<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 24, 1997
REGISTRATION NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
DYERSBURG CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
TENNESSEE 2257 62-1363247
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1315 PHILLIPS STREET
DYERSBURG, TENNESSEE 38024
(901) 285-2323
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
SEE TABLE OF ADDITIONAL REGISTRANTS
---------------------
WILLIAM S. SHROPSHIRE, JR.
EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER, SECRETARY AND TREASURER
DYERSBURG CORPORATION
1315 PHILLIPS STREET
DYERSBURG, TENNESSEE 38024
(901) 285-2323
(Name, Address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies of all communications to:
J. PAGE DAVIDSON
BASS, BERRY & SIMS PLC
2700 FIRST AMERICAN CENTER
NASHVILLE, TENNESSEE 37238
(615) 742-6200
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ________________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ________________________
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 3/4% Senior Subordinated
Notes, Series B............... $125,000,000 $1,000.00 $125,000,000 $37,879
- ------------------------------------------------------------------------------------------------------------------------
Guarantees of 9 3/4% Senior
Subordinated Notes, Series
B............................. $125,000,000 (1) (1) None(1)
========================================================================================================================
</TABLE>
(1) No separate consideration will be received for the guarantees of the 9 3/4%
Senior Subordinated Notes, Series B by certain subsidiaries of Dyersburg
Corporation.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS(1)
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD I.R.S.
JURISDICTION OF INDUSTRIAL EMPLOYER
INCORPORATION OR CLASSIFICATION IDENTIFICATION
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER ORGANIZATION CODE NUMBER NUMBER
- ---------------------------------------------------- ---------------- ---------------- --------------
<S> <C> <C> <C>
Dyersburg Fabrics Inc............................... Tennessee 2257 62-0188460
Dyersburg Fabrics Limited Partnership, I............ Tennessee 2257 62-1630540
DFIC, Inc........................................... Delaware 2257 51-0372183
IQUE, Inc........................................... Tennessee 2257 62-1641872
IQUEIC, Inc......................................... Delaware 2257 51-0374534
IQUE Limited Partnership, I......................... Tennessee 2257 62-1641874
United Knitting Inc................................. Tennessee 2257 62-1149522
UKIC, Inc........................................... Delaware 2257 51-0372181
United Knitting Limited Partnership, I.............. Tennessee 2257 62-1630542
AIH Inc............................................. Delaware 2257 51-0369266
Alamac Knit Fabrics Inc............................. Delaware 2257 56-1830964
Alamac Enterprises Inc.............................. Delaware 2257 51-0369389
</TABLE>
- ---------------
(1) The address, including zip code, and telephone number, including area code,
of the additional Registrants' principal executive offices is 1315 Phillips
Street, Dyersburg, Tennessee, 38024, (901) 285-2323, except for DFIC, Inc.,
UKIC, Inc. and IQUEIC, Inc., whose address and telephone number is 900
Market Street, Suite 200, Wilmington, DE 19801, (302) 421-7361, and AIH
Inc., Alamac Knit Fabrics Inc. and Alamac Enterprises Inc., whose address
and telephone number is 900 Market Street, Suite 200, Wilmington, DE 19801,
(302) 421-7361.
2
<PAGE> 3
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 SEPTEMBER 24, 1997
PRELIMINARY PROSPECTUS
[DYERSBURG CORPORATION LOGO]
OFFER TO EXCHANGE
UP TO $125,000,000 OF
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ANY AND ALL OF THE OUTSTANDING
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
OF
DYERSBURG CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED.
Dyersburg Corporation, a Tennessee corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal" and, together with this Prospectus, the "Exchange Offer"), to
exchange an aggregate of up to $125,000,000 principal amount of 9 3/4% Senior
Subordinated Notes due 2007, Series B (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for an identical face amount of the issued and outstanding 9 3/4% Senior
Subordinated Notes due 2007 (individually as the "144A Notes," "IAI Notes" and
"Reg S Notes"; collectively as the "Series A Notes"; and, together with the
Exchange Notes, the "Notes") of the Company from the Holders (as defined herein)
thereof in integral multiples of $1,000. As of the date of this Prospectus,
there is $125,000,000 in aggregate principal amount of the Series A Notes
outstanding. The terms of the Exchange Notes are identical in all material
respects to the Series A Notes, except that the Exchange Notes have been
registered under the Securities Act, and therefore will not bear legends
restricting their transfer described in the Registration Rights Agreement (as
defined herein), which provisions generally will terminate as to all of the
Notes upon the consummation of the Exchange Offer. The Exchange Notes will be
obligations of the Company evidencing the same indebtedness as the Series A
Notes, and will be entitled to the benefits of the same Indenture (as defined
herein). See "The Exchange Offer."
Interest on the Exchange Notes will be payable semi-annually in arrears on
March 1 and September 1 of each year, commencing on March 1, 1998. The Exchange
Notes will mature on September 1, 2007. The Exchange Notes are redeemable at any
time on or after September 1, 2002 at the option of the Company, in whole or in
part, at the redemption prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. Upon the occurrence of a
Change of Control (as defined herein), 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 equal to 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of purchase. See "Description
of the Exchange Notes -- Repurchase at the Option of Holders."
The Exchange Notes will be unsecured senior subordinated obligations of the
Company and, as such, will be subordinated in right of payment to all existing
and future senior indebtedness of the Company. The Exchange Notes will rank pari
passu in right of payment with all other existing and future senior subordinated
indebtedness, if any, of the Company, and senior in right of payment to all
existing and future subordinated indebtedness, if any, of the Company. The
Exchange Notes will be guaranteed, jointly and severally, on a senior
subordinated basis (the "Guarantees") by all of the Company's subsidiaries (the
"Guarantors" and, together with the Company, the "Issuers"). The Guarantees will
be unsecured senior subordinated obligations of the Guarantors and will be
subordinated to all existing and future Senior Debt (as defined herein) of the
Guarantors. See "Description of the Exchange Notes -- Subsidiary Guarantees." As
of July 5, 1997, on a pro forma basis after giving effect to the Transactions
(as defined herein), the Company and the Guarantors would have had approximately
$86.9 million in aggregate principal amount of Senior Debt (as defined)
outstanding.
(cover page continued on next page)
SEE "RISK FACTORS," BEGINNING ON PAGE 10, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
The Date of this Prospectus is , 1997.
<PAGE> 4
The Company will accept for exchange any and all validly tendered Series A
Notes on or prior to the Expiration Date (as defined herein). Tenders of Series
A Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date; otherwise such tenders are irrevocable. The Exchange Offer
is not conditioned upon any minimum principal amount of Series A Notes being
tendered for exchange. For certain conditions to the Exchange Offer, see "The
Exchange Offer -- Conditions."
The Series A Notes were offered and sold on August 27, 1997 in a
transaction not registered under the Securities Act in reliance upon an
exemption from the registration requirements thereof. In general, the Series A
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.
The Exchange Notes are being offered hereby in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement. The
Company has agreed to pay the expenses of the Exchange Offer. 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 Series A Notes may be offered for resale, resold or otherwise
transferred by any person in whose name Series A 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 (a "Holder") thereof (other than any such
Holder that is an "affiliate" of the Company within the meaning of Rule 405
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such Holder's business and
such Holder does not intend to participate and has no arrangement or
understanding with any person to participate in the distribution of such
Exchange Notes. In some cases, certain broker-dealers may be required to deliver
a prospectus in connection with the 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 any resale of Exchange Notes
received in exchange for such Series A Notes where such Series A Notes were
acquired by such broker-dealer for its own account as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company). The Company has agreed that it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale.
Prior to this Exchange Offer, there has been no public market for the
Notes. If a market for the Exchange Notes should develop, the Exchange Notes
could trade at a discount from their principal amount. The Company does not
intend to list the Exchange Notes on any securities exchange nor does the
Company intend to apply for quotation of the Exchange Notes on the NASDAQ
National Market or other quotation system. The Initial Purchasers (as defined
herein) have indicated to the Company that they intend to make a market in the
Notes, but are not obligated to do so and such market-making activities may be
discontinued at any time. As a result, no assurance can be given that an active
trading market for the Exchange Notes will develop.
The Exchange Notes issued pursuant to this Exchange Offer will be issued in
the form of a Global Exchange Note (as defined herein), which will be deposited
with, or on behalf of, The Depository Trust Company (the "Depository" or "DTC")
and registered in its name or in the name of Cede & Co., its nominee. Beneficial
interests in the Global Exchange Note representing the Exchange Notes will be
shown on, and transfers thereof will be effected through, records maintained by
DTC and its participants. Notwithstanding the foregoing, Series A Notes held in
certificated form will be exchanged solely for Certificated Exchange Notes (as
defined herein). After the initial issuance of the Global Exchange Note,
Certificated Exchange Notes will be issued in exchange for the Global Exchange
Note only on the terms set forth in the Indenture. See "Description of the
Exchange Notes -- Book-Entry, Delivery and Form."
i
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The reports, proxy statements and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and should be available at the Commission's Regional
Offices at 7 World Trade Center, 13th Floor, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60621 and at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005. Copies
of such material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. In addition, the Commission maintains a Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
While any Series A Notes remain outstanding, the Company will make
available, upon request, to any Holder and any prospective purchaser of Series A
Notes the information required pursuant to Rule 144A(d)(4) under the Securities
Act during any period in which the Company is not subject to Section 13 or 15(d)
of the Exchange Act. Any such request should be directed to the Treasurer of the
Company at 1315 Phillips Street, Dyersburg, Tennessee 38024 (telephone number
(901) 285-2323).
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended
September 28, 1996;
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
January 4, 1997, April 5, 1997 and July 5, 1997, as amended, September 23,
1997; and
3. The Company's Current Reports on Form 8-K dated April 17, 1997,
July 18, 1997, July 30, 1997 and September 2, 1997.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the consummation of the
Exchange Offer, shall be deemed to be incorporated by reference herein.
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
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.
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (EXCLUDING EXHIBITS TO SUCH
DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
THEREIN) ARE AVAILABLE UPON WRITTEN OR ORAL REQUEST WITHOUT CHARGE BY EACH
PERSON TO WHOM THIS PROSPECTUS IS DELIVERED FROM THE TREASURER OF THE COMPANY,
1315 PHILLIPS STREET, DYERSBURG, TENNESSEE 38024 (TELEPHONE NUMBER (901)
285-2323). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY , 1997 (FIVE BUSINESS DAYS PRIOR TO THE
DATE ON WHICH A FINAL INVESTMENT DECISION MUST BE MADE).
ii
<PAGE> 6
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. The following summary information is qualified in its entirety
by reference to, and should be read in conjunction with, the more detailed
information and the historical and pro forma financial statements and notes
thereto appearing elsewhere in this Prospectus. References herein to the
"Company" or "Dyersburg" refer to Dyersburg Corporation and its consolidated
subsidiaries, and references herein to "Alamac" refer to AIH Inc. and its
consolidated subsidiaries. Unless the context otherwise requires, all references
to a "fiscal" year of the Company refer to the fiscal year ended or ending on
the Saturday closest to September 30 of such year.
THE COMPANY
Dyersburg is a leading manufacturer of knit fleece, jersey and stretch
fabrics sold principally to domestic apparel producers. The Company's fleece
fabrics are used to produce (i) outerwear apparel suitable for outdoor
recreational activities, as well as casual sportswear, (ii) children's and
women's sportswear, including sweatshirts and sweatpants, (iii) infant blanket
sleepers and (iv) blankets and throws. The Company's jersey fabrics are used to
produce a broad range of women's and children's lightweight apparel, including
tops and shorts. The Company's stretch fabrics are used to produce a variety of
activewear, including dancewear, swimwear, biking and running garments,
recreational and casual sportswear and intimate apparel. The Company's
manufacturing operations are vertically integrated, beginning with the
conversion of fiber into yarn and knitting, dyeing and finishing the fabric in a
wide range of styles and colors. The Company's fabrics are used in apparel
marketed by leading brands such as Calvin Klein, Columbia, Health-Tex, Liz
Claiborne, Osh Kosh B'Gosh, Patagonia, Polo, Tommy Hilfiger and William Carter;
and sold to catalog merchants and specialty stores such as L.L. Bean and Eddie
Bauer, department stores and national chains. For the twelve months ended July
5, 1997, the Company had net sales of $217.5 million and EBITDA (as defined
herein) of $37.4 million.
Dyersburg was formed in 1929 and, through the early 1990s, marketed its
fabrics to apparel manufacturers that supplied children's and women's apparel.
In 1992, the Company began implementing a strategy of broadening its line of
higher margin, value-added knit fabrics, including outerwear fleece and stretch
fabrics, and targeting manufacturers of brand name apparel, catalog merchants,
specialty stores, department stores and national chains. To support this shift
in strategy, over the past several years the Company has substantially upgraded
its manufacturing operations and has significantly increased its marketing,
research and development and customer service capabilities.
Concurrently with the sale of the Series A Notes, Dyersburg acquired
Alamac, a subsidiary of WestPoint Stevens Inc. ("WestPoint Stevens") (the
"Acquisition"). Formed in 1946, Alamac is a leading manufacturer of interlock,
jersey, pique and other knit fabrics sold primarily to domestic apparel
producers. Alamac's interlock fabrics are used to produce men's, women's and
children's turtlenecks and women's sportswear. Alamac's pique fabrics are used
to produce a variety of casual wear, including golf and polo shirts. Similar to
the Company's manufacturing operations, Alamac's manufacturing operations are
vertically integrated. The Company believes the Acquisition will (i) expand its
product line to include a complete assortment of circular knit fabrics, (ii)
broaden its customer base, (iii) increase the Company's customer service
capabilities, (iv) produce cost savings, (v) reduce the seasonality of the
Company's sales and (vi) better position the Company to exploit industry trends,
such as the shift to casual dress. For the twelve months ended July 5, 1997,
after giving pro forma effect to the Transactions, the Company would have had
net sales of $453.3 million and EBITDA of $59.1 million. See "Unaudited Pro
Forma Condensed Consolidated Financial Statements."
1
<PAGE> 7
BUSINESS STRATEGY
The fundamental elements of the Company's business strategy include:
Emphasizing Value-Added Fabrics. Dyersburg's primary strategy is to
develop higher margin, value-added knit fabrics targeting manufacturers of brand
name apparel, catalog merchants, specialty stores, department stores and
national chains. The Company's value-added fabrics enable it to provide its
customers with distinctive aesthetic and performance features, such as a broad
variety of surface finishes, high comfort and durability and low shrinkage. As a
result of their better performance and technical design characteristics, these
products generally have higher margins than the Company's traditional fabrics.
To support the development, manufacture and sale of these products, the Company
has significantly increased the resources devoted to research and development
and marketing activities and has made significant investments in its
manufacturing operations.
Increasing Manufacturing Efficiencies. The Company has invested in its
manufacturing operations to provide for the flexible production of its broad
line of value-added fabrics, minimize off-quality production and reduce
production costs. As a result of these investments, the Company has experienced
a 20% increase in net sales per average number of employees from $122,000 per
employee during fiscal 1994 to $146,000 per employee during the twelve months
ended July 5, 1997, and a 26% reduction in the production of irregular and
second-quality fabrics. Further, manufacturing efficiencies have enabled the
Company to increase on-time deliveries from 83% in fiscal 1996 to 92% for the
twelve months ended July 5, 1997.
Offering High Levels of Customer Service. The Company is committed to
being an industry leader in providing superior customer service. Key elements
include electronic order execution, inventory management support and timely and
complete order delivery. In addition, the Company is pursuing the management of
complete garment production for customers through the formation of strategic
alliances with contract apparel manufacturers.
Pursuing Strategic Acquisitions and Alliances. Dyersburg continually seeks
strategic acquisitions and alliances that will enable it to add complementary
product offerings and provide new customers and channels of distribution for the
Company's products. For example, in 1994 the Company acquired United Knitting,
Inc. ("United Knitting"), which added stretch fabrics and lightweight lining
fabrics to the Company's product line. In the first nine months of fiscal 1997,
19.6% of the Company's net sales was generated from the sale of fabrics produced
by United Knitting. In addition to the Acquisition, the Company is currently
pursuing other strategic initiatives. See "Recent Developments."
THE ACQUISITION
On August 27, 1997, the Company acquired all of the capital stock of Alamac
pursuant to the terms of a Stock Purchase Agreement dated as of July 15, 1997
with WestPoint Stevens (the "Stock Purchase Agreement"). The cash purchase price
(the "Purchase Price") paid in the Acquisition was $126.0 million, subject to
adjustment for changes in working capital and certain other items related to
pension assets and liabilities subsequent to December 31, 1996. Prior to
consummation of the Acquisition, Alamac transferred all of its cash and assets
related to its Whitmire, South Carolina spinning plant to WestPoint Stevens and,
accordingly, such assets were not acquired in the Acquisition. In addition,
Alamac sold its accounts receivable and, as a result, the Company did not
acquire Alamac's accounts receivable. Accordingly, the Company estimates that it
will be required to finance approximately $40.0 to $45.0 million of additional
working capital. The Company used the net proceeds from the offering of Series A
Notes (the "Offering"), together with borrowings under a $160.0 million
revolving credit and term loan agreement (the "New Credit Facility"), to finance
the Purchase Price and working capital needs, repay amounts outstanding under
the Company's existing credit facility and certain other indebtedness and pay
related fees and expenses. See "Use of Proceeds" and "Description of New Credit
Facility." The Acquisition, such financings and the application of the net
proceeds therefrom are herein collectively referred to as the "Transactions."
2
<PAGE> 8
The Company operates Alamac as a discrete division. The Company intends to
integrate Alamac's sales and marketing personnel and other resources with the
Company's existing operations to establish coordinated product development,
marketing and customer service across its product lines for its combined
customer base. The Company also intends to consolidate general and
administrative activities, where appropriate, to eliminate redundancies and
exploit economies of scale. In addition, the Company intends to invest in
Alamac's manufacturing operations to improve Alamac's manufacturing
productivity.
The Company believes that the Acquisition will enhance its competitive
position and business prospects based primarily on the following benefits:
Expanded Product Line and Customer Base. The Acquisition will
significantly expand the Company's line of value-added fabrics, including the
addition of patterns, yarn-dyed fabrics and knit collars. Yarn-dyed fabrics can
be produced in an unlimited variety of stripes and patterns, enabling Alamac to
produce fabrics used in a broad line of value-added products not produced by the
Company, including golf and polo shirts and uniforms. Alamac's fabrics are sold
to a number of customers not currently served by the Company, particularly for
use in menswear products. The Company believes the expanded customer base and
the increased breadth of its product offerings following the Acquisition will
create opportunities for the combined sales forces of the Company and Alamac to
market to new customers and substantial cross-selling opportunities to market to
existing customers.
Cost Savings. The Company believes it can achieve operating cost savings
at Alamac by eliminating certain duplicative functions and achieving
efficiencies in administration and sales and marketing. The Company also
believes it can realize additional manufacturing efficiencies by upgrading
Alamac's manufacturing operations. The Company believes these improvements will
significantly increase Alamac's manufacturing flexibility and productivity while
reducing operating costs.
Raw Material Purchasing Leverage. As a result of the Acquisition, the
Company will more than double its purchases of polyester fiber. The Company
believes this purchasing leverage will enhance the Company's ability to obtain
this raw material at more favorable prices.
Reduced Seasonality of the Company's Sales. The Company's sales have
historically had a seasonal pattern, with approximately 63.0% of its sales in
fiscal 1996 occurring during its third and fourth fiscal quarters. The
Acquisition will reduce this seasonality as Alamac's product offerings do not
result in any significant seasonality in its business. After giving pro forma
effect to the Acquisition, net sales for each of the four fiscal quarters in
fiscal 1996 would have been 20.7%, 23.4%, 29.3% and 26.6%, respectively, of
total net sales in such year.
Greater Critical Mass. The Acquisition will significantly increase the
Company's revenue base. After giving pro forma effect to the Acquisition, the
Company's net sales for the twelve months ended July 5, 1997 would have been
$453.3 million. The Company believes that its increased size, marketing
resources, production capacity and product offerings will create additional
marketing and other growth opportunities.
RECENT DEVELOPMENTS
On May 5, 1997, Polysindo Hong Kong Limited, a Hong Kong corporation under
common control with P.T. Polysindo Eka Perkasa and PT. Texmaco Jaya
(collectively, "Texmaco"), acquired from certain shareholders of the Company
3,000,000 shares, or approximately 22.8%, of the Company's outstanding common
stock. Texmaco is a vertically integrated polyester chemical and textile
manufacturer based in Jakarta, Indonesia. For the year ended December 31, 1996,
Texmaco had operating revenue of $588.1 million. Management believes that
Texmaco's investment in the Company will enhance the Company's manufacturing
expertise, potential customer base and distribution capabilities, especially in
the growing Asian markets where Dyersburg currently does not have a presence.
For example, the Company and Texmaco are discussing the possibility of a joint
venture in Indonesia to manufacture outerwear fleece for distribution in Asia;
however, there can be no assurance that any such joint venture will be formed.
See "Risk Factors -- Relationship with Texmaco."
3
<PAGE> 9
THE OFFERING
THE SERIES A NOTES......... The Series A Notes were sold by the Company in the
Offering on August 27, 1997, and were subsequently
resold to (i) Qualified Institutional Buyers (as
defined herein) pursuant to Rule 144A under the
Securities Act, (ii) other institutional
"accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities
Act) that executed and delivered a letter
containing certain representations and agreements
or, (iii) outside the United States in reliance on
Regulation S under the Securities Act in a manner
exempt from registration under the Securities Act.
REGISTRATION RIGHTS
AGREEMENT.................. In connection with the Offering, the Company
entered into the Registration Rights Agreement,
which grants Holders of the Series A Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange and
registration rights, which generally terminate upon
the consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED......... $125,000,000 in aggregate principal amount of
9 3/4% Senior Subordinated Notes due 2007, Series
B.
THE EXCHANGE OFFER......... $1,000 principal amount of the Exchange Notes in
exchange for each $1,000 principal amount of Series
A Notes. As of the date hereof, $125,000,000 in
aggregate principal amount of Series A Notes is
outstanding. The Company will issue the Exchange
Notes to Holders on or promptly after the
Expiration Date. The terms of the Exchange Notes
are substantially identical in all material
respects (including principal amount, interest rate
and maturity) to the terms of the Series A 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." Other
than compliance with applicable federal and state
securities laws, including the requirement that the
Registration Statement be declared effective by the
Commission, there are no material federal or state
regulatory requirements to be complied with in
connection with the Exchange Offer.
INTEREST PAYMENTS.......... The Exchange Notes will bear interest from August
27, 1997, the date of issuance of the Series A
Notes, or the most recent interest payment date to
which interest on such Series A Notes has been
paid, whichever is later. Accordingly, Holders of
Series A Notes that are accepted for exchange will
not receive interest on such Series A Notes that is
accrued but unpaid at the time of tender, but such
interest will be payable on the first interest
payment date after the Expiration Date.
MINIMUM CONDITION.......... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Series A
Notes being tendered for exchange.
EXPIRATION DATE............ 5:00 p.m., New York City time, on , 1997
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
4
<PAGE> 10
EXCHANGE DATE.............. The date of acceptance for exchange of the Series A
Notes will be the first business day following the
Expiration Date.
WITHDRAWAL RIGHTS.......... 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 -- Withdrawal of Tenders."
ACCEPTANCE OF SERIES A
NOTES AND DELIVERY OF
EXCHANGE NOTES........... The Company will accept for exchange any and all
Series A Notes that 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 -- Terms of the Exchange
Offer."
CONDITIONS TO THE EXCHANGE
OFFER.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions."
PROCEDURES FOR TENDERING
SERIES A NOTES........... To tender pursuant to the Exchange Offer, a Holder
must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof, have
the signatures therein guaranteed if required by
instruction 4 of the Letter of Transmittal and mail
or otherwise deliver such Letter of Transmittal, or
such facsimile, together with the Series A Notes
and any other required documentation to the
Exchange Agent (as defined herein) at the address
set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. See "The Exchange
Offer -- Procedures for Tendering" and "Plan of
Distribution." By executing the Letter of
Transmittal, each Holder will represent to the
Company that, among other things, the Holder or the
person receiving such Exchange Notes, whether or
not such person is the Holder, is acquiring the
Exchange Notes in the ordinary course of business
and that neither the Holder nor any such other
person intends to participate or has any
arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes. In lieu of physical delivery of the
certificates representing Series A Notes, tendering
Holders may transfer Series A Notes pursuant to the
procedure for book-entry transfer as set forth
under "The Exchange Offer -- Procedures for
Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Series A Notes are
registered in the name of a broker, commercial
bank, trust company or other nominee and who wishes
to tender in the Exchange Offer should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to
tender on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering
the Series A Notes, either make appropriate
arrangements to register ownership of the Series A
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 -- Procedures for Tendering."
5
<PAGE> 11
GUARANTEED DELIVERY
PROCEDURES................. Holders of Series A Notes who wish to tender their
Series A Notes and whose Series A Notes are not
immediately available or who cannot deliver their
Series A Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent (or comply with
the requirements for book-entry transfer) prior to
the Expiration Date must tender their Series A
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer --
Guaranteed Delivery Procedures."
FEDERAL INCOME TAX
CONSEQUENCES............. The issuance of the Exchange Notes to Holders
pursuant to the terms set forth in this Prospectus
will not constitute an exchange for federal income
tax purposes. Consequently, no gain or loss would
be recognized by Holders upon receipt of the
Exchange Notes. See "Certain Federal Income Tax
Consequences of the Exchange Offer."
USE OF PROCEEDS............ There will be no proceeds to the Company from the
exchange of Series A Notes pursuant to the Exchange
Offer.
EXCHANGE AGENT............. State Street Bank and Trust Company is serving as
exchange agent (the "Exchange Agent") in connection
with the Exchange Offer. See "The Exchange
Offer -- Exchange Agent."
6
<PAGE> 12
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Series A Notes (which they replace) except that (i) the Exchange Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, and (ii) the holders of Exchange Notes
generally will not be entitled to further registration rights under the
Registration Rights Agreement, which rights generally will be satisfied when the
Exchange Offer is consummated. The Exchange Notes will evidence the same debt as
the Series A Notes and will be entitled to the benefits of the indenture
pursuant to which the Series A Notes were issued (the "Indenture"). See
"Description of the Exchange Notes."
SECURITIES OFFERED......... $125,000,000 in aggregate principal amount of
9 3/4% Senior Subordinated Notes due 2007, Series
B.
MATURITY................... September 1, 2007.
INTEREST................... The Exchange Notes will bear interest at the rate
of 9 3/4% per annum, payable semi-annually in
arrears on March 1 and September 1 of each year,
commencing on March 1, 1998.
GUARANTEES................. The Exchange Notes will be guaranteed by all of the
Company's present and future domestic Restricted
Subsidiaries.
RANKING.................... The Exchange Notes will be general unsecured
obligations of the Company and will be subordinated
in right of payment to all existing and future
Senior Debt of the Company. As of July 5, 1997,
after giving pro forma effect to the Transactions,
the Company would have had approximately $86.9
million of Senior Debt outstanding, including $79.0
million of outstanding borrowings under the New
Credit Facility. In addition, the Company would
have had $41.8 million of additional borrowings
available under the New Credit Facility.
OPTIONAL REDEMPTION........ Except as set forth below, the Exchange Notes will
not be redeemable at the option of the Company
prior to September 1, 2002. Thereafter, the
Exchange Notes will be subject to redemption at any
time at the option of the Company, in whole or in
part, at the redemption prices set forth herein,
plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date. In
addition, at any time prior to September 1, 2000,
the Company may redeem up to an aggregate of $25.0
million in principal amount of Exchange Notes at a
redemption price equal to 109.75% of the principal
amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the
redemption date, with the net cash proceeds of one
or more public offerings of common stock of the
Company, provided that at least $100.0 million in
principal amount of Exchange Notes remains
outstanding immediately following each such
redemption.
CHANGE OF CONTROL.......... In the event of a Change of Control, the Company
will be required to make an offer to each holder of
Exchange Notes to repurchase all or any part of
such holder's Exchange Notes at a repurchase price
equal to 101% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages,
if any, thereon to the repurchase date.
COVENANTS.................. The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries to incur
additional Indebtedness (as defined), pay
dividends, repurchase Equity Interests (as defined)
or make other Restricted Payments (as defined),
create Liens (as defined), enter into transactions
with Affiliates (as
7
<PAGE> 13
defined), sell assets or enter into certain mergers
and consolidations. See "Description of Exchange
Notes."
EXCHANGE OFFER,
REGISTRATION RIGHTS........ In the event that any changes in law or the
applicable interpretations of the staff of the
Commission do not permit the Issuers to effect the
Exchange Offer, or if the Exchange Offer
Registration Statement is not declared effective
within 90 days or consummated within 120 days
following the original issue of the Series A Notes,
or upon the request of any of the Initial
Purchasers, or if any holder of the Series A Notes
is not permitted by applicable law to participate
in the Exchange Offer or elects to participate in
the Exchange Offer but does not receive fully
tradable Exchange Notes pursuant to the Exchange
Offer, the Issuers will use their best efforts to
cause a shelf registration statement with respect
to the resale of the Series A Notes (the "Shelf
Registration Statement") to become effective within
120 days following the original issue of the Series
A Notes (or within 30 days of the request of any
Initial Purchaser) and to keep the Shelf
Registration Statement effective for up to two
years from the date the Shelf Registration
Statement is declared effective by the Commission.
The interest rate on the Notes is subject to
increase under certain circumstances if the Issuers
are not in compliance with their obligations under
the Registration Rights Agreement. See "Description
of the Exchange Notes -- Registration Rights;
Liquidated Damages."
LACK OF PRIOR MARKET FOR
THE EXCHANGE NOTES......... The Exchange Notes will be new securities for which
there is currently no established trading market.
The Company does not intend to apply for listing of
the Exchange Notes on any national securities
exchange or for quotation of the Exchange Notes on
any automated dealer quotation system. The Company
has been advised by the Initial Purchasers that
they presently intend to make a market in the
Exchange Notes, although they are under no
obligation to do so and may discontinue any market-
making activities at any time without notice.
Accordingly, no assurance can be given as to the
liquidity of the trading market for the Exchange
Notes or that an active public market for the
Exchange Notes will develop. If an active trading
market for the Exchange Notes does not develop, the
market price and liquidity of the Exchange Notes
may be adversely affected. If the Exchange Notes
are traded, they may trade at a discount from their
initial offering price, depending on prevailing
interest rates, the market for similar securities,
the performance of the Company and certain other
factors. See "Risk Factors -- Absence of Public
Market for the Exchange Notes."
RISK FACTORS
See "Risk Factors," beginning on page 10, for a discussion of certain
factors that should be considered by holders of Series A Notes before deciding
to tender Series A Notes in the Exchange Offer.
8
<PAGE> 14
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data for each of the three
fiscal years in the period ended September 28, 1996, for the nine months ended
June 29, 1996 and as of and for the nine and twelve months ended July 5, 1997.
The historical data for each of the three fiscal years in the period ended
September 28, 1996 have been derived from audited financial statements of the
Company which are included herein. The historical data for the nine months ended
June 29, 1996 and as of and for the nine and twelve months ended July 5, 1997
have been derived from unaudited financial statements of the Company which, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information. The
historical data for the nine months ended July 5, 1997 do not purport to be
indicative of results to be expected for the full fiscal year. The pro forma
data have been derived from the historical financial statements of the Company
and Alamac and give pro forma effect to the Transactions as if they had occurred
on October 1, 1995, in the case of the statement of operations, other and
operating data, and July 5, 1997, in the case of the balance sheet data. The
following information is qualified by reference to, and should be read in
conjunction with, "Capitalization," "Unaudited Pro Forma Condensed Consolidated
Financial Statements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical financial statements of
the Company and Alamac and related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA
------------------------------
TWELVE NINE TWELVE
FISCAL YEAR ENDED NINE MONTHS ENDED MONTHS MONTHS MONTHS
------------------------------------------ ------------------- ENDED ENDED ENDED
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JULY 5, JULY 5, FISCAL JULY 5, JULY 5,
1994 1995 1996 1996 1997 1997 1996 1997 1997
---------- ------------- ------------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales........... $180,520 $199,413 $195,866 $136,574 $158,214 $217,506 $417,885 $341,942 $453,314
Cost of sales....... 139,754 159,245 152,884 108,290 120,677 165,271 351,413 282,211 373,682
Gross profit........ 40,766 40,168 42,982 28,284 37,537 52,235 66,472 59,731 79,632
Selling, general and
administrative
expenses.......... 16,223 17,447 20,707 14,418 18,538 24,827 36,091 28,558 38,773
Operating income.... 24,543 22,721 22,275 13,866 18,999 27,408 30,381 31,173 40,859
OTHER DATA:
EBITDA (1).......... $ 33,173 $ 32,722 $ 31,848 $ 21,117 $ 26,717 $ 37,448 $ 48,013 $ 45,068 $ 59,126
Depreciation and
amortization...... 10,533 12,030 11,602 8,773 9,228 12,057 19,661 15,405 20,284
Capital
expenditures...... 14,278 12,816 11,778 10,777 5,685 6,686 16,776 9,804 11,319
Ratio of EBITDA to
interest expense
(2)............... 2.0x 2.6x 2.5x
OPERATING DATA:
Net sales per
average number of
employees (in
thousands)........ $ 122 $ 131 $ 135 $ 94 $ 106 $ 146
Average number of
employees......... 1,476 1,520 1,456 1,451 1,499 1,491
Average selling
price per pound of
fabric sold....... $ 3.54 $ 3.79 $ 4.03 $ 4.01 $ 4.27 $ 4.21
Total pounds of
fabric (in
millions)......... 51.0 52.6 48.6 34.0 36.7 51.3
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 5, 1997
--------------------
ACTUAL PRO FORMA
-------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 57,346 $ 71,361
Property, plant and equipment, net.......................... 65,685 149,656
Total assets................................................ 205,367 356,395
Long-term obligations (including current portion)........... 75,837 211,895
Shareholders' equity........................................ 96,189 95,389
</TABLE>
- ------------------------------
(1) EBITDA represents income before interest and amortization of debt costs,
federal and state income taxes, depreciation and amortization and
extraordinary items. In fiscal 1995, EBITDA also excludes the write-down of
fixed assets. EBITDA is generally considered to provide information
regarding a company's ability to service and/or incur debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash flows
from operations or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity.
(2) Interest expense includes the amortization of debt costs.
9
<PAGE> 15
RISK FACTORS
In addition to the other information set forth and incorporated by
reference herein, Holders of Series A Notes should carefully consider the
following information in evaluating the Company and its business before deciding
to tender the Series A Notes in the Exchange Offer. The information contained
and incorporated by reference herein contains forward-looking statements that
involve a number of risks and uncertainties. A number of factors, including
those discussed below, could cause results to differ materially from those
anticipated by such forward-looking statements. In addition, such
forward-looking statements are necessarily dependent upon assumptions, estimates
and data that may be incorrect or imprecise. Accordingly, any forward-looking
statements included or incorporated by reference herein do not purport to be
predictions of future events or circumstances and may not be realized.
Forward-looking statements can be identified by, among other things, the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "pro forma" or "anticipates," or the negative thereof, or
other variations thereon or comparable terminology, or by discussions of
strategy or intentions. The risk factors set forth below are generally
applicable to the Series A Notes as well as the Exchange Notes.
SUBSTANTIAL LEVERAGE
The Company has substantial indebtedness and, as a result, significant debt
service obligations. As of July 5, 1997, after giving pro forma effect to the
Transactions, the Company would have had approximately $211.9 million of
long-term indebtedness (including current portion, but excluding an estimated
$40.0 to $45.0 million anticipated to be required to finance working capital
needs following the Acquisition), which would have represented 69.0% of its
total capitalization, and would have had approximately $41.8 million of
additional borrowings available under the New Credit Facility. See
"Capitalization." In addition, the Indenture and the Company's other debt
instruments allow the Company to incur additional indebtedness under certain
circumstances. The Company's ability to make payments with respect to the
Exchange Notes and to satisfy its other debt obligations will depend on its
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.
Upon the issuance of the Series A Notes, the Company's interest expense
increased compared to prior years. The Company believes, based on current
circumstances, that the Company's cash flow, together with available borrowings
under the New 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 and (v) the Company may be more leveraged
than certain of its competitors, which may place the Company at a relative
competitive disadvantage and make the Company more vulnerable to changes in the
industry and changing economic conditions. 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.
10
<PAGE> 16
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture governing the terms of the Exchange Notes contains certain
covenants limiting, subject to certain exceptions, the incurrence of additional
indebtedness, the payment of dividends, the redemption of capital stock, the
making of certain investments, the issuance of capital stock of subsidiaries,
the creation of liens and other restrictions affecting the Company's
subsidiaries, the issuance of guarantees, transactions with affiliates, asset
sales and certain mergers and consolidations. A breach of any of these covenants
could result in an event of default under the Indenture. In addition, the New
Credit Facility and the instruments governing the Company's other indebtedness
contain other more restrictive covenants and require the Company to satisfy
certain financial tests. The Company's ability to comply with such covenants and
to satisfy such financial tests may be affected by events beyond its control. A
breach of any of these covenants could result in an event of default under the
New Credit Facility. In the event of a default under the New Credit Facility,
the lenders thereunder could elect to declare all amounts borrowed, together
with accrued interest, to be immediately due and payable, and the lenders under
the New Credit Facility could terminate all commitments thereunder. In addition,
a default under the New Credit Facility or the instruments governing the
Company's other indebtedness could constitute a cross-default under the
Indenture and any instruments governing the Company's other indebtedness, and a
default under the Indenture could constitute a cross-default under the New
Credit Facility and any instruments governing the Company's other indebtedness.
In the event of a default under the New Credit Facility or other Senior Debt of
the Company, the subordination provisions of the Indenture may restrict payments
with respect to the Exchange Notes. See " -- Subordination," "Description of the
Exchange Notes -- Certain Covenants" and "Description of New Credit Facility."
SUBORDINATION
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Exchange Notes is subordinate to the prior
payment in full of all existing and future Senior Debt of the Company, including
all amounts owing under the New Credit Facility. As of July 5, 1997, after
giving pro forma effect to the Transactions, the aggregate amount of such Senior
Debt of the Company would have been $86.9 million, including secured debt
outstanding under the New Credit Facility. Similarly, the payment of amounts due
under guarantees of the Exchange Notes is subordinate to the prior payment in
full of all existing and future Senior Debt of the Guarantors, including all
amounts owing pursuant to the Guarantors' guarantees of amounts outstanding
under the New Credit Facility. Consequently, in the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
the Company or any of the Guarantors, assets of the Company or such Guarantor,
as the case may be, will be available to pay obligations under the Exchange
Notes or the Guarantee of such Guarantor, as the case may be, only after all of
its Senior Debt 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 Guarantees, as the case may be. In addition, under certain circumstances, the
Company and the Guarantors may be prohibited by the Indenture from paying
amounts due in respect of the Exchange Notes or the Guarantees, or from
purchasing, redeeming or otherwise acquiring Exchange Notes, if a payment or
non-payment default exists with respect to certain Senior Debt. See "Description
of the Exchange Notes -- Subordination" and "Description of the Exchange
Notes -- Subsidiary Guarantees."
RISKS RELATING TO THE ACQUISITION
The Acquisition significantly increased the size of the Company's
operations, which will substantially increase 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
Alamac with those of the Company. Successful integration of Alamac's operations
will depend primarily on the Company's ability to manage effectively Alamac's
manufacturing operations and to eliminate redundancies and excess costs. The
success of the Company's integration of Alamac may depend on the retention of
certain current Alamac management. Although the Company intends to retain such
employees, there can be no assurance that such individuals will remain with the
Company following the Acquisition. The integration of Alamac may result in
unforeseen difficulties that require a disproportionate amount of management's
attention and the
11
<PAGE> 17
Company's resources. There can be no assurance that the Company will be able to
integrate effectively the operations of Alamac. Failure to integrate effectively
the operations of the acquired business with those of the Company would have a
material adverse effect on the Company.
Additionally, the Company's strategy includes pursuing strategic
acquisitions that complement the Company's existing product offerings. Any such
acquisition will also involve risks, including the possible increase in the
Company's indebtedness, the possible inability to integrate the operations of
the acquired business, the expenses incurred in connection with the acquisition,
the diversion of management's attention from other business concerns and the
potential loss of key employees of the acquired business. There can be no
assurance that the Company will be able to make any such acquisitions or, if
made, that the Company will be able to integrate effectively the operations of
the acquired business.
CYCLICAL AND COMPETITIVE NATURE OF TEXTILE INDUSTRY
Demand for textile products, including those offered by the Company, tends
to fluctuate with the general business cycle of the United States 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
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 product styling and
differentiation, quality, price, manufacturing flexibility, delivery time and
customer service. 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."
The Company's sales growth and improved operating performance in recent
periods is attributable in part to increased sales of value-added knit fabrics
that have produced higher profit margins than the Company's traditional lines of
products. The Company's future success will depend in part on its ability to
continue to develop new products. There can be no assurance that the Company
will be successful in developing or marketing such products or broadening its
customer base. See "Business -- Products."
RAW MATERIAL PRICE VOLATILITY
The costs of the Company's raw materials fluctuate significantly from time
to time due to cyclical price fluctuations, changes in supply and demand, market
disturbances and changes in the prices of petroleum (the principal raw material
in the production of acrylic and polyester) and cotton. 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. In an effort to minimize the effects of raw
material price volatility, the Company contractually commits to purchases up to
nine months in advance. The Company has not historically engaged in hedging
transactions with respect to raw materials purchases but may do so in the
future. 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 materials 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
12
<PAGE> 18
events beyond its control could have an adverse effect on the cost or
availability of fiber supplies. See "Business -- Raw Materials."
DEPENDENCE ON MANAGEMENT
The Company is dependent upon the services of its executive officers for
management of the Company. The loss or interruption of the continued full-time
services of certain of these executives could have a material adverse effect on
the Company, and there can be no assurance that the Company would be able to
find replacements with equivalent skills or experience. The success of the
Company's integration of Alamac may depend on the retention of certain current
Alamac management. Although the Company intends to retain such employees, there
can be no assurance that such individuals will remain with the Company following
the Acquisition.
