<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WORLDTEX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2241 56-1789271
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
WILLCOX & GIBBS FILIX OF DELAWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2241 13-3573177
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
REGAL MANUFACTURING COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2241 13-3141786
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
ELASTIC CORPORATION OF AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2241 63-1187625
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
ELASTEX, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2241 56-2050119
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
REGAL YARNS OF ARGENTINA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 2241 56-1796525
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
WTX COLOMBIA I, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2241 56-2059864
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
WTX COLOMBIA II, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2241 56-2059865
(STATE OR OTHER JURISDICTION OF (PRIMARY SIC CODE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
------------------------
212 12TH AVENUE, N.E.
HICKORY, NORTH CAROLINA 28601
(704) 328-5381
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
<TABLE>
<S> <C>
BARRY D. SETZER WITH COPIES TO:
WORLDTEX, INC. JOHN K. HOYNS, ESQ.
212 12TH AVENUE, N.E. HUGHES HUBBARD & REED LLP
HICKORY, NORTH CAROLINA 28601 ONE BATTERY PARK PLAZA
(704) 328-5381 NEW YORK, NEW YORK 10004
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (212) 837-6762
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==================================================================================================================================
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER UNIT AGGREGATE OFFERING PRICE REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 5/8% Series B Notes Due
2007........................ $175,000,000(1) (2) (2) $51,625
- ----------------------------------------------------------------------------------------------------------------------------------
Guarantees of the 9 5/8%
Series B Senior Notes Due
2007........................ -- -- -- None(3)
==================================================================================================================================
</TABLE>
(1) Equals the aggregate principal amount of the securities being registered.
(2) Pursuant to Rule 457(f)(2), the registration fee has been calculated using
the book value of the securities being registered.
(3) Pursuant to Rule 457(n).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
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.
PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 30, 1998
WORLDTEX, INC.
OFFER TO EXCHANGE ITS 9 5/8% SERIES B SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING
9 5/8% SERIES A SENIOR NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
[ ], 1998, UNLESS EXTENDED.
Worldtex, Inc. ("Worldtex" or the "Company") hereby offers, upon the terms
and subject to the conditions set forth in this Prospectus (this "Prospectus")
and the accompanying Letter of Transmittal (the "Letter of Transmittal" and,
together with this Prospectus, the "Exchange Offer"), to exchange $1,000
principal amount of its 9 5/8% Series B Senior Notes due 2007 (the "New Notes")
which have been registered under the Securities Act of 1933, as amended (the
"Securities Act") pursuant to a registration statement (the "Registration
Statement") of which this Prospectus is a part, for each $1,000 principal amount
of its outstanding 9 5/8% Series A Senior Notes due 2007 (the "Old Notes"), of
which $175,000,000 principal amount is outstanding as of the date hereof. See
"The Exchange Offer." The Old Notes and the New Notes are sometimes collectively
referred to herein as the "Notes." The Notes are senior unsecured obligations of
the Company and are fully and unconditionally guaranteed on a senior unsecured
basis (the "Subsidiary Guarantees") by all existing and future U.S. subsidiaries
of the Company (the "Guarantors"), but Subsidiary Guarantees will not be
provided by the Company's non-U.S. subsidiaries (the "Foreign Subsidiaries").
The Company will accept for exchange any and all validly tendered Old Notes
prior to 5:00 p.m., New York City time, on , 1998, unless extended
by the Company (such date, as it may be extended, the "Expiration Date"). Old
Notes may be tendered only in integral multiples of $1,000. Tenders of Old Notes
may be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to certain customary conditions. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Old Notes,
the Company will promptly return the Old Notes to the holders thereof. The
Company will not receive any proceeds from the Exchange Offer. See "The Exchange
Offer."
THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL ARE FIRST BEING MAILED TO
HOLDERS OF OLD NOTES ON , 1998.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
The New Notes will be obligations of the Company evidencing the same debt
as the Old Notes, and will be entitled to the benefits of the same indenture
(the "Indenture"). See "Description of Notes." The form and terms of the New
Notes are generally the same as the form and terms of the Old Notes in all
material respects except that the New Notes have been registered under the
Securities Act and hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to
certain special payments applicable to the Old Notes. See "The Exchange Offer."
The New Notes are being offered hereunder in order to satisfy certain
obligations under the Registration Rights Agreement, dated as of December 1,
1997 (the "Registration Rights Agreement"), among the Company, the Guarantors,
and NationsBanc Montgomery Securities, Inc., BancAmerica Robertson Stephens and
Interstate/Johnson Lane Corporation (the "Initial Purchasers"), a copy of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. The Exchange Offer is intended to satisfy the Company's
obligations under the Registration Rights Agreement to register the New Notes
and exchange them for the Old Notes under the Securities Act. Once the Exchange
Offer is consummated, the Company will have no further obligations to register
any of the Old Notes tendered for exchange, except pursuant to a shelf
registration statement to be filed under certain limited circumstances specified
in "The Exchange Offer -- Purpose of the Exchange Offer." See "Risk
Factors -- Consequences to Non-Tendering Holders of Old Notes." 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 several no-action letters issued to
third parties including Exxon Capital Holdings Corporation, SEC No-Action Letter
(available April 13, 1989) (the "Exxon Capital Letter"), Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available June 5, 1991) (the "Morgan Stanley
Letter") and Shearman & Sterling, SEC No-Action Letter (available July 2, 1993)
(the "Shearman & Sterling Letter") (collectively, the "Exchange Offer No-Action
Letters"), the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by Holders thereof who are not affiliates of Worldtex
(other than a broker-dealer who acquired such Old Notes directly from the
Company for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act; provided
that the Holder is acquiring New Notes in its ordinary course of business and
has no arrangement or understanding with any person to participate in any
distribution (within the meaning of the Securities Act) of the New Notes.
Persons wishing to exchange Old Notes in the Exchange Offer must represent to
the Company that such conditions have been met. However, any Holder who may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of the
Company or who tenders in the Exchange Offer with the intention to participate,
or for the purpose of participating, in a distribution of the New Notes cannot
rely on the interpretation by the staff of the Commission set forth in such
no-action letters, including the Exchange Offer No-Action Letters, and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. See "The Exchange
Offer -- Purpose of The Exchange Offer." In addition, each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
for its own account as a result of market-making activities or other trading
activities (other than acquisitions directly from the Company) must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities (other than acquisitions
directly from the Company). The Company has agreed that, for a period of 180
days after the Exchange Offer is consummated, it will, upon reasonable request,
make this Prospectus available promptly to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution." EXCEPT AS DESCRIBED
IN THIS PARAGRAPH, THIS PROSPECTUS MAY NOT BE USED FOR ANY OFFER TO RESELL,
RESALE OR OTHER TRANSFER OF NEW NOTES.
