters presented are 13-week periods.
F-19
<PAGE>
GALEY & LORD, INC.
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
ASSETS
December 28, December 27,
1996 1997 September 27,
(Unaudited) (Unaudited) 1997 *
-------------- ------------- --------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 2,797 $ 6,198 $ 2,277
Trade accounts receivable ............................. 76,615 86,570 80,633
Sundry notes and accounts receivable .................. 166 473 206
Inventories ........................................... 85,240 95,934 92,517
Income taxes receivable ............................... -- 2,516 1,412
Deferred income taxes ................................. -- 175 --
Prepaid expenses and other current assets ............. 2,081 2,798 3,894
--------- --------- ---------
Total current assets ................................ 166,899 194,664 180,939
Property, plant and equipment, at cost ................. 166,998 204,939 197,184
Less accumulated depreciation and amortization ......... (58,321) (71,160) (67,739)
--------- --------- ---------
108,677 133,779 129,445
Notes receivable ....................................... -- 141,000 --
Deferred charges ....................................... 1,001 6,661 820
Intangibles ............................................ 39,052 37,567 37,987
--------- --------- ---------
$ 315,629 $ 513,671 $ 349,191
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ..................... $ 13,526 $ 1,431 $ 13,281
Trade accounts payable ................................ 18,246 21,440 23,488
Accrued salaries and employee benefits ................ 7,357 6,895 9,450
Accrued liabilities ................................... 1,833 1,629 3,582
Deferred income taxes ................................. 456 -- 633
Income taxes payable .................................. 2,074 -- --
--------- --------- ---------
Total current liabilities ........................... 43,492 31,395 50,434
Commitments
Long-term debt ......................................... 162,846 360,004 176,755
Other long-term liabilities ............................ 123 -- --
Deferred income taxes .................................. 15,886 18,486 17,685
Stockholders' equity:
Common stock .......................................... 120 121 121
Contributed capital in excess of par value ............ 34,802 35,980 35,877
Retained earnings ..................................... 60,411 69,932 70,566
Treasury stock, at cost ............................... (2,051) (2,247) (2,247)
--------- --------- ---------
Total stockholders' equity .......................... 93,282 103,786 104,317
--------- --------- ---------
$ 315,629 $ 513,671 $ 349,191
========= ========= =========
</TABLE>
* Condensed from audited financial statements.
See accompanying notes to consolidated financial statements.
F-20
<PAGE>
GALEY & LORD, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
December 28, December 27,
1996 1997
-------------- -------------
<S> <C> <C>
Net sales .............................................................. $ 110,928 $127,147
Cost of sales .......................................................... 98,360 117,351
--------- --------
Gross profit ........................................................... 12,568 9,796
Selling, general and administrative expenses ........................... 3,361 3,387
Amortization of goodwill ............................................... 418 421
--------- --------
Operating income ....................................................... 8,789 5,988
Interest expense ....................................................... 3,052 3,500
Senior subordinated interest expense ................................... -- 379
Loss on foreign currency hedges ........................................ -- 2,745
--------- --------
Income (loss) before income taxes and extraordinary loss ............... 5,737 (636)
Income tax expense (benefit):
Current .............................................................. 1,637 (851)
Deferred ............................................................. 578 325
--------- --------
Income (loss) before extraordinary loss ................................ 3,522 (110)
Extraordinary loss from debt refinancing, net of taxes of $332 ......... -- (524)
--------- --------
Net income (loss) ...................................................... $ 3,522 $ (634)
========= ========
Net income (loss) per common share:
Basic:
Average common shares outstanding .................................... 11,576 11,664
Income (loss) per share before extraordinary loss .................... $ .30 $ (.01)
Extraordinary loss from debt refinancing ............................. -- (.04)
--------- --------
Net income (loss) per common share --
Basic ............................................................... $ .30 $ (.05)
========= ========
Diluted:
Average common shares outstanding ...................................... 11,839 12,036
Income (loss) per share before extraordinary loss .................... $ .30 $ (.01)
Extraordinary loss from debt refinancing ............................. -- ( .04)
--------- --------
Net income (loss) per common share --
Diluted ............................................................. $ .30 $ (.05)
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
GALEY & LORD, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
December 28, December 27,
1996 1997
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................................................... $ 3,522 $ (634)
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation of property, plant and equipment .......................... 3,193 3,698
Amortization of intangible assets ...................................... 418 421
Amortization of deferred charges ....................................... 74 52
Deferred income taxes .................................................. 578 325
Non-cash compensation .................................................. 115 97
(Gain)/loss on disposals of property, plant and equipment .............. 68 20
Extraordinary loss from debt refinancing ............................... -- 524
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable -- net ...................... (2,435) (5,937)
(Increase)/decrease in sundry notes & accounts receivable .............. (2) (267)
(Increase)/decrease in inventories ..................................... (8,306) (3,417)
(Increase)/decrease in prepaid expenses and other current assets ....... (228) 1,096
(Decrease)/increase in accounts payable -- trade ....................... (2,711) (2,048)
(Decrease)/increase in accrued liabilities ............................. (4,887) (4,508)
(Decrease)/increase in income taxes payable ............................ 959 (1,104)
--------- ----------
Net cash provided by (used in) operating activities ..................... (9,642) (11,682)
Cash flows from investing activities:
Property, plant and equipment expenditures .............................. (5,747) (8,086)
Proceeds from sale of property, plant and equipment ..................... 829 34
Issuance of notes receivable ............................................ -- (141,000)
Other ................................................................... (3) (107)
---------- ----------
Net cash provided by (used in) investing activities .................... (4,921) (149,159)
Cash flows from financing activities:
Increase in revolving line of credit .................................... 17,800 16,400
Principal payments on long-term debt .................................... (4,199) (189,509)
Issuance of long-term debt .............................................. -- 344,508
Increase in common stock ................................................ -- 6
Payment of bank fees and loan costs ..................................... (20) (6,643)
Other ................................................................... (20) --
--------- ----------
Net cash provided by (used in) financing activities .................... 13,561 164,762
--------- ----------
Net increase/(decrease) in cash and cash equivalents .................... (1,002) 3,921
Cash and cash equivalents at beginning of period ........................ 3,799 2,277
--------- ----------
Cash and cash equivalents at end of period .............................. $ 2,797 $ 6,198
========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 1997
(Unaudited)
NOTE A -- BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Galey &
Lord, Inc. (the "Company") and its wholly-owned subsidiaries, Galey & Lord
Industries, Inc., G&L Service Company, North America, Inc. ("G&L Service
Company") and Dimmit Industries, S.A. de C.V. ("Dimmit"). Intercompany items
have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to present
fairly the financial position as of December 27, 1997 and the results of
operations and cash flows for the periods ended December 28, 1996 and December
27, 1997. Such adjustments consisted only of normal recurring items. Interim
results are not necessarily indicative of results for a full year. These
financial statements should be read in conjunction with the financial
statements and footnotes included in the Company's annual report on Form 10-K
for the fiscal year ended September 27, 1997.
NOTE B -- BUSINESS ACQUISITIONS
On October 27, 1997, the Company entered into an agreement with Polymer
Group, Inc. ("Polymer") and its affiliate, DT Acquisition, Inc. ("DTA") to
acquire from DTA the apparel fabrics business (the "Acquisition") of Dominion
Textiles Inc. ("Dominion"). The Acquisition was contingent upon the successful
completion of DTA's tender offer, which expired at 4 p.m. Toronto time on
December 29, 1997, to purchase the capital stock of Dominion. The final tender
offer extended to Dominion shareholders for Dominion's common stock was CDN
$14.50 and for Dominion's preferred stock was CDN $150.00.
On December 19, 1997, DTA received exemption orders from certain
securities regulatory authorities permitting DTA to take-up and pay for the
common shares and first preferred shares of Dominion that had been tendered. On
that same date, the Company, as part of the above agreement, loaned DTA
approximately $141.0 million to be used for the take-up of Dominion's tendered
stock. This loan was subsequently applied against the purchase price for the
Acquisition. The proceeds for this loan were obtained by the Company from an
initial takedown on the Company's senior subordinated credit agreement
described in Note C. As of December 29, 1997, DTA had taken up 37,422,222
common shares, representing approximately 98.5% of the common shares held by
the public, and 354 first preferred shares, representing approximately 96% of
the outstanding first preferred shares.
On December 19, 1997, the Company also entered into an operating agreement
(the "Operating Agreement") with Polymer and DTA regarding Dominion. Pursuant
to the Operating Agreement, the Company's management had the authority to
manage the day-to-day affairs (subject to certain limitations, as specified in
the Operating Agreement) of the apparel fabrics business of Dominion until such
time that the Company legally acquired the apparel fabrics business from DTA.
On January 29, 1998, the Company entered into an agreement with Polymer,
DTA, Dominion and certain other parties thereto, pursuant to which the Company
acquired the apparel fabrics business (the "Acquired Business") of Dominion
from DTA for a cash purchase price of $464.5 million, including the $141.0
million loan to DTA discussed above (the "Acquisition"). The total purchase
price was funded with borrowings under the Company's credit facilities
(described in Note C below). The Acquired Business manufactures and markets
denim fabrics and fabrics for the commerical uniform market and consists of
Swift Denim, Klopman International, S.p.A. and Swift Europe. Swift Denim is the
second largest supplier of denim in the world, Klopman is one of the largest
suppliers of uniform fabrics in Europe and Swift Europe is a major
international supplier of denim to Europe, North Africa and Asia.
F-23
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE C -- LONG-TERM DEBT
On June 4, 1996, the Company amended its term loan and revolving credit
facility (the "Old Credit Facility") with its bank group led by First Union
National Bank ("FUNB"), as agent and lender. The amendment increased the
Company's maximum allowable borrowings under the revolving credit facility,
which expires March 31, 2000, from $150 million to $170 million. The term loan
was restated to the outstanding principal balance of $48 million and continued
to require equal quarterly principal payments of $3 million through the term
loan's expiration on April 30, 2000. The amended term loan and revolving credit
facility bore interest at a per annum rate, at the Company's option, of either
(i) the greater of the prime rate or federal funds rate or (ii) LIBOR plus .5%,
LIBOR plus .75%, LIBOR plus 1.0%, LIBOR plus 1.25% or LIBOR plus 1.5%, in
accordance with a pricing grid based on certain financial ratios. The average
interest rate paid by the Company during the December quarter 1997 was 7.2%.
On December 19, 1997, the Company entered into a $470 million credit
agreement (the "Interim Credit Agreement") with FUNB, as agent and lender.
Initial revolving credit line borrowings under the Interim Credit Agreement
were used to refinance the Old Credit Facility. The Interim Credit Agreement
was replaced on January 29, 1998 when the Company entered into a new credit
agreement (the "Senior Credit Facility") with FUNB, as agent and lender. The
Senior Credit Facility provides for (i) a revolving line of credit under which
the Company may borrow up to an amount (including letters of credit up to an
aggregate of $30.0 million) equal to the lesser of $225.0 million or a
borrowing base (comprised of eligible accounts receivable and eligible
inventory, as defined in the Senior Credit Facility), (ii) a term loan in the
principal amount of $155.0 million ("Term Loan B") and (iii) a term loan in the
principal amount of $110.0 million ("Term Loan C"). Under the Senior Credit
Facility borrowings were, and are required to be, used to refinance the
Company's Interim Credit Facility with FUNB, to fund the Acquisition, to pay
for certain closing costs and expenses related to the Acquisition and for
general corporate and working capital purposes.
Under the Senior Credit Facility, the revolving line of credit expires on
March 27, 2004 and the principal amount of (i) Term Loan B is repayable in 24
quarterly payments of $387,500 until March 27, 2004 and, thereafter, four
quarterly payments of $36,425,000 until Term Loan B's maturity on April 2, 2005
and (ii) Term Loan C is repayable in 28 quarterly payments of $275,000 until
April 2, 2005 and, thereafter, four quarterly payments of $25,575,000 until
Term Loan C's maturity on April 1, 2006. Under the Senior Credit Facility, the
interest rate on the Company's borrowings under its revolving line of credit
and term loans initially is fixed at a per annum rate, at the Company's option,
of either LIBOR plus 2.25%, LIBOR plus 2.75% and LIBOR plus 3.00%,
respectively, or the greater of the prime rate or the federal funds rate plus
.50% plus a margin of 1.00% for revolving loans, 1.5% for Term Loan B and 1.75%
for Term Loan C for at least two full fiscal quarters following the closing of
the Acquisition. Thereafter, the revolving line of credit borrowings will bear
interest at a per annum rate, at the Company's option, of either (i) (a) the
greater of the prime rate or the federal funds rate plus .50% plus (b) a margin
of 0%, .25%, .50%, .75% or 1.00%, based on the Company achieving certain
leverage ratios (as defined in the Senior Credit Facility) or (ii) LIBOR plus a
margin of .75%, 1.00%, 1.25%, 1.50%, 1.75%, 2.00% or 2.25%, based on the
Company achieving certain leverage ratios. Term Loan B and Term Loan C will
bear interest at a per annum rate, at the Company's option, of (A) with respect
to Term Loan B either (i) (a) the greater of the prime rate or federal funds
rate plus .50%, plus (b) a margin of .25%, .50%, .75%, 1.00%, 1.25% or 1.50%,
based on the Company achieving certain leverage ratios or (ii) LIBOR plus a
margin of 1.50%, 1.75%, 2.00%, 2.25%, 2.50% or 2.75%, based on the Company
achieving certain leverage ratios or (B) with respect to Term Loan C, either
(i) (a) the greater of the prime rate or federal funds rate plus .50%, plus (b)
a margin of .50%, .75%, 1.00%, 1.25%, 1.50% or 1.75%, based on the Company
achieving certain leverage ratios, or (ii) LIBOR plus a margin of 1.75%, 2.00%,
2.25%, 2.50%, 2.75%, or 3.00%, based on the Company's achieving certain
leverage ratios.
The Company's obligations under the Senior Credit Facility are secured by
all of the assets (other than real property) of the Company and each of its
domestic subsidiaries, and a pledge by the Company and each of its subsidiaries
of all the outstanding capital stock of its respective domestic subsidiaries
and a pledge of 65% of
F-24
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE C -- LONG-TERM DEBT -- Continued
the outstanding voting capital stock, and 100% of the outstanding non-voting
capital stock, of any of its respective foreign subsidiaries. In addition,
payment of all obligations under the Senior Credit Facility is guaranteed by
each of the Company's domestic subsidiaries. Under the Senior Credit Facility,
the Company is required to make mandatory prepayments of principal annually in
an amount equal to 50% of Excess Cash Flow (as defined in the Senior Credit
Facility), and also in the event of certain dispositions of assets or debt or
equity issuances (all subject to certain exceptions) in an amount equal to 100%
of the net proceeds received by the Company therefrom.
The Senior Credit Facility contains certain covenants, including, without
limitation, those limiting the Company's and its subsidiaries' ability to incur
indebtedness, incur liens, sell or acquire assets or businesses, change the
nature of its business, make certain investments or pay dividends. In addition,
the Senior Credit Facility requires the Company to meet certain financial ratio
tests and limits the amount of capital expenditures which the Company and its
subsidiaries may make in any fiscal year.
On December 19, 1997, the Company entered into a Senior Subordinated
Credit Agreement (the "Bridge Financing") with First Union Corporation, as
agent and lender, which was amended on January 29, 1998 and provides for
borrowings of $275 million, of which $145.6 million was initially borrowed on
December 19, 1997 and the remainder of which was borrowed on January 29, 1998.
All borrowings under the Bridge Financing were used to fund the Acquisition
(including fees and expenses). The outstanding principal amount of all
borrowings under the Bridge Financing will be due and payable on December 19,
2007; provided, however, that the Company is required to make certain mandatory
prepayments of principal in the event of certain dispositions of assets,
capital contributions or other debt or equity issuances. Borrowings under the
Bridge Financing bear interest, which is payable monthly, at a per annum rate
initially of LIBOR plus 4.50% and increasing by .25% for each month that
borrowings under the Bridge Financing remain outstanding. In no event shall the
interest rate on such borrowings exceed 18% (with the maximum interest rate
with respect to interest payable in cash not to exceed 14% and the remainder to
be payable in kind).
All borrowings under the Bridge Financing are unsecured and payment by the
Company of all obligations under the Bridge Financing is subordinated to the
prior payment in full of all obligations under the Senior Credit Facility. The
Bridge Financing contains certain covenants, including, without limitation,
those limiting the Company's ability to incur indebtedness, incur liens, sell
or acquire assets or businesses, change the nature of its business or make
dividends.
The Company expects to replace the Bridge Financing with 10 year senior
subordinated notes during February 1998. The Company has obtained a commitment
regarding the issuance and sale of the 10 year senior subordinated notes.
During January 1996, the Company entered into an interest rate swap on $25
million of its outstanding bank debt to fix the LIBOR interest rate on which
those borrowings are based. The interest rate swap assures that the Company
under its current credit agreement will pay a maximum rate of 8.53% (LIBOR
fixed at 5.53% plus the maximum spread allowed under the Senior Credit Facility
of 3.0%) on the $25 million of bank debt for a five-year period.
F-25
<PAGE>
GALEY & LORD, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
NOTE D -- INVENTORIES
The components of inventory at December 27, 1997, December 28, 1996 and
September 27, 1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
December 27, December 28, September 27,
1997 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Raw materials ........................ $ 1,729 $ 2,949 $ 2,353
Stock in process ..................... 18,582 14,409 13,359
Produced goods ....................... 77,157 71,001 79,611
Dyes, chemicals and supplies ......... 5,819 4,626 5,448
-------- -------- --------
103,287 92,985 100,771
Less LIFO and other reserves ......... (7,353) (7,745) (8,254)
-------- -------- --------
$ 95,934 $ 85,240 $ 92,517
======== ======== ========
</TABLE>
NOTE E -- NET INCOME PER COMMON SHARE
Net income per common share data is computed based on the average number
of shares of Common Stock and Common Stock equivalents outstanding during the
period.
Effective December 16,1997, the Company adopted Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share" ("FAS 128"). This
statement replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. FAS 128 also
requires all periods presented to be restated after adoption of the statement.
Incremental shares for diluted earnings per share represent the dilutive
effect of options outstanding during the quarter. Options to purchase 2,000
shares and 170,950 shares of common stock were outstanding during the periods
ended December 27, 1997 and December 28, 1996, respectively, but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares.
Options to purchase 338,000 shares and 475,000 shares of common stock were
outstanding during the periods ended December 27, 1997 and December 28, 1996,
respectively, but were not included in the computation of diluted earnings per
share pursuant to the contingent share provisions of FAS 128. Vesting of these
options is contingent upon the market price of common shares reaching certain
target prices, which were greater than the average market price of the common
shares.
NOTE F -- STOCKHOLDERS' EQUITY
Activity in Stockholders' Equity is as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
Common Contributed Retained Treasury
Stock Capital Earnings Stock Total
-------- ------------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at September 27, 1997 ........................ $121 $35,877 $70,566 $ (2,247) $104,317
Tax benefit from exercise of stock options ........... -- 6 -- -- 6
Compensation earned related to stock options ......... -- 97 -- -- 97
Net income (loss) for December 27, 1997 .............. -- -- (634) -- (634)
---- ------- ------- -------- --------
Balance at December 27, 1997 ......................... $121 $35,980 $69,932 $ (2,247) $103,786
==== ======= ======= ======== ========
</TABLE>
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Boards of Directors and Stockholders of Galey & Lord, Inc. and Polymer
Group, Inc.
We have audited the accompanying combined balance sheets of the Apparel
Fabrics Business of Dominion Textile Inc. (the "Business") as of June 30, 1996
and 1997, and the related combined statements of income and deficit and cash
flows for the years ended June 30, 1995, 1996 and 1997. These financial
statements are the responsibility of the Business' management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits. We did not audit the financial statements of Swift
Textiles Europe Limited, the Business' investment which is accounted for using
the equity method. The Business' equity of $3.2 million and $2.8 million in the
Swift Textiles Europe Limited net assets at June 30, 1996 and 1997,
respectively, and of $6.3 million, $8.3 million and $7.4 million in the net
income for the years ended June 30, 1995, 1996 and 1997, respectively are
included in the accompanying combined financial statements. The financial
statements of Swift Textiles Europe Limited were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates
to the amounts included for such company, is based solely on the report of such
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
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 and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
such combined financial statements present fairly, in all material respects,
the combined financial position of the Business as of June 30, 1996 and 1997,
and the combined results of its operations and its cash flows for the years
ended June 30, 1995, 1996 and 1997, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Business and may not necessarily be
indicative of the conditions that would have existed or the results of
operations if the Business had been operated as a separate entity for all
periods presented. Portions of certain income, expenses, assets and liabilities
represent allocations made from Dominion Textile Inc.'s headquarters, as
explained in the basis of presentation.
DELOITTE & TOUCHE
Chartered Accountants
January 29, 1998
F-27
<PAGE>
APPAREL FABRICS BUSINESS
COMBINED STATEMENTS OF INCOME AND DEFICIT
<TABLE>
<CAPTION>
For the Years Ended
---------------------------------------------------------
June 30, June 30, June 30,
1995 1996 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Sales ...................................................... $ 633,690,769 $ 650,862,549 $ 610,573,010
Cost of goods sold ......................................... 529,723,906 577,238,622 552,669,567
Restructuring charges (Note 1) ............................. -- 3,558,000 17,816,145
-------------- -------------- --------------
Gross profit ............................................... 103,966,863 70,065,927 40,087,298
-------------- -------------- --------------
Selling expenses ........................................... 20,267,232 23,024,674 20,265,482
Administrative expenses .................................... 32,183,500 32,745,972 32,046,918
Goodwill amortization ...................................... 1,990,263 1,991,969 1,988,145
-------------- -------------- --------------
54,440,995 57,762,615 54,300,545
-------------- -------------- --------------
Operating income (loss) .................................... 49,525,868 12,303,312 (14,213,247)
Interest expense, net ...................................... (28,732,689) (18,736,557) (17,412,760)
Share in net income of associated companies ................ 6,308,424 8,325,611 7,409,584
Other expense, net (Note 2) ................................ (1,497,313) (711,651) (73,495)
-------------- -------------- --------------
Income (loss) before provision for (recovery of) income
taxes .................................................... 25,604,290 1,180,715 (24,289,918)
Provision for (recovery of) income taxes (Note 3) .......... 6,577,499 (3,587,550) (10,183,601)
-------------- -------------- --------------
Net income (loss) before extraordinary loss ................ 19,026,791 4,768,265 (14,106,317)
Extraordinary loss on early extinguishment of debt ......... -- (2,223,007) --
-------------- -------------- --------------
Net income (loss) .......................................... 19,026,791 2,545,258 (14,106,317)
-------------- -------------- --------------
Deficit, at beginning ...................................... (137,499,011) (118,472,220) (115,926,962)
-------------- -------------- --------------
Deficit, at end ............................................ (118,472,220) (115,926,962) (130,033,279)
============== ============== ==============
</TABLE>
See notes to the combined financial statements.
F-28
<PAGE>
APPAREL FABRICS BUSINESS
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 30,
1996 1997
----------------- -----------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents ............................................. $ 17,696,400 $ 36,797,072
Receivables
Trade, net of allowance for doubtful accounts of $2,214,213
(1996 -- $2,423,183) ............................................... 124,535,410 118,459,831
Other ............................................................... 9,763,297 17,987,082
Inventories (Note 4) .................................................. 93,141,222 84,972,495
Other current assets .................................................. 24,487,994 11,392,840
-------------- --------------
269,624,323 269,609,320
Investments and advances (Note 5) ...................................... 8,136,681 6,576,251
Property, plant and equipment, net (Note 6) ............................ 273,060,797 244,025,312
Intangible assets, net (Note 7) ........................................ 64,783,364 62,213,219
Other assets (Note 8) .................................................. 17,346,872 8,688,738
-------------- --------------
Total assets ........................................................... 632,952,037 591,112,840
============== ==============
Liabilities and stockholders' equity
Current liabilities
Accounts payable ...................................................... 31,580,971 32,999,742
Payroll, related taxes and other employee related liabilities ......... 19,053,253 15,951,978
Other accrued liabilities ............................................. 22,544,038 37,578,824
Interest payable ...................................................... 5,933,779 5,656,732
Income taxes payable .................................................. 4,623,042 4,320,246
Long-term debt due within one year (Note 9) ........................... 916,297 1,535,908
-------------- --------------
84,651,380 98,043,430
Long-term debt (Note 9) ................................................ 247,897,323 197,971,915
Deferred income taxes (Note 3) ......................................... 41,245,274 30,291,948
Other non-current liabilities .......................................... 47,520,476 43,293,000
-------------- --------------
Total liabilities ...................................................... 421,314,453 369,600,293
-------------- --------------
Stockholders' equity
Additional paid-in capital ............................................ 334,205,229 370,598,557
Deficit ............................................................... (115,926,962) (130,033,279)
Cumulative translation adjustment (Note 11) ........................... (6,640,683) (19,052,731)
-------------- --------------
Total stockholders' equity ............................................. 211,637,584 221,512,547
-------------- --------------
Total liabilities and stockholders' equity ............................. 632,952,037 591,112,840
============== ==============
</TABLE>
See notes to the combined financial statements.
F-29
<PAGE>
APPAREL FABRICS BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------------------------
June 30, June 30, June 30,
1995 1996 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
Operating activities
Net income (loss) ........................................... $ 19,026,791 $ 2,545,258 $ (14,106,317)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Extraordinary loss on early extinguishment of debt ..... -- 2,223,007 --
Depreciation and amortization .......................... 32,142,141 34,402,833 35,471,104
Deferred income taxes .................................. (5,467,126) (457,006) (10,953,325)
Loss on disposal of property, plant and equipment ...... 2,048,236 3,238,143 2,454,532
Share in net income of associated companies ............ (6,308,424) (8,325,611) (7,409,584)
Dividends received from associated companies ........... 7,105,000 9,283,126 7,621,617
Changes in assets and liabilities:
Receivables, net .......................................... (8,317,959) 2,258,602 (2,912,386)
Inventories ............................................... 4,092,963 (15,105,401) 5,426,948
Other current assets ...................................... (6,140,899) (4,117,510) 12,729,080
Other assets .............................................. 1,213,408 11,101,967 8,198,519
Current liabilities ....................................... (10,155,921) (4,258,069) 5,805,026
Other liabilities ......................................... 2,951,519 (2,754,030) (3,284,321)
Other, net ................................................ (2,589,795) (1,675,400) 18,325
-------------- -------------- -------------
Net cash provided by operating activities ................... 29,599,934 28,359,909 39,059,218
-------------- -------------- -------------
Investing activities
Capital expenditures ........................................ (27,061,662) (52,580,250) (17,164,366)
Proceeds from sale of property, plant and equipment ......... 3,728,894 2,763,172 3,328,188
Investments in associated companies and other ............... (2,948,045) 489,997 1,772,462
Other, net .................................................. (7,532,631) 1,656,072 5,944,680
-------------- -------------- -------------
Net cash used in investing activities ....................... (33,813,444) (47,671,009) (6,119,036)
-------------- -------------- -------------
Financing activities
Repayment of short-term borrowings .......................... (12,034,909) -- (12,922,743)
Repayment of long-term debt ................................. (120,238,155) (206,783,360) (49,880,066)
Issue of short-term borrowings .............................. -- -- 12,922,743
Issue of long-term debt ..................................... 97,915,928 220,695,364 822,389
Debt issue costs ............................................ -- (3,373,158) --
Changes in additional paid-in capital ....................... 24,764,445 (3,990,150) 36,393,328
-------------- -------------- -------------
Net cash (used in) provided by financing activities ......... (9,592,691) 6,548,696 (12,664,349)
-------------- -------------- -------------
Effect of changes in exchange rates on cash and cash
equivalents ............................................... 1,702,437 439,027 (1,175,161)
-------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents ........ (12,103,764) (12,323,377) 19,100,672
Cash and cash equivalents, beginning of year ................ 42,123,542 30,019,778 17,696,400
-------------- -------------- -------------
Cash and cash equivalents, end of year ...................... 30,019,778 17,696,401 36,797,072
============== ============== =============
Supplemental disclosure of cash flow information
Net cash paid (received) during the year for:
Interest ................................................. 30,840,440 21,248,309 18,841,124
-------------- -------------- -------------
Income taxes ............................................. (1,464,625) 2,145,272 (2,695,072)
-------------- -------------- -------------
</TABLE>
See notes to the combined financial statements.
F-30
<PAGE>
APPAREL FABRICS BUSINESS
BASIS OF PRESENTATION
Years ended June 30, 1995, 1996 and 1997
General
The consolidated financial statements of Dominion Textile Inc. (the
"Corporation"), a Canadian company, have been issued to stockholders.
All dollar amounts in the combined financial statements are stated in US
dollars.
The combined financial statements of the Apparel Fabrics Business of
Dominion Textile Inc. (the "Business") include the operations of Swift Denim,
Inc., Klopman International S.p.A. and Swift Textiles Europe Limited which were
operated as subsidiaries or associated companies of Dominion Textile Inc. On
December 19, 1997, pursuant to a takeover offer, DT Acquisition Inc., an
affiliate of Polymer Group, Inc. ("PGI") acquired all shares tendered which
approximated 98% of the outstanding common stock of the Corporation. In
connection with the change of control, PGI entered into a preliminary agreement
with Galey & Lord, Inc., to sell it certain operations. In contemplation of the
change in control and the subsequent sale of certain operations, the operations
and the net assets of the Corporation have been essentially divided into two
groups: the Apparel Fabrics Business and the Nonwovens Business.
The combined financial statements have been prepared using the
Corporation's historical basis in the assets and liabilities and historical
results of operations related to the Business. Changes in additional paid-in
capital represent the Corporation's contribution of its net operating
investment plus net cash transfers to or from the Corporation. The combined
financial statements reflect the results of operations, financial position and
cash flows of the Business as if it had operated as a separate entity for all
periods presented and may not be indicative of actual results of operations and
financial position of the Business under different ownership.
Additionally, the combined financial statements include allocations of
certain corporate headquarters assets, liabilities (excluding deferred income
taxes), and net expenses. All significant intergroup transactions and balances
have been eliminated.
Allocations
The liabilities of the Business include outstanding direct third-party
indebtedness and the amount of debt based on the ratio of the Business' average
net operating investment to the aggregate net operating investment of the two
groups. Interest expense shown in the combined financial statements reflects
the interest expense associated with the aggregate borrowings for each period
presented principally based on a blend of the Corporation's long-term weighted
average interest rates for the applicable period.
General corporate overhead related to the Corporation's headquarters has
been allocated to the Business based on the ratio of the Business' sales to the
aggregate sales of the Corporation. The costs of the services charged to the
Business are not necessarily indicative of the costs that would have been
incurred if the Business had performed these functions as a stand-alone entity.
Additionally, income taxes on allocated general corporate overhead are
calculated using the Corporation's statutory tax rate.
Management believes that the basis of allocation is reasonable.