RELATIONSHIP WITH TEXMACO
On May 5, 1997, Texmaco acquired from certain shareholders of the Company
3,000,000 shares, or approximately 22.8%, of the Company's outstanding common
stock. In connection with such purchase, Texmaco stated its intention to acquire
additional shares of the Company's common stock so that it would own a majority
of the common stock prior to November 5, 1998. On May 5, 1997, the Company and
Texmaco entered into an agreement pursuant to which, among other things, Texmaco
has certain preemptive rights to acquire equity securities of the Company and
has the right to designate three persons to serve on the Company's Board of
Directors. By virtue of its ownership in the Company and representation on the
Company's Board of Directors, Texmaco will be in a position to exert substantial
influence on the business policies of the Company. The acquisition of a
controlling interest in the Company by Texmaco would not constitute a Change of
Control under the terms of the Indenture.
Texmaco has stated that it acquired the shares of common stock for the
purpose of forming a business relationship with the Company. The Company and
Texmaco are discussing the possible formation of a joint venture to manufacture
outerwear fleece fabric in Indonesia for distribution in Asia. There is
currently no agreement as to the terms of the Company's participation in such a
joint venture, including any capital contribution required of the Company. Any
capital contribution by the Company may increase its indebtedness under the New
Credit Facility or otherwise. There can be no assurance that the joint venture
will be formed, and the Company is unable to predict the effect of any such
joint venture or other business relationship with Texmaco on the Company's
results of operations or liquidity.
GOVERNMENT POLICY; IMPORT REGULATIONS
The domestic textile market is subject to various U.S. governmental
policies affecting raw material costs and product supply. In addition, the
policies of foreign governments may, directly or indirectly, affect the domestic
market. Because U.S. textile companies are generally prohibited from importing
cotton, the Company must purchase its cotton in the domestic market. From time
to time prior to 1991, price imbalances between world and domestic cotton prices
existed. A series of U.S. legislative initiatives has resulted in the reduction
of the Company's effective cotton costs to near world levels. Because the
availability and cost of cotton are affected by U.S. agricultural policies, the
Company may experience increased cotton costs that cannot be entirely passed on
to its customers.
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 labor cost advantages and the
number of foreign producers of textile products that compete with certain of the
Company's products, 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") to replace GATT. This new body has set forth the
mechanisms by which world trade in textiles and clothing will be progressively
liberalized with the elimination of quotas and the reduction of duties. The
implementation began in January 1995 with the phasing out of quotas and the
13
<PAGE> 19
reduction of duties to take place over a ten-year period. 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: yarns, fabrics, made-up textiles and
apparel. As it implements the WTO mechanisms, the U.S. government is negotiating
bilateral trade agreements with developing countries (which are generally
exporters of textile products) that are members of the WTO to get them to reduce
their tariffs on imports of textiles and apparel. The elimination of quotas and
the reduction of tariffs under the WTO 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") among Canada, Mexico and
the United States, which became effective January 1, 1994, has created the
world's largest free-trade zone. The agreement contains safeguards that were
sought by the U.S. textile industry, including a rule of origin requirement that
products be processed in one of the three countries in order to benefit from
NAFTA. NAFTA will phase out all trade restrictions and tariffs on textiles and
apparel among the three countries. There can be no assurance that the removal of
these barriers to trade will not have a material adverse effect on the Company's
results of operations and financial condition. The Company also competes with
companies from non-NAFTA countries. Governmental or regulatory changes with
respect to non-NAFTA competitors could expose the Company to increased
competition. See "Business -- Competition."
RISK OF ENVIRONMENTAL LIABILITY; OTHER GOVERNMENTAL REGULATIONS
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as storing,
handling and disposal practices for solid and hazardous wastes and (ii) impose
liability for the costs of cleaning up, and certain damages resulting from,
sites of past spills, disposals or other releases of hazardous materials
(together, "Environmental Laws"). In particular, under applicable Environmental
Laws, the Company may be responsible for remediation of environmental conditions
and may be subject to associated liabilities (including liabilities resulting
from lawsuits brought by private litigants) relating to its facilities and the
land on which its facilities are 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. Each of the facilities of Alamac acquired in connection with the
Acquisition also is subject to such Environmental Laws. In connection with the
Acquisition, the Company conducted an environmental investigation of Alamac's
facilities. As a result of such investigation, the Company identified
environmental contamination at the Alamac facilities that will require
remediation activities. The Company estimates that the cost of such remediation
activities will range from approximately $3.5 million to $5.0 million. Pursuant
to the Stock Purchase Agreement, WestPoint Stevens agreed to pay 75% of any
losses occurring within three years of the closing of the Acquisition for
matters identified in the Company's environmental investigation or arising as a
result of a breach of WestPoint Stevens' representations and warranties in
respect of environmental matters up to $10.0 million and 67% of such losses in
excess of $10.0 million and up to $20.0 million. WestPoint Stevens will not be
obligated to indemnify the Company for any such losses in excess of $20.0
million. In addition, WestPoint Stevens agreed to indemnify the Company without
regard to time or dollar limitation for losses resulting from third-party claims
relating to the identified environmental contamination. See "The Acquisition."
No assurance can be given that the costs to remediate any environmental
contamination will not exceed the estimated range or that WestPoint Stevens will
have sufficient liquidity to satisfy any claim for indemnification made by the
Company. In addition, there can be no assurance that any failure to comply, or
compliance in the future, with such Environmental Laws will not have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Business -- Governmental 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. 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
14
<PAGE> 20
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 -- Governmental Regulation."
POTENTIAL FAILURE TO MAKE PAYMENT 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 and unpaid interest and Liquidated
Damages, if any, to the date of purchase. 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 Debt, including indebtedness under the
New Credit Facility or (ii) obtain any requisite consent from its lenders to
permit the repurchase 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 repurchase 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 repurchases 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 repurchase 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 -- Repurchase
at the Option of Holders -- Change of Control."
The events that constitute a Change of Control under the Indenture may also
be events of default under the New Credit Facility or other Senior Debt 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 the assets of the Company,
thereby limiting the Company's ability to raise cash to repurchase the Exchange
Notes and to receive the benefit of the Change of Control provisions by the
holders of the Exchange Notes.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes are being offered to the holders of the Series A Notes.
The Series A Notes were offered and sold in August 1997 (i) to "Qualified
Institutional Buyers" (as defined in Rule 144A under the Securities Act), (ii)
to other institutional "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) and (iii) outside the United States in
reliance on Regulation S under the Securities Act and are eligible for trading
in the Private Offering, Resales and Trading through Automated Linkages
("PORTAL") market.
The Exchange Notes will be a new class of securities for which there
currently is no established trading market. Although the Exchange Notes will
generally be permitted to be resold or otherwise transferred by nonaffiliates of
the Company without compliance with the registration requirements under the
Securities Act, the Company does not intend to apply for listing of the Exchange
Notes on any national securities exchange or for quotation of the Exchange Notes
on any automated dealer quotation system. Although the Initial Purchasers have
informed the Company that they currently intend to make a market in the Exchange
Notes, the Initial Purchasers are not obligated to do so, and any such
market-making may be discontinued at any time without notice. The liquidity of
any market for the Exchange Notes will depend upon the number of holders of the
Exchange Notes, the interest of securities dealers in making a market in the
Exchange Notes and other factors. Accordingly, there can be no assurance as to
the development or liquidity of any market for the Exchange Notes. If an active
trading market for the Exchange Notes does not develop, the market price and
liquidity of the Exchange Notes may be adversely affected. If the Exchange Notes
are traded, they may trade at a discount from their initial offering price,
depending upon prevailing interest rates, the market for similar securities, the
performance of the Company and certain other factors. The liquidity of, and
trading markets for, the Exchange Notes may also be adversely affected by
general declines in the market for non-investment grade debt. Such declines may
adversely affect the liquidity of, and trading markets for, the Exchange Notes
independent of the financial performance of, or prospects for, the Company.
15
<PAGE> 21
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes for Series A Notes pursuant to the Exchange
Offer will be made only after timely receipt by the Exchange Agent of such
Series A Notes, a properly completed, duly executed Letter of Transmittal and
all other required documents. Therefore, Holders desiring to tender their Series
A Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. The Company is under no duty to give notification of defects or
irregularities with respect to the tenders of Series A Notes for exchange. Any
Series A Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof and, upon consummation of the
Exchange Offer, the registration rights under the Registration Rights Agreement
generally will terminate. In addition, any Holder who tenders pursuant to the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities and, if so,
will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Series A Notes, where such Series A 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 "The Exchange Offer."
RESTRICTIONS ON TRANSFER
The Series A Notes were offered and sold by the Company in a private
offering exempt from registration pursuant to the Securities Act and have been
resold pursuant to Rule 144A, Rule 501(a)(1), (2), (3) or (7) and Regulation S
and other exemptions under the Securities Act. As a result, the Series A Notes
may not be reoffered or resold by purchasers except pursuant to an effective
registration statement under the Securities Act or pursuant to an applicable
exemption from such registration, and the Series A Notes are legended to
restrict transfer as aforesaid. Each Holder (other than any Holder who is an
affiliate or promoter of the Company) who duly exchanges Series A Notes for
Exchange Notes in the Exchange Offer will receive Exchange Notes that are freely
transferable under the Securities Act. Holders who participate in the Exchange
Offer should be aware, however, that if they accept the Exchange Offer for the
purpose of engaging in a distribution, the Exchange Notes may not be publicly
reoffered or resold without complying with the registration and prospectus
delivery requirements of the Securities Act. As a result, each Holder accepting
the Exchange Offer will be deemed to have represented, by its acceptance of the
Exchange Offer, that it acquired the Exchange Notes in the ordinary course of
business and that it is not engaged in, and does not intend to engage in, a
distribution of the Exchange Notes. If existing Commission interpretations
permitting free transferability of the Exchange Notes following the Exchange
Offer are changed prior to consummation of the Exchange Offer, the Company will
use its best efforts to register the Series A Notes for resale under the
Securities Act. See "Prospectus Summary -- The Exchange Offer" and "Description
of the Exchange Notes -- Registration Rights; Liquidated Damages."
The Series A Notes currently may be sold pursuant to the restrictions set
forth in Rule 144A, Rule 501(a) (1), (2), (3) or (7) or Regulation S under the
Securities Act or pursuant to another available exemption under the Securities
Act without registration under the Securities Act. To the extent that Series A
Notes are tendered and accepted in the Exchange Offer, the trading market for
the untendered and tendered but unaccepted Series A Notes could be adversely
affected.
16
<PAGE> 22
THE ACQUISITION
On August 27, 1997, the Company acquired all of the outstanding capital
stock of Alamac. The Purchase Price paid in the Acquisition was $126.0 million,
subject to adjustment for changes in working capital and certain other items
related to pension assets and liabilities subsequent to December 31, 1996. Prior
to consummation of the Acquisition, Alamac transferred all of its cash and
assets related to its Whitmire, South Carolina spinning plant to WestPoint
Stevens and, accordingly, such assets were not acquired in the Acquisition. In
addition, Alamac sold its accounts receivable to WestPoint Stevens, who then
sold them to a related-party financing source and, as a result, the Company did
not acquire Alamac's accounts receivable. Accordingly, the Company estimates
that it will be required to finance approximately $40.0 to $45.0 million of
additional working capital.
The Stock Purchase Agreement contained customary representations,
warranties and covenants. Each of the Company and WestPoint Stevens agreed to
indemnify the other and their respective affiliates for breaches of
representations and warranties contained in the Stock Purchase Agreement,
provided that claims with respect thereto (other than environmental and tax
claims) are asserted on or before 15 months from the closing date; provided,
however, that the representations and warranties with respect to environmental
matters survive for a period of three years following the closing and those with
respect to taxes survive for the applicable statute of limitations. The
obligation of WestPoint Stevens to indemnify the Company (other than for
environmental and tax claims) is subject to indemnifiable losses exceeding $1.75
million and then only for indemnifiable losses up to an aggregate of $10.0
million. With respect to environmental matters, the Company conducted an
environmental investigation of Alamac's facilities. As a result of such
investigation, the Company identified environmental contamination at the Alamac
facilities that will require remediation activities. The Company estimates that
the cost of such remediation activities will range from approximately $3.5
million to $5.0 million. WestPoint Stevens has agreed, for a period of three
years following the closing, to pay 75% of any losses for matters identified in
such environmental investigation or arising as a result of a breach of its
representations and warranties in respect of environmental matters up to $10.0
million and 67% of such losses in excess of $10.0 million and up to $20.0
million. WestPoint Stevens will not be obligated to indemnify the Company for
any such losses in excess of $20.0 million. In addition, WestPoint Stevens has
agreed to indemnify the Company without regard to time or dollar limitation for
losses resulting from third-party claims relating to the identified
environmental contamination. See "Risk Factors -- Risk of Environmental
Liability; Other Governmental Regulations."
Pursuant to the Stock Purchase Agreement, the Company and WestPoint Stevens
entered into an Interim Services Agreement pursuant to which WestPoint Stevens
provides certain information, credit, accounts receivable, accounts payable,
purchasing and other corporate services for a period of up to nine months
following the closing.
17
<PAGE> 23
THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
are the material terms of the Exchange Offer, including those set forth in the
Letter of Transmittal distributed with this Prospectus. This summary is
qualified in its entirety by reference to the full text of the documents
underlying the Exchange Offer, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, and are incorporated
by reference herein.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the Series A Notes pursuant to the Purchase
Agreement, dated August 20, 1997 (the "Purchase Agreement"), between the Company
and the Initial Purchasers, the Initial Purchasers became entitled to the
benefits of the Registration Rights Agreement, dated as of August 27, 1997,
between the Company and the Initial Purchasers (the "Registration Rights
Agreement").
Under the Registration Rights Agreement, the Company must use its best
efforts to (a) file a registration statement in connection with a registered
exchange offer within 30 days after August 27, 1997, the date the Series A Notes
were issued (the "Issue Date"), (b) use reasonable best efforts to cause such
registration statement to become effective under the Securities Act within 90
days of the Issue Date, (c) use reasonable best efforts to keep such
registration statement effective until the closing of the Exchange Offer and (d)
cause such registered Exchange Offer to be consummated within 120 days after the
Issue Date. Within the applicable time periods, the Company will endeavor to
register under the Securities Act all of the Exchange Notes pursuant to a
registration statement under which the Company will offer each Holder of Series
A Notes the opportunity to exchange any and all of the outstanding Series A
Notes held by such Holder for Exchange Notes in an aggregate principal amount
equal to the aggregate principal amount of Series A Notes tendered for exchange
by such Holder. Subject to limited exceptions, the Exchange Offer being made
hereby, if commenced and consummated within such applicable time periods, will
satisfy those requirements under the Registration Rights Agreement. In such
event, the Series A Notes would remain outstanding and would continue to accrue
interest, but would not retain any rights under the Registration Rights
Agreement. Holders of Series A Notes seeking liquidity in their investment would
have to rely on exemptions to registration requirements under the securities
laws, including the Securities Act. A copy of the Registration Rights Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The term "Holder" with respect to the Exchange Offer means
any person in whose name the Series A 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.
Because the Exchange Offer is for any and all Series A Notes, the principal
amount of Series A Notes tendered and exchanged in the Exchange Offer will
reduce the principal amount of Series A Notes outstanding. Following the
consummation of the Exchange Offer, Holders who did not tender their Series A
Notes generally will not have any further registration rights under the
Registration Rights Agreement, and such Series A Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such Series A Notes could be adversely affected. The Series A Notes
are currently eligible for sale pursuant to Rule 144A, Rule 501(a)(1), (2), (3)
or (7) or Regulation S through the PORTAL Market. Because the Company
anticipates that most Holders of Series A Notes will elect to exchange such
Series A Notes for Exchange Notes due to the absence of restrictions on the
resale of Exchange Notes under the Securities Act, the Company anticipates that
the liquidity of the market for any Series A Notes remaining after the
consummation of the Exchange Offer may be substantially limited. See
"Description of the Exchange Notes -- Registration Rights; Liquidated Damages."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all
Series A Notes properly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Company will issue $1,000 principal
amount of
18
<PAGE> 24
Exchange Notes in exchange for each $1,000 principal amount of outstanding
Series A Notes accepted in the Exchange Offer. Holders may tender some or all of
their Series A Notes pursuant to the Exchange Offer.
The form and terms of the Exchange Notes are the same as the form and terms
of the Series A Notes except that (i) the Exchange Notes have been registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof, and (ii) the holders of Exchange Notes generally will not be
entitled to certain rights under the Registration Rights Agreement, which rights
generally will terminate upon consummation of the Exchange Offer. The Exchange
Notes will evidence the same debt as the Series A Notes and will be entitled to
the benefits of the Indenture.
Holders of Series A Notes do not have any appraisal or dissenters' rights
in connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Series A
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Holders of Series A Notes for the purposes of receiving the Exchange Notes from
the Company and delivering Exchange Notes to such Holders.
If any tendered Series A Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Series A Notes will be returned, without
expense, to the tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders of Series A Notes who tender pursuant to the Exchange Offer will
not be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Series A Notes pursuant to the Exchange Offer. The Company will pay
all charges and expenses, other than certain applicable taxes, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Exchange Offer shall remain open for acceptance for a period of not
less than 30 days after notice is mailed to Holders (the "Exchange Period"). The
Expiration Date will be 5:00 p.m., New York City time, on , 1997,
unless the Company, in its sole discretion, extends the Exchange Offer, in which
case the Expiration Date will be the latest business day to which the Exchange
Offer is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record Holders an announcement thereof, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
Such announcement may state that the Company is extending the Exchange Offer for
a specified period of time.
The Company reserves the right (i) to delay accepting any Series A Notes,
to extend the Exchange Offer or to terminate the Exchange Offer and not accept
Series A Notes not previously accepted if any of the conditions set forth under
"-- Conditions" shall have occurred and shall not have been waived by the
Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the Holders of such
amendment, and the Company will extend the Exchange Offer for a period of five
to ten business days, depending upon the significance of the amendment and the
manner of disclosure to Holders, if the Exchange Offer would otherwise expire
during such five to ten business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
19
<PAGE> 25
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes is payable semi-annually on March 1 and
September 1 of each year at the rate of 9 3/4% per annum. The Exchange Notes
will bear interest from August 27, 1997, the date of issuance of the Series A
Notes, or the most recent interest payment date to which interest on such Series
A Notes has been paid, whichever is later. Accordingly, Holders of Series A
Notes that are accepted for exchange will not receive interest that is accrued
but unpaid on the Series A Notes at the time of tender, but such interest will
be payable in respect of the Exchange Notes delivered in exchange for such
Series A Notes on the first interest payment date after the Expiration Date.
PROCEDURES FOR TENDERING
Only a Holder of Series A Notes may tender such Series A Notes pursuant to
the Exchange Offer. To tender pursuant to the Exchange Offer, a Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by instruction 4 of the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile, together with the Series A Notes and any other required documents, to
the Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration
Date. Delivery of the Series A Notes may be made by book-entry transfer in
accordance with the procedures described below. Confirmation of such book-entry
transfer must be received by the Exchange Agent prior to the Expiration Date.
The tender by a Holder of Series A Notes and the acceptance thereof by the
Company will constitute an agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF SERIES A NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. NO LETTER OF TRANSMITTAL OR SERIES A NOTES SHOULD BE SENT TO THE COMPANY.
HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES TO EFFECT SUCH TENDER FOR SUCH HOLDERS.
Any beneficial Holder whose Series A Notes are registered in the name of
such Holder's broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender should contact such registered holder promptly and
instruct such registered holder to tender on his behalf. If such beneficial
Holder wishes to tender on such beneficial Holder's behalf, such beneficial
Holder must, prior to completing and executing the Letter of Transmittal and
delivering his Series A Notes, either make appropriate arrangements to register
ownership of the Series A Notes in such Holder's name or obtain a properly
completed bond power from the registered holder. The transfer of record
ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution") unless the Series A
Notes tendered pursuant thereto are tendered (i) by a registered Holder who has
not completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantee must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Series A Notes listed therein, such Series A Notes must
be endorsed or accompanied by appropriate bond powers and a proxy
20
<PAGE> 26
which authorizes such person to tender the Series A Notes on behalf of the
registered Holder, in each case signed as the name of the registered Holder or
Holders appears on the Series A Notes with the signature thereon guaranteed by
an Eligible Institution.
If the Letter of Transmittal or any Series A Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect to
the Series A Notes at the DTC for the purpose of facilitating the Exchange
Offer, and subject to the establishment thereof, any financial institution that
is a participant in the DTC may make book-entry delivery of the Series A Notes
by causing the DTC to transfer such Series A Notes into the Exchange Agent's
account with respect to the Series A Notes in accordance with the DTC's
procedures for such transfer. Although delivery of the Series A Notes may be
effected through book-entry transfer into the Exchange Agent's account at the
DTC, a Letter of Transmittal properly completed and duly executed with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures. Delivery of documents to the DTC does not
constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Series A Notes and withdrawal of the tendered
Series A Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Series A Notes not properly tendered or any Series A Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Series A Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including, the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Series A Notes must be cured within such time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Series A Notes, nor shall any of them incur any
liability for failure to give such notification. Tenders of Series A Notes will
not be deemed to have been made until such irregularities have been cured or
waived. Any Series A 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 Series A Notes, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series A Notes and (i) whose Series A
Notes are not immediately available, or (ii) who cannot deliver their Series A
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent (or comply with the procedures for book-entry transfer) prior to the
Expiration Date, may effect a tender if:
a. the tender is made through an Eligible Institution;
b. prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Series A Notes, the
certificate or registration number or numbers of such Series A Notes and
the principal amount of Series A Notes tendered, stating that the tender is
being made thereby, and guaranteeing that, within five business days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Series A Notes to be
tendered in proper form for transfer (or a confirmation of book-
21
<PAGE> 27
entry transfer of such Series A Notes into the Exchange Agent's account at
the Depository) and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
c. such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Series A Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Series A Notes into the Exchange Agent's
account at the Depository) and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five business days
after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Series A Notes pursuant to the Exchange Offer, a
written or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at the address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Series A Notes to be withdrawn (the
"Depositor"), (ii) identify the Series A Notes to be withdrawn (including the
certificate or registration number(s) and principal amount of such Series A
Notes, or, in the case of notes transferred by book-entry transfer, the name and
number of the account at the DTC to be credited), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Series A Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee (as defined herein) with respect to the Series A Notes register
the transfer of such Series A Notes into the name of the Depositor withdrawing
the tender, (iv) specify the name in which any such Series A Notes are to be
registered, if different from that of the Depositor and (v) include a statement
that such Holder is withdrawing such Holder's election to have such Series A
Notes exchanged. All questions as to the validity, form and eligibility
(including time of receipt) of such withdrawal notices will be determined by the
Company, whose determination shall be final and binding on all parties. Any
Series A Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer, and no Exchange Notes will be issued with
respect thereto unless the Series A Notes so withdrawn are validly retendered.
Any Series A Notes which have been tendered but which are not accepted for
payment will be returned to the Holder thereof without cost to such Holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Series A Notes may be retendered by following
one of the procedures described under "-- Procedures for Tendering" at any time
prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange Exchange Notes for, any
Series A Notes, and may terminate or amend the Exchange Offer as provided herein
before the acceptance of such Series A Notes, if:
(i) any law, statute, rule, regulation or interpretation by the staff
of the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(ii) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Series A
Notes and return all tendered Series A Notes to the tendering Holders, (ii)
extend the Exchange Offer and retain all Series A Notes tendered prior to the
expiration of the Exchange Offer subject, however, to the rights of Holders to
withdraw such Series A Notes (see
22
<PAGE> 28
"-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Series A Notes
which have not been withdrawn. If such waiver constitutes a material change to
the Exchange Offer, the Company will promptly disclose such waiver by means of a
prospectus supplement that will be distributed to the registered Holders, and,
depending upon the significance of the waiver and the manner of disclosure to
the registered Holders, the Company will extend the Exchange Offer for a period
of five to ten business days if the Exchange Offer would otherwise expire during
such five to ten business-day period.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<C> <C> <C>
By Mail By Facsimile Transmission: By Hand or Overnight Courier:
(registered or certified mail (617) 664-5395
recommended): State Street Bank and
Trust Company
State Street Bank and Corporate Trust Department,
Trust Company To Confirm by Telephone 4th floor
Corporate Trust Department or for Information Call: Two International Place
P.O. Box 778 (617) 664-5587 Boston, MA 02110
Boston, MA 02102-0078
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone or in person by officers and regular employees of
the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith and pay other registration expenses, including fees and
expenses of the Trustee, filing fees, blue sky fees and printing and
distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Series A Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Series A Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered holder of the Series
A Notes tendered, or if tendered Series A 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 Series A 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 same carrying value as the
Series A Notes, which is the aggregate principal amount of the Series A Notes,
as reflected in the Company's accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized in
connection with the Exchange Offer. The cost of the Exchange Offer will be
deferred and amortized over the term of the Exchange Notes.
23
<PAGE> 29
RESALE OF THE EXCHANGE NOTES
Under existing Commission interpretations, the Exchange Notes would, in
general, be freely transferable after the Exchange Offer by any holder of such
Exchange Notes (other than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 of the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes acquired pursuant to the Exchange Offer are
obtained in the ordinary course of such holder's business, and such holder does
not intend to participate, and has no arrangement or understanding to
participate, in the distribution of such Exchange Notes. Any holder who tenders
pursuant to the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Exchange Notes may not rely
on the position of the staff of the Commission enunciated in Exxon Capital
Holdings Corporation (available May 13, 1988) or Morgan Stanley & Co.,
Incorporated (available June 5, 1991) or similar interpretive letters, but
rather must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction. In
addition, any such resale transaction should be covered by an effective
registration statement containing the selling security holders information
required by Item 507 of Regulation S-K of the Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Series A Notes, where such Series A Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Company has agreed to make available a prospectus meeting the requirements of
the Securities Act to any such broker-dealer for use in connection with any
resale of any Exchange Notes acquired in the Exchange Offer. A broker-dealer
which delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the
Securities Act and will be bound by the provisions of the Registration Rights
Agreement (including certain indemnification rights and obligations).
By tendering pursuant to the Exchange Offer, each Holder will represent to
the Company, among other things, that (i) the Exchange Notes acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of its business,
(ii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of the Exchange
Notes, and (iii) the holder and any such other person acknowledge that if they
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes (a) they must, in the absence of an exemption therefrom, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such holder incurring liability
under the Securities Act for which such holder is not indemnified by the
Company. Further, by tendering in the Exchange Offer, each holder that may be
deemed an "affiliate" (as defined in Rule 405 of the Securities Act) of the
Company will represent to the Company that such holder understands and
acknowledges that the Exchange Notes may not be offered for resale, resold or
otherwise transferred by that Holder without registration under the Securities
Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
Holders of Series A Notes who do not tender their Series A Notes generally will
not have any further registration rights under the Registration Rights Agreement
or otherwise. Accordingly, any Holder that does not exchange such Holder's
Series A Notes for Exchange Notes will continue to hold the untendered Series A
Notes and will be entitled to all the rights and limitations applicable thereto
under the Indenture, except to the extent that such rights or limitations, by
their terms, terminate or cease to have further effectiveness as a result of the
Exchange Offer.
24
<PAGE> 30
The Series A Notes that are not exchanged for Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Series A
Notes may be resold only (i) to the Company (upon redemption thereof or
otherwise), (ii) pursuant to an effective registration statement under the
Securities Act, (iii) so long as the 144A Notes are eligible for resale pursuant
to Rule 144A under the Securities Act, to a Qualified Institutional Buyer in a
transaction meeting the requirements of Rule 144A, (iv) outside the United
States to a foreign person pursuant to the exemption from the registration
requirements of the Securities Act provided by Regulation S thereunder, (v)
pursuant to an exemption from registration under the Securities Act provided by
Rule 144 thereunder (if available) or Rule 501(a)(1), (2), (3) or (7) or (vi) to
an Accredited Investor in a transaction exempt from the registration
requirements of the Securities Act, in each case in accordance with any
applicable securities laws of any state of the United States or other applicable
jurisdiction. See "Risk Factors -- Restrictions on Transfer."
OTHER
Participation in the Exchange Offer is voluntary, and Holders should
carefully consider whether to accept. Holders are urged to consult their
financial and tax advisors in making their own decision on what action to take.
The Company may in the future seek to acquire untendered Series A Notes, to
the extent permitted by applicable law, in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plans to acquire any Series A Notes that are not tendered in the
Exchange Offer or to file a registration statement to permit resales of any
untendered Series A Notes.
In any state where the Exchange Offer does not fall under a statutory
exemption to the blue sky rules, the Company has filed the appropriate
registrations and notices, and has made the appropriate requests, to permit the
Exchange Offer to be made in such state.
25
<PAGE> 31
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed Treasury
Department regulations (the "Regulations") and existing administrative
interpretations and court decisions. There can be no assurance that the Internal
Revenue Service (the "IRS") will not take a contrary view, and no ruling from
the IRS has been or will be sought. Legislative, judicial or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conditions set forth herein. Any such changes or interpretations
may or may not be retroactive and could affect the tax consequences to Holders.
Certain Holders of the Series A Notes (including insurance companies, tax-exempt
organizations, financial institutions, broker-dealers, foreign corporations and
persons who are not citizens or residents of the United States) may be subject
to special rules not discussed below. Each Holder of Series A Notes should
consult his, her or its own tax advisor as to the particular tax consequences of
exchanging such Holder's Series A Notes for Exchange Notes, including the
applicability and effect of any state, local or foreign tax laws.
The issuance of the Exchange Notes to Holders of the Series A Notes
pursuant to the terms set forth in this Prospectus will not constitute an
exchange for United States federal income tax purposes because such exchange
does not represent a significant modification of the debt instruments.
Consequently, no gain or loss would be recognized by Holders of the Series A
Notes upon receipt of the Exchange Notes, and ownership of the Exchange Notes
will be considered a continuation of ownership of the Series A Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of the
Exchange Notes, a Holder's basis in the Exchange Notes should be the same as
such Holder's basis in the Series A Notes exchanged therefor. A Holder's holding
period for the Exchange Notes should include the Holder's holding period for the
Series A Notes exchanged therefor. The issue price, original issue discount
inclusion and other tax characteristics of the Exchange Notes should be
identical to the issue price, original issue discount inclusion and other tax
characteristics of the Series A Notes exchanged therefor.
See also "Description of Certain Federal Income Tax Consequences of an
Investment in the Exchange Notes."
26
<PAGE> 32
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange of Series A
Notes pursuant to the Exchange Offer. The net proceeds from the Offering were
approximately $121.5 million, after deducting the discount to the Initial
Purchasers and offering expenses. The Company used the net proceeds, together
with borrowings under the New Credit Facility, to finance the Transactions.
The following table sets forth the estimated sources and uses of funds in
connection with the Transactions (assuming consummation of the Transactions on
July 5, 1997):
<TABLE>
<CAPTION>
AMOUNT
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
SOURCES OF FUNDS:
New Credit Facility (1):
Revolving credit agreement (2)......................... $ 28,995
Term loan.............................................. 50,000
Series A Notes......................................... 125,000
--------
Total sources........................................ $203,995
========
USE OF FUNDS:
Acquisition Purchase Price (2)............................ $126,000
Repayment of the Company's existing credit facility (3)... 43,380
Repayment of the Company's senior notes due 2005 (4)...... 25,700
Fees and expenses (5)..................................... 8,915
--------
Total uses........................................... $203,995
========
</TABLE>
- ------------------------------
(1) The New Credit Facility consists of a five-year revolving credit facility
providing up to $110.0 million of availability (the "Revolver") and a
five-year $50.0 million term loan facility (the "Term Loan"). Advances under
the Revolver are based on a borrowing base formula of inventory and
receivables. The Term Loan has a scheduled amortization of $7.5 million
during each of the first and second years following the closing; $10.0
million during the third year following the closing; and $12.5 million
during the fourth and fifth years following the closing. See "Description of
New Credit Facility."
(2) Does not include an estimated $40.0 to $45.0 million anticipated to be
required to finance working capital needs and does not reflect any
post-closing Purchase Price adjustment. See "The Acquisition."
(3) Represents borrowings outstanding as of July 5, 1997 plus $0.443 million in
accrued interest. This indebtedness was incurred for working capital
purposes and matures on July 16, 1998. Borrowings under this facility bear
interest as of July 5, 1997 at a weighted average rate of 7.3% per annum.
See Note 4 of Notes to the Company's Consolidated Financial Statements.
(4) Represents senior notes of the Company outstanding as of July 5, 1997 plus
$0.7 million in accrued interest. The senior notes bear interest at 6.78%
per annum and require annual principal payments of $3,125,000 from 1998
through 2005.
(5) Includes estimated fees and expenses incurred in connection with the
Transactions.
27
<PAGE> 33
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of July 5, 1997 and as adjusted to give effect to the Transactions.
This table should be read in conjunction with "Unaudited Pro Forma Condensed
Consolidated Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical financial
statements of the Company and Alamac and related notes thereto included
elsewhere herein.
<TABLE>
<CAPTION>
JULY 5, 1997
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Existing credit facility.................................. $ 42,937 $ --
New Credit Facility (1):
Revolving credit agreement............................. -- 28,995(2)
Term loan.............................................. -- 50,000
Senior notes due 2005..................................... 25,000 --
Industrial revenue bonds.................................. 7,900 7,900
Series A Notes............................................ -- 125,000
-------- --------
Total long-term debt, including current portion... 75,837 211,895
-------- --------
Shareholders' equity:
Common stock, $0.01 par value; 40,000,000 shares
authorized; 13,139,658 shares issued and outstanding... 131 131
Additional paid-in capital................................ 41,355 41,355
Retained earnings......................................... 54,703 53,903(3)
-------- --------
Total shareholders' equity............................. 96,189 95,389
-------- --------
Total capitalization.............................. $172,026 $307,284
======== ========
</TABLE>
- ---------------
(1) The New Credit Facility consists of a five-year Revolver providing up to
$110.0 million of availability and a five-year $50.0 million Term Loan.
Advances under the Revolver are based on a borrowing base formula of
inventory and receivables. The Term Loan has a scheduled amortization of
$7.5 million during each of the first and second years following the
closing; $10.0 million during the third year following the closing; and
$12.5 million during the fourth and fifth years following the closing. See
"Description of New Credit Facility."
(2) Does not include an estimated $40.0 to $45.0 million anticipated to be
required to finance working capital needs and does not reflect any
post-closing Purchase Price adjustment. See "The Acquisition."
(3) Includes an extraordinary loss of $0.8 million, net of tax benefit of $0.5
million, associated with the commitment fee paid for unused bridge loan
financing which was expensed by the Company at the time the Transactions
were consummated.
28
<PAGE> 34
SELECTED FINANCIAL DATA
The following selected financial data as of and for each fiscal year in the
five-year period ended September 28, 1996 have been derived from the
consolidated financial statements of the Company, which financial statements
have been audited by Ernst & Young LLP, independent auditors. The financial
statements of the Company as of September 30, 1995 and September 28, 1996 and
for each of the three years in the period ended September 28, 1996, are included
elsewhere in this Prospectus. The following selected financial data as of and
for the nine months ended June 29, 1996 and July 5, 1997 have been derived from
the unaudited consolidated financial statements of the Company, which, in the
opinion of management, include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the information set
forth therein. Due to the seasonality of operations, and other factors, the
results of operations for the nine months ended July 5, 1997 are not indicative
of the results that may be expected for the full year. The following information
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
-------------------------------------------------------------------- -------------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JULY 5,
1992 (1) 1993 1994 (2) 1995 1996 1996 1997
---------- ---------- ---------- ------------- ------------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $151,497 $151,283 $180,520 $199,413 $195,866 $136,574 $158,214
Cost of sales........................ 111,704 114,279 139,754 159,245 152,884 108,290 120,677
-------- -------- -------- -------- -------- -------- --------
Gross profit......................... 39,793 37,004 40,766 40,168 42,982 28,284 37,537
Selling, general and administrative
expenses........................... 13,771 13,400 16,223 17,447 20,707 14,418 18,538
-------- -------- -------- -------- -------- -------- --------
Operating income..................... 26,022 23,604 24,543 22,721 22,275 13,866 18,999
Goodwill amortization................ 1,444 1,444 1,721 1,857 1,857 1,393 1,400
Interest and amortization of debt
costs.............................. 10,235 4,314 4,978 6,169 6,164 4,590 4,465
Write-down of fixed assets........... -- -- -- 2,153 -- -- --
-------- -------- -------- -------- -------- -------- --------
Income before income taxes and
extraordinary item................. 14,343 17,846 17,844 12,542 14,254 7,883 13,134
Federal and state income taxes....... 6,619 7,738 7,496 5,982 5,854 3,278 5,188
Extraordinary item -- debt
retirement......................... (2,238) (472) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income........................... $ 5,486 $ 9,636 $ 10,348 $ 6,560 $ 8,400 $ 4,605 $ 7,946
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA (3)........................... $ 33,194 $ 31,552 $ 33,173 $ 32,722 $ 31,848 $ 21,117 $ 26,717
Depreciation and amortization........ 9,070 9,588 10,533 12,030 11,602 8,773 9,228
Capital expenditures................. 10,256 6,632 14,278 12,816 11,778 10,777 5,685
Ratio of earnings to fixed charges
(4)................................ 2.4x 4.7x 4.2x 2.8x 3.0x 2.5x 3.4x
OPERATING DATA:
Net sales per average number of
employees (in thousands)........... $ 127 $ 127 $ 122 $ 131 $ 135 $ 94 $ 106
Average number of employees.......... 1,190 1,196 1,476 1,520 1,456 1,451 1,499
Average selling price per pound of
fabric sold........................ $ 3.25 $ 3.21 $ 3.54 $ 3.79 $ 4.03 $ 4.01 $ 4.27
Total pounds of fabric sold (in
millions).......................... 46.7 47.2 51.0 52.6 48.6 34.0 36.7
</TABLE>
<TABLE>
<CAPTION>
AS OF
------------------------------------------------------------------------------------------
OCTOBER 3, OCTOBER 2, OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JULY 5,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ------------- ------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... $ 26,294 $ 33,747 $ 47,219 $ 45,227 $ 52,083 $ 60,920 $ 57,346
Property, plant and equipment, net... 55,472 54,112 65,460 65,834 67,758 69,098 65,685
Total assets......................... 145,322 148,040 194,192 188,872 195,007 209,194 205,367
Long-term obligations................ 70,400 64,900 87,276 76,800 80,950 93,339 75,837
Shareholders' equity................. 55,700 65,161 80,266 86,258 88,742 87,903 96,189
</TABLE>
- ------------------------------
(1) Each of the fiscal years presented is a 52-week period, except for fiscal
1992, which is a 53-week period.
(2) Includes the results of operations of United Knitting effective with its
acquisition by the Company on January 19, 1994.
(3) EBITDA represents income before interest and amortization of debt costs,
federal and state income taxes, depreciation and amortization and
extraordinary items. In fiscal 1995, EBITDA also excludes the write-down of
fixed assets. EBITDA is generally considered to provide information
regarding a company's ability to service and/or incur debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash flows
from operations or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity.
(4) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of income before extraordinary item and federal and state income
taxes, plus fixed charges. Fixed charges consist of interest and
amortization of debt costs plus that portion of rental payments on operating
leases deemed representative of the interest factor.
29
<PAGE> 35
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as
of July 5, 1997 and the unaudited pro forma condensed consolidated statements of
operations for the fiscal year ended September 28, 1996 and the nine and twelve
months ended July 5, 1997 (the "Pro Forma Financial Statements") are derived
from (i) the Company's consolidated balance sheet as of July 5, 1997 and its
consolidated income statements for the fiscal year ended September 28, 1996 and
the nine and twelve months ended July 5, 1997, and (ii) the balance sheet of
Alamac as of June 30, 1997 and its statements of operations for the year ended
December 31, 1996 and the nine and twelve months ended June 30, 1997.
The Pro Forma Financial Statements give effect to (i) the Acquisition, (ii)
the Offering, (iii) the borrowings under the New Credit Facility and (iv) the
application of the net proceeds from the Offering and the borrowings under the
New Credit Facility to finance the Acquisition and repay amounts outstanding
under existing debt agreements as described in "Use of Proceeds." The Pro Forma
Financial Statements give effect to the Transactions as if they had occurred on
July 5, 1997 in the case of the balance sheet, and on October 1, 1995 in the
case of the statements of operations.
The pro forma adjustments are based upon available information and certain
assumptions that the Company believes are reasonable. The Pro Forma Financial
Statements do not purport to represent what the Company's results of operations
or financial position would actually have been had the Transactions in fact
occurred on such dates or to project results of operations for or at any future
period or date. The Pro Forma Financial Statements should be read in conjunction
with "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements of the Company
and Alamac and the notes thereto included elsewhere in this Prospectus.
The Acquisition will be accounted for under the purchase method of
accounting. The total purchase price for the Acquisition will be allocated to
the assets and liabilities acquired based upon their relative fair values at the
closing of the Acquisition, based upon valuation and other studies which are not
yet complete. The allocation of the purchase price reflected herein is subject
to revision when additional information from the valuations and studies become
available. However, the Company does not expect that the effects of the final
allocation will differ materially from those set forth herein.