2
<PAGE> 4
Old Notes were initially represented by a single Global Old Note (as
defined herein) in fully registered form, registered in the name of a nominee of
The Depository Trust Company ("DTC"), as depositary. The New Notes exchanged for
Old Notes represented by the Global Old Note will be represented by one or more
Global New Notes (as defined herein) in fully registered form, registered in the
name of the nominee of DTC. The Global New Notes will be exchangeable for New
Notes in registered form, in denominations of $1,000 and integral multiples
thereof as described herein. The New Notes in global form will trade in DTC's
Same-Day Funds Settlement System, and secondary market trading activity of such
New Notes will therefore settle in immediately available funds. See "Description
of Notes -- Book Entry, Delivery and Form."
The New Notes will bear interest at a rate equal to 9 5/8% per annum from
the last date on which interest was paid on the Old Notes surrendered in
exchange therefor, or if no interest has been paid, from the date of original
issue of such Old Notes. Interest on the Notes is payable semi-annually on June
15 and December 15 of each year, commencing June 15, 1998.
The Notes are redeemable at the option of the Company, in whole or in part,
on or after December 15, 2002, at the redemption prices set forth herein, plus
accrued and unpaid interest thereon and liquidated damages, if any, payable
pursuant to Section 5 of the Registration Rights Agreement with respect to the
Old Notes ("Liquidated Damages") to the redemption date. Notwithstanding the
foregoing, at any time on or before December 15, 2000, the Company may redeem up
to 35% of the original aggregate principal amount of the Notes with the net
proceeds of a public offering of common stock of the Company at the redemption
prices set forth herein, plus accrued and unpaid interest thereon, if any, to
the redemption date, provided that at least $113.75 million in aggregate
principal amount of Notes remain outstanding immediately after the occurrence of
such redemption, and provided, further, that such redemption shall occur within
45 days of the date of the closing of such public offering. Upon a Change of
Control (as defined herein), the Company will be required to make an offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest thereon and Liquidated Damages, if any, to the date
of repurchase.
The Notes are general unsecured obligations of the Company and rank pari
passu in right of payment to all existing and future unsubordinated indebtedness
of the Company, including indebtedness under the New Credit Facility. The
obligations of the Company under the New Credit Facility (as defined herein),
however, are secured by the accounts receivable and inventory of the Company and
its U.S. subsidiaries, as well as by all of the outstanding capital stock of its
U.S. subsidiaries and 65% of the outstanding capital stock of each of its
non-U.S. subsidiaries. Accordingly, the Company's obligations under the New
Credit Facility is effectively rank senior in right of payment to the Notes to
the extent of the assets subject to such security interest. The Company's
payment of principal, premium, if any, interest and Liquidated Damages, if any,
on the Notes is fully and unconditionally guaranteed on a senior unsecured basis
by the Guarantors, but Subsidiary Guarantees are not provided by the Foreign
Subsidiaries. The Subsidiary Guarantees rank pari passu in right of payment with
all existing and future unsecured and unsubordinated indebtedness of the
Guarantors but secured indebtedness of a Guarantor (including the secured
guarantees granted under the New Credit Facility) effectively ranks senior in
right of payment to the Notes to the extent of the assets subject to such
security interest. The Notes effectively rank junior to the secured and
unsecured indebtedness and trade payables of the Foreign Subsidiaries. The terms
of the Indenture (as defined herein) permit the Company and its subsidiaries to
incur additional indebtedness (including secured indebtedness), subject to
certain limitations.
Prior to this offering, there has been no public market for the Notes. The
Company does not intend to list the Notes on a national securities exchange or
to seek approval for quotation through the NASDAQ National Market. As the Old
Notes were issued and the New Notes are being issued primarily to a limited
number of institutions who typically hold similar securities for investment, the
Company does not expect that an active public market for the Notes will develop.
In addition, resales by certain holders of the Notes of a substantial percentage
of the aggregate principal amount of such notes could constrain the ability of
any market maker to develop or maintain a market for the Notes. To the extent
that a market for the Notes should develop, the market value of the Notes will
depend on prevailing interest rates, the market for similar securities and other
factors, including the financial condition, performance and prospects of the
Company. Such factors might cause the Notes to trade at a discount from face
value. See "Risk Factors -- Lack of a Public Market for the Notes."
3
<PAGE> 5
THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE EXCHANGE OFFER. THE
COMPANY HAS AGREED TO PAY THE EXPENSES OF THE EXCHANGE OFFER. NO UNDERWRITER IS
BEING USED IN CONNECTION WITH THE EXCHANGE OFFER.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No. 1-11438) are
hereby incorporated by reference in this Prospectus: (i) the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, (ii) the Company's
Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 1997,
June 30, 1997 and September 30, 1997 and (iii) the Company's Current Report on
Form 8-K dated December 1, 1997.
All reports and any definitive proxy or information statements filed by the
Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the terminations of the
offering of the securities offered hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated herein by reference, or contained in this Prospectus, shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE TO
ANY PERSON TO WHOM A PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST OF
SUCH PERSON, FROM WORLDTEX, INC., 212 12TH AVENUE N.E., HICKORY, NORTH CAROLINA,
28601, ATTENTION: SECRETARY, TELEPHONE (704) 328-5381. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY [ ].