F-31
<PAGE>
APPAREL FABRICS BUSINESS
BASIS OF PRESENTATION -- Continued
The following table illustrates the results of applying the allocation
method described above on various financial statement items:
<TABLE>
<CAPTION>
For the years ended June 30,
------------------------------------------------------
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net impact on gross profit ................................. $ (656,376) $ (1,053,173) $ (3,453,504)
General corporate overhead, net ............................ (12,101,010) (4,381,800) (7,454,020)
Recovery of income taxes ................................... 4,949,866 3,143,589 4,293,493
Extraordinary loss on early extinguishment of debt ......... -- (2,223,007) --
------------- ------------ ------------
(7,807,520) (4,514,391) (6,614,031)
============= ============ ============
</TABLE>
<TABLE>
<CAPTION>
As of June 30,
--------------------------------
1996 1997
-------------- ---------------
<S> <C> <C>
Net assets excluding long-term debt ......... 457,385 14,539,529
Long-term debt .............................. 245,247,741 197,049,432
Cumulative translation adjustment ........... (575,472) (4,252,709)
</TABLE>
F-32
<PAGE>
APPAREL FABRICS BUSINESS
SIGNIFICANT ACCOUNTING POLICIES
Years Ended June 30, 1995, 1996 and 1997
The combined financial statements have been prepared in accordance with US
generally accepted accounting principles. 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 revenue and
expenses during the reporting period. Actual results could differ from those
estimates. The most significant accounting policies are as follows:
The combined financial statements include the accounts of Swift Denim,
Inc. and of Klopman International S.p.A., plus certain allocations from the
corporate headquarters as explained in the basis of presentation. The
investment in associated companies is carried at the Business' equity therein.
All significant intercompany transactions are eliminated.
The business acquisitions are accounted for using the purchase method. The
assets and liabilities of the acquired entities are adjusted to appropriate
carrying values.
Nature of operations
The Business produces denim and polycotton fabrics for careerwear and
markets these products on a worldwide basis.
Fiscal year
The Business' fiscal year is the 52- or 53-week period ending on the last
Saturday in June. Fiscal 1995 includes operations for a 52-week period, whereas
fiscal 1996 includes operations for a 53-week period and fiscal 1997 inludes
operations for a 52-week period.
Translation of foreign currencies
Unrealized translation gains and losses on assets and liabilities
denominated in foreign currencies are reflected in income of the period.
Unrealized translation gains or losses on debt designated as a hedge of foreign
self-sustaining operations are included in the cumulative translation
adjustment in stockholders' equity.
The assets and liabilities of foreign operations, all of which are
self-sustaining, are translated at exchange rates in effect at the balance
sheet dates. Revenue and expense items are translated at average exchange rates
prevailing during the period. The resulting gains and losses are accumulated in
the cumulative translation adjustment in stockholders' equity.
F-33
<PAGE>
APPAREL FABRICS BUSINESS
SIGNIFICANT ACCOUNTING POLICIES -- Continued
Financial instruments
The Business enters into a variety of financial instruments to manage its
exposure to foreign currency rates and market risk related to its cotton
purchase requirements. These instruments are used for hedging purposes and are
employed in connection with an underlying asset, liability, firm commitment or
anticipated transaction.
Gains and losses on hedges of existing assets and liabilities are included
in the carrying amounts of those assets and liabilities and are ultimately
recognized in income as part of those carrying amounts. Gains and losses
related to qualifying hedges of firm commitments or anticipated transactions
are also deferred and recognized in income or as adjustments of carrying
amounts when the hedged transaction occurs. Gains and losses on financial
instruments that do not qualify as hedges for accounting purposes are
recognized in income.
Cash equivalents
Cash equivalents include all highly liquid short-term instruments
purchased with a maturity of three months or less.
Inventory valuation
Inventories are valued at the lower of cost (determined substantially on
the first-in, first-out method) and net realizable value or replacement value
for certain supplies. The cost of work in process and finished goods includes
raw materials, direct labor and certain manufacturing overhead expenses.
Adequate provision is made for slow moving and obsolete inventories.
Depreciation and amortization
Property, plant and equipment are stated at historical cost. Depreciation
is provided on a straight-line basis at varying rates which allocate the cost
of the assets over their estimated economic lives. Buildings are amortized
primarily over 25 years and machinery and equipment over 3 to 15 years.
Goodwill which represents, at the acquisition date, the excess of cost
over the fair value of companies acquired, is amortized on a straight-line
basis over a maximum of 40 years. The Business evaluates the carrying value of
goodwill for potential permanent impairment on an ongoing basis. In order to
determine if such a permanent impairment exists, the Business' management
considers each business unit's financial condition and expected future cash
flows, using projected financial performance. A permanent impairment in the
value of goodwill is written off against income in the year such impairment is
recognized.
Other intangible assets are amortized over their respective estimated
useful lives for periods ranging from 4 to 25 years. Deferred refinancing costs
are amortized over the term of the related debt.
Adoption of new accounting standard
During 1997, the Business adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of." SFAS 121 establishes
accounting standards for recording the impairment of long-lived assets, certain
identifiable intangibles, goodwill and assets to be disposed of. The management
determined that no impairment loss was needed to be recognized for applicable
assets of its operations. Such determination does not envisage the change of
control described in the basis of presentation.
F-34
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
1. Restructuring charges
In the fourth quarter of 1997, the Business recorded provisions totaling
$17.8 million for the restructuring of its Klopman International unit and for
its share in a company-wide cost reduction program.
The Klopman charge totaled $15.1 million and primarily covered severance
payments and the writedown of assets to net realizable value in connection with
the shutdown of a greige mill located in Tralee, Ireland and the
rationalization of manufacturing operations at a plant located in Frosinone,
Italy. Cash payments related to the Klopman charge are expected to approximate
$8.6 million with spending primarily taking place in 1998 and to be financed
through working capital.
The Business' share in the charge related to the company-wide cost
reduction program amounted to $2.7 million and provided for severance payments
and rationalization costs in the general and administrative areas to be
implemented in 1998.
In 1996, a provision of $3.6 million in connection with an earlier
rationalization program at Klopman's Tralee, Ireland plant was fully utilized
during the year.
2. Other expense, net
<TABLE>
<CAPTION>
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Loss on disposal of property, plant and equipment .......... $ (2,048,236) $ (3,238,143) $ (2,454,532)
Business' share in gain realized upon termination of
pension plan .............................................. -- 2,550,648 2,797,173
Other items, net ........................................... 550,923 (24,156) (416,136)
------------ ------------ ------------
(1,497,313) (711,651) (73,495)
============ ============ ============
</TABLE>
3. Income taxes
The Business follows Statement of Financial Accounting Standards No. 109
in accounting for income taxes.
Dominion Textile Inc., as a Canadian company, is subject to Canadian tax
legislation. The combined income taxes differ from the income taxes calculated
using the Canadian statutory rates for the following reasons:
<TABLE>
<CAPTION>
1995 1996 1997
---------------- --------------- -----------------
<S> <C> <C> <C>
Income (loss) before income taxes ............................ $ 25,604,290 $ 1,180,715 $ (24,289,918)
------------- ------------ -------------
Statutory income tax rates in Canada ......................... 38.80% 38.95% 38.83%
Income taxes based on combined basic Canadian federal
and provincial rates ........................................ $ 9,934,465 $ 459,888 $ (9,431,775)
Increase (decrease) in income taxes resulting from: ..........
Losses incurred in the year not tax affected ................ 1,702,709 4,979,532 4,018,342
Share in net income of associated companies ................. (2,447,669) (3,242,826) (2,877,142)
Utilization of tax benefits carried forward ................. (3,687,267) (3,807,516) (1,281,954)
Other ....................................................... 1,075,261 (1,976,628) (611,072)
------------- ------------ -------------
6,577,499 (3,587,550) (10,183,601)
============= ============ =============
Income taxes (recovery)
Current ..................................................... 2,622,110 4,182,050 (5,225,610)
Deferred .................................................... 3,955,389 (7,769,600) (4,957,991)
------------- ------------ -------------
Total income taxes ........................................... 6,577,499 (3,587,550) (10,183,601)
============= ============ =============
</TABLE>
F-35
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
3. Income taxes (continued)
At June 30, 1996 and 1997, the deferred tax assets (included in other
current assets), the deferred tax liabilities and the valuation allowances are
as follows:
<TABLE>
<CAPTION>
1996 1997
--------------- ----------------
<S> <C> <C>
Deferred tax assets
Accounts receivable ................... $ 1,092,933 $ 1,252,468
Non-deductible items .................. 1,982,689 3,034,626
Revenue not currently taxable ......... (1,024,112) (711,499)
Net operating losses .................. 11,680,972 12,277,698
------------- -------------
13,732,482 15,853,293
============= =============
Deferred tax liabilities
Postretirement obligation ............. 4,339,684 4,339,684
Other non-deductible accruals ......... (638,043) 5,068,225
Property, plant and equipment ......... (44,946,915) (39,699,857)
------------- -------------
(41,245,274) (30,291,948)
============= =============
Valuation allowances ................... (11,680,972) (12,277,698)
============= =============
</TABLE>
As of June 30, 1997, the Business has unused income tax losses pertaining
to 1997 and prior years of approximately $33.2 million, which may be used to
reduce future years' taxable income. The benefit resulting from these income
tax losses has not been recognized in the accounts. The amount, the form and
the timing of the benefit resulting from these income tax losses could be
affected by the change in control discussed in the basis of presentation. These
losses expire as follows:
<TABLE>
<CAPTION>
(in thousands
of dollars)
--------------
<S> <C>
1998 ........... $ 8,481
1999 ........... 15,357
2000 ........... --
2001 ........... 9,345
-------
33,183
=======
</TABLE>
The Internal Revenue Service is examining the income tax returns of
Dominion Textile (USA) Inc., a company under common control, for the years 1987
through 1989. Management is of the opinion that it has adequately provided for
any additional income taxes that may be assessed as a result of this
examination.
Foreign tax credits would offset the amount of undistributed income of
international subsidiaries and affiliates which would be subject to additional
income taxes if distributed.
F-36
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
4. Inventories
<TABLE>
<CAPTION>
1996 1997
-------------- --------------
<S> <C> <C>
Finished goods ........................................................... $37,189,428 $40,863,615
Work in process, including greige fabric for further processing .......... 33,086,176 29,674,463
Raw materials and supplies ............................................... 22,865,618 14,434,417
----------- -----------
93,141,222 84,972,495
=========== ===========
</TABLE>
5. Investments and advances
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Investment in associated companies (a) .......... $3,156,324 $2,751,447
Other investments and advances (b) .............. 4,980,357 3,824,804
---------- ----------
8,136,681 6,576,251
========== ==========
</TABLE>
(a) Summarized information, derived from the latest audited financial
statements of Swift Textiles Europe Limited is presented below:
<TABLE>
<CAPTION>
For the years ended March 31
------------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Sales .................... $68,573,890 $74,762,092 $69,570,334
Operating income ......... 5,994,852 8,430,129 7,991,862
</TABLE>
<TABLE>
<CAPTION>
As of March 31
-------------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Current assets ......... $21,752,158 $23,481,778
Fixed assets ........... 8,715,812 7,482,574
Net assets ............. 1,289,050 1,159,568
</TABLE>
(b) Other investments and advances include secured loans to Swift Textiles
Europe Limited of $2.4 million, $3.2 million and $3.7 million in 1995,
1996 and 1997, respectively. The loans outstanding at June 30, 1997 bear
interest at 8% and are payable in installments through 2007.
6. Property, plant and equipment, net
<TABLE>
<CAPTION>
1996 1997
---------------- ----------------
<S> <C> <C>
Land .......................................... $ 1,084,818 $ 868,519
Buildings and leasehold improvements .......... 125,677,367 123,851,835
Less: Accumulated depreciation ................ (52,847,179) (56,504,736)
-------------- --------------
73,915,006 68,215,618
-------------- --------------
Machinery and equipment ....................... 387,296,973 372,649,745
Less: Accumulated depreciation ................ (188,151,182) (196,840,051)
-------------- --------------
199,145,791 175,809,694
-------------- --------------
273,060,797 244,025,312
============== ==============
</TABLE>
Depreciation and amortization of property, plant and equipment amounts to
$30,362,520, $32,412,514 and $33,482,826 in 1995, 1996 and 1997, respectively.
F-37
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
7. Intangible assets, net
<TABLE>
<CAPTION>
1996 1997
---------------- ----------------
<S> <C> <C>
Goodwill ................................ $ 83,221,796 $ 82,492,240
Other ................................... 407,870 347,964
------------- -------------
83,629,666 82,840,204
Less: Accumulated amortization .......... (18,846,302) (20,626,985)
------------- -------------
64,783,364 62,213,219
============= =============
</TABLE>
Total intangible asset amortization charged to income amounts to
$1,779,621, $1,990,318 and $1,988,278 in 1995, 1996 and 1997, respectively.
8. Other assets
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Deferred refinancing and other costs .......... $7,224,213 $6,777,166
Pension asset ................................. 2,368,273 1,911,572
Note receivable(a) ............................ 7,754,386 --
---------- ----------
17,346,872 8,688,738
========== ==========
</TABLE>
(a) The $10.0 million note received on the sale of Wayn-Tex Inc., a former
subsidiary of the Corporation, and due in August 1999, was prepaid
subsequent to year-end and accordingly has been reclassified in other
current receivables at June 30, 1997. The Business was allocated a portion
of the note based on the allocation method explained in the basis of
presentation. The interest rate on the note was 11.75%.
9. Long-term debt
The Business' long-term debt is as follows:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
<S> <C> <C>
Secured
Term notes (3.7 billion lira) due June 1998 at 8.65% ............ $ 3,118,903 $ 2,458,391
Other ........................................................... 446,976 --
Unsecured
Business' share in general corporate long-term debt (a) ......... 245,247,741 197,049,432
------------ ------------
248,813,620 199,507,823
Long-term debt due within one year .............................. (916,297) (1,535,908)
------------ ------------
247,897,323 197,971,915
============ ============
</TABLE>
(a) As of June 30, 1997 and 1996, the general corporate long-term debt is
as follows:
<TABLE>
<CAPTION>
1996 1997
--------------- ---------------
<S> <C> <C>
Unsecured and Guaranteed Senior Notes, Due
November 2003(i) ................................................. $150,000,000 $150,000,000
Unsecured and Guaranteed Senior Notes, Due April 2006 (ii) ......... 125,000,000 125,000,000
Unsecured Revolving Credit Facility (ii)............................ 57,000,000 --
Other .............................................................. 685,997 --
------------ ------------
332,685,997 275,000,000
Long-term debt due within one year ................................. (55,866) --
------------ ------------
332,630,131 275,000,000
============ ============
</TABLE>
F-38
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
9. Long-term debt (cont'd)
(i) These notes were issued by Dominion Textile (USA) Inc. and are
unconditionally guaranteed by the Corporation.
(ii) In 1996, the Corporation completed a refinancing plan which included
the issue by Dominion Textile (USA) Inc. of $125 million of Guaranteed
Senior Notes and the concurrent arrangement of the Revolving Credit
Facility. Proceeds of the senior notes and from certain simultaneous
borrowings under the Revolving Credit Facility were used to prepay
secured loans outstanding (including prepayment premiums and accrued
interest).
The Revolving Credit Facility of $100 million will mature on April 1,
2001 and bears interest at a floating rate equal to, at the borrower's
option (i) the higher of the prime rate or Federal Funds Rate plus 0.5%;
or (ii) LIBOR plus a margin which is subject to change within a range of
0.5% and 2.0% depending on the consolidated debt to cash flow ratio of
the Corporation. Interest payment dates vary in accordance with the
maturity period selected for each borrowing made under the facility. The
facility also provides for availability of letters of credit.
The credit facilities governing the long-term indebtedness of the
Corporation contain covenants which include, among others, covenants
restricting certain investments, capital expenditures, other
indebtedness, disposition of assets, mergers and acquisitions, liens and
encumbrances, and also set out certain financial covenants. These
financial covenants include, among others, requirements for the
Corporation to maintain various consolidated financial ratios and net
worth levels in excess of predefined levels.
In addition, the change of control, discussed in the basis of
presentation, will cause Dominion Textile (USA) Inc. to offer, within 30
days after the change of control, to repurchase all outstanding senior
notes at a predefined price.
As of June 30, 1997, letters of credit aggregating $4.3 million were
issued, representing contingent liabilities of the Corporation under the
Revolving Credit Facility and $95.7 million was unutilized and
available.
(b) The payments required on the long-term debt are as follows:
<TABLE>
<CAPTION>
General
corporate
long-term Business'
debt share
-------------- --------------
<S> <C> <C>
1998 .............................. $ -- $ 1,535,908
1999 .............................. -- 922,483
2000 .............................. -- --
2001 .............................. -- --
2002 .............................. -- --
2003 and subsequent years ......... 275,000,000 197,049,432
----------- -----------
275,000,000 199,507,823
=========== ===========
</TABLE>
(c) Interest expense related to long-term debt totaled $24.3 million, $19.4
million, and $19.5 million in 1995, 1996 and 1997, respectively.
F-39
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
9. Long-term debt (cont'd)
(d) The following table presents the interest rates as of June 30, 1997:
<TABLE>
<S> <C>
Canadian prime rate .......... 4.75%
US prime rate ................ 8.50%
Federal Funds rate ........... 5.63%
LIBOR-3 month-period ......... 5.81%
</TABLE>
(e) As of June 30, 1997, the Business maintained other available bank lines
of credit for general corporate purposes, at the bank's prime rate of
interest or equivalents, to meet normal operating requirements.
10. Financial instruments
Risk management
The Business operates internationally and is exposed to market risks from
changes in foreign exchange rates and in the cost of cotton, its principal raw
material.
Foreign currency hedging
During the period, the Business used forward contracts to hedge certain
operating and capital cash flows. As of June 30, 1997, $20.9 million notional
amount of forward exchange contracts were outstanding.
Cotton hedging
For hedging purposes, the Business enters principally into futures
contracts and option positions to reduce the impact of changes in the cost of
cotton used in its manufacturing process. The option positions primarily
include long-calls that qualify for hedge accounting. As of June 30, 1997, the
Business had aggregate open futures contracts and long-call options to purchase
approximately 24 million pounds of cotton.
Interest rates
Substantially all long-term debt is issued at fixed interest rates.
Fair values
Fair values approximate amounts at which financial instruments could be
exchanged between willing parties, based on current markets for instruments of
the same risk, principal and remaining maturities. Fair values are based on
estimates using present value and other valuation techniques which are
significantly affected by the assumptions used concerning the amount and timing
of future cash flows and discount rates which reflect varying degrees of risk.
Therefore, due to the use of subjective judgment and uncertainties, the
aggregate fair value amount should not be interpreted as being realizable in an
immediate settlement of the instruments.
As of June 30, 1997 and 1996 the carrying value of all financial
instruments approximates fair value with the following exceptions:
<TABLE>
<CAPTION>
1996 1997
--------------------------------- ---------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Long-term debt .................................. $248,813,620 $243,474,606 $199,507,823 $205,659,328
Derivatives, asset (liability) position
Futures and forward exchange contracts ......... -- (1,155,800) -- (606,055)
Options ........................................ 4,027,400 2,114,500 637,900 402,200
</TABLE>
F-40
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
10. Financial instruments (cont'd)
Credit risk
The Business is exposed to credit-related losses in the event of
non-performance by counterparties to financial instruments, but it does not
expect any counterparties to fail to meet their obligations, given their high
credit ratings. Where appropriate, the Business obtains collateral in the form
of rights to securities or arranges master netting agreements. The credit
exposure of the financial instruments is represented by the fair value of
contracts with a positive fair value at the reporting date, reduced by the
effects of master netting agreements.
The Business is exposed to credit risk from customers. However, the
Business has a large number of diverse customers which minimizes the
concentration of this risk. Sales to two customers represented 35% in 1997
(1996 - 38% and 1995 - 33%) of the Business' combined sales.
Guarantees
As of June 30, 1997, the Corporation had outstanding guarantees of $4.3
million (1996 - nil) representing financial guarantees issued in the normal
course of business.
11. Cumulative translation adjustment
The changes in the cumulative translation adjustment are as follows:
<TABLE>
<CAPTION>
1996 1997
---------------- ----------------
<S> <C> <C>
Balance at beginning ............. $ (7,130,922) $ (6,640,683)
Changes during the year .......... 490,239 (12,412,048)
------------ -------------
Balance at end ................... (6,640,683) (19,052,731)
============ =============
</TABLE>
12. Employee benefits
Defined benefit pension plans
The Corporation maintains defined benefit pension plans that provide for
pensions for both hourly and salaried employees based on length of service and
rate of pay. The Corporation funding policy is to make contributions to its
pension funds based on various actuarial cost methods as permitted by pension
regulatory bodies. The companies are responsible to adequately fund the plans.
Plan assets at June 30, 1996 and 1997 consisted primarily of listed stocks,
mutual funds and bonds. Contributions reflect actuarial assumptions concerning
future investment returns, salary projections and future service benefits.
The cost of pensions is accrued and charged to income over employees'
working lives. Pension expense was calculated using a value of assets adjusted
to market over periods of up to five years. The weighted average discount rate
was 7.75% in 1995, 1996 and 1997, the rate of increase in future compensation
levels used in determining the actuarial present value of the accrued pension
benefits was 5.0% in 1997 (1996 and 1995 - 5.0% to 6.5%), and the expected
long-term rate of return on plan assets was 8.0% in 1996 and 1997.
F-41
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
12. Employee benefits (cont'd)
The funded status of the Corporation's defined benefit pension plans as of
the most recent valuation dates for June 30, 1996 and 1997, is as follows:
<TABLE>
<CAPTION>
1996 1997
(in thousands of dollars) ----------------------------- ----------------------------
Assets Accumulated Assets Accumulated
exceed benefits exceed benefits
accumulated exceed accumulated exceed
benefits assets benefits asset
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation ............ $ (38,794) $ (29,374) $ (22,174) $ (30,166)
--------- --------- --------- ---------
Accumulated benefit obligation ........................... (39,116) (29,905) (22,331) (30,846)
--------- --------- --------- ---------
Projected benefit obligation
for service rendered to date ............................ (39,998) (31,659) (23,277) (33,828)
Plan assets at fair value ................................ 53,957 23,115 32,742 26,339
--------- --------- --------- ---------
Projected benefit obligation less than (in excess of)
plan assets ............................................. 13,959 (8,544) 9,465 (7,489)
Unrecognized net (gain) loss ............................. (13,200) 1,854 (9,210) 353
Additional minimum liability recognized .................. (105) (2,263) -- (1,912)
Prior service cost not yet recognized in net periodic
pension cost ............................................ 413 3,088 370 2,753
Unrecognized net (asset) liability at transition ......... (596) 425 (263) 1,719
--------- --------- --------- ---------
Pension asset (liability) ................................ 471 (5,440) 362 (4,576)
========= ========= ========= =========
</TABLE>
The Corporation's net pension cost for 1995, 1996 and 1997 includes the
following:
<TABLE>
<CAPTION>
1995 1996 1997
(in thousands of dollars) ------------ ----------- -----------
<S> <C> <C> <C>
Service cost - benefits earned during the year .......... $ 2,026 $ 1,665 $ 1,726
Interest cost on projected benefit obligation ........... 8,034 2,891 3,183
Actual return on plan assets ............................ (14,907) (7,235) (5,254)
Settlement loss ......................................... -- -- 466
Net amortization and deferral ........................... 7,560 5,492 2,752
--------- -------- --------
2,713 2,813 2,873
========= ======== ========
</TABLE>
Termination of pension plans
In 1996, Dominion Textile Inc. terminated the Staff Retirement Income Plan
for Employees at Locations in a Province Other Than Quebec (the "Ontario Plan")
and proposed to its members to share the surplus equally between the members
and the Corporation. The proposal was approved in 1997 by the members and by
the Pension Commission of Ontario. A gain of $2.8 million representing the
Business' share of the Ontario Plan surplus has been recorded and included
under the caption "Other expense, net", in the combined statements of income.
In 1995, Dominion Textile Inc. terminated the Staff Retirement Income Plan
for Employees at Locations in the Province of Quebec (the "Quebec Plan") and
proposed to its members to share the surplus equally between the members and
the Corporation. The proposal was approved by the members in 1996 and Dominion
Textile Inc. received $17.5 million, representing its share of the Quebec Plan
surplus. A gain of $2.6 million representing the Business' share of proceeds
received in excess of the net pension asset was recorded.
F-42
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
12. Employee benefits (cont'd)
Capital accumulation plans
The Business maintains capital accumulation plans covering approximately
1,800 employees. The Business' expense with respect to those plans amounted to
$1.5 million in 1995, $3.0 million in 1996 and $2.7 million in 1997.
Other benefits
In addition to its pension plans, the Corporation provides certain health
care and life insurance benefits for a large number of its retired employees in
North America who have met the eligibility conditions. The cost of the other
benefits is charged to income as expenditures are incurred.
The following table sets forth the status of the Corporation's plan based
on the latest actuarial valuations:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
(in thousands of dollars)
Retirees ........................................ $ 9,194 $ 7,626
Fully eligible active plan participants ......... 2,125 1,772
Other active plan participants .................. 4,439 4,490
------- -------
15,758 13,888
Unrecognized gain ............................... 518 1,112
------- -------
Postretirement obligation ....................... 16,276 15,000
======= =======
</TABLE>
The Corporation's net periodic postretirement benefit cost for 1995, 1996
and 1997 consisted of the following components:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
(in thousands of dollars)
Service cost - benefits earned during the period ...................... $ 537 $ 407 $ 414
Interest cost on accumulated postretirement benefit obligation ........ 1,526 1,146 983
Net gain (including $0.7 million in 1997 for settlements).............. (306) (112) (724)
------ ------ ------
1,757 1,441 673
====== ====== ======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 14%, 14% and 10%, gradually declining to
5% and 6% by 2003 in 1995, 1996 and 1997, respectively, after which it remains
constant. A one-percentage-point increase in the assumed health care cost trend
rate would increase the accumulated postretirement benefit obligation by
approximately 11%, 9%, and 8% and would increase the periodic service and
interest costs by approximately 17%, 16% and 9% during fiscal 1995, 1996 and
1997, respectively. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% during fiscal 1997, 1996
and 1995.
Summary
The Business' share in the Corporation's employee benefit plans, based on
its proportionate number of employees, is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
(in thousands of dollars)
Net benefit costs
Pension plans ...................................... $2,119 $2,197 $2,244
Postretirement benefit other than pensions ......... 1,372 1,126 526
</TABLE>
F-43
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
12. Employee benefits (cont'd)
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
(in thousands of dollars)
Unfunded obligation, net
Pension plans ..................................... $ 3,959 $ 3,291
Postretirement benefit other than pension ......... 12,711 11,714
</TABLE>
13. Commitments and contingent liabilities
Lease commitments
As of June 30, 1997, the future minimum payments for building and
equipment leases with initial non-cancelable lease terms in excess of one year
are as follows:
<TABLE>
<S> <C>
1998 ................................ $3,166,897
1999 ................................ 2,768,942
2000 ................................ 1,814,464
2001 ................................ 1,334,072
2002 ................................ 1,077,019
2003 and subsequent years ........... 115,000
----------
10,276,394
==========
</TABLE>
Other commitments
As of June 30, 1997, the Business had outstanding purchase contracts for
cotton and other fibers of approximately $80.0 million and commitments for
capital expenditures of approximately $1.7 million.
Environmental matters
The Business, primarily as a result of its manufacturing operations, is
subject to numerous environmental laws and regulations and exposed to
liabilities and compliance costs arising from its past and current generation,
management and disposition of hazardous substances and wastes. Based on
information presently available, management believes that the existing accruals
are sufficient to satisfy probable and reasonably estimable environmental
liabilities related to known environmental matters.
Litigation
In the normal course of operations, the Business becomes involved in
various claims and legal proceedings. While the final outcome with respect to
claims and legal proceedings pending at June 30, 1997 cannot be predicted with
certainty, it is the opinion of management that their resolution will not have
a material adverse effect on the Business' combined financial position or
results of operations.
F-44
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
14. Segmented information
The Apparel Fabrics Business produces denim, polycotton fabrics for
careerwear and industrial applications and markets these products on a
worldwide basis.
<TABLE>
<CAPTION>
United
Canada States International Eliminations Total
(in thousands of dollars) ---------- ----------- --------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
1995
Sales to customers (a) ......................... $72,498 $393,603 $ 167,590 $ $ 633,691
Transfers between geographic areas (b) ......... 7,644 10,559 -- (18,203) --
------- -------- --------- --------- ---------
80,142 404,162 167,590 (18,203) 633,691
Operating income ............................... 422 46,723 2,381 49,526
Identifiable assets ............................ 62,828 394,161 169,284 626,273
1996
Sales to customers (a) ......................... 88,385 410,640 151,838 650,863
Transfers between geographic areas (b) ......... 7,968 13,055 -- (21,023) --
------- -------- --------- --------- ---------
96,353 423,695 151,838 (21,023) 650,863
Operating income (loss) ........................ 3,157 20,200 (11,054) 12,303
Identifiable assets ............................ 71,577 407,514 153,861 632,952
------- -------- --------- ---------
1997
Sales to customers(a) .......................... 85,758 373,015 151,800 610,573
Transfers between geographic areas(b) .......... 6,711 17,093 -- (23,804) --
------- -------- --------- --------- ---------
92,469 390,108 151,800 (23,804) 610,573
Operating income (loss) ........................ 968 866 (16,047) (14,213)
Identifiable assets ............................ 53,009 391,869 146,235 591,113
------- -------- --------- ---------
</TABLE>
- ----------
(a) Canadian sales include export sales of $43.3 million (1996 - $42.5 million,
1995 - $31.9 million) made primarily to the United States.
(b) Transfers between geographic areas are accounted for at prices comparable
to open market prices for similar products and services.
F-45
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
15. Quarterly financial information (Unaudited)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1996
Sales ..................... $152,505,770 $162,755,768 $148,039,142 $187,561,869
Gross profit .............. 14,850,987 18,690,952 15,711,525 20,812,463
Operating income .......... 628,008 3,505,390 2,494,310 5,675,604
Net income (loss) ......... (175,110) 1,974,470 (3,034,944) 3,780,842
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
1997
Sales ........................... $152,521,204 $152,353,791 $139,890,867 $ 165,807,148
Gross profit .................... 15,109,688 16,099,677 7,870,519 1,007,414
Operating income (loss) ......... 1,770,457 2,364,174 (5,600,638) (12,747,240)
Net income (loss) ............... (369,887) 1,378,119 (7,208,793) (7,905,756)
</TABLE>
16. Supplemental Condensed Combined Consolidated Financial Information
In connection with the note offering, each of Apparel Fabrics Business'
operating subsidiaries located in the United States ("the Guarantor
Subsidiaries") will fully and unconditionally guarantee Galey & Lord, Inc.'s
("Galey") performance under the Notes on a joint and several basis. The
Guarantor Subsidiaries are direct or indirect wholly-owned subsidiaries of
Galey. The remaining subsidiaries are direct or indirect foreign subsidiaries
of Galey. The following condensed combined financial data provides information
regarding the financial position, results of operations and cash flows of the
Guarantor Subsidiaries prior to their acquisition by Galey.