30
<PAGE> 36
DYERSBURG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DYERSBURG
CORPORATION ALAMAC
YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
SEPTEMBER 28, 1996(A) DECEMBER 31, 1996(A) ADJUSTMENTS CONSOLIDATED
--------------------- -------------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales...................... $195,866 $222,019 $417,885
Cost of sales.................. 152,884 196,518 $ 2,011(b) 351,413
Selling, general and
administrative expenses...... 20,707 17,495 (2,111)(c) 36,091
Goodwill amortization.......... 1,857 -- 577(d) 2,434
Interest and amortization of
debt costs................... 6,164 8,678 8,787(e) 23,629
-------- -------- -------- --------
181,612 222,691 9,264 413,567
-------- -------- -------- --------
Income (loss) before income
taxes........................ 14,254 (672) (9,264) 4,318
Federal and state income taxes
(benefit).................... 5,854 (385) (3,335)(f) 2,134
-------- -------- -------- --------
Net income (loss).............. $ 8,400 $ (287) $ (5,929) $ 2,184(h)
======== ======== ======== ========
Net income per share........... $ 0.62 $ 0.16
Weighted average common shares
outstanding.................. 13,643 13,643
Other data:
EBITDA(g)................. $ 31,848 $ 48,013
Ratio of EBITDA to
interest expense........ 2.0x
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
31
<PAGE> 37
DYERSBURG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 5, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DYERSBURG
CORPORATION ALAMAC
NINE MONTHS NINE MONTHS
ENDED ENDED PRO FORMA PRO FORMA
JULY 5, 1997 JUNE 30, 1997(A) ADJUSTMENTS CONSOLIDATED
------------ ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales.................................. $158,214 $183,728 $341,942
Cost of sales.............................. 120,677 160,026 $ 1,508(b) 282,211
Selling, general and administrative
expenses................................. 18,538 11,560 (1,540)(c) 28,558
Goodwill amortization...................... 1,400 -- 433(d) 1,833
Interest and amortization of debt costs.... 4,465 6,692 6,267(e) 17,424
-------- -------- ------- --------
145,080 178,278 6,668 330,026
-------- -------- ------- --------
Income before income taxes................. 13,134 5,450 (6,668) 11,916
Federal and state income taxes............. 5,188 1,907 (2,400)(f) 4,695
-------- -------- ------- --------
Net income................................. $ 7,946 $ 3,543 $(4,268) $ 7,221(h)
======== ======== ======= ========
Net income per share....................... $ 0.60 $ 0.55
Weighted average common shares
outstanding.............................. 13,135 13,135
Other data:
EBITDA (g)............................... $ 26,717 $ 45,068
Ratio of EBITDA to interest expense...... 2.6x
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
32
<PAGE> 38
DYERSBURG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED JULY 5, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DYERSBURG ALAMAC
CORPORATION TWELVE MONTHS
TWELVE MONTHS ENDED
ENDED JUNE 30, PRO FORMA PRO FORMA
JULY 5, 1997(A) 1997(A) ADJUSTMENTS CONSOLIDATED
--------------- ---------------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales.................................. $217,506 $235,808 $453,314
Cost of sales.............................. 165,271 206,400 $ 2,011(b) 373,682
Selling, general and administrative
expenses................................. 24,827 16,034 (2,088)(c) 38,773
Goodwill amortization...................... 1,864 -- 577(d) 2,441
Interest and amortization of debt costs.... 6,039 8,820 8,494(e) 23,353
-------- -------- ------- --------
198,001 231,254 8,994 438,249
-------- -------- ------- --------
Income before income taxes................. 19,505 4,554 (8,994) 15,065
Federal and state income taxes............. 7,764 1,537 (3,238)(f) 6,063
-------- -------- ------- --------
Net income................................. $ 11,741 $ 3,017 $(5,756) $ 9,002(h)
======== ======== ======= ========
Net income per share....................... $ 0.89 $ 0.68
Weighted average common shares
outstanding.............................. 13,253 13,253
Other data:
EBITDA(g)................................ $ 37,448 $ 59,126
Ratio of EBITDA to interest expense...... 2.5x
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.
33
<PAGE> 39
DYERSBURG CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) The Company's statement of operations for the twelve months ended July 5,
1997 and Alamac's statements of operations for the nine and twelve months
ended June 30, 1997 represent a compilation of statements of operations for
each quarterly period in such nine and twelve-month periods. As a result,
such statements of operations include estimates inherent in preparing
interim financial statements. The operating results of the Company for the
three months ended September 28, 1996 have been included in both the pro
forma statements of operations for the year ended September 28, 1996 and the
twelve months ended July 5, 1997. Net sales and net income of the Company
for the three months ended September 28, 1996 were $59,292 and $3,795,
respectively. The operating results of Alamac for the three months ended
September 30, 1996 have been included in both the pro forma statements of
operations for the year ended September 28, 1996 and the twelve months ended
July 5, 1997. Net sales and net loss of Alamac for the three months ended
September 30, 1996 were $52,080 and $526, respectively. The operating
results of Alamac for the three months ended December 31, 1996 have been
included in the pro forma statements of operations for the year ended
September 28, 1996, and the nine and twelve months ended July 5, 1997. Net
sales and net income of Alamac for the three months ended December 31, 1996
were $55,935 and $905, respectively.
(b) The assets of Alamac's Whitmire, South Carolina spinning plant were
transferred to WestPoint Stevens prior to the Acquisition. The increase in
cost of goods sold reflects the estimated incremental cost of purchasing
yarn from third-party vendors at market rates compared to the Whitmire cost
of production included in the historical Alamac statements of operations.
(c) Reflects the elimination of certain management and other fees allocated to
Alamac by WestPoint Stevens for services which will not be incurred by
Alamac under the Company's ownership. In addition to these management and
other allocated fees, the Company has identified anticipated annual cost
savings (which are not included in pro forma adjustments) of approximately
$3,000 in selling, general and administrative expenses. The Company is in
the process of developing formal plans to achieve these estimated savings.
As management continues to gain additional information and formulate its
transition strategy, other areas of potential cost savings may be
identified. However, there can be no assurance that any of these anticipated
savings can be achieved or that the effects of any such savings will not be
offset by unexpected, unforeseen increases in other costs.
(d) Reflects the increased goodwill amortization expense based upon the
preliminary purchase price allocation of the Acquisition, using the
straight-line method over a 40-year life.
34
<PAGE> 40
DYERSBURG CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(e) Reflects the pro forma adjustment to interest expense with respect to the
following:
<TABLE>
<CAPTION>
TWELVE
FISCAL YEAR NINE MONTHS MONTHS
ENDED ENDED ENDED
SEPTEMBER 28, 1996 JULY 5, 1997 JULY 5, 1997
------------------ ------------ ------------
<S> <C> <C> <C>
Interest expense and amortization of deferred debt
costs incurred under the New Credit Facility at a
LIBOR-based rate, assumed to be 8.0%, based on
the pro forma estimated average outstanding
balance of $129,000, $121,200 and $122,300 for
each of the pro forma periods,
respectively(1)(2)............................... $10,679 $ 7,753 $10,425
Interest expense and amortization of deferred debt
costs incurred in connection with the $125,000 of
Series A Notes................................... 12,545 9,409 12,545
Elimination of the Company's historical interest
expense and fees associated with the existing
credit facility and senior notes assumed to be
repaid from the proceeds of the New Credit
Facility and the Series A Notes.................. (5,540) (3,871) (5,281)
Elimination of Alamac historical interest
expense.......................................... (8,897) (7,024) (9,195)
------- ------- -------
Net increase in interest expense................. $ 8,787 $ 6,267 $ 8,494
======= ======= =======
</TABLE>
- ---------
(1) Includes interest on assumed outstanding borrowings in all periods
presented of $42,500 to fund working capital. See note (e) of the notes
to unaudited pro forma condensed consolidated balance sheet.
(2) A 1/8% increase in the assumed interest rate on the New Credit
Facility would increase interest expense by $161, $114 and $153 for the
year ended September 28, 1996, and the nine and twelve months ended
July 5, 1997, respectively.
(f) Reflects the income tax effect of the pro forma adjustments at the statutory
rate of 36%.
(g) EBITDA represents income before interest and amortization of debt costs,
federal and state income taxes, and depreciation and amortization. EBITDA is
generally considered to provide information regarding a company's ability to
service and/or incur debt. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operations, or other
consolidated income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's profitability
or liquidity.
(h) Excludes the non-recurring extraordinary loss of $800, net of tax benefit
of $450, associated with the commitment fee paid for unused bridge loan
financing which will be expensed by the Company at the time the
Transactions are consummated.
35
<PAGE> 41
DYERSBURG CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 5, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DYERSBURG ALAMAC
CORPORATION JUNE 30, PRO FORMA PRO FORMA
JULY 5, 1997 1997 ADJUSTMENTS CONSOLIDATED
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................................. $ 1,677 $ 2,135 $ (2,135)(a) $ 1,677
Accounts receivable, net.............. 48,522 -- 48,522
Inventories........................... 30,456 32,785 (1,516)(a) 62,998
1,273(c)
Prepaid expenses and other............ 846 4,846 (3,506)(a) 5,589
3,403(c)
-------- -------- -------- --------
Total current assets.................... 81,501 39,766 (2,481) 118,786
Property, plant and equipment, net...... 65,685 102,233 (18,262)(a) 149,656
Goodwill................................ 57,697 -- 23,072(c) 80,769
Deferred debt costs and other........... 484 -- 6,700(b) 7,184
-------- -------- -------- --------
Total assets............................ $205,367 $141,999 $ 9,029 $356,395
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................ $ 12,173 $ 6,853 $ 19,026
Accrued expenses...................... 11,982 6,098 $ (1,143)(b) 20,899
4,412(c)
(450)(b)(d)
Deferred income taxes................. -- 2,456 (2,456)(c) --
Current portion of long-term
obligations........................ -- -- 7,500(b) 7,500
-------- -------- -------- --------
Total current liabilities............... 24,155 15,407 7,863 47,425
Deferred income taxes and other......... 9,186 20,551 (20,551)(c) 9,186
Long-term obligations................... 75,837 80,735 (80,735)(a) 204,395
203,995(b)(e)
(67,937)(b)
(7,500)(b)
-------- -------- -------- --------
Total liabilities....................... 109,178 116,693 35,135 261,006
Shareholders' equity:
Common stock.......................... 131 -- 131
Additional paid-in capital............ 41,355 -- 41,355
Retained earnings..................... 54,703 -- (800)(b)(d) 53,903
Net equity of Alamac.................. -- 25,306 55,316(a) --
(80,622)(c)
-------- -------- -------- --------
Total shareholders' equity.............. 96,189 25,306 (26,106) 95,389
-------- -------- -------- --------
Total liabilities and shareholders'
equity................................ $205,367 $141,999 $ 9,029 $356,395
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated balance
sheet.
36
<PAGE> 42
DYERSBURG CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Reflects the transfer of certain assets and liabilities, including the
Whitmire, South Carolina spinning plant, to WestPoint Stevens or its
affiliates prior to the Acquisition.
(b) Reflects the financing of the Acquisition and certain other financing
transactions as follows:
<TABLE>
<S> <C>
Proceeds from the Series A Notes............................ $125,000
Initial borrowings under New Credit Facility................ 78,995
--------
Gross proceeds.............................................. 203,995
Repayment of existing credit facility....................... (42,937)
Repayment of existing senior notes.......................... (25,000)
Payment of accrued interest................................. (1,143)
Debt costs.................................................. (6,700)
Other costs................................................. (1,250)
--------
Net proceeds after refinancing.................... $126,965
========
</TABLE>
At the close of the Transactions, the current portion of the New Credit
Facility will be $7,500.
(c) The Acquisition will be accounted for under the purchase method of
accounting pursuant to which the purchase price will be allocated to the
acquired assets and liabilities based upon their relative fair values as of
the closing date. The preliminary allocation of the purchase price
($126,000, plus acquisition costs of $965) is summarized below:
<TABLE>
<S> <C>
Inventory................................................... $ 32,542
Prepaid expenses and other.................................. 4,743
Property, plant and equipment............................... 83,971
Goodwill.................................................... 23,072
Accounts payable............................................ (6,853)
Accrued liabilities......................................... (10,510)
--------
Net purchase price................................ $126,965
========
</TABLE>
The Stock Purchase Agreement contemplates a post-closing adjustment to
adjust the purchase price for changes in working capital and certain
pension obligations, as defined, between December 31, 1996 and the closing
date. No working capital or pension adjustment has been included in the
above purchase price allocation.
(d) Reflects the extraordinary loss of $800, net of tax benefit of $450,
associated with the commitment fee paid for unused bridge loan financing
which will be expensed by the Company at the time the Transactions are
consummated.
(e) Historically, Alamac accounts receivable have been sold to WestPoint
Stevens, who then sold them to a related-party financing source.
Accordingly, the Company estimates that, in addition to the purchase price,
it will be required to finance approximately $40,000 to $45,000 of
additional working capital following the Acquisition. These estimated
borrowings to fund working capital are not reflected in the unaudited pro
forma condensed consolidated balance sheet as of July 5, 1997.
37
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Dyersburg is a leading manufacturer of knit fleece, jersey and stretch
fabrics sold principally to domestic apparel producers. The Company's fleece
fabrics are used to produce (i) outerwear apparel suitable for outdoor
recreational activities, as well as casual sportswear, (ii) children's and
women's sportswear, including sweatshirts and sweatpants, (iii) infant blanket
sleepers and (iv) blankets and throws. The Company's jersey fabrics are used to
produce a broad range of women's and children's lightweight apparel, including
tops and shorts. The Company's stretch fabrics are used to produce a variety of
activewear, including dancewear, swimwear, biking and running garments,
recreational and casual sportswear, and intimate apparel.
In 1992, in response to declining market prices for the Company's basic
fleece and jersey fabrics, the Company initiated a strategy to expand its
product assortment by developing and marketing higher margin, value-added
products. Therefore, results of operations have been impacted, in part, by
management's strategies to improve product mix, modernize and enhance
manufacturing operations and expand marketing, sales and customer service
resources. Results of operations also have been impacted by consumer demand for
apparel products, industry trends toward more casual dress, raw material costs
and government legislation. See "Business."
Since 1993, the Company has introduced several new products, including
outerwear fleece, stretch fabrics and higher cotton content jersey and fleece
fabrics. These products constituted 56.6% of net sales for the twelve months
ending July 5, 1997. The Company developed its outerwear fleece and higher
cotton content fabrics internally and acquired its stretch fabric product line
through the acquisition of United Knitting in January 1994. The Company intends
to continue expanding its sales of these products and to continue developing
additional value-added products.
The Company's manufacturing operations are vertically integrated, beginning
with the conversion of fiber into yarn and knitting, dyeing and finishing the
fabric in a wide range of styles and colors. The Company also purchases certain
yarns to supplement its yarn production capacity and to produce specialty
fabrics, including stretch fabrics. Over the past several years, the Company has
substantially upgraded its manufacturing operations. The major components of the
modernization program included upgrading yarn spinning and dyeing equipment,
automating the Company's distribution facilities and installing napping and
shearing equipment to produce outerwear fleece products. As a result of the
capital investment program, net sales per average number of employees (a
standard industry measure for productivity) have increased from $122,000 in
fiscal 1994 to $146,000 for the twelve months ended July 5, 1997. Further, over
this period, the Company's cost of goods sold before raw materials costs
expressed as a percentage of net sales decreased from 34.9% to 33.2% of net
sales.
The Company's results of operations are impacted, in part, by fluctuations
in the market prices for raw materials, including polyester, cotton and acrylic,
and the ability to adjust the selling prices of finished fabrics (which depends
principally on consumer demand for apparel). According to industry sources, from
1994 through July 1997, the spot market prices per pound for polyester ranged
from $0.66 to $0.96, for cotton ranged from $0.55 to $1.07 and for acrylic
ranged from $0.95 to $1.10, while market prices for knit apparel remained
relatively constant. For the twelve months ended July 5, 1997, the raw materials
cost component of cost of goods sold represented 42.8% of net sales, compared
with 42.5%, 47.4% and 44.4%, respectively, for fiscal 1994, fiscal 1995 and
fiscal 1996.
Beginning in fiscal 1995, the Company implemented a strategy to augment its
marketing, sales and customer service capabilities by hiring additional key
management personnel and authorizing increased budgets for these operations.
These investments increased selling, general and administrative expenses as a
percentage of sales during fiscal 1996 and the nine months ended July 5, 1997,
as the business strategies were developed and implemented. The Company expects
to realize further improvement in operating margin as these resources help
produce higher sales volume. Management believes that the marketing, sales and
customer service resources in place can support substantially higher sales
volume.
38
<PAGE> 44
RESULTS OF OPERATIONS
The Company's fiscal year ends on the Saturday closest to September 30.
Results for fiscal 1994 include the operations of United Knitting from January
19, 1994, the date of its acquisition by the Company.
The table below sets forth for the periods indicated statement of income
data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
----------------------- ----------------------------
1994 1995 1996 JUNE 29, 1996 JULY 5, 1997
----- ----- ----- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................. 77.4 79.9 78.1 79.3 76.3
----- ----- ----- ----- -----
Gross profit.................................. 22.6 20.1 21.9 20.7 23.7
Selling, general and administrative
expenses.................................... 9.0 8.7 10.6 10.5 11.7
----- ----- ----- ----- -----
Operating income.............................. 13.6 11.4 11.3 10.2 12.0
Goodwill amortization......................... 1.0 0.9 0.9 1.0 0.9
Interest and amortization of debt costs....... 2.8 3.1 3.1 3.4 2.8
Write-down of fixed assets.................... -- 1.1 -- -- --
Federal and state income taxes................ 4.2 3.0 3.0 2.4 3.3
----- ----- ----- ----- -----
Net income.................................... 5.6% 3.3% 4.3% 3.4% 5.0%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended July 5, 1997 Compared to Nine Months Ended June 29, 1996
Net Sales. Net sales for the first nine months of fiscal 1997 increased
15.8% to $158.2 million from $136.6 million in the first nine months of fiscal
1996. The increase resulted primarily from an increase in sales of the Company's
value-added outerwear fleece fabrics, which increased by approximately 57%, and
sales of infant blanket sleepers, which increased by approximately 49%. These
increases were partially offset by decreased sales of active-wear acrylic and
active-wear cotton fabrics.
Gross Profit. Gross profit in the first nine months of fiscal 1997
increased to 23.7% of net sales from 20.7% in the comparable period of the prior
year. This increase resulted primarily from the shift in the Company's product
mix to higher margin, value-added fabrics, particularly outerwear fleece
fabrics, lower raw material costs and lower production costs as a result of the
Company's plant modernization program.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in the first nine months of fiscal 1997 increased 28.5%
to $18.5 million from $14.4 million in the comparable period in fiscal 1996 and
increased as a percentage of net sales to 11.7% in the first nine months of
fiscal 1997 from 10.5% in the first nine months of fiscal 1996. These increases
were primarily due to a $2.2 million increase in incentive compensation, profit
sharing and sales bonus expense resulting from the Company's increased
profitability and a $1.1 million increase in bad debt expense resulting from
increased reserves attributable to specific customer accounts. Before giving
effect to these items, selling, general and administrative expenses as a
percentage of net sales declined in the first nine months of fiscal 1997
compared to the first nine months of fiscal 1996.
Interest and Amortization of Debt Costs. Interest and amortization of debt
costs for the first nine months of fiscal 1997 of $4.5 million were relatively
unchanged from the comparable period in fiscal 1996.
Federal and State Income Taxes. Federal and state income taxes of $5.2
million for the first nine months of fiscal 1997 and $3.3 million for the
comparable period in fiscal 1996 were higher than the federal statutory rate due
to state income taxes and the non-deductibility of goodwill amortization. The
effective tax rate declined to 39.5% in the first nine months of fiscal 1997
primarily due to a legal restructuring implemented by the Company in fiscal 1996
which resulted in a reduction in certain state taxes. The impact of the
restructuring is expected to continue into future periods.
39
<PAGE> 45
Fiscal 1996 Compared to Fiscal 1995
Net Sales. Net sales in fiscal 1996 decreased 1.8% to $195.9 million from
$199.4 million in fiscal 1995. This decrease resulted primarily from a decreased
demand for jersey and sleeper fabrics, partially offset by an increase in sales
of outerwear fleece fabrics.
Gross Profit. Gross profit in fiscal 1996 increased to 21.9% of net sales
from 20.1% in fiscal 1995 as a result of a shift in the Company's product mix to
higher margin, value-added fabrics, and lower production costs as a result of
the Company's plant modernization program.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in fiscal 1996 increased 18.7% to $20.7 million from
$17.4 million in fiscal 1995 and increased as a percentage of net sales to 10.6%
in fiscal 1996 from 8.7% in fiscal 1995. This increase resulted primarily from
implementation of the Company's strategy to augment its marketing, sales and
customer service capabilities and, to a lesser degree, increased promotions.
Interest and Amortization of Debt Costs. Interest and amortization of debt
costs for fiscal 1996 were unchanged from fiscal 1995 at $6.2 million. Average
outstanding debt and interest rates were substantially the same for both fiscal
years.
Federal and State Income Taxes. Federal and state income taxes of $5.9
million for fiscal 1996 and $6.0 million for fiscal 1995 were higher than the
federal statutory rate due to state income taxes and the non-deductibility of
goodwill amortization. The effective tax rate declined from 47.7% in fiscal 1995
to 41.1% in fiscal 1996, primarily due to a legal restructuring implemented by
the Company at mid-year which resulted in a reduction in certain state taxes.
Fiscal 1995 Compared to Fiscal 1994
Net Sales. Net sales in fiscal 1995 increased 10.5% to $199.4 million from
$180.5 million in fiscal 1994. A majority of the increase was due to a shift in
sales toward higher priced cotton and outerwear fleece products. The remainder
of the increase was primarily attributable to the inclusion of the results of
operations of United Knitting for the full twelve-month period in fiscal 1995.
Gross margin declined from 22.6% in fiscal 1994 to 20.1% in fiscal 1995. The
decline in gross margin resulted from significant increases in raw material
costs which the Company was unable to fully recover through price increases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased as a percentage of net sales to 8.7% in fiscal
1995 from 9.0% in fiscal 1994. The decline relative to net sales resulted from
reduced incentive compensation payments and a lower contribution to the
Company's profit sharing plans, which was partially offset by higher commissions
and sales-related expenses.
During the fourth quarter of fiscal 1995, the Company committed to replace
certain yarn manufacturing equipment with more modern and efficient machinery.
The write-down of the book value of existing equipment, net of proceeds from its
sale, resulted in a $2.2 million charge to operations.
Interest and Amortization of Debt Costs. Interest and amortization of debt
costs for fiscal 1995 were $6.2 million compared to $5.0 million in fiscal 1994.
This increase resulted primarily from higher average interest rates. The average
balance on long-term debt outstanding for fiscal 1995 was approximately the same
as that of fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for working capital,
servicing the Company's indebtedness and capital expenditures. Management
believes that cash generated from operations, together with borrowings available
under the New Credit Facility, will be sufficient to meet the Company's working
capital and capital expenditure needs in the foreseeable future.
Net cash provided by operating activities totaled $15.2 million, $23.3
million, $13.6 million and $12.6 million in fiscal 1994, fiscal 1995, fiscal
1996 and the first nine months of fiscal 1997, respectively. These cash
40
<PAGE> 46
flows have been supplemented primarily by borrowings under the Company's
existing credit facility. The average balances outstanding and the average
interest rates paid for fiscal 1994, fiscal 1995, fiscal 1996 and the first nine
months of fiscal 1997 were approximately $46.8 million, $51.7 million, $50.9
million, and $44.1 million, respectively, and 5.4%, 7.1%, 7.2% and 7.3%,
respectively. At July 5, 1997, the Company had $19.4 million of unused available
bank lines of credit.
Working capital at July 5, 1997 was $57.3 million compared to $60.9 million
at June 29, 1996. The Company's current ratio was 3.37:1 and its debt-to-capital
ratio was 44.1% at July 5, 1997, compared to 4.37:1 and 47.7% at September 28,
1996 and 4.18:1 and 51.5% at June 29, 1996.
During fiscal 1996 and the first nine months of fiscal 1997, the Company
had capital expenditures of $11.8 million and $5.7 million, respectively.
Capital expenditures for the fourth quarter of fiscal 1997 are anticipated to be
approximately $5.3 million, the majority of which will be used to construct a
new warehouse facility. In addition, the Company intends to implement a
multi-year capital expenditure program at Alamac. The Company estimates that it
will have aggregate capital expenditures in fiscal 1998 of approximately $24.0
million.
In connection with the Acquisition, the Company consummated the offering of
Series A Notes and entered into the New Credit Facility. The New Credit Facility
consists of a five-year Revolver providing up to $110.0 million of availability
and a five-year $50.0 million Term Loan. Advances under the Revolver are based
on a borrowing base formula of inventory and receivables. Interest will accrue
on borrowings under the Revolver and the Term Loan at the Company's option at
either LIBOR plus 0.75% to 2.75% based on certain financial ratios (8.47% at
July 5, 1997) or the senior lender's prime rate (8.50% at July 5, 1997). The
Term Loan has a scheduled amortization of $7.5 million during each of the first
and second years following the closing; $10.0 million during the third year
following the closing; and $12.5 million during each of the fourth and fifth
years following the closing. In addition, the Company is required to use the
proceeds from any equity offerings, asset sales and 50% of Excess Cash Flow (as
defined in the New Credit Facility) to repay amounts outstanding under the Term
Loan. The New Credit Facility is secured by a security interest in substantially
all of the Company's assets. The New Credit Facility contains customary
covenants, including requirements to maintain certain financial ratios. As of
July 5, 1997, after giving pro forma effect to the Transactions, the Company
would have had borrowings of $79.0 million outstanding under the New Credit
Facility (excluding an estimated $40.0 to $45.0 million anticipated to be
required to finance working capital needs following the Acquisition) and $41.8
million of available borrowings thereunder. See "Use of Proceeds" and
"Description of New Credit Facility."
SEASONALITY
The Company's business has a seasonal pattern with the majority of sales
occurring during the third and fourth fiscal quarters. The following table sets
forth the net sales and percentage of net sales for the Company by fiscal
quarter for the last two fiscal years.
<TABLE>
<CAPTION>
FISCAL FISCAL
1995 1996
---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
First Quarter (October-December).......................... $ 40,679 20.4% $ 30,088 15.4%
Second Quarter (January-March)............................ 48,370 24.2 42,344 21.6
Third Quarter (April-June)................................ 57,022 28.6 64,142 32.7
Fourth Quarter (July-September)........................... 53,342 26.8 59,292 30.3
-------- ----- -------- -----
$199,413 100.0% $195,866 100.0%
======== ===== ======== =====
</TABLE>
Due to this seasonal pattern of the Company's sales, inventories are lowest
at the end of the fiscal year and gradually increase over the following six
months in anticipation of the peak selling period. Receivables tend to decline
during the first fiscal quarter and are at their lowest point during December
through February. The net result is increased working capital requirements from
January through late in the fourth quarter. The Company anticipates that the
Acquisition will reduce this seasonal pattern as Alamac's product offerings do
41
<PAGE> 47
not result in any significant seasonality in its business. After giving pro
forma effect to the Acquisition, net sales for each of the four fiscal quarters
in fiscal 1996 would have been 20.7%, 23.4%, 29.3% and 26.6%, respectively, of
total net sales in such year.
INFLATION
Similar to other textile and apparel manufacturers, the Company is
dependent on the prices and supplies of certain principal raw materials
including polyester, cotton and acrylic fibers. During fiscal 1996, raw material
prices for polyester and acrylic stabilized after significant increases in
fiscal 1995, while prices for cotton continued to increase. To date in fiscal
1997, there has been a reduction in raw material prices. The long-term impact of
subsequent raw material price fluctuations on the Company's performance is,
however, uncertain and could be material.
42
<PAGE> 48
BUSINESS
GENERAL
Dyersburg is a leading manufacturer of knit fleece, jersey and stretch
fabrics sold principally to domestic apparel producers. The Company's fleece
fabrics are used to produce (i) outerwear apparel suitable for outdoor
recreational activities, as well as casual sportswear, (ii) children's and
women's sportswear, including sweatshirts and sweatpants, (iii) infant blanket
sleepers and (iv) blankets and throws. The Company's jersey fabrics are used to
produce a broad range of women's and children's lightweight apparel, including
tops and shorts. The Company's stretch fabrics are used to produce a variety of
activewear, including dancewear, swimwear, biking and running garments,
recreational and casual sportswear, and intimate apparel. The Company's
manufacturing operations are vertically integrated, beginning with the
conversion of fiber into yarn and knitting, dyeing and finishing the fabric in a
wide range of styles and colors. The Company's fabrics are used in apparel
marketed by leading brands such as Calvin Klein, Columbia, Health-Tex, Liz
Claiborne, Osh Kosh B'Gosh, Patagonia, Polo, Tommy Hilfiger and William Carter;
sold to catalog merchants and specialty stores such as L.L. Bean and Eddie
Bauer, department stores and national chains. For the 12 months ended July 5,
1997, the Company had net sales of $217.5 million and EBITDA of $37.4 million.
The Company acquired Alamac, a subsidiary of WestPoint Stevens. Formed in
1946, Alamac is a leading manufacturer of interlock, jersey, pique and other
knit fabrics sold primarily to domestic apparel producers. Alamac's interlock
fabrics are used to produce men's, women's and children's turtlenecks and
women's sportswear. Alamac's pique fabrics are used to produce a variety of
casual wear, including golf and polo shirts. Similar to the Company's
manufacturing operations, Alamac's manufacturing operations are vertically
integrated. The Company believes the Acquisition will (i) expand its product
line to include a complete assortment of circular knit fabrics, (ii) broaden its
customer base, (iii) increase the Company's customer service capabilities, (iv)
produce cost savings, (v) reduce the seasonality of the Company's sales and (vi)
better position the Company to exploit industry trends, such as the shift to
casual dress. For the twelve months ended July 5, 1997, after giving pro forma
effect to the Acquisition, the Company would have had net sales of $453.3
million and EBITDA of $59.1 million. See "Unaudited Pro Forma Condensed
Consolidated Financial Statements."
BUSINESS STRATEGY
The Company was formed in 1929 and, through the early 1990s, marketed its
fabrics to apparel manufacturers that supplied children's and women's apparel.
In 1992, the Company began implementing a strategy of broadening its line of
higher margin, value-added knit fabrics, including outerwear fleece and stretch
fabrics, and targeting manufacturers of brand name apparel, catalog merchants,
specialty stores, department stores and national chains. To support this shift
in strategy, over the past several years the Company has substantially upgraded
its manufacturing operations and has significantly increased its investment in
marketing, research and development and customer service capabilities. The
fundamental elements of the Company's strategy include:
Emphasizing Value-Added Fabrics. The Company's primary strategy is to
develop higher margin, value-added knit fabrics targeting manufacturers of brand
name apparel, catalog merchants, specialty stores, department stores and
national chains. The Company's value-added fabrics enable Dyersburg to provide
its customers with distinctive aesthetic and performance features, such as a
broad variety of surface finishes, high comfort and durability and low
shrinkage. As a result of their better performance and technical design
characteristics, these products generally have higher margins than the Company's
traditional fabrics. To support the development, manufacture and sale of these
products, the Company has significantly increased the resources devoted to
research and development and marketing activities and has made significant
investments in its manufacturing operations.
Increasing Manufacturing Efficiencies. The Company has invested in its
manufacturing operations to provide for the flexible production of its broad
line of value-added fabrics, minimize off-quality production and reduce
production costs. As a result of these investments, the Company has experienced
a 20% increase in net
43
<PAGE> 49
sales per average number of employees from $122,000 per employee during fiscal
1994 to $146,000 per employee during the twelve months ended July 5, 1997, and a
26% reduction in the production of irregular and second-quality fabrics.
Further, manufacturing efficiencies have enabled the Company to increase on-time
deliveries from 83% in fiscal 1996 to 92% for the twelve months ended July 5,
1997.
Offering High Levels of Customer Service. The Company is committed to
being an industry leader in providing superior customer service. Key elements
include electronic order execution, inventory management support and timely and
complete order delivery. In addition, the Company is pursuing the management of
complete garment production for customers through the formation of strategic
alliances with contract apparel manufacturers.
Pursuing Strategic Acquisitions and Alliances. The Company continually
seeks strategic acquisitions and alliances that will enable the Company to add
complementary product offerings and provide new customers and channels of
distribution for the Company's products. For example, in 1994 the Company
acquired United Knitting, which added stretch fabrics and lightweight lining
fabrics to the Company's product line. In the first nine months of fiscal 1997,
19.6% of the Company's net sales was generated from the sale of fabrics produced
by United Knitting. In addition to the Acquisition, the Company is currently
pursuing other strategic initiatives.
THE ACQUISITION
On August 27, 1997, the Company acquired all of the capital stock of
Alamac. The Purchase Price was $126.0 million, subject to adjustment for changes
in working capital and certain other items related to pension assets and
liabilities subsequent to December 31, 1996. Prior to consummation of the
Acquisition, Alamac transferred all of its cash and assets related to its
Whitmire, South Carolina spinning plant to WestPoint Stevens and, accordingly,
such assets were not acquired in the Acquisition. In addition, Alamac sold its
accounts receivable to WestPoint Stevens, who then sold them to a related-party
financing source and, as a result, the Company did not acquire Alamac's accounts
receivable. Accordingly, the Company estimates that it will be required to
finance approximately $40.0 to $45.0 million of additional working capital. The
Company used the net proceeds from the offering of Series A Notes, together with
borrowings under the New Credit Facility, to finance the Purchase Price and
working capital needs, repay amounts outstanding under the Company's existing
credit facility and certain other indebtedness and pay related fees and
expenses. See "Use of Proceeds" and "Description of New Credit Facility."
The Company operates Alamac as a discrete division. The Company's intends
to integrate Alamac's sales and marketing personnel and other resources with the
Company's existing operations to establish coordinated product development,
marketing and customer service across its product lines for its combined
customer base. The Company also intends to consolidate general and
administrative activities, where appropriate, to eliminate redundancies and
exploit economies of scale. In addition, the Company intends to invest in
Alamac's manufacturing operations to improve Alamac's manufacturing
productivity.
The Company believes that the Acquisition will enhance its competitive
position and business prospects based primarily on the following benefits:
Expanded Product Line and Customer Base. The Acquisition will
significantly expand the Company's line of value-added fabrics, including the
addition of patterns, yarn-dyed fabrics and knit collars. Yarn-dyed fabrics can
be produced in an unlimited variety of stripes and patterns, enabling Alamac to
produce fabrics used in a broad line of value-added products not produced by the
Company, including golf and polo shirts and uniforms. Alamac's fabrics are sold
to a number of customers not currently served by the Company, particularly for
use in menswear products. The Company believes the expanded customer base and
the increased breadth of its product offerings following the Acquisition will
create opportunities for the combined sales forces of the Company and Alamac to
market to new customers and substantial cross-selling opportunities to market to
existing customers.
44
<PAGE> 50
Cost Savings. The Company believes it can achieve operating cost savings
at Alamac by eliminating certain duplicative functions and achieving
efficiencies in administration and sales and marketing. The Company also
believes it can realize additional manufacturing efficiencies by upgrading
Alamac's manufacturing operations. The Company believes these improvements will
significantly increase Alamac's manufacturing flexibility and productivity while
reducing operating costs.
Raw Material Purchasing Leverage. As a result of the Acquisition, the
Company will more than double its purchases of polyester fiber. The Company
believes this purchasing leverage will enhance the Company's ability to obtain
this raw material at more favorable prices.
Reduced Seasonality of the Company's Sales. The Company's sales have
historically had a pronounced seasonal pattern with approximately 63.0% of its
sales in fiscal 1996 occurring during its third and fourth fiscal quarters. The
Acquisition will reduce this seasonality as Alamac's product offerings do not
result in any significant seasonality in its business. After giving pro forma
effect to the Acquisition, net sales for each of the four fiscal quarters in
fiscal 1996, would have been 20.7%, 23.4%, 29.3% and 26.6 %, respectively, of
total net sales in such year.
Greater Critical Mass. The Acquisition will significantly increase the
Company's revenue base. After giving pro forma effect to the Acquisition, the
Company's net sales for the twelve months ended July 5, 1997 would have been
$453.3 million. The Company believes that its increased size, marketing
resources, production capacity and product offerings will create additional
marketing and other growth opportunities.
INDUSTRY OVERVIEW
Based on information provided by the American Apparel Manufacturers
Association (the "AAMA"), management estimates that wholesale volume of knit
apparel sold by domestic apparel producers to retailers was $8.5 billion in
1996, $8.4 billion in 1995, $7.9 billion in 1994 and $7.5 billion in 1993,
representing a compound annual growth rate of 4.3%. The Company attributes the
growth in knit fabric and knit apparel principally to (i) more casual dressing
in and away from the workplace resulting from increasingly casual lifestyles and
(ii) the trade shift from apparel production in Asia to production in North
America, including Mexico and the Caribbean Basin.
Trend Toward Casual Dress. The Company believes that there is a growing
trend in the United States toward casual dress. An increasing number of
companies continue to institute casual dress policies, such as "casual Fridays."
In addition, the Company believes that the number of people who work at home is
increasing and that outside of the workplace, people's social activities are
focusing on a more casual lifestyle. According to a study compiled by The NPD
Group, Inc., an independent market research firm, the retail dollar volume for
men's casual business attire grew 12% between 1993 and 1995 and sales of women's
casual business attire increased 7% in the same period in comparison to total
apparel sales which grew less than 7% during the period. In 1995, casual attire
accounted for an estimated 58% of men's and 61% of women's retail clothing
dollar volume.
Expansion of North American Apparel Production. According to the AAMA, in
1996 Canada, Mexico and the Caribbean Basin countries accounted for $10.5
billion in apparel imports to the United States, compared with $6.7 billion in
1994, representing a 56.7% increase. Conversely, apparel imports to the United
States by China, Taiwan, Korea and Hong Kong declined from $12.1 billion in 1994
to $11.0 billion in 1996. The increase in North American apparel production can
be attributed to the beneficial impact of trade policy, including NAFTA and the
Caribbean Basin Initiative (the "CBI"). Management believes that these
initiatives, which include incentives to use fabric made in the United States,
have made apparel assembled in the qualifying countries more price competitive
for domestic apparel marketers and retailers. Further, management believes that
garments produced under these initiatives contain more domestic knit fabric than
apparel imported from outside the region.
Vendor Managed Inventory and Merchandising Programs. Management believes
that retailers and leading branded apparel producers are consolidating suppliers
to achieve economies of scale and heightened customer service. To minimize the
costs and risks associated with carrying inventories, retailers are demanding
45
<PAGE> 51
that their key suppliers offer inventory management, including quick
replenishment of core styles and electronic order execution, as well as
point-of-sale merchandising support. Management believes that the Company's
breadth of product assortment, flexible production, investments in technology
and critical mass position the Company to increase its market share as major
retailers and apparel producers continue to consolidate and focus their supplier
relationships.
Apparel Production by Fabric Suppliers. Certain apparel retailers are
employing strategies to minimize the cycle time from product development to
finished product delivery, thereby minimizing inventory risks and responding
more effectively to shifts in consumer demand. Certain fabric suppliers have
also begun integrating forward into the development, production and
merchandising of finished garments for key customers, either through owned or
contracted garment assembly operations. The Company believes that the
Acquisition and the resulting breadth of high-quality products, flexible
production capabilities and critical mass position it to manage the production
of finished apparel for key customers.
PRODUCTS
The Company's products are divided into three principal categories: fleece,
jersey and stretch.
Fleece. The principal use of the Company's fleece fabrics is in
manufacturing outerwear, children's and women's activewear and infant blanket
sleepers. The Company's fleece fabrics are made of acrylic, polyester, cotton or
blends of these fibers. The fabric is dyed and undergoes a series of finishing
and abrading processes by which a surface is brushed or "napped" to give the
fabric the "hand" or feel associated with fleece.
Outerwear Fleece. In 1992, the Company introduced a new line of
outerwear fleece designed for use in recreational and casual sportswear
apparel products. In 1993, this product line was complemented by the
introduction of Dyersburg E.C.O. outerwear fleece made of yarn using fibers
from recycled plastics. The Company's variety of outerwear fleece fabrics
has grown significantly, with new fabric weights, blends, fiber
configurations and finishes that promote functionality. The Company's
outerwear fleece products are engineered for water repellency, wickability,
moisture vapor transport and warmth. The Company's branded outerwear fleece
products have grown to include Kinderfleece targeted to children's
outerwear, Citifleece targeted to adult outwear, Dyersburg E.C.O. Lite, a
lighter weight E.C.O. product, and Chamee(TM), a new microdenier product
line. Garments manufactured from these products are primarily sold to
catalog merchants and specialty retailers.
Other Fleece Products. Fleece fabrics sold to the children's
activewear market, principally sweatshirts and sweatpants, are made of 100%
acrylic fibers or polyester/cotton blends. Acrylic's low cost, ability to
be dyed brighter colors and low shrinkage are of particular importance to
the children's activewear market. Fleece fabrics sold to manufacturers of
women's activewear are primarily made either of 50% polyester/50% cotton
blends or polyester/cotton blends with a higher cotton content. In recent
years, there has been increased use in activewear apparel of
polyester/cotton blends, which management believes is attributable to
increased consumer demand for natural fibers, as well as the greater
receptivity of these fabrics to printing compared to 100% acrylic fabrics.
Polyester/cotton blends are also typically softer and less likely to "pill"
than 100% synthetics, while still offering less fabric shrinkage than 100%
cotton products.
The Company's remaining major fleece fabric product categories are
fabrics used to manufacture infant blanket sleepers and for home
furnishings. The demand for infant blanket sleepers is primarily
attributable to its fire retardant characteristics. The Company's Maison
Fleece brand blankets and throws are made from the Company's outerwear
fleece fabrics for sale to the growing home furnishings market.
Jersey. The Company markets a line of jersey fabrics for use in a broad
range of women's and children's lightweight apparel, principally tops and
shorts. Jersey is a flat-knit fabric, which is typically made from a
polyester/cotton blend or from 100% cotton fibers and, unlike fleece, is not
surface-finished. Jersey fabrics are also generally lighter in weight than
fleece.