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SUCH FORWARD-LOOKING
STATEMENTS ARE BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ON
ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY AT THE
TIME SUCH STATEMENTS WERE MADE. WHEN USED IN THIS PROSPECTUS, THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," "INTEND" AND SIMILAR EXPRESSIONS,
AS THEY RELATE TO THE COMPANY, ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING
STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THESE STATEMENTS ARE REASONABLE,
INVESTORS SHOULD BE AWARE THAT ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET
FORTH BELOW UNDER THE CAPTION "RISK FACTORS" OR OTHER FACTORS. INVESTORS SHOULD
CONSIDER CAREFULLY THE FACTORS UNDER THE CAPTION "RISK FACTORS," AS WELL AS THE
OTHER INFORMATION AND DATA INCLUDED IN THIS PROSPECTUS, IN EVALUATING AN
INVESTMENT IN THE NOTES. THE COMPANY CAUTIONS THE READER, HOWEVER, THAT SUCH
LIST OF FACTORS UNDER THE CAPTION "RISK FACTORS" MAY NOT BE EXHAUSTIVE AND THAT
THOSE OR OTHER FACTORS, MANY OF WHICH ARE OUTSIDE OF THE COMPANY'S CONTROL,
COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY AND ITS ABILITY TO SERVICE
ITS INDEBTEDNESS, INCLUDING PRINCIPAL AND INTEREST PAYMENTS ON AND LIQUIDATED
DAMAGES, IF ANY, WITH RESPECT TO THE NOTES. ALL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS SET FORTH UNDER THE
CAPTIONS "RISK FACTORS" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
4
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and historical and pro forma financial statements, including the
notes thereto, appearing elsewhere in, or incorporated by reference in, this
Prospectus. Unless the context otherwise requires, references to the "Company"
include Worldtex and its direct and indirect subsidiaries. The information set
forth below under "Risk Factors" should be considered carefully in evaluating an
investment in the Notes offered hereby.
THE COMPANY
The Company believes that it is the largest supplier of covered elastic
yarn in the world. Covered elastic yarns are used by the Company's customers to
produce stretch fabrics for apparel that provide enhanced styling capabilities,
better shape retention, and improved aesthetics, durability and comfort. The
principal products that utilize covered elastic yarn produced by the Company are
sheer and opaque pantyhose, men's, women's and children's socks, sweaters,
swimwear, active and athletic wear and men's, women's and children's stretch
apparel. During 1996, Worldtex yarns were used in the products of some of the
world's best known brands and designers, including Giorgio Armani, Hugo Boss,
Pierre Cardin, Liz Claiborne, Danskin, Dim, Christian Dior, Fogal, Fruit of the
Loom, Givenchy, Jockey, Calvin Klein, Evan Picone, Polo, Round the Clock, Nina
Ricci, Ellen Tracy and others. The Company, which was one of the first
independent producers of covered elastic yarn when it began operations in 1934,
operates 11 manufacturing and distribution facilities located in the United
States, Canada, France and South America. The Company also has a 38% interest in
a joint venture production facility in Estonia, and currently plans joint
venture production facilities in China and India. For the year ended December
31, 1996, Worldtex had net sales of $207.8 million.
The net proceeds from the sale of the Old Notes were used to fund the
acquisition on December 1, 1997 by the Company of the Elastic Corporation of
America division ("ECA") of NFA Corp. (the "ECA Acquisition") and to reduce
outstanding indebtedness, including indebtedness incurred to finance the
acquisition on October 3, 1997, of the Narrow Fabrics division ("Elastex") of
Texfi Industries, Inc. (the "Elastex Acquisition"). As a result of the ECA
Acquisition and the Elastex Acquisition, the Company believes that it is the
largest manufacturer of woven and knitted narrow elastic fabrics in the world.
Narrow elastic fabrics are elasticized fabric bands, typically under six inches
in width, that are used as components in the production of a broad range of
apparel products, such as waistbands for men's, women's and children's
underwear, athletic apparel and other garments, straps, facings and edgings in
women's intimate apparel and elastic bands in women's hosiery. For the year
ended December 28, 1996, ECA had net sales of $55.8 million, and for the year
ended November 1, 1996, Elastex had net sales of $15.8 million. During 1996,
ECA's and Elastex's narrow elastic fabrics were used in apparel produced by
Bassett Walker, Fruit of the Loom, Tommy Hilfiger, Jockey, Michael Jordan
Sports, Donna Karan, Calvin Klein, Ralph Lauren, Russell Corporation, Sara Lee
(Hanes products), Vanity Fair, Warnaco (Warner, Olga and Speedo brands) and
others. ECA and Elastex together own a total of five manufacturing facilities,
which are located in Alabama, North Carolina, South Carolina and Virginia. On a
pro forma basis assuming that the ECA Acquisition and the Elastex Acquisition
had been consummated January 1, 1996, the Company would have had net sales of
$279.4 million for the year ended December 31, 1996, and $216.1 million for the
nine months ended September 30, 1997.
The Company's common stock is listed on the New York Stock Exchange (Symbol
WTX). The Company's principal offices are located at 212 12th Avenue N.E.,
Hickory, North Carolina 28601, and its telephone number is (704) 328-5381.
INDUSTRY OVERVIEW
In recent years, the worldwide fabric/apparel industry has been undergoing
significant changes relating to the types of garments produced. Specifically,
two trends have significantly impacted the Company: (i) the growth of covered
elastic yarn applications in fabric/apparel production, and (ii) increased
consumer demand for more casual, comfortable and durable apparel. As a leading
supplier of covered elastic yarns and narrow elastic fabrics, the Company
believes it is well-positioned to benefit from both of these trends.
5
<PAGE> 7
Covered elastic yarns are produced by wrapping nylon, polyester, cotton or
other fibers around spandex or latex rubber. The core of spandex or rubber
provides stretch capability and durability, while the wrapped fiber results in
more comfort to the touch and permits the covered yarn to be dyed. Advanced
manufacturing equipment permits production of ultrafine covered elastic yarns
that result in fabrics comparable in appearance to natural fibers, but with
superior flexibility, shape retention and durability. Historically, covered
elastic yarns were principally used in the manufacture of women's pantyhose and
other hosiery products. However, advances in production techniques and trends in
consumer apparel preferences have led to a substantial expansion of the end uses
for covered elastic yarn. Today, covered elastic yarn is used in a broad range
of apparel, including sweaters, swimwear, running clothes, athletic uniforms,
slacks, skirts and dresses, as well as in pantyhose and socks.
Consumer demand for increased comfort has also favorably affected the
market for narrow elastic fabrics. These fabrics are produced by weaving covered
elastic yarn or knitting spandex or latex rubber, in each case with other yarn,
such as nylon, polyester or cotton, in order to create narrow bands of
elasticized fabric. Although the market for narrow elastic fabrics has been
relatively flat over the past five years, demand has grown during such period
for intimate apparel and athletic wear that include designer or other logos in
the waistband, which are generally higher-margin products compared to unadorned
elasticized waistbands. ECA has focused on the development and production of
such specialized waistbands, through investment in advanced weaving machines,
development of specialized dyeing techniques and close working relationships
with apparel producers to determine their requirements, and ECA is currently the
leading manufacturer of such waistbands in the United States.