<TABLE>
<CAPTION>
June 30, 1995
(In thousands of dollars) ------------------------------------------------------
Non- Elimination Apparel
Guarantor Guarantor and Fabrics
Subsidiaries Subsidiaries Allocations Combined
-------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Sales ..................... $403,426 $247,732 $ (17,467) $633,691
-------- -------- --------- --------
Gross profit .............. 62,344 42,279 (656) 103,967
-------- -------- --------- --------
Operating income
(loss) ................... 55,157 7,096 (12,727) 49,526
Interest expense,
income taxes and
other, net ............... 29,911 5,507 (4,919) 30,499
-------- -------- --------- --------
Net income (loss) ......... 25,246 (1,589) (7,808) 19,027
======== ======== ========= ========
<CAPTION>
June 30, 1996 June 30, 1997
(In thousands of dollars) ------------------------------------------------------ -------------------------------------------
Non- Elimination Apparel Non- Elimination
Guarantor Guarantor and Fabrics Guarantor Guarantor and
Subsidiaries Subsidiaries Allocations Combined Subsidiaries Subsidiaries Allocations
-------------- -------------- ------------- ---------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales ..................... $423,695 $248,190 $ (21,022) $650,863 $389,494 $ 244,269 $ (23,190)
-------- -------- --------- -------- -------- --------- ---------
Gross profit .............. 44,680 26,439 (1,053) 70,066 29,464 13,712 (3,089)
-------- -------- --------- -------- -------- --------- ---------
Operating income
(loss) ................... 28,668 (3,771) (12,594) 12,303 16,912 (17,713) (13,412)
Interest expense,
income taxes and
other, net ............... 16,140 3,874 (10,256) 9,758 17,247 (10,330) (7,024)
-------- -------- --------- -------- -------- --------- ---------
Net income (loss) ......... 12,528 (7,645) (2,338) 2,545 (335) (7,383) (6,388)
======== ======== ========= ======== ======== ========= =========
<CAPTION>
June 30,
1997
(In thousands of dollars) -----------
Apparel
Fabrics
Combined
-----------
<S> <C>
Sales ..................... $610,573
--------
Gross profit .............. 40,087
--------
Operating income
(loss) ................... (14,213)
Interest expense,
income taxes and
other, net ............... (107)
--------
Net income (loss) ......... (14,106)
========
</TABLE>
F-46
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1996 and 1997
16. Supplemental Condensed Combined Consolidated Financial Information
(continued)
<TABLE>
<CAPTION>
June 30, 1996
(in thousands of dollars) ------------------------------------------------------
Non- Elimination Apparel
Guarantor Guarantor and Fabrics
Subsidiaries Subsidiaries Allocations Combined
-------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Assets
Current assets ...................................... $139,148 $111,752 $18,724 $269,624
Investments and other advances ...................... -- 8,137 -- 8,137
Property, plant and equipment, net .................. 175,249 95,099 2,713 273,061
Intangible assets, net .............................. 61,696 969 2,118 64,783
Other assets ........................................ 3,092 454 13,801 17,347
-------- -------- ------- --------
Total assets ....................................... 379,185 216,411 37,356 632,952
======== ======== ======= ========
Liabilities and stockholders' equity
Current liabilities ................................. 31,514 34,973 18,164 84,651
Long-term debt ...................................... 157,829 90,068 -- 247,897
Other non-current liabilities ....................... 53,122 16,909 18,735 88,766
-------- -------- ------- --------
Total liabilities .................................. 242,465 141,950 36,899 421,314
-------- -------- ------- --------
Stockholders' equity ................................ 136,720 74,461 457 211,638
-------- -------- ------- --------
Total liabilities and stockholders' equity ......... 379,185 216,411 37,356 632,952
======== ======== ======= ========
<CAPTION>
June 30, 1997
(in thousands of dollars) -------------------------------------------------------
Non- Elimination Apparel
Guarantor Guarantor and Fabrics
Subsidiaries Subsidiaries Allocations Combined
-------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Assets
Current assets ...................................... $118,997 $107,602 $43,010 $269,609
Investments and other advances ...................... -- 6,576 -- 6,576
Property, plant and equipment, net .................. 157,233 84,813 1,979 244,025
Intangible assets, net .............................. 59,639 897 1,677 62,213
Other assets ........................................ 2,493 398 5,798 8,689
-------- -------- ------- --------
Total assets ....................................... 338,362 200,286 52,464 591,112
======== ======== ======= ========
Liabilities and stockholders' equity
Current liabilities ................................. 29,443 48,184 20,416 98,043
Long-term debt ...................................... 165,564 32,408 -- 197,972
Other non-current liabilities ....................... 42,722 13,536 17,327 73,585
-------- -------- ------- --------
Total liabilities .................................. 237,729 94,128 37,743 369,600
-------- -------- ------- --------
Stockholders' equity ................................ 100,633 106,158 14,721 221,512
-------- -------- ------- --------
Total liabilities and stockholders' equity ......... 338,362 200,286 52,464 591,112
======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1995
(in thousands of dollars) --------------------------------------------------------
Non- Elimination Apparel
Guarantor Guarantor and Fabrics
Subsidiaries Subsidiaries Allocations Combined
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Cash flows
Net cash provided
by (used in)
operating
activities ................. $ 40,788 $ (3,438) $ (7,750) $ 29,600
Net cash provided
by (used in)
investing
activities ................. (21,645) (13,521) 1,353 (33,813)
Net cash provided
by (used in)
financing
activities ................. (22,658) 14,838 (71) (7,891)
---------- --------- -------- ----------
Net change in cash
and cash
equivalents ................ (3,515) (2,121) (6,468) (12,104)
Cash and cash
equivalents, at
beginning .................. 3,537 14,610 23,977 42,124
---------- --------- -------- ----------
Cash and cash
equivalents, at
end ........................ 22 12,489 17,509 30,020
========== ========= ======== ==========
<CAPTION>
June 30, 1996 June 30, 1997
(in thousands of dollars) -------------------------------------------------------- -------------------------------------------
Non- Elimination Apparel Non- Elimination
Guarantor Guarantor and Fabrics Guarantor Guarantor and
Subsidiaries Subsidiaries Allocations Combined Subsidiaries Subsidiaries Allocations
-------------- -------------- ------------- ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash flows
Net cash provided
by (used in)
operating
activities ................. $ 7,025 $ 3,073 $ 18,262 $ 28,360 $ 11,583 $ 10,890 $16,586
Net cash provided
by (used in)
investing
activities ................. (24,701) (22,682) (289) (47,671) (3,352) (2,026) (742)
Net cash provided
by (used in)
financing
activities ................. 17,676 12,598 (23,285) 6,987 (8,233) (7,587) 1,981
---------- ---------- ---------- ---------- -------- -------- -------
Net change in cash
and cash
equivalents ................ (1) (7,011) (5,312) (12,324) (2) 1,278 17,825
Cash and cash
equivalents, at
beginning .................. 22 12,489 17,509 30,020 21 5,480 12,197
---------- ---------- ---------- ---------- -------- -------- -------
Cash and cash
equivalents, at
end ........................ 21 5,478 12,197 17,696 19 6,758 30,022
========== ========== ========== ========== ======== ======== =======
<CAPTION>
June 30, 1997
(in thousands of dollars) -------------
Apparel
Fabrics
Combined
------------
<S> <C>
Cash flows
Net cash provided
by (used in)
operating
activities ................. $ 39,059
Net cash provided
by (used in)
investing
activities ................. (6,120)
Net cash provided
by (used in)
financing
activities ................. (13,839)
----------
Net change in cash
and cash
equivalents ................ 19,100
Cash and cash
equivalents, at
beginning .................. 17,696
----------
Cash and cash
equivalents, at
end ........................ 36,796
==========
</TABLE>
F-47
<PAGE>
APPAREL FABRICS BUSINESS
UNAUDITED CONDENSED COMBINED STATEMENTS OF INCOME AND DEFICIT
For the Three-Month and the Six-Month Periods Ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
Three-month periods Six-month periods
------------------------------------- -------------------------------------
1996 1997 1996 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Sales ........................................ $ 152,353,791 $ 134,195,565 $ 304,874,995 $ 286,364,569
Cost of goods sold ........................... 136,214,962 118,358,594 273,626,477 250,731,480
-------------- -------------- -------------- --------------
Gross profit ................................. 16,138,829 15,836,971 31,248,518 35,633,089
-------------- -------------- -------------- --------------
Selling expenses ............................. 5,310,798 4,533,586 10,290,758 8,858,607
Administrative expenses ...................... 7,935,518 6,163,811 15,796,796 13,414,229
Goodwill amortization ........................ 528,339 517,175 1,026,332 1,014,211
-------------- -------------- -------------- --------------
13,774,655 11,214,572 27,113,886 23,287,047
-------------- -------------- -------------- --------------
Operating income ............................. 2,364,174 4,622,399 4,134,632 12,346,042
Interest expense, net ........................ (4,339,389) (4,268,838) (9,121,657) (8,692,628)
Share in net income of associated
companies .................................. 2,003,359 796,513 3,983,112 2,035,811
Other income (expense), net .................. (685,357) 685,671 (1,158,347) 742,517
Costs related to the change of control
(Note 1) ................................... -- (16,469,871) -- (16,469,871)
-------------- -------------- -------------- --------------
Loss before recovery of income taxes ......... (657,213) (14,634,126) (2,162,260) (10,038,129)
Recovery of income taxes ..................... 2,035,332 2,539,587 3,170,492 2,717,211
-------------- -------------- -------------- --------------
Net income (loss) ............................ 1,378,119 (12,094,539) 1,008,232 (7,320,918)
Deficit, at beginning ........................ (116,296,849) (125,259,658) (115,926,962) (130,033,279)
-------------- -------------- -------------- --------------
Deficit, at end .............................. (114,918,730) (137,354,197) (114,918,730) (137,354,197)
============== ============== ============== ==============
</TABLE>
See notes to the unaudited condensed combined financial statements.
F-48
<PAGE>
APPAREL FABRICS BUSINESS
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1997
----------------- -----------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents ............................................. $ 36,797,072 $ 16,655,525
Receivables
Trade, net of allowance for doubtful accounts of $1,361,534
($2,214,213 as of June 30, 1997).................................... 118,459,831 96,149,682
Other ................................................................. 17,987,082 13,451,431
Inventories ........................................................... 84,972,495 83,317,621
Other current assets .................................................. 11,392,840 9,009,039
-------------- --------------
269,609,320 218,583,298
Investments and other advances .......................................... 6,576,251 7,317,448
Property, plant and equipment, net ...................................... 244,025,312 229,884,523
Intangible assets, net .................................................. 62,213,219 61,076,663
Other assets ............................................................ 8,688,738 13,116,581
-------------- --------------
Total assets ............................................................ 591,112,840 529,978,513
============== ==============
Liabilities and stockholders' equity
Current liabilities
Short-term borrowings ................................................. -- 789,275
Accounts payable ...................................................... 32,999,742 25,305,670
Payroll, related taxes and other employee related liabilities ......... 15,951,978 10,302,273
Other accrued liabilites .............................................. 37,578,824 26,406,498
Interest payable ...................................................... 5,656,732 5,782,054
Income taxes payable .................................................. 4,320,246 6,723,110
Long-term debt due within one year .................................... 1,535,908 191,108,417
-------------- --------------
98,043,430 266,417,297
Long-term debt .......................................................... 197,971,915 144,231
Deferred income taxes ................................................... 30,291,948 28,656,976
Other non-current liabilities ........................................... 43,293,000 38,567,062
-------------- --------------
Total liabilities ....................................................... 369,600,293 333,785,565
-------------- --------------
Stockholders' equity
Additional paid-in capital ............................................ 370,598,557 355,285,490
Deficit ............................................................... (130,033,279) (137,354,197)
Cumulative translation adjustment ..................................... (19,052,731) (21,738,345)
-------------- --------------
Total stockholders' equity .............................................. 221,512,547 196,192,948
-------------- --------------
Total liabilities and stockholders' equity .............................. 591,112,840 529,978,513
============== ==============
</TABLE>
See notes to the unaudited condensed combined financial statements.
F-49
<PAGE>
APPAREL FABRICS BUSINESS
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
For the Three-Month and Six-Month Periods ended December 31, 1996 and 1997
<TABLE>
<CAPTION>
Three-month periods
----------------------------------
1996 1997
---------------- -----------------
<S> <C> <C>
Operating activities
Net income (loss) ................................................ $ 1,378,119 $ (12,094,539)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
Depreciation and amortization ................................. 8,776,267 8,378,941
Deferred income taxes ......................................... 968,293 (666,497)
Loss (gain) on disposal of property
plant and equipment .......................................... (190,984) 457,751
Share in net income of associated companies ................... (2,003,359) (796,513)
Other non-cash items .......................................... (2,787,897) --
Changes in assets and liabilities
Receivables, net ................................................ 6,103,685 17,911,977
Inventories ..................................................... 6,061,116 (1,911,081)
Other current assets ............................................ 3,215,512 2,220,738
Other assets .................................................... (336,776) (4,559,354)
Current liabilities ............................................. (20,740,831) (23,870,136)
Other liabilities ............................................... (199,907) (4,053,475)
Other, net ....................................................... 44,807 (4,589,847)
-------------- -------------
Net cash provided by (used in) operating activities .............. 288,045 (23,572,035)
-------------- -------------
Investing activities
Capital expenditures ............................................. (2,691,268) (2,897,947)
Proceeds from sale of property, plant and equipment .............. 1,788,267 3,452,041
Investment in associated companies and other ..................... (4,834,158) 771,160
Other, net ....................................................... (208,119) 1,619,415
-------------- -------------
Net cash used in (provided by) investing activities .............. (5,945,278) 2,944,669
-------------- -------------
Financing activities
Repayment of short-term borrowings ............................... (1,100,434) --
Repayment of long-term debt ...................................... (407,256) (2,901,296)
Issue of short-term borrowings ................................... -- 226,466
Issue of long-term debt .......................................... -- 29,237
Changes in additional paid-in capital ............................ (651,687) (6,942,826)
-------------- -------------
Net cash (used in) provided by financing activities .............. (2,159,377) (9,588,419)
-------------- -------------
Effect of changes in exchange rates on cash and cash
equivalents ..................................................... (170,712) (268,005)
-------------- -------------
Net increase (decrease) in cash and cash equivalents ............. (7,987,322) (30,483,790)
Cash and cash equivalents, at beginning .......................... 30,959,123 47,139,315
-------------- -------------
Cash and cash equivalents, at end ................................ 22,971,801 16,655,525
============== =============
Supplemental disclosure of cash flow information
Net cash paid during the period for:
Interest ...................................................... 8,386,132 8,936,049
-------------- -------------
Income taxes .................................................. 1,296,300 2,018,107
-------------- -------------
<CAPTION>
Six-month periods
---------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Operating activities
Net income (loss) ................................................ $ 1,008,232 $ (7,320,918)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
Depreciation and amortization ................................. 17,732,103 16,709,296
Deferred income taxes ......................................... (2,748,132) (1,634,790)
Loss (gain) on disposal of property
plant and equipment .......................................... (319,177) 167,363
Share in net income of associated companies ................... (3,983,112) (2,035,811)
Other non-cash items .......................................... (2,787,897) --
Changes in assets and liabilities
Receivables, net ................................................ 17,811,073 27,027,251
Inventories ..................................................... (1,565,963) 1,374,936
Other current assets ............................................ 7,791,346 2,724,557
Other assets .................................................... 29,919 (4,348,216)
Current liabilities ............................................. (22,876,380) (22,169,366)
Other liabilities ............................................... 503,554 (4,182,787)
Other, net ....................................................... 4,674,064 (2,968,162)
-------------- -------------
Net cash provided by (used in) operating activities .............. 15,269,630 3,343,353
-------------- -------------
Investing activities
Capital expenditures ............................................. (7,005,000) (6,379,161)
Proceeds from sale of property, plant and equipment .............. 2,542,367 3,851,385
Investment in associated companies and other ..................... (5,199,258) 2,010,003
Other, net ....................................................... (686,933) 394,152
-------------- -------------
Net cash used in (provided by) investing activities .............. (10,348,824) (123,621)
-------------- -------------
Financing activities
Repayment of short-term borrowings ............................... (1,100,434) --
Repayment of long-term debt ...................................... (45,888,632) (8,284,412)
Issue of short-term borrowings ................................... 1,162,401 789,275
Issue of long-term debt .......................................... 773,143 29,237
Changes in additional paid-in capital ............................ 45,739,654 (15,313,067)
-------------- -------------
Net cash (used in) provided by financing activities .............. 686,132 (22,778,967)
-------------- -------------
Effect of changes in exchange rates on cash and cash
equivalents ..................................................... (331,536) (582,312)
-------------- -------------
Net increase (decrease) in cash and cash equivalents ............. 5,275,402 (20,141,547)
Cash and cash equivalents, at beginning .......................... 17,696,400 36,797,072
-------------- -------------
Cash and cash equivalents, at end ................................ 22,971,802 16,655,525
============== =============
Supplemental disclosure of cash flow information
Net cash paid during the period for:
Interest ...................................................... 9,268,666 9,325,864
-------------- -------------
Income taxes .................................................. 2,834,697 2,062,095
-------------- -------------
</TABLE>
See notes to the unaudited condensed combined financial statements.
F-50
<PAGE>
APPAREL FABRICS BUSINESS
BASIS OF PRESENTATION
For the Three-Month and Six-Month Periods Ended December 31, 1996 and 1997
General
The consolidated financial statements of Dominion Textile Inc. (the
"Corporation"), a Canadian company, have been issued to the stockholders.
All dollar amounts in the combined financial statements are stated in US
dollars.
The combined financial statements of the Apparel Fabrics Business of
Dominion Textile Inc. (the "Business") include the operations of Swift Denim,
Inc., Klopman International S.p.A. and Swift Textiles Europe Limited which were
operated as subsidiaries or associated companies of Dominion Textile Inc. On
December 19, 1997, pursuant to a takeover offer, DT Acquisition Inc., an
affiliate of Polymer Group, Inc. ("PGI") acquired all shares tendered which
approximated 98% of the outstanding common stock of the Corporation. In
connection with the change of control, PGI entered into a preliminary agreement
with Galey & Lord, Inc., to sell it certain operations. In contemplation of the
change in control and the subsequent sale of certain operations, the operations
and the net assets of the Corporation have been essentially divided into two
groups: the Apparel Fabrics Business and the Nonwovens Business.
The combined financial statements have been prepared using the
Corporation's historical basis in the assets and liabilities and historical
results of operations related to the Business. Changes in additional paid-in
capital represent the Corporation's contribution of its net operating
investment plus net cash transfers to or from the Corporation. The combined
financial statements reflect the results of operations, financial position and
cash flows of the Business as if it had operated as a separate entity for all
periods presented and may not be indicative of actual results of operations and
financial position of the Business under different ownership.
Allocations
The basis of allocation selected herein is not necessarily indicative of
the application of the provisions contained in the separation agreement entered
into by PGI and Galey & Lord, Inc. and dated January 29, 1998.
The combined financial statements include allocations of certain corporate
headquarters' assets, liabilities (excluding deferred income taxes), and net
expenses. All significant intergroup transactions and balances have been
eliminated.
The liabilities of the Business include outstanding direct third-party
indebtedness and the amount of debt based on the ratio of the Business' average
net operating investment to the aggregate net operating investment of the two
groups. Interest expense shown in the combined financial statements reflects
the interest expense associated with the aggregate borrowings for each period
presented principally based on a blend of the Corporation's long-term weighted
average interest rates for the applicable period.
General corporate overhead related to the Corporation's headquarters has
been allocated to the Business based on the ratio of the Business' sales to the
aggregate sales of the Corporation. The costs of the services charged to the
Business are not necessarily indicative of the costs that would have been
incurred if the Business had performed these functions as a stand-alone entity.
Additionally, income taxes on allocated general corporate overhead are
calculated using the Corporation's statutory tax rate.
Management believes that the basis of allocation is reasonable.
F-51
<PAGE>
APPAREL FABRICS BUSINESS
BASIS OF PRESENTATION (Continued)
For the Three-Month and Six-Month Periods Ended December 31, 1996 and 1997
The following table illustrates the results of applying the allocation
method described above on various financial statement items:
<TABLE>
<CAPTION>
Three-month periods Six-month periods
ended December 31 ended December 31
----------------------------------- ---------------------------------
1996 1997 1996 1997
---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Net impact on gross profit .............. $ (1,377,374) $ (470,109) $ (531,285) $ (1,591,959)
General corporate overhead, net ......... (2,818,459) (2,012,564) (5,463,328) (4,834,297)
Costs related to the change of
control ................................ -- (14,510,565) -- (14,510,565)
Recovery of income taxes ................ 1,627,983 2,432,684 2,325,910 3,962,794
------------ ------------- ------------ -------------
(2,567,850) (14,560,554) (3,668,703) (16,974,027)
============ ============= ============ =============
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1997 1997
-------------- ----------------
<S> <C> <C>
Net assets excluding long-term debt .................................. $14,539,529 $ (5,631,557)
Long-term debt, inclusive of the portion due within one year ......... 197,049,432 189,557,867
Cumulative translation adjustment .................................... (4,252,709) (2,237,144)
</TABLE>
F-52
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
For the Three-Month and Six-Month Periods Ended December 31, 1996 and 1997
1. COSTS RELATED TO THE CHANGE OF CONTROL
In fiscal 1997, as part of its strategy to provide added-value to its
stockholders, Dominion Textile Inc. together with its financial advisers,
considered different growth opportunities for its core businesses. The takeover
offer discussed in the basis of presentation was among those opportunities.
This offer was recommended by the Board of Directors for acceptance on November
17, 1997.
The change of control triggered among other things, the accelerated
funding of certain benefit plans for executives and the payments under benefits
programs. As a result, Dominion Textile Inc. recorded a $26.1 million charge
which includes professional fees amounting to $11.2 million. The Business'
share of this charge is $16.5 million.
2. SUBSEQUENT EVENTS
Pursuant to a Master Separation Agreement dated January 29, 1998, Galey &
Lord, Inc. acquired from DT Acquisition Inc. the Apparel Fabrics Business and
certain other assets and assumed certain related liabilities.
Also on January 29, 1998, Dominion Textile (USA) Inc. redeemed all of its
outstanding $275.0 million senior notes at a price of $310.4 million.
Consequently, they were reclassified within current liabilities.
3. SUPPLEMENTAL CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION
In connection with the note offering, each of the Apparel Fabrics
Business' operating subsidiaries located in the United States ("the Guarantor
Subsidiaries") will fully and unconditionally guarantee Galey & Lord, Inc.'s
("Galey") performance under the Notes on a joint and several basis. The
Guarantor Subsidiaries are direct or indirect wholly-owned subsidiaries of
Galey. The remaining subsidiaries are direct or indirect foreign subsidiaries
of Galey. The following condensed combined financial data provides information
regarding the financial position, results of operations and cash flows of the
Guarantor Subsidiaries prior to their acquisition by Galey.
<TABLE>
<CAPTION>
Three-month period ended December 31, 1996
(in thousands of dollars) ----------------------------------------------------------
Non- Apparel
Guarantor Guarantor Elimination and Fabrics
Subsidiaries Subsidiaries Allocations Combined
-------------- -------------- ----------------- ----------
<S> <C> <C> <C> <C>
Sales ...................... $ 94,020 $ 62,275 $ (3,941) $152,354
Gross Profit ............... 9,282 8,234 (1,377) 16,139
-------- -------- -------- --------
Operating income (loss)..... 3,222 3,277 (4,135) 2,364
Interest expense, income
taxes and other, net ...... 4,730 (2,177) (1,567) 986
-------- -------- -------- --------
Net income (loss) .......... (1,508) 5,454 (2,568) 1,378
======== ======== ======== ========
<CAPTION>
Three-month period ended December 31, 1997
(in thousands of dollars) -----------------------------------------------------------
Non- Apparel
Guarantor Guarantor Elimination and Fabrics
Subsidiaries Subsidiaries Allocations Combined
-------------- -------------- ----------------- -----------
<S> <C> <C> <C> <C>
Sales ...................... $78,092 $58,817 $ (2,713) $134,196
Gross Profit ............... 8,542 7,765 (470) 15,837
------- ------- --------- --------
Operating income (loss)..... 3,551 3,785 (2,714) 4,622
Interest expense, income
taxes and other, net ...... 4,213 656 11,848 16,717
------- ------- --------- --------
Net income (loss) .......... (662) 3,129 (14,562) (12,095)
======= ======= ========= ========
</TABLE>
<TABLE>
<CAPTION>
Six-month period ended December 31, 1996
------------------------------------------------------
Non- Apparel
Guarantor Guarantor Fabrics
Subsidiaries Subsidiaries Elimination Combined
-------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Sales ........................... $197,422 $115,905 $ (8,452) $304,875
Gross profit .................... 17,756 14,025 (532) 31,249
-------- -------- -------- --------
Operating income (loss) ......... 5,396 4,655 (5,916) 4,135
Interest expenses, income
taxes and other, net .......... 8,714 (3,328) (2,259) 3,127
-------- -------- -------- --------
Net income (loss) ............... (3,318) 7,983 (3,657) 1,008
======== ======== ======== ========
<CAPTION>
Six-month period ended December 31, 1997
-------------------------------------------------------
Non- Apparel
Guarantor Guarantor Fabrics
Subsidiaries Subsidiaries Elimination Combined
-------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Sales ........................... $180,073 $112,485 $ (6,193) $286,365
Gross profit .................... 22,216 15,009 (1,592) 35,633
-------- -------- --------- --------
Operating income (loss) ......... 11,679 7,002 (6,335) 12,346
Interest expenses, income
taxes and other, net .......... 6,392 1,883 11,392 19,667
-------- -------- --------- --------
Net income (loss) ............... 5,287 5,119 (17,727) (7,321)
======== ======== ========= ========
</TABLE>
F-53
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
For the Three-Month and Six-Month Periods Ended December 31, 1996 and 1997
3. SUPPLEMENTAL CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION --
Continued
<TABLE>
<CAPTION>
(in thousands of dollars)
June 30, 1997
------------------------------------------------------
Non- Elimination Apparel
Guarantor Guarantor and Fabrics
Subsidiaries Subsidiaries Allocations Combined
-------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Assets
Current assets .............. $118,997 $107,602 $43,010 $269,609
Property, plant and
equipment, net ............. 157,233 84,813 1,979 244,025
Investments and other
advances ................... -- 6,576 -- 6,576
Intangible assets, net ...... 59,639 897 1,677 62,213
Other assets ................ 2,493 398 5,798 8,689
Total assets ............... 338,362 200,286 52,464 591,112
Liabilities and
stockholders' equity
Current liabilities ......... 29,443 48,184 20,416 98,043
Long-term debt .............. 165,564 32,408 -- 197,972
Other non-current
liabilities ................ 42,722 13,536 17,327 73,585
-------- -------- ------- --------
Total liabilities .......... 237,729 94,128 37,743 369,600
-------- -------- ------- --------
Stockholders' equity ........ 100,633 106,158 14,721 221,512
-------- -------- ------- --------
Total liabilities and
stockholders' equity ....... 338,362 200,286 52,464 591,112
======== ======== ======= ========
<CAPTION>
(in thousands of dollars)
December 31, 1997
-------------------------------------------------------
Non- Elimination Apparel
Guarantor Guarantor and Fabrics
Subsidiaries Subsidiaries Allocations Combined
-------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
Assets
Current assets .............. $ 97,914 $ 96,839 $ 23,830 $218,583
Property, plant and
equipment, net ............. 150,748 78,937 200 229,885
Investments and other
advances ................... -- 7,317 -- 7,317
Intangible assets, net ...... 58,660 884 1,533 61,077
Other assets ................ 7,344 1,701 4,072 13,117
Total assets ............... 314,666 185,678 29,635 529,979
Liabilities and
stockholders' equity
Current liabilities ......... 149,978 95,237 21,203 266,418
Long-term debt .............. 144 -- -- 144
Other non-current
liabilities ................ 40,855 13,408 12,961 67,224
-------- -------- -------- --------
Total liabilities .......... 190,977 108,645 34,164 333,786
-------- -------- -------- --------
Stockholders' equity ........ 123,689 77,033 (4,529) 196,193
-------- -------- -------- --------
Total liabilities and
stockholders' equity ....... 314,666 185,678 29,635 529,979
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
(in thousands of dollars)
Three-month period ended December 31, 1996
-------------------------------------------------------
Non- Elimination Apparel
Guarantor Guarantor and Fabrics
Subsidiaries Subsidiaries Allocations Combined
<S> <C> <C> <C> <C>
Cash flows
Net cash provided by
(used in) operating
activities ................. $ 3,344 $ (2,865) $ (191) $ 288
Net cash provided by
(used in) investing
activities ................. (1,088) (5,031) 174 (5,945)
Net cash provided by
(used in) financing
activities ................. (2,246) 1,395 (1,479) (2,330)
--------- -------- --------- ---------
Net change in cash and
cash equivalents ........... 10 (6,501) (1,496) (7,987)
Cash and cash
equivalents, at
beginning .................. 29 8,405 22,525 30,959
--------- -------- --------- ---------
Cash and cash
equivalents, at end ........ 39 1,904 21,029 22,972
========= ======== ========= =========
<CAPTION>
(in thousands of dollars)
Three-month period ended December 31, 1997
---------------------------------------------------------
Non- Elimination Apparel
Guarantor Guarantor and Fabrics
Subsidiaries Subsidiaries Allocations Combined
<S> <C> <C> <C> <C>
Cash flows
Net cash provided by
(used in) operating
activities ................. $ 16,800 $ (17,087) $ (23,285) $ (23,572)
Net cash provided by
(used in) investing
activities ................. (3,644) 5,461 1,128 2,945
Net cash provided by
(used in) financing
activities ................. (12,160) 9,958 (7,655) (9,857)
--------- --------- --------- ---------
Net change in cash and
cash equivalents ........... 996 (1,668) (29,812) (30,484)
Cash and cash
equivalents, at
beginning .................. (1,004) 5,467 42,677 47,140
--------- --------- --------- ---------
Cash and cash
equivalents, at end ........ (8) 3,799 12,865 16,656
============ ========= ========= =========
</TABLE>
F-54
<PAGE>
APPAREL FABRICS BUSINESS
NOTES TO THE UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
For the Three-Month and Six-Month Periods Ended December 31, 1996 and 1997
3. SUPPLEMENTAL CONDENSED COMBINED CONSOLIDATED FINANCIAL INFORMATION --
Continued
<TABLE>
<CAPTION>
(in thousands of dollars)
Six-month period ended December 31, 1996
--------------------------------------------------------
Non- Elimination Apparel
Guarantor Guarantor and Fabrics
Subsidiaries Subsidiaries Allocations Combined
<S> <C> <C> <C> <C>
Cash flows
Net cash provided by
(used in) operating
activities ................. $ 220 $ 5,828 $ 9,222 $ 15,270
Net cash provided by
(used in) investing
activities ................. (4,435) (7,400) 1,486 (10,349)
Net cash provided by
(used in) financing
activities ................. 4,233 (2,003) (1,875) 355
--------- --------- --------- ----------
Net changes in cash and
cash equivalents ........... 18 (3,575) 8,833 5,276
Cash and cash
equivalents, at
beginning .................. 21 5,479 12,196 17,696
--------- --------- --------- ----------
Cash and cash
equivalents, at end ........ 39 1,904 21,029 22,972
========= ========= ========= ==========
<CAPTION>
(in thousands of dollars)
Six-month period ended December 31, 1997
--------------------------------------------------------
Non- Elimination Apparel
Guarantor Guarantor and Fabrics
Subsidiaries Subsidiaries Allocations Combined
<S> <C> <C> <C> <C>
Cash flows
Net cash provided by
(used in) operating
activities ................. $ 22,770 $ (12,144) $ (7,283) $ 3,343
Net cash provided by
(used in) investing
activities ................. (3,553) 264 3,165 (124)
Net cash provided by
(used in) financing
activities ................. (19,244) 8,920 (13,038) (23,361)
--------- --------- --------- ----------
Net changes in cash and
cash equivalents ........... (27) (2,960) (17,156) (20,143)
Cash and cash
equivalents, at
beginning .................. 19 6,759 30,021 36,799
--------- --------- --------- ----------
Cash and cash
equivalents, at end ........ (8) 3,799 12,865 16,656
============ ========= ========= ==========
</TABLE>
F-55
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offer made by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer or a
solicitation in any jurisdiction where, or to any person to whom, it is
unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has not been any change in the affairs of the
Company since the date hereof or that the information set forth herein is
correct as of any date subsequent to the date hereof.