Stretch. Stretch fabrics consist of custom formulations of cotton,
spandex, nylon and other synthetic yarns designed for comfort, performance and
styling. To produce a variety of shades and patterns, stretch
46
<PAGE> 52
fabrics may be knit from dyed yarns, dyed as cloth, sold to independent printers
for printing or garment-dyed by the customer. These fabrics are used in a
variety of fashion and activewear products, including dancewear, swimwear,
biking and running garments, recreational and casual sportswear and intimate
apparel. The majority of these fabrics are used by leading manufacturers to
produce higher-priced branded sportswear products. A new stretch product,
Synsation, was introduced in late 1996 aimed at the swimwear market.
The following table sets forth certain information with respect to the
Company's product offerings by type of fabric:
<TABLE>
<CAPTION>
COMPANY PERCENTAGE OF
DESCRIPTION BRANDS NET SALES (1)
------------------------- ------------------ --------------
<S> <C> <C> <C>
FLEECE:
Outerwear fleece....... Double-sided plush fleece Dyersburg 22.4%
engineered for warmth and E.C.O.(TM)
light weight for use in a Dyersport(R)
variety of outdoor Citifleece(TM)
recreational activities Kinderfleece(TM)
and casual sportswear
Other fleece products:
Cotton activewear... Cotton rich fleeces for Pareto(TM) 15.7%
use in sweats and other
activewear
Sleepers............ Flame resistant fleece TuffPuff(TM) 10.8%
used in infant blanket
sleepers
Acrylic Color rich acrylic FleeceForce(R)
activewear........ fabrics 8.4%
Home furnishings.... Plush fleece blankets and Maison Fleece(TM) 2.8%
throws
JERSEY................... Cotton and 10.9%
cotton/polyester blends
for tops, T-shirts and
children's wear
STRETCH.................. Lycra(TM) based circular Synsation(TM) 16.5%
knits for use in
dancewear, swimwear,
biking and running
garments, recreational
and casual sportswear and
intimate apparel
OTHER.................... Variety of cotton, 12.5%
polyester and acrylic
fabrics for use in
hosiery, bags and
miscellaneous trim
products
</TABLE>
- ------------------------------
(1) Represents percentage of the Company's net sales for the twelve months ended
July 5, 1997.
Alamac produces a broad line of knit fabrics that can be generally divided
as follows:
Interlock. Interlock is made from 100% cotton ring spun, and
cotton/polyester blends. Interlock is used primarily in men's, women's and
children's turtlenecks and women's sportswear. Interlock, which the Company
currently does not produce, is considered one of the leading base fabrications
for domestic knit fabric production. The Company believes that the addition of
this product line will present significant cross-selling opportunities.
Jersey. Alamac's jersey products are similar to the Company's and are used
primarily in tops, T-shirts and shorts. Unlike the Company, Alamac produces
jersey fabric in tubular as well as open width form.
47
<PAGE> 53
Rib. Rib is a stretch fabric, used primarily in tops. The stretch results
from the fabric construction, rather than the use of spandex. Rib continues to
be an important fashion fabric for branded and mass merchant womenswear, and
another important addition to the Company's product offerings.
Pique. Pique is a textured knit and is the predominant fabric used in
men's golf shirts. Fabric for knit collars and cuffs manufactured by Alamac are
the other significant ingredients necessary to participate in the golfwear
category.
Fleece. Alamac has a much smaller line of fleece products than the
Company; however, Alamac is able to produce fleece in tubular form, which is
advantageous to certain children's manufacturers.
Yarn-dyed products made up more than 20% of the total pounds of fabric sold
by Alamac during fiscal 1996. Yarn-dyed fabric is knit using colored yarns,
allowing for stripes and patterns, as opposed to piece dye (dyeing fabric after
it has been knit), which makes each fabric a solid color. Yarn-dyeing is
important in golf shirts and career apparel, specifically for customers in the
fast food industry. Yarn-dye can be performed on many different product
constructions, including jersey, rib, interlock and pique. Many of the fabrics
manufactured by Alamac are also engineered for career apparel and uniforms to
incorporate the protective elements needed for the job function. Examples are
anti-microbial finishes to protect against the spread of bacteria; soil release
to protect against food spills; and durable finishes to add to the lifetime of
garments that are subjected to repeated industrial launderings.
MANUFACTURING
To support the Company's strategy of broadening its line of value-added
fabrics and to increase its manufacturing efficiencies and reduce manufacturing
costs, the Company has invested significantly in its manufacturing operations.
The Company has updated its yarn manufacturing facilities resulting in a
reduction in the production of off-quality yarns and a decrease in the labor
component of its manufacturing costs. The Company's dyeing and finishing
operations have also been significantly expanded and redesigned to accommodate
the growing sales of outerwear fleeces and performance cottons. As a result of
its plant modernization program, the Company has improved its ability to produce
high quality, competitively priced fabrics and to be versatile and flexible with
respect to the weight, gauge and composition of its fabrics. The Company's yarn
spinning, knitting, dyeing and finishing equipment can be used with a variety of
fibers and blends to meet shifts in consumer demand.
Knitted fabrics are made almost entirely from yarns containing acrylic,
cotton or polyester fibers or blends of these materials. These fibers are
blended, if required, carded to disentangle locks and straighten individual
fibers and drawn to produce continuous untwisted strands called "slivers." The
slivers are spun, drawn and twisted to produce yarn. The Company produces the
majority of its yarns, but also purchases yarn from a number of vendors. The
Company maintains several sources for branded and non-branded spandex and
synthetic blend yarns. Alamac produces a significant portion of its yarns, but
purchases a majority of its yarn from a number of vendors. The yarn is
subsequently knit into fabric known as "greige" or undyed fabric. After knitting
is completed, the greige fabric is dyed in computer-controlled, pressurized
dyeing machines. Fabric dyeing is the most time-consuming operation in fleece
fabric manufacturing, with dyeing cycles ranging from four to twelve hours,
depending on the fabric and color dyed. Efficiency and quality controls
implemented as part of the plant modernization program and new equipment have
increased the Company's ability to match colors and reduce energy costs and are
expected to reduce the time consumed in the dyeing process, as well as the
overall production time for the Company's fabrics. Alamac is able to dye its
yarns, as well as fabric, which allows it to produce fabrics in an unlimited
variety of stripes and patterns.
The Company finishes fleece fabric surfaces by napping or utilizing other
processes. Fabrics are napped by being fed through machines that fluff one side
of the fabric with rotating wire brushes, and then finished to produce the
distinctive pile and feel of fleece through Company-developed processes that
polish, raise and shear the fibers. Jersey fabric is a smooth, flat-knit fabric
that is dyed but is not surface-finished. The Company also produces pile
finished fleece fabrics, where a special knit construction produces an unusually
long nap. This deep "pile" can be "tumbled" in rotary dryers to create a pilled
or "sherpa" look; embossed, where patterns are cut into the pile; or sheared,
where the fibers are uniformly cut to form a very dense,
48
<PAGE> 54
compact fabric with a smooth surface. In addition, with a special knit
construction, fabrics produced with any of these finishing techniques can be
napped on both sides. The Company also offers fabrics, both fleece and jersey,
that are mechanically compacted to reduce the wash shrinkage of garments.
The Company has two manufacturing facilities in Dyersburg and one facility
in each of Trenton and Cleveland, Tennessee. The original Dyersburg facility
spins 100% synthetic (acrylic or polyester) and 50% polyester/50% cotton yarns.
The Trenton facility spins 100% cotton yarns as well as cotton/synthetic blends.
These yarns are used along with yarns purchased from outside sources to knit
fleece and jersey fabrics at the Dyersburg knitting facility prior to dyeing and
finishing. The Company's facility in Cleveland, Tennessee uses the Company's
yarn as well as purchased yarn from outside sources to knit, dye and finish
stretch and lining fabrics. The Company currently operates three shifts per day,
seven days a week at each of its facilities.
Alamac has four manufacturing facilities in Lumberton, Elizabethtown,
Clinton and Hamilton, North Carolina. The Clinton facility produces
approximately 60% of Alamac's cotton and polyester needs with the remaining
requirements obtained from outside vendors. All yarn dyeing requirements are
produced at the Elizabethtown facility and shipped to the Lumberton and Hamilton
facilities where yarns are knitted into fabrics and finished. Alamac currently
operates three shifts per day, seven days a week at each of its facilities.
Although the capacity at the Company's and Alamac's facilities varies by
product mix, the Company does not believe that material additional capacity
could be added without additional capital investments in equipment. Management
believes that the Company has the space to accommodate investment in equipment,
and equipment is available for purchase by the Company.
SALES AND MARKETING
The Company maintains sales offices in New York, Chicago, Portland and
Seattle. To support the Company's product expansion strategy, the Company has
significantly increased its resources devoted to sales, marketing and customer
service and has increased the number of its sales representatives from 13 at the
end of fiscal 1992 to 24 at July 5, 1997. The Company also utilizes a network of
independent sales agents coordinated through its marketing organization in New
York. In addition to calling on the Company's customers, the Company's sales
representatives attempt to create additional demand for the Company's products
by marketing directly to brand name clothing designers and retailers.
Alamac maintains sales offices in New York, Atlanta and Los Angeles. Its
sales representatives are organized by end use area. Alamac also maintains a
resource center at its Elizabethtown facility where customers have access to a
designer, six fully electronic knitting machines and Alamac's color and fabric
libraries to facilitate the design and development of apparel lines.
INVENTORY MANAGEMENT
The Company's customers typically negotiate their purchases from the
Company through informal purchase orders that specify their anticipated fabric
needs over periods as long as five months. The orders are revocable and serve
primarily to outline the customers' intentions over a specified term and permit
the Company to "block out" its production schedule. Although orders are subject
to cancellation by customers at any time before the Company receives color
specifications from the customers, fabric produced for canceled orders can
ordinarily be used to fill other orders. Because these informal purchase orders
are cancelable, the Company has no appreciable long-term backlog.
In order to facilitate its ability to respond quickly to customer demands
and due to the seasonal nature of the Company's business, the Company puts
substantial efforts into management of its inventory. Based in part upon the
volume of informal customer purchase orders, the Company builds an inventory of
uncolored and basic color fabrics (such as blacks, whites and gray heathers)
during the Company's off-peak season. As customers determine their precise
needs, they provide the Company with firm orders for fabrics with specific
dyeing and finishing requirements. The Company's build-up of inventory, together
with its modern dyeing and distribution facilities, permits the Company to
quickly color, finish and ship fabric during the peak demand season. In
addition, the Company's ability to manage its inventory and to efficiently dye
and distribute its
49
<PAGE> 55
fabrics also enables the Company to produce and ship fabrics not contained in
inventory. As a result of these efforts, together with the result of the
Company's plant modernization program, the Company has established a policy of
accepting orders with as little as a three-week lead time after color
specification.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are coordinated through
the Company's marketing department and are directed toward maintaining and
improving the quality of the Company's products and the development of new
value-added products such as Dyersburg E.C.O., Synsation, Kinderfleece,
Citifleece and Maison Fleece to meet the changing needs of the knit fabric
market. Emphasis is placed on physical characteristics that provide competitive
differentiations between fabrics including "hand" or feel, warmth, fade
resistance and shrinkage reduction. The Company's research and development
activities are also focused on providing innovative stretch fabrics that will
meet the evolving needs of its customers, while developing new products to gain
entry in other markets. The Company was instrumental in developing products from
DuPont Lycra(R) spandex and DuPont Supplex(R) nylon to provide customers with
new types of performance fabrics that exhibit unique properties.
COMPETITION
The textile industry is extremely competitive and includes numerous
companies, no one of which is dominant in the industry. The Company and its
competitors market their products nationwide, as domestic shipping costs are not
a significant competitive factor. The Company's primary competition comes from
suppliers of knit fabric. The Company also competes with vertically integrated
apparel manufacturers that produce the fabric used in their apparel products and
with foreign manufacturers. The primary competitive factors in the textile
industry are product styling and differentiation, quality, customer service and
price. The importance of these factors is determined by the need of particular
customers and the characteristics of particular products. See "Risk
Factors -- Cyclical and Competitive Nature of Textile Industry."
Increases in domestic capacity and imports of foreign-made textiles and
apparel products are a significant source of competition for many domestic
textile manufacturers. The U.S. government attempts to regulate the growth of
certain textile and apparel imports by establishing quotas on imports from
countries that historically account for significant shares of U.S. imports.
Despite these efforts, imported apparel represents a significant portion of the
U.S. apparel market, although the rate of import growth has slowed in recent
years.
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 and foreign considerations. In January 1995, a
new multilateral trade organization, the WTO, was formed by the members of GATT
to replace GATT. This new body has set forth the mechanisms by which world trade
in textiles and clothing will be progressively liberalized with the elimination
of quotas and the reduction of duties. The implementation began in January 1995
with the phasing-out of quotas and the reduction of duties to take place over a
ten-year period. 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:
yarns, fabrics, made-up textiles and apparel. As it implements the WTO
mechanisms, the U.S. government is negotiating bilateral trade agreements with
developing countries (which generally are exporters of textile products) that
are members of the WTO for purposes of reducing their tariffs on imports of
textiles and apparel. The elimination of quotas and the reduction of tariffs
under the WTO 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.
NAFTA, which became effective on January 1, 1994, created the world's
largest free-trade zone. The agreement contains safeguards sought by the U.S.
textile industry, including a rule of origin requirement that products be
processed in one of the three countries in order to benefit from NAFTA. NAFTA
will phase out all trade restrictions and tariffs on textiles and apparel among
the three countries. In addition, NAFTA requires merchandise to be made from
yarns and fabrics originating in North America in order to avoid trade
restrictions. Thus, not only must apparel be made from North American fabric,
but the fabric must be constructed from North American spun yarn. Although
management believes that the Company has
50
<PAGE> 56
benefitted from NAFTA, there can be no assurance that the removal of these
barriers to trade will not have a material adverse effect on the Company's
business.
LITIGATION
The Company is a party to litigation incidental to its business from time
to time. The Company is not currently a party to any litigation that management
believes, if determined adversely to the Company, would have a material adverse
effect on the Company. The Company believes Alamac is not currently a party to
any litigation that, if determined adversely to Alamac, would have a material
adverse effect on the Company.
GOVERNMENTAL REGULATION
The Company and Alamac are subject to various federal, state and local
environmental laws and regulations limiting the discharge, storage, handling and
disposal of a variety of substances and wastes used in or resulting from its
operations and potential remediation obligations thereunder, particularly the
Federal Water Pollution Control Act, the Clean Air Act, the Resource
Conservation and Recovery Act (including amendments relating to underground
tanks) and the Comprehensive Environmental Response, Compensation and Liability
Act, commonly referred to as "Superfund" or "CERCLA." The Company has obtained,
and believes it is in compliance in all material respects with, all material
permits required to be issued by federal, state or local law in connection with
the operation of the Company's business as described herein. The Company
believes Alamac has obtained, and believes it is in compliance in all material
respects with, all material permits required to be issued by federal, state or
local law in connection with the operation of Alamac's business as described
herein.
The operations of the Company and Alamac also are governed by laws and
regulations relating to workplace safety and worker health, principally the
Occupational Safety and Health Act and regulations thereunder which, among other
things, establish cotton dust, formaldehyde, asbestos and noise standards and
regulate the use of hazardous chemicals in the workplace. Alamac uses resins
containing formaldehyde in processing some of its products. Although the Company
does not use asbestos in the manufacture of its products, some of its facilities
contain some structural asbestos that management believes is all properly
contained.
Many of the manufacturing facilities owned by the Company and Alamac have
been in operation for several decades. Historical waste disposal and hazardous
substance releases and storage practices may have resulted in on-site and
off-site remediation liability for which the Company or Alamac, respectively,
would be responsible. In addition, certain wastewater treatment facilities and
air emission sources may have to be upgraded to meet more stringent
environmental requirements in the future. Although the Company cannot with
certainty assess at this time the impact of future emission standards or
enforcement practices under the foregoing environmental laws and regulations
and, in particular, under the 1990 Clean Air Act, upon its operations or capital
expenditure requirements, the Company believes that it is currently in
compliance in all material respects with applicable environmental and health and
safety laws and regulations. The Company is aware of certain environmental
contamination at the Alamac facilities. The Company estimates that the cost to
remediate such contamination will range from approximately $3.5 million to $5.0
million. Pursuant to the Stock Purchase Agreement, WestPoint Stevens has agreed
to indemnify the Company for a portion of such costs. See "Risks Factors -- Risk
of Environmental Liability; Other Governmental Regulations."
EMPLOYEES
At July 5, 1997, the Company employed approximately 1,500 people in hourly,
salaried, supervisory, management and administrative positions. At June 30,
1997, Alamac employed approximately 2,350 people in hourly, salaried,
supervisory, management and administrative positions. No labor union represents
any of the Company's or Alamac's employees, and the Company believes its
relationship with its employees to be good.
51
<PAGE> 57
PROPERTIES
The Company's business is conducted primarily through facilities located in
Dyersburg, Trenton and Cleveland, Tennessee. Each of these facilities and the
property on which they are located are owned by the Company. The Company leases
selling offices in New York, New York; Chicago, Illinois; Seattle, Washington;
and Portland, Oregon. The New York office contains approximately 13,000 square
feet. The Chicago, Seattle and Portland offices have approximately 700, 700 and
120 square feet, respectively. The Company also leases approximately 1,000
square feet of office space in Cleveland, Tennessee, for IQUE's corporate
office.
The primary Dyersburg facility was built in 1929 with 275,000 square feet
of floor space. After several expansions, it now contains approximately 888,000
square feet of plant space situated on 30 acres of land. The knitting facility
(completed December 1993) encompasses approximately 155,000 square feet situated
on approximately 30 acres in the Dyersburg Industrial Park. The floor space is
distributed as follows: 683,000 square feet for manufacturing, 273,000 square
feet for warehousing and distribution, 28,000 square feet for offices and 60,000
square feet for maintenance shops and boiler space. A new warehouse facility
containing approximately 213,000 square feet will be completed before the end of
calendar year 1997.
The Trenton facility was built in the 1930s with approximately 94,000
square feet of floor space and has been expanded to approximately 188,000 square
feet. The floor space is distributed as follows: approximately 98,000 square
feet for manufacturing, approximately 61,000 square feet for warehousing,
approximately 24,000 square feet for office space and approximately 5,000 square
feet for maintenance and boiler space.
The Cleveland facility was built in 1986 with approximately 70,000 square
feet of floor space followed by a 38,000 square foot expansion in 1991. A 45,000
square foot addition (primarily warehouse, distribution and laboratory
facilities) was completed in December 1994. A new 19,200 square foot expansion
is expected to be completed in 1998.
Alamac's business is conducted primarily through facilities located in
Clinton, Elizabethtown, Hamilton and Lumberton, North Carolina. Each of these
facilities and the property on which they are located are owned by Alamac.
Alamac also leases selling offices in New York, Atlanta and Los Angeles.
The Clinton facility was built in 1965 and contains approximately 367,000
square feet situated on approximately 48 acres of land. The Elizabethtown
facility was built in 1971 and contains approximately 193,000 square feet
situated on approximately 148 acres of land. The Hamilton facility was built in
1961 and contains approximately 383,000 square feet situated on approximately
106 acres of land. The Lumberton facility was built in 1962 and contains
approximately 414,000 square feet situated on approximately 198 acres of land.
52
<PAGE> 58
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding executive
officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
T. Eugene McBride......................... 54 Chief Executive Officer and Chairman
Jerome M. Wiggins......................... 57 President and Chief Operating Officer, Director
Janice L. Whitlock........................ 46 President -- Marketing
William S. Shropshire, Jr................. 40 Executive Vice President, Chief Financial Officer,
Secretary and Treasurer
Stephen J. Dauer.......................... 56 Sr. Vice President -- Sales
Paul L. Hallock........................... 49 Vice President -- Finance, Assistant
Secretary -- Treasurer
Jerry W. Miller........................... 46 President -- United Knitting
Jerry W. Patton........................... 50 Vice President -- Administration
Margaret Schenck.......................... 48 Vice President -- Operations/Customer Development,
United Knitting
Marvin B. Crow............................ 64 Director
Patricia Hilsberg......................... 46 Director
L.R. Jalenak, Jr.......................... 67 Director
Julius Lasnick............................ 67 Director
P. Manohar................................ 44 Director
Ravi Shankar.............................. 34 Director
Mickey Ganot.............................. 46 Director
</TABLE>
The Company's Charter provides that the Board of Directors is divided into
three classes: Class I, Class II and Class III. Each class is as nearly equal in
number as possible. Unless a director has been appointed to fill a vacancy or to
fill a position that was created by increasing the number of directors, each
director serves for a term ending at the third annual shareholders' meeting
following the annual meeting at which such director was elected. Each director
serves until such director's successor is elected and qualified or until such
director's earlier death, resignation or removal. Under Tennessee law, because
they were appointed to fill vacancies by the Board of Directors, Messrs.
Manohar, Shankar and Ganot must stand for reelection at the next annual meeting
of shareholders to fill the remaining term of their respective class.
The following is additional information with respect to the above-named
executive officers and directors.
Mr. McBride joined the Company in September 1988 as Executive Vice
President and was named President and Chief Operating Officer in January 1989.
He was named Chief Executive Officer in September 1990 and Chairman of the Board
of Directors in July 1995. Prior to joining the Company, Mr. McBride was Vice
President -- Operations at Panill Knitting from 1986 to 1988 and Vice
President -- Manufacturing at Buster Brown Apparel from 1980 to 1986.
Mr. Wiggins was elected President and Chief Operating Officer in July 1997
and previously served as President -- Operations since January 1996. Mr. Wiggins
became a director of the Company in 1992. He joined the Company in August 1989
as Vice President and Chief Financial Officer, Treasurer and Secretary. Prior to
joining the Company in 1989, he was Vice President of Finance and Chief
Financial Officer of V.F. Corporation, an apparel manufacturer.
Ms. Whitlock, President -- Marketing since December 1995, joined the
Company in September 1994 as Vice President of Merchandising. Previously, she
was Vice President of Merchandising at Flynt Fabrics and Burlington Industries.
53
<PAGE> 59
Mr. Shropshire, a certified public accountant, joined the Company as
Executive Vice President, Chief Financial Officer, Secretary and Treasurer in
October 1996. For the previous five years, he was Chief Financial Officer and
Senior Vice President for Charter Bancshares, Inc.
Mr. Dauer became the Sr. Vice President -- Sales in January 1996, after
joining the Company as Vice President -- Marketing in June 1984. He had
previously been employed since 1966 by Burlington Industries and, in 1980,
became Vice President of Sales and Marketing -- Women's Apparel in that
company's Knitted Fabric Division.
Mr. Hallock joined the Company in April 1977. He was named Assistant
Secretary in October 1978, Assistant Secretary -- Treasurer in October 1981 and
Vice President -- Finance in March 1987.
Mr. Miller joined the Company in August 1993 as Director of Manufacturing
and was named Vice President of Manufacturing in May 1994. He was named
President of United Knitting in June 1997. Before joining the Company, he was
Director of Manufacturing with Sara Lee Products, which included textiles and
apparel manufacturing.
Mr. Patton joined the Company in 1966 in the production area. He was named
MIS Director in May 1990. In September 1994, he was named Vice President -- MIS.
Since January 1996, Mr. Patton has been Vice President -- Administration.
Ms. Schenck has been Vice President -- Operations/Customer Development,
United Knitting, since January 1994, when United Knitting was acquired by the
Company. For more than five years prior to that time, she was Vice
President -- Operations/Customer Service at United Knitting.
Mr. Crow became a director of the Company in 1990. He has been President of
KBO Enterprises since April 1988. He is also a director of National Spinning
Co., Inc., Ameritex Yarn Corporation and The Bibb Company.
Ms. Hilsberg became a director in 1996. She was named Executive Vice
President -- Merchandising of Bernard Chaus in June 1995. She served as
Executive Vice President -- Merchandising of Evan Picone from November 1991
until May 1993.
Mr. Jalenak became a director of the Company in 1992. He retired in
December 1993 from the position of Chairman of the Board of Cleo Inc., a Gibson
Greetings company manufacturing giftwrap, greeting cards and related products,
which he held since June 1990. Previously, he served as President and Chief
Executive Officer of Cleo Inc. for over ten years. He is also a director of
Perrigo Company and Lufkin Industries and is an independent trustee and chairman
of First Funds, a family of mutual funds managed by First Tennessee Bank.
Mr. Lasnick became a director of the Company in 1992. He retired in April
1993 from the position of President -- Manufacturing of Springs Industries,
Inc., a textile company, which he held since 1991. From 1986 to April 1993 he
also served as Executive Vice President and a director of Spring Industries,
Inc. He is also a director of National Spinning Co., Inc. and Sandlapper
Fabrics, Inc.
Mr. Manohar became a director of the Company in July 1997. He has been
Group Executive Vice President/Finance of Texmaco Group since 1989. Prior to
that time, he held Finance Executive positions in various companies of the
Texmaco Group and with SRF Ltd., an Indian textile company. Mr. Manohar was
appointed to the Board of Directors as a designee of Texmaco. See
"Summary -- Recent Developments."
Mr. Shankar became a director of the Company in July 1997. He has been a
Vice President of Operations in Texmaco's Textiles division and Director of
Texmaco Perkasa Engineering since 1987. Mr. Shankar was appointed to the Board
of Directors as a designee of Texmaco. See "Summary -- Recent Developments."
Mr. Ganot became a director of the Company in July 1997. He has been the
Director of Global Marketing of Texmaco since 1993. Prior to joining Texmaco, he
served as Corporate Vice President Manufacturing and Operations of Liz
Claiborne. Mr. Ganot was appointed to the Board of Directors as a designee of
Texmaco. See "Summary -- Recent Developments."
54
<PAGE> 60
The following table sets forth certain information regarding certain key
Alamac employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ronald Hester........................ 53 President
Dick Liberatore...................... 50 Vice President Sales, East Coast and International Sales
Don Pugatch.......................... 46 Vice President Sales, Southeast
Sue Dalton........................... 41 Vice President Sales, West Coast
Ron Giacone.......................... 50 Vice President Merchandising and Retail Accounts
Jimmy Dail........................... 53 Division Controller
Mark Cabral.......................... 44 General Manager -- Fabric Production
</TABLE>
Mr. Hester joined Alamac in 1963. Prior to becoming President in 1990, Mr.
Hester served as General Manager, Vice President of Manufacturing, Plant
Manager, Assistant Plant Manager, Department Manager, Shift Supervisor and
Production Operator.
Mr. Liberatore joined Alamac in 1977. Prior to becoming Vice President
Sales, East Coast and International Sales in 1989, Mr. Liberatore served as
Director of Sales, Merchandise Manager, Sales Manager and Sales Representative.
Mr. Pugatch joined Alamac in 1975. Prior to becoming Vice President Sales,
Southeast in 1983, Mr. Pugatch served as Regional Manager, Merchandise Manager
and Sales Representative.
Ms. Dalton re-joined Alamac in 1996. Prior to becoming Vice President
Sales, West Coast, she was associated with Malden Mills. Previously, Ms. Dalton
served Alamac as Sales Manager and Sales Representative.
Mr. Giacone joined Alamac in 1978. Prior to becoming Vice President
Merchandising and Retail Accounts in 1989, Mr. Giacone served as Vice President
of Retail Accounts, Director of Sales Administration, Director of Business
Administration, Director of Sales Services, Assistant to the Vice President of
Marketing, Merchandise Manager and Sales Manager.
Mr. Dail joined Alamac in 1971. Prior to becoming Division Controller in
1990, Mr. Dail served as Assistant Controller, Accounting Manager, Cost
Accounting Manager, Production Planning Coordinator and Inventory Analyst.
Mr. Cabral joined Alamac in 1975. Prior to becoming General
Manager -- Fabric Production in 1989, Mr. Cabral served as Plant Manager,
Assistant Plant Manager, Technical Assistant, Production Control Manager and
Project Engineer.
55
<PAGE> 61
SUMMARY COMPENSATION TABLE
The following table provides information as to annual, long-term and other
compensation paid by the Company to the Company's Chief Executive Officer and to
each of the other four most highly compensated executive officers of the Company
for services rendered in all capacities to the Company and its subsidiaries for
the fiscal years indicated (each, a "Named Executive Officer").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
NAME AND PRINCIPAL FISCAL -------------------- ------------ ALL OTHER
POSITIONS YEAR SALARY BONUS OPTIONS(#) COMPENSATION(1)
- ------------------ ------ --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
T. Eugene McBride,......................... 1996 $259,386 $96,950 25,414(2) $15,446
Chairman and Chief 1995 250,008 50,000 -- 15,771
Executive Officer 1994 243,756 79,832 24,000 17,513
James E. Herring(3)........................ 1996 $241,329 $97,781 66,751(2) $ 8,311
1995 240,104 -- -- 9,355
1994(4) 182,365 92,142 135,000(5) 17,956
Jerome M. Wiggins,......................... 1996 $186,258 $65,012 16,492(2) $12,731
President and Chief 1995 172,008 27,500 -- 13,486
Operating Officer 1994 161,760 45,984 11,000 11,886
Janice L. Whitlock,........................ 1996 $181,678 $61,287 34,981(6) $14,228
President -- Marketing 1995 165,000 41,158 -- 10,776
1994 3,438 N/A 25,000 N/A
Stephen J. Dauer,.......................... 1996 $174,000 $52,612 9,311(2) $13,784
Sr. Vice President -- Sales 1995 173,004 41,948 -- 14,089
1994 168,762 49,706 9,000 16,975
</TABLE>
- ------------------------------
(1) Includes contributions by the Company in fiscal 1996 to the Dyersburg
Fabrics Inc. Profit Sharing Plan and to the Company's Deferred Compensation
Plan and premiums paid by the Company for term life insurance provided for
the benefit of the Named Executive Officers, all as reflected in the table
below.
<TABLE>
<CAPTION>
GROUP TERM LIFE
PROFIT SHARING DEFERRED COMPENSATION INSURANCE
NAME PLAN PLAN PREMIUMS
---- -------------- --------------------- ---------------
<S> <C> <C> <C>
T. Eugene McBride........................... $8,710 $5,296 $1,440
James E. Herring............................ 7,650 -- 661
Jerome M. Wiggins........................... 8,710 3,877 144
Janice L. Whitlock.......................... 8,710 4,472 1,046
Stephen J. Dauer............................ 8,710 4,072 1,002
</TABLE>
(2) Reflects number of options repriced in fiscal 1996.
(3) Mr. Herring served as President of the Company's IQUE subsidiary until his
resignation in July 1997.
(4) For services rendered beginning January 19, 1994, the date of the Company's
acquisition of United Knitting.
(5) Options issued under the Company's 1992 Stock Plan in connection with the
acquisition of United Knitting.
(6) Includes 16,981 options repriced in fiscal 1996.
56
<PAGE> 62
PRINCIPAL SHAREHOLDERS
The only outstanding voting securities of the Company are shares of common
stock, which are entitled to one vote per share. At July 5, 1997, there were
issued and outstanding 13,139,658 shares of common stock.
The following table sets forth information, as of June 30, 1997, with
respect to all shareholders known by the Company to be beneficial owners of more
than five percent of its outstanding shares of common stock. It also shows
beneficial ownership for each director and executive officer. Except as noted
below, each person has sole voting and investment power with respect to the
shares shown as of such date.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE
NAME BENEFICIAL OWNERSHIP(1) OUTSTANDING
- ---- ----------------------- -----------
<S> <C> <C>
Stephen J. Dauer............................................ 156,412(2) 1.2%
T. Eugene McBride........................................... 205,000 1.6
Janice L. Whitlock.......................................... 6,792 *
Jerome M. Wiggins........................................... 217,733 1.7
William S. Shropshire, Jr................................... 500 *
Paul L. Hallock............................................. 145,687(3) 1.1
Jerry W. Patton............................................. 46,010 *
Jerry W. Miller............................................. 10,214 *
Margaret Schenck............................................ 56,434 *
Julius Lasnick.............................................. 9,000 *
L.R. Jalenak, Jr............................................ 18,500 *
Marvin B. Crow.............................................. 8,000 *
Patricia Hilsberg........................................... 5,000 *
P. Manohar.................................................. --(4) *
Ravi Shankar................................................ --(4) *
Mickey Ganot................................................ --(4) *
Marimutu Sinivisan.......................................... --(5) *
Texmaco..................................................... 3,000,000 22.8
All executive officers and directors as a group (16
persons).................................................. 885,282(6) 6.7
</TABLE>
- ---------------
* Denotes less than one percent
(1) Includes the following shares subject to options that are exercisable within
60 days of June 30, 1997: Stephen J. Dauer -- 6,386; T. Eugene
McBride -- 17,499; Janice L. Whitlock -- 6,792; Jerome M. Wiggins -- 11,895;
Paul L. Hallock -- 3,186; Jerry Patton -- 2,885; Jerry Miller -- 7,714;
Margaret Schenck -- 17,401; Julius Lasnick -- 7,000; L. R. Jalenak,
Jr. -- 9,000; Marvin B. Crow -- 7,000; and Patricia Hilsberg -- 5,000.
(2) Includes 300 shares owned by Mr. Dauer's wife.
(3) Includes 4,000 shares held as custodian for Mr. Hallock's children.
(4) Excludes shares held by Texmaco which may be deemed to be beneficially owned
because such person is a Texmaco designee to the Company's Board of
Directors pursuant to its agreement with the Company dated May 5, 1997. See
"Risk Factors -- Relationship with Texmaco."
(5) Excludes shares held by Texmaco which may be deemed to be beneficially owned
because such person is a controlling person of Texmaco.
(6) Excludes shares held by Texmaco which may be deemed to be beneficially owned
by Messrs. Manohar, Shankar and Ganot.
57
<PAGE> 63
DESCRIPTION OF NEW CREDIT FACILITY
Concurrently with the closing of the Acquisition and the offering of Series
A Notes, the Company and certain of its subsidiaries entered into the New Credit
Facility with one or more financial institutions (the "Lenders") for which
SunTrust Bank, Atlanta ("SunTrust") is administrative and collateral agent and
SunTrust's affiliate acts as arranger. The Company and all existing and future
material subsidiaries of the Company guarantee the indebtedness under the New
Credit Facility. The following is a summary of the material terms and conditions
of the New Credit Facility and is subject to the detailed provisions of the New
Credit Facility and various related documents entered into in connection with
the New Credit Facility. A copy of the New Credit Facility is available upon
request from the Company.
General. The New Credit Facility consists of a five-year Revolver
providing up to $110.0 million of availability and a five-year $50.0 million
Term Loan. The Term Loan provides for scheduled quarterly principal amortization
such that $7.5 million of principal is paid during each of the first and second
years following the closing; $10.0 million during the third year following the
closing; and $12.5 million during each of the fourth and fifth years following
the closing. The Revolver is available in multiple drawings from time to time on
and following the closing, subject to certain limitations, including a
requirement that amounts outstanding under the Revolver (including certain
letters of credit) will at all times be less than a Borrowing Base based on 50%
of the Company's Eligible Inventory and 85% of the Company's Eligible
Receivables (as such terms are defined in the New Credit Facility), and amounts
borrowed and repaid may be reborrowed until the fifth anniversary of the closing
date (the "Final Maturity Date"). The Revolver also includes a subfacility for
up to $5.0 million of revolving swing loans to be provided by SunTrust (the
"Swing Loans"), which, to the extent made, will reduce the availability of the
Revolver. Up to $12.0 million of the amount available under the Revolver may be
used for letters of credit supporting obligations of the Company and its
subsidiaries, which will also reduce the availability under the Revolver.
Advances under the Revolver will be used to finance the working capital and
general corporate requirements of the Company and its subsidiaries, including
the financing of Alamac's working capital needs.
Interest Rates; Fees. Amounts outstanding under the Revolver and the Term
Loan bear interest, at the Company's option, at either LIBOR (adjusted for any
reserves) plus a specified margin ranging from 0.75% to 2.75% (based on the
ratio of the Company's Total Adjusted Funded Debt to its EBITDAR (as such terms
are defined in the New Credit Facility) (the "Total Debt/EBITDAR Ratio")) for
interest periods of one, two, three or six months, or the base rate, which is
the higher of SunTrust's prime lending rate and the overnight federal funds rate
plus 0.50% plus a margin of 0.25% if the Company's Total Debt/EBITDAR Ratio
exceeds a specified level. Swing Loans may bear interest at a negotiated rate
for a short-term period agreed to with SunTrust or the base rate, as described
above.
Interest on the amounts outstanding under the Revolver and the Term Loan
bearing interest at the base rate are payable quarterly in arrears on the last
day of each quarter. Interest on amounts outstanding under the Revolver and Term
Loan bearing interest based on LIBOR are payable in arrears at the end of the
applicable interest period and every three months where the applicable period
exceeds three months.
The Company pays a commitment fee on the unused portion of the Revolver
which is payable quarterly in arrears. The amount of the commitment fee will be
determined based on the Total Debt/EBITDAR Ratio and will range from 0.15% to
0.50% per annum. The New Credit Facility also provides for payment of fees with
respect to letters of credit issued or deemed issued thereunder.
Mandatory Prepayments. The Term Loan is subject to the following mandatory
prepayments: (i) 100% of the net cash proceeds of an equity issuance by the
Company, (ii) 50% of annual Excess Cash Flow (as defined in the New Credit
Facility) and (iii) 100% of net cash proceeds from Asset Sales (as defined in
the New Credit Facility), subject to certain exceptions contained therein. The
New Credit Facility prohibits asset sales altogether or requires mandatory
reduction of available borrowings under the Revolver by an amount equal to the
net cash proceeds of such asset sales if the Term Loan is paid in full.
Collateral. All amounts owing under the New Credit Facility are secured by
security interests in substantially all of the assets of the Company and its
subsidiaries.
58
<PAGE> 64
Covenants. The Company and each of its existing and future subsidiaries
are subject to certain affirmative and negative covenants contained in the New
Credit Facility, including without limitation covenants that restrict, subject
to specified exceptions, (i) the incurrence of additional indebtedness and other
obligations and the granting of additional liens; (ii) mergers, acquisitions,
investments and acquisitions and dispositions of assets; (iii) the incurrence of
capitalized lease obligations; (iv) dividends; (v) prepayments or repurchase of
other indebtedness and amendments to certain agreements governing indebtedness,
including the Indenture and the Exchange Notes; (vi) engaging in transactions
with affiliates and formation of subsidiaries; (vii) the use of proceeds; and
(viii) changes of lines of business. There are also covenants relating to
compliance with ERISA and environmental and other laws, payment of taxes,
maintenance of corporate existence and rights, maintenance of insurance and
financial reporting. Certain of these covenants are more restrictive than those
set forth in the Indenture. In addition, the New Credit Facility requires the
Company to maintain compliance with certain specified financial covenants,
including covenants relating to minimum net worth, minimum interest coverage
ratio, minimum fixed charge coverage ratio and maximum Total Debt/EBITDAR Ratio.
The New Credit Facility prohibits prepayment or defeasance of the Exchange
Notes.
Events of Default. The New Credit Facility includes customary events of
default, including, without limitation, a bankruptcy, a Change of Control (as
defined in the New Credit Facility) of the Company or its subsidiaries, the
invalidity of guarantees or security documents under the New Credit Facility and
cross-default to other indebtedness of the Company and its subsidiaries. The
occurrence of any such events of default could result in acceleration of the
Company's obligations under the New Credit Facility and foreclosure on the
collateral securing such obligations, which could have a material adverse effect
on holders of the Exchange Notes.
59
<PAGE> 65
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued pursuant to the Indenture between the
Company and State Street Bank & Trust Company, as trustee (the "Trustee"). Upon
the effectiveness of the Registration Statement of which this Prospectus forms a
part, the Indenture will be subject to and governed by the Trust Indenture Act
of 1939 (the "Trust Indenture Act"). 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. 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 following summary of the material
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below. Copies of the Indenture will be made available as set
forth under "-- Additional Information." The definitions of certain terms used
in the following summary are set forth below under "-- Certain Definitions." For
purposes of this "Description of the Exchange Notes," the term "Company" refers
only to Dyersburg Corporation and not to any of its Subsidiaries.
The Exchange Notes will be general unsecured obligations of the Company and
will be subordinated in right of payment to all existing and future Senior Debt
of the Company. As of July 5, 1997, after giving pro forma effect to the
offering of Series A Notes and the Acquisition, the Company would have had
approximately $86.9 million of Senior Debt outstanding, including $79.0 million
of outstanding borrowings under the New Credit Facility. In addition, certain of
the Company's Restricted Subsidiaries would have had $41.8 million of additional
borrowings available under the New Credit Facility. The Indenture permits the
Company and its Restricted Subsidiaries to incur additional indebtedness,
including additional Senior Debt, subject to certain restrictions. See
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock."
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Exchange Notes. The
Exchange Notes will be effectively subordinated to all Indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
the Company's Subsidiaries. Any right of the Company to receive assets of any of
its Subsidiaries upon the latter's liquidation or reorganization (and the
consequent right of the holders of the Exchange Notes to participate in those
assets) will be effectively subordinated to the claims of that Subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such Subsidiary, in which case the claims of the Company would still
be subordinate to any security interest in the assets of such Subsidiary and any
indebtedness of such Subsidiary senior to that held by the Company. As of July
5, 1997, after giving pro forma effect to the offering of Series A Notes and the
Acquisition, the Company's Subsidiaries would have had approximately $86.9
million of Indebtedness and $56.6 million of trade payables and other
liabilities outstanding. See "Risk Factors -- Subordination."
All of the Company's Subsidiaries are Restricted Subsidiaries. However,
under certain circumstances, the Company will be able to designate current or
future Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will
not be subject to many of the restrictive covenants set forth in the Indenture.
The Company's payment obligations under the Exchange Notes will be guaranteed,
on a senior subordinated basis, by all of the Company's existing Restricted
Subsidiaries and all Domestic Restricted Subsidiaries created or acquired by the
Company in the future. See "-- Subsidiary Guarantees."
PRINCIPAL, MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to $125.0
million and will mature on September 1, 2007. Interest on the Exchange Notes
will accrue at the rate of 9 3/4% per annum and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on March 1, 1998, to
holders of record on the immediately preceding February 15 and August 15.