BUSINESS STRATEGY
The Company's strategy is to increase revenues and margins through
expansion into new markets while reducing costs. The Company's business plan
consists of the following key elements:
- MAINTAIN LEADING POSITION IN NICHE MARKETS. The Company believes that it
is the largest supplier of covered elastic yarn in the world. The Company
believes that such leadership is based primarily on the high quality of
the Company's products, the Company's responsiveness to customer's needs
and the Company's initiative and creativity in developing new end uses
for covered elastic yarns. ECA has followed a similar strategy to become,
it believes, the largest producer of narrow elastic fabrics in the world.
As a result of their focus on quality and service, both Worldtex and ECA
have exclusive or significant supplier relationships for certain product
lines with certain leading apparel manufacturers. The Company intends to
focus on maintaining leadership in niche markets, such as covered elastic
yarn and narrow elastic fabrics, where it can market its specialized
expertise to more broadly-based fabric and apparel producers. The Company
believes that this expertise, when applied to produce high quality
products and to develop solutions to customers' needs, should result in
growth in sales of the Company's products.
- CONTINUE TO DEVELOP NEW END USES FOR COVERED ELASTIC YARN AND NARROW
ELASTIC FABRIC. In 1992, 65.4% of the Company's sales were to pantyhose
manufacturers, as compared to 38.4% of sales in 1996. Sales of pantyhose
in the United States during this period have declined approximately 13%,
although the Company's sales (including sales outside the United States)
have grown 19% during the period. The Company has actively worked with
apparel fabric producers and others to develop new fabrics utilizing
covered elastic yarn. For example, the Company was selected by E.I.
DuPont de Nemours & Company ("DuPont") to create and manufacture yarns
for use in the production of casual shoes to be sold by Marks and Spencer
in the European market, and the Company has also developed covered
elastic yarn solutions for furniture slip covers, lace lingerie and
stretch denim fabrics. Similarly, ECA has sought to be a leader in the
development of narrow elastic fabric products, including its focus on
weaving designer logos into elastic waistbands, its production of the
patented "QuikCord"(R) system that embeds a drawstring within an elastic
waistband, and its production of silicon-backed narrow elastics used in
certain specialty hosiery. In addition, the growth in consumer demand for
more casual, comfortable and durable garments has increased the interest
of apparel fabric producers in the development of new covered elastic
yarn and narrow elastic fabric applications. In light of the
6
<PAGE> 8
Company's long history and extensive knowledge relating to the production
of covered elastic yarn and ECA's and Elastex's extensive experience and
expertise regarding narrow elastic fabrics, the Company is well
positioned to work with apparel fabric manufacturers and others in
developing new end uses for covered elastic yarns and narrow elastic
fabrics.
- EXPAND INTERNATIONAL OPERATIONS. Prior to 1995, the Company's
manufacturing facilities were based in the United States, Canada and
France. In 1995, the Company acquired Fibrexa, Ltda. ("Fibrexa"), a
covered elastic yarn manufacturer located in Colombia, and established a
manufacturing joint venture in Estonia. In 1997, the Company entered into
a letter of intent to form a joint venture for the establishment of
manufacturing facilities in China, and it is currently in negotiations
for a similar venture in India. Although the Estonian, Chinese and Indian
ventures are relatively small -- each involving an investment of less
than $1 million -- the Company believes that the potential for growth in
these markets is significant. These new operations are expected to
provide improved access to growing new markets for the Company's
products, as well as cost-efficient facilities capable of manufacturing
covered elastic yarn for export to the Company's customers worldwide. For
example, the Company has shifted manufacturing equipment to its
lower-cost South American operation, Fibrexa. In 1996, Fibrexa had net
sales of $17.9 million, including sales to other subsidiaries of the
Company of $6.7 million for resale in North America and Europe. This
compares to total net sales by Fibrexa of $6.7 million in the last six
months of 1995 following the Company's acquisition of Fibrexa. The
Company plans to expand Fibrexa's production capacity substantially in
the near term.
- PURSUE STRATEGIC ACQUISITIONS. The Company intends to pursue
acquisitions of companies in niche segments of the textile industry. The
Company plans to seek businesses that offer the opportunity to improve
the Company's financial results through increased purchasing power with
suppliers, elimination of duplicative operations or cross-selling of
products to common customers. For example, DuPont, Globe Manufacturing
Co. ("Globe") and Bayer A.G. ("Bayer") are major suppliers of raw
materials to the Company, ECA and Elastex, and the Company expects that
its increased purchasing power following consummation of the ECA
Acquisition will result in more favorable supply agreements. In addition,
the Company expects to shift ECA's production of covered elastic yarns to
the Company's existing covering operations to allow ECA to focus on
narrow elastic fabric production, and Worldtex will replace other
suppliers as ECA's sole source for covered elastic yarns and textured
nylon. Moreover, the Company expects to distribute and market the narrow
elastic fabric products of ECA and Elastex through its existing European,
North American and South American sales operations.
THE ECA ACQUISITION
On December 1, 1997, a wholly-owned subsidiary of the Company purchased
substantially all of the assets of ECA for a cash purchase price of
approximately $76.3 million, which was funded with a portion of the net proceeds
from the sale of the Old Notes. In connection with the ECA Acquisition, such
subsidiary of the Company assumed an industrial revenue bond obligation relating
to ECA in the aggregate principal amount of $6.0 million, operating leases (as
to which the present value of remaining lease payment obligations will not
exceed $2.3 million) and certain current liabilities.
THE EXCHANGE OFFER
The Exchange Offer.............. $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of
Old Notes. As of the date hereof, $175
million in aggregate principal amount of Old
Notes were outstanding. The Company will
issue the New Notes to Holders (as defined in
"Description of Notes") on or promptly after
the Expiration Date.