-----------------------------------
TABLE OF CONTENTS
-----------------------------------
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Prospectus Summary .............................. 1
Risk Factors .................................... 17
Use of Proceeds ................................. 23
Pro Forma Capitalization of the Company ......... 24
Unaudited Pro Forma Combined Financial
Information of the Company ................... 25
Selected Historical Financial
Information of Galey & Lord .................. 34
Selected Historical Financial Information of
the Acquired Business ........................ 36
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................... 38
The Exchange Offer .............................. 47
Business ........................................ 56
Management ...................................... 67
Principal Stockholders .......................... 69
Description of Senior Credit Facility ........... 71
Description of the Exchange Notes ............... 72
Certain U.S. Federal Income Tax
Considerations ............................... 100
Plan of Distribution ............................ 103
Legal Matters ................................... 103
Experts ......................................... 103
Index to Financial Statements ................... F-1
</TABLE>
$300,000,000
[GRAPHIC OMITTED]
Galey & Lord, Inc.
--------------------------------------------
PROSPECTUS
--------------------------------------------
Offer to Exchange up to
$300,000,000 of its
9 1/8% Senior Subordinated Notes
Due 2008
For any and all of its
outstanding $300,000,000
9 1/8% Senior Subordinated Notes Due 2008
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Galey & Lord, Inc. (the "Company"), Galey & Lord Industries, Inc.
("Industries"), G&L Service Company, North America, Inc. ("G&L Service
Company"), Swift Textiles, Inc. ("Textiles") and Swift Denim Services, Inc.
("Denim Services") are all incorporated in Delaware. Under Section 145 of the
General Corporation Law of the State of Delaware, a Delaware corporation has
the power, under specified circumstances, to indemnify its directors, officers,
employees and agents in connection with actions, suits or proceedings brought
against them by a third party or in the right of the corporation, by reason of
the fact that they were or are such directors, officers, employees or agents,
against expenses incurred in any action, suit or proceeding. Article Eighth of
the Restated Certificate of Incorporation and Article X of the Amended and
Restated By-laws of the Company, Article VIII of the By-laws of Industries,
Article VII of the By-laws of G&L Service Company, Article 8 of the By-laws of
Textiles and Article VII of the By-laws of Denim Services all provide for
indemnification of directors and officers to the fullest extent permitted by
the General Corporation Law of the State of Delaware.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision
eliminating or limiting the personal liability of a director to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director provided that such provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 (relating to liability for unauthorized acquisitions or
redemptions of, or dividends on, capital stock) of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. Article Ninth of the Company's Restated
Certificate of Incorporation, Article 10 of Industries' Restated Certificate of
Incorporation, and Article Eighth of G&L Service Company's Certificate of
Incorporation contain such a provision.
The Company, Industries, G&L Service Company, Textiles and Denim Services
all have directors' and officers' liability insurance covering certain
liabilities incurred by the directors and officers of the Company, Industries,
G&L Service Company, Textiles and Denim Services, respectively, in connection
with the performance of their respective duties.
Item 21. Exhibits and Financial Statement Schedules.
(a) See the Exhibit Index included immediately preceding the exhibits to
this Registration Statement.
(b) See the Schedule Index included immediately preceding the Exhibit
Index to this Registration Statement.
Item 22. Undertakings.
Each of the undersigned Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof), which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-1
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Each of the undersigned Registrants hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, as amended (the
"Securities Act"), each filing of the Registrants' annual reports pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as
amended, that is incorporated by reference in this registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, each of the
Registrants has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a
Registrant of expenses incurred or paid by a director, officer or controlling
person of such Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person of a
Registrant in connection with the securities being registered, such Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnifciation by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
Each of the undersigned Registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
Each of the undersigned Registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Galey & Lord, Inc. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of New
York, state of New York, on April 6, 1998.
GALEY & LORD, INC.
By: /s/ ARTHUR C. WIENER
--------------------------------
Arthur C. Wiener
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated and on the dates indicated. Each person whose signature
appears below constitutes and appoints Arthur C. Wiener and Michael R. Harmon
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to the within
registration statement on Form S-4 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and such other state and federal government commissions and
agencies as may be necessary or advisable, and grants unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might and
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------- ---------------------------------- --------------
<S> <C> <C>
/s/ ARTHUR C. WIENER Chairman of the Board, President April 6, 1998
-------------------------------------
Arthur C. Wiener and Chief Executive Officer
(Principal Executive Officer)
/s/ MICHAEL R. HARMAN Executive Vice President, April 6, 1998
-------------------------------------
Michael R. Harmon Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ LEE ABRAHAM Director April 6, 1998
-------------------------------------
Lee Abraham
/s/ PAUL G. GILLEASE Director April 6, 1998
-------------------------------------
Paul G. Gillease
/s/ WILLIAM DER HOLT Director April 6, 1998
-------------------------------------
William deR. Holt
/s/ HOWARD S. JACOBS Director April 6, 1998
-------------------------------------
Howard S. Jacobs
/s/ WILLIAM M.R. MAPEL Director April 6, 1998
-------------------------------------
William M.R. Mapel
/s/ DAVID F. THOMAS Director April 6, 1998
-------------------------------------
David F. Thomas
</TABLE>
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Galey & Lord Industries, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of New York, state of New York, on April 6, 1998.
GALEY & LORD INDUSTRIES, INC.
By: /s/ ARTHUR C. WIENER
--------------------------------
Arthur C. Wiener
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated and on the dates indicated. Each person whose signature
appears below constitutes and appoints Arthur C. Wiener and Michael R. Harmon
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to the within
registration statement on Form S-4 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and such other state and federal government commissions and
agencies as may be necessary or advisable, and grants unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might and
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------- ---------------------------------- --------------
<S> <C> <C>
/s/ ARTHUR C. WIENER Chairman of the Board, President April 6, 1998
-------------------------------------
Arthur C. Wiener and Chief Executive Officer
(Principal Executive Officer)
/s/ MICHAEL R. HARMON Executive Vice President, Chief April 6, 1998
-------------------------------------
Michael R. Harmon Financial Officer, Treasurer,
Secretary and Director
(Principal Financial and
Accounting Officer)
/s/ CHARLES A. BLALOCK Executive Vice President of April 6, 1998
-------------------------------------
Charles A. Blalock Manufacturing and Director
/s/ JOHN HELDRICH Executive Vice President and April 6, 1998
-------------------------------------
John Heldrich Director
/s/ ROBERT MCCORMACK Executive Vice President and April 6, 1998
-------------------------------------
Robert McCormack President -- Woven Division,
Apparel Marketing Group and
Director
/s/ LEE ABRAHAM Director April 6, 1998
-------------------------------------
Lee Abraham
/s/ PAUL G. GILLEASE Director April 6, 1998
-------------------------------------
Paul G. Gillease
/s/ WILLIAM DER HOLT Director April 6, 1998
-------------------------------------
William deR. Holt
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
G&L Service Company, North America, Inc. has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of New York, state of New York, on April 6, 1998.
G&L SERVICE COMPANY, NORTH AMERICA,
INC.
By: /s/ ARTHUR C. WIENER
--------------------------------
Arthur C. Wiener
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated and on the dates indicated. Each person whose signature
appears below constitutes and appoints Arthur C. Wiener and Michael R. Harmon
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to the within
registration statement on Form S-4 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and such other state and federal government commissions and
agencies as may be necessary or advisable, and grants unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might and
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------- ---------------------------------- --------------
<S> <C> <C>
/s/ ARTHUR C. WIENER Chairman of the Board, President April 6, 1998
-------------------------------------
Arthur C. Wiener and Chief Executive Officer
(Principal Executive Officer)
/s/ MICHAEL R. HARMON Vice President, Treasurer, April 6, 1998
-------------------------------------
Michael R. Harmon Secretary and Director
(Principal Financial and
Accounting Officer)
/s/ PAUL G. GILLEASE Director April 6, 1998
-------------------------------------
Paul G. Gillease
/s/ HOWARD S. JACOBS Director April 6, 1998
-------------------------------------
Howard S. Jacobs
</TABLE>
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Swift Textiles, Inc. has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of New
York, state of New York, on April 6, 1998.
SWIFT TEXTILES, INC.
By: /s/ ARTHUR C. WIENER
--------------------------------
Arthur C. Wiener
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated and on the dates indicated. Each person whose signature
appears below constitutes and appoints Arthur C. Wiener and Michael R. Harmon
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to the within
registration statement on Form S-4 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and such other state and federal government commissions and
agencies as may be necessary or advisable, and grants unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might and
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------- ---------------------------------- --------------
<S> <C> <C>
/s/ ARTHUR C. WIENER Chairman of the Board, President April 6, 1998
-------------------------------------
Arthur C. Wiener and Chief Executive Officer
(Principal Executive Officer)
/s/ MICHAEL R. HARMON Executive Vice President, April 6, 1998
-------------------------------------
Michael R. Harmon Treasurer, Secretary and
Director (Principal Financial
and Accounting Officer)
/s/ HOWARD S. JACOBS Director April 6, 1998
-------------------------------------
Howard S. Jacobs
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Swift Denim Services, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the city
of New York, state of New York, on April 6, 1998.
SWIFT DENIM SERVICES, INC.
By: /s/ ARTHUR C. WIENER
--------------------------------
Arthur C. Wiener
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated and on the dates indicated. Each person whose signature
appears below constitutes and appoints Arthur C. Wiener and Michael R. Harmon
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to the within
registration statement on Form S-4 and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and such other state and federal government commissions and
agencies as may be necessary or advisable, and grants unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might and
could do in person, hereby ratifying and confirming all that siad
attorneys-in-fact and agents or any of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------- ----------------------------------- --------------
<S> <C> <C>
/s/ ARTHUR C. WIENER Chairman of the Board, President, April 6, 1998
-------------------------------------
Arthur C. Wiener and Chief Executive Officer
(Principal Executive Officer)
/s/ MICHAEL R. HARMON Executive Vice President, April 6, 1998
-------------------------------------
Michael R. Harmon Treasurer, Secretary and
Director (Principal Financial
and Accounting Officer)
/s/ HOWARD S. JACOBS Director April 6, 1998
-------------------------------------
Howard S. Jacobs
</TABLE>
II-7
<PAGE>
FINANCIAL STATEMENT SCHEDULE INDEX
Schedule II Valuation and qualifying accounts for the years ended September
27, 1997, September 28, 1996 and September 30, 1995 (incorporated
by reference to the Annual Report on Form 10-K for the fiscal year
ended September 27, 1997).
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page No.
- --------- ---------------------------------------------------------------- -----------
<S> <C> <C> <C>
2.1 -- Master Separation Agreement, dated as of January 29, 1998,
among Polymer Group, Inc., Galey & Lord, Inc. and DT
Acquisition Inc., Dominion Textile Inc. and other parties named
therein (incorporated by reference to Exhibit 2 to the
Company's Current Report on Form 8-K filed with the
Commission on February 9, 1998).
4.1 -- Indenture, dated as of February 24, 1998, among the Company,
Industries, G&L Service Company, Textiles and Denim Services
and SunTrust Bank, Atlanta (as Trustee) (incorporated by
reference to Exhibit 2 to the Company's Current Report on
Form 8-K filed with the Commission on March 10, 1998).
4.2 -- Registration Rights Agreement, dated as of February 24, 1998,
by and among the Company, Industries, G&L Service
Company, Textiles, Denim Services and First Union Capital
Markets, a division of Wheat First Securities, Inc.
4.3 -- Form of Global 9 1/8% Senior Subordinated Note Due 2008.
4.4 -- Form of Certificated 9 1/8% Senior Subordinated Note Due 2008.
5.1 -- Opinion of Rosenman & Colin LLP.
12.1 -- Calculation of Earnings to Fixed Charges Ratio.
23.1 -- Consent of Rosenman & Colin LLP (included in Exhibit 5.1).
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of Deloitte & Touche.
23.4 -- Consent of KPMG.
24.1 -- Power of attorney (included on signature pages at II-3, II-4,
II-5, II-6 and II-7).
25.1 -- Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of SunTrust Bank, Atlanta as Trustee.
99.1 -- Form of Letter of Transmittal for Initial Notes.
99.2 -- Form of Notice of Guaranteed Delivery for Initial Notes.
</TABLE>
EXHIBIT 4.2
GALEY & LORD, INC.
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
REGISTRATION RIGHTS AGREEMENT
New York, New York
February 24, 1998
First Union Capital Markets
As Initial Purchaser under the Purchase Agreement
301 South College Street, TW-10
Charlotte, NC 28288-0606
Ladies and Gentlemen:
This Registration Rights Agreement (the "Agreement") is dated
as of February 24, 1998, by and among Galey & Lord, Inc., a Delaware corporation
(the "Issuer"), Galey & Lord Industries, Inc. ("Industries"), G&L Service
Company, North America, Inc. ("Service Company"), Swift Textiles, Inc. and Swift
Denim Services, Inc., each a Delaware corporation (the "Guarantors"), and First
Union Capital Markets, a division of Wheat First Securities, Inc. (the "Initial
Purchaser").
This Agreement is being entered into in connection with a
certain purchase agreement, dated February 19, 1998, among the Issuer, the
Initial Purchaser and the Guarantors (the "Purchase Agreement"), which provides
for the issuance and sale (the "Initial Placement") by the Issuer to the Initial
Purchaser of $300,000,000 aggregate principal amount of the Issuer's 9 1/8%
Senior Subordinated Notes Due 2008 (the "Notes"). The Notes are to be
unconditionally guaranteed, on an unsecured and subordinated basis (the "Note
Guarantees"), by the Guarantors. In order to induce the Initial Purchaser to
enter into the Purchase Agreement, the Issuer has agreed to provide the
registration rights set forth in this Agreement for the benefit of the Initial
Purchaser and its direct and indirect transferees. The execution and delivery of
this Agreement is a condition to the obligation of the Initial Purchaser to
purchase the Notes under the Purchase Agreement. The parties hereby agree as
follows:
1. Definitions. Capitalized terms used herein without
definition shall have their respective meanings set forth in the Purchase
Agreement. As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
<PAGE>
"Affiliate" means, with respect to any specified person, any
other person that, directly or indirectly, is in control of, is controlled by,
or is under common control with, such specified person. For purposes of this
definition, control of a person means the power, direct or indirect, to direct
or cause the direction of the management and policies of such person whether by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Agreement" has the meaning set forth in the preamble hereto.
"Business Day" means any day excluding Saturday, Sunday or any
other day which is a legal holiday under the laws of Charlotte, North Carolina
or New York, New York or is a day on which banking institutions therein located
are authorized or required by law or other governmental action to close.
"Closing Date" has the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Consummate" means, with respect to a Registered Exchange
Offer, the occurrence of (a) the filing and effectiveness under the Act of the
Exchange Offer Registration Statement relating to the Exchange Notes to be
issued in the Registered Exchange Offer, (b) the maintenance of such
Registration Statement continuously effective and the keeping of the Registered
Exchange Offer open for a period not less than the minimum period required
pursuant to Section 2(c)(ii) hereof, (c) the Issuer's acceptance for exchange of
all Registrable Notes duly tendered and not validly withdrawn pursuant to the
Registered Exchange Offer and (d) the delivery by the Issuer to the Registrar
under the Indenture of Exchange Notes in the same aggregate principal amount as
the aggregate principal amount of Registrable Notes tendered by Holders thereof
pursuant to the Registered Exchange Offer. The term "Consummation" has a meaning
correlative to the foregoing.
"Credit Agreement" means the senior subordinated credit
agreement among the Galey & Lord Industries, Inc., the Issuer and Service
Company as guarantors, and First Union Corporation, as lender and agent, dated
December 19, 1997, as amended by Amendment No. 1, dated January 29, 1998, among
Industries, the Issuer, Service Company, First Union Corporation as agent and
the lenders named therein and by Amendment No. 2, dated January 29, 1998, among
the Issuer, the Guarantors, First Union Corporation as agent and the lenders
named therein
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exchange Notes" means debt securities of the Issuer identical
in all material respects to the Notes (except that the Liquidated Damages
provisions and the transfer restrictions pertaining to the Notes will be
modified or eliminated, as appropriate), to be issued under the Indenture.
2
<PAGE>
"Exchange Offer Registration Period" means the 180-day period
following the Consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement; provided, however,
that in the event that all resales of Exchange Notes (including, subject to the
time periods set forth herein, any resales by Exchanging Dealers) covered by
such Exchange Offer Registration Statement have been made, the Exchange Offer
Registration Statement need not thereafter remain continuously effective for
such period.
"Exchange Offer Registration Statement" means a registration
statement of the Issuer on an appropriate form under the Act with respect to the
Registered Exchange Offer, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Exchanging Dealer" means any Holder (which may include the
Initial Purchaser) that is a broker-dealer, electing to exchange Notes acquired
for its own account as a result of market-making activities or other trading
activities for Exchange Notes.
"Final Memorandum" has the meaning set forth in the Purchase
Agreement.
"Guarantors" has the meaning set forth in the preamble hereto.
"Holder" means any holder from time to time of Registrable
Notes or Exchange Notes (including the Initial Purchaser).
"Indenture" means the indenture relating to the Notes and the
Exchange Notes, to be dated as of the Closing Date, among the Issuer, the
Guarantors and SunTrust Bank, Atlanta as trustee, as the same may be amended,
supplemented, waived or otherwise modified from time to time in accordance with
the terms thereof. It shall include the provisions of the Trust Indenture Act
that are deemed to be part of and govern the indenture.
"Initial Placement" has the meaning set forth in the preamble
hereto.
"Initial Purchaser" has the meaning set forth in the preamble
hereto.
"Issuer" has the meaning set forth in the preamble hereto.
"Liquidated Damages" has the meaning set forth in Section 4
hereto.
"Losses" has the meaning set forth in Section 7(d) hereto.
"Majority Holders" means the Holders of a majority of the
aggregate principal amount of Registrable Notes registered under a Registration
Statement.
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"Managing Underwriters" means the investment banker or
investment bankers and manager or managers that shall administer an underwritten
offering under a Shelf Registration Statement.
"Notes" has the meaning set forth in the preamble hereto.
"Note Guarantees" has the meaning set forth in the preamble
hereto.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Notes covered by such Registration
Statement, and all amendments and supplements to the Prospectus, including
post-effective amendments.
"Purchase Agreement" has the meaning set forth in the preamble
hereto.
"Registered Exchange Offer" means the proposed offer to the
Holders to issue and deliver to such Holders, in exchange for the Notes, a like
principal amount of Exchange Notes.
"Registrable Notes" means each Note upon original issuance of
the Notes and at all times subsequent thereto, each Exchange Note as to which
clauses (iii), (iv) or (v) of the first paragraph of Section 3 hereof are
applicable upon original issuance and at all times subsequent thereto, until in
the case of any such Note or Exchange Note, as the case may be, the earliest to
occur of (i) a Registration Statement (other than, with respect to any Exchange
Note as to which clauses (iii), (iv) or (v) of the first paragraph of Section 3
hereof are applicable, the Exchange Registration Statement) covering such Note
or Exchange Note, as the case may be, has been declared effective by the SEC and
such Note (unless such Note was not tendered for exchange by the Holder thereof)
or Exchange Note, as the case may be, has been disposed of in accordance with
such effective Registration Statement, (ii) such Note or Exchange Note, as the
case may be, is sold in compliance with Rule 144, or (iii) such Note or Exchange
Note, as the case may be, ceases to be outstanding for purposes of the
Indenture.
"Registration Statement" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Registrable
Notes (including any Note Guarantees of each thereof) pursuant to the provisions
of this Agreement, amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto, and all material incorporated by
reference therein.
"Shelf Registration" means a registration effected pursuant to
Section 3 hereof.
"Shelf Registration Period" has the meaning set forth in
Section 3(b) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Issuer pursuant to the provisions of Section 3 hereof, which
covers some or all of the Registrable Notes,
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as applicable, on an appropriate form under Rule 415 under the Act, or any
similar rule that may be adopted by the Commission, all amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"Shelf Registration Trigger Date" means the date on which the
filing of a Shelf Registration is requested or required under Section 3 hereof.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended.
"Trustee" means the trustee with respect to the Notes or
Exchange Notes, as applicable, under the Indenture.
"Underwriter" means any underwriter of Registrable Notes in
connection with an offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of Exchange Notes by
Exchanging Dealers; Private Exchange. (a) The Issuer and the Guarantors shall
prepare and, not later than 75 days from the date of original issuance of the
Notes (or, if such 75th day is not a Business Day, by the first Business Day
thereafter), shall file with the Commission the Exchange Offer Registration
Statement with respect to the Registered Exchange Offer. The Issuer and the
Guarantors shall use their best efforts (i) to cause the Exchange Offer
Registration Statement to be declared effective under the Act within 135 days
from the date of original issuance of the Notes (or, if such 135th day is not a
Business Day, by the first Business Day thereafter), and (ii) to Consummate the
Registered Exchange Offer within 30 Business Days from the date the Exchange
Offer Registration Statement becomes effective (or, if such 30th day is not a
Business Day, by the first Business Day thereafter).
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Issuer and the Guarantors shall promptly commence and Consummate
the Registered Exchange Offer. The objective of such Registered Exchange Offer
is to enable each Holder electing to exchange Registrable Notes for Exchange
Notes (assuming that such Holder (x) is not an "affiliate" of the Issuer or the
Guarantors within the meaning of the Act, (y) is not a broker-dealer that
acquired the Registrable Notes in a transaction other than as a part of its
market-making or other trading activities and (z) if such Holder is not a
broker-dealer, acquires the Exchange Notes in the ordinary course of such
Holder's business, is not participating in the distribution of the Exchange
Notes and has no arrangements or understandings with any person to participate
in the distribution of the Exchange Notes) to resell such Exchange Notes from
and after their receipt without any limitations or restrictions under the Act
and without material restrictions under the securities laws of a substantial
proportion of the several states of the United States.
(c) In connection with the Registered Exchange Offer, the
Issuer and the Guarantors shall:
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(i) mail to each Holder a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for acceptance
for not less than 20 Business Days after the date notice thereof is
mailed to the Holders;
(iii) utilize the services of a depositary for the Registered
Exchange Offer with an address in the Borough of Manhattan, The City of
New York; and
(iv) comply in all material respects with all applicable laws
relating to the Registered Exchange Offer.
(d) The Issuer and the Guarantors may suspend the use of the
Prospectus for a period not to exceed 30 days in any three-month period or for
three periods not to exceed an aggregate of 90 days in any twelve-month period
for valid business reasons, to be determined by the Issuer and the Guarantors in
their sole reasonable judgment (not including avoidance of their obligations
hereunder), including, without limitation, the acquisition or divestiture of
assets, public filings with the Commission, pending corporate developments and
similar events; provided that the Issuer and the Guarantors promptly thereafter
comply with the requirements of Section 5(k) hereof, if applicable.
(e) As soon as practicable after the Consummation of the
Registered Exchange Offer, the Issuer and the Guarantors shall cause the Trustee
promptly to authenticate and deliver to each Holder Exchange Notes equal in
principal amount to the Registrable Notes of such Holder so accepted for
exchange.
(f) The Initial Purchaser, the Issuer and the Guarantors
acknowledge that, pursuant to interpretations by the staff of the Commission of
Section 5 of the Act, and in the absence of an applicable exemption therefrom,
each Exchanging Dealer is required to deliver a Prospectus in connection with a
sale of any Exchange Notes received by such Exchanging Dealer pursuant to the
Registered Exchange Offer in exchange for Registrable Notes acquired for its own
account as a result of market-making activities or other trading activities.
Accordingly, the Issuer and the Guarantors shall:
(i) include the information set forth in Annex A hereto on the
cover of the Prospectus forming a part of the Exchange Offer
Registration Statement, in Annex B hereto in the forepart of the
Exchange Offer Registration Statement in a section setting forth
details of the Registered Exchange Offer, in Annex C hereto in the
underwriting or plan of distribution section of the Prospectus forming
a part of the Exchange Offer Registration Statement, and in Annex D
hereto in the letter of transmittal delivered pursuant to the
Registered Exchange Offer; and
(ii) use their best efforts to keep the Exchange Offer
Registration Statement continuously effective under the Act during the
Exchange Offer Registration Period for delivery of the prospectus
included therein by Exchanging Dealers in connection with
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sales of Exchange Notes received pursuant to the Registered Exchange
Offer, as contemplated by Section 5(h) below.
(g) In the event that the Initial Purchaser determines that it
is not eligible to participate in the Registered Exchange Offer with respect to
the exchange of Registrable Notes constituting any portion of an unsold
allotment, upon the effectiveness of the Shelf Registration Statement as
contemplated by Section 3 hereof and at the request of the Initial Purchaser,
the Issuer and the Guarantors shall issue and deliver to the Initial Purchaser,
or to the party purchasing Registrable Notes registered under the Shelf
Registration Statement from the Initial Purchaser, in exchange for such
Registrable Notes, a like principal amount of Exchange Notes. The Issuer and the
Guarantors shall use their best efforts to cause the CUSIP Service Bureau to
issue the same CUSIP number for such Exchange Notes as for Exchange Notes issued
pursuant to the Registered Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, any of the Issuer
or the Guarantors determines upon advice of its outside counsel that it is not
permitted to effect the Registered Exchange Offer as contemplated by Section 2
hereof, or (ii) the Registered Exchange Offer is not Consummated within 30
Business Days from the date the Exchange Offer Registration Statement becomes
effective (or, if such 30th day is not a Business Day, by the first Business Day
thereafter), or (iii) the Initial Purchaser so requests with respect to
Registrable Notes held by it as a result of the purchase of such Registrable
Note directly from the Issuer and the Guarantors following Consummation of the
Registered Exchange Offer and the Initial Purchaser is not eligible to receive
Exchange Notes pursuant to the Registered Exchange Offer in respect of such
Registrable Securities, or (iv) any Holder (other than the Initial Purchaser) is
not eligible to participate in the Registered Exchange Offer or the Exchange
Notes such Holder would receive in the Registered Exchange Offer could only be
reoffered and resold by such Holder upon compliance with the registration and
prospectus delivery requirements of the Act and the delivery of the Prospectus
contained in the Exchange Offer Registration Statement, as appropriately
amended, is not a legally available alternative, or (v) in the case where the
Initial Purchaser participates in the Registered Exchange Offer or acquires
Exchange Notes pursuant to Section 2(g) hereof, the Initial Purchaser does not
receive freely tradable Exchange Notes in exchange for Notes constituting any
portion of an unsold allotment (it being understood that, for purposes of this
Section 3, (x) the requirement that the Initial Purchaser deliver a Prospectus
containing the information required by Items 507 and/or 508 of Regulation S-K
under the Act in connection with sales of Exchange Notes acquired in exchange
for such Registrable Notes shall result in such Exchange Notes being not "freely
tradable" and (y) the requirement that an Exchanging Dealer deliver a Prospectus
in connection with sales of Exchange Notes acquired in the Registered Exchange
Offer in exchange for Registrable Notes acquired as a result of market-making
activities or other trading activities shall not result in such Exchange Notes
being not "freely tradable"), the following provisions shall apply:
(a) The Issuer and the Guarantors shall prepare, and not later
than 75 days following the Shelf Registration Trigger Date (or, if such 75th day
is not a Business Day, by the first Business Day thereafter), shall file with
the Commission and thereafter, but not later than
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<PAGE>
135 days following the Shelf Registration Trigger Date (or, if such 135th day is
not a Business Day, by the first Business Day thereafter), shall use their best
efforts to cause to be declared effective under the Act a Shelf Registration
Statement relating to the offer and sale of the Registrable Notes by the Holders
from time to time in accordance with the methods of distribution elected by such
Holders and set forth in such Shelf Registration Statement, provided, that with
respect to Exchange Notes received by the Initial Purchaser in exchange for
Notes constituting any portion of an unsold allotment, the Issuer and the
Guarantors may, if permitted by current interpretations by the Commission's
staff, file a post-effective amendment to the Exchange Offer Registration
Statement containing the information required by Regulation S-K Items 507 and/or
508, as applicable, in satisfaction of their obligations under this paragraph
(a) with respect thereto, and any such Exchange Offer Registration Statement, as
so amended, shall be referred to herein as, and governed by the provisions
herein applicable to, a Shelf Registration Statement.
(b) The Issuer and the Guarantors shall use their best efforts
to keep such Shelf Registration Statement continuously effective in order to
permit the Prospectus forming a part thereof to be usable by Holders until the
earliest of (i) the second anniversary of the date on which the filing of a
Shelf Registration Statement was required or requested pursuant to this Section
3, (ii) the date on which the Registrable Notes may be sold pursuant to Rule
144(k) (or any successor provision) promulgated by the Commission under the Act
and (iii) such date as of which all the Registrable Notes have been sold
pursuant to the Shelf Registration Statement (in any such case, such period
being called the "Shelf Registration Period"). The Issuer and the Guarantors
shall be deemed not to have used their best efforts to keep the Shelf
Registration Statement effective during the requisite period if any of them
voluntarily takes any action that would result in Holders of Registrable Notes
covered thereby not being able to offer and sell such notes during that period,
unless such action is (x) required by applicable law or (y) pursuant to Section
3(c) hereof, and, in either case, so long as the Issuer or the Guarantors
promptly thereafter comply with the requirements of Section 5(k) hereof, if
applicable.
(c) The Issuer and the Guarantors may suspend the use of the
Prospectus for a period not to exceed 30 days in any three-month period or for
three periods not to exceed an aggregate of 90 days in any twelve-month period
for valid business reasons, to be determined by the Issuer and the Guarantors in
their sole reasonable judgment (not including avoidance of their obligations
hereunder), including, without limitation, the acquisition or divestiture of
assets, public filings with the Commission, pending corporate developments and
similar events; provided that the Issuer and the Guarantors promptly thereafter
comply with the requirements of Section 5(k) hereof, if applicable.
(d) No Holder of Registrable Notes may include any of its
Registrable Notes in any Shelf Registration Statement pursuant to this Agreement
unless and until such Holder furnishes to the Issuer in writing, within 20
Business Days after receipt of a request therefor, such information as the
Issuer may reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary Prospectus included therein. No Holder of
Registrable Notes shall be entitled to Liquidated Damages pursuant to Section 4
hereof unless and until such Holder shall have used its best efforts to provide
all such reasonably requested
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<PAGE>
information. Each Holder as to which any Shelf Registration Statement is being
effected agrees to furnish promptly to the Issuer all information required to be
disclosed in order to make the information previously furnished to the Issuer by
such Holder not misleading.