Interest on the Exchange Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid,
60
<PAGE> 66
from the date of original issuance. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Principal of and premium,
interest and Liquidated Damages, if any, on the Exchange Notes will be payable
at the office or agency of the Company maintained for such purpose or, at the
option of the Company, payment of interest and Liquidated Damages may be made by
check mailed to the holders of the Exchange Notes at their respective addresses
set forth in the register of holders of Exchange Notes; provided that all
payments of principal, premium, interest and Liquidated Damages with respect to
Exchange Notes the holders of which have given wire transfer instructions to the
Company will be required to be made by wire transfer of immediately available
funds to the accounts specified by the holders thereof. Until otherwise
designated by the Company, the Company's office or agency will be the office of
the Trustee maintained for such purpose. The Exchange Notes will be issued in
denominations of $1,000 and integral multiples thereof.
SUBORDINATION
The payment of principal of and premium, interest and Liquidated Damages,
if any, on the Exchange Notes is subordinate in right of payment, as set forth
in the Indenture, to the prior payment in full of all Senior Debt of the
Company, whether outstanding on the Closing Date or thereafter incurred.
The Indenture provides that in the event of any insolvency or bankruptcy
case or proceeding, or any receivership, liquidation, reorganization or other
similar case or proceeding in connection therewith, relating to the Company or
its assets, or any liquidation, dissolution or other winding-up of the Company,
whether voluntary or involuntary, and whether or not involving insolvency or
bankruptcy, or any assignment for the benefit of creditors or marshalling of
assets or liabilities of the Company, the holders of Senior Debt must be paid in
full in cash or Cash Equivalents with respect to all Obligations due in respect
of such Senior Debt before any direct or indirect payment or distribution
(excluding distributions of certain Permitted Junior Securities) is made on
account of the principal of, or premium, if any, or interest on, the Exchange
Notes or on account of the purchase, redemption, defeasance or other acquisition
of, or in respect of, the Exchange Notes (other than payments previously made
pursuant to the provisions described below under "-- Legal Defeasance and
Covenant Defeasance").
Upon the occurrence and during the continuance of any default in the
payment of any Obligation with respect to any Designated Senior Debt, when the
same becomes due (whether due to lapse of time or at maturity, whether by
acceleration or otherwise), and after receipt by the Trustee and the Company
from representatives of holders of such Designated Senior Debt of written notice
of such default, no direct or indirect payment (other than payments previously
made pursuant to the provisions described under "-- Legal Defeasance and
Covenant Defeasance") by or on behalf of the Company of any kind or character
(excluding distributions of certain Permitted Junior Securities) may be made on
account of the principal of, premium, if any, or interest on, or the purchase,
redemption, defeasance or other acquisition of, the Exchange Notes unless and
until such default had been cured or waived or has ceased to exist or such
Designated Senior Debt shall have been discharged or paid in full in cash or
Cash Equivalents.
In addition, upon the occurrence and during the continuance of any other
default in respect of any Designated Senior Debt pursuant to which the maturity
thereof may be accelerated (a "Non-payment Default") and upon the earlier to
occur of (a) the receipt by the Trustee from the representatives of holders of
such Designated Senior Debt of a written notice of such Non-payment Default (a
"Payment Blockage Notice") or (b) if such Non-payment Default results from the
acceleration of the Exchange Notes, the date of such acceleration, no payment
(other than payments previously made pursuant to the provisions described under
"-- Legal Defeasance and Covenant Defeasance") or distribution of any assets of
the Company of any kind or character (excluding distributions of certain
Permitted Junior Securities) may be made by the Company on account of the
principal of, premium, if any, or interest on, or the purchase, redemption,
defeasance or other acquisition of, the Exchange Notes for the period specified
below (the "Payment Blockage Period").
The Payment Blockage Period shall commence upon the receipt of the Payment
Blockage Notice by the Trustee from the representatives of holders of Designated
Senior Debt or the date of the acceleration referred
61
<PAGE> 67
to in clause (b) of the preceding paragraph, as the case may be, and shall end
on the earliest to occur of the following events (a) 179 days has elapsed since
the receipt of such Payment Blockage Notice or the date of such acceleration
(provided such Designated Senior Debt shall not theretofore have been
accelerated), (b) such default is cured or waived or ceases to exist or such
Designated Senior Debt is discharged or paid in full in cash or Cash Equivalents
(provided that no other Non-payment Default has occurred and is then continuing
after giving effect to such cure or waiver), or (c) such Payment Blockage Period
shall have been terminated by written notice to the Company or the Trustee from
the representatives of holders of Designated Senior Debt initiating such Payment
Blockage Period, after which the Company shall promptly resume making any and
all required payments in respect of the Exchange Notes. No Non-payment Default
with respect to Designated Senior Debt that existed or was continuing on the
date of the commencement of any Payment Blockage Period with respect to the
Designated Senior Debt initiating such Payment Blockage Period will be, or can
be, made the basis of the commencement of a second Payment Blockage Period,
unless such default has been cured for a period of not less than 30 consecutive
days. In no event will a Payment Blockage Period extend beyond 179 days from the
receipt by the Trustee of the Payment Blockage Notice or the date of the
acceleration initiating such Payment Blockage Period (provided that such
Designated Senior Debt shall not theretofore have been accelerated), and there
must be at least a 186 consecutive day period in each 365-day period during
which no Payment Blockage Period is in effect.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Exchange Notes is accelerated because of an Event
of Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, holders of Exchange Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt. As of July
5, 1997, after giving pro forma effect to the offering of Series A Notes and the
Acquisition, the Company would have had approximately $86.9 million of Senior
Debt outstanding. The Company will be able to incur additional Senior Debt in
the future, subject to certain limitations. See "-- Certain Covenants --
Incurrence of Indebtedness and Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Exchange Notes are guaranteed
by all of the Company's existing Restricted Subsidiaries. In addition, the
Company is obligated to cause each of its Domestic Restricted Subsidiaries
created or acquired after the Closing Date to execute a Guarantee of the
Exchange Notes in accordance with the terms of the Indenture. The Guarantee of
each Guarantor is subordinated in right of payment to all existing and future
Senior Debt of such Guarantor to the same extent as the Exchange Notes are
subordinated to Senior Debt of the Company. See "-- Subordination." As of July
5, 1997, after giving pro forma effect to the offering of Series A Notes and the
Acquisition, the Guarantors would have had approximately $86.9 million of Senior
Debt outstanding. The Indenture permits the Company's Subsidiaries to incur
additional indebtedness, including additional Senior Debt, subject, in the case
of the Company's Restricted Subsidiaries, to certain restrictions. See
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock."
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Guarantor, by way of merger, consolidation or otherwise
(other than with another Guarantor), or a sale or other disposition of all of
the capital stock of any Guarantor (other than to another Guarantor), or in the
case the Company designates a Guarantor to be an Unrestricted Subsidiary in
accordance with the Indenture, then such Guarantor will be released and relieved
of any obligations under its guarantee; provided that the Net Proceeds of any
such sale or other disposition are applied in accordance with the applicable
provisions of the Indenture. See "-- Repurchase at the Option of
Holders -- Asset Sales."
62
<PAGE> 68
OPTIONAL REDEMPTION
The Exchange Notes will not be redeemable at the Company's option prior to
September 1, 2002. Thereafter, the Exchange Notes will be subject to redemption
at any time at the option of the Company, in whole or in part, upon not less
than 30 nor more than 60 days' notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest and Liquidated Damages, if any, thereon to the applicable redemption
date, if redeemed during the twelve-month period beginning on September 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2002........................................................ 104.875%
2003........................................................ 103.250
2004........................................................ 101.625
2005 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to September 1, 2000, the Company may
redeem up to an aggregate of $25.0 million in principal amount of Exchange Notes
at a redemption price of 109.75% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, thereon to the redemption
date, with the net cash proceeds of one or more public offerings of common stock
of the Company; provided that (i) at least $100.0 million in principal amount of
the Exchange Notes remain outstanding immediately after the occurrence of such
redemption, and (ii) such redemption shall occur within 90 days of the date of
the consummation of each such public offering.
SELECTION AND NOTICE
If less than all of the Exchange Notes are to be redeemed at any time,
selection of Exchange Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Exchange Notes are listed, or, if the Exchange Notes are
not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided that no Exchange Notes of $1,000 or
less shall be redeemed in part. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each holder of Exchange Notes to be redeemed at its registered address. Notices
of redemption may not be conditional. If any Exchange Note is to be redeemed in
part only, the notice of redemption that relates 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. Exchange Notes called for redemption become due on the date fixed for
redemption. On and after the redemption date, interest ceases to accrue on
Exchange Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Exchange Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, the Company will be obligated
to make an offer (a "Change of Control Offer") to each holder of Exchange Notes
to repurchase all or any part (equal to $1,000 or an integral multiple thereof)
of such holder's Exchange Notes at an offer price in cash equal to 101% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following a Change of Control, the Company will mail a
notice to each holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase Exchange Notes on the date
specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of
63
<PAGE> 69
Control Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Exchange Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Exchange Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent an amount equal to the Change of Control Payment in respect of all
Exchange Notes or portions thereof so tendered and (iii) deliver or cause to be
delivered to the Trustee the Exchange Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of Exchange Notes
or portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Exchange Notes so tendered the Change of Control
Payment for such Exchange Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each holder a new Exchange
Note equal in principal amount to any unpurchased portion of the Exchange Notes
surrendered, if any; provided that each such new Exchange Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Indenture
provides that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will either
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the repurchase
of Exchange Notes required by this covenant. The Company will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the holders of the Exchange Notes to require that the
Company repurchase or redeem the Exchange Notes in the event of a takeover,
recapitalization or similar transaction.
The New Credit Facility prohibits, and future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
prohibit, the Company from purchasing any Exchange Notes following a Change of
Control and/or provide that certain change of control events with respect to the
Company would 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 its lenders 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.
The Company's failure to purchase tendered Exchange Notes following a Change of
Control would constitute an Event of Default under the Indenture which would, in
turn, constitute a default under the New Credit Facility. In such circumstances,
the subordination provisions in the Indenture would likely restrict payments to
the holders of Exchange Notes. See "-- Subordination" and "Description of New
Credit Facility."
The Company will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Exchange Notes validly tendered and not withdrawn
under such Change of Control Offer.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests in Subsidiaries issued or sold or otherwise disposed of and (ii) at
least 75% of the consideration therefor received by the Company or such
Restricted Subsidiary is in the form of cash; provided that the amount of (a)
any liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or such Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated to
the Exchange Notes or any guarantee thereof) that are assumed by the
64
<PAGE> 70
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Restricted Subsidiary from further liability and
(b) any securities, notes or other obligations received by the Company or such
Restricted Subsidiary from such transferee that are immediately converted by the
Company or such Restricted Subsidiary into cash (to the extent of the cash
received) shall be deemed to be cash for purposes of this provision.
Within 270 days of the receipt of any Net Proceeds from an Asset Sale, the
Company or such Restricted Subsidiary may apply such Net Proceeds, at its
option, (i) to repay Senior Debt or (ii) to the acquisition of a controlling
interest in another business, the making of a capital expenditure or the
acquisition of other long-term assets. Pending the final application of any such
Net Proceeds, the Company may temporarily reduce Senior Debt or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company
will be required to make an offer to all holders of Exchange Notes (an "Asset
Sale Offer") to purchase the maximum principal amount of Exchange Notes that may
be purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
and Liquidated Damages, if any, thereon to the date of purchase, in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
amount of Exchange Notes tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Exchange Notes
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Exchange Notes to be purchased on a pro rata basis.
Upon completion of an Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to any
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions (a) payable in Equity Interests
(other than Disqualified Stock) of the Company or (b) to the Company or any
Wholly Owned Restricted Subsidiary of the Company); (ii) purchase, redeem or
otherwise acquire or retire for value (including without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company (other
than any such Equity Interests owned by the Company or any Wholly Owned
Restricted Subsidiary of the Company); (iii) make any payment on or with respect
to, or purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness of the Company or any Restricted Subsidiary that is subordinated to
the Exchange Notes or any Guarantee thereof, except a payment of interest or
principal at Stated Maturity; or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of and
after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the Closing Date (excluding Restricted
65
<PAGE> 71
Payments permitted by clause (ii) through (v) of the next succeeding
paragraph), is less than the sum of (i) 50% of the cumulative Consolidated
Net Income of the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing after the Closing
Date to the end of the Company's most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such period is
a deficit, less 100% of such deficit), plus (ii) 100% of (A) the aggregate
net cash proceeds received by the Company from the issue or sale since the
Closing Date of Equity Interests of the Company (other than Disqualified
Stock), other than Equity Interests sold to a Subsidiary of the Company,
and (B) the amount by which Indebtedness or Disqualified Stock of the
Company and its Restricted Subsidiaries is reduced on the balance sheet of
the Company upon the conversion or exchange (other than by a Subsidiary of
the Company) subsequent to the Closing Date of any such Indebtedness or
Disqualified Stock for Equity Interests (other than Disqualified Stock) of
the Company, plus (iii) 50% of any dividends received by the Company or a
Wholly Owned Restricted Subsidiary after the Closing Date from an
Unrestricted Subsidiary of the Company, to the extent that such dividends
were not otherwise included in Consolidated Net Income of the Company for
such period, plus (iv) $5.0 million.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at the date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
or any Restricted Subsidiary in exchange for, or out of the net cash proceeds of
the substantially concurrent sale (other than to a Subsidiary of the Company)
of, other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase, retirement, defeasance or other acquisition shall
be excluded from clause (c)(ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness; (iv) the repurchase, redemption or other acquisition
or retirement for value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any of its
Restricted Subsidiaries') management or board of directors pursuant to any
management equity subscription agreement, stock option agreement or other
similar agreement; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not exceed
$250,000 in any twelve-month period and no Default or Event of Default shall
have occurred and be continuing immediately after such transaction; and (v) the
payment of dividends on the Company's common stock in an amount not to exceed
$0.01 per share per fiscal quarter of the Company.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined in good
faith by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee. Not later than 90 days following the end of each
fiscal quarter of the Company, the Company shall deliver to the Trustee an
Officers' Certificate setting forth the Restricted Payments made by the Company
during such quarter stating that such Restricted Payments were permitted and
setting forth the basis upon which the calculations required by the covenant
"Restricted Payments" were computed; provided, however, that no such Officers'
Certificate need be delivered with respect to any quarter in which no Restricted
Payments, other than the payment of up to $0.01 per share dividend on the
Company's common stock, were made.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greatest of (i) the net book value of such Investments at the time of such
designation, (ii) the fair market value of such Investments at the time of such
designation and (iii) the original fair market value of such Investments at the
66
<PAGE> 72
time they were made. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. If, at any time, any
Unrestricted Subsidiary would fail to meet the definition of an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the Indenture and any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date under
the covenant described under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock," the Company shall be in default of such covenant).
The Board of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period, and (ii) no Default or Event of Default would be in existence
following such designation.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not permit any
of its Subsidiaries to issue any shares of preferred stock; provided, however,
that the Company and the Guarantors may incur Indebtedness (including Acquired
Debt) and the Guarantors may issue preferred stock if the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such preferred stock is issued
would have been at least 2.0 to 1, determined on a pro forma basis (including a
pro forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or the preferred stock had been issued at the
beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following (collectively, "Permitted Debt"):
(i) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness under the New Credit Facility in an aggregate amount not to
exceed at any one time outstanding the sum of (a) $50.0 million less the
aggregate amount of all Net Proceeds of Asset Sales applied to repay
Indebtedness outstanding under the New Credit Facility pursuant to clause
(i) of the second paragraph of the covenant described above under the
caption " -- Asset Sales" (but the amount available under this subsection
(a) shall not be reduced to less than zero) plus (b) the greater of (1)
$110.0 million and (2) the sum of (A) 85% of the Company's accounts
receivable as shown on the Company's most recent consolidated balance
sheet, plus (B) 50% of the Company's inventories as shown on the Company's
most recent consolidated balance sheet;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness represented by the Exchange Notes, any Guarantee of the
Exchange Notes and the Indenture;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iv) the incurrence by the Company and the Guarantors of Indebtedness
represented by Capital Lease Obligations, mortgage financings or purchase
money obligations, in each case incurred for the purpose of financing all
or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Guarantor, in an aggregate amount not to exceed $5.0 million at any time
outstanding;
67
<PAGE> 73
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace Indebtedness
that was permitted to be incurred by the first paragraph, or by clauses
(ii) through (x) of the second paragraph of this covenant;
(vi) the incurrence of Indebtedness between or among the Company and
any of its Wholly Owned Restricted Subsidiaries; provided, however, that
any subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a Wholly
Owned Restricted Subsidiary, and any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Wholly Owned
Restricted Subsidiary, shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are (a) incurred for the purpose
of fixing or hedging interest rate risk with respect to any Indebtedness
that is permitted by the terms of the Indenture to be outstanding or (b)
incurred for the purpose of fixing or hedging currency exchange rates or
prices of commodities used in the business of the Company and its
Restricted Subsidiaries;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of obligations relating to letters of credit to support
workers compensation obligations, bankers acceptances and performance
bonds, surety bonds and performance guarantees of the Company or such
Restricted Subsidiary, in each case incurred in the ordinary course of
business;
(ix) the incurrence by the Company or any Guarantor of Indebtedness in
an amount not to exceed $20.0 million at any one time outstanding; and
(x) the guarantee by the Company or any of the Guarantors of
Indebtedness that was permitted to be incurred by another provision of this
covenant.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (x) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant, and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accredit
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien securing Indebtedness or trade payables on any asset
now owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
68
<PAGE> 74
Indebtedness as in effect on the Closing Date, (b) the New Credit Facility as in
effect as of the Closing Date, and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacements or refinancings are no more
restrictive with respect to such dividend and other payment restrictions
affecting Restricted Subsidiaries than those contained in the New Credit
Facility as in effect on the Closing Date, (c) the Indenture and the Exchange
Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Restricted Subsidiaries
as in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (f) by reason of customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, or (h) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets
The Indenture provides that neither the Company nor any Restricted
Subsidiary may consolidate or merge with or into (whether or not the Company or
such Restricted Subsidiary, as the case may be, is the surviving corporation),
or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions, to another corporation, Person or entity unless (i) the Company or
such Restricted Subsidiary, as the case may be, is the surviving corporation or
the entity or the Person formed by or surviving any such consolidation or merger
(if other than the Company or such Restricted Subsidiary) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company or
such Restricted Subsidiary) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made assumes all the obligations of the Company or such Restricted Subsidiary,
as the case may be, under the Exchange Notes or such Restricted Subsidiary's
Guarantee thereof and the Indenture pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of
the Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (a) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (b) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or such Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the
69
<PAGE> 75
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $3.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, other than the purchase or
sale of inventory from or to Texmaco in the ordinary course of business, an
opinion as to the fairness to the holders of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or investment banking
firm of national standing.
The foregoing provisions will not prohibit (i) any transaction with an
employee of the Company (in his or her capacity as such) entered into in the
ordinary course of business, including entering into employment agreements,
indemnification agreements and compensation and employee benefit plans; (ii)
transactions between or among the Company and/or its Restricted Subsidiaries;
and (iii) any Restricted Payment that is permitted by the provisions of the
Indenture described above under the caption "-- Restricted Payments."
Limitation on Other Senior Subordinated Debt
The Indenture provides that neither the Company nor any Restricted
Subsidiary will incur any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of the Company or such Restricted Subsidiary, as the
case may be, and senior in any respect in right of payment to the Exchange Notes
or such Restricted Subsidiary's Guarantee thereof.
Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of the Guarantors shall
acquire or create a Domestic Restricted Subsidiary after the Closing Date, or
any Unrestricted Subsidiary shall cease to be an Unrestricted Subsidiary and
become a Domestic Restricted Subsidiary, then such Subsidiary shall execute a
guarantee of the notes and deliver an opinion of counsel, in accordance with the
terms of the Indenture.
Payments for Consent
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any Exchange Notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the Indenture or the Exchange Notes unless
such consideration is offered to be paid or is paid to all holders of the
Exchange Notes that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Exchange Notes are outstanding,
the Company will furnish to the holders of Exchange Notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition and
results of operations of the Company and its consolidated Subsidiaries (showing
in reasonable detail, either on the face of the financial statements or in the
footnotes thereto and in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the financial condition and results of
operations of the Company and its Restricted Subsidiaries separate from the
financial information and results of operations of the Unrestricted Subsidiaries
of the Company) and, with respect to the annual information only, a report
thereon by the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with the Commission on Form 8-K if
the Company were required to file such reports. In addition, whether or not
required by the rules and regulations of the Commission, the Company will file a
copy of all such information and reports with the Commission for public
70
<PAGE> 76
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Exchange Notes (whether or not
prohibited by the subordination provisions of the Indenture), (ii) default in
payment when due of the principal of or premium, if any, on the Exchange Notes
(whether or not prohibited by the subordination provisions of the Indenture);
(iii) failure by the Company to comply with the provisions described under the
captions "-- Change of Control," "-- Asset Sales," "-- Restricted Payments,"
"-- Incurrence of Indebtedness and Issuance of Preferred Stock" or "-- Merger,
Consolidation or Sale of Assets;" (iv) failure by the Company for 30 days after
written notice by the Trustee or the holders of at least 25% in principal amount
of the then outstanding Exchange Notes to comply with any of its other
agreements in the Indenture or the Exchange Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or guarantee now exists or is created after the Closing Date, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness at final maturity (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its express maturity
and, in each case, the principal amount of any such Indebtedness, together with
the principal amount of any other such Indebtedness under which there has been a
Payment Default or the maturity of which has been so accelerated, aggregates
$5.0 million or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments aggregating in excess of $5.0 million and
either (a) any creditor commences enforcement proceedings upon any such judgment
or (b) such judgments are not paid, discharged or stayed for a period of 60
days; (vii) except as permitted by the Indenture, any guarantee of the Exchange
Notes shall be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any Restricted
Subsidiary, or any Person acting on behalf of any Restricted Subsidiary, shall
deny or disaffirm its obligations under its guarantee; and (viii) certain events
of bankruptcy or insolvency with respect to the Company or any of its Restricted
Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Exchange
Notes may declare all the Exchange Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Exchange
Notes will become due and payable without further action or notice. Holders of
the Exchange Notes may not enforce the Indenture or the Exchange Notes except as
provided in the Indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding Exchange Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
holders of the Exchange Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring solely by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium that the Company would
have had to pay if the Company then had elected to redeem the Exchange Notes
pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Exchange Notes. If an Event of
Default occurs prior to September 1, 2002 solely by reason of any willful action
(or inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding the prohibition on redemption of the Exchange Notes prior
to such date, then the premium specified in the Indenture shall also become
immediately due and payable to the extent permitted by law upon the acceleration
of the Exchange Notes.
71
<PAGE> 77
The holders of a majority in aggregate principal amount of the Exchange
Notes then outstanding by notice to the Trustee may on behalf of the holders of
all of the Exchange Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Exchange Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS AND
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Restricted Subsidiary (other than the Company and its Restricted
Subsidiaries), as such, shall have any liability for any obligations of the
Company or such Restricted Subsidiary under the Exchange Notes, any Guarantee
thereof, the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of Exchange Notes by
accepting an Exchange Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Exchange Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Exchange Notes ("Legal
Defeasance") except for (i) the rights of holders of outstanding Exchange Notes
to receive payments in respect of the principal of and premium, interest and
Liquidated Damages, if any, on the Exchange Notes when such payments are due
from the trust referred to below, (ii) the Company's obligations with respect to
the Exchange Notes concerning issuing temporary Exchange Notes, registration of
Exchange Notes, mutilated, destroyed, lost or stolen Exchange Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Exchange Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under " -- Events of Default and Remedies" will no longer
constitute an Event of Default with respect to the Exchange Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Exchange Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of and premium, interest and Liquidated
Damages, if any, on the outstanding Exchange Notes on the stated maturity or on
the applicable redemption date, as the case may be, and the Company must specify
whether the Exchange Notes are being defeased to maturity or to a particular
redemption date; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (a) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (b) since
the Closing Date, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the holders of the outstanding Exchange Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee
72
<PAGE> 78
confirming that the holders of the outstanding Exchange Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
date of deposit; (v) such Legal Defeasance or Covenant Defeasance will not
result in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of Exchange Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company shall have delivered
to the Trustee an Officers' Certificate and an opinion of counsel, each stating
that all conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Exchange Note selected for redemption. Also, the Company is not required to
transfer or exchange any Exchange Note for a period of 15 days before a
selection of Exchange Notes to be redeemed.
The registered holder of an Exchange Note will be treated as the owner of
it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture,
the Exchange Notes and the Guarantees thereof may be amended or supplemented
with the consent of the holders of at least a majority in principal amount of
the Exchange Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, Exchange Notes), and any existing default or compliance with any provision
of the Indenture, the Exchange Notes or the Guarantees thereof may be waived
with the consent of the holders of a majority in principal amount of the then
outstanding Exchange Notes (including consents obtained in connection with a
tender offer or exchange offer for Exchange Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Exchange Notes held by a non-consenting holder): (i) reduce
the principal amount of Exchange Notes whose holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any Exchange Note or alter the provisions with respect to the
redemption of the Exchange Notes (other than provisions relating to the
covenants described above under the caption "-- Repurchase at the Option of
Holders"), (iii) reduce the rate of or change the time for payment of interest
on any Exchange Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium, interest or Liquidated Damages, if any, on the Exchange
Notes (except a rescission of acceleration of the Exchange Notes by the holders
of at least a majority in aggregate principal amount of the Exchange Notes and a
waiver of the payment default that resulted from such acceleration), (v) make
any Exchange Note payable in money other than that stated in the Exchange Notes,
(vi) make any change in the provisions of the Indenture relating to waivers of
past Defaults or the rights of holders of Exchange Notes to receive payments of
principal of or premium, interest or Liquidated Damages, if any, on the Exchange
Notes, (vii) waive a redemption payment with respect to any Exchange Note (other
than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"), (ix) release any Restricted
Subsidiary from its
73
<PAGE> 79
Guarantee of the Exchange Notes or (ix) make any change in the foregoing
amendment and waiver provisions. In addition, any amendment to the provisions of
Article 10 of the Indenture (which relates to subordination) will require the
consent of the holders of at least 75% in aggregate principal amount of the
Exchange Notes then outstanding if such amendment would adversely affect the
rights of holders of Exchange Notes.
Notwithstanding the foregoing, without the consent of any holder of
Exchange Notes, the Company and the Trustee may amend or supplement the
Indenture, the Exchange Notes or any Guarantee thereof to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Exchange Notes in
addition to or in place of certificated Exchange Notes, to provide for the
assumption of the Company's or any Restricted Subsidiary's obligations to
Holders of Exchange Notes in the case of a merger or consolidation, to make any
change that would provide any additional rights or benefits to the holders of
Exchange Notes or that does not adversely affect the legal rights under the
Indenture of any such holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in principal amount of the then outstanding
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 in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Exchange Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Dyersburg
Corporation, 1315 Phillips Street, Dyersburg, Tennessee 38025, Attention:
Treasurer.
BOOK-ENTRY, DELIVERY AND FORM
The certificates representing the Exchange Notes will be issued in fully
registered form. Except as described in the next paragraph, the Exchange Notes
initially will be represented by a single, permanent global Exchange Note, in
definitive, fully registered form without interest coupons (the "Global Exchange
Note") and will be deposited with the Trustee as custodian for DTC and
registered in the name of Cede & Co. or such other nominee as DTC may designate.
The Global Exchange Note (and any Exchange Notes issued in exchange therefor)
will be subject to certain restrictions on transfer set forth therein and in the
Indenture and will bear the respective legends regarding such restrictions.
Holders of Exchange Notes who elect to take physical delivery of their
certificates instead of holding their interest through the Global Exchange Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered form a certificated Exchange Note ("Certificated Exchange Note").
Upon the transfer of any Certificated Exchange Note initially issued to a
Non-Global Holder, such Certificated Exchange Note will, unless the transferee
requests otherwise or the Global Exchange Note has previously been exchanged in
whole for Certificated Exchange Notes, be exchanged for an interest in the
Global Exchange Note.
The Depositary has advised the Company as follows: The Depositary is a
limited-purpose trust company that was created to hold securities for its
participating organizations (collectively, the "Participants" or the
"Depositary's Participants") and to facilitate the clearance and settlement of
transactions in such securities
74
<PAGE> 80
between Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depositary's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or the "Depositary's
Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depositary only through the Depositary's Participants or the Depositary's
Indirect Participants.
The Company expects that, pursuant to procedures established by the
Depositary, (i) upon deposit of the Global Exchange Note, the Depositary will
credit the accounts of Participants with portions of the principal amount of the
Global Exchange Note and (ii) ownership of the Exchange Notes evidenced by the
Global Exchange Note will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by the Depositary (with
respect to the interests of the Depositary's Participants), the Depositary's
Participants and the Depositary's Indirect Participants. Prospective purchasers
are advised that the laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer Exchange Notes evidenced by the Global Exchange Note
will be limited to such extent.
So long as the Global Exchange Note Holder is the registered owner of any
Exchange Notes, the Global Exchange Note Holder will be considered the sole
holder under the Indenture of any Exchange Notes evidenced by the Global
Exchange Note. Beneficial owners of Exchange Notes evidenced by the Global
Exchange Note will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Exchange Notes.
Payments in respect of the principal of and premium, interest and
Liquidated Damages, if any, on any Exchange Notes registered in the name of the
Global Exchange Note Holder on the applicable record date will be payable by the
Trustee to or at the direction of the Global Exchange Note Holder in its
capacity as the registered holder under the Indenture. Under the terms of the
Indenture, the Company and the Trustee may treat the persons in whose names
Exchange Notes, including the Global Exchange Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Exchange Notes. The Company
believes, however, that it is currently the policy of the Depositary to
immediately credit the accounts of the relevant Participants with such payments,
in amounts proportionate to their respective holdings of beneficial interests in
the relevant security as shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
Certificated Securities
Subject to certain conditions, any person having a beneficial interest in a
Global Exchange Note may, upon request to the Trustee, exchange such beneficial
interest for Exchange Notes in the form of Certificated Securities. Upon any
such issuance, the Trustee is required to register such Certificated Securities
in the name of, and cause the same to be delivered to, such person or persons
(or the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as a
depositary and the Company is unable to locate a qualified successor within 90
days or (ii) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Exchange Notes in the form of Certificated
Securities under the Indenture, then, upon surrender by the Global Exchange Note
Holder of the Global Exchange Note, Exchange Notes in such form will be issued
to each person that the Global Exchange Note Holder and the Depositary identify
as being the beneficial owner of the related Exchange Notes.
75
<PAGE> 81
Neither the Company nor the Trustee will be liable for any delay by the
Global Exchange Note Holder or the Depositary in identifying the beneficial
owners of Exchange Notes, and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global Exchange
Note Holder or the Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Exchange Note (including principal, premium, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Global Exchange Note Holder.
With respect to Certificated Securities, the Company will make all payments of
principal, premium, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the holders thereof or,
if no such account is specified, by mailing a check to each such holder's
registered address.
Any permitted secondary market trading activity in such Exchange Notes will
be required by the Depositary to be settled in immediately available funds. The
Company expects that secondary trading in the Certificated Securities will also
be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and Bear, Stearns & Co. Inc. and Prudential Securities
Incorporated (the "Initial Purchasers") entered into the Registration Rights
Agreement on the Closing Date. Pursuant to the Registration Rights Agreement,
the Company agreed to file with the Commission the Exchange Offer Registration
Statement on the appropriate form under the Securities Act with respect to the
Exchange Notes. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company will offer to the holders of Transfer Restricted
Securities pursuant to the Exchange Offer who are able to make certain
representations the opportunity to exchange their Transfer Restricted Securities
for Exchange Notes. If (i) the Company is not required to file the Exchange
Offer Registration Statement or permitted to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any holder of Transfer Restricted Securities notifies the Company
prior to the 20th day following consummation of the Exchange Offer that (a) it
is prohibited by law or Commission policy from participating in the Exchange
Offer or (b) that it may not resell the Exchange Notes acquired by it in the
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales or (c) that it is a broker-dealer and owns Series A
Notes acquired directly from the Company or an affiliate of the Company, the
Company will file with the Commission a Shelf Registration Statement to cover
resales of the Series A Notes by the holders thereof who satisfy certain
conditions relating to the provision of information in connection with the Shelf
Registration Statement. The Company will use its best efforts to cause the
applicable registration statement to be declared effective as promptly as
possible by the Commission. For purposes of the foregoing, "Transfer Restricted
Securities" means each Series A Note until (i) the date on which such Series A
Note has been exchanged by a person other than a broker-dealer for an Exchange
Note in the Exchange Offer, (ii) following the exchange by a broker-dealer in
the Exchange Offer of a Series A Note for an Exchange Note, the date on which
such Exchange Note is sold to a purchaser who receives from such broker-dealer
on or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Series A
Notes has been effectively registered under the Securities Act and disposed of
in accordance with the Shelf Registration Statement or (iv) the date on which
such Series A Note is distributed to the public pursuant to Rule 144 under the
Act.
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 30
days after the Closing Date, (ii) the Company will use its best efforts to have
the Exchange Offer Registration Statement declared effective by the Commission
on or prior to 90 days after the Closing Date, (iii) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company will
commence the Exchange Offer and use its best efforts to issue, on or prior to 30
business days after the date on which the Exchange Offer Registration
76
<PAGE> 82
Statement was declared effective by the Commission, Exchange Notes in exchange
for all Series A Notes tendered prior thereto in the Exchange Offer and (iv) if
obligated to file the Shelf Registration Statement, the Company will use its
best efforts to file the Shelf Registration Statement with the Commission on or
prior to 30 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 90 days
after such obligation arises. If (a) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then the Company will pay Liquidated Damages to each Holder of Series A Notes,
with respect to the first 90-day period immediately following the occurrence of
the first Registration Default, in an amount equal to one-half of one percentage
point (0.5%) per annum of the principal amount of Series A Notes held by such
Holder. The amount of the Liquidated Damages will increase by an additional
one-half of one percent (0.5%) per annum for each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of two percent
(2.0%) per annum. All accrued Liquidated Damages will be paid by the Company on
each Damages Payment Date to the Global Exchange Note Holder by wire transfer of
immediately available funds or by federal funds check and to Holders of
Certificated Securities by wire transfer to the accounts specified by them or by
mailing checks to their registered addresses if no such accounts have been
specified. Following the cure of all Registration Defaults, the accrual of
Liquidated Damages will cease.
Holders of Series A Notes will be required to make certain representations
to the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Series A Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a 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
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Acquisition" means the acquisition by the Company of all of the
outstanding Capital Stock of AIH Inc. pursuant to the Stock Purchase Agreement
by and among the Company, Alamac Sub Holdings Inc., AIH Inc. and WestPoint
Stevens Inc.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
77
<PAGE> 83
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback), excluding sales of services and ancillary products in the ordinary
course of business consistent with past practices (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company and its Restricted Subsidiaries taken as a whole will be governed
by the provisions of the Indenture described above under the caption "-- Change
of Control" and/or the provisions described above under the caption "-- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (ii) the issue or sale by the Company or any of its Subsidiaries
of Equity Interests of any of the Company's Subsidiaries, in the case of either
clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $1.0 million or (b)
for net proceeds in excess of $1.0 million. Notwithstanding the foregoing, the
following will be deemed not to be Asset Sales: (i) a transfer of assets by the
Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned Restricted
Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary; (ii)
an issuance of Equity Interests by a Wholly Owned Restricted Subsidiary to the
Company or to another Wholly Owned Restricted Subsidiary; (iii) the transfer of
obsolete equipment in the ordinary course of business; (iv) a sale and leaseback
transaction in which the lease is a Capital Lease Obligation that is permitted
by the covenant described under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock;" and (v) a Restricted Payment that is permitted by
the covenant described above under the caption "-- Restricted Payments."
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) any evidence of
Indebtedness issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof (provided the full
faith and credit of the United States government is behind such obligation)
having maturities of not more than six months from the date of acquisition,
(iii) certificates of deposit and eurodollar time deposits with maturities of
six months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any domestic commercial bank that is a member of the Federal Reserve System
and having capital and surplus in excess of $500.0 million and a Keefe Bank
Watch Rating of "B" or better, or whose short-term debt has the highest rating
obtainable from Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Corporation ("S&P"), (iv) any money market deposit account issued or offered by
a domestic commercial bank that is a member of the Federal Reserve System and
having capital and surplus in excess of $500.0 million and a Keefe Bank Watch
Rating of "B" or better, or whose short-term debt has the highest rating
obtainable from Moody's or S&P, (v) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in clauses
(ii) and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above and (vi) commercial paper having
the highest rating obtainable from Moody's or S&P, and in each case maturing
within six months after the date of acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than Texmaco or its Affiliates; (ii) the adoption of a
plan relating to the liquidation or dissolution of the Company; (iii) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any "person" (as defined above),
other than Texmaco or its Affiliates, becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that
a person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire,
78
<PAGE> 84
whether such right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition), directly or indirectly, of more than 25%
of the Voting Stock of the Company (measured by voting power rather than number
of shares); or (iv) the first day on which two-thirds or less of the members of
the Board of Directors of the Company are Continuing Directors.
"Closing Date" means the date of the closing of the sale of the Series A
Notes.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, to the extent
deducted in computing such Consolidated Net Income, (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with an Asset Sale,
(ii) provision for taxes based on income or profits, (iii) consolidated interest
expense whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations) and (iv) depreciation and
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) in each case, on a consolidated basis and determined in accordance with
GAAP. Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization of, a Restricted Subsidiary
of a Person shall be added to Consolidated Net Income to compute Consolidated
Cash Flow only to the extent (and in the same proportion) that the Net Income of
such Restricted Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained) pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded, (v) the Net Income (but not loss) of any Unrestricted
Subsidiary shall be excluded, whether or not distributed to the Company or one
of its Restricted Subsidiaries and (vi) any non-cash compensation expense in
connection with the issuance of employee stock options shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (a) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date, plus (b) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (i) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the Closing Date in the book value of any asset
owned by such Person or a consolidated Restricted Subsidiary of such Person,
(ii) all investments as of such date in unconsolidated Subsidiaries and in
Persons that are not Restricted Subsidiaries and (iii) all unamortized debt
79
<PAGE> 85
discount and expense and unamortized deferred charges as of such date, in each
case determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the Closing Date or (ii) was nominated for election or elected to
such Board of Directors with the approval of more than two-thirds of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness now or hereafter
outstanding under the New Credit Facility and (ii) any other Senior Debt
permitted under the Indenture the principal amount of which is $15.0 million or
more and that has been designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Series A Notes mature.
"Domestic Restricted Subsidiary" means a Restricted Subsidiary that is not
incorporated in any jurisdiction outside of the United States.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness in existence on the Closing
Date, until such Indebtedness is repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Restricted Subsidiaries for such period, whether paid or accrued (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon)
and (iv) the product of (a) all dividend payments, whether or not in cash, on
any series of preferred stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person and its Restricted Subsidiaries for such
period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Restricted Subsidiaries, including through
80
<PAGE> 86
mergers or consolidations and including any related financing transactions,
during the four-quarter reference period or subsequent to such reference period
and on or prior to the Calculation Date shall be deemed to have occurred on the
first day of the four-quarter reference period and Consolidated Cash Flow for
such reference period shall be calculated without giving effect to clause (iii)
of the proviso set forth in the definition of Consolidated Net Income, (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Restricted Subsidiaries
following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means each of the Company's Restricted Subsidiaries existing on
the Closing Date, and each other Restricted Subsidiary that executes a Guarantee
of the Exchange Notes pursuant to the terms of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates, currency exchange rates or commodity prices.
"Indebtedness" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, (ii) all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and (iii) to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "-- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature
81
<PAGE> 87
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale or (b) the disposition of
any securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries and (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
"New Credit Facility" means, collectively, (i) that certain credit
agreement, dated as of August 27, 1997, by and among the Company, the
Subsidiaries of the Company named therein, the lenders party thereto and
SunTrust Bank, Atlanta, as Agent and Collateral Agent, and (ii) that certain
Second Amended and Restated Letter of Credit Agreement, dated as of July 1,
1996, by and among the Company, the Subsidiary of the Company named therein and
SunTrust Bank, Atlanta, in each case as such agreements may be amended,
restated, extended, modified, renewed, refunded, replaced, substituted,
restructured or refinanced in whole or in part from time to time (including,
without limitation, any successive renewals, extensions, substitutions,
refinancings, restructurings, replacements, supplements or modifications of the
foregoing), whether with the Company or with one or more of its Subsidiaries,
and whether with the present lenders or any other lenders.
"Non-Recourse Debt" means Indebtedness: (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender; (ii) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness (other than the Exchange
Notes being offered hereby) of the Company or any of its Restricted Subsidiaries
to declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity; and (iii) as to which
the lenders have been notified in writing that they will not have any recourse
to the stock or assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means all principal of and premium, interest (including
interest accruing after the filing of a petition initiating any proceeding under
any state, federal or foreign bankruptcy or insolvency laws, whether or not
allowable as a claim in such proceedings), penalties, fees, indemnifications,
reimbursements, gross-ups, damages and other liabilities payable under the
documentation governing any Indebtedness, actually or contingently.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (ii) any Investment in Cash
Equivalents; (iii) any Investment by the Company or any Restricted Subsidiary of
the Company in a Person, if as a result of such Investment (a) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company and a Guarantor or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Wholly Owned Restricted Subsidiary of the Company; (iv) any
Restricted Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-- Repurchase at the
82
<PAGE> 88
Option of Holders -- Asset Sales;" (v) any Investment acquired solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock) of
the Company; (vi) Investments existing on the Closing Date; (vii) loans to
employees and vendors in the ordinary course of business in an amount not to
exceed $3.0 million; and (viii) other Investments in any Person (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (viii) that are at the time outstanding, not to exceed $10.0
million.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (including Designated Senior
Debt) and any debt securities issued in exchange for Senior Debt (including
Designated Senior Debt) to substantially the same extent (including with respect
to the giving of Payment Blockage Notices) as, or to a greater extent than, the
Exchange Notes are subordinated to Senior Debt (including Designated Senior
Debt) pursuant to Article 10 of the Indenture.