Based on interpretations by the staff of the
Commission set forth in several no-action
letters issued to third parties, including
the Exchange Offer No-Action Letters, the
Company believes that
7
<PAGE> 9
New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by Holders thereof who are not
affiliates of the Company (other than a
broker-dealer who acquired such Old Notes
directly from the Company for resale pursuant
to Rule 144A under the Securities Act or any
other available exemption under the
Securities Act) without compliance with the
registration and prospectus delivery
provisions of the Securities Act; provided
that the Holder is acquiring New Notes in its
ordinary course of business and has no
arrangement or understanding with any person
to participate in any distribution (within
the meaning of the Securities Act) of the New
Notes. Persons wishing to exchange Old Notes
in the Exchange Offer must represent to the
Company that such conditions have been met.
However, any Holder who is an affiliate of
the Company or who tenders in the Exchange
Offer with the intention to participate, or
for the purpose of participating, in a
distribution of the New Notes cannot rely on
the interpretation by the staff of the
Commission set forth in such no-action
letters, including The Exchange Offer
No-Action Letters, and must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. See
"The Exchange Offer -- Purpose of the
Exchange Offer."
Each broker-dealer that receives New 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 New Notes. The Letter of Transmittal
states that by so acknowledging and by
delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time,
may be used by a broker-dealer in connection
with resales of New Notes received in
exchange for Old Notes where such Old Notes
were acquired by such broker-dealer for its
own account as a result of market-making
activities or other trading activities (other
than acquisitions directly from the Company).
The Company has agreed that, for a period of
180 days after the Exchange Offer is
consummated, it will, upon reasonable
request, make this Prospectus available
promptly to any broker-dealer for use in
connection with any such resale. See "Plan of
Distribution."
Expiration Date................. 5:00 p.m., New York City time, on ,
1998, unless the Exchange Offer is extended
by the Company to the extent necessary to
comply with applicable federal and state
securities laws, in which case the term
"Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Accrued Amounts on the
Notes.........................
The New Notes will bear interest from the
last date on which interest was paid on the
Old Notes surrendered in exchange therefor
or, if no interest has been paid, from the
date of original issue of such Old Notes.
8
<PAGE> 10
Conditions to the Exchange
Offer......................... The Exchange Offer is subject to certain
customary conditions. The conditions are
limited and relate in general to laws or
Commission policies that might impair the
ability of the Company to proceed with the
Exchange Offer. As of the date of this
Prospectus, none of these events had
occurred, and the Company believes their
occurrence to be unlikely. If any such
conditions do exist prior to the Expiration
Date, the Company may (i) refuse to accept
any Old Notes and return all previously
tendered Old Notes, (ii) extend the Exchange
Offer, or (iii) waive such conditions. See
"The Exchange Offer -- Conditions."
Procedures for Tendering........ Each Holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
such Old Notes to be exchanged and any other
required documentation to IBJ Schroder Bank &
Trust Company, as Exchange Agent (the
"Exchange Agent"), at the address set forth
herein and therein or effect a tender of such
Old Notes pursuant to the procedures for
book-entry transfer as provided for herein
and therein. By executing the Letter of
Transmittal, each Holder will represent to
the company that, among other things, the New
Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of
business of the person receiving such New
Notes, whether or not such person is the
Holder, that neither the Holder nor any such
other person has an arrangement or
understanding with any person to participate
in the distribution of such New Notes and
that neither the Holder nor any such other
person is an "affiliate," as defined under
Rule 405 of the Securities Act, of the
Company or any of its subsidiaries. Each
broker-dealer that receives New Notes for its
own account in exchange for Old Notes, where
such Old 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 New
Notes. See "The Exchange Offer -- Procedures
for Tendering" and "Plan of Distribution."
Special Procedures for
Beneficial Owners............. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender such Old
Notes in the Exchange Offer should contact
such registered Holder promptly and instruct
such registered Holder to tender on such
beneficial owner's behalf. If such beneficial
owner wishes to tender on such owner's own
behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering its Old Notes, either make
appropriate arrangements to register
ownership of the Old Notes in such owner's
name or obtain a properly completed bond
power from the registered Holder. The
transfer of registered ownership may take
considerable time and it may
9
<PAGE> 11
not be possible to complete a transfer
initiated shortly before the Expiration Date.
See "The Exchange Offer -- Procedures for
Tendering."
Guaranteed Delivery
Procedures.................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent, or cannot
complete the procedure for book-entry
transfer prior to 5:00 p.m. on the Expiration
Date, may tender their Old Notes according to
the guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights............... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Old Notes and
Delivery of New Notes........... The Company will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
New Notes issued pursuant to the Exchange
Offer will be delivered promptly following
the Expiration Date. Any Old Notes not
accepted for exchange will be returned
without expense to the tendering Holder
thereof as promptly as practicable after the
expiration or termination of the Exchange
Offer. See "The Exchange Offer -- Terms of
the Exchange Offer."
Certain Tax Considerations...... The exchange pursuant to the Exchange Offer
should not be a taxable event for federal
income tax purposes. See "Certain United
States Federal Tax Considerations."
Exchange Agent.................. IBJ Schroder Bank & Trust Company is serving
as Exchange Agent in connection with the
Exchange Offer.
TERMS OF NEW NOTES
The Exchange Offer applies to the entire $175,000,000 aggregate principal
amount outstanding of the Old Notes. The New Notes will be obligations of the
Company evidencing the same debt as the Old Notes and will be entitled to the
benefits of the same Indenture. See "Description of Notes." The form and terms
of the New Notes are generally the same as the form and terms of the Old Notes
in all material respects except that the New Notes have been registered under
the Securities Act and hence do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to
certain special payments applicable to the Old Notes. See "Description of
Notes."
The New Notes................... $175,000,000 principal amount of 9 5/8%
Series B Senior Notes due 2007.
Maturity Date................... December 15, 2007.
Interest Rate and Payment
Dates......................... The New Notes will bear interest at a rate of
9 5/8% per annum. Interest on the New Notes
will accrue from the last date on which
interest was paid on the Old Notes
surrendered in exchange therefor, or if no
interest has been paid, from the date of
original issue of such Old Notes. Interest on
the Notes is
10
<PAGE> 12
payable semi-annually in cash in arrears on
June 15 and December 15 of each year,
commencing June 15, 1998.