4. Liquidated Damages.
(a) The parties hereto agree that the Holders of the Exchange
Notes or the Registrable Notes, as the case may be, will suffer damages, and
that it would not be feasible to ascertain the extent of such damages with
precision, if (i) either the Exchange Offer Registration Statement or the Shelf
Registration Statement has not been filed on or prior to the date specified for
such filing in this Agreement, (ii) the Exchange Offer Registration Statement or
the Shelf Registration Statement has not been declared effective under the Act
on or prior to the target date specified for such effectiveness in this
Agreement (the "Effectiveness Target Date"), (iii) the Registered Exchange Offer
has not been Consummated within 30 Business Days after the Effectiveness Target
Date with respect to the Exchange Offer Registration Statement, (iv) prior to
the end of the Exchange Offer Registration Period or the Shelf Registration
Period, the Commission shall have issued a stop order suspending the
effectiveness of the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, or proceedings have been initiated
with respect to the Registration Statement under Section 8(d) or 8(e) of the
Act, (v) the aggregate number of days in any one such suspension period exceeds
the period permitted pursuant to Section 2(d) or 3(c) hereof, as each may be
applicable, or (vi) the number of suspension periods exceeds the number
permitted pursuant to Section 2(d) or 3(c) hereof, as each may be applicable
(each of the events of a type described in any of the foregoing clauses (i)
through (vi) are individually referred to herein as an "Event;" and the date
specified for the filing of the Registration Statement in the case of clause
(i), the target date specified for the declaration of the effectiveness of the
Registration Statement in the case of clause (ii), the date specified for the
Consummation of the Registered Exchange Offer in the case of clause (iii), the
date on which the effectiveness of a Registration Statement has been suspended
or proceedings with respect to the Registration Statement under Section 8(d) or
8(e) of the Act have been commenced in the case of clause (iv), the date on
which the duration of a suspension period exceeds the periods permitted by
Section 2(d) or 3(c) hereof, as each may be applicable, in the case of clause
(v), and the date of the commencement of a suspension period that causes the
limit on the number of suspension periods under Section 2(d) or 3(c) hereof, as
each may be applicable, to be exceeded in the case of clause (vi), are referred
to herein as an "Event Date"). Events shall be deemed to continue until the date
of the termination of such Event, which shall be the following date with respect
to the respective types of Events: the date the Registration Statement is filed
in the case of an Event of the type described in clause (i), the date the
Registration Statement is declared effective under the Act in the case of an
Event described in clause (ii), the date a Registered Exchange Offer is
Consummated in the case of an Event described in clause (iii), the date that all
stop orders suspending effectiveness of the Registration Statement have been
removed and the proceedings initiated with respect to the Registration Statement
under Section 8(d) or 8(e) of the Act have terminated, as the case may be, in
the case of Events of the types described in clause (iv), termination of the
suspension period which caused the aggregate number of days in any one
suspension period to exceed the number permitted by Section 2(d) or 3(c) to be
exceeded in the case of Events of the type described in clause (v), and
termination of the suspension period the
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commencement of which caused the number of suspension periods permitted by
Section 2(d) or 3(c) to be exceeded in the case of Events of the type described
in clause (vi).
(b) Accordingly, upon the occurrence of any Event and until
such time as there are no Events which have occurred and have not terminated (a
"Damages Accrual Period"), commencing on the Event Date on which such Damages
Accrual Period began, the Borrower and the Guarantors jointly and severally
agree to pay to each Holder, as liquidated damages (the "Liquidated Damages"),
and not as a penalty, with respect to the first 90-day period immediately
following the Event Date, an additional amount equal to $0.05 per week per
$1,000 principal amount of Exchange Notes or Registrable Notes held by such
Holder. The amount of the liquidated damages shall increase by an additional
$0.05 per week per $1,000 principal amount of notes with respect to each
subsequent 90-day period until such Event have terminated, up to a maximum
amount of liquidated damages of $0.30 per week per $1,000 principal amount of
notes. Notwithstanding the foregoing, no Liquidated Damages shall accrue after
the expiration of the Registration Period.
(c) Liquidated Damages due on any Exchange Note or Registrable
Note, as the case may be, shall be payable on each date falling during the
Damage Accrual Period on which interest is due on such notes, and on the date
immediately following (or which would have followed) the termination of such
Period on which interest is due on the notes (the "Damages Payment Dates"). The
Issuer shall pay the Liquidated Damages due on any Registrable Notes or Exchange
Notes by depositing with the Trustee under the appropriate Indenture, in trust,
for the benefit of the Holders of Exchange Notes or Registrable Notes, as the
case may be, entitled thereto, at least one Business Day prior to the applicable
Damages Payment Date, sums sufficient to pay the Liquidated Damages accrued or
accruing since the last preceding Damages Payment Date to such Damages Payment
Date. The Trustee shall be entitled, on behalf of the Holders of Exchange Notes
or Registrable Notes, as the case may be, to seek any available remedy for the
enforcement of this Agreement, including for the payment of such Liquidated
Damages. Notwithstanding the foregoing, the parties agree that the sole remedy
payable for a violation of the terms of this Agreement with respect to which
Liquidated Damages are expressly provided shall be such Liquidated Damages.
Nothing shall preclude a Holder of Exchange Notes or Registrable Notes from
pursuing or obtaining specific performance or other equitable relief with
respect to any violation of this Agreement for which liquidated damages are not
expressly provided by this Agreement.
(d) All of the Issuer's and Guarantors' obligations set forth
in this Section 4 which are outstanding with respect to any Exchange Note or
Registrable Note at the time such note ceases to be covered by an effective
Registration Statement shall survive until such time as all such obligations
with respect to such security have been satisfied in full (notwithstanding
termination of the Agreement).
5. Registration Procedures. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
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(a) The Issuer and the Guarantors shall furnish to the Initial
Purchaser, prior to the filing thereof with the Commission, a copy of any
Registration Statement, and each amendment thereof and each amendment or
supplement, if any, to the Prospectus included therein and shall use their best
efforts to reflect in each such document, when so filed with the Commission,
such comments as the Initial Purchaser reasonably may propose.
(b) The Issuer and the Guarantors shall ensure that:
(i) any Registration Statement and any amendment thereto and
any Prospectus contained therein and any amendment or supplement
thereto complies in all material respects with the Act;
(ii) any Registration Statement and any amendment thereto does
not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and
(iii) any Prospectus forming part of any Registration
Statement, including any amendment or supplement to such Prospectus,
does not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
provided that no representation or agreement is made hereby with respect to
information with respect to the Initial Purchaser, any Underwriter or any Holder
required to be included in any Registration Statement or Prospectus pursuant to
the Act or the rules and regulations thereunder or provided by the Initial
Purchaser, any Holder or any Underwriter specifically for inclusion in any
Registration Statement or Prospectus.
(c) (1) The Issuer and the Guarantors shall advise the Initial
Purchaser and, in the case of a Shelf Registration Statement, the Holders of
Registrable Notes covered thereby, and, if requested by the Initial Purchaser or
any such Holder, confirm such advice in writing:
(i) when a Registration Statement and any amendment thereto
has been filed with the Commission and when the Registration Statement
or any post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(2) The Issuer and the Guarantors shall advise the Initial
Purchaser and, in the case of a Shelf Registration Statement, the Holders of
Registrable Notes covered thereby, and, in the case of an Exchange Offer
Registration Statement, any Exchanging Dealer that has provided in writing to
the Issuer a telephone or facsimile number and address for notices, and, if
requested by the Initial Purchaser or any such Holder or Exchanging Dealer,
confirm such advice in writing:
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(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Issuer or the Guarantors of any
notification with respect to the suspension of the qualification of the
Registrable Notes included in any Registration Statement for sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose; and
(iii) of the suspension of the use of the Prospectus pursuant
to Section 5(c) hereof or of the happening of any event that requires
the making of any changes in the Registration Statement or the
Prospectus so that, as of such date, the statements therein are not
misleading and do not omit to state a material fact required to be
stated therein or necessary to make the statements therein (in the case
of the Prospectus, in light of the circumstances under which they were
made) not misleading (which advice shall be accompanied by an
instruction to suspend the use of the Prospectus until the requisite
changes have been made).
(d) The Issuer and the Guarantors shall use their best efforts
to obtain the withdrawal of any order suspending the effectiveness of any
Registration Statement at the earliest possible time and in any event shall
within 30 days of any such order (or, if such 30th day is not a Business Day, by
the first Business Day thereafter) amend the Registration Statement covering all
of the Registrable Notes (whereupon references herein to the Registration
Statement shall be deemed to include reference to such additional filing).
(e) The Issuer and the Guarantors shall furnish to each Holder
of Registrable Notes included within the coverage of any Shelf Registration
Statement, without charge, at least one copy of such Shelf Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, and, if the Holder so requests in writing, all
exhibits thereto (including those incorporated by reference).
(f) The Issuer and the Guarantors shall, during the Shelf
Registration Period, deliver to each Holder of Registrable Notes included within
the coverage of any Shelf Registration Statement, without charge, as many copies
of the Prospectus (including each preliminary Prospectus) included in such Shelf
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and the Issuer and the Guarantors consent to the use of
the Prospectus or any amendment or supplement thereto by each of the selling
Holders of Registrable Notes in connection with the offering and sale of the
Registrable Notes covered by the Prospectus or any amendment or supplement
thereto.
(g) The Issuer and the Guarantors shall furnish to each
Exchanging Dealer that so requests, without charge, at least one copy of the
Exchange Offer Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, any documents incorporated by
reference therein and, if the Exchanging Dealer so requests in writing, all
exhibits thereto (including those incorporated by reference).
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(h) The Issuer and the Guarantors shall, during the Exchange
Offer Registration Period, deliver to each Exchanging Dealer, without charge, as
many copies of the Prospectus (including each preliminary Prospectus) included
in such Exchange Offer Registration Statement and any amendment or supplement
thereto as such Exchanging Dealer may reasonably request; and the Issuer and the
Guarantors consent to the use of the Prospectus or any amendment or supplement
thereto by any such Exchanging Dealer in connection with the offering and sale
of the Exchange Notes, as provided in Section 2(f) above.
(i) Prior to the Registered Exchange Offer or any other
offering of Registrable Notes pursuant to any Registration Statement, the Issuer
and the Guarantors shall register, qualify or cooperate with the Holders of
Registrable Notes included therein and their respective counsel in connection
with the registration or qualification of such Registrable Notes for offer and
sale under the securities or blue sky laws of such states as any such Holders
reasonably request in writing and do any and all other acts or things necessary
or advisable to enable the offer and sale in such jurisdictions of the
Registrable Notes covered by such Registration Statement; provided, however,
that none of the Issuer or Guarantors will be required to qualify generally to
do business in any jurisdiction in which any of them is not then so qualified,
to file any general consent to service of process or to take any action which
would subject any of them to general service of process or to taxation in any
such jurisdiction where it is not then so subject.
(j) The Issuer and the Guarantors shall cooperate with the
Holders to facilitate the timely preparation and delivery of certificates
representing Registrable Notes to be sold pursuant to any Registration Statement
free of any restrictive legends and in denominations and registered in such
names as Holders may request prior to sales of Registrable Notes pursuant to
such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) of this Section 5, the Issuer and the Guarantors shall promptly
prepare and file a post-effective amendment to any Registration Statement or an
amendment or supplement to the related Prospectus or any other required document
so that, as thereafter delivered to purchasers of the Registrable Notes included
therein, the Prospectus will not include an untrue statement of a material fact
or omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(l) The Issuer and the Guarantors shall use their best efforts
to cause The Depository Trust Company ("DTC") on the first Business Day
following the effective date of any Registration Statement hereunder or as soon
as possible thereafter to remove (i) from any existing CUSIP number assigned to
the Registrable Notes or Exchange Notes, as the case may be, any designation
indicating that such notes are "restricted securities," which efforts shall
include delivery to DTC of a letter executed by the Issuer substantially in the
form of Annex E hereto and (ii) any other stop or restriction on DTC's system
with respect to the Registrable Notes or Exchange Notes, as the case may be. In
the event the Issuer and the Guarantors are unable to cause DTC to take actions
described in the immediately preceding sentence, the Issuer and the Guarantors
shall take such actions as the Initial Purchaser may reasonably request to
provide, as soon as practicable, a CUSIP number for the Registrable Notes or
Exchange Notes
13
<PAGE>
registered under such Registration Statement and to cause such CUSIP number to
be assigned to the Registrable Notes or Exchange Notes (or to the maximum
aggregate principal amount of the securities to which such number may be
assigned). Upon compliance with the foregoing requirements of this Section 5(l),
the Issuer shall provide the Trustee with global certificates for such
Registrable Notes or Exchange Notes, in a form eligible for deposit with The
Depository Trust Company.
(m) The Issuer and the Guarantors shall use their best efforts
to comply with all applicable rules and regulations of the Commission and shall
make generally available to their security holders as soon as practicable after
the effective date of the applicable Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Act and Rule 158
promulgated thereunder.
(n) The Issuer and the Guarantors shall cause the Indenture to
be qualified under the Trust Indenture Act in a timely manner.
(o) The Issuer and the Guarantors may require each Holder of
Registrable Notes to be sold pursuant to any Shelf Registration Statement to
furnish to the Issuer such information regarding the Holder and the distribution
of such Registrable Notes as may, from time to time, be reasonably required by
the Act and the rules and regulations promulgated thereunder, and the
obligations of the Issuer and the Guarantors to any Holder hereunder shall be
expressly conditioned on the compliance of such Holder with such request.
(p) The Issuer and the Guarantors shall, if requested,
promptly incorporate in a Prospectus supplement or post-effective amendment to a
Shelf Registration Statement (i) such information as the Majority Holders
provide or, if the Registrable Notes are being sold in an underwritten offering,
as the Managing Underwriters and the Majority Holders reasonably agree should be
included therein and provide to the Issuer or Guarantors in writing for
inclusion in the Shelf Registration Statement or Prospectus, and (ii) such
information as a Holder may provide from time to time to the Issuer or
Guarantors in writing for inclusion in a Prospectus or any Shelf Registration
Statement concerning such Holder and the distribution of such Holder's
Registrable Notes and, in either case, shall make all required filings of such
Prospectus supplement or post-effective amendment as soon as practicable after
being notified in writing of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.
(q) In the case of any Shelf Registration Statement, the
Issuer and the Guarantors shall enter into such agreements (including
underwriting agreements) and take all other customary and appropriate actions as
may be reasonably requested in order to expedite or facilitate the registration
or the disposition of any Registrable Notes, and in connection therewith, if an
underwriting agreement is entered into, cause the same to contain
indemnification provisions and procedures no less favorable than those set forth
in Section 7 (or such other provisions and procedures acceptable to the Majority
Holders and the Managing Underwriters, if any, with respect to all parties to be
indemnified pursuant to Section 7 from Holders of Exchange Notes to the Issuer
and the Guarantors).
14
<PAGE>
(r) In the case of any Shelf Registration Statement, the
Issuer and the Guarantors shall:
(i) make reasonably available for inspection by the Holders of
Registrable Notes to be registered thereunder, any Underwriter
participating in any disposition pursuant to such Shelf Registration
Statement, and any attorney, accountant or other agent retained by the
Holders or any such Underwriter, all relevant financial and other
records, pertinent corporate documents and properties of the Issuer,
the Guarantors and their subsidiaries;
(ii) cause the Issuer's and the Guarantors' officers,
directors and employees to supply all relevant information reasonably
requested by the Holders or any such Underwriter, attorney, accountant
or agent in connection with any such Registration Statement as is
customary for similar due diligence examinations; provided, however,
that any information that is designated in writing by the Issuer or the
Guarantors, in their sole discretion, as confidential at the time of
delivery of such information shall be kept confidential by the Holders
or any such Underwriter, attorney, accountant or agent, unless
disclosure thereof is made in connection with a court proceeding or
required by law, or such information becomes available to the public
generally through the Issuer or the Guarantors or through a third party
without an accompanying obligation of confidentiality;
(iii) make such representations and warranties to the Holders
of Registrable Notes registered thereunder and the Underwriters, if
any, in form, substance and scope as are customarily made by issuers to
Underwriters and covering matters including, but not limited to, those
set forth in the Purchase Agreement;
(iv) obtain opinions of counsel to the Issuer and the
Guarantors and updates thereof (which counsel and opinions, in form,
scope and substance, shall be reasonably satisfactory to the Managing
Underwriters, if any) addressed to each selling Holder and the
Underwriters, if any, covering such matters as are customarily covered
in opinions requested in underwritten offerings and such other matters
as may be reasonably requested by such Holders and Underwriters;
(v) obtain "cold comfort" letters and updates thereof from the
independent certified public accountants of the Issuer and the
Guarantors (and, if necessary, any other independent certified public
accountants of any subsidiary of the Issuer or the Guarantors or of any
business acquired by the Issuer and the Guarantors for which financial
statements and financial data are, or are required to be, included in
the Registration Statement), addressed to each selling Holder of the
Registrable Notes covered by such Shelf Registration Statement
(provided such Holder furnishes the accountants with such
representations as the accountants customarily require in similar
situations) and the Underwriters, if any, in customary form and
covering matters of the type customarily covered in "cold comfort"
letters in connection with primary underwritten offerings; and
(vi) deliver such documents and certificates as may be
reasonably requested by the Majority Holders and the Managing
Underwriters, if any, including those to evidence
15
<PAGE>
compliance with Section 5(i) and with any customary conditions
contained in the underwriting agreement or other agreement entered into
by the Issuer and the Guarantors.
(vii) The foregoing actions set forth in clauses (iii), (iv),
(v) and (vi) of this Section 5(r) shall be performed at (A) the
effectiveness of such Shelf Registration Statement and each
post-effective amendment thereto and (B) each closing under any
underwriting or similar agreement as and to the extent required
thereunder.
(s) The Issuer shall, if and to the extent required under the
Act and/or the Trust Indenture Act and the rules and regulations thereunder in
order to register the Registrable Notes (including the Note Guarantees, if any)
under the Act and qualify the Indenture under the Trust Indenture Act, cause
each Guarantor, if any, to sign any Registration Statement and take all other
action necessary to register the Note Guarantees, if any, under the applicable
Registration Statement.
6. Registration Expenses. The Issuer and the Guarantors shall
bear all expenses incurred in connection with the performance of their
obligations under Sections 2, 3, 4 and 5 hereof (other than brokers', dealers'
and underwriters' discounts and commissions and brokers', dealers' and
underwriters' counsel fees) and shall reimburse the Holders for the reasonable
fees and disbursements of one firm or counsel designated by the Majority Holders
to act as counsel for the Holders in connection therewith.
7. Indemnification and Contribution.
(a) (i) In connection with any Registration Statement, the
Issuer and the Guarantors jointly and severally agree to indemnify and
hold harmless each Holder of Registrable Notes covered thereby, the
directors, officers, employees and agents of each such Holder and each
person who controls any such Holder within the meaning of either the
Act or the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become
subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement as originally filed or in any amendment thereof, in any
preliminary Prospectus or Prospectus or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and
agree to reimburse each such indemnified party, as incurred, for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Issuer and the Guarantors will not
be liable in any case to the extent that any such loss, claim, damage
or liability arises out of or is based upon (A) any such untrue
statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written
information furnished to the Issuer or the Guarantors by or on behalf
of any such Holder specifically for inclusion therein, (B) use of a
Registration Statement or the related Prospectus during
16
<PAGE>
a period when a stop order has been issued in respect of such
Registration or any proceedings for that purpose have been initiated or
use of a Prospectus when use of such Prospectus has been suspended
pursuant to Section 5(c); provided, further, in each case, that Holders
received prior notice of such stop order, initiation of proceedings or
suspension or (C) if the Holder fails to deliver a Prospectus or the
then current Prospectus. This indemnity agreement will be in addition
to any liability which the Issuer or the Guarantors may otherwise have.
(ii) The Issuer and the Guarantors also agree to indemnify or
contribute to Losses, as provided in Section 7(d), of any Underwriters
of Registrable Notes registered under a Registration Statement, their
officers and directors and each person who controls such Underwriters
on substantially the same basis as that of the indemnification of the
selling Holders provided in this Section 7(a) and shall, if requested
by any Holder, enter into an underwriting agreement reflecting such
agreement, as provided in Section 5(q) hereof.
(b) Each Holder of Registrable Notes covered by a Registration
Statement severally agrees to indemnify and hold harmless (i) the Issuer, (ii)
each Guarantor, (iii) each of their respective directors, (iv) each of their
respective officers who signs such Registration Statement and (v) each person
who controls the Issuer or any Guarantor within the meaning of either the Act or
the Exchange Act to the same extent as the foregoing indemnity from the Issuer
and the Guarantors to each such Holder, but only with reference to written
information relating to such Holder furnished to the Issuer and the Guarantors
by or on behalf of such Holder specifically for inclusion in the documents
referred to in the foregoing indemnity. This indemnity agreement will be in
addition to any liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 7, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel (and local counsel) if (i) the use of counsel chosen by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential defendants in,
or targets of, any such action include both the indemnified party and the
17
<PAGE>
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall have authorized the indemnified party to employ
separate counsel at the expense of the indemnifying party; provided further,
that the indemnifying party shall not be responsible for the fees and expenses
of more than one separate counsel (together with appropriate local counsel)
representing all the indemnified parties under paragraph (a)(i), paragraph
(a)(ii) or paragraph (b) above. An indemnifying party will not, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified parties are
actual or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 7 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Registration Statement which
resulted in such Losses; provided, however, that in no case shall any
Underwriter be responsible for any amount in excess of the underwriting discount
or commission applicable to the Registrable Notes purchased by such Underwriter
under the Registration Statement which resulted in such Losses. If the
allocation provided by the immediately preceding sentence is unavailable for any
reason, the indemnifying party and the indemnified party shall contribute in
such proportion as is appropriate to reflect not only such relative benefits but
also the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Issuer and the Guarantors shall be
deemed to be equal to the sum of (x) the aggregate principal amount of the Notes
and (y) the total amount of Liquidated Damages which the Issuer was not required
to pay as a result of registering the Registrable Notes covered by the
Registration Statement which resulted in such Losses. Benefits received by any
Holder shall be deemed to be equal to the value of receiving Registrable Notes
registered under the Act. Benefits received by any Underwriter shall be deemed
to be equal to the total underwriting discounts and commissions, as set forth on
the cover page of the Prospectus forming a part of the Registration Statement
which resulted in such Losses. Relative fault shall be determined by reference
to whether any alleged untrue statement or omission relates to information
provided by the indemnifying party, on the one hand, or by the indemnified
party, on the other hand. The parties agree that it would not be just and
equitable if contribution were determined by pro rata allocation or any other
method of allocation which does not take
18
<PAGE>
account of the equitable considerations referred to above. Notwithstanding the
provisions of this paragraph (d), no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person who controls a
Holder within the meaning of either the Act or the Exchange Act and each
director, officer, employee and agent of such Holder shall have the same rights
to contribution as such Holder, and each person who controls the Issuer or any
Guarantor within the meaning of either the Act or the Exchange Act, each officer
of the Issuer or any Guarantor who shall have signed the Registration Statement
and each director of the Issuer or any Guarantor shall have the same rights to
contribution as the Issuer or such Guarantor, subject in each case to the
applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 7 will remain in full force
and effect, regardless of any investigation made by or on behalf of any Holder,
the Issuer or any Guarantor or any of the officers, directors or controlling
persons referred to in Section 7 hereof, and will survive the sale by a Holder
of Registrable Notes covered by a Registration Statement.
8. Rules 144 and 144A
The Issuer covenants that it will file the reports required to
be filed by it under the Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder in a timely manner in accordance with the
requirements of the Act and the Exchange Act and, if at any time the Issuer is
not required to file such reports, it will, upon the request of any Holder of
Registrable Notes, make publicly available annual reports and such information,
documents and other reports of the type specified in Sections 13 and 15(d) of
the Exchange Act. The Issuer further covenants, for so long as any Registrable
Notes remain outstanding, to make available to any Holder or beneficial owner of
Registrable Notes in connection with any sale thereof and any prospective
purchaser of such Registrable Notes from such Holder or beneficial owner the
information required by Rule 144A(d)(4) under the Act in order to permit resales
of such Registrable Notes pursuant to Rule 144A.
9. Miscellaneous.
(a) No Inconsistent Agreements. None of the Issuer or the
Guarantors has, as of the date hereof, entered into nor shall any of them, on or
after the date hereof, enter into any agreement that is inconsistent with the
rights granted to the Holders herein or otherwise conflicts with the provisions
hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Issuer and the Guarantors have
obtained the written consent of the Majority Holders. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders whose
Registrable Notes are being sold pursuant to a Shelf Registration Statement or
whose Notes are being exchanged pursuant to an Exchange Offer Registration
Statement, as the case may be, and which does not directly or
19
<PAGE>
indirectly affect the rights of other Holders may be given by such Holders,
determined on the basis of notes being sold rather than registered; and,
furthermore, the signatories hereto may make any amendment that does not, in the
good faith opinion of the board of directors of the Issuer (as evidenced by a
resolution of such board) materially affect any Holder. Notwithstanding any of
the foregoing, no amendment, modification, supplement, waiver or consents to any
departure from the provisions of Section 7 hereof shall be effective as against
any Holder of Registrable Notes unless consented to in writing by such Holder.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail, telex, telecopier, or air courier guaranteeing overnight delivery:
(i) if to the Initial Purchaser, as follows:
First Union Capital Markets
301 South College Street, TW-10
Charlotte, NC 28288-0606
Attention: Corporate Finance Department
(ii) if to any other Holder, at the most current address given
by such Holder to the Issuer in accordance with the provisions of this
Section 9(c), which address initially is, with respect to each Holder,
the address of such Holder maintained by the registrar under the
Indenture, with a copy in like manner to the Initial Purchaser; and
(iii) if to the Issuer, as follows:
Galey & Lord, Inc.
7736 McCloud Road
One Triad Center, Suite 300
Greensboro, NC 27409
Attention: Michael R. Harmon
All such notices and communications shall be deemed to have
been duly given when received, if delivered by hand or air courier, and when
sent, if sent by first-class mail, telex or telecopier.
The Issuer by notice to the others may designate additional or
different addresses for subsequent notices or communications.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent by
the Issuer or any Guarantor thereto, subsequent Holders. The Issuer and the
Guarantors hereby agree to extend the benefits of this Agreement to any
20
<PAGE>
Holder and any such Holder may specifically enforce the provisions of this
Agreement as if an original party hereto.
(e) Counterparts. This agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(g) Governing Law. This agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said State, without regard to the
conflicts of law rules thereof.
(h) Severability. In the event that any one of more of the
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.
(i) Notes Held by the Issuer, etc. Whenever the consent or
approval of Holders of a specified percentage of principal amount of Registrable
Notes or Exchange Notes is required hereunder, Registrable Notes or Exchange
Notes held by the Issuer, the Guarantors or their Affiliates (other than
subsequent Holders of Registrable Notes or Exchange Notes if such subsequent
Holders are deemed to be Affiliates solely by reason of their holdings of such
notes) shall not be counted in determining whether such consent or approval was
given by the Holders of such required percentage.
21
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement between the Issuer and the Initial Purchaser.
Very truly yours,
GALEY & LORD, INC.
By:/s/ Michael R. Harmon
---------------------
Name: Michael R. Harmon
Title: Executive Vice President
GALEY & LORD INDUSTRIES, INC.
By: /s/ Michael R. Harmon
----------------------
Name: Michael R. Harmon
Title: Executive Vice President
G & L SERVICE COMPANY, NORTH AMERICA, INC.
By: /s/ Michael R. Harmon
----------------------
Name: Michael R. Harmon
Title: Vice President
SWIFT TEXTILES, INC.
By: /s/ Michael R. Harmon
---------------------
Name: Michael R. Harmon
Title: Executive Vice President
SWIFT DENIM SERVICES, INC.
By: /s/ Michael R. Harmon
-----------------------
Name: Michael R. Harmon
Title: Executive Vice President
<PAGE>
The foregoing Agreement is hereby
accepted as of the date first above written.
FIRST UNION CAPITAL MARKETS
A DIVISION OF WHEAT FIRST SECURITIES, INC.
By: /s/ Steven J. Taylor
---------------------
Name: Steven J. Taylor
Title: Senior Director
<PAGE>
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account pursuant to
the Registered Exchange Offer must acknowledge that it will deliver a prospectus
in connection with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Act. This Prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resales of Exchange
Notes received in exchange for Notes where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, starting on the Expiration Date and
ending on the close of business one year after the Expiration Date, it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
A-1
<PAGE>
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in exchange
for Notes, where such Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Exchange Notes.
See "Plan of Distribution."
B-1
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own
account pursuant to the Registered Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Notes where such Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed that, starting on
the Expiration Date and ending on the close of business one year after the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until ____________, 1999, all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of
Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for
their own account pursuant to the Registered Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Registered Exchange Offer and any
broker or dealer that participates in a distribution of such Exchange Notes may
be deemed to be an "underwriter" within the meaning of the Act and any profit
from any such resale of Exchange Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the 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 Act.
For a period of one year after the Expiration Date, the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Registered Exchange Offer (including the expenses of
one counsel for the holders of the Notes) other than dealers' and brokers'
discounts, commissions and counsel fees) and will indemnify the holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Act.
[If applicable, add information required by Regulation S-K Items 507 and/or
508.]
C-1
<PAGE>
ANNEX D
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO. [ ]
Name:
--------------------------
Address:
-----------------------
-----------------------
The undersigned represents that it is not an affiliate of the
Company, that any Exchange Notes to be received by it will be acquired in the
ordinary course of business and that at the time of the commencement of the
Registered Exchange Offer it had no arrangement with any person to participate
in a distribution of the Exchange Notes.
In addition, if the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that
will receive Exchange Notes for its own account in exchange for Notes, it
represents that the Notes to be exchanged for Exchange Notes were acquired by it
as a result of market-making activities or other trading activities and
acknowledges that it will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Act.
<PAGE>
ANNEX E
FORM OF LETTER TO BE PROVIDED BY ISSUER TO
THE DEPOSITORY TRUST COMPANY
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, NY 10004
Re: 9 1/8% Senior Subordinated Notes Due 2008 (the "Notes")
of Galey & Lord, Inc.
Ladies and Gentlemen:
Please be advised that the Securities and Exchange Commission
has declared effective a Registration Statement on Form S-3 under the Securities
Act of 1933, as amended, with regard to all of the Notes referenced above.
Accordingly, there is no longer any restriction as to whom such Notes may be
sold and any restrictions on the CUSIP designation are no longer appropriate and
may be removed. I understand that upon receipt of this letter, DTC will remove
any stop or restriction on its system with respect to this issue.
As always, please do not hesitate to call if we can be of
further assistance.
Very truly yours,
Authorized Officer
D-1
FORM OF GLOBAL NOTE
FACE OF GLOBAL NOTE
GALEY & LORD, INC.
No. __ CUSIP No. ___________
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO.
UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY TO GALEY & LORD, INC. OR A SUCCESSOR THEREOF
OR THE REGISTRAR FOR REGISTRATION OF TRANSFER OR EXCHANGE AND ANY NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER ENTITY AS
HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS HAS BEEN REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFER OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
AND NOT IN PART, TO NOMINEES OF THE DEPOSITORY TRUST COMPANY OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE.
<PAGE>
GLOBAL NOTE
REPRESENTING 9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
Galey & Lord, Inc., a Delaware corporation, for value
received, hereby promises to pay to Cede & Co., or its registered assigns, the
principal sum indicated on Schedule A hereof, on March 1, 2008.
Interest Payment Dates: March 1 and September 1, commencing
September 1, 1998.
Record Dates: February 15 and August 15.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
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<PAGE>
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purposes.