"Permitted Liens" means (i) Liens securing Senior Debt of the Company and
its Restricted Subsidiaries that was permitted by the terms of the Indenture to
be incurred; (ii) Liens in favor of the Company or any of its Restricted
Subsidiaries; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any Restricted
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clause (iv) of the second paragraph of
the covenant described above under the caption entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock" covering only the assets acquired
with such Indebtedness; (vii) Liens existing, or created pursuant to obligations
existing, on the Closing Date; (viii) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefore;
(ix) statutory or common law Liens of landlords, and Liens of carriers,
warehousemen, mechanics and materialmen, and other Liens imposed by law created
in the ordinary course of business for amounts not yet due or which are being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves are being maintained, (x) Liens incurred or deposits made in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds, bids,
leases, government contracts, performance and return-of-money bonds and other
similar obligations (other than the payment for the payment of borrowed money);
(xi) easements, rights-of-way, restrictions and other similar Liens not
materially interfering with the ordinary conduct of the business of the Company
or its Restricted Subsidiaries or any of their respective properties; (xii)
Liens for judgments which are being actively appealed in good faith by
appropriate proceedings in an aggregate amount not to exceed $2.0 million;
(xiii) Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $2.0 million at any one time outstanding and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Restricted Subsidiary; and (xiv) extensions, renewals or replacements of any
Lien referred to in clauses (i) through (xiii) of this paragraph, provided that
the principal amount of the Indebtedness or Obligation secured thereby is not
increased and that any such extension, renewal or replacement is limited to the
property originally encumbered by the Lien.
"Permitted 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 (or accredit value, if applicable) of
such Permitted Refinancing Indebtedness does
83
<PAGE> 89
not exceed the principal amount of (or accredit value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity at least equal to 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 Permitted Refinancing Indebtedness 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 that is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" of a Person means (i) all Indebtedness of such Person
outstanding under the New Credit Facility and all Hedging Obligations with
respect thereto, (ii) any other Indebtedness of such Person permitted to be
incurred under the terms of the Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is subordinated in
right of payment to any Senior Debt of such Person and (iii) all Obligations of
such Person with respect to the foregoing. Notwithstanding anything to the
contrary in the foregoing, Senior Debt of a Person will not include (a) any
liability for federal, state, local or other taxes owed or owing by such Person,
(b) any Indebtedness of such Person to any of its Subsidiaries or other
Affiliates, (c) any trade payables or (d) any Indebtedness that is incurred in
violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
resolution, but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (1) to subscribe for additional Equity Interests or (2) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has
84
<PAGE> 90
not guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of the Company or any of its Restricted Subsidiaries; and (e)
has at least one director on its board of directors that is not a director or
executive officer of the Company or any of its Restricted Subsidiaries and has
at least one executive officer that is not a director or executive officer of
the Company or any of its Restricted Subsidiaries.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
85
<PAGE> 91
DESCRIPTION OF CERTAIN FEDERAL INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE EXCHANGE NOTES
The following is a summary of the material United States federal income tax
consequences of the acquisition, ownership and disposition of the Series A Notes
or the Exchange Notes by a United States Holder (as defined below). This summary
deals only with United States Holders that will hold the Series A Notes or the
Exchange Notes as capital assets. The discussion does not cover all aspects of
federal taxation that may be relevant to, or the actual tax effect that any of
the matters described herein will have on, the acquisition, ownership or
disposition of the Series A Notes or the Exchange Notes by particular investors,
and does not address state, local, foreign or other tax laws. In particular,
this summary does not discuss all of the tax considerations that may be relevant
to certain types of investors subject to special treatment under the federal
income tax laws (such as banks, insurance companies, investors liable for the
alternative minimum tax, individual retirement accounts and other tax-deferred
accounts, tax-exempt organizations, dealers in securities or currencies,
investors that will hold the Series A Notes or the Exchange Notes as part of
straddles, hedging transactions or conversion transactions for federal tax
purposes or investors whose functional currency is not United States dollars).
Furthermore, the discussion below is based on provisions of the Code, and
regulations, rulings and judicial decisions thereunder as of the date hereof,
and such authorities may be repealed, revoked or modified so as to result in
U.S. federal income tax consequences different from those discussed below.
PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF EXCHANGE NOTES
SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL
INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR INTERNATIONAL TAXING
JURISDICTION.
As used herein, the term "United States Holder" means a beneficial owner of
the Series A Notes or the Exchange Notes that is (i) a citizen or resident of
the United States for United States federal income tax purposes, (ii) a
corporation created or organized under the laws of the United States or any
State thereof, (iii) a person or entity that is otherwise subject to United
States federal income tax on a net income basis in respect of income derived
from the Series A Notes or the Exchange Notes, or (iv) a partnership to the
extent the interest therein is owned by a person who is described in clause (i),
(ii) or (iii) of this paragraph.
INTEREST
Interest (including any additional interest paid because of failure to
satisfy the requirements of the Registration Rights Agreement ("Additional
Interest")) paid on a Series A Note or an Exchange Note will be taxable to a
United States Holder as ordinary income at the time it is received or accrued,
depending on the holder's method of accounting for tax purposes.
PURCHASE, SALE, EXCHANGE, RETIREMENT AND REDEMPTION OF THE EXCHANGE NOTES
In general (with certain exceptions described below), a United States
Holder's tax basis in an Exchange Note will equal the price paid for the Series
A Notes for which such Exchange Note was exchanged pursuant to the Exchange
Offer. A United States Holder generally will recognize gain or loss on the sale,
exchange, retirement, redemption or other disposition of a Series A Note or an
Exchange Note (or portion thereof) equal to the difference between the amount
realized on such disposition and the United States Holder's tax basis in the
Series A Note or the Exchange Note (or portion thereof). Except to the extent
attributable to accrued but unpaid interest, gain or loss recognized on such
disposition of a Series A Note or an Exchange Note will be capital gain or loss
and will be mid-term capital gain or loss if such Series A Note or Exchange Note
was held for more than one year but not more than 18 months and will be
long-term capital gain or loss if such Series A Note or Exchange Note was held
for more than 18 months. Any such gain will generally be United States source
gain.
BOND PREMIUM
If a United States Holder acquires an Exchange Note or has acquired a
Series A Note, in each case, for an amount more than its redemption price, the
Holder may elect to amortize such bond premium on a yield to maturity basis.
Once made, such an election applies to all bonds (other than bonds the interest
on which is
86
<PAGE> 92
excludable from gross income) held by the United States Holder at the beginning
of the first taxable year to which the election applies or thereafter acquired
by the United States Holder, unless the IRS consents to a revocation of the
election. The basis of an Exchange Note will be reduced by any amortizable bond
premium taken as a deduction.
MARKET DISCOUNT
The purchase of an Exchange Note or the purchase of a Series A Note other
than at original issue may be affected by the market discount provisions of the
Code. These rules generally provide that, subject to a statutorily defined de
minimis exception, if a United States Holder purchases an Exchange Note (or
purchased a Series A Note) at a "market discount," as defined below, and
thereafter recognizes gain upon a disposition of the Exchange Note (including
dispositions by gift or redemption), the lesser of such gain (or appreciation,
in the case of a gift) or the portion of the market discount that has accrued
("accrued market discount") while the Exchange Note (and its predecessor Series
A Note, if any) was held by such United States Holder will be treated as
ordinary interest income at the time of disposition rather than as capital gain.
For an Exchange Note or a Series A Note, "market discount" is the excess of the
stated redemption price at maturity over the tax basis immediately after its
acquisition by a United States Holder. Market discount generally will accrue
ratably during the period from the date of acquisition to the maturity date of
the Exchange Note, unless the United States Holder elects to accrue such
discount on the basis of the constant yield method. Such an election applies
only to the Exchange Note with respect to which it is made and is irrevocable.
In lieu of including the accrued market discount in income at the time of
disposition, a United States Holder of an Exchange Note acquired at a market
discount (or acquired in exchange for a Series A Note acquired at a market
discount) may elect to include the accrued market discount in income currently
either ratably or using the constant yield method. Once made, such an election
applies to all other obligations that the United States Holder purchases at a
market discount during the taxable year for which the election is made and in
all subsequent taxable years of the United States Holder, unless the IRS
consents to a revocation of the election. If an election is made to include
accrued market discount in income currently, the basis of an Exchange Note (or,
where applicable, a predecessor Series A Note) in the hands of the United States
Holder will be increased by the accrued market discount thereon as it is
includible in income. A United States Holder of a market discount Exchange Note
who does not elect to include market discount in income currently generally will
be required to defer deductions for interest on borrowings allocable to such
Exchange Note, if any, in an amount not exceeding the accrued market discount on
such Exchange Note until the maturity or disposition of such Exchange Note.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Payments of interest (including any Additional Interest) and principal on,
and the proceeds of sale or other disposition of the Series A Notes or the
Exchange Notes payable to a United States Holder may be subject to information
reporting requirements, and backup withholding at a rate of 31.0% will apply to
such payments if the United States Holder fails to provide an accurate taxpayer
identification number or to report all interest and dividends required to be
shown on its federal income tax returns. Certain United States Holders
(including, among others, corporations) are not subject to backup withholding.
United States Holders should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
87
<PAGE> 93
PLAN OF DISTRIBUTION
Each Participating 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 Participating Broker-Dealer in connection with resales of Exchange Notes
received in exchange for Series A Notes where such Series A Notes were acquired
as a result of market-making activities or other trading activities. The Company
has agreed that it will make this Prospectus, as amended or supplemented,
available to any Participating Broker-Dealer for use in connection with any such
resale, and Participating Broker-Dealers shall be authorized to deliver this
Prospectus in connection with the sale or transfer of the Exchange Notes. In
addition, until , 1997 (90 days after the date of this Prospectus),
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Company will not receive any proceeds from any sales of the Exchange
Notes by Participating Broker-Dealers. Exchange Notes received by Participating
Broker-Dealers for their own account pursuant to the Exchange Offer may be sold
from time to time, in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the 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 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 Participating Broker-Dealer that
resells the Exchange Notes that were received by it for its own account pursuant
to the Exchange Offer. 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 on 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 Participating Broker-Dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement of this Prospectus to any Participating Broker-Dealer
that requests such documents in the Letter of Transmittal. See "The Exchange
Offer."
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Bass, Berry &
Sims PLC, 2700 First American Center, Nashville, Tennessee 37238.
EXPERTS
The consolidated financial statements and schedule of Dyersburg Corporation
at September 30, 1995 and September 28, 1996 and for each of the three years in
the period ended September 28, 1996 included and/or incorporated by reference in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein and are included in reliance upon such report given on their
authority as experts in accounting and auditing.
The consolidated financial statements of AIH Inc. at December 31, 1995 and
December 31, 1996 and for each of the three years in the period ended December
31, 1996 included in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and are included in reliance upon such report
given on their authority as experts in accounting and auditing.
88
<PAGE> 94
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DYERSBURG CORPORATION
Report of Independent Auditors.............................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheets as of September 30, 1995,
September 28, 1996, and July 5, 1997 (Unaudited)....... F-3
Consolidated Statements of Income for the years ended
October 1, 1994, September 30, 1995, September 28,
1996, and the nine months ended June 29, 1996 and July
5, 1997 (Unaudited).................................... F-4
Consolidated Statements of Shareholders' Equity for the
years ended October 1, 1994, September 30, 1995, and
September 28, 1996..................................... F-5
Consolidated Statements of Cash Flows for the years ended
October 1, 1994, September 30, 1995, September 28,
1996, and the nine months ended June 29, 1996 and July
5, 1997 (Unaudited).................................... F-6
Notes to Consolidated Financial Statements................ F-7
AIH INC.
Report of Independent Auditors.............................. F-14
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and
December 31, 1996...................................... F-15
Consolidated Statements of Operations for the years ended
December 31, 1994, December 31, 1995 and December 31,
1996................................................... F-16
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, December 31, 1995 and December 31,
1996................................................... F-17
Notes to Consolidated Financial Statements................ F-18
Interim Condensed Consolidated Financial Statements
(Unaudited):
Condensed Consolidated Balance Sheets as of December 31,
1996 and June 30, 1997................................. F-30
Condensed Consolidated Statements of Operations for the
six months ended June 30, 1996 and June 30, 1997....... F-31
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and June 30, 1997....... F-32
Notes to Condensed Consolidated Financial Statements...... F-33
</TABLE>
F-1
<PAGE> 95
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Dyersburg Corporation
We have audited the accompanying consolidated balance sheets of Dyersburg
Corporation as of September 30, 1995 and September 28, 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended September 28, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Dyersburg
Corporation at September 30, 1995 and September 28, 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended September 28, 1996, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Memphis, Tennessee
October 22, 1996, except for
Note 11, as to which the
date is July 15, 1997
F-2
<PAGE> 96
DYERSBURG CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28, JULY 5,
1995 1996 1997
------------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 974 $ 983 $ 1,677
Accounts receivable, net of allowance for doubtful
accounts of $1,170 in 1995 and $1,500 in 1996..... 36,920 42,427 48,522
Inventories.......................................... 22,238 23,248 30,456
Prepaid expenses and other........................... 1,286 858 846
-------- -------- --------
Total current assets......................... 61,418 67,516 81,501
Property, plant and equipment, net..................... 65,834 67,758 65,685
Goodwill, net.......................................... 60,954 59,097 57,697
Deferred debt costs and other, net..................... 666 636 484
-------- -------- --------
$188,872 $195,007 $205,367
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable............................... $ 10,515 $ 8,296 $ 12,173
Accrued expenses..................................... 5,676 6,700 8,935
Income taxes payable................................. -- 437 3,047
-------- -------- --------
Total current liabilities.................... 16,191 15,433 24,155
Long-term obligations.................................. 76,800 80,950 75,837
Deferred income taxes.................................. 8,305 8,765 9,186
Other liabilities...................................... 1,318 1,117 --
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value, authorized 40,000,000
shares; issued and outstanding
shares -- 14,196,228 in 1995 and 13,154,508 in
1996.............................................. 142 132 131
Additional paid-in capital........................... 46,821 41,460 41,355
Retained earnings.................................... 39,295 47,150 54,703
-------- -------- --------
Total shareholders' equity................... 86,258 88,742 96,189
-------- -------- --------
$188,872 $195,007 $205,367
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 97
DYERSBURG CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------------------------- --------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JULY 5,
1994 1995 1996 1996 1997
---------- ------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................... $180,520 $199,413 $195,866 $136,574 $158,214
Cost of sales............................... 139,754 159,245 152,884 108,290 120,677
Selling, general and administrative
expenses.................................. 16,223 17,447 20,707 14,418 18,538
Goodwill amortization....................... 1,721 1,857 1,857 1,393 1,400
Interest and amortization of debt costs..... 4,978 6,169 6,164 4,590 4,465
Write-down of fixed assets.................. -- 2,153 -- -- --
-------- -------- -------- -------- --------
162,676 186,871 181,612 128,691 145,080
-------- -------- -------- -------- --------
Income before income taxes.................. 17,844 12,542 14,254 7,883 13,134
Federal and state income taxes.............. 7,496 5,982 5,854 3,278 5,188
-------- -------- -------- -------- --------
Net income.................................. $ 10,348 $ 6,560 $ 8,400 $ 4,605 $ 7,946
======== ======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding............. 14,010 14,196 13,643 13,905 13,135
======== ======== ======== ======== ========
Net income per share........................ $ 0.74 $ 0.46 $ 0.62 $ 0.33 $ 0.60
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 98
DYERSBURG CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL SUBSCRIPTION
COMMON PAID-IN RETAINED NOTES
STOCK CAPITAL EARNINGS RECEIVABLES TOTAL
------ ---------- -------- ------------ -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balance at October 3, 1993..................... $136 $41,839 $23,516 $(330) $65,161
Net income................................... -- -- 10,348 -- 10,348
Cash dividends paid ($0.04 per share)........ -- -- (561) -- (561)
Principal collections on subscription notes
receivable................................ -- -- -- 330 330
Issuance of 623,536 shares of Common Stock in
purchase of United Knitting, Inc.......... 6 4,982 -- -- 4,988
---- ------- ------- ----- -------
Balance at October 1, 1994..................... 142 46,821 33,303 -- 80,266
Net income................................... -- -- 6,560 -- 6,560
Cash dividends paid ($0.04 per share)........ -- -- (568) -- (568)
---- ------- ------- ----- -------
Balance at September 30, 1995.................. 142 46,821 39,295 -- 86,258
Net income................................... -- -- 8,400 -- 8,400
Cash dividends paid ($0.04 per share)........ -- -- (545) -- (545)
Acquisition and retirement of 1,051,275
shares of common stock.................... (10) (5,404) -- -- (5,414)
Exercise of stock options.................... -- 43 -- -- 43
---- ------- ------- ----- -------
Balance at September 28, 1996.................. $132 $41,460 $47,150 $ -- $88,742
==== ======= ======= ===== =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 99
DYERSBURG CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
------------------------------------------ ---------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28, JUNE 29, JULY 5,
1994 1995 1996 1996 1997
---------- ------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................... $ 10,348 $ 6,560 $ 8,400 $ 4,605 $ 7,946
Adjustments:
Depreciation..................................... 8,630 10,001 9,573 7,251 7,718
Amortization..................................... 1,903 2,029 2,029 1,522 1,510
Write-down of fixed assets....................... -- 2,153 -- -- --
Deferred income taxes and other.................. 787 (98) 554 47 (54)
Changes in operating assets and liabilities:
Accounts receivable............................ (5,321) 6,087 (5,507) (10,857) (6,096)
Inventories.................................... (1,481) (1,601) (1,010) (8,102) (7,208)
Trade accounts payable and other current
liabilities.................................. 270 (1,604) (758) 2,937 8,722
Other.......................................... 98 (207) 288 248 12
-------- -------- -------- -------- --------
Net cash provided by operating activities.......... 15,234 23,320 13,569 (2,349) 12,550
INVESTING ACTIVITIES
Purchases of property, plant and equipment......... (14,278) (12,816) (11,778) (10,777) (5,685)
Purchase of United Knitting, Inc................... (5,426) -- -- -- --
Other.............................................. 101 108 187 225 84
-------- -------- -------- -------- --------
Net cash used in investing activities.............. (19,603) (12,708) (11,591) (10,552) (5,601)
FINANCING ACTIVITIES
Net borrowings (payments) on long-term
obligations...................................... 2,853 (9,400) 4,150 15,843 (5,600)
Dividends paid..................................... (561) (568) (545) (413) (393)
Exercise of stock options.......................... -- -- 43 43 55
Acquisition of common stock........................ -- -- (5,414) (2,590) (160)
Other.............................................. 1,368 (230) (203) (151) (157)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities....................................... 3,660 (10,198) (1,969) 12,732 (6,255)
-------- -------- -------- -------- --------
Net increase (decrease) in cash.................... (709) 414 9 (169) 694
Cash at beginning of year.......................... 1,269 560 974 974 983
-------- -------- -------- -------- --------
Cash at end of year................................ $ 560 $ 974 $ 983 $ 805 $ 1,677
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 100
DYERSBURG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1996
1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Dyersburg Corporation and its wholly-owned subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
OPERATIONS
The Company is a textile manufacturer of knit fabrics with customers
concentrated in the domestic apparel industry. The Company does not require
collateral for accounts receivable and is partially insured on certain customer
balances. The level of insurance varies by customer based upon third party
credit ratings.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates and assumptions used.
INTANGIBLE ASSETS
Goodwill, which consists of costs in excess of net assets acquired, is
amortized by the straight-line method over forty years. Deferred debt costs are
amortized by the interest method over the life of the related debt. Goodwill is
net of accumulated amortization of $13,336,000 and $15,193,000 and deferred debt
costs and other is net of accumulated amortization of $500,000 and $672,000, at
September 30, 1995 and September 28, 1996, respectively. The carrying value of
goodwill is reviewed if the facts and circumstances suggest that it may be
impaired. If this review indicated that goodwill was not recoverable, as
determined based on the estimated undiscounted cash flows of the entity acquired
over the remaining amortization period, the Company's carrying value of the
goodwill would be reduced by the estimated shortfall of cash flows.
INVENTORIES
Cotton raw material inventory and the cotton component of work in process
and finished goods inventory are valued at the lower of average cost or market.
Other inventories are valued at the lower of cost (first-in, first-out method)
or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed
on the straight-line basis over the estimated useful lives of the assets:
buildings -- 25 years; machinery and equipment -- 5 to 15 years.
INCOME TAXES
The Company has provided for income taxes under the liability method.
Accordingly, deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in
F-7
<PAGE> 101
DYERSBURG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and accordingly, recognizes no compensation expense for the stock option grants.
EARNINGS PER COMMON SHARE
Earnings per common share is computed using the weighted average number of
common shares outstanding during each period, including common stock
equivalents, consisting of stock options calculated using the treasury stock
method, when dilutive.
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt Statement 121 in the first quarter of 1997 and, based on
current circumstances, does not believe the effect of adoption will be material.
The write-down of fixed assets in 1995 would not have been materially different
had the Company adopted Statement 121.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform with the 1996 financial statement presentation. Such
reclassifications had no effect on net income as previously reported.
INTERIM FINANCIAL DATA (UNAUDITED)
The accompanying consolidated balance sheet as of July 5, 1997, and the
related consolidated statements of income and cash flows for the nine months
ended July 5, 1997 and the nine months ended June 29, 1996, have been prepared
by the Company without audit. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation for such periods have been made. Due to seasonal patterns, the
results for interim periods are not necessarily indicative of results to be
expected for a full year.
Footnote disclosures normally included in annual consolidated financial
statements prepared in accordance with generally accepted accounting principles
have been omitted herein with respect to the interim consolidated financial
data. The interim information herein should be read in conjunction with the
annual consolidated financial statements and notes presented herein.
Accounting Pronouncements. In February 1997, the Financial Accounting
Standards Board issued Statement No. 128, Earnings Per Share, which is required
to be adopted in the quarter ending January 3, 1998. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. The impact of Statement 128 on the
calculation of earnings per share for the years ended October 1, 1994, September
30, 1995, September 28, 1996 and the nine months ended June 29, 1996 and July 5,
1997 is immaterial.
F-8
<PAGE> 102
DYERSBURG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28, JULY 5,
1995 1996 1997
------------- ------------- ------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................... $ 4,947 $ 4,649 $ 6,563
Work in process.................................. 7,621 8,530 9,470
Finished goods................................... 8,937 9,145 13,550
Supplies and other............................... 733 924 873
------- ------- -------
$22,238 $23,248 $30,456
======= ======= =======
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28,
1995 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Land...................................................... $ 673 $ 673
Buildings................................................. 24,198 32,612
Machinery and equipment................................... 85,701 88,370
-------- --------
110,572 121,655
Less allowance for depreciation........................... 44,738 53,897
-------- --------
$ 65,834 $ 67,758
======== ========
</TABLE>
In 1995, the Company committed to replace certain spinning and drawing
machinery with leased equipment. Concurrently, the Company wrote down machinery
and equipment with original cost of $11,760,000 and accumulated depreciation of
$9,468,000. The write-down, less the proceeds from the sale of the assets,
resulted in a loss of $2,153,000.
4. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28,
1995 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit.......................................... $43,900 $48,050
Industrial revenue bonds.................................. 7,900 7,900
Senior notes.............................................. 25,000 25,000
------- -------
$76,800 $80,950
======= =======
</TABLE>
The Company has a revolving line of credit (the "Revolver") with current
availability of $80,000,000, declining to $70,000,000 on April 1, 1997, and
maturing on July 16, 1998. Amounts outstanding under the Revolver bear interest
at variable rates (approximately 6.9% at September 30, 1995 and 6.5% at
September 28, 1996). In addition, the Company is required to pay a commitment
fee of 1/4% on the average unused portion of the Revolver and a letter of
credit fee of approximately 1% on average outstanding letters of credit. Letters
of credit outstanding under the Revolver are $8,122,000 at September 30, 1995
and September 28, 1996. The unused portion of the Revolver is $23,828,000 at
September 28, 1996. All amounts outstanding under the Revolver are unsecured,
except for the letters of credit which are secured by real property and
F-9
<PAGE> 103
DYERSBURG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
equipment with a carrying value of approximately $3,704,000 at September 28,
1996. Pursuant to the terms of the Revolver, the Company is required to maintain
certain financial ratios, minimum shareholders' equity and working capital
levels.
The Industrial Revenue Bonds bear interest at adjustable rates (3.9% at
September 30, 1995 and 4.0% at September 28, 1996) and mature November 1, 2002.
The bonds are secured by a letter of credit of $8,057,000 issued under the
Revolver.
The Senior Notes bear interest at 6.78% and require annual principal
payments of $3,125,000 from 1998 to 2005. The Senior Note agreement requires the
Company to maintain certain financial ratios and limits the payment of
dividends. At September 28, 1996, the amount of retained earnings available for
the payment of dividends was approximately $12,306,000.
The schedule of debt maturities presented below assumes borrowings under
the Revolver are outstanding until maturity:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1997........................................................ $ --
1998........................................................ 51,175
1999........................................................ 3,125
2000........................................................ 3,125
2001........................................................ 3,125
Thereafter.................................................. 20,400
-------
Total............................................. $80,950
=======
</TABLE>
Total interest paid was $4,431,000 in 1994, $5,777,000 in 1995 and
$5,930,000 in 1996.
The Company has additional letters of credit outstanding of $2,066,000 for
workers' compensation insurance.
In 1995, the Company entered into two interest rate swap agreements to
reduce the impact of changes in interest rates on the Revolver. The two interest
rate swap agreements have a total notional principal amount of $20,000,000. The
differential paid or received is recognized as an adjustment to interest
expense. The Company agreed to make interest payments based on a fixed rate of
7.06% and 6.17% on $10,000,000 and $10,000,000 notional principal, respectively,
in exchange for payments based on a floating rate of three-month LIBOR. The
agreements terminate April 26, 2002 and June 9, 2002, respectively. The fair
values of the swap agreements are not recognized in the financial statements.
The fair value of long-term obligations is estimated using discounted cash
flow analyses based on the Company's current incremental borrowing rate. The
carrying value and fair value of long-term obligations at September 30, 1995, is
$76,800,000 and $75,343,000, respectively, and at September 28, 1996 was
$80,950,000 and $79,438,000, respectively. The fair value of the Company's
interest rate swaps was based on pricing models and formulas using current
assumptions. The fair value of the Company's interest rate swaps was $(312,000)
and $24,000 at September 30, 1995 and September 28, 1996, respectively. For all
other financial instruments, the carrying amounts approximate fair value due to
their short maturities.
5. SHAREHOLDERS' EQUITY
The Company has 5,000,000 authorized shares of no par value preferred
stock. The preferences and rights of the Preferred Stock will be fixed at the
discretion of the Board of Directors upon issuance.
On October 4, 1995, the Company approved a plan to repurchase up to
2,000,000 shares of Dyersburg Corporation common stock. Purchases are made at
the discretion of the Company as warranted based on
F-10
<PAGE> 104
DYERSBURG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
market pricing. As of September 28, 1996, a total of 1,051,275 shares had been
purchased under the repurchase plan at an aggregate cost of approximately
$5,414,000.
The Company's Stock Option Plans (the "Option Plans") provide for the
granting of stock options to management, key employees and outside directors.
Options are subject to terms and conditions determined by the Compensation
Committee of the Board of Directors, and generally are exercisable in increments
of 20% per year beginning one year from date of grant and expire 10 years from
date of grant. Shares reserved for future grants under the Option Plans were
approximately 143,000 and 277,000 at September 30, 1995 and September 28, 1996,
respectively.
In 1996, the Company repriced certain stock options through the
cancellation of approximately 737,000 outstanding options and the simultaneous
granting of 367,000 options at a reduced exercise price equal to market at the
date of repricing. Except for the repricing, no other terms of the stock options
were changed.
Information pertaining to the Option Plans summarized in the table below is
in thousands except per share amounts:
<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDER AGGREGATE
OPTION PRICE PER SHARE PRICE
------------- ------------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at October 3, 1993..................... 273 $6.75 -- $9.00 $ 2,376
Options granted.............................. 528 $6.625 -- $8.125 4,164
Options canceled............................. (42) $8.25 -- $9.00 (351)
---- ------------------- ---------
Balance at October 1, 1994..................... 759 $6.625 -- $9.00 6,189
Options granted.............................. 2 $5.625 11
Options canceled............................. (4) $6.00 (24)
---- ------------------- ---------
Balance at September 30, 1995.................. 757 $5.625 -- $9.00 6,176
Options granted.............................. 369 $4.50 -- 4.625 1,663
Options exercised............................ (10) $4.50 (43)
Options canceled............................. (740) $4.50 -- $9.00 (6,038)
---- ------------------- ---------
Balance at September 28, 1996.................. 376 $4.50 -- $9.00 $ 1,758
==== =================== =========
</TABLE>
At September 28, 1996, 250,829 of these options were exercisable.
6. PROFIT SHARING PLANS
The Company has two separate defined contribution plans that, collectively,
cover substantially all of its employees. Contributions to one plan equal 7.5%
of adjusted income, as defined, plus additional amounts which the Board of
Directors may authorize. Contributions to the other plan are at the discretion
of the Board of Directors. The contribution for either plan shall not exceed the
maximum amount deductible for federal income tax purposes. Profit-sharing
expense was $2,171,000, $1,902,000 and $1,875,000 for fiscal years 1994, 1995
and 1996, respectively.
7. INCOME TAXES
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
F-11
<PAGE> 105
DYERSBURG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28,
1995 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Depreciation............................................ $8,105 $ 7,944
Other................................................... 1,684 2,167
------ -------
Total deferred tax liabilities.................. 9,789 10,111
Deferred tax assets....................................... 1,866 1,728
------ -------
Net deferred tax liabilities.............................. $7,923 $ 8,383
====== =======
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $5,646 $5,570 $5,240
State............................................ 1,038 590 154
Deferred, primarily federal........................ 812 (178) 460
------ ------ ------
$7,496 $5,982 $5,854
====== ====== ======
</TABLE>
The provision for income taxes differed from the amount computed by
applying the statutory federal income tax rate of 35% to income before income
taxes due to the following:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
OCTOBER 1, SEPTEMBER 30, SEPTEMBER 28,
1994 1995 1996
---------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed federal tax expense at statutory rate..... $6,245 $4,390 $4,989
State taxes, net of federal income tax benefit..... 702 383 100
Effect of nondeductibility of amortization of
goodwill......................................... 602 650 650
Other.............................................. (53) 559 115
------ ------ ------
$7,496 $5,982 $5,854
====== ====== ======
</TABLE>
Income tax payments were $7,853,000, $5,996,000 and $4,885,000 for fiscal
years 1994, 1995, and 1996 respectively.
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 28,
1995 1996
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Accrued bonuses and commissions............................. $ 838 $1,473
Workers' compensation....................................... 2,288 2,485
Other....................................................... 2,550 2,742
------ ------
$5,676 $6,700
====== ======
</TABLE>
F-12
<PAGE> 106
DYERSBURG CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LEASES
The Company leases certain equipment and office space under noncancelable
operating leases. Most of these leases include renewal options and some include
purchase options. Rent expense was $1,930,000 in 1994, $2,089,000 in 1995 and
$3,050,000 in 1996.
Future minimum payments under these leases are as follows at September 28,
1996: $3,212,000 in 1997, $2,978,000 in 1998, $3,004,000 in 1999, $2,398,000 in
2000, $1,906,000 in 2001 and $5,080,000 thereafter. Total aggregate future
minimum lease payments are $18,578,000.
10. PURCHASE OF UNITED KNITTING, INC.
On January 19, 1994, the Company acquired all of the outstanding capital
stock of United Knitting, Inc. for $5,426,000 in cash and approximately
$5,000,000 of common stock (623,536 shares) in a transaction accounted for under
the purchase method. Goodwill resulting from the transaction was approximately
$16,800,000. United Knitting, Inc. is a textile manufacturer which produces
stretch fabrics.
On a pro forma basis, net sales, net income and net income per share would
have been $192,691,000, $10,437,000, and $0.74, respectively, for the year ended
October 1,1994, assuming the acquisition occurred at the beginning of such
fiscal year.
11. SUBSEQUENT EVENTS
On July 15, 1997, the Company entered into a stock purchase agreement to
acquire the stock of AIH Inc., a wholly-owned subsidiary of WestPoint Stevens
Inc., for a purchase price of $126,000,000. Management financed the purchase
through a combination of the Series A Notes and a new extended Credit Facility.
The acquisition was consummated before the fiscal year ending September 27,
1997.
F-13
<PAGE> 107
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
WestPoint Stevens Inc.
We have audited the accompanying consolidated balance sheets of AIH Inc., a
subsidiary of WestPoint Stevens Inc. (see Note 1) as of December 31, 1995 and
1996 and the related consolidated statements of operations and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the management of WestPoint Stevens Inc.
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
AIH Inc., a subsidiary of WestPoint Stevens Inc. at December 31, 1995 and 1996
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Columbus, Georgia
May 19, 1997, except for
Note 12, as to which
the date is July 15, 1997
F-14
<PAGE> 108
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,886 $ 9,554
Inventories (Note 4)...................................... 29,267 30,123
Other current assets...................................... 2,649 2,876
-------- --------
Total current assets.............................. 37,802 42,553
Property, plant and equipment, net (Notes 2 and 4).......... 107,269 104,194
-------- --------
Total assets...................................... $145,071 $146,747
======== ========
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 6,508 $ 5,673
Accrued employee related liabilities...................... 3,913 4,362
Deferred income taxes (Note 6)............................ 2,674 2,192
Intercompany, net (Notes 4, 7 and 8)...................... 1,583 626
Accrued interest (Note 4)................................. 1,609 --
Other accrued liabilities (Note 3)........................ 3,527 3,228
-------- --------
Total current liabilities......................... 19,814 16,081
Long-term related party debt (Note 4)....................... 71,000 76,603
Deferred income taxes (Note 6).............................. 19,296 19,393
Commitment and contingencies (Notes 4, 9 and 10)
Owner's equity (Notes 7 and 8).............................. 34,961 34,670
-------- --------
Total liabilities and owner's equity.............. $145,071 $146,747
======== ========
</TABLE>
See accompanying notes.
F-15
<PAGE> 109
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $249,935 $231,721 $222,019
Cost of goods sold.......................................... 213,831 206,842 196,518
-------- -------- --------
Gross earnings.................................... 36,104 24,879 25,501
-------- -------- --------
Selling, general and administrative expenses................ 20,678 19,733 17,495
Amortization of excess reorganization value................. 33,624 25,229 --
-------- -------- --------
Operating earnings (loss)......................... (18,198) (20,083) 8,006
-------- -------- --------
Securitization expense on sale of accounts receivable (Note
4)........................................................ 1,057 1,184 955
Interest expense (Note 4)................................... -- 5,514 7,942
Royalty expense............................................. 7,120 5,275 --
Other (income) expense, net................................. -- (18) (219)
-------- -------- --------
Net loss before income tax expense (benefit)................ (26,375) (32,038) (672)
Income tax expense (benefit) (Note 6)....................... 2,835 (2,683) (385)
-------- -------- --------
Net loss.......................................... $(29,210) $(29,355) $ (287)
======== ======== ========
</TABLE>
See accompanying notes.
F-16
<PAGE> 110
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(29,210) $(29,355) $ (287)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of excess reorganization value............ 33,624 25,229 --
Depreciation and other amortization.................... 11,976 11,117 8,059
Deferred income taxes.................................. 2,835 (2,683) (385)
Changes in operating assets and liabilities:
Accounts receivable.................................. (233) 424 --
Inventories.......................................... (1,692) (352) (856)
Other current assets................................. (2,004) (373) (227)
Accounts payable and other liabilities............... (1,277) 3,215 (1,134)
Employee related liabilities......................... (99) 552 449
-------- -------- -------
Net cash provided by operating activities................... 13,920 7,774 5,619
-------- -------- -------
INVESTING ACTIVITIES:
Capital expenditures...................................... (24,475) (9,757) (4,998)
Net proceeds from sale of assets.......................... 3,285 261 --
-------- -------- -------
Net cash used in investment activities...................... (21,190) (9,496) (4,998)
-------- -------- -------
FINANCING ACTIVITIES:
Intercompany, net......................................... 7,270 5,999 (943)
Indebtedness
Related party borrowings............................... -- 72,609 3,994
Credit Facility
Borrowings........................................... -- -- 2,000
Repayments........................................... -- -- (2,000)
Dividends................................................. -- (71,000) (4)
-------- -------- -------
Net cash provided by financing activities................... 7,270 7,608 3,047
-------- -------- -------
Increase in cash and cash equivalents....................... -- 5,886 3,668
Cash and cash equivalents at beginning of year.............. -- -- 5,886
-------- -------- -------
Cash and cash equivalents at end of year.................... $ -- $ 5,886 $ 9,554
======== ======== =======
</TABLE>
See accompanying notes.
F-17
<PAGE> 111
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts and
operations of AIH Inc. ("AIH") and its wholly owned subsidiaries, Alamac Knit
Fabrics, Inc. and Alamac Enterprises, Inc. (collectively "Alamac"). AIH is a
wholly owned indirect subsidiary of Alamac Holdings Inc. ("Holdings"), which is
an indirect subsidiary of WestPoint Stevens Inc. ("WestPoint"). All material
intercompany accounts and transactions have been eliminated. AIH was
incorporated in September 1995 and its primary asset is its investment in its
wholly owned subsidiaries. Prior to becoming an AIH subsidiary in September
1995, Alamac Knit Fabrics, Inc. ("Knit Fabrics") was a wholly owned subsidiary
of Alamac Holdings Inc., another WestPoint subsidiary company. Alamac
Enterprises, Inc. ("AE"), was incorporated in September 1995 and its primary
assets are trademarks and patents used by Knit Fabrics. Prior to September 1995
such trademarks and patents were owned by another WestPoint subsidiary.
Operating results in the accompanying consolidated financial statements for
periods prior to September 1995 are based on the operating results of Knit
Fabrics.
BUSINESS
Alamac manufactures and sells knitted fabrics primarily to manufacturers of
men's, women's and children's apparel. Alamac also supports a close working
relationship with major retailers to provide fabric, fashion and color
direction, quality standards specifications and customer service programs where
required.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Alamac records revenues principally when products are shipped to customers.
Consistent with recognized practice in the textile industry, Alamac also records
revenues to a lesser extent (approximately 7%, 5% and 3% of total revenues for
the years ended December 31, 1994, 1995 and 1996, respectively) on a bill and
hold basis under which the goods are complete, packaged and ready for shipment.
These goods are effectively segregated from inventory which is available for
sale, the risks of ownership of the goods have passed to the customer, and the
underlying customer orders are supported by contracts or written confirmations.
The credit status of each customer is approved and monitored. Also see Note 4
"Indebtedness -- Accounts Receivable Securitization". Sales to one customer
represented approximately 13%, 16% and 15% of net sales for the years ended
December 31, 1994, 1995 and 1996, respectively.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject Alamac to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable.
Alamac maintains cash and cash equivalents and certain other financial
instruments with various financial institutions. Alamac performs periodic
evaluations of the relative credit standing of those financial institutions that
are considered in Alamac's investment strategy.
F-18
<PAGE> 112
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising Alamac's customer base.
However, as of December 31, 1996, substantially all of Alamac's sales were to
companies in the apparel industry.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on deposit with banks. Deposits with
banks are generally insured in limited amounts. All liquid investments with an
original maturity of three months or less when purchased are considered to be
cash equivalents. Short-term investments totaling approximately $5.9 million and
$9.6 million are included in cash and cash equivalents at December 31, 1995 and
1996, respectively. These investments are carried at cost, which approximates
market value.
INVENTORIES
Inventory costs include material, labor and factory overhead. Inventories
are stated at the lower of cost or market (net realizable value). At December
31, 1995 and 1996, approximately 85% of the Company's inventories are valued at
the lower of cost or market using the "dollar value" last-in, first-out ("LIFO")
method. The remainder of the inventories (approximately $4.5 million and $4.7
million at December 31, 1995 and 1996, respectively) are valued at the lower of
cost (substantially first-in, first-out method) or market.
Inventories consist of the following (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
------- -------
<S> <C> <C>
Finished goods.............................................. $ 9,451 $ 7,967
Work in progress............................................ 5,595 7,532
Raw materials and supplies.................................. 17,262 16,901
------- -------
32,308 32,400
LIFO reserve................................................ (3,041) (2,277)
------- -------
$29,267 $30,123
======= =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
As a result of WestPoint's adoption of Fresh Start reporting as of
September 30, 1992, property, plant and equipment balances were adjusted to
their estimated fair values and historical accumulated depreciation was
eliminated. Additions since September 30, 1992 are stated at cost.
Depreciation is computed over estimated useful lives using the
straight-line method for financial reporting purposes and accelerated methods
for income tax reporting. Depreciation expense was approximately $12.0 million,
$11.1 million, and $8.1 million in the years ended December 31, 1994, 1995 and
1996, respectively. (See Note 2 "Change in Accounting Estimate".)
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCATED TO IDENTIFIABLE ASSETS
("EXCESS REORGANIZATION VALUE")
In September 1992, WestPoint completed a "prepackaged" plan of
reorganization and, in accordance with SOP 90-7, WestPoint established a new
basis of accounting ("Fresh Start"). In Fresh Start reporting, WestPoint's
assets and liabilities were adjusted to their fair values as of September 30,
1992. The excess of the reorganization value over the value of identifiable
assets was reported as Excess Reorganization Value at
F-19
<PAGE> 113
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
September 30, 1992. Excess Reorganization Value of approximately $95 million was
allocated to Alamac and has been amortized on a straight-line basis over three
years and was fully amortized by September 1995.