Optional Redemption............. On or after December 15, 2002, the Company
may redeem the Notes, in whole or in part, at
the redemption prices set forth herein, plus
accrued and unpaid interest thereon and
Liquidated Damages, if any, to the date of
redemption. Notwithstanding the foregoing, at
any time on or before, December 15, 2000, the
Company may redeem up to 35% of the original
aggregate principal amount of the Notes with
the net proceeds of a public offering of
common stock of the Company at the redemption
prices set forth herein, plus accrued and
unpaid interest thereon, if any, to the
redemption date, provided that at least
$113.75 million in aggregate principal amount
of Notes remain outstanding immediately after
the occurrence of such redemption (excluding
Notes held by the Company or any of its
Subsidiaries), and provided, further, that
such redemption shall occur within 45 days of
the date of the closing of such public
offering. See "Description of
Notes -- Optional Redemption."
Ranking......................... The Notes are general unsecured obligations
of the Company and rank pari passu in right
of payment to all existing and future
unsubordinated indebtedness of the Company,
including indebtedness under the Company's
New Credit Facility. The obligations of the
Company under the New Credit Facility,
however, are secured by the accounts
receivable and inventory of the Company and
its U.S. subsidiaries, as well as by all of
the outstanding capital stock of its U.S.
subsidiaries and 65% of the outstanding
capital stock of each of its Foreign
Subsidiaries. Accordingly, the New Credit
Facility effectively ranks senior in right of
payment to the Notes to the extent of the
assets subject to such security interest. In
addition, secured indebtedness of the
Guarantors effectively ranks senior in right
of payment to the Notes to the extent of the
assets subject to such security interest, and
the Notes effectively rank junior to the
secured and unsecured indebtedness and trade
payables of the Foreign Subsidiaries. The
terms of the Indenture (as defined herein)
permit the Company and its subsidiaries to
incur additional indebtedness (including
secured indebtedness), subject to certain
limitations. See "Description of Notes" and
"Description of Other Indebtedness -- The New
Credit Facility."
Subsidiary Guarantees........... The Notes are fully and unconditionally
guaranteed by each of the existing and future
U.S. subsidiaries of the Company, but
guarantees are not to be provided by the
Foreign Subsidiaries. The Subsidiary
Guarantees rank pari passu in right of
payment with all existing and future
unsecured and unsubordinated indebtedness of
the Guarantors, including the guarantees
granted under the New Credit Facility, but
secured indebtedness of a Guarantor
effectively ranks senior in right of payment
to the Notes to the extent of the assets
subject to such security interest. The
Guarantors' obligations under the New Credit
Facility are secured by a lien on the
accounts receivable and inventory of the
Guarantors and, accordingly, such
indebtedness
11
<PAGE> 13
ranks prior to the Subsidiary Guarantees with
respect to such assets. See "Description of
Notes -- Additional Guarantees."
Change of Control............... Upon a Change of Control (as defined herein),
the Company is required to make an offer to
repurchase all outstanding Notes at 101% of
the principal amount thereof plus accrued and
unpaid interest thereon and Liquidated
Damages, if any, to the date of repurchase.
See "Description of Notes -- Repurchase at
the Option of Holders -- Change of Control."
Covenants....................... The Indenture restricts, among other things,
the ability of the Company and its
subsidiaries to incur additional indebtedness
and issue preferred stock, enter into sale
and leaseback transactions, incur liens, pay
dividends or make certain other restricted
payments, apply net proceeds from certain
asset sales, enter into certain transactions
with affiliates, merge or consolidate with
any other person, sell stock of subsidiaries,
and assign, transfer, lease, convey or
otherwise dispose of substantially all of the
assets of the Company. See "Description of
Notes -- Certain Covenants."
Exchange Rights................. Holders of New Notes are not entitled to any
exchange rights with respect to the New
Notes. Holders of Old Notes are entitled to
certain exchange rights pursuant to the
Registration Rights Agreement. Under the
Registration Rights Agreement, the Company is
required to offer to exchange the Old Notes
for new notes having substantially identical
terms which have been registered under the
Securities Act. This Exchange Offer is
intended to satisfy such obligation. Once the
Exchange Offer is consummated, the Company
will have no further obligations to register
any of the Old Notes not tendered by the
Holders for exchange, except pursuant to a
shelf registration statement to be filed
under certain limited circumstances specified
in "The Exchange Offer -- Purpose of the
Exchange Offer." See "Risk
Factors -- Consequences to Non-Tendering
Holders of Old Notes."
Use of Proceeds................. The Company will not receive any proceeds
from the Exchange Offer.
12
<PAGE> 14
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma statement of operations data, other
operating data and selected ratios for the year ended December 31, 1996 and the
nine months ended September 30, 1997 give effect to the ECA Acquisition, the
Elastex Acquisition and the application of the net proceeds from the sale of the
Old Notes (collectively, the "Transactions") as if each had occurred at the
beginning of the period presented. The following unaudited pro forma balance
sheet data as of September 30, 1997 give effect to the Transactions as if each
had occurred on September 30, 1997.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................................... $ 216,053 $ 279,383
Cost of goods sold................................................ 173,219 223,637
Gross profit...................................................... 42,834 55,746
Selling, general and administrative expenses...................... 19,734 25,081
-------- --------
Operating profit.................................................. 23,100 30,665
Interest expense.................................................. 14,297 18,904
Other income (expense), net....................................... (35) 694
-------- --------
Income before income taxes........................................ 8,768 12,455
Income taxes...................................................... 2,935 4,550
-------- --------
Net income........................................................ $ 5,833 $ 7,905
======== ========
OTHER OPERATING DATA:
EBITDA(a)......................................................... $ 31,214 $ 42,334
Depreciation and amortization..................................... 8,149 10,975
Capital expenditures.............................................. 8,001 14,956
Cash interest expense............................................. 13,772 18,204
SELECTED RATIOS:
EBITDA/cash interest expense...................................... 2.27x 2.33x
EBITDA less capital expenditures/cash interest expense............ 1.69x 1.50x
Total debt/EBITDA................................................. 4.53x 4.47x
Ratio of earnings to fixed charges(b)............................. 1.56x 1.62x
BALANCE SHEET DATA:
Working capital................................................... $ 92,060
Total assets...................................................... 318,660
Total debt........................................................ 188,333
Stockholders' equity.............................................. 79,789
</TABLE>
- ---------------
(a) EBITDA represents income before income taxes plus interest expense,
depreciation and amortization for the applicable company. EBITDA should not
be considered as an alternative measure of net income or cash provided by
operating activities (both as determined in accordance with generally
accepted accounting principles), but is presented to provide additional
information relating to the Company's debt service capability. EBITDA should
not be considered in isolation or as a substitute for other measures of
financial performance or liquidity.