IN WITNESS WHEREOF, Galey & Lord, Inc. has caused this Note to
be duly executed.
GALEY & LORD, INC.
By: ________________________________
Name:
Title:
Attest:______________________
Dated:______________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
SUNTRUST BANK, ATLANTA,
as Trustee, certifies that this is one of
the Notes referred to in the Indenture.
By:
------------------------------
Authorized Signatory
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<PAGE>
REVERSE SIDE OF GLOBAL NOTE
GALEY & LORD, INC.
GLOBAL NOTE
REPRESENTING 9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
1. Indenture.
This Note is one of a duly authorized issue of debt securities
of the Company (as defined below) designated as its "9 1/8% Senior Subordinated
Notes Due 2008" (herein called the "Notes") limited in aggregate principal
amount to $300,000,000, issued under an indenture dated as of February 24, 1998
(as amended or supplemented from time to time, the "Indenture") among the
Company, as issuer, and Galey & Lord Industries, Inc., G&L Service Company,
North America, Inc., Swift Textiles, Inc. and Swift Denim Services, Inc. as
guarantors (collectively, the "Note Guarantors"), and SunTrust Bank, Atlanta, as
trustee (the "Trustee," which term includes any successor trustee under the
Indenture). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to
all such terms, and Holders of Notes are referred to the Indenture and such Act
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Note Guarantors, the Trustee and each
Holder and of the terms upon which the Notes are, and are to be, authenticated
and delivered. The summary of the terms of this Note contained herein does not
purport to be complete and is qualified by reference to the Indenture. To the
extent permitted by applicable law, in the event of any inconsistency between
the terms of this Note and the terms of the Indenture, the terms of the
Indenture shall control. All capitalized terms used in this Note which are not
defined herein shall have the meanings assigned to them in the Indenture.
The Indenture restricts, among other things, the Company's
ability to incur additional indebtedness, pay dividends or make certain other
restricted payments, incur liens to secure pari passu or subordinated
indebtedness, sell stock of Restricted Subsidiaries, apply net proceeds from
certain asset sales, merge or consolidate with any other person, sell, assign,
transfer, lease, convey or otherwise dispose of substantially all of the assets
of the Company, enter into certain transactions with affiliates or incur
indebtedness that is subordinate in right of payment to any Senior Indebtedness
and senior in right of payment to the Notes. The Indenture permits, under
certain circumstances, Restricted Subsidiaries of the Company to be deemed
Unrestricted Subsidiaries and thus not subject to the restrictions of the
Indenture.
2. Principal and Interest.
Galey & Lord, Inc., a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay the principal amount set
forth on Schedule A of this Note to the Holder hereof on March 1, 2008.
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<PAGE>
The Company shall pay interest at a rate of 9 1/8% per annum,
from the Issue Date or from the most recent Interest Payment Date thereafter to
which interest has been paid or duly provided for, semiannually in arrears on
March 1 and September 1 of each year, commencing on September 1, 1998, in cash,
to the Holder hereof until the principal amount hereof is paid or made available
for payment. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, subject to certain exceptions provided in the
Indenture, be paid to the Person in whose name this Note (or the Note in
exchange or substitution for which this Note was issued) is registered at the
close of business on the Record Date for interest payable on such Interest
Payment Date. The Record Date for any interest payment is the close of business
on February 15 or August 15, as the case may be, whether or not a Business Day,
immediately preceding the Interest Payment Date on which such interest is
payable. Any such interest not so punctually paid or duly provided for
("Defaulted Interest") shall forthwith cease to be payable to the Holder on such
Record Date and shall be paid as provided in Section 2.11 of the Indenture.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Each payment of interest in respect of an Interest Payment
Date will include interest accrued through the day before such Interest Payment
Date. If an Interest Payment Date falls on a day that is not a Business Day, the
interest payment to be made on such Interest Payment Date will be made on the
next succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
If this Note is issued pursuant to a Registered Exchange Offer
on or prior to the Record Date for the first Interest Payment Date following
such exchange, accrued and unpaid interest, if any, on the equivalent principal
amount of the Initial Note in exchange for which this Note was issued, up to but
not including the date of issuance of this Note, shall be paid on the first
Interest Payment Date for this Note to the Holder of this Note on the first
Record Date with respect to this Note. If this Note is issued pursuant to a
Registered Exchange Offer subsequent to the Record Date for the first Interest
Payment Date following such exchange but on or prior to such Interest Payment
Date, then any such accrued and unpaid interest with respect to the equivalent
principal amount of the Initial Note in exchange for which this Note was issued
and any accrued and unpaid interest on this Note, through the day before such
Interest Payment Date, shall be paid on such Interest Payment Date to the Holder
of such Initial Note on such Record Date.
To the extent lawful, the Company shall pay interest on
overdue principal, overdue premium, Defaulted Interest and overdue Liquidated
Damages (without regard to any applicable grace period) at the interest rate
borne on this Note. The Company's obligation pursuant to the previous sentence
shall apply whether such overdue amount is due at its maturity, as a result of
the Company's obligations pursuant to Section 3.05, Section 4.11 or Section 4.14
of the Indenture, or otherwise.
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<PAGE>
3. Method of Payment.
The Company, through the Paying Agent, shall pay interest on
this Note to the registered Holder of this Note, as provided above. The Holder
must surrender this Note to a Paying Agent to collect principal payments. The
Company will pay principal, premium, if any, and interest and Liquidated
Damages, if any, in money of the United States of America that at the time of
payment is legal tender for payment of all debts public and private. Principal,
premium, if any, and interest and Liquidated Damages, if any, shall be paid by
check mailed to the registered Holders at their registered addresses; provided
that all payments with respect to Notes the Holders of which have given wire
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof.
4. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar
under the Indenture. The Company may, upon written notice to the Trustee,
appoint and change any Paying Agent or Registrar. The Company or any of its
Affiliates may act as Paying Agent or Registrar, provided that if the Company or
such Affiliate is acting as Paying Agent, the Company or such Affiliate shall
segregate all funds held by it as Paying Agent and hold them in trust for the
benefit of the Holders or the Trustee.
5. Note Guarantees.
This Note is initially entitled to the benefits of the Note
Guarantees made by Galey & Lord Industries, Inc., G&L Service Company, North
America, Inc., Swift Textiles, Inc. and Swift Denim Services, Inc., and may
thereafter be entitled to Note Guarantees made by other Note Guarantors for the
benefit of the Holders of Notes. Each present Note Guarantor has, and each
future Note Guarantor will, irrevocably and unconditionally, jointly and
severally, guarantee on a senior subordinated basis the punctual payment when
due, whether at Stated Maturity, by acceleration, in connection with a Change of
Control Offer, an Asset Sale Offer or redemption, or otherwise, of all
obligations of the Company under the Indenture and this Note, whether for
payment of principal of, premium, if any, interest or Liquidated Damages, if
any, on the Notes, expenses, indemnification or otherwise. A Note Guarantor
shall be released from its Note Guarantee upon the terms and subject to the
conditions set forth in the Indenture.
6. Subordination.
This Note and the Note Guarantees are subordinated in right of
payment, as set forth in the Indenture, to the prior payment in full of all
existing and future Senior Indebtedness. Each of the Company and the Note
Guarantors agrees, and each Holder by accepting a Note agrees, to the
subordination provisions set forth in the Indenture, authorizes the Trustee to
give them effect and appoints the Trustee as attorney-in-fact for such purpose.
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<PAGE>
7. Redemption.
Except as set forth in the following paragraph, the Notes are
not redeemable at the option of the Company prior to March 1, 2003. Thereafter,
the Notes will be subject to redemption at the option of the Company, in whole
or in part, on at least 30 calendar days' but not more than 60 calendar days'
prior notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest thereon, if any, and
Liquidated Damages, if any, to the applicable Redemption Date (subject to the
right of each Holder of record on the relevant Record Date to receive interest
due on the relevant Interest Payment Date), if redeemed during the twelve-month
period beginning March 1 of the years indicated below:
Year Percentage
2003 104.563%
2004 103.042%
2005 101.521%
2006 and thereafter 100.000%
In addition, at any time and from time to time prior to March
1, 2001 the Company, at its option, may redeem in the aggregate up to 35.0% of
the original principal amount of the Notes with the Net Cash Proceeds of one or
more Public Equity Offerings following which there is a Public Market, at a
redemption price (expressed as a percentage of principal amount) of 109.125% of
the aggregate principal amount so redeemed, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date (subject to the right
of Holders of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date); provided, however, that at least 65.0% of the
original principal amount of the Notes must remain outstanding after each such
redemption; and provided, further, that each such redemption shall occur within
60 days of the date of closing of the related Public Equity Offering.
8. Notice of Redemption.
At least 20 calendar days but not more than 60 calendar days
before a Redemption Date, the Company shall deliver to the Trustee and send, by
first-class mail, postage prepaid, to Holders of Notes to be redeemed at the
addresses of such Holders as they appear in the Note Register, a notice of
redemption.
If fewer than all the Notes are to be redeemed at any time,
the Trustee shall select the Notes to be redeemed pro rata or by lot or by a
method that complies with applicable legal and securities exchange requirements,
if any, and that the Trustee considers fair and appropriate and in accordance
with methods generally used at the time of selection by fiduciaries in similar
circumstances. The Trustee shall make the selection from outstanding Notes not
previously called for redemption; provided that the Trustee may select for
redemption portions (equal to $1,000 or any integral multiple thereof) of the
principal of Notes that have denominations larger than $1,000 (Notes in
denominations of $1,000 or less may be redeemed only in whole). If any
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<PAGE>
Note is redeemed subsequent to a Record Date with respect to any Interest
Payment Date specified above and on or prior to such Interest Payment Date, then
any accrued interest will be paid on such Interest Payment Date to the Holder of
the Note on such Record Date. If money in an amount sufficient to pay the
Redemption Price of all Notes (or portions thereof) to be redeemed on the
Redemption Date is deposited with the Paying Agent on or before the applicable
Redemption Date and certain other conditions are satisfied, interest on the
Notes or portions thereof to be redeemed on the applicable Redemption Date will
cease to accrue.
9. Repurchase at the Option of Holders upon Change of Control.
Upon the occurrence of a Change of Control, each Holder shall
have the right in accordance with the terms hereof and the Indenture to require
the Company to purchase such Holder's Notes, in whole or in part, in a principal
amount that is an integral multiple of $1,000, pursuant to a Change of Control
Offer, at a purchase price in cash equal to 101% of the principal amount of such
Notes (or portions thereof) plus accrued and unpaid interest and Liquidated
Damages, if any, to the Change of Control Payment Date.
Within 30 calendar days following any Change of Control, the
Company shall send, or cause to be sent, by first-class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder with a copy to the
Trustee. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the Change of Control Offer. Unless the Company defaults in the payment of the
Change of Control Purchase Price with respect thereto, all Notes or portions
thereof accepted for payment pursuant to the Change of Control Offer will cease
to accrue interest from and after the Change of Control Payment Date.
Prior to complying with the provisions of the Indenture
governing Change of Control Offers, but in any event within 30 calendar days
following a Change of Control, the Company shall either repay all outstanding
Senior Indebtedness or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Indebtedness to permit the repurchase of
Notes required by the provisions of the Indenture governing Change of Control
Offers.
10. Repurchase at the Option of Holders upon Asset Sale.
If at any time the Company or any Restricted Subsidiary
engages in any Asset Sale, as a result of which the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company shall, within 30 calendar days of the
date the amount of Excess Proceeds exceeds $5.0 million, use the then-existing
Excess Proceeds to make an offer to purchase from all Holders of Notes, on a pro
rata basis, Notes in an aggregate principal amount equal in amount to the
then-existing Excess Proceeds, at a purchase price in cash in an amount equal to
100% of the principal amount thereof plus accrued and unpaid interest thereon
and Liquidated Damages to the Asset Sale Purchase Date (subject to the right of
each Holder of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date). Upon completion of an Asset Sale Offer
(including payment of the Asset Sale Purchase Price for accepted Notes), any
surplus
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<PAGE>
Excess Proceeds that were the subject of such offer shall cease to be Excess
Proceeds, and the Company may then use such amounts for general corporate
purposes.
Within 30 calendar days of the date the amount of Excess
Proceeds exceeds $5.0 million, the Company shall send, or cause to be sent, by
first-class mail, postage prepaid, a notice regarding the Asset Sale Offer to
each Holder. The Holder of this Note may elect to have this Note or a portion
hereof in an authorized denomination purchased by completing the form entitled
"Option of Holder to Elect Purchase" appearing below and tendering this Note
pursuant to the Asset Sale Offer. Unless the Company defaults in the payment of
the Asset Sale Purchase Price with respect thereto, all Notes or portions
thereof selected for payment pursuant to the Asset Sale Offer will cease to
accrue interest from and after the Asset Sale Purchase Date.
11. The Global Note.
So long as this Global Note is registered in the name of the
Depositary or its nominee, members of, or participants in, the Depositary
("Agent Members") shall have no rights under the Indenture with respect to this
Global Note held on their behalf by the Depositary or the Trustee as its
custodian, and the Depositary may be treated by the Company, the Note
Guarantors, the Trustee and any agent of the Company, the Note Guarantors or the
Trustee as the absolute owner of this Global Note for all purposes.
Notwithstanding the foregoing, nothing herein shall (i) prevent the Company, the
Note Guarantors, the Trustee or any agent of the Company, the Note Guarantors or
the Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or (ii) impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a Holder.
The Holder of this Global Note may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in this Global Note through Agent Members, to take any action which a
Holder is entitled to take under the Indenture or the Notes.
Whenever, as a result of optional redemption by the Company, a
Change of Control Offer, an Asset Sale Offer, a Registered Exchange Offer or an
exchange for Certificated Notes, this Global Note is redeemed, repurchased or
exchanged in part, this Global Note shall be surrendered by the Holder thereof
to the Trustee who shall cause an adjustment to be made to Schedule A hereof so
that the principal amount of this Global Note will be equal to the portion not
redeemed, repurchased or exchanged and shall thereafter return this Global Note
to such Holder; provided that this Global Note shall be in a principal amount of
$1,000 or an integral multiple of $1,000.
12. Transfer and Exchange.
A Holder may transfer or exchange Notes as provided in the
Indenture and subject to certain limitations therein set forth. The Registrar
may require a Holder, among other things,
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<PAGE>
to furnish appropriate endorsements or transfer documents and to pay any taxes,
fees and expenses required by law or permitted by the Indenture.
13. Denominations.
The Notes are issuable only in registered form without coupons
in denominations of $1,000 and integral multiples thereof of principal amount.
14. Discharge and Defeasance.
Subject to certain conditions, the Company at any time may
terminate some or all of the obligations of the Company and the Note Guarantors
under the Notes, the Note Guarantees and the Indenture if the Company
irrevocably deposits in trust with the Trustee cash or U.S. Government
Obligations for the payment of principal, premium, if any, interest and
Liquidated Damages, if any, on the Notes to redemption or maturity, as the case
may be.
15. Amendment, Waiver.
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Notes may be amended with the written consent of the
Holders of at least a majority in principal amount of the outstanding Notes
(which consent may, but need not, be given in connection with any tender offer
or exchange offer for the Notes) and (ii) any past Default and its consequences
or any compliance with any provisions of the Indenture may be waived with the
written consent of the Holders of at least a majority in principal amount of the
outstanding Notes. Subject to certain exceptions set forth in the Indenture,
without the consent of any Holder, the Company and the Trustee may amend the
Indenture or the Notes (i) to evidence the succession of another Person to the
Company and the assumption by such successor of the covenants of the Company
under the Indenture and contained in the Notes; (ii) to add to the covenants of
the Company, for the benefit of the Holders of all of the Notes, or to surrender
any right or power conferred on the Company under the Indenture; (iii) to
provide for uncertificated Notes in addition to or in place of Certificated
Notes; (iv) to secure the Notes; (v) to cure any ambiguity, omission, defect or
inconsistency in the Indenture, provided that such actions shall not adversely
affect the interests of the Holders of Notes in any material respect; (vi) to
comply with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the TIA; or (vii) to evidence the agreement
or acknowledgment of a Restricted Subsidiary that it is a Note Guarantor for all
purposes under the Indenture (including, without limitation, Article 12
thereof).
16. Defaults and Remedies.
Under the Indenture, Events of Default include: (i) a default
for 30 days in the payment when due of interest on, or Liquidated Damages with
respect to, the Notes (whether or not prohibited by the subordination provisions
of the Indenture); (ii) a default in the payment when due of the principal of or
premium, if any, on the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) failure by the Company to observe or perform
certain covenants, conditions, agreements or other provisions of the Indenture
or this Note (and,
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<PAGE>
in the case of certain covenants, agreements or other provisions, such failure
has continued for 30 calendar days after written notice by the Trustee or the
Holders of at least 25% in principal amount of the Notes); (iv) a default in the
payment of Indebtedness of the Company or any of its Significant Subsidiaries
within any applicable grace period after final maturity or acceleration of such
Indebtedness in an amount in excess of $10.0 million in the aggregate; (v)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Significant Subsidiaries; (vi) certain undischarged judgments in excess of
$10.0 million against the Company or any of its Significant Subsidiaries; or
(vii) the Note Guarantee of any Note Guarantor ceasing for any reason to be in
full force and effect (other than in accordance with the terms of the Indenture)
or any Note Guarantor denying or disaffirming its obligations under its Note
Guarantee.
If an Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the Notes, subject to
certain limitations, may declare all the Notes to be immediately due and
payable. Certain events of bankruptcy or insolvency shall result in the Notes
being immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Notes unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Notes may direct the Trustee in its exercise of any trust or power under the
Indenture. The Holders of a majority in principal amount of the then outstanding
Notes, by written notice to the Trustee and the Company, may rescind any
declaration of acceleration and its consequences if the rescission would not
conflict with any judgment or decree, and if all existing Events of Default have
been cured or waived, except nonpayment of principal, interest, premium or
Liquidated Damages that has become due solely because of acceleration. No such
rescission shall affect any subsequent Default or impair any right consequent
thereto.
17. Individual Rights of Trustee.
Subject to certain limitations imposed by the TIA, the Trustee
or any Paying Agent or Registrar, in its individual or any other capacity, may
become the owner or pledgee of Notes and may otherwise deal with the Company,
the Note Guarantors or their Affiliates with the same rights it would have if it
were not Trustee, Paying Agent or Registrar, as the case may be, under the
Indenture.
18. No Recourse Against Certain Others.
No director, officer, employee, incorporator or stockholder of
the Company or any Note Guarantor, as such, shall have any liability for any
obligations of the Company or such Note Guarantor under the Notes, the Note
Guarantees or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation, solely by reason of its status as
a director, officer, employee, incorporator or stockholder of the Company or
such Note Guarantor. By accepting a Note, each Holder waives and releases all
such liability (but only such liability) as part of the consideration for
issuance of such Note to such Holder.
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19. Authentication.
This Note shall not be valid until the Trustee or an
authenticating agent manually signs the certificate of authentication on the
other side of this Note.
20. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation is
made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
22. Governing Law.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
The Company will furnish to any Holder upon written request
and without charge to the Holder a copy of the Indenture. Requests may be made
to:
Galey & Lord, Inc.
7736 McCloud Road
One Triad Center, Suite 300
Greensboro, North Carolina 27409
Attention: Chief Financial Officer
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SCHEDULE A
SCHEDULE OF PRINCIPAL AMOUNT
The initial principal amount at maturity of this Note shall be $____________.
The following decreases/increase in the principal amount in denominations of
$1,000 or integral multiples thereof at maturity of this Note have been made:
<TABLE>
<CAPTION>
Total Principal
Amount at Notation
Decrease in Increase in Maturity Made by
Date of Principal Principal Following such or on
Decrease/ Amount at Amount at Decrease/ Behalf of
Increase Maturity Maturity Increase Trustee
<S> <C> <C> <C> <C>
- ------------ ----------- ----------- ------------- ---------
- ------------ ----------- ----------- ------------- ---------
- ------------ ----------- ----------- ------------- ---------
- ------------ ----------- ----------- ------------- ---------
- ------------ ----------- ----------- ------------- ---------
- ------------ ----------- ----------- ------------- ---------
- ------------ ----------- ----------- ------------- ---------
- ------------ ----------- ----------- ------------- ---------
</TABLE>
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<PAGE>
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
- -----------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
- ------------------------------------------------------------------------------
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint ________________________________ Attorney to
transfer this Note on the Note Register, with full power of substitution.
Dated: _______________
- ----------------------------- --------------------------------
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to the Name as
written upon the face of this Note in every particular, without alteration or
any change whatsoever.
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OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
|_| In connection with the Change of Control Offer made pursuant to Section
4.14 of the Indenture, the undersigned hereby elects to have
|_| the entire principal amount
|_| $________________ ($1,000 in principal amount or an integral
multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee
or Paying Agent to pay it or __________________________ an amount in
cash equal to 101% of the principal amount indicated in the preceding
sentence plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the Change of Control Payment Date.
|_| In connection with the Asset Sale Offer made pursuant to Section 4.11
of the Indenture, the undersigned hereby elects to have
|_| the entire principal amount
|_| $________________ ($1,000 in principal amount or an integral
multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee
or Paying Agent to pay it or __________________________ an amount in
cash equal to 100% of the principal amount indicated in the preceding
sentence plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the Asset Sale Purchase Date.
Dated: _______________
- ----------------------------- -----------------------------
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
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EXHIBIT 4.4
FORM OF CERTIFICATED NOTE
FACE OF CERTIFICATED NOTE
GALEY & LORD, INC.
No. __ CUSIP No.__________
9 1/8% SENIOR SUBORDINATED NOTE DUE 2008
Galey & Lord, Inc., a Delaware corporation, for value
received, hereby promises to pay to __________________, or its registered
assigns, the principal amount of _______________, on March 1, 2008.
Interest Payment Dates: March 1 and September 1, commencing
September 1, 1998.
Record Dates: February 15 and August 15.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
<PAGE>
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture or be valid
or obligatory for any purposes.
IN WITNESS WHEREOF, Galey & Lord, Inc. has caused this Note to
be duly executed.
GALEY & LORD, INC.
By: __________________________________________
Name:
Title:
Attest:______________________
Dated:______________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
SUNTRUST BANK, ATLANTA,
as Trustee, certifies that this is one of
the Notes referred to in the Indenture.
By:
------------------------------------
Authorized Signatory
2
<PAGE>
REVERSE SIDE OF CERTIFICATED NOTE
GALEY & LORD, INC.
9 1/8% SENIOR SUBORDINATED NOTE DUE 2008
1. Indenture.
This Note is one of a duly authorized issue of debt securities
of the Company (as defined below) designated as its "9 1/8% Senior Subordinated
Notes Due 2008" (herein called the "Notes") limited in aggregate principal
amount to $300,000,000, issued under an indenture dated as of February 24, 1998
(as amended or supplemented from time to time, the "Indenture") among the
Company, as issuer, and Galey & Lord Industries, Inc., G&L Service Company,
North America, Inc., Swift Textiles, Inc. and Swift Denim Services, Inc. as
guarantors (collectively, the "Note Guarantors"), and SunTrust Bank, Atlanta, as
trustee (the "Trustee," which term includes any successor trustee under the
Indenture). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to
all such terms, and Holders of Notes are referred to the Indenture and such Act
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Note Guarantors, the Trustee and each
Holder and of the terms upon which the Notes are, and are to be, authenticated
and delivered. The summary of the terms of this Note contained herein does not
purport to be complete and is qualified by reference to the Indenture. To the
extent permitted by applicable law, in the event of any inconsistency between
the terms of this Note and the terms of the Indenture, the terms of the
Indenture shall control. All capitalized terms used in this Note which are not
defined herein shall have the meanings assigned to them in the Indenture.
The Indenture restricts, among other things, the Company's
ability to incur additional indebtedness, pay dividends or make certain other
restricted payments, incur liens to secure pari passu or subordinated
indebtedness, sell stock of Restricted Subsidiaries, apply net proceeds from
certain asset sales, merge or consolidate with any other person, sell, assign,
transfer, lease, convey or otherwise dispose of substantially all of the assets
of the Company, enter into certain transactions with affiliates or incur
indebtedness that is subordinate in right of payment to any Senior Indebtedness
and senior in right of payment to the Notes. The Indenture permits, under
certain circumstances, Restricted Subsidiaries of the Company to be deemed
Unrestricted Subsidiaries and thus not subject to the restrictions of the
Indenture.
2. Principal and Interest.
Galey & Lord, Inc., a Delaware corporation (such corporation,
and its successors and assigns under the Indenture hereinafter referred to,
being herein called the "Company"), promises to pay the principal amount set
forth on Schedule A of this Note to the Holder hereof on March 1, 2008.
3
<PAGE>
The Company shall pay interest at a rate of 9 1/8% per annum,
from the Issue Date or from the most recent Interest Payment Date thereafter to
which interest has been paid or duly provided for, semiannually in arrears on
March 1 and September 1 of each year, commencing on September 1, 1998, in cash,
to the Holder hereof until the principal amount hereof is paid or made available
for payment. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, subject to certain exceptions provided in the
Indenture, be paid to the Person in whose name this Note (or the Note in
exchange or substitution for which this Note was issued) is registered at the
close of business on the Record Date for interest payable on such Interest
Payment Date. The Record Date for any interest payment is the close of business
on February 15 or August 15, as the case may be, whether or not a Business Day,
immediately preceding the Interest Payment Date on which such interest is
payable. Any such interest not so punctually paid or duly provided for
("Defaulted Interest") shall forthwith cease to be payable to the Holder on such
Record Date and shall be paid as provided in Section 2.11 of the Indenture.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
Each payment of interest in respect of an Interest Payment
Date will include interest accrued through the day before such Interest Payment
Date. If an Interest Payment Date falls on a day that is not a Business Day, the
interest payment to be made on such Interest Payment Date will be made on the
next succeeding Business Day with the same force and effect as if made on such
Interest Payment Date, and no additional interest will accrue as a result of
such delayed payment.
If this Note is issued pursuant to a Registered Exchange Offer
on or prior to the Record Date for the first Interest Payment Date following
such exchange, accrued and unpaid interest on the equivalent principal amount of
the Initial Note in exchange for which this Note was issued, up to but not
including the date of issuance of this Note, shall be paid on the first Interest
Payment Date for this Note to the Holder of this Note on the first Record Date
with respect to this Note. If this Note is issued pursuant to a Registered
Exchange Offer subsequent to the Record Date for the first Interest Payment Date
following such exchange but on or prior to such Interest Payment Date, then any
such accrued and unpaid interest with respect to the equivalent principal amount
of the Initial Note in exchange for which this Note was issued and any accrued
and unpaid interest on this Note through the day before such Interest Payment
Date shall be paid on such Interest Payment Date to the Holder of such Initial
Note on such Record Date.
To the extent lawful, the Company shall pay interest on
overdue principal, overdue premium, Defaulted Interest and overdue Liquidated
Damages (without regard to any applicable grace period) at the interest rate
borne on this Note. The Company's obligation pursuant to the previous sentence
shall apply whether such overdue amount is due at its maturity, as a result of
the Company's obligations pursuant to Section 3.05, Section 4.11 or Section 4.14
of the Indenture, or otherwise.
4
<PAGE>
3. Method of Payment.
The Company, through the Paying Agent, shall pay interest on
this Note to the registered Holder of this Note, as provided above. The Holder
must surrender this Note to a Paying Agent to collect principal payments. The
Company will pay principal, premium, if any, and interest and Liquidated
Damages, if any, in money of the United States of America that at the time of
payment is legal tender for payment of all debts public and private. Principal,
premium, if any, and interest and Liquidated Damages, if any, shall be paid by
check mailed to the registered Holders at their registered addresses; provided
that all payments with respect to Notes the Holders of which have given wire
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof.
4. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar
under the Indenture. The Company may, upon written notice to the Trustee,
appoint and change any Paying Agent or Registrar. The Company or any of its
Affiliates may act as Paying Agent or Registrar, provided that if the Company or
such Affiliate is acting as Paying Agent, the Company or such Affiliate shall
segregate all funds held by it as Paying Agent and hold them in trust for the
benefit of the Holders or the Trustee.
5. Note Guarantees.
This Note is initially entitled to the benefits of the Note
Guarantees made by Galey & Lord Industries, Inc., G&L Service Company, North
America, Inc., Swift Textiles, Inc. and Swift Denim Services, Inc., and may
thereafter be entitled to Note Guarantees made by other Note Guarantors for the
benefit of the Holders of Notes. Each present Note Guarantor has, and each
future Note Guarantor will, irrevocably and unconditionally, jointly and
severally, guarantee on a senior subordinated basis the punctual payment when
due, whether at Stated Maturity, by acceleration, in connection with a Change of
Control Offer, an Asset Sale Offer or redemption, or otherwise, of all
obligations of the Company under the Indenture and this Note, whether for
payment of principal of, premium, if any, interest or Liquidated Damages, if
any, on the Notes, expenses, indemnification or otherwise. A Note Guarantor
shall be released from its Note Guarantee upon the terms and subject to the
conditions set forth in the Indenture.
6. Subordination.
This Note and the Note Guarantees are subordinated in right of
payment, as set forth in the Indenture, to the prior payment in full of all
existing and future Senior Indebtedness. Each of the Company and the Note
Guarantors agrees, and each Holder by accepting a Note agrees, to the
subordination provisions set forth in the Indenture, authorizes the Trustee to
give them effect and appoints the Trustee as attorney-in-fact for such purpose.
5
<PAGE>
7. Redemption.
Except as set forth in the following paragraph, the Notes are
not redeemable at the option of the Company prior to March 1, 2003. Thereafter,
the Notes will be subject to redemption at the option of the Company, in whole
or in part, on at least 30 calendar days' but not more than 60 calendar days'
prior notice, at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest thereon, if any, and
Liquidated Damages, if any, to the applicable Redemption Date (subject to the
right of each Holder of record on the relevant Record Date to receive interest
due on the relevant Interest Payment Date), if redeemed during the twelve-month
period beginning March 1 of the years indicated below:
Year Percentage
2003 104.563%
2004 103.042%
2005 101.521%
2006 and thereafter 100.000%
In addition, at any time and from time to time prior to March
1, 2001 the Company, at its option, may redeem in the aggregate up to 35.0% of
the original principal amount of the Notes with the Net Cash Proceeds of one or
more Public Equity Offerings following which there is a Public Market, at a
redemption price (expressed as a percentage of principal amount) of 109.125% of
the aggregate principal amount so redeemed, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the redemption date (subject to the right
of Holders of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date); provided, however, that at least 65.0% of the
original principal amount of the Notes must remain outstanding after each such
redemption; and provided, further, that each such redemption shall occur within
60 days of the date of closing of the related Public Equity Offering.
8. Notice of Redemption.
At least 20 calendar days but not more than 60 calendar days
before a Redemption Date, the Company shall deliver to the Trustee and send, by
first-class mail, postage prepaid, to Holders of Notes to be redeemed at the
addresses of such Holders as they appear in the Note Register, a notice of
redemption.