HEDGING TRANSACTIONS
All of Alamac's cotton purchases are handled by WestPoint and charged to
Alamac at actual cost. WestPoint engages in hedging activities within the normal
course of its business. Management has been authorized to manage exposure to
price fluctuations relevant to the purchase of cotton through the use of a
variety of derivative nonfinancial instruments. Derivative nonfinancial
instruments require or permit settlement by the delivery of commodities and
include exchange traded commodity futures contracts and options. Gains and
losses on these hedges, which were not material at December 31, 1995 and 1996,
are deferred and subsequently recognized in operations as cost of goods sold in
the same period as the hedged item. WestPoint does not hold or issue derivative
instruments for trading purposes.
PENSION PLANS
WestPoint has a number of defined benefit pension plans covering
essentially all employees. The benefits are based on years of service and
compensation. WestPoint's practice is to fund amounts which are required by the
Employee Retirement Income Security Act of 1974.
WestPoint also sponsors an employee savings plan covering certain
employees. Participants in this plan elect to make contributions as either a
percent of earnings or a basic contribution. For the periods prior to December
31, 1994, there were no contributions by WestPoint for this plan. WestPoint
amended the plan to provide for WestPoint contributions beginning in 1995 (see
Note 5 "Employee Benefit Plans -- Retirement Savings Plan").
OTHER EMPLOYEE BENEFITS
WestPoint accounts for post-retirement and post-employment benefits in
accordance with FAS 106, "Employer's Accounting for Post Retirement Benefits
Other Than Pensions" and FAS 112, "Employer's Accounting for Post Employment
Benefits."
STOCK BASED COMPENSATION
WestPoint grants stock options for a fixed number of shares of its common
stock in accordance with certain of its benefit plans. WestPoint accounts for
stock option grants in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees", and, accordingly, recognizes no compensation expense for
the stock option grants if the exercise price is equal to or more than the fair
value of the shares at the date of grant.
INCOME TAXES
WestPoint accounts for income taxes under FAS 109, "Accounting for Income
Taxes". Under the provisions of FAS 109, deferred income taxes are provided at
the enacted marginal rates on the differences between the financial statement
and income tax bases of assets and liabilities. WestPoint and its subsidiaries
file a consolidated federal income tax return and separate, combined or unitary
state and local income tax returns in accordance with the filing requirements
and options applicable in the jurisdiction in which income tax returns are
required. Income tax expense for AIH is presented in the accompanying financial
statements on a separate return basis consistent with the terms of a tax sharing
agreement between AIH and WestPoint.
F-20
<PAGE> 114
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
WestPoint has adopted FASB Statement No. 107, "Disclosure about Fair Value
of Financial Instruments", which requires disclosure of fair value, to the
extent practical, of certain of Alamac's financial instruments. The fair value
amounts do not necessarily represent the amount that could be realized in a sale
or settlement. Alamac's financial instruments are comprised principally of
long-term subordinated debt. (See Note 4 "Credit Arrangements".)
The estimated fair value of long-term subordinated debt at December 31,
1996 approximates book value since, in management's opinion, such obligations
are at market rates of interest for unsecured debt. Alamac does not anticipate
settlement of long-term subordinated debt at other than book value and currently
intends to hold this financial instrument through maturity.
The fair value of other financial instruments classified as current assets
or liabilities approximate their carrying values due to the short-term
maturities of these instruments.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 1996, WestPoint adopted Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("Statement 121"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairments are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the asset's carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The adoption of Statement
121 had no impact on WestPoint's or AIH's financial position.
2. CHANGE IN ACCOUNTING ESTIMATE
Effective January 1, 1996, Alamac extended its estimates of useful lives
for its property, plant and equipment. The effect of this change in estimate was
to reduce depreciation expense by approximately $3.9 million for the year ended
December 31, 1996. A summary of average economic lives assigned to property and
equipment is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 AND 1995 1996
-------------- --------------
<S> <C> <C>
Buildings and buildings improvements.................. 10 to 40 years 10 to 40 years
Furniture and fixtures................................ 5 to 10 years 6 to 12 years
Machinery and equipment -- used....................... 8 years 13 years
Machinery and equipment -- new........................ 8 to 15 years 10 to 18 years
</TABLE>
3. SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION
The composition of other accrued liabilities is as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Reserve for customer returns................................ $2,500 $2,500
Property taxes payable...................................... 788 479
Other....................................................... 239 249
------ ------
$3,527 $3,228
====== ======
</TABLE>
Components of "Other (income) expense, net" are principally interest income
from cash equivalents.
F-21
<PAGE> 115
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Alamac made state income tax payments of $.6 million, $.1 million and $-0-
in the years ended December 31, 1994, 1995 and 1996, respectively. Alamac made
interest payments of approximately $-0-, $3.9 million and $3.9 million in the
years ended December 31, 1994, 1995, and 1996.
4. CREDIT ARRANGEMENTS
BANK CREDIT AGREEMENT
Alamac has a Credit Facility with certain lenders (collectively, the
"Banks"), which consists of a $25.0 million revolving credit facility due May
23, 2001. At Alamac's option, interest under the Credit Facility will be payable
either at the prime rate plus .25% or at LIBOR plus 1.5%. The loans under the
Credit Facility are secured by the pledge of the inventories and certain other
assets. Availability under the Credit Facility is determined by a borrowing
calculation of 60% of FIFO inventory values, as defined. No amounts were
outstanding under this facility at December 31, 1995 and 1996.
All amounts outstanding under the Credit Facility reduce WestPoint's
availability under its Senior Credit Facility. Additionally, the amounts
outstanding under the WestPoint Senior Credit Facility are secured by the pledge
of the stock of WestPoint's subsidiaries, including AIH.
Alamac's credit agreement contains a number of customary covenants
including, among others, restrictions on the incurrence of indebtedness,
transactions with affiliates, and certain asset dispositions. Certain provisions
require Alamac to maintain certain financial ratios, such as a minimum cash flow
coverage ratio and minimum tangible net worth, as defined. Additionally,
intercompany payables and receivables balances occurring subsequent to November
1995 between Alamac and its WestPoint affiliates must be settled within 30 days
of each month-end.
ACCOUNTS RECEIVABLE SECURITIZATION
WestPoint, through a "bankruptcy remote" receivables subsidiary
("Receivables Subsidiary") has a trade receivables program ("Trade Receivables
Program") which provides for the sale of accounts receivable, on a revolving
basis. Alamac's trade receivables are sold to an affiliate in connection with
this program. Alamac recognizes in its operating results, the anticipated
periodic costs for bad debts, returns and allowances and other customer
accommodations impacting the collection of trade receivables. At December 31,
1995 and 1996, all of Alamac trade receivables outstanding, totaling
approximately $37.4 million and $37.0 million, respectively, had been sold to
WestPoint and were outstanding. The sale is reflected as a reduction of accounts
receivable in the accompanying Consolidated Balance Sheets. The Trade
Receivables Program was financed through the issuance of (a) $115 million of
Floating Rate Class A Trade Receivables Participation Certificates ("Class A
Certificates"); (b) $18 million of Floating Rate Class B Trade Receivables
Participation Certificates ("Class B Certificates"), and (c) $27 million of
Investor Revolving Certificates. The Class A Certificates and Class B
Certificates bear interest at LIBOR plus .27% and LIBOR plus .57%, respectively,
and the Investor Revolving Certificates bear interest at LIBOR plus .375%. The
expected final payment date of amounts outstanding under the Trade Receivables
Program is May 18, 1999, but earlier termination could occur upon the occurrence
of certain defined events. The cost of the Trade Receivables Program allocated
to Alamac, $1.1 million, $1.2 million and $1.0 million for the years ended
December 31, 1994, 1995 and 1996, respectively, is charged to securitization
expense in the accompanying Consolidated Statements of Operations.
The Trade Receivables Program requires WestPoint and Receivables Subsidiary
to perform certain servicing obligations with respect to the existing and future
trade receivables sold by WestPoint. WestPoint is not subject to any financial
covenants under the Trade Receivables Program, but the documentation for the
F-22
<PAGE> 116
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Trade Receivables Program provides for early termination of the Trade
Receivables Program and early payment of the securities issued thereunder upon
certain events, which include the incurrence of losses or delinquencies on the
receivables in excess of certain levels or the bankruptcy or insolvency of
WestPoint.
RELATED PARTY INDEBTEDNESS
In April 1995, Knit Fabrics, as payment of a $71.0 million dividend
distribution, entered into an unsecured subordinated debt agreement with its
parent company at that time, Alamac Holdings Inc. (the "Subordinated
Agreement"). The Subordinated Agreement, with an original principal amount of
$71 million at April 1995, bears interest at 11% payable semi-annually or, at
the option of Knit Fabrics, can be converted to additional subordinated debt.
Principal amounts outstanding under the Subordinated Agreement mature in April
1999. Accrued interest outstanding on the Subordinated Agreement at December 31,
1996 of approximately $1.7 million was converted to additional subordinated debt
in April 1997 under the same terms as the Subordinated Agreement. Such interest
has been classified as long-term related party debt in the accompanying
Consolidated Balance Sheets. Additionally, during 1996 approximately $3.9
million of interest expense also was converted to additional related party debt.
5. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION PLAN
WestPoint has a defined benefit pension plan that covers substantially all
its full-time employees including substantially all Alamac employees. Benefits
are based on years of service and compensation. Benefits become vested upon
completion of five years of service. No vesting occurs until the employee has
completed five years of service. WestPoint's practice is to fund amounts which
are required by the Employee Retirement Income Security Act of 1974.
F-23
<PAGE> 117
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes information including the plan's funded status as
of the plan's December 31 year end and assumptions used to develop the net
periodic pension expense for all WestPoint operations (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1995 1996
----------- -------------------------
ACCUMULATED ASSETS ACCUMULATED
BENEFITS EXCEED BENEFITS
EXCEED ACCUMULATED EXCEED
ASSETS BENEFITS ASSETS
----------- ----------- -----------
<S> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested........................................... $ 312,899 $ 85,620 $200,902
Nonvested........................................ 3,696 3,835 5,706
--------- -------- --------
Accumulated benefit obligations.................... 316,595 89,455 206,608
Effect of future salary increases.................. 23,633 -- 16,918
--------- -------- --------
Projected benefit obligation....................... 340,228 89,455 223,526
Plan assets at fair value.......................... 281,443 102,718 197,174
--------- -------- --------
Projected benefit obligation less than (in excess
of) plan assets.................................. (58,785) 13,263 (26,352)
Unrecognized net actuarial losses.................. 75,670 15,458 27,089
Minimum pension liability adjustment............... (52,037) -- (10,171)
--------- -------- --------
Pension related asset (liability).................. $ (35,152) $ 28,721 $ (9,434)
========= ======== ========
Actuarial assumptions for funded status
information:
Discount rate.................................... 7.25% 8.25% 8.25%
Average rate of increase in compensation
levels........................................ 4.0% -- 3.5%
</TABLE>
At December 31, 1995, WestPoint changed the discount rate to 7.25% from
8.5% which increased the projected benefit obligation by approximately $43.5
million. At December 31, 1996, WestPoint changed the discount rate to 8.25% from
7.25% which decreased the projected benefit obligation by approximately $38.5
million.
The provisions of Financial Accounting Standards Board Statement No. 87
Employee Accounting for Pensions (SFAS No. 87) require recognition in the
balance sheet of an additional minimum liability for pension plans with
accumulated benefits in excess of plan assets. At December 31, 1995 and 1996,
minimum pension liability adjustments of $52.0 million ($32.0 million after
related income taxes) and $10.2 million ($6.4 million after related income
taxes), respectively, were included in WestPoint's Consolidated Financial
Statements.
Plan assets are primarily invested in United States Government and
corporate debt securities, equity securities and fixed income insurance
contracts. At December 31, 1995 and 1996, WestPoint's pension plans held Notes
and Debentures of WestPoint with a market value of $13.2 million and $17.0
million, respectively.
F-24
<PAGE> 118
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pension expense included in WestPoint's Consolidated Financial Statements
was calculated as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Service costs -- benefits earned during the year... $ 7,428 $ 6,174 $ 8,244
Interest cost on projected benefit obligation...... 22,731 23,757 24,255
Actual loss (return) on plan assets................ 5,026 (49,969) (22,276)
Deferred actuarial gains (losses).................. (22,285) 33,038 (1,170)
-------- -------- --------
Net pension expense................................ $ 12,900 $ 13,000 $ 9,053
======== ======== ========
</TABLE>
Total pension expense allocated to AIH for benefits to Alamac employees
under this plan was approximately $2.3 million, $2.0 million and $1.3 million
for the years ended December 31, 1994, 1995 and 1996, respectively.
The assumptions used to develop the plan's funded status and expenses were
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
---- ---- -----
<S> <C> <C> <C>
Assumptions:
Discount rate............................................. 7.0% 8.5% 7.25%
Expected long-term rate of return on plan assets.......... 8.5% 8.5% 10.0%
Average rate of increase in compensation levels........... 4.0% 4.0% 4.0%
</TABLE>
RETIREMENT SAVINGS PLAN
WestPoint amended its Retirement Savings Value Plan (the "401K Plan")
effective January 1, 1995, to provide that WestPoint will match 50 percent of
each employee's before-tax contributions up to two percent of the employee's
compensation. WestPoint's contributions may be made either in cash or in shares
of its common stock. During both 1995 and 1996, Alamac was allocated
approximately $.4 million, of expense in connection with the 401K Plan.
OTHER POST-RETIREMENT BENEFIT PLANS
In addition to sponsoring defined benefit pension plans, WestPoint sponsors
various defined benefit post-retirement plans that provide health care and life
insurance benefits to certain current and future retirees. All such
post-retirement benefit plans are unfunded. Amounts allocated to Alamac under
these plans during the three years ended December 31, 1996 were not material.
6. INCOME TAXES
Alamac accounts for income taxes under FAS 109. Under FAS 109, deferred
income taxes are provided at the enacted marginal rates on the difference
between the financial statement and income tax bases of assets and liabilities.
Deferred income tax provisions or benefits are based on the change in the
deferred tax assets and liabilities from period to period.
F-25
<PAGE> 119
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total provision (benefit) for income taxes consisted of the following
(in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------ ------- -----
<S> <C> <C> <C>
Current.................................................. $ -- $ -- $ --
Deferred................................................. 2,835 (2,683) (385)
------ ------- -----
$2,835 $(2,683) $(385)
====== ======= =====
</TABLE>
Income tax expense (benefit) from operations differs from the statutory
federal income tax rate of 35% for the following reasons (in thousands of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
------- -------- -----
<S> <C> <C> <C>
Income tax expense (benefit) at federal statutory income
tax rate................................................. $(9,231) $(11,213) $(235)
State income taxes (net of effect of federal income tax)... 311 (374) (150)
Amortization of Excess Reorganization Value................ 11,768 8,830 --
Other -- net............................................... (13) 74 --
------- -------- -----
Income tax expense (benefit)............................... $ 2,835 $ (2,683) $(385)
======= ======== =====
</TABLE>
Components of the net deferred income tax liability are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment............................. $(21,978) $(21,866)
Inventories............................................... (2,711) (2,277)
Other..................................................... -- (427)
Deferred tax assets:
Reserves for intercompany items, employee benefits and
other.................................................. 2,683 2,901
Other..................................................... 36 84
-------- --------
$(21,970) $(21,585)
======== ========
</TABLE>
7. WESTPOINT CORPORATE ALLOCATIONS
Corporate expenses of WestPoint, including corporate officers' salaries and
related employee benefits, travel costs, and related support staff and
operations (including cash management, accounting, tax and other corporate
services) are allocated to the operating units of WestPoint. In addition,
certain direct operating costs including pensions, property taxes, group health
insurance, fire and other insurance, and workers compensation are recorded on a
consolidated basis by WestPoint and allocated to the operating divisions. In the
opinion of WestPoint's management, these charges have been made on a basis which
is reasonable, however, they are not necessarily indicative of the level of
expenses which might have been incurred by Alamac on a stand-alone basis.
F-26
<PAGE> 120
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Alamac was charged approximately $22.9 million, $22.9 million, and $19.4
million for these services and operating costs during the years ended December
31, 1994, 1995 and 1996, respectively, which was allocated between cost of goods
sold and selling, general and administrative expenses as follows (in thousands
of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Cost of goods sold........................................ $11,153 $11,646 $10,397
Selling, general and administrative expenses.............. 11,715 11,283 9,015
------- ------- -------
$22,868 $22,929 $19,412
======= ======= =======
</TABLE>
8. SUMMARY ACTIVITY WITH WESTPOINT AND AFFILIATES
Upon incorporation, AIH authorized 1,000 shares of $1.00 par value common
stock. At December 31, 1995 and 1996, 100 shares of AIH common stock were issued
and outstanding. The cumulative net earnings of, and net intercompany advances
between, Knit Fabrics, AIH, and WestPoint affiliates as of the date of AIH's
incorporation were deemed by management to be additional paid-in capital of AIH
and are included in owners' equity.
WestPoint provides centralized cash management for Alamac. Substantially
all cash receipts are remitted to WestPoint and substantially all disbursements
are made by WestPoint. There are no terms of settlement for interest charges on
these intercompany accounts. However, intercompany payables and receivables
balances occurring subsequent to November 1995 between Alamac and its WestPoint
affiliates must be settled within 30 days of each month-end. Components of the
activity with WestPoint and affiliates as reflected in the accompanying
Consolidated Balance Sheets are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Intercompany, net........................................... $ 1,583 $ 626
Accrued interest............................................ 1,609 --
Long-term related party debt................................ 71,000 76,603
Owner's equity.............................................. 34,961 34,670
-------- --------
$109,153 $111,899
======== ========
</TABLE>
An analysis of the net transactions with WestPoint and affiliates are as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Net balances at the beginning of year............... $ 152,880 $ 131,096 $ 109,153
Gross sales....................................... (254,726) (235,452) (225,874)
Payments of direct operating costs and purchases
of raw materials............................... 233,356 215,723 211,551
WestPoint allocations............................. 22,868 22,929 19,412
Intercompany borrowings........................... -- 72,609 3,994
Other............................................. 5,928 2,603 (6,046)
Net loss.......................................... (29,210) (29,355) (287)
Dividends......................................... -- (71,000) (4)
--------- --------- ---------
Net balances at the end of year..................... $ 131,096 $ 109,153 $ 111,899
========= ========= =========
</TABLE>
F-27
<PAGE> 121
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LITIGATION AND CONTINGENT LIABILITIES
Alamac is subject to various federal, state and local environmental laws
and regulations governing, among other things, the discharge, storage, handling
and disposal of a variety of hazardous and non-hazardous substances and wastes
used in or resulting from its operations and potential remediation obligations
thereunder. Certain of Alamac's facilities may occasionally experience permit
violation under such laws and regulations. Alamac believes that it has
adequately provided in its financial statements for any expenses and liabilities
that may result from such matters. Alamac's operations are governed by laws and
regulations relating to employee safety and health which, among other things,
establish exposure limitations for cotton dust, formaldehyde, asbestos and
noise, and regulate chemical and ergonomic hazards in the workplace. Although
Alamac does not expect that compliance with any such laws and regulations will
adversely affect its operations, there can be no assurance such regulatory
requirements will not become more stringent in the future or that Alamac will
not incur significant costs in the future to comply with such requirements.
Alamac is involved in various legal proceedings, as plaintiff, which are
normal to its business. It is the opinion of management that the aforementioned
actions and claims, if determined adversely to Alamac, will not have a material
adverse effect on the financial condition or operations of Alamac taken as a
whole.
10. COMMITMENTS AND CONTINGENCIES
Alamac has contracts to purchase steam, at a fixed price per thousand
pounds through December 31, 2001, from electric power cogeneration plants
located at two manufacturing facilities. The term of the steam purchase
contracts are concurrent with ground leases between Alamac and the power
supplier for the lease of land adjacent to its facilities on which the
cogeneration plants are located. The steam purchase contracts and the ground
leases have 15 year extension options subject price renegotiation.
In November 1992, WestPoint entered into an agreement with a textile waste
purchaser. Under the terms of the agreement, WestPoint agreed to sell certain
textile by-products generated by WestPoint's facilities, including the Alamac
facilities, through November 1997. The pricing, delivery and scheduling of
shipments are determined pursuant to negotiations. In April 1997, WestPoint
extended the agreement through November 2002 under substantially the same terms.
Alamac has an agreement to provide engineering and technology consulting
and knowledge transfer to Arvind Mills ("Arvind"), an Indian company entering
the knit fabric industry. During the year ended December 31, 1995, Alamac has
received approximately $1.7 million for services to Arvind in establishing a
manufacturing facility with additional fees of approximately $900,000 due upon
satisfactory commencement of commercial production at the facility. The facility
is scheduled to begin production in early 1998. Also, Alamac has an agreement
with Arvind to receive royalties based on Arvind's domestic and export sales for
a period of six years from the start of commercial production.
Certain office space in New York and certain machinery are subleased,
through verbal arrangements with WestPoint, at terms which mirror the original
lease terms. Certain of these leases have payment terms which result in payment
amounts exceeding the amount of lease expense recognized during the period. The
difference is reflected as a prepaid lease asset in the accompanying
Consolidated Balance Sheets. Alamac also leases from third parties certain sales
office space. The operating leases have various renewal options. Rental
F-28
<PAGE> 122
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expense for operating leases, either directly charged or included in corporate
allocations, was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, WESTPOINT OTHER TOTAL
- ----------------------- --------- ----- -------
<S> <C> <C> <C>
1994.................................................... $ 4,191 $ 81 $ 4,272
1995.................................................... 7,134 80 7,214
1996.................................................... 7,056 80 7,136
</TABLE>
The minimum aggregate rentals under operating leases are payable to the
lessors as follows (in thousands of dollars):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, WESTPOINT OTHER TOTAL
- ----------------------- --------- ----- -------
<S> <C> <C> <C>
1997.................................................... $ 2,974 $ 80 $ 3,054
1998.................................................... 3,086 18 3,104
1999.................................................... 2,284 6 2,290
2000.................................................... 2,043 -- 2,043
2001 and thereafter..................................... 1,464 -- 1,464
------- ---- -------
$11,851 $104 $11,955
======= ==== =======
</TABLE>
11. SUBSEQUENT EVENT -- SALE OF YARN MILL (UNAUDITED)
In May 1997, WestPoint's Board of Directors approved the purchase of
Alamac's Whitmire yarn mill and related assets for a cash payment of
approximately $25.0 million. Whitmire had a net book value of assets to be sold
of approximately $21.7 million at December 31, 1996. WestPoint's Board of
Directors has obtained a fairness opinion relative to this proposed transaction.
The excess of cash proceeds over the net book value of assets to be sold will be
treated as a capital transaction by AIH. The sale is expected to close in June
1997.
The Whitmire yarn mill produced approximately 26.2 million pounds of yarn,
of which, approximately 2.3 million pounds were sold to an affiliate for
approximately $3.1 million during the year ended December 31, 1996. In the
opinion of WestPoint's management, these related party sales are priced at the
fair market value at the date of sale.
12. SUBSEQUENT EVENT
On July 15, 1997, WestPoint entered into a definitive agreement pursuant to
which WestPoint sold its subsidiaries AIH Inc., Alamac Knit Fabrics Inc. and
Alamac Enterprises Inc., other than cash, accounts receivable and a yarn mill
located in Whitmire, S.C., to Dyersburg Corporation ("Dyersburg") for
approximately $126 million. Certain current liabilities and long-term debt on
the accompanying balance sheets were not assumed by Dyersburg. Such liabilities
were retained by WestPoint Stevens Inc. or retired at the closing date of the
acquisition by Dyersburg. Dyersburg has entered into contractual commitments,
subject to normal closing conditions, for the necessary financing to conclude
this transaction. The transaction was consummated in August 1997.
F-29
<PAGE> 123
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,554 $ 2,135
Inventories............................................... 30,123 32,785
Other current assets...................................... 2,876 3,317
-------- --------
Total current assets.............................. 42,553 38,237
Property, plant and equipment, net.......................... 104,194 102,233
-------- --------
Total Assets...................................... $146,747 $140,470
======== ========
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,673 $ 6,853
Accrued employee related liabilities...................... 4,362 3,200
Deferred income taxes..................................... 2,192 2,456
Intercompany, net......................................... 626 (1,529)
Other accrued liabilities................................. 3,228 2,898
-------- --------
Total current liabilities......................... 16,081 13,878
Long-term related party debt................................ 76,603 80,735
Deferred income taxes....................................... 19,393 20,551
Owner's equity.............................................. 34,670 25,306
-------- --------
Total liabilities and owner's equity.............. $146,747 $140,470
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-30
<PAGE> 124
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
1996 1997
--------- ---------
<S> <C> <C>
Net sales................................................... $114,004 $127,793
Cost of goods sold.......................................... 101,439 111,321
-------- --------
Gross earnings.................................... 12,565 16,472
Selling, general and administrative expenses................ 9,473 8,012
-------- --------
Operating earnings................................ 3,092 8,460
Securitization expense on sale of accounts receivable....... 492 520
Interest expense............................................ 3,861 4,132
Other (income) expense, net................................. (101) (257)
-------- --------
Net income (loss) before income tax expense (benefit)....... (1,161) 4,065
Income tax expense (benefit)................................ (495) 1,427
-------- --------
Net income (loss)................................. $ (666) $ 2,638
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-31
<PAGE> 125
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
-----------------
1996 1997
------ -------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)......................................... $ (666) $ 2,638
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and other amortization.................... 4,100 4,268
Deferred income taxes.................................. (495) 1,422
Changes in operating assets and liabilities:
Inventories.......................................... 325 (2,662)
Other current assets................................. (455) (441)
Accounts payable and other liabilities............... (436) 850
Employee related liabilities......................... (1,389) (1,162)
Other................................................ 7 (7)
------ -------
Net cash provided by operating activities................... 991 4,906
INVESTING ACTIVITIES:
Capital expenditures...................................... (2,665) (2,300)
------ -------
Net cash used for investing activities...................... (2,665) (2,300)
FINANCING ACTIVITIES:
Intercompany, net......................................... (1,397) (2,155)
Indebtedness:
Related party borrowings (repayments).................. (51) 4,132
Credit facility borrowings............................. 1,000 --
Dividends................................................. -- (12,002)
------ -------
Net cash used for financing activities...................... (448) (10,025)
------ -------
Decrease in cash and cash equivalents....................... (2,122) (7,419)
Cash and cash equivalents at beginning of period............ 5,886 9,554
------ -------
Cash and cash equivalents at end of period.................. $3,764 $ 2,135
====== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-32
<PAGE> 126
AIH INC.
A SUBSIDIARY OF
WESTPOINT STEVENS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
AIH Inc. have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six month period
ending June 30, 1997, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. For further information, refer
to the annual financial statements and footnotes thereto of AIH Inc. included
herein.
2. SUBSEQUENT EVENT-SALE OF AIH INC.
On July 15, 1997, WestPoint entered into a definitive agreement pursuant to
which WestPoint sold its subsidiaries AIH Inc., Alamac Knit Fabrics Inc. and
Alamac Enterprises Inc., other than cash, accounts receivable and a yarn mill
located in Whitmire, S.C., to Dyersburg Corporation ("Dyersburg") for
approximately $126 million. Certain current liabilities and long-term debt on
the accompanying balance sheets were not assumed by Dyersburg. Such liabilities
were retained by WestPoint Stevens Inc. or retired at the closing date of the
acquisition by Dyersburg. Also, see Note 11. "Subsequent Event-Sale of Yarn
Mill" in the annual financial statements and footnotes thereto of AIH Inc.
included herein. Dyersburg has entered into contractual commitments, subject to
normal closing conditions, for the necessary financing to conclude this
transaction. The transaction was consummated in August 1997.
The accompanying condensed consolidated financial statements are derived
from the historical books and records of AIH Inc. and do not give effect to any
purchase accounting adjustments which Dyersburg may record as a result of its
acquisition.
F-33
<PAGE> 127
======================================================
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 OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE
SECURITIES TO WHICH IT RELATES, OR ANY OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE EXCHANGE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH
IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 10
The Acquisition...................... 17
The Exchange Offer................... 18
Certain Federal Income Tax
Consequences of the Exchange
Offer.............................. 26
Use of Proceeds...................... 27
Capitalization....................... 28
Selected Financial Data.............. 29
Unaudited Pro Forma Condensed
Consolidated Financial
Statements......................... 30
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 38
Business............................. 43
Management........................... 53
Principal Shareholders............... 57
Description of New Credit Facility... 58
Description of the Exchange Notes.... 60
Description of Certain Federal Income
Tax Consequences of an Investment
in the Exchange Notes.............. 86
Plan of Distribution................. 88
Legal Matters........................ 88
Experts.............................. 88
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
======================================================
======================================================
[DYERSBURG CORPORATION LOGO]
OFFER TO EXCHANGE
$125,000,000
9 3/4% SENIOR SUBORDINATED
NOTES DUE 2007, SERIES B
FOR
9 3/4% SENIOR SUBORDINATED
NOTES DUE 2007
----------------------------------------
PRELIMINARY PROSPECTUS
----------------------------------------
, 1997
======================================================
<PAGE> 128
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Chapter 58 of the Tennessee Business Corporation Act (the "TBCA") provides
that a corporation may indemnify any of its directors and officers against
liability incurred in connection with a proceeding if (i) such person acted in
good faith; (ii) in the case of conduct in such person's official capacity with
the corporation, he reasonably believed such conduct was in the corporation's
best interests; (iii) in all other cases, he reasonably believed that his
conduct was at least not opposed to the best interests of the corporation; and
(iv) in connection with any criminal proceeding, such person had no reasonable
cause to believe his conduct was unlawful.
Article 10 of the Company's Certificate of Incorporation provides for
indemnification of officers, directors and employees of the Company against
liabilities, including liabilities under the Act, in connection with the defense
of any action, suit or proceeding to which such persons are made a party by
reason of being an officer, director or employee of the Company, except in
relation to matters as to which such persons are adjudged liable for negligence
or misconduct in the performance of their duties.
The Company maintains directors' and officers' liability insurance which
may cover liabilities under the Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
3.1 -- Amended and Restated Charter as of May 11,
1992 -- Incorporated by reference to Registration Statement
on Form S-1 (Registration No. 33-46331).
3.2 -- Amended and Restated By-Laws of the Company -- Incorporated
by reference to Form 8-K dated April 17, 1997.
4.1 -- Indenture dated August 27, 1997 among the Company, the
Guarantors and State Street Bank & Trust
Company -- Incorporated by reference to Form 8-K dated
September 2, 1997.
4.2 -- Form of Notes -- (Included in Exhibit 4.1).
4.3 -- Form of Guaranty -- (Included in Exhibit 4.1).
4.4 -- Registration Rights Agreement dated August 27, 1997 among
the Company, the Guarantors, Bear, Stearns & Co. Inc. and
Prudential Securities Incorporated -- Incorporated by
reference to Form 8-K dated September 2, 1997.
5 -- Opinion of Bass, Berry & Sims PLC.
10.1 -- Stock Purchase Agreement, dated as of January 19, 1994,
including certain exhibits, relating to the acquisition of
the outstanding capital stock of United Knitting Acquisition
Corp. -- Incorporated by reference to Form 8-K dated
February 2, 1994.
10.2 -- Agreement, dated as of April 8, 1997, among Polysindo Hong
Kong Limited, PT. Texmaco Jaya and the
Company -- Incorporated by reference to Form 8-K dated April
17, 1997.
10.3 -- Stock Purchase Agreement, dated as of July 15, 1997, among
the Company, Alamac Sub Holdings Inc., AIH Inc. and
WestPoint Stevens Inc. -- Incorporated by reference to Form
8-K dated July 18, 1997.
10.4 -- Loan Agreement between The Industrial Revenue Board of the
City of Trenton, Tennessee and Dyersburg Fabrics Inc. dated
as of July 1, 1990 -- Incorporated by reference to Form 10-K
for the fiscal year ended September 29, 1990.
</TABLE>
II-1
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.5 -- Tax Sharing Agreement dated July 24, 1990 between Dyersburg
Fabrics Inc. and the Company -- Incorporated by reference to
Form 10-K for the fiscal year ended September 29, 1990.
10.6 -- First Amendment to Amended and Restated Letter of Credit
Agreement dated November 30, 1992 by and among Dyersburg
Fabrics Inc., the Company and Trust Company Bank --
Incorporated by reference to Form 10-K for the fiscal year
ended October 3, 1992.
10.7 -- Second amendment to Amended and Restated Letter of Credit
Agreement dated October 29, 1993 by and among Dyersburg
Fabrics Inc., the Company and Trust Company Bank --
Incorporated by reference to Form 10-K for the fiscal year
ended October 2, 1993.
10.8 -- Dyersburg Corporation 1992 Stock Incentive Plan, as
amended -- Incorporated by reference to Proxy Statement
dated December 14, 1995.
10.9 -- Dyersburg Fabrics Inc. Deferred Compensation Plan, as
amended -- Incorporated by reference to Proxy Statement
dated December 14, 1995.
10.10 -- Form of Purchase Agreement dated March 4, 1992 between the
Company and each of the holders of the Junior Term
Notes -- Incorporated by reference to the Registration
Statement on Form S-1 (Registration No. 33-46331).
10.11 -- Form of Registration Rights Agreement dated as of April 30,
1992 between the Company and each shareholder of the
Company -- Incorporated by reference to the Registration
Statement on Form S-1 (Registration No. 33-46331).
10.12 -- Dyersburg Corporation Non-qualified Stock Option Plan for
Employees of Acquired Companies, as amended, -- Incorporated
by reference to Proxy Statement dated December 14, 1995.
10.13 -- Second Amended and Restated Letter of Credit Agreement dated
as of July 1, 1990, among Dyersburg Fabrics Limited
Partnership, I, Dyersburg Fabrics Inc., the Company, DFIC,
Inc., and SunTrust Bank, Atlanta, relating to $7,900,000 The
Industrial Development Board of the City of Trenton,
Tennessee Industrial Development Revenue Bonds (Dyersburg
Fabrics Inc. Project) Series 1990 -- Incorporated by
reference to Form 10-Q for the quarter ended March 30, 1996.
10.14 -- Purchase Agreement dated August 20, 1997 among the Company,
Dyersburg Fabrics Inc., Dyersburg Fabrics Limited
Partnership, I, DFIC, Inc., IQUE, Inc., IQUEIC, Inc., IQUE
Limited Partnership, I, United Knitting Inc., UKIC, Inc.,
United Knitting Limited Partnership, I, Bear, Stearns & Co.
Inc. and Prudential Securities Incorporated -- Incorporated
by reference to Form 8-K dated September 2, 1997.
10.15 -- Credit Agreement dated as of August 27, 1997 among the
Company, Dyersburg Fabrics Limited Partnership, I, United
Knitting Limited Partnership, I, IQUE Limited Partnership,
I, Alamac Knit Fabrics, Inc., the Lenders listed therein,
SunTrust Bank Atlanta, as Agent, and SunTrust Bank Altanta,
as Collateral Agent -- Incorporated by reference to Form 8-K
dated September 2, 1997.
11 -- Statement regarding Computation of Earnings Per Share.
12 -- Statement regarding Computation of Ratios.
21 -- Subsidiaries of the Registrant.
23.1 -- Consent of Independent Auditors -- Dyersburg Corporation.
23.2 -- Consent of Independent Auditors -- AIH Inc.
23.3 -- Consent of Bass, Berry & Sims PLC (contained in their
opinion filed as Exhibit 5).
24 -- Powers of Attorney (included on signature pages).
</TABLE>
II-2
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
-- Form T-1 Statement of Eligibility under the Trust Indenture
25 Act of 1939 of State Street Bank and Trust Company.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
</TABLE>
(b) Financial Statement Schedules
II -- Valuation and Qualifying Accounts -- Incorporated by reference to
Form 10-K for year ended September 28, 1996.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually 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 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.
(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.
(b) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
II-3
<PAGE> 131
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(d) 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.
(e) 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-4
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrants have duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of Dyersburg, State of Tennessee, on September 24, 1997.
DYERSBURG CORPORATION
By:/s/ WILLIAM S. SHROPSHIRE, JR.
------------------------------------
William S. Shropshire, Jr.
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
DYERSBURG FABRICS INC.
By:/s/ WILLIAM S. SHROPSHIRE, JR.
------------------------------------
William S. Shropshire, Jr.
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
DYERSBURG FABRICS LIMITED
PARTNERSHIP, I
By: Dyersburg Fabrics Inc., its
General Partner
By:/s/ WILLIAM S. SHROPSHIRE, JR.
------------------------------------
William S. Shropshire, Jr.
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints T. Eugene McBride and William S. Shropshire,
Jr., 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 this
Registration Statement, and to file the same, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ T. EUGENE MCBRIDE Chairman and Chief Executive September 24, 1997
- ----------------------------------------------------- Officer
T. Eugene McBride
/s/ JEROME M. WIGGINS President and Chief September 24, 1997
- ----------------------------------------------------- Operating Officer and
Jerome M. Wiggins Director
</TABLE>
II-5
<PAGE> 133
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Executive Vice President, September 24, 1997
/s/ WILLIAM S. SHROPSHIRE, JR. Chief Financial Officer,
- ----------------------------------------------------- Secretary and Treasurer
William S. Shropshire, Jr.
/s/ JULIUS LASNICK Director September 24, 1997
- -----------------------------------------------------
Julius Lasnick
/s/ L.R. JALENAK, JR. Director September 24, 1997
- -----------------------------------------------------
L.R. Jalenak, Jr.
/s/ PATRICIA HILSBERG Director September 24, 1997
- -----------------------------------------------------
Patricia Hilsberg
/s/ MARVIN CROW Director September 24, 1997
- -----------------------------------------------------
Marvin Crow
Director September , 1997
- -----------------------------------------------------
P. Manohar
Director September , 1997
- -----------------------------------------------------
Ravi Shankar
Director September , 1997
- -----------------------------------------------------
Mickey Ganot
</TABLE>
II-6
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrants have duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of Dyersburg, State of Tennessee, on September 24, 1997.
DFIC, INC.
By: /s/ PAUL L. HALLOCK
------------------------------------
Paul L. Hallock
Vice President, Treasurer and
Assistant Secretary
UKIC, INC.
By: /s/ PAUL L. HALLOCK
------------------------------------
Paul L. Hallock
Vice President, Treasurer and
Assistant Secretary
IQUEIC, INC.
By: /s/ PAUL L. HALLOCK
------------------------------------
Paul L. Hallock
Vice President, Treasurer and
Assistant Secretary
KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints T. Eugene McBride and William S. Shropshire, Jr.
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 this Registration
Statement, and to file the same, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JERRY W. PATTON President and Director September 24, 1997
- -----------------------------------------------------
Jerry W. Patton
/s/ PAUL L. HALLOCK Vice President, Treasurer September 24, 1997
- ----------------------------------------------------- and Assistant Secretary and
Paul L. Hallock Director
/s/ BARBARA A. STEEN Secretary, Assistant September 24, 1997
- ----------------------------------------------------- Treasurer and Director
Barbara A. Steen
</TABLE>
II-7
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrants have duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of Dyersburg, State of Tennessee, on September 24, 1997.
UNITED KNITTING INC.
By:/s/ WILLIAM S. SHROPSHIRE, JR.
------------------------------------
William S. Shropshire, Jr.
Vice President, Secretary and
Treasurer
UNITED KNITTING LIMITED
PARTNERSHIP, I
By: United Knitting Inc., its General
Partner
By:/s/ WILLIAM S. SHROPSHIRE, JR.
------------------------------------
William S. Shropshire, Jr.
Vice President, Secretary and
Treasurer
KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints T. Eugene McBride and William S. Shropshire, Jr.
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 this Registration
Statement, and to file the same, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JERRY W. MILLER President September 24, 1997
- -----------------------------------------------------
Jerry W. Miller
/s/ WILLIAM S. SHROPSHIRE, JR. Vice President, Secretary September 24, 1997
- ----------------------------------------------------- and Treasurer
William S. Shropshire, Jr.
/s/ T. EUGENE MCBRIDE Vice President and Director September 24, 1997
- -----------------------------------------------------
T. Eugene McBride
/s/ JULIUS LASNICK Director September 24, 1997
- -----------------------------------------------------
Julius Lasnick
/s/ JEROME M. WIGGINS Director September 24, 1997
- -----------------------------------------------------
Jerome M. Wiggins
/s/ L. R. JALENAK, JR. Director September 24, 1997
- -----------------------------------------------------
L. R. Jalenak, Jr.
</TABLE>
II-8
<PAGE> 136
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director September 24, 1997
/s/ PATRICIA HILSBERG
- -----------------------------------------------------
Patricia Hilsberg
/s/ MARVIN CROW Director September 24, 1997
- -----------------------------------------------------
Marvin Crow
Director September , 1997
- -----------------------------------------------------
P. Manohar
Director September , 1997
- -----------------------------------------------------
Ravi Shankar
Director September , 1997
- -----------------------------------------------------
Mickey Ganot
</TABLE>
II-9
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrants have duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of Dyersburg, State of Tennessee, on September 24, 1997.
IQUE, INC.
By:/s/ WILLIAM S. SHROPSHIRE, JR.
------------------------------------
William S. Shropshire, Jr.
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
IQUE LIMITED PARTNERSHIP, I
By: IQUE, Inc., its General Partner
By:/s/ WILLIAM S. SHROPSHIRE, JR.
------------------------------------
William S. Shropshire, Jr.
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints T. Eugene McBride and William S. Shropshire,
Jr., 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 this
Registration Statement, and to file the same, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ T. EUGENE MCBRIDE Vice President (Principal September 24, 1997
- ----------------------------------------------------- Executive Officer) and
T. Eugene McBride Director
/s/ WILLIAM S. SHROPSHIRE, JR. Executive Vice President, September 24, 1997
- ----------------------------------------------------- Chief Financial Officer,
William S. Shropshire, Jr. Secretary and Treasurer
/s/ JULIUS LASNICK Director September 24, 1997
- -----------------------------------------------------
Julius Lasnick
/s/ JEROME M. WIGGINS Director September 24, 1997
- -----------------------------------------------------
Jerome M. Wiggins
/s/ L. R. JALENAK, JR. Director September 24, 1997
- -----------------------------------------------------
L. R. Jalenak, Jr.
/s/ PATRICIA HILSBERG Director September 24, 1997
- -----------------------------------------------------
Patricia Hilsberg
</TABLE>
II-10
<PAGE> 138
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director September 24, 1997
/s/ MARVIN CROW
- -----------------------------------------------------
Marvin Crow
Director September , 1997
- -----------------------------------------------------
P. Manohar
Director September , 1997
- -----------------------------------------------------
Ravi Shankar
Director September , 1997
- -----------------------------------------------------
Mickey Ganot
</TABLE>
II-11
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned registrants have duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of Dyersburg, State of Tennessee, on September 24, 1997.