(b) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and that
portion of rental expense which is representative of the interest factor in
these rentals.
13
<PAGE> 15
SUMMARY HISTORICAL FINANCIAL INFORMATION
WORLDTEX
The following table sets forth selected consolidated financial information
of the Company for each of the five years in the period ended December 31, 1996.
Such information was derived from the Consolidated Financial Statements of the
Company, which in the case of the three years in the period ended December 31,
1996 have been audited by KPMG Peat Marwick LLP and are included elsewhere in
this Prospectus. The following table also sets forth selected consolidated
financial information of the Company as of September 30, 1996 and 1997 and for
the nine months then ended. Such information was derived from the unaudited
Consolidated Financial Statements of the Company, which are included elsewhere
in this Prospectus. Such unaudited Consolidated Financial Statements, in the
opinion of the Company's management, include all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the financial
position and results of operations for such periods. The results of operations
for the nine months ended September 30, 1997 are not necessarily indicative of
results that may be expected for the full year. The selected consolidated
financial information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto of the
Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $148,350 $155,189 $207,829 $187,981 $164,654 $152,709 $174,936
Cost of goods sold......... 122,040 126,200 168,754 156,519 138,666 125,739 142,326
-------- -------- -------- -------- -------- -------- --------
Gross profit............... 26,310 28,989 39,075 31,462 25,988 26,970 32,610
Selling, general and
administrative
expenses................. 11,688 11,536 16,582 15,708 13,502 12,108 13,716
-------- -------- -------- -------- -------- -------- --------
Operating profit........... 14,622 17,453 22,493 15,754 12,486 14,862 18,894
Interest expense........... 4,417 4,391 5,826 5,693 3,951 3,298 7,285
Other income (expense),
net...................... 30 456 694 170 333 (74) 4
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes.................... 10,235 13,518 17,361 10,231 8,868 11,490 11,613
Income tax expense......... 3,492 5,111 6,415 4,979 3,058 4,206 4,314
-------- -------- -------- -------- -------- -------- --------
Net income................. $ 6,743 $ 8,407 $ 10,946 $ 5,252 $ 5,810 $ 7,284 $ 7,299
======== ======== ======== ======== ======== ======== ========
OTHER OPERATING DATA:
EBITDA(a).................. $ 19,371 $ 22,443 $ 29,471 $ 22,057 $ 17,708 $ 18,869 $ 23,083
Depreciation and
amortization............. 4,719 4,534 6,284 6,133 4,889 4,081 4,185
Capital expenditures....... 5,826 12,837 13,785 8,356 8,077 5,803 11,734
Ratio of earnings to fixed
charges(b)............... 3.03x 3.76x 3.63x 2.65x 3.07x 4.14x 2.53x
BALANCE SHEET DATA (AT
PERIOD END):
Working capital............ $ 51,057 $ 49,125 $ 47,470 $ 47,342 $ 42,953 $ 34,554 $ 35,753
Total assets............... 201,600 206,279 206,032 196,065 166,405 145,996 154,339
Total debt................. 76,363 75,993 70,730 71,126 61,821 60,337 63,855
Stockholders' equity....... 81,289 83,612 85,178 78,939 69,033 59,042 55,527
</TABLE>
(See Notes to Summary Historical Financial Information on the following page.)
14
<PAGE> 16
ECA
The following table sets forth selected financial information of ECA for
each of the three fiscal years in the period ended December 28, 1996. Such
information was derived from the stand alone Financial Statements of ECA, which
have been audited and are included elsewhere in this Prospectus. The following
table also sets forth the selected financial information of ECA as of September
28, 1996 and September 27, 1997 and for the thirty-nine week period then ended.
For convenience, the thirty-nine week period is hereinafter referred to as the
nine months then ended. Such information was derived from the unaudited stand
alone Financial Statements of ECA. Such unaudited stand alone Financial
Statements, in the opinion of ECA's management, include all adjustments
(consisting of only normal recurring accruals) necessary for a stand alone
presentation of the financial position and results of operations for such
periods in accordance with the basis of presentation described in Note 1 to the
audited ECA financial statements. The results of operations for the nine months
ended September 27, 1997 are not necessarily indicative of results that may be
expected for the full year. The selected financial information set forth below
should be read in conjunction with the Financial Statements and Notes thereto of
ECA included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED FISCAL YEAR ENDED
----------------------------- ------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, DECEMBER 28, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
------------- ------------- ------------ ------------ ------------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $52,739 $41,779 $ 55,798 $ 58,055 $ 61,339
Cost of goods sold................ 38,914 31,151 41,828 45,060 45,666
------- ------- ------- ------- -------
Gross profit...................... 13,825 10,628 13,970 12,995 15,673
Selling, general and
administrative expenses......... 6,447 5,241 6,664 6,219 9,379
------- ------- ------- ------- -------
Operating income.................. 7,378 5,387 7,306 6,776 6,294
Interest expense.................. 983 615 814 1,147 1,001
Net income........................ $ 6,395 $ 4,772 $ 6,492 $ 5,629 $ 5,293
======= ======= ======= ======= =======
OTHER OPERATING DATA:
EBITDA(a)......................... $ 8,766 $ 7,060 $ 9,183 $ 8,719 $ 8,287
Depreciation and amortization..... 1,388 1,673 1,877 1,943 1,992
Capital expenditures.............. 2,174 678 1,171 944 1,371
Ratio of earnings to fixed
charges(b)...................... 5.10x 5.00x .25x 4.42x 5.51x
BALANCE SHEET DATA (AT PERIOD
END):
Working capital................... $20,286 $15,436 $ 18,356 $ 13,055 $ 16,757
Total assets...................... 35,168 28,738 30,189 25,955 32,468
Total debt........................ 6,000 6,000 6,000 6,000 6,700
Divisional equity................. 24,258 17,798 20,942 16,362 21,478
</TABLE>
- ---------------
(a) EBITDA represents income before income taxes plus interest expense,
depreciation and amortization for the applicable company. EBITDA should not
be considered as an alternative measure of net income or cash provided by
operating activities (both as determined in accordance with generally
accepted accounting principles), but is presented to provide additional
information relating to the Company's debt service capability. EBITDA should
not be considered in isolation or as a substitute for other measures of
financial performance or liquidity.