If fewer than all the Notes are to be redeemed at any time,
the Trustee shall select the Notes to be redeemed pro rata or by lot or by a
method that complies with applicable legal and securities exchange requirements,
if any, and that the Trustee considers fair and appropriate and in accordance
with methods generally used at the time of selection by fiduciaries in similar
circumstances. The Trustee shall make the selection from outstanding Notes not
previously called for redemption; provided that the Trustee may select for
redemption portions (equal to $1,000 or any integral multiple thereof) of the
principal of Notes that have denominations larger than $1,000 (Notes in
denominations of $1,000 or less may be redeemed only in whole). If any
6
<PAGE>
Note is redeemed subsequent to a Record Date with respect to any Interest
Payment Date specified above and on or prior to such Interest Payment Date, then
any accrued interest will be paid on such Interest Payment Date to the Holder of
the Note on such Record Date. If money in an amount sufficient to pay the
Redemption Price of all Notes (or portions thereof) to be redeemed on the
Redemption Date is deposited with the Paying Agent on or before the applicable
Redemption Date and certain other conditions are satisfied, interest on the
Notes or portions thereof to be redeemed on the applicable Redemption Date will
cease to accrue.
9. Repurchase at the Option of Holders upon Change of Control.
Upon the occurrence of a Change of Control, each Holder shall
have the right in accordance with the terms hereof and the Indenture to require
the Company to purchase such Holder's Notes, in whole or in part, in a principal
amount that is an integral multiple of $1,000, pursuant to a Change of Control
Offer, at a purchase price in cash equal to 101% of the principal amount of such
Notes (or portions thereof) plus accrued and unpaid interest and Liquidated
Damages, if any, to the Change of Control Payment Date.
Within 30 calendar days following any Change of Control, the
Company shall send, or cause to be sent, by first-class mail, postage prepaid, a
notice regarding the Change of Control Offer to each Holder with a copy to the
Trustee. The Holder of this Note may elect to have this Note or a portion hereof
in an authorized denomination purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing below and tendering this Note pursuant to
the Change of Control Offer. Unless the Company defaults in the payment of the
Change of Control Purchase Price with respect thereto, all Notes or portions
thereof accepted for payment pursuant to the Change of Control Offer will cease
to accrue interest from and after the Change of Control Payment Date.
Prior to complying with the provisions of the Indenture
governing Change of Control Offers, but in any event within 30 calendar days
following a Change of Control, the Company shall either repay all outstanding
Senior Indebtedness or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Indebtedness to permit the repurchase of
Notes required by the provisions of the Indenture governing Change of Control
Offers.
10. Repurchase at the Option of Holders upon Asset Sale.
If at any time the Company or any Restricted Subsidiary
engages in any Asset Sale, as a result of which the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company shall, within 30 calendar days of the
date the amount of Excess Proceeds exceeds $5.0 million, use the then-existing
Excess Proceeds to make an offer to purchase from all Holders of Notes, on a pro
rata basis, Notes in an aggregate principal amount equal in amount to the
then-existing Excess Proceeds, at a purchase price in cash in an amount equal to
100% of the principal amount thereof plus accrued and unpaid interest thereon
and Liquidated Damages to the Asset Sale Purchase Date (subject to the right of
each Holder of record on the relevant Record Date to receive interest due on the
relevant Interest Payment Date). Upon completion of an Asset Sale Offer
(including payment of the Asset Sale Purchase Price for accepted Notes), any
surplus
7
<PAGE>
Excess Proceeds that were the subject of such offer shall cease to be Excess
Proceeds, and the Company may then use such amounts for general corporate
purposes.
Within 30 calendar days of the date the amount of Excess
Proceeds exceeds $5.0 million, the Company shall send, or cause to be sent, by
first-class mail, postage prepaid, a notice regarding the Asset Sale Offer to
each Holder. The Holder of this Note may elect to have this Note or a portion
hereof in an authorized denomination purchased by completing the form entitled
"Option of Holder to Elect Purchase" appearing below and tendering this Note
pursuant to the Asset Sale Offer. Unless the Company defaults in the payment of
the Asset Sale Purchase Price with respect thereto, all Notes or portions
thereof selected for payment pursuant to the Asset Sale Offer will cease to
accrue interest from and after the Asset Sale Purchase Date.
11. Transfer and Exchange.
A Holder may transfer or exchange Notes as provided in the
Indenture and subject to certain limitations therein set forth. The Registrar
may require a Holder, among other things, to furnish appropriate endorsements or
transfer documents and to pay any taxes, fees and expenses required by law or
permitted by the Indenture. The Registrar need not register the transfer or
exchange of Certificated Notes or portions thereof selected for redemption
(except, in the case of a Certificated Note to be redeemed in part, the portion
of such Certificated Note not to be redeemed) or any Certificated Notes for a
period of 15 calendar days before a selection of Notes to be redeemed.
12. Denominations.
The Notes are issuable only in registered form without coupons
in denominations of $1,000 and integral multiples thereof of principal amount.
13. Discharge and Defeasance.
Subject to certain conditions, the Company at any time may
terminate some or all of the obligations of the Company and the Note Guarantors
under the Notes, the Note Guarantees and the Indenture if the Company
irrevocably deposits in trust with the Trustee cash or U.S. Government
Obligations for the payment of principal, premium, if any, interest and
Liquidated Damages, if any, on the Notes to redemption or maturity, as the case
may be.
14. Amendment, Waiver.
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Notes may be amended with the written consent of the
Holders of at least a majority in principal amount of the outstanding Notes
(which consent may, but need not, be given in connection with any tender offer
or exchange offer for the Notes) and (ii) any past Default and its consequences
or any compliance with any provisions of the Indenture may be waived with the
written consent of the Holders of at least a majority in principal amount of the
outstanding Notes. Subject to certain exceptions set forth in the Indenture,
without the consent of any Holder, the Company and the Trustee may amend the
Indenture or the Notes (i) to evidence the succession of another
8
<PAGE>
Person to the Company and the assumption by such successor of the covenants of
the Company under the Indenture and contained in the Notes; (ii) to add to the
covenants of the Company, for the benefit of the Holders of all of the Notes, or
to surrender any right or power conferred on the Company under the Indenture;
(iii) to provide for uncertificated Notes in addition to or in place of
Certificated Notes; (iv) to secure the Notes; (v) to cure any ambiguity,
omission, defect or inconsistency in the Indenture, provided that such actions
shall not adversely affect the interests of the Holders of Notes in any material
respect; (vi) to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the TIA; or (vii) to evidence
the agreement or acknowledgment of a Restricted Subsidiary that it is a Note
Guarantor for all purposes under the Indenture (including, without limitation,
Article 12 thereof).
15. Defaults and Remedies.
Under the Indenture, Events of Default include: (i) a default
for 30 days in the payment when due of interest on, or Liquidated Damages with
respect to, the Notes (whether or not prohibited by the subordination provisions
of the Indenture); (ii) a default in the payment when due of the principal of or
premium, if any, on the Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) failure by the Company to observe or perform
certain covenants, conditions, agreements or other provisions of the Indenture
or this Note (and, in the case of certain covenants, agreements or other
provisions, such failure has continued for 30 calendar days after written notice
by the Trustee or the Holders of at least 25% in principal amount of the Notes);
(iv) a default in the payment of Indebtedness of the Company or any of its
Significant Subsidiaries within any applicable grace period after final maturity
or acceleration of such Indebtedness in an amount in excess of $10.0 million in
the aggregate; (v) certain events of bankruptcy or insolvency with respect to
the Company or any of its Significant Subsidiaries; (vi) certain undischarged
judgments in excess of $10.0 million against the Company or any of its
Significant Subsidiaries; or (vii) the Note Guarantee of any Note Guarantor
ceasing for any reason to be in full force and effect (other than in accordance
with the terms of the Indenture) or any Note Guarantor denying or disaffirming
its obligations under its Note Guarantee.
If an Event of Default occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the Notes, subject to
certain limitations, may declare all the Notes to be immediately due and
payable. Certain events of bankruptcy or insolvency shall result in the Notes
being immediately due and payable upon the occurrence of such Events of Default
without any further act of the Trustee or any Holder.
Holders of Notes may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Notes unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Notes may direct the Trustee in its exercise of any trust or power under the
Indenture. The Holders of a majority in principal amount of the then outstanding
Notes, by written notice to the Trustee and the Company, may rescind any
declaration of acceleration and its consequences if the rescission would not
conflict with any judgment or decree, and if all existing Events of Default have
been cured or waived, except nonpayment of principal, interest,
9
<PAGE>
premium or Liquidated Damages that has become due solely because of
acceleration. No such rescission shall affect any subsequent Default or impair
any right consequent thereto.
16. Individual Rights of Trustee.
Subject to certain limitations imposed by the TIA, the Trustee
or any Paying Agent or Registrar, in its individual or any other capacity, may
become the owner or pledgee of Notes and may otherwise deal with the Company,
the Note Guarantors or their Affiliates with the same rights it would have if it
were not Trustee, Paying Agent or Registrar, as the case may be, under the
Indenture.
17. No Recourse Against Certain Others.
No director, officer, employee, incorporator or stockholder of
the Company or any Note Guarantor, as such, shall have any liability for any
obligations of the Company or such Note Guarantor under the Notes, the Note
Guarantees or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation, solely by reason of its status as
a director, officer, employee, incorporator or stockholder of the Company or
such Note Guarantor. By accepting a Note, each Holder waives and releases all
such liability (but only such liability) as part of the consideration for
issuance of such Note to such Holder.
18. Authentication.
This Note shall not be valid until the Trustee or an
authenticating agent manually signs the certificate of authentication on the
other side of this Note.
19. Abbreviations.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gift to Minors
Act).
20. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company has caused CUSIP numbers
to be printed on the Notes and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders of Notes. No representation is
made as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
21. Governing Law.
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
10
<PAGE>
YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.
The Company will furnish to any Holder upon written request
and without charge to the Holder a copy of the Indenture. Requests may be made
to:
Galey & Lord, Inc.
7736 McCloud Road
One Triad Center, Suite 300
Greensboro, North Carolina 27409
Attention: Chief Financial Officer
11
<PAGE>
ASSIGNMENT
(To be executed by the registered Holder
if such Holder desires to transfer this Note)
FOR VALUE RECEIVED ___________________________ hereby sells, assigns and
transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAX IDENTIFYING NUMBER OF TRANSFEREE
- -----------------------------------------
- ----------------------------------------- --------------------------------------
- --------------------------------------------------------------------------------
(Please print name and address of transferee)
- --------------------------------------------------------------------------------
this Note, together with all right, title and interest herein, and does hereby
irrevocably constitute and appoint ________________________________ Attorney to
transfer this Note on the Note Register, with full power of substitution.
Dated: _______________
- ----------------------------- --------------------------------
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing Assignment must correspond to the Name as
written upon the face of this Note in every particular, without alteration or
any change whatsoever.
12
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
(check as appropriate)
|_| In connection with the Change of Control Offer made pursuant to
Section 4.14 of the Indenture, the undersigned hereby elects to have
|_| the entire principal amount
|_| $________________ ($1,000 in principal amount or an integral
multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee
or Paying Agent to pay it or __________________________ an amount in
cash equal to 101% of the principal amount indicated in the preceding
sentence plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the Change of Control Payment Date.
|_| In connection with the Asset Sale Offer made pursuant to Section 4.11
of the Indenture, the undersigned hereby elects to have
|_| the entire principal amount
|_| $________________ ($1,000 in principal amount or an integral
multiple thereof) of this Note
repurchased by the Company. The undersigned hereby directs the Trustee
or Paying Agent to pay it or __________________________ an amount in
cash equal to 100% of the principal amount indicated in the preceding
sentence plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the Asset Sale Purchase Date.
Dated: _______________
- ----------------------------- --------------------------------
Signature of Holder Signature Guaranteed:
NOTICE: The signature to the foregoing must correspond to the Name as written
upon the face of this Note in every particular, without alteration or any change
whatsoever.
13
Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
April 6, 1998
E-MAIL ADDRESS
[email protected]
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have acted as counsel to Galey & Lord, Inc. (the "Company"), a Delaware
corporation, in connection with the registration statement (the "Registration
Statement") on Form S-4 filed with the Securities and Exchange Commission on
April 6, 1998 in connection with the registration of $300,000,000 aggregate
principal amount of 9 1/8% Senior Subordinated Notes Due 2008 (the "Notes") of
the Company.
In rendering this opinion, we have examined (i) the Indenture between the
Company, Galey & Lord Industries, Inc., G&L Service Company, North America,
Inc., Swift Textiles, Inc. and SunTrust Bank, Atlanta, dated February 24, 1998,
pursuant to which the Notes will be issued; (ii) the Notes; (iii) the
Registration Statement; (iv) the Restated Certificate of Incorporation of the
Company; (v) the Amended and Restated By-laws of the Company; (vi) resolutions
of the Board of Directors of the Company, dated December 15, 1997 and (vii) such
other documents, and made such inquiries as to questions of law, as we have
deemed necessary.
Based upon the foregoing, it is our opinion that when (i) the Notes have been
(a) duly authenticated in accordance with the Indenture and (b) issued,
exchanged, and delivered in the manner and for the consideration stated in the
Indenture, the Prospectus and the Letter of Transmittal, which have been, or
forms of which have been, filed as part of, or as exhibits to, the Registration
Statement; (ii) the Registration Statement has become effective under the
Securities Act of 1933, as amended, and (iii) the Notes have been qualified as
required under the laws of those jurisdictions in which they are to be issued
and exchanged, the Notes will be legally issued, fully paid and non-assessable
and valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization or other similar laws, now or
hereafter in effect, and equitable considerations of any court before which
enforcement may be sought.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name in the Registration
Statement, including the Prospectus constituting a part thereof, and any
amendments or supplements thereto, under the caption "Legal Matters."
Very truly yours,
ROSENMAN & COLIN LLP
By: /s/ David H. Landau
--------------------------
A Partner
EXHIBIT 12.1
GALEY LORD, INC.
CALCULATION OF EARNINGS TO FIXED CHARGES RATIO
(Dollars in Thousands)
<TABLE>
<CAPTION>
3 Months 3 Months
Ended Ended
December 28, December 27,
1993 1994 1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Earnings before income taxes ..... $ 21,425 $ 30,689 $ 8,742 $ 15,460 $ 22,027 $ 5,737 $ (636)
Fixed charges .................... 7,198 9,109 14,070 13,012 14,159 3,505 4,027
-------- -------- -------- -------- -------- ------- ------
Earnings as adjusted (A) ........ $ 28,623 $ 39,798 $ 22,812 $ 28,472 $ 36,186 $ 9,242 $3,391
======== ======== ======== ======== ======== ======= ======
Fixed Charges:
Interest expense ................. $ 6,465 $ 8,276 $ 13,103 $ 11,579 $ 12,326 $ 3,052 $3,500
Interest component of rent
expense (Note 1) ................ 733 833 967 1,433 1,833 453 527
-------- -------- -------- -------- -------- ------- ------
Fixed charges as
adjusted (B) .................. $ 7,198 $ 9,109 $ 14,070 $ 13,012 $ 14,159 $ 3,505 $4,027
======== ======== ======== ======== ======== ======= ======
Ratio of earnings to fixed
charges (A) divided by (B) ....... 3.98 4.37 1.62 2.19 2.56 2.64 *
========= ========= ========= ========= ========= ======== ======
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Earnings:
Earnings before income taxes ..... $ 26,586 $ 34,184 $ 25,604
Fixed charges .................... 33,209 29,020 30,110
-------- -------- --------
Earnings as adjusted (A) ........ $ 59,795 $ 63,204 $ 55,714
======== ======== ========
Fixed Charges:
Interest expense ................. $ 31,957 $ 27,625 $ 28,732
Interest component of rent
expense (Note 1) ................ 1,252 1,395 1,378
-------- -------- --------
Fixed charges as
adjusted (B) ................... $ 33,209 $ 29,020 $ 30,110
======== ======== ========
Ratio of earnings to fixed
charges (A) divided by (B) ....... 1.80 2.18 1.85
========= ========= =========
<CAPTION>
6 Months 6 Months
Ended Ended
December 31, December 31,
1996 1997 1996 1997
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
Earnings:
Earnings before income taxes ..... $ 1,180 $ (24,290) ($ 2,162) $ (10,038)
Fixed charges .................... 20,187 18,827 9,824 9,363
-------- --------- ------- ---------
Earnings as adjusted (A) ........ $ 21,367 $ (5,463) $ 7,662 $ (675)
======== ========= ======= =========
Fixed Charges:
Interest expense ................. $ 18,737 $ 17,413 $ 9,122 $ 8,693
Interest component of rent
expense (Note 1) ................ 1,450 1,414 702 670
-------- --------- ------- ---------
Fixed charges as
adjusted (B) ................... $ 20,187 $ 18,827 $ 9,824 $ 9,363
======== ========= ======= =========
Ratio of earnings to fixed
charges (A) divided by (B) ....... 1.06 * * *
========= ========= ======= =========
</TABLE>
- ----------
Note 1: Approximately one-third of rent expense which management believes is
representative of the interest component.
* Computation of ratio is less than one indicating that earnings are
insufficient to cover fixed charges.
<PAGE>
GALEY LORD, INC.
CALCULATION OF EARNINGS TO FIXED CHARGES RATIO
(Dollars in Thousands)
<TABLE>
<CAPTION>
Galey & Acquired Galey & Acquired
Lord Business Pro Forma Lord Business Pro Forma
------------ ------------- ----------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Earnings before income taxes ............ $ 22,027 $ (24,290) $ (9,086) $ (636) $ (14,635) $ (4,799)
Fixed charges ........................... 14,159 18,827 61,743 4,027 4,621 16,380
-------- --------- -------- ------ --------- --------
Earnings as adjusted (A) .............. $ 36,186 $ (5,463) $ 52,657 $3,391 $ (10,014) $ 11,581
======== ========= ======== ====== ========= ========
Fixed Charges:
Interest expense ........................ $ 12,326 $ 17,413 $ 58,815 $3,500 $ 4,269 $ 15,591
Interest component of rent expense
(Note 1) .............................. 1,833 1,414 2,928 527 352 789
-------- --------- -------- ------ --------- --------
Fixed charges as adjusted (B) ......... $ 14,159 $ 18,827 $ 61,743 $4,027 $ 4,621 $ 16,380
======== ========= ======== ====== ========= ========
Ratio of earnings to fixed charges (A)
divided by (B) .......................... 2.56 * * 0.84 * *
========= ========= ======== ======= ========= ========
</TABLE>
- ----------
Note 1: Approximately one-third of rent expense which management believes is
representative of the interest component.
* Computation of ratio is less than one indicating that earnings are
insufficient to cover fixed charges.
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 30, 1997, except for Notes B and E as to
which the date is November 19, 1997 and for the last paragraph of Note J as to
which the date is December 16, 1997, in the Registration Statement (Form S-4)
and related Prospectus of Galey & Lord, Inc. for the registration of
$300,000,000 of Senior Subordinated Notes due 2008 and to the incorporation by
reference therein of our report dated October 30, 1997, with respect to the
consolidated financial schedules of Galey & Lord, Inc. included in its Annual
Report (Form 10-K) for the year ended September 27, 1997.
ERNST & YOUNG LLP
Greensboro, North Carolina
April 2, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement of Galey & Lord, Inc.
on Form S-4 of our report dated January 29, 1998, with respect to the combined
financial statements of the Apparel Fabrics Business of Dominion Textile Inc.
for the year ended June 30, 1997 ("our Report"), appearing in the Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the headings "Experts" in
such Prospectus.
DELOITTE & TOUCHE
Chartered Accountants
Montreal, Quebec
April 2, 1998
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated 21 May 1997, with respect to the financial
statements of Swift Textiles Europe Limited (not included separately herein)
for the year ended 31 March 1997 in the Registration Statement (Form S-4) and
related Prospectus of Galey & Lord, Inc. for the registration of $300,000,000
of Senior Subordinated Notes due 2008.
KPMG
Dublin, Ireland
2 April, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------
FORM T-1
-------------------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
-------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2) _____
-------------------
SUNTRUST BANK, ATLANTA
(Exact name of trustee as specified in its charter)
25 Park Place, N.E.
Suite 1100
Atlanta, Georgia 30303
58-0466330
(Address of principal executive offices) (Zip Code) (I.R.S. employer
identification no.)
-------------------
David M. Kaye
Suntrust Bank, Atlanta
58 Edgewood Avenue, N.E.
Atlanta, Georgia 30303
(404) 588-8060
(Name, address and telephone number of agent for service)
-------------------
GALEY & LORD, INC.
GALEY & LORD INDUSTRIES, INC.
G&L SERVICE COMPANY, NORTH AMERICA, INC.
SWIFT TEXTILES, INC.
SWIFT DENIM SERVICES, INC.
(Exact name of co-obligor as specified in its charter)
Delaware 56-1593207
Delaware 56-1593208
Delaware 56-1976012
Delaware 58-1189307
Delaware 13-3898788
(State or other (IRS employer jurisdiction of incorporation identification no.)
or organization)
980 Avenue of the Americas New York, New York 10018
(Address of principal executive offices) (Zip Code)
-------------------
9 1/8% Senior Subordinated Notes Due 2008
(Title of the indenture securities)
<PAGE>
(1) The following subsidiaries of the Registrant: Galey & Lord Industries, Inc.,
G&L Service Company, North America, Inc., Swift Textiles, Inc. and Swift Denim
Services, Inc., have each guaranteed the Notes being registered pursuant hereto
on an unsecured senior subordinated basis.
::ODMA\PCDOCS\ATL\197740\1 Registration No. 33-57453
1. General information.
Furnish the following information as to the trustee--
Name and address of each examining or supervising authority to
which it is subject.
Department of Banking and Finance,
State of Georgia
Atlanta, Georgia
Federal Reserve Bank of Atlanta
104 Marietta Street, N.W.
Atlanta, Georgia
Federal Deposit Insurance Corporation
Washington, D.C.
Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
List below all exhibits filed as a part of this statement of
eligibility; exhibits identified in parentheses are filed with the Commission
and are incorporated herein by reference as exhibits hereto pursuant to Rule
7a-29 under the Trust Indenture Act of 1939, as amended, and Rule 24 of the
Commission's Rules of Practice.
(1) A copy of the Articles of Amendment and Restated Articles of
Association of the trustee as now in effect. (Exhibit 1 to Form T-1,
Registration No. 333-25463.)
(2) A copy of the certificate of authority of the trustee to commence
business. (included in Exhibit 1.)
(3) A copy of the authorization of the trustee to exercise corporate
trust powers. (included in Exhibit 1.)
<PAGE>
(4) A copy of the existing by-laws of the trustee. (included in Exhibit
4 to Form T-1, Registration No. 333-25463.)
(6) The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939.
(7) A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority as
of the close of business on December 31, 1997.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, Suntrust Bank, Atlanta, a banking corporation organized and existing
under the laws of the State of Georgia, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Atlanta and the State of Georgia,
on the 25th day of March, 1998.
SUNTRUST BANK, ATLANTA
By: /s/ David M. Kaye
-------------------------
David M. Kaye
Group Vice President
EXHIBIT 1 TO FORM T-1
ARTICLES OF ASSOCIATION
OF
SUNTRUST BANK, ATLANTA
EXHIBIT 2 TO FORM T-1
CERTIFICATE OF AUTHORITY
OF
SUNTRUST BANK, ATLANTA
TO COMMENCE BUSINESS
EXHIBIT 3 TO FORM T-1
<PAGE>
AUTHORIZATION
OF
SUNTRUST BANK, ATLANTA
TO EXERCISE CORPORATE TRUST POWERS
EXHIBIT 4 TO FORM T-1
BY-LAWS
OF
SUNTRUST BANK, ATLANTA
EXHIBIT 6 TO FORM T-1
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939 in connection with the proposed issuance of Senior Subordinated
Notes of Galey & Lord, Inc., Suntrust Bank, Atlanta hereby consents that reports
of examinations by Federal, State, Territorial or District Authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
SUNTRUST BANK, ATLANTA
By:/s/ David M. Kaye
------------------------
David M. Kaye
Group Vice President
EXHIBIT 7 TO FORM T-1
REPORT OF CONDITION??
-4-
LETTER OF TRANSMITTAL EXHIBTI 99.1
OFFER TO EXCHANGE
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
FOR ANY AND ALL OUTSTANDING
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
OF
GALEY & LORD, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON [ ], 1998, UNLESS EXTENDED BY
GALEY & LORD, INC. (THE "EXPIRATION DATE").
-------------------------
THE EXCHANGE AGENT
FOR THE EXCHANGE OFFER IS:
SUNTRUST BANK, ATLANTA
BY HAND OR OVERNIGHT COURIER:
SUNTRUST BANK, ATLANTA
C/O FIRST CHICAGO TRUST COMPANY
14 WALL STREET - 8TH FLOOR
NEW YORK, NEW YORK 10005
ATTENTION: DAVID M. KAYE, CORPORATE TRUST DIVISION
BY MAIL:
SUNTRUST BANK, ATLANTA
58 EDGEWOOD AVENUE - 4TH FLOOR ANNEX
ATLANTA, GEORGIA 30303
ATTENTION: DAVID M. KAYE, CORPORATE TRUST DIVISION
OR
BY FACSIMILE:
SUNTRUST BANK, ATLANTA
ATTENTION: DAVID M. KAYE, CORPORATE TRUST DIVISION
FACSIMILE NUMBER: (404) 332-3966
----------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
<PAGE>
This Letter of Transmittal is to be used either if certificates of
Initial Notes are to be forwarded herewith to the Exchange Agent or if delivery
of Initial Notes is to be made by book-entry transfer to an account maintained
by the Exchange Agent at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in the section of the Prospectus entitled "The Exchange
Offer - Book-Entry Transfer." Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person
in whose name Initial Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered Holder or any person whose Initial Notes are held of record by DTC.
Holders whose Initial Notes are not immediately available or who cannot
deliver their Initial Notes and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date may tender their Initial Notes
according to the guaranteed delivery procedure set forth in the Prospectus under
the caption "The Exchange Offer - Guaranteed Delivery Procedure."
The undersigned must check the appropriate boxes at page 7 below and
sign this Letter of Transmittal to indicate the action the undersigned desires
to take with respect to the Exchange Offer.
-2-
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus dated [ ], 1998
(the "Prospectus") of Galey & Lord, Inc. (the "Company"), and this Letter of
Transmittal (the "Letter of Transmittal"), which together describe the Company's
offer (the "Exchange Offer") to exchange $1,000 in principal amount of 9 1/8%
Senior Subordinated Notes Due 2008 (the "Exchange Notes"), for each $1,000 in
principal amount of outstanding 9 1/8% Senior Subordinated Notes Due 2008 (the
"Initial Notes"). The terms of the Exchange Notes are substantially identical in
all respects (including principal amount, interest rate and maturity) to the
terms of the Initial Notes for which they may be exchanged pursuant to the
Exchange Offer, except that the Exchange Notes are freely transferable by
Holders thereof (except as provided herein or in the Prospectus) and are issued
without any right to registration under the Securities Act of 1933, as amended
(the "Securities Act"). Capitalized terms used herein but not defined herein
have the meanings ascribed to them in the Prospectus.
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Initial
Notes indicated in Box 1, below. The undersigned is the registered owner of all
the Initial Notes, and the undersigned represents that it has received from each
beneficial owner of tendered Initial Notes ("Beneficial Owner(s)") a duly
completed and executed form of "Instructions to Registered Holder from
Beneficial Owner" accompanying this Letter of Transmittal, instructing the
undersigned to take the action described in this Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the
Initial Notes tendered herewith, the undersigned hereby irrevocably exchanges,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to such Initial Notes. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that said Exchange
Agent acts as the agent of the Company in connection with the Exchange Offer) to
cause the Initial Notes to be assigned, transferred and exchanged. The
undersigned agrees that acceptance of any and all validly tendered Initial Notes
by the Company and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement and that the Company and the Note Guarantors shall
have no further obligations or liabilities thereunder.
The undersigned hereby represents and warrants that the undersigned
accepts the terms and conditions of the Exchange Offer and has full power and
authority to tender, exchange, assign and transfer the Initial Notes tendered
hereby and to acquire Exchange Notes issuable upon the exchange of such tendered
Initial Notes, and that, when such tendered Initial Notes are accepted for
exchange, the Company will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim. The undersigned and each Beneficial Owner will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or the
Company to be necessary or desirable to complete and give effect to the
transactions contemplated hereof.
The undersigned represents that it and each Beneficial Owner
acknowledge that the Exchange Offer is being made in reliance on an
interpretation by the staff of the Securities and Exchange Commission (the
"SEC"), not issued in connection with the Company or the Exchange Offer, to the
effect that the Exchange Notes issued pursuant to the Exchange Offer in exchange
for the Initial Notes may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act of 1993, as amended (the "Securities Act"), provided that
such Exchange Notes are acquired in the ordinary course of such Holders'
business and such Holders have no arrangement or understanding with any person
to participate in the distribution of such Exchange Notes, and as to
broker-dealer prospectus delivery requirements, subject to the provisions of the
paragraph below. See "Shearman & Sterling," SEC No-Action Letter (available July
2, 1993). Any Holder who tenders in the Exchange Offer for the purpose of
participating in a distribution of the
-3-
<PAGE>
Exchange Notes cannot rely on such interpretation by the staff of the SEC and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. See "Morgan
Stanley & Co., Inc." SEC No-Action Letter (available June 5, 1991), and "Exxon
Capital Holdings Corporation," SEC No-Action Letter (available May 13, 1988).
The undersigned hereby represents and warrants that (i) the Exchange
Notes or interests therein received by the undersigned and any Beneficial
Owner(s) pursuant to the Exchange Offer are being acquired by the undersigned
and any Beneficial Owner(s) in the ordinary course of business of the
undersigned and any Beneficial Owner(s) receiving such Exchange Notes, (ii)
neither the undersigned nor any Beneficial Owner(s) is participating, intends to
participate or has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, (iii) the undersigned
and any Beneficial Owner(s) acknowledge that any person who is a broker-dealer
under the Exchange Act or is participating in the Exchange Offer for the purpose
of distributing the Exchange Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale of the Exchange Notes and any interest therein acquired by such
person and cannot rely on the position of the Staff of the SEC set forth in the
no-action letters that are discussed above, (iv) the undersigned and each
Beneficial Owner understand that a secondary resale transaction described in the
preceding clause (iii) and any resale of the Exchange Notes and any interest
therein obtained by the undersigned and in exchange for the Initial Notes
originally acquired by the undersigned directly from the Company should be
covered by an effective registration statement containing the selling security
holder information required by Item 507 and 508, as applicable, of Regulation
S-K of the SEC and (v) neither the undersigned nor any Beneficial Owner(s) is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company, or
if either the undersigned or any Beneficial Owner(s) is an affiliate, that the
undersigned and any such Beneficial Owner(s) will comply with the prospectus
delivery requirements of the Securities Act in connection with the disposition
of any Exchange Notes to the extent applicable. If the undersigned or any
Beneficial Owner(s) is a broker-dealer, the undersigned further represents that
(x) it and any such Beneficial Owner(s) acquired Initial Notes for the
undersigned's and any such Beneficial Owner's own account as a result of
market-making activities or other trading activities, (y) neither the
undersigned nor any Beneficial Owner(s) has entered into any arrangement or
understanding with the Company or any "affiliate" of the Company (within the
meaning of Rule 405 under the Securities Act) to distribute the Exchange Notes
to be received in the Exchange Offer and (z) the undersigned and any Beneficial
Owner(s) acknowledge that the undersigned and any Beneficial Owner(s) will
deliver a copy of a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes. 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. The Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with the resales of Exchange Notes received in exchange for
Initial Notes where Initial Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities. The Company
intends to make the Prospectus (as it may be amended or supplemented) available
to any broker-dealer for use in connection with any such resale for a period of
180 days after the expiration date of the Exchange Offer.