AIH INC.
By:/s/ WILLIAM S. SHROPSHIRE, JR.
------------------------------------
William S. Shropshire, Jr.
Vice President and Secretary
ALAMAC KNIT FABRICS INC.
By:/s/ WILLIAM S. SHROPSHIRE, JR.
------------------------------------
William S. Shropshire, Jr.
Vice President and Secretary
ALAMAC ENTERPRISES INC.
By:/s/ WILLIAM S. SHROPSHIRE, JR.
------------------------------------
William S. Shropshire, Jr.
Vice President and Secretary
KNOW ALL MEN BY THESE PRESENTS, each person whose signature appears below
hereby constitutes and appoints T. Eugene McBride and William S. Shropshire,
Jr., 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 this
Registration Statement, and to file the same, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ T. EUGENE MCBRIDE President September 24, 1997
- -----------------------------------------------------
T. Eugene McBride
/s/ WILLIAM S. SHROPSHIRE, JR. Vice President, Secretary September 24, 1997
- ----------------------------------------------------- (Principal Financial
William S. Shropshire, Jr. Officer) and Director
</TABLE>
II-12
<PAGE> 140
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C> <C>
3.1 -- Amended and Restated Charter as of May 11,
1992 -- Incorporated by reference to Registration Statement
on Form S-1 (Registration No. 33-46331).
3.2 -- Amended and Restated By-Laws of the Company -- Incorporated
by reference to Form 8-K dated April 17, 1997.
4.1 -- Indenture dated August 27, 1997 among the Company, the
Guarantors and State Street Bank & Trust
Company -- Incorporated by reference to Form 8-K dated
September 2, 1997.
4.2 -- Form of Notes -- (Included in Exhibit 4.1).
4.3 -- Form of Guaranty -- (Included in Exhibit 4.1).
4.4 -- Registration Rights Agreement dated August 27, 1997 among
the Company, the Guarantors, Bear, Stearns & Co. Inc. and
Prudential Securities Incorporated -- Incorporated by
reference to Form 8-K dated September 2, 1997.
5 -- Opinion of Bass, Berry & Sims PLC.
10.1 -- Stock Purchase Agreement, dated as of January 19, 1994,
including certain exhibits, relating to the acquisition of
the outstanding capital stock of United Knitting Acquisition
Corp. -- Incorporated by reference to Form 8-K dated
February 2, 1994.
10.2 -- Agreement, dated as of April 8, 1997, among Polysindo Hong
Kong Limited, PT. Texmaco Jaya and the
Company -- Incorporated by reference to Form 8-K dated April
17, 1997.
10.3 -- Stock Purchase Agreement, dated as of July 15, 1997, among
the Company, Alamac Sub Holdings Inc., AIH Inc. and
WestPoint Stevens Inc. -- Incorporated by reference to Form
8-K dated July 18, 1997.
10.4 -- Loan Agreement between The Industrial Revenue Board of the
City of Trenton, Tennessee and Dyersburg Fabrics Inc. dated
as of July 1, 1990 -- Incorporated by reference to Form 10-K
for the fiscal year ended September 29, 1990.
10.5 -- Tax Sharing Agreement dated July 24, 1990 between Dyersburg
Fabrics Inc. and the Company -- Incorporated by reference to
Form 10-K for the fiscal year ended September 29, 1990.
10.6 -- First Amendment to Amended and Restated Letter of Credit
Agreement dated November 30, 1992 by and among Dyersburg
Fabrics Inc., the Company and Trust Company
Bank -- Incorporated by reference to Form 10-K for the
fiscal year ended October 3, 1992.
10.7 -- Second amendment to Amended and Restated Letter of Credit
Agreement dated October 29, 1993 by and among Dyersburg
Fabrics Inc., the Company and Trust Company
Bank -- Incorporated by reference to Form 10-K for the
fiscal year ended October 2, 1993.
10.8 -- Dyersburg Corporation 1992 Stock Incentive Plan, as
amended -- Incorporated by reference to Proxy Statement
dated December 14, 1995.
10.9 -- Dyersburg Fabrics Inc. Deferred Compensation Plan, as
amended -- Incorporated by reference to Proxy Statement
dated December 14, 1995.
</TABLE>
<PAGE> 141
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C> <C>
--
10.10 Form of Purchase Agreement dated March 4, 1992 between the
Company and each of the holders of the Junior Term
Notes -- Incorporated by reference to the Registration
Statement on Form S-1 (Registration No. 33-46331).
10.11 -- Form of Registration Rights Agreement dated as of April 30,
1992 between the Company and each shareholder of the
Company -- Incorporated by reference to the Registration
Statement on Form S-1 (Registration No. 33-46331).
10.12 -- Dyersburg Corporation Non-qualified Stock Option Plan for
Employees of Acquired Companies, as amended, -- Incorporated
by reference to Proxy Statement dated December 14, 1995.
10.13 -- Second Amended and Restated Letter of Credit Agreement dated
as of July 1, 1990, among Dyersburg Fabrics Limited
Partnership, I, Dyersburg Fabrics Inc., the Company, DFIC,
Inc., and SunTrust Bank, Atlanta, relating to $7,900,000 The
Industrial Development Board of the City of Trenton,
Tennessee Industrial Development Revenue Bonds (Dyersburg
Fabrics Inc. Project) Series 1990 -- Incorporated by
reference to Form 10-Q for the quarter ended March 30, 1996.
10.14 -- Purchase Agreement dated August 20, 1997 among the Company,
Dyersburg Fabrics Inc., Dyersburg Fabrics Limited
Partnership, I, DFIC, Inc., IQUE, Inc., IQUEIC, Inc., IQUE
Limited Partnership, I, United Knitting Inc., UKIC, Inc.,
United Knitting Limited Partnership, I, Bear, Stearns & Co.
Inc. and Prudential Securities Incorporated -- Incorporated
by reference to Form 8-K dated September 2, 1997.
10.15 -- Credit Agreement dated as of August 27, 1997 among the
Company, Dyersburg Fabrics Limited Partnership, I, United
Knitting Limited Partnership, I, IQUE Limited Partnership,
I, Alamac Knit Fabrics, Inc., the Lenders listed therein,
SunTrust Bank Atlanta, as Agent, and SunTrust Bank Altanta,
as Collateral Agent -- Incorporated by reference to Form 8-K
dated September 2, 1997.
11 -- Statement regarding Computation of Earnings Per Share.
12 -- Statement regarding Computation of Ratios.
21 -- Subsidiaries of the Registrant.
23.1 -- Consent of Independent Auditors -- Dyersburg Corporation.
23.2 -- Consent of Independent Auditors -- AIH Inc.
23.3 -- Consent of Bass, Berry & Sims PLC (contained in their
opinion filed as Exhibit 5).
24 -- Powers of Attorney (included on signature pages).
25 -- Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of State Street Bank and Trust Company.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
</TABLE>
(b) Financial Statement Schedules
II -- Valuation and Qualifying Accounts -- Incorporated by reference to
Form 10-K for year ended September 28, 1996.
<PAGE> 1
Exhibit 5
B A S S, B E R R Y & S I M S P L C
A PROFESSIONAL LIMITED LIABILITY COMPANY
ATTORNEYS AT LAW
2700 FIRST AMERICAN CENTER 1700 RIVERVIEW TOWER
NASHVILLE, TENNESSEE 37238-2700 POST OFFICE BOX 1509
TELEPHONE (615) 742-6200 KNOXVILLE, TENNESSEE 37901-1509
TELECOPIER (615) 742-6293 TELEPHONE (423) 521-6200
TELECOPIER (423) 521-6234
September 24, 1997
Dyersburg Corporation
1315 Phillips Street
Dyersburg, Tennessee 38024
Re: REGISTRATION STATEMENT ON FORM S-4
Ladies and Gentlemen:
We have acted as counsel to Dyersburg Corporation, a Tennessee
corporation (the "Company"), in the preparation of a Registration Statement on
Form S-4 (the "Registration Statement") filed by the Company with the Securities
and Exchange Commission with respect to up to $125,000,000 aggregate principal
amount of the Company's 9 3/4% Senior Subordinated Notes due 2007, Series B (the
"Exchange Notes") and the related guarantees (the "Guarantees") of the Company's
subsidiaries named in the Registration Statement (the "Guarantors"). The
Exchange Notes and the Guarantees will be offered in exchange for the Company's
issued and outstanding 9 3/4% Senior Subordinated Notes due 2007, Series A (the
"Series A Notes") and related guarantees, all as described in the Registration
Statement.
The Exchange Notes are to be issued in exchange for the Series A Notes
pursuant to an indenture (the "Indenture") dated as of August 27, 1997 between
the Company, the Guarantors and State Street Bank and Trust Company, as Trustee
(the "Trustee") and the related Registration Rights Agreement among the Company,
the Guarantors, Bear, Stearns & Co. Inc. and Prudential Securities Incorporated
(the "Registration Rights Agreement").
In so acting, we have examined and relied upon such records, documents
and other instruments as in our judgment are necessary or appropriate in order
to express the opinion hereinafter set forth and have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
and the conformity to original documents of all documents submitted to us as
certified or photostatic copies.
Based upon and subject to the foregoing, we are of the opinion that the
Exchange Notes and the Guarantees, when duly executed and authenticated in
accordance with the terms of the Indenture, and delivered in exchange for the
Series A Notes and related guarantees in accordance with the terms of the
Indenture, will have been validly issued and will be legally binding obligations
of the Company and the Guarantors, respectively, subject to (a) the effect of
bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent
conveyance, fraudulent transfer and other similar laws relating to or affecting
the rights of creditors and (b) general principles of equity (including, without
limitation,
<PAGE> 2
Dyersburg Corporation
September 22, 1997
Page 2
concepts of materiality, reasonableness, good faith and fair dealing and the
possible unavailability of specific performance, injunctive relief and other
equitable remedies), regardless of whether considered in a proceeding at law or
in equity.
We express no opinion herein other than as to the law of the
State of Tennessee, the federal law of the United States and Delaware General
Corporation Law.
We hereby consent to the reference to our law firm in the Registration
Statement under the caption "Legal Matters" and to the use of this opinion as an
exhibit to the Registration Statement.
Sincerely,
/s/ Bass, Berry & Sims PLC
<PAGE> 1
Exhibit 11:
Statement Regarding Computation of Earnings Per Share
DYERSBURG CORPORATION
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
------------------------------------------ -------------------
October 1, September 30, September 28, June 29, July 5,
1994 1995 1996 1996 1997
------------------------------------------ -------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Average shares outstanding 14,010 14,196 13,643 13,905 13,135
========================================== ===================
Net income $10,348 $ 6,560 $ 8,400 $ 4,605 $ 7,946
========================================== ===================
Net income per share $0.74 $0.46 $0.62 $0.33 $0.60
========================================== ===================
</TABLE>
<PAGE> 1
EXHIBIT 12--STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
------------------------------------------ -------------------
October 1, September 30, September 28, June 29, July 5,
1994 1995 1996 1996 1997
------------------------------------------ -------------------
<S> <C> <C> <C> <C> <C>
Income before income
taxes and extraordinary
item $17,844 $12,542 $14,254 $ 7,883 $13,134
Interest and amortization
of debt cost 4,978 6,169 6,164 4,590 4,465
Interest portion of
rental expense 643 696 1,017 722 966
------------------------------------------ -------------------
Earnings 23,465 19,407 21,435 13,195 18,565
========================================== ===================
Interest and amortization
of debt cost 4,978 6,169 6,164 4,590 4,465
Interest portion of
rental expense 643 696 1,017 722 966
========================================== ===================
Fixed Charges 5,621 6,865 7,181 5,312 5,431
========================================== ===================
Ratio of Earnings to
Fixed Charges 4.2x 2.8x 3.0x 2.5x 3.4x
========================================== ===================
</TABLE>
<PAGE> 1
Exhibit 21
Subsidiaries of the Company
<TABLE>
<CAPTION>
State or Other
Jurisdiction of Incorporation
Subsidiary or Organization
- ---------- -----------------------------
<S> <C>
Dyersburg Fabrics Inc............................ Tennessee
Dyersburg Fabrics Limited Partnership, I......... Tennessee
DFIC, Inc........................................ Delaware
IQUE, Inc........................................ Tennessee
IQUEIC, Inc...................................... Delaware
IQUE Limited Partnership, I...................... Tennessee
United Knitting Inc.............................. Tennessee
UKIC, Inc........................................ Delaware
United Knitting Limited Partnership, I........... Tennessee
AIH Inc.......................................... Delaware
Alamac Knit Fabrics Inc.......................... Delaware
Alamac Enterprises Inc........................... Delaware
</TABLE>
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" in the Registration Statement (Form S-4) and related
Prospectus of Dyersburg Corporation for the registration of $125,000,000 of
9.75% Senior Subordinated Notes due 2007, Series B and to the inclusion and
incorporation by reference therein of our report dated October 22, 1996 (except
for Note 11, as to which the date is July 15, 1997) with respect to the
consolidated financial statements and schedule of Dyersburg Corporation
included in its Annual Report (Form 10-K) for the year ended September 28,
1996, filed with the Securities and Exchange Commission.
Ernst & Young LLP
Memphis, Tennessee
September 19, 1997
<PAGE> 1
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 May 19, 1997, except Note 12, as to which the date
is July 15, 1997, with respect to the consolidated financial statements of AIH
Inc. included in the Registration Statement (Form S-4) and related prospectus of
Dyersburg Corporation for the registration of $125,000,000 9 3/4% Senior
Subordinated Notes, Series B.
ERNST & YOUNG LLP
Columbus, GA
September 19, 1997
<PAGE> 1
Exhibit 25
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) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
---------------------
DYERSBURG CORPORATION
(Exact name of obligor as specified in its charter)
TENNESSEE 62-1363247
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1315 PHILLIPS STREET
DYERSBURG, TN 38024
(Address of principal executive offices) (Zip Code)
9 3/4% SENIOR SUBORDINATED NOTES SERIES B
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington, D.C.,
Federal Deposit Insurance Corporation, Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE
TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS
SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE> 3
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
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.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Hartford and The
State of Connecticut, on the 18th of September 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Michael M. Hopkins
--------------------------------
NAME: MICHAEL M. HOPKINS
TITLE: VICE PRESIDENT
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by DYERSBURG
CORPORATION of its 9 3/4% SENIOR SUBORDINATED NOTES, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Michael M. Hopkins
----------------------------------
NAME: MICHAEL M. HOPKINS
TITLE: VICE PRESIDENT
DATED: SEPTEMBER 18, 1997
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .................... 1,665,142
Interest-bearing balances ............................................. 8,193,292
Securities ..................................................................... 10,238,113
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ................................... 5,853,144
Loans and lease financing receivables:
Loans and leases, net of unearned income ............... 4,936,454
Allowance for loan and lease losses..................... 70,307
Allocated transfer risk reserve......................... 0
Loans and leases, net of unearned income and allowances ............... 4,866,147
Assets held in trading accounts ................................................ 957,478
Premises and fixed assets ...................................................... 380,117
Other real estate owned ........................................................ 884
Investments in unconsolidated subsidiaries ..................................... 25,835
Customers' liability to this bank on acceptances outstanding ................... 45,548
Intangible assets .............................................................. 158,080
Other assets.................................................................... 1,066,957
-----------
Total assets ................................................................... 33,450,737
===========
LIABILITIES
Deposits:
In domestic offices ................................................... 8,270,845
Noninterest-bearing ............................ 6,318,360
Interest-bearing ............................... 1,952,485
In foreign offices and Edge subsidiary ................................ 12,760,086
Noninterest-bearing ............................ 53,052
Interest-bearing ............................... 12,707,034
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ................................... 8,216,641
Demand notes issued to the U.S. Treasury and Trading Liabilities ............... 926,821
Other borrowed money ........................................................... 671,164
Subordinated notes and debentures .............................................. 0
Bank's liability on acceptances executed and outstanding ....................... 46,137
Other liabilities .............................................................. 745,529
Total liabilities .............................................................. 31,637,223
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus................................... 0
Common stock ................................................................... 29,931
Surplus ........................................................................ 360,717
Undivided profits and capital reserves/Net unrealized holding gains (losses) ... 1,426,881
Cumulative foreign currency translation adjustments ........................... (4,015)
Total equity capital ........................................................... 1,813,514
-----------
Total liabilities and equity capital ........................................... 33,450,737
============
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
5
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
DYERSBURG CORPORATION
OFFER TO EXCHANGE
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ANY AND ALL OF THE OUTSTANDING
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1997, UNLESS THE OFFER IS EXTENDED
STATE STREET BANK AND TRUST COMPANY
(THE "EXCHANGE AGENT")
<TABLE>
<C> <C> <C>
By Mail By Facsimile Transmission: By Hand or Overnight Courier:
(registered or certified mail (617) 664-5395
recommended): State Street Bank and
Trust Company
State Street Bank and Corporate Trust Department,
Trust Company Confirm by Telephone 4th floor
Corporate Trust Department or for Information Call: Two International Place
P.O. Box 778 (617) 664-5587 Boston, MA 02110
Boston, MA 02102-0078
</TABLE>
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than as set forth
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
By execution hereof, the undersigned hereby acknowledges receipt of the
Prospectus dated September , 1997 (the "Prospectus") of Dyersburg Corporation
(the "Company") and this Letter of Transmittal, which together constitute the
Company's offer (the "Exchange Offer") to exchange $1,000 in principal amount of
its 9 3/4% Senior Subordinated Notes due 2007, Series B (the "Exchange Notes"),
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the Prospectus
is a part, for each $1,000 in principal amount of its outstanding 9 3/4% Senior
Subordinated Notes due 2007 (the "Notes"). The term "Expiration Date" shall mean
5:00 p.m., New York City time, on , 1997, unless the Exchange Offer
is extended, in which case the term "Expiration Date" means the latest date and
time to which the Exchange Offer is extended. Capitalized terms used but not
defined herein have the meaning given to them in the Prospectus.
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.
List on the next page the Notes to which this Letter of Transmittal
relates. If the space indicated is inadequate, the Certificate or Registration
Numbers and the Principal Amounts should be listed on a separately signed
schedule affixed hereto.
<PAGE> 2
<TABLE>
- --------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SENIOR SUBORDINATED NOTES TENDERED HEREBY
- --------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED AGGREGATE PRINCIPAL
OWNER(S) CERTIFICATE OR AMOUNT REPRESENTED BY PRINCIPAL AMOUNT
(PLEASE FILL IN) REGISTRATION NUMBERS* NOTES TENDERED**
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
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 Notes. All tenders must be in integral multiples of $1,000.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
This Letter of Transmittal is to be used (i) if certificates representing
Notes are to be forwarded herewith, (ii) if tender of Notes is to be made by
book-entry transfer to an account maintained by the Exchange Agent at The
Depository Trust Company (the "Depository" or "DTC"), pursuant to the procedures
set forth in the Prospectus under "The Exchange Offer -- Procedures for
Tendering" or (iii) if tender of the Notes is to be made according to the
guaranteed delivery procedures described in the Prospectus under "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2. DELIVERY OF
DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE
EXCHANGE AGENT.
Unless the context requires otherwise, the term "Holder" with respect to
the Exchange Offer means any person (i) in whose name 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 (ii) whose Notes are held of
record by DTC who desires to deliver such Notes by book-entry transfer at DTC.
The undersigned has completed, executed and delivered this Letter of Transmittal
to indicate the action the undersigned desires to take with respect to the
Exchange Offer. Holders who wish to tender their Notes must complete this letter
in its entirety.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE DEPOSITORY AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
----------------------------------------------------------------------------
Account Number
----------------------------------------------------------------------------
Transaction Code Number
----------------------------------------------------------------------------
Holders whose Notes are not immediately available or who cannot deliver
their Notes and all other documents required hereby to the Exchange Agent on or
prior to the Expiration Date may tender their Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2.
[ ] CHECK HERE IF TENDERED 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 delivery by book-entry transfer:
Account Number
----------------------------------------------------------------------------
Transfer Code Number
----------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE TEN ADDITIONAL
COPIES OF THE PROSPECTUS AND TEN COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
----------------------------------------------------------------------------
Address:
----------------------------------------------------------------------------
2
<PAGE> 3
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Notes
indicated above. Subject to, and effective upon, the acceptance for exchange of
such Notes tendered hereby, the undersigned hereby exchanges, sells, assigns and
transfers to, or upon the order of, the Company all right, title and interest in
and to such Notes as are being tendered hereby, including all rights to accrued
and unpaid interest thereon as of the Expiration Date. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent as 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 Notes to be assigned, transferred and exchanged. The
undersigned represents and warrants that it has full power and authority to
tender, exchange, sell, assign and transfer the Notes tendered hereby and to
acquire Exchange Notes issuable upon the exchange of such tendered Notes, and
that when the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Notes, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claim.
The undersigned represents to the Company that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned; (ii) neither the undersigned nor any such other
person has an arrangement or understanding with any person to participate in a
distribution of such Exchange Notes; and (iii) the undersigned and any such
other person acknowledge that, if they are participating in the Exchange Offer
for the purpose of distributing the Exchange Notes, (a) they cannot rely on the
position of the staff of the Securities and Exchange Commission enunciated in
Exxon Capital Holdings Corporation (available April 13, 1989), Morgan Stanley &
Co., Inc. (available June 5, 1991) or similar no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with the
resale transaction and (b) failure to comply with such requirements in such
instance could result in the undersigned or any such other person incurring
liability under the Securities Act for which such persons are not indemnified by
the Company. If the undersigned or the person receiving the Exchange Notes
covered by this letter is an affiliate (as defined under Rule 405 of the
Securities Act) of the Company, the Exchange Notes may not be offered for
resale, resold or otherwise transferred by the undersigned or such other person
without registration under the Securities Act or an exemption therefrom. If the
exchange offeree is a broker-dealer holding Notes acquired for its own account
as a result of market-making activities or other trading activities, it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of Exchange Notes received in respect of such Notes
pursuant to the Exchange Offer; 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 Securities Act.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, sale, assignment and
transfer of tendered Notes or transfer ownership of such Notes on the account
books maintained by a book-entry transfer facility. The undersigned further
agrees that acceptance of any tendered 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 shall have no further obligations or liabilities thereunder for the
registration of the Notes or the Exchange Notes.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions." 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 Notes tendered hereby
and, in such event, the Notes not exchanged will be returned to the undersigned
at the address shown below the signature of the undersigned.
All authority herein conferred or agreed to be conferred shall survive the
death, bankruptcy or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal
3
<PAGE> 4
representatives, successors and assigns of the undersigned. TENDERED NOTES MAY
BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instructions" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Notes, and any Notes delivered herewith but not exchanged, will be
registered in the name of the undersigned and shall be delivered to the
undersigned at the address shown below the signature of the undersigned. If an
Exchange Note is to be issued to a person other than the person(s) signing this
Letter of Transmittal, or if the Exchange Note is to be mailed to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address different than the address
shown on this Letter of Transmittal, the appropriate boxes of this Letter of
Transmittal should be completed. If Notes are surrendered by Holder(s) that have
completed either the box entitled "Special Registration Instructions" or the box
entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (as defined in Instruction 2).
------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
To be completed ONLY if the Exchange Notes are to be issued in the
name of someone other than the undersigned.
Name
----------------------------------------------------------------
Address
----------------------------------------------------------------
----------------------------------------------------------------
Book-Entry Transfer Facility Account:
----------------------------------------------------------------
Employer Identification or Social Security Number:
----------------------------------------------------------------
(Please print or type)
======================================================
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the Exchange Notes are to be sent to someone
other than the undersigned, or to the undersigned at an address other than
that shown above under "Description of Senior Subordinated Notes Tendered
Hereby."
Name
----------------------------------------------------------------
Address
----------------------------------------------------------------
----------------------------------------------------------------
(Please print or type)
----------------------------------------------------------------
4
<PAGE> 5
REGISTERED HOLDER(S) OF NOTES SIGN HERE
(IN ADDITION, COMPLETE SUBSTITUTE FORM W-9 BELOW)
X
- --------------------------------------------------------------------------------
X
- --------------------------------------------------------------------------------
(Signature(s) of Registered Holder(s))
Must be signed by registered Holder(s) exactly as name(s) appear(s) on the
Notes or on a security position listing as the owner of the Notes or by
person(s) authorized to become registered Holder(s) by properly completed bond
powers transmitted herewith. If signature is by attorney-in-fact, trustee,
executor, administrator, guardian, officer of a corporation or other person
acting in a fiduciary capacity, please provide the following information.
(Please print or type):
Name and Capacity (full title):
- --------------------------------------------------------------------------------
Address (including zip code):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
Taxpayer Identification or Social Security Number:
- --------------------------------------------------------------------------------
Dated:
- ------------------------------
SIGNATURE GUARANTEE
(If Required -- See Instruction 4)
Authorized Signature:
- --------------------------------------------------------------------------------
(Signature of Representative of Signature Guarantor)
Name and Title:
- --------------------------------------------------------------------------------
Name of Plan:
- --------------------------------------------------------------------------------
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
(Please print or type)
Dated:
- ------------------------------
5
<PAGE> 6
PAYOR'S NAME: DYERSBURG CORPORATION
THIS SUBSTITUTE FORM W-9 MUST BE COMPLETED AND SIGNED
PLEASE PROVIDE YOUR SOCIAL SECURITY NUMBER OR OTHER TAXPAYER IDENTIFICATION
NUMBER ON THE FOLLOWING SUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT YOU ARE
SUBJECT TO BACKUP WITHHOLDING.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT ----------------------------
SUBSTITUTE AND CERTIFY BY SIGNING AND DATING BELOW. SOCIAL SECURITY
FORM W-9 NUMBER
OR EMPLOYER
IDENTIFICATION NUMBER
----------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
PART 2 -- CHECK THE BOX IF YOU ARE NOT SUBJECT TO PART 3 --
INTERNAL REVENUE SERVICE BACKUP WITHHOLDING UNDER THE PROVISIONS OF SECTION AWAITING TIN []
3406(A)(1)(C) OF THE INTERNAL REVENUE CODE BECAUSE
(1) YOU ARE EXEMPT FROM BACKUP WITHHOLDING, (2) YOU
HAVE NOT BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP
WITHHOLDING AS A RESULT OF FAILURE TO REPORT ALL
INTEREST OR DIVIDENDS OR (3) THE INTERNAL REVENUE
SERVICE HAS NOTIFIED YOU THAT YOU ARE NO LONGER
SUBJECT TO BACKUP WITHHOLDING. []
----------------------------------------------------------------------------------------
CERTIFICATION: UNDER PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON
PAYOR'S REQUEST FOR THIS FORM IS TRUE, CORRECT AND COMPLETE.
TAXPAYER IDENTIFICATION
NUMBER ("TIN") SIGNATURE: __________ DATE: __________
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: ANY FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY CASH PAYMENTS IN EXCESS OF $10.00 MADE TO YOU.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF SUBSTITUTE FORM W-9.
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
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 (A) 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 (B) I INTEND TO MAIL
OR DELIVER AN APPLICATION IN THE NEAR FUTURE. I UNDERSTAND THAT IF I DO NOT PROVIDE A TAXPAYER IDENTIFICATION
NUMBER WITHIN 60 DAYS, 31% OF ALL REPORTABLE PAYMENTS MADE TO ME THEREAFTER WILL BE WITHHELD, UNTIL I PROVIDE
A NUMBER.
------------------------------------------------------------------- ------------------------------------
SIGNATURE DATE
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
All physically delivered Notes or confirmation of any book-entry transfer
to the Exchange Agent's account at a book-entry transfer facility of 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 herein on or prior to the
Expiration Date. The method of delivery of this Letter of Transmittal, the
tendered Notes and all other required documents is at the election and risk of
the Holder. Instead of delivery by mail, it is recommended that Holders use an
overnight or hand delivery service. Except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
In all cases, sufficient time should be allowed to assure timely delivery to the
Exchange Agent before 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 Notes for exchange.
Delivery to an address other than as set forth herein, or instructions via
a facsimile number other than the ones set forth herein, will not constitute a
valid delivery.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their Notes, and (i) whose Notes are not
immediately available, or (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent (or comply
with the procedures for book-entry transfer) prior to the Expiration Date, may
effect a tender if:
a. the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent
in the United States or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution");
b. prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Notes, the
certificate or registration number(s) of such Notes and the principal
amount of Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five (5) business days after the Expiration Date,
the Letter of Transmittal (or facsimile thereof), together with the
certificate(s) representing the Notes to be tendered in proper form for
transfer (or a confirmation of book-entry transfer of such Notes into the
Exchange Agent's account at the Depository) and any other documents
required by the Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
c. such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Notes in proper form for
transfer (or a confirmation of book-entry transfer of such Notes into the
Exchange Agent's account at the Depository) and all other documents
required by the Letter of Transmittal, are received by the Exchange Agent
within five business days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above. Any Holder who wishes to tender Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery relating to such
Notes prior to the Expiration Date. Failure to complete the guaranteed delivery
procedures outlined above will not, of itself, affect the
7
<PAGE> 8
validity or effect a revocation of any Letter of Transmittal form properly
completed and executed by a Holder who attempted to use the guaranteed delivery
procedures.
3. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Notes evidenced by a submitted
certificate is tendered, the tendering Holder should fill in the principal
amount tendered in the column entitled "Principal Amount Tendered" of the box
entitled "Description of Senior Subordinated Notes Tendered Hereby." A newly
issued Note for the principal amount of Notes submitted but not tendered will be
sent to such Holder as soon as practicable after the Expiration Date. All Notes
delivered to the Exchange Agent will be deemed to have been tendered in full
unless otherwise indicated.
Any Notes tendered pursuant to the Exchange Offer may be withdrawn at any
time prior to the Expiration Date, after which tenders of Notes are irrevocable.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent by 5:00
p.m., New York City time, on the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Notes to be
withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn (including
the certificate or registration number(s) and principal amount of such Notes,
or, in the case of Notes transferred by book-entry transfer, the name and number
of the account at the DTC to be credited), (iii) be signed by the Depositor in
the same manner as the original signature on this Letter of Transmittal
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the Trustee with respect to the Notes register the
transfer of such Notes into the name of the Depositor withdrawing the tender,
(iv) specify the name in which such Notes are to be registered, if different
from that of the Depositor and (v) include a statement that such Holder is
withdrawing his election to have such Notes exchanged. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer, and no Exchange Notes will be
issued with respect thereto unless the Notes so withdrawn are validly
retendered. Any Notes which have been tendered but which are not accepted for
exchange, will be returned to the Holder thereof without cost to such Holder as
soon as practicable after withdrawal, rejection of tender or termination of
Exchange Offer.
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
Notes tendered hereby, the signature must correspond with the name(s) as written
on the face of the certificates without alteration or enlargement or any change
whatsoever. If this Letter of Transmittal is signed by a participant in the
Depository, the signature must correspond with the name as it appears on the
security position listing as the owner of the Notes.
If any of the Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If a number of Notes registered in different names are tendered, it will be
necessary to complete, sign and submit as many separate copies of this Letter of
Transmittal as there are different registrations of Notes.
Signatures on this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the Notes
tendered hereby are tendered (i) by a registered Holder who has not completed
the box entitled "Special Registration Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or Holders
of Notes (which term, for the purposes described herein, shall include a
participant in the Depository whose name appears on a security listing as the
owner of the Notes) listed and tendered hereby, no endorsements of the tendered
Notes or separate written instruments of transfer or exchange are required. In
any other case, the registered Holder (or
8
<PAGE> 9
acting Holder) must either properly endorse the Notes or transmit properly
completed bond powers with this Letter of Transmittal (in either case, executed
exactly as the name(s) of the registered Holder(s) appear(s) on the Notes, and,
with respect to a participant in the Depository whose name appears on a security
position listing as the owner of Notes, exactly as the name of the participant
appears on such security position listing), with the signature on the Notes or
bond power guaranteed by an Eligible Institution (except where the Notes are
tendered for the account of an Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange 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 so to act must be submitted.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate, in the applicable box, the name and
address (or account at the Depository) in which the Exchange Notes or substitute
Notes for principal amounts not tendered or not accepted for exchange are to be
issued (or deposited), if different from the names and addresses or accounts of
the person signing this Letter of Transmittal. In the case of issuance in a
different name, the employer identification number or social security number of
the person named must also be indicated, and the tendering Holder should
complete the applicable box.
If no instructions are given, the Exchange Notes (and any Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
Holder of the Notes or deposited at such Holder's account at the Depository.
6. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the
exchange of Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered Holder of the Notes
tendered, or if tendered Notes are registered in the name of any person other
than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered Holder or any other person) will be payable by the tendering Holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering Holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Notes listed in the Letter of Transmittal.
7. WAIVER OF CONDITIONS.
The Company reserves the right, in its reasonable judgment, to waive, in
whole or in part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
8. MUTILATED, LOST, STOLEN OR DESTROYED NOTES.
Any Holder whose Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal may be
directed to the Exchange Agent at the address and telephone number set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to William S.
9
<PAGE> 10
Shropshire, Jr., Dyersburg Corporation, 1315 Phillips Street, Dyersburg,
Tennessee 38024; telephone: (901) 285-2323 (collect).
10. VALIDITY AND FORM.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to
particular Notes. The Company's interpretation of the terms and conditions of
the Exchange Offer (including the instructions in this Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Notes must be cured within such
time as the Company shall determine. Neither the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Notes, nor shall any of them incur any
liability for failure to give such notification. Tenders of Notes will not be
deemed to have been made until such irregularities have been cured or waived.
Any 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 Notes, unless otherwise provided herein, as soon as practicable
following the Expiration Date.
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Notes is required to
provide the Exchange Agent with such Holder's correct TIN on Substitute Form W-9
above. If such Holder is an individual, the TIN is the Holder's social security
number. The Certificate of Awaiting Taxpayer Identification Number should be
completed if the tendering Holder has not been issued a TIN and has applied for
a number or intends to apply for a number in the near future. If the Exchange
Agent is not provided with the correct TIN, the Holder may be subject to a $50
penalty imposed by the Internal Revenue Service. In addition, payments that are
made to such Holder with respect to tendered Notes may be subject to backup
withholding.
Certain Holders (including, among others, all domestic corporations and
certain foreign individuals and foreign entities) are not subject to these
backup withholding and reporting requirements. Such a Holder, who satisfies one
or more of the conditions set forth in Part 2 of the Substitute Form W-9, should
execute the certification following such Part 2. In order for a foreign Holder
to qualify as an exempt recipient, that Holder must submit to the Exchange Agent
a properly completed Internal Revenue Service Form W-8, signed under penalties
of perjury, attesting to that Holder's exempt status. Such forms can be obtained
from the Exchange Agent.
If backup withholding applies, the Exchange Agent is required to withhold
31% of any amounts otherwise payable to the Holder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder with
respect to the Exchange Notes, the Holder is required to notify the Exchange
Agent of his or her correct TIN by completing the form herein certifying that
the TIN provided on Substitute Form W-9 is correct (or that such Holder is
awaiting a TIN) and that (i) such Holder is exempt, (ii) such Holder has not
been notified by the Internal Revenue Service that he or she is subject to
backup withholding as a result of failure to report all interest or dividends or
(iii) the Internal Revenue Service has notified such Holder that he or she is no
longer subject to backup withholding.
10
<PAGE> 11
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
Each Holder is required to give the Exchange Agent the social security
number or employer identification number of the record Holder(s) of the Notes.
If Notes are in more than one name or are not in the name of the actual Holder,
consult the instructions on Internal Revenue Service Form W-9, which may be
obtained from the Exchange Agent, for additional guidance on which number to
report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
If the tendering Holder has not been issued a TIN and has applied for a
number or intends to apply for a number in the near future, write "Applied For"
in the space for the TIN on Substitute Form W-9, sign and date the form and the
Certificate of Awaiting Taxpayer Identification Number and return them to the
Exchange Agent. If such certificate is completed and the Exchange Agent is not
provided with the TIN within 60 days, the Exchange Agent will withhold 31% of
all payments made thereafter until a TIN is provided to the Exchange Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH
NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS)
OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
11
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
(INCLUDING THOSE IN BOOK-ENTRY FORM)
OF
DYERSBURG CORPORATION
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Dyersburg Corporation (the "Company") made pursuant to the
Prospectus, dated September , 1997 (the "Prospectus"), if certificates for the
outstanding 9 3/4% Senior Subordinated Notes due 2007 of the Company (the
"Notes") are not immediately available or if the procedure for book-entry
transfer cannot be completed on a timely basis or time will not permit all
required documents to reach the Exchange Agent prior to 5:00 p.m., New York
time, on the Expiration Date. Such form may be delivered or transmitted by
telegram, telex, facsimile transmission, mail or hand delivery to State Street
Bank and Trust Company (the "Exchange Agent") as set forth below. In addition,
in order to utilize the guaranteed delivery procedure to tender Notes pursuant
to the Exchange Offer, a completed, signed and dated Letter of Transmittal (or
facsimile thereof) must also be received by the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. Capitalized terms not defined
herein are defined in the Prospectus.
STATE STREET BANK AND TRUST COMPANY, EXCHANGE AGENT
<TABLE>
<C> <C> <C>
By Mail By Facsimile Transmission: By Hand or Overnight Courier:
(registered or certified mail (617) 664-5395
recommended): State Street Bank and
Trust Company
State Street Bank and Corporate Trust Department,
Trust Company Confirm by Telephone 4th floor
Corporate Trust Department or for Information Call: Two International Place
P.O. Box 778 (617) 664-5587 Boston, MA 02110
Boston, MA 02102-0078
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
LADIES AND GENTLEMEN:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Notes set forth below, pursuant to the
guaranteed delivery procedure described in "The Exchange Offer -- Guaranteed
Delivery Procedures" section of the Prospectus.
Principal Amount of Notes Tendered:*
$
- ------------------------------------
Certificate No(s). (if available):
- -------------------------------------
Total Principal Amount Represented by Certificate(s):
$
- ------------------------------------
*Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
PLEASE SIGN HERE
<TABLE>
<C> <C>
X
- --------------------------------------------- ---------------------------------------------
X
- ---------------------------------------------
Signature(s) of Owner(s) ---------------------------------------------
or Authorized Signatory Date
</TABLE>
Area Code and Telephone Number: ( )
----------------------------------------------
Must be signed by the Holder(s) of Notes as their name(s) appear(s) on
certificates for Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below. If Notes will be delivered by book-entry
transfer to The Depository Trust Company, provide account number.
Please print name(s) and address(es)
<TABLE>
<S> <C>
Name(s): ---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Capacity:
---------------------------------------------------------------------------------
Address(es):
---------------------------------------------------------------------------------
Account Number:
---------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchanges Medallion Program, hereby guarantees
that the undersigned will deliver to the Exchange Agent the certificates
representing the Notes being tendered hereby or confirmation of book-entry
transfer of such Notes into the Exchange Agent's account at The Depository Trust
Company, in proper form for transfer, together with any other documents required
by the Letter of Transmittal within three New York Stock Exchange trading days
after the Expiration Date.
Name of Firm:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and Telephone No.: ( )
---------------------------------------------------
Authorized Signature:
- --------------------------------------------------------------------------------
Name:
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Title:
- --------------------------------------------------------------------------------
Dated:
- ------------------------------------
NOTE: DO NOT SEND CERTIFICATES OF NOTES WITH THIS FORM. CERTIFICATES OF NOTES
SHOULD BE SENT ONLY WITH A COPY OF THE PREVIOUSLY EXECUTED LETTER OF
TRANSMITTAL.
3
<PAGE> 1
EXHIBIT 99.3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE 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>
- -----------------------------------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -----------------------------------------------------------
<C> <S> <C>
1. An individual's account. The individual
2. Two or more individuals (joint The actual owner of
account) the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable savings The grantor- trustee(1)
trust account (grantor is
also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or valid
trust under state law
5. Sole proprietorship account The owner(3)
6. A valid trust, estate or Legal entity
pension trust
(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)
- -----------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -----------------------------------------------------------
<C> <S> <C>
7. Corporate account The corporation
8. Partnership account held in The partnership
the name of the business
9. Association, club or other tax The organization
exempt organization
10. A broker or registered nominee The broker or nominee
11. Account with the Department of The public entity
Agriculture in the 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. The name of the business or the "doing business
as" name may also be entered. Either the social security number or the
employer identification number may be used.
(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> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number ("TIN") 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 all interest, dividends
and broker transactions payments include the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under Section 403(b)(7).
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States or any
subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government or any
agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of 1940.
- A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. NOTE: You may be
subject to backup withholding if this interest is $600 or more, and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
EXEMPT PAYEES DESCRIBED ABOVE SHOULD FILE FORM W-9 TO AVOID POSSIBLE ERRONEOUS
BACKUP WITHHOLDING. COMPLETE THIS SUBSTITUTE FORM W-9 AS FOLLOWS:
ENTER YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE
FORM, SIGN, DATE AND RETURN THE FORM TO THE PAYER.
Certain payments other than interest, dividends and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the sections 6041, 6041A(a), 6044, 6045, 6049,
6050A and 6050N and the regulations thereunder.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividends,
interest or other payments to give taxpayer identification numbers to payers who
must report the payments to IRS. IRS uses the numbers for identification
purposes and to help verify the accuracy of tax returns. 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 correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure which is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE STATEMENTS 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.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying
certifications or affirmations, may subject you to criminal penalties including
fines and/or imprisonment.
(4) MISUSE OF TAXPAYER IDENTIFICATION NUMBERS. If the payer discloses or uses
taxpayer identification numbers in violation of Federal law, the payer may be
subject to civil and criminal penalties.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE.