The Exchange Offer is not being made to, nor will tenders be accepted
from or on behalf of, Holders of the Initial 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. For purposes of
compliance with state blue sky laws, the undersigned represents and warrants to
the Company that the state in which each Beneficial Owner's principal business
office is located or the state of each Beneficial Owner's principal residence is
one of the states which is listed on Schedule A attached hereto. The undersigned
hereby represents and warrants that the information set forth in Box 2 is true
and correct.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange - Certain Conditions to the Exchange
Offer." The undersigned recognizes that as a result of these conditions (which
may be waived, in whole or in part, by the Company), as more particularly set
forth in the Prospectus, the Company may not be required to exchange any of the
Initial Notes rendered hereby, and in such event, the Initial Notes not
exchanged will be returned to the undersigned at the address indicated below.
The undersigned acknowledges that prior to the Exchange Offer, there has been no
public market for the Initial Notes or
-4-
<PAGE>
the Exchange Notes. The Company does not intend to list the Exchange Notes on a
national securities exchange. There can be no assurance that an active market
for the Exchange Notes will develop. The undersigned understands and
acknowledges that the Company reserves the right in its sole discretion to
purchase or make offers for any Initial Notes that remain outstanding subsequent
to the Expiration Date and, to the extent permitted by applicable law, purchase
Initial Notes in the open market, in privately negotiated transactions or
otherwise.
The undersigned understands that tenders of the Initial Notes pursuant
to any one of the procedures described in the Prospectus under the caption "The
Exchange Offer" and in the instructions hereto will constitute a binding
agreement between the undersigned and the Company in accordance with the terms
and subject to the conditions of the Exchange Offer.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Letters of Transmittal or Initial Notes tendered for
exchange, and of withdrawal of the tendered Initial Notes, will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Initial Notes not properly tendered or if, in the sole
judgment of the Company, (i) the Exchange Offer would violate any law, statute,
rule or regulation or an interpretation thereof of the SEC staff or (ii) any
governmental approval has not been obtained, which approval the Company deems
necessary for the consummation of the Exchange Offer. The Company also reserves
the absolute right to waive any defects of irregularities as to any particular
Initial Notes or conditions of the Exchange Offer either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Initial Notes in the Exchange Offer). The interpretation of
the terms and conditions of the Exchange Offer by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Initial Notes to exchange must be cured within such
reasonable period of time as the Company shall determine. None of the Company,
the Note Guarantors, the Exchange Agent nor any other person shall be under any
duty to give notification of any defect or irregularity with respect to any
tender of Initial Notes for exchange, nor shall any of them incur any liability
for failure to give such notification. Tenders of Initial Notes will not be
deemed to have been made until such irregularities have been cured or waived.
Any Initial Notes received by the Exchange Agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived will
be returned without cost to such Holder by the Exchange Agent to the tendering
Holders of Initial Notes, as soon as practicable following the Expiration Date.
All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive, the death or incapacity of the undersigned and
any Beneficial Owner(s), and every obligation of the undersigned or any
Beneficial Owner(s) shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned and any Beneficial Owner(s). The
undersigned also agrees that except as provided in the Prospectus and set forth
in Instruction 3 below, the Initial Notes tendered hereby cannot be withdrawn.
Certificates for all Exchange Notes delivered in exchange for tendered
Initial Notes and any Initial Notes delivered herewith but not exchanged, and
registered in the name of the undersigned, shall be delivered to the undersigned
at the address shown below the signature of the undersigned, unless otherwise
indicated on page 7.
-5-
<PAGE>
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF INITIAL
NOTES TENDERED HEREWITH" BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE
TENDERED THE INITIAL NOTES AND MADE THE REPRESENTATIONS DESCRIBED HEREIN AND IN
THE PROSPECTUS.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
- ------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Signature(s) of Holder(s)
Date: , 1998
------------------
(Must be signed by registered Holder(s) exactly as name(s) appear(s) on
certificate(s) of Initial Notes. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, please set forth the
full title of such person.) See Instruction 4.
Name(s):
--------------------------------------------------------------------
- ----------------------------------------------------------------------------
(Please Print)
Capacity (full title):
---------------------------------------------------
Address:
------------------------------------------------------------------
- --------------------------------------------------------------------------
(Including Zip Code)
Area Code and Telephone No.:
----------------------------------------
Taxpayer Identification No.:
-----------------------------------------
GUARANTEE OF SIGNATURE(S)
(If Required - See Instruction 4)
Authorized Signature:
-------------------------------------------------------
Name:
------------------------------------------------------------------------
Title:
-----------------------------------------------------------------------
Address:
----------------------------------------------------------------------
----------------------------------------------------------------------
Name of Firm:
-----------------------------------------------------------------
Area Code and Telephone No.:
-------------------------------------------------
Date: , 1998
----------
-6-
<PAGE>
[ ] CHECK HERE IF YOU ARE TENDERING INITIAL NOTES IN CERTIFICATED FORM AND
WISH TO RECEIVE AN INTEREST IN THE GLOBAL EXCHANGE NOTE AND COMPLETE THE
FOLLOWING:
Account Number:
-----------------------------------------------------
Transaction Code Number:
---------------------------------------------
[ ] CHECK HERE IF YOU ARE TENDERING INITIAL NOTES IN CERTIFICATED FORM AND
WISH TO RECEIVE EXCHANGE NOTES IN CERTIFICATED FORM.
[ ] CHECK HERE IF TENDERED INITIAL NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: [ ] The Depository Trust Company
----------
Account Number:
------------------------------------------------------
Transaction Code Number:
----------------------------------------------
[ ] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s):
----------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
-----------------
If Delivered by Book-Entry Transfer:
-----------------------------------
Account Number:
---------------------------------------------------
[ ] CHECK HERE ONLY IF EXCHANGE NOTES OR UNEXCHANGED INITIAL NOTES DELIVERED
HEREWITH ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE
UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Notes to:
Name:
-----------------------------------------------------------------
(Please Print)
Address:
-------------------------------------------------------------
-------------------------------------------------------------
Tax Identification Number:
-----------------------------------------
Social Security No.:
------------------------------------------------
-7-
<PAGE>
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
------------------------------------------------------------------
Address:
---------------------------------------------------------------
-8-
<PAGE>
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS
CAREFULLY BEFORE CHECKING ANY BOX BELOW
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
A Holder that is a participant in The Depository Trust Company's system
may utilize The Depository Trust Company's Automated Tender Offer Program to
tender Initial Notes.
List in Box 1 the Initial Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, information should be listed
on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF INITIAL NOTES TENDERED HEREWITH
- ---------------------------------------- ------------------------ ------------------------ -------------------------
NAME(S) AND ADDRESS(ES) AGGREGATE PRINCIPAL
OF REGISTERED HOLDER(S) CERTIFICATE AMOUNT REPRESENTED PRINCIPAL AMOUNT
(PLEASE FILL IN) NUMBER(S)* BY INITIAL NOTES* TENDERED**
- ---------------------------------------- ------------------------ ------------------------ -------------------------
- ---------------------------------------- ------------------------ ------------------------ -------------------------
- ---------------------------------------- ------------------------ ------------------------ -------------------------
- ---------------------------------------- ------------------------ ------------------------ -------------------------
- ---------------------------------------- ------------------------ ------------------------ -------------------------
- ---------------------------------------- ------------------------ ------------------------ -------------------------
Total
- --------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry Holders
** Unless otherwise indicated, the Holder will be deemed to have tendered the full aggregate principal amount
represented by such Initial Notes. See Instruction 3.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
BOX 2
BENEFICIAL OWNERS(S)
- ------------------------------------------------------------ -----------------------------------------------------
<S> <C>
STATE OF PRINCIPAL RESIDENCE OR PRINCIPAL PLACE OF BUSINESS PRINCIPAL AMOUNT OF TENDERED INITIAL NOTES HELD
OF EACH BENEFICIAL OWNER OF TENDERED INITIAL NOTES FOR ACCOUNT OF BENEFICIAL OWNER
- ------------------------------------------------------------ -----------------------------------------------------
- ------------------------------------------------------------ -----------------------------------------------------
- ------------------------------------------------------------ -----------------------------------------------------
- ------------------------------------------------------------ -----------------------------------------------------
- ------------------------------------------------------------ -----------------------------------------------------
- ------------------------------------------------------------ -----------------------------------------------------
- ------------------------------------------------------------ -----------------------------------------------------
</TABLE>
-9-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES.
Certificates for all physically delivered Initial Notes or confirmation
of any book-entry transfer to the Exchange Agent's account at the Book-Entry
Transfer Facility of Initial Notes tendered by book-entry transfer, as well as a
properly completed and duly executed copy of this Letter of Transmittal or
facsimile thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at any of its addresses set
forth on the front page of this Letter of Transmittal prior to 5:00 p.m., New
York City time, on the Expiration Date (as defined in the Prospectus).
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE INITIAL NOTES
AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND
EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS
SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED BE USED, PROPER
INSURANCE BE OBTAINED AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE
EXPIRATION DATE.
Holders who wish to tender their Initial Notes but whose Initial Notes
are not immediately available or who cannot deliver their Initial Notes and all
other required documents to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date or comply with book-entry transfer procedures on a
timely basis may tender their Initial Notes pursuant to the guaranteed delivery
procedure set forth in the Prospectus under "The Exchange Offer-Guaranteed
Delivery Procedure." Such Holders' tender may be effected if:
(a) such tender is made by or through an Eligible Institution
(as defined below);
(b) on or prior to the Expiration Date, the Exchange Agent has
received from such Eligible Institution (a) either a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) or a
properly transmitted Agent's Message and (b) a Notice of Guaranteed
Delivery, substantially in the form provided by the Company, by hand or
mail, or facsimile transmission (receipt confirmed by telephone and an
original delivered by guaranteed overnight courier) setting forth the
name and address of such Holder of Initial Notes and the amount of
Initial Notes tendered, stating that the tender is being made thereby
and guaranteeing that within three business days (as defined in the
Prospectus) after the Expiration Date, that the Initial Notes in proper
form for transfer or a Book-Entry Confirmation and all other documents
required by this Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) a Book-Entry Confirmation or the certificates relating to
the Initial Notes in registered form and all other documents required
by this Letter of Transmittal, are received by the Exchange Agent
within three business days (as defined in the Prospectus) after the
Expiration Date.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Initial Notes for exchange.
2. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a Holder in whose
name tendered Initial Notes are registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered Holder) may execute
and deliver this Letter of Transmittal. Any Beneficial Owner of tendered Initial
Notes who is not the registered Holder must arrange promptly with the registered
Holder to execute and deliver this Letter of Transmittal on his or her behalf
through the execution and delivery to the registered Holder of the "Instructions
to Registered Holder from Beneficial Owner" form accompanying this Letter of
Transmittal.
-10-
<PAGE>
3. PARTIAL TENDER; WITHDRAWALS.
If less than the entire principal amount of Initial Notes evidenced by
a submitted certificate is tendered, the tendering Holder should fill in the
principal amount tendered in the box entitled "Principal Amount Tendered." A
newly issued certificate for the principal amount of Initial Notes submitted but
not tendered will be sent to such Holder as soon as practicable after the
Expiration Date. All Initial Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
Initial Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal sent by telegram, facsimile transmission (receipt
confirmed by telephone and an original delivered by guaranteed overnight
courier) or letter must be received by the Exchange Agent at the address set
forth herein prior to the Expiration Date. Any such notice of withdrawal must
(i) specify the name of the person having tendered the Initial Notes to be
withdrawn (the "Depositor"), (ii) identify the Initial Notes to be withdrawn
(including the certificate number or numbers of such Initial Notes and the
principal amount of each such Initial Note), (iii) specify the principal amount
of Initial Notes to be withdrawn, (iv) include a statement that such Holder is
withdrawing his election to have such Initial Notes exchanged, (v) be signed by
the Holder in the same manner as the original signature on the Letter of
Transmittal by which such Initial Notes were tendered or as otherwise described
in the Prospectus (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee under the
Indenture register the transfer of such Initial Notes into the name of the
person withdrawing the tender and (vi) specify the name in which any such
Initial Notes are to be registered, if different from that of the Depositor. The
Exchange Agent will return the properly withdrawn Initial Notes promptly
following receipt of notice of withdrawal. If Initial Notes have been tendered
pursuant to the procedure for book-entry transfer, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Initial Notes or otherwise comply with the
Book-Entry Transfer Facility procedure. All questions as to the validity, form
and eligibility of such notices of withdrawals, including time of receipt, will
be determined by the Company and such determination will be final and binding on
all parties.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered Holder(s) of
the Initial Notes tendered Hereby, the signature must correspond with the
name(s) as written on the face of the certificates without alteration or any
change whatsoever.
If any of the Initial Notes tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If any of the Initial Notes tendered hereby are registered in several
names, it will be necessary to complete, sign and submit as many separate copies
of this Letter of Transmittal as there are different registrations of Initial
Notes.
When this Letter of Transmittal is signed by the registered Holder or
Holders (which term, for the purposes described herein, shall include the
Book-Entry Transfer Facility whose name appears on a security listing as the
owner of the Initial Notes) of Initial Notes listed and tendered hereby, no
endorsements of certificates or separate written instruments of transfer or
exchange are required.
If this Letter of Transmittal is signed by a person other than the
registered Holder or Holders of the Initial Notes listed, such Initial Notes
must be endorsed or accompanied by separate written instruments of transfer or
exchange in form satisfactory to the Company and duly executed by the registered
Holder, in either case signed exactly as the name or names of the registered
Holder or Holders appear(s) on the Initial Notes.
-11-
<PAGE>
If this Letter of Transmittal or any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporation or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Endorsements on certificates or signatures on separate written
instruments of transfer or exchange required by this Instruction 4 must be
guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal or notice of withdrawal need
not be guaranteed by an Eligible Institution, provided the Initial Notes are
tendered: (i) by a registered Holder of such Initial Notes or (ii) for the
account of an Eligible Institution.
For purposes of this Letter of Transmittal, an "Eligible Institution"
shall mean any bank, broker, dealer, credit union, savings association, clearing
agency or other institution that is a member of a recognized signature guarantee
medallion program within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended.
5. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Initial Notes pursuant to the Exchange Offer. If, however,
certificates representing Exchange Notes or Initial Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
issued in the name of, any person other than the registered Holder of the
Initial Notes tendered, or if tendered Initial Notes are registered in the name
of any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Initial Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other persons) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Initial Notes listed in this Letter of
Transmittal.
6. MUTILATED, LOST, STOLEN OR DESTROYED INITIAL NOTES.
Any Holder whose Initial Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
7. ACCEPTANCE OF TENDERED INITIAL NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN
OF INITIAL NOTES.
Subject to the terms and conditions of the Exchange Offer, the Company
will accept for exchange all validly tendered Initial Notes promptly after the
Expiration Date and will issue Exchange Notes therefor promptly after acceptance
of the Initial Notes. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted tendered Initial Notes when, as and if the Company has
given written or oral notice thereof to the Exchange Agent. If any tendered
Initial Notes are not exchanged pursuant to the Exchange Offer for any reason,
such unexchanged Initial Notes will be returned, without expense, to the
undersigned at the address indicated above.
-12-
<PAGE>
8. SUBSTITUTE FORM W-9.
Each Holder of Initial Notes whose Initial Notes are accepted for
exchange (or any other such payee) is required to provide the Exchange Agent
with a correct taxpayer identification number ("TIN"), generally the Holder's
Social Security or federal employer identification number, and certain other
information, on a Substitute Form W-9, a form of which accompanies this Letter
of Transmittal, and to certify that the Holder (or other payee) is not subject
to backup withholding. Failure to provide the information on the Substitute Form
W-9 may subject the Holder (or other payee) to a penalty imposed by the Internal
Revenue Service and 31% federal income tax backup withholding on payments made
in connection with the Exchange Notes. The box in Part 3 of the Substitute Form
W-9 may be checked if the surrendering Holder of Initial Notes (or other payee)
has not been issued a TIN and has applied for a TIN or intends to apply for a
TIN in the near future. If the box in part 3 is checked, the Holder of Initial
Notes (or other payee) must also complete the Certificate of Awaiting Taxpayer
Identification Number accompanying this Letter of Transmittal in order to avoid
backup withholding. Notwithstanding that the box in part 3 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the
Exchange Agent will withhold 31% of all payments made prior to the time a
properly certified TIN is provided to the Exchange Agent.
The Holder of Initial Notes is required to give the Exchange Agent the
TIN (e.g., social security number or employer identification number) of the
record owner of the Initial Notes. If the Initial Notes are in more than one
name or are not in the name of the beneficial owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain Holders of Initial Notes (or other payees) (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. However, exempt Holders of
Initial Notes (or other payees) should indicate their exempt status on
Substitute Form W-9. For example, a corporation must complete the Substitute
Form W-9, providing its TIN and indicating that it is exempt from backup
withholding. In order for a foreign individual to qualify as an exempt
recipient, the Holder (or other payee) must submit a Form W-8, signed under
penalties of perjury, attesting to that individual's exempt status. A Form W-8
can be obtained from the Exchange Agent. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for more
instructions.
-13-
<PAGE>
Schedule A
California
Colorado
Connecticut
Florida
Georgia
Illinois
Kansas
Massachusetts
Minnesota
New Hampshire
New Jersey
New York
Ohio
Pennsylvania
South Carolina
Texas
Wisconsin
<PAGE>
INSTRUCTIONS TO REGISTERED HOLDER
FROM BENEFICIAL OWNER
OF
GALEY & LORD, INC.
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
The undersigned hereby acknowledges receipt of the Prospectus dated [
], 1998 (the "Prospectus") of Galey & Lord, Inc. (the "Company"), and the
accompanying Letter of Transmittal (the "Letter of Transmittal"), that together
constitute the Company's offer (the "Exchange Offer") to exchange $1,000 in
principal amount of its 9 1/8% Senior Subordinated Notes Due 2008 (the "Exchange
Notes") for each $1,000 in principal amount of its outstanding 9 1/8% Senior
Subordinated Notes Due 2008 (the "Initial Notes"). Capitalized terms used herein
but not defined herein have the meaning ascribed to them in the Prospectus.
This will instruct you, the registered Holder, as to the action to be
taken by you relating to the Exchange Offer with respect to the Initial Notes
held by you for the account of the undersigned.
The aggregate face amount of the Initial Notes held by you for the
account of the undersigned is (FILL IN AMOUNT):
$ of the 9 1/8% Senior Subordinated
------------------------
Notes Due 2008.
With respect to the Exchange Offer, the undersigned hereby instructs
you (CHECK APPROPRIATE BOX):
[ ] To TENDER the following Initial Notes held by you for the
account of the undersigned (INSERT PRINCIPAL AMOUNT OF INITIAL
NOTES TO BE TENDERED,* IF ANY):
$ of the 9 1/8% Senior Subordinated
------------------------
Notes Due 2008.
* The minimum permitted tender is $1,000 in principal amount
of Initial Notes. All other tenders must be in integral
multiples of $1,000 of principal amount.
[ ] NOT to TENDER any Initial Notes held by you for the account
of the undersigned.
If the undersigned instructs you to tender the Initial Notes held by
you for the account of the undersigned, it is understood that you are authorized
(a) to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
Beneficial Owner (as defined in the Letter of Transmittal), including, but not
limited to, representations to the effect that (i) the undersigned's principal
residence or principal business office is in the state of (FILL IN STATE)
which is listed on Schedule A attached to the
Letter of Transmittal, (ii) the undersigned is acquiring the Exchange Notes
or interests therein in the ordinary course of business of the undersigned,
(iii) the undersigned is not participating, does not intend to participate, and
has no arrangement or understanding with any person to participate, in the
distribution of the Exchange Notes, (iv) the undersigned acknowledges that any
person who is a broker-dealer registered under the Securities Exchange Act of
1934, as amended, or is participating in the Exchange Offer for the purpose of
distributing the Exchange Notes must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale of the Exchange Notes or any interest therein acquired by such person and
cannot rely on the position of the Staff of the Securities and Exchange
Commission ("SEC") set forth in the no-action letters that are discussed in the
section of the Prospectus entitled "The Exchange Offer" and the Letter of
Transmittal; (v) the undersigned understands that a secondary resale transaction
described in clause (iv) above and any resale of the Exchange Notes and any
interest therein obtained by the undersigned in exchange for the Initial Notes
originally acquired by the undersigned directly from the Company should be
covered by an effective registration statement containing the selling security
holder information required by Items 507 and 508, as applicable, of Regulation
S-K of the SEC, and (vi) except as otherwise disclosed in writing herewith, the
undersigned is not an "affiliate," as defined in Rule 405 under the Securities
Act of 1933, as amended, (the "Securities Act") of the Company; (b) to agree, on
behalf of the undersigned, as set forth in the Letter of Transmittal and (c) to
take such other action as may be necessary under the Prospectus or the Letter of
Transmittal to effect the valid tender of such Initial Notes. If the undersigned
is a broker-dealer, the undersigned further (x) represents that it acquired
Initial Notes for the undersigned's own account as a result of market-making
activities or other trading activities, (y) represents that it has not entered
into any arrangement or understanding with the Company or any "affiliate" of the
Company (within the meaning of Rule 405 under the Securities Act) to distribute
the Exchange Notes to be received in the Exchange Offer and (z) acknowledges
that it will deliver a copy of a Prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange Notes.
SIGN HERE
<PAGE>
Name of Beneficial Owner(s):
--------------------------------------------------
Signature(s):
-------------------------------------------------------------
Name(s) (PLEASE PRINT):
---------------------------------------------------
Address:
--------------------------------------------------------------------
--------------------------------------------------------------------
Telephone Number:
-----------------------------------------------------------
Taxpayer Identification or Social Security Number:
--------------------------
Date:
-----------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
PAYOR'S NAME: SunTrust Bank, Atlanta, as Exchange Agent
====================================================================================================================
SUBSTITUTE FORM W-9 Part 1 Social Security number(s) Employer
PLEASE PROVIDE YOUR TIN IN THE BOX Identification Number
Department of the Treasury Internal AT RIGHT AND CERTIFY BY SIGNING AND
Revenue Service DATING BELOW ____________________________
---------------------------------------------------------------------------
Payor's Request for Taxpayer Part 2
Identification Number ("TIN") CERTIFICATION: Under penalties of perjury, I certify that:
(1) The number shown on this form
is my correct taxpayer
identification number (or I am
waiting for a number to be
issued for me), and
(2) I am not subject to backup
withholding because: (a) I am
exempt from backup
withholding, or (b) I have not
been notified by the Internal
Revenue Service (IRS) that I
am subject to backup
withholding as a result of a
failure to report all interest
or dividends, or (c) the IRS
has notified me that I am no
longer subject to backup
withholding.
CERTIFICATION INSTRUCTIONS: You must cross out item (2) above if you
have been notified by the IRS that you are currently subject to backup
withholding because of underreporting interest or dividends on your tax
return.
---------------------------------------------------------------------------
Signature Part 3
Date_______________ Awaiting TIN 9
==============================================================================================================
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31%
OF ANY CASH PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (i) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (ii)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all reportable cash payments made to me thereafter will be withheld until I
provide a taxpayer identification number.
------------------------------- -----------------
Signature Date
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO
GUIDE THE PAYER. -- Social Security Numbers have nine digits separated by two
hyphens: i.e. 000-00-0000. Employer Identification Numbers have nine digits
separated by only one hyphen: i.e. 00-0000000. The table below will help
determine the number to give the payer.
<TABLE>
<CAPTION>
<S> <C> <C>
====================================================================================================================
FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY NUMBER OF --
- -----------------------------------------------------------------------------------------------------------------------------------
1. An individual's account The individual
- ----------------------------------------------------------------------------------------------------------------------------------
2. Two or more individuals (joint account) The actual owner of the account or, if combined
funds, any one of the individuals (1)
- ----------------------------------------------------------------------------------------------------------------------------------
3. Custodian account of a minor The minor (2)
- ------------------------------------------------------------------------------------------------------------------==
4. (a) The usual revocable savings trust The grantor-trustee (1)
account (grantor is also trustee)
(b) So-called trust account that is not a The actual owner (1)
legal or valid trust under State law.
- ----------------------------------------------------------------------------------------------------------------------
5. Sole proprietorship account The owner (3)
- ---------------------------------------------------------------------------------------------------------------------
6. A valid trust, estate, or pension trust The legal entity (Do not furnish the identifying
number of the personal representative or trustee
unless the legal entity itself is not designated
in the account title.)(4)
- ---------------------------------------------------------------------------------------------------------------------------
7. Corporate account The corporation
- --------------------------------------------------------------------------------------------------------------------------
8. Religious, charitable, or educational organization The organization
account
- -----------------------------------------------------------------------------------------------------------------------------
9. Partnership The partnership
- -----------------------------------------------------------------------------------------------------------------------------
10. Association, club or other tax-exempt organization The organization
- ------------------------------------------------------------------------------------------------------------------------
11. A broker or registered nominee The broker or nominee
- --------------------------------------------------------------------------------------------------------------------------
12. Account with the Department of Agriculture in the The public entity
name of a public entity (such as a State or local
government, school district, or prison) that receives
agricultural program payments
====================================================================================================================
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's Social Security Number.
(3) Show the name of the owner. You may also enter your business name. You may
use your Social Security Number or Employer Identification Number.
(4) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
OBTAINING A NUMBER
If you don't have a Taxpayer Identification Number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on broker transactions
include the following:
<TABLE>
<CAPTION>
<S> <C>
(i) A corporation.
(ii) A financial institution.
(iii) An organization exempt from tax under Section 501(a), or an individual retirement plan.
(iv) The United States or any agency or instrumentality thereof.
(v) A State, the District of Columbia, a possession of the United States, or any subdivision or
instrumentality thereof.
(vi) A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
(vii) An international organization or any agency or instrumentality thereof.
(viii) A registered dealer in securities or commodities registered in the
United States or a possession of the United States.
(ix) A real estate investment trust.
(x) A common trust fund operated by a bank under Section 584(a). (xi) An entity
registered at all times under the Investment Company Act of 1940.
(xii) A foreign central bank of issue.
(xiii) A person registered under the Investment Advisors Act of 1940 who regularly acts as a broker.
Payments of interest not generally subject to backup withholding include the
following:
(i) Payments to nonresident aliens subject to withholding under Section 1441.
(ii) Payments to partnerships not engaged in a trade or business in the
United States and which have at least one nonresident partner.
(iii) Payments made by certain foreign organizations.
</TABLE>
Exempt payees described above should file Substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND
DATE THE FORM AND RETURN IT TO THE PAYER.
PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend,
interest, or other payments to give Taxpayer Identification Numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a Taxpayer Identification Number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If you
fail to furnish your Taxpayer IDENTIFICATION NUMBER to a payer, you are
subject to a penalty of $50 for each such failure unless your failure
is due to reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If
you make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
<PAGE>
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION -- Falsifying
certifications or affirmations may subject you to criminal penalties
including fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR
TAX CONSULTANT OR THE IRS.
NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2
WITH RESPECT TO
GALEY & LORD, INC.
9 1/8% SENIOR SUBORDINATED NOTES DUE 2008
This form must be used by a Holder of the 9 1/8% Senior Subordinated
Notes Due 2008 (the "Initial Notes") of Galey & Lord, Inc. (the "Company"), who
wishes to tender Initial Notes to the Exchange Agent pursuant to the guaranteed
delivery procedures described in "The Exchange Offer B Guaranteed Delivery
Procedure" of the Prospectus dated _________, 1998 (the "Prospectus") and in
Instruction 1 to the Letter of Transmittal. Any Holder who wishes to tender
Initial Notes pursuant to such guaranteed delivery procedures must ensure that
the Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date of the Exchange Offer. Capitalized terms not defined herein have
the meanings ascribed to them in the Prospectus or the Letter of Transmittal.
To: SunTrust Bank, Atlanta - Exchange Agent
BY HAND OR OVERNIGHT COURIER:
SunTrust Bank, Atlanta
c/o First Chicago Trust Company
14 Wall Street - 8th Floor
New York, New York 10005
Attention: David M. Kaye, Corporate Trust Division
BY MAIL:
SunTrust Bank, Atlanta
58 Edgewood Avenue - 4th Floor Annex
Atlanta, Georgia 30303
Attention: David M. Kaye, Corporate Trust Division
BY FACSIMILE:
SunTrust Bank, Atlanta
Facsimile Number: (404) 332-3966
Attention: David M. Kaye, Corporate Trust Division
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. PLEASE READ THE ACCOMPANYING
INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
subject to the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Initial Notes specified below pursuant to the guaranteed delivery procedures set
forth in the Prospectus and in Instruction 1 of the Letter of Transmittal. The
undersigned hereby tenders the Initial Notes listed below:
<TABLE>
<CAPTION>
<S> <C>
====================================================== =================================================
CERTIFICATE NUMBER(S) (IF KNOWN) AGGREGATE PRINCIPAL
OF INITIAL NOTES AMOUNT TENDERED
- ------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------ -------------------------------------------------
- ------------------------------------------------------ -------------------------------------------------
====================================================== =================================================
Name of Tendering Holder:
--------------------------------------------------
Signature(s):
-----------------------------------------------------
Name(s)(PLEASE PRINT):
-------------------------------------------
Address:
-------------------------------------------------------------
-----------------------------------------------------------
Telephone Number:
-------------------------------------------------
Date: , 1998
---------
</TABLE>
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a bank, broker, dealer, credit union, savings
association, clearing agency or other institution that is a member of a
recognized signature guarantee medallion program or is otherwise an
"eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, guarantees
deposit with the Exchange Agent of the Letter of Transmittal, together
with the Initial Notes tendered hereby, in proper form for transfer and
any other required documents, all by 5:00 p.m., New York City time,
before the third business day (as defined in the Prospectus) following
the Expiration Date.
- --------------------------------------------------------------------------------
SIGN HERE
Name of firm (PLEASE PRINT):
-------------------------------------
Authorized Signature:
-------------------------------------------
Name (PLEASE PRINT):
---------------------------------------------
Address:
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
Telephone Number:
--------------------------------------------------
Date:
---------------------------------------------------------------
- --------------------------------------------------------------------------------
DO NOT SEND TENDERED INITIAL NOTES WITH THIS FORM. ACTUAL DELIVERY OF TENDERED
INITIAL NOTES MUST BE MADE IN ACCORDANCE WITH, AND BE ACCOMPANIED BY, AN
EXECUTED LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS.
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and risk of the Holder, and
the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. Instead of delivery by mail, it is recommended
that the Holder use an overnight or hand delivery service. Facsimile
transmission is permissible, provided, however, that receipt is confirmed by
telephone and an original is delivered by guaranteed overnight courier. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedure, see the section set forth in
the Prospectus entitled "The Exchange Offer - Guaranteed Delivery Procedure" and
Instruction 1 of the Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered Holder(s) of the tendered
Initial Notes referred to herein, the signature must correspond with the name(s)
written on the face of the tendered Initial Notes without alteration or any
change whatsoever.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered Holder(s) of any tendered Initial Notes listed, this Notice of
Guaranteed Delivery must be accompanied by appropriate bond powers, signed as
the name of the registered Holder(s) appears on the tendered Initial Notes.
<PAGE>
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, office 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 of their authority so to act must be submitted.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders also may contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