(b) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and that
portion of rental expense which is representative of the interest factor in
these rentals.
15
<PAGE> 17
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the specific
risk factors set forth below as well as the other information contained in this
Prospectus before deciding to invest in the Notes or participate in the Exchange
Offer. In particular, prospective purchasers should review "Disclosure Regarding
Forward-Looking Statements" preceding the Prospectus Summary.
RANKING OF THE NOTES AND SUBSIDIARY GUARANTEES
The Notes and each Subsidiary Guarantee are senior unsecured obligations of
the Company and the applicable Guarantor, respectively, and rank pari passu in
right of payment with all other existing and future unsecured and unsubordinated
indebtedness of the Company and the Guarantors. However, the Notes and the
Subsidiary Guarantees are effectively subordinated to secured indebtedness of
the Company and the Guarantors, respectively, with respect to the assets
securing such indebtedness. The indebtedness of the Company under its $25.0
million working capital facility with NationsBank, N.A. and the other lenders
named therein (the "New Credit Facility") is secured by accounts receivable and
inventory of the Company and its U.S. subsidiaries, as well as by all of the
outstanding capital stock of its U.S. subsidiaries and 65% of the outstanding
capital stock of each of its Foreign Subsidiaries. Accordingly, the New Credit
Facility effectively ranks senior in right of payment to the Notes to the extent
of the assets subject to such security interest. In addition, secured
indebtedness of the Guarantors effectively ranks senior in right of payment to
the Notes to the extent of the assets subject to such security interest,
including the secured guarantees granted under the New Credit Facility, and the
Notes effectively rank junior to the secured and unsecured indebtedness and
trade payables of the Foreign Subsidiaries. At September 30, 1997, on a pro
forma basis assuming that the ECA Acquisition, the Elastex Acquisition and the
application of the net proceeds from the sale of Old Notes occurred on such
date, the Company and the Guarantors would have had $188.3 million of
indebtedness outstanding (including approximately $13.3 million of secured
indebtedness outstanding), the Company would have an additional approximately
$25.0 million of secured indebtedness available to be incurred under the New
Credit Facility and the Foreign Subsidiaries would have had approximately $23.0
million of indebtedness and trade payables outstanding. Although the Indenture
contains limitations on the amount of additional indebtedness that the Company
and its subsidiaries (including certain of the Guarantors) can incur, under
certain circumstances the amount of such indebtedness could be substantial and
may be secured. See "Description of Notes -- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock" and "-- Liens."
FOREIGN SUBSIDIARIES WILL NOT PROVIDE SUBSIDIARY GUARANTEES
The Company's current and future Foreign Subsidiaries will not provide
Subsidiary Guarantees. A substantial portion of the Company's operations and
assets are attributable to the Foreign Subsidiaries. For the year 1996 and the
nine months ended September 30, 1997, 69.1% and 66.5%, respectively, of the
Company's sales were through Foreign Subsidiaries, and at September 30, 1997,
66.3% of the Company's total assets was held by Foreign Subsidiaries. See Note
18 to Worldtex, Inc. Notes to Consolidated Financial Statements and Note 3 to
Worldtex, Inc. Notes to Unaudited Consolidated Financial Statements.
SUBSTANTIAL LEVERAGE
As a result of the ECA Acquisition and the sale of the Old Notes, the
Company is highly leveraged. On September 30, 1997, after giving pro forma
effect to the sale of the Old Notes, the ECA Acquisition and the Elastex
Acquisition, the Company would have had total indebtedness of approximately
$188.3 million (of which $175.0 million would have consisted of the Notes and
the balance would have consisted of debt of Foreign Subsidiaries and the ECA
Industrial Development Bonds) and stockholders' equity of approximately $79.8
million. In addition, for the nine months ended September 30, 1997, on a pro
forma basis assuming that the Transactions had occurred on January 1, 1997, the
Company's ratio of earnings to fixed charges would have been 1.56x. The Company
and its subsidiaries will be permitted to incur additional indebtedness in the
future. See "Descriptions of Notes -- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock."
16
<PAGE> 18
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures will
depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of operations
and anticipated revenue growth, management believes that cash flow from
operations and available cash, together with available borrowings under the New
Credit Facility, will be adequate to meet the Company's future liquidity needs
for at least the next several years. The Company may, however, need to refinance
all or a portion of the principal of the Notes on or prior to maturity. There
can be no assurance that the Company's business will generate sufficient cash
flow from operations, that anticipated revenue growth and operating improvements
will be realized or that future borrowings will be available under the New
Credit Facility in an amount sufficient to enable the Company to service its
indebtedness, including the Notes, or to fund its other liquidity needs. In
addition, there can be no assurance that the Company will be able to effect any
such refinancing on commercially reasonable terms or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The degree to which the Company is leveraged following the sale of the Old
Notes could have important consequences to holders of the Notes, including, but
not limited to: (i) making it more difficult for the Company to satisfy its
obligations with respect to the Notes, (ii) increasing the Company's
vulnerability to general adverse economic and industry conditions, (iii)
limiting the Company's ability to obtain additional financing to fund future
working capital, capital expenditures, and other general corporate requirements,
(iv) requiring the dedication of a substantial portion of the Company's cash
flow from operations to the payment of principal of, and interest on, its
indebtedness, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures, research and development or other general
corporate purposes, (v) limiting the Company's flexibility in planning for, or
reacting to, changes in its business and the industry, and (vi) placing the
Company at a competitive disadvantage vis-a-vis less leveraged competitors. In
addition, the Indenture and the New Credit Facility contain financial and other
restrictive covenants that limit the ability of the Company to, among other
things, borrow additional funds. Failure by the Company to comply with such
covenants could result in an event of default which, if not cured or waived,
could have a material adverse effect on the Company. In addition, the degree to
which the Company is leveraged could prevent it from repurchasing all of the
Notes tendered to it upon the occurrence of a Change of Control. See
"Description of Notes -- Repurchase at Option of Holder -- Change of Control"
and "Description of Other Indebtedness -- New Credit Facility."
HOLDING COMPANY STRUCTURE; RESTRICTION ON ACCESS TO CASH FLOWS OF SUBSIDIARIES
Worldtex is a holding company, the only assets of which are the stock of
its subsidiaries. All of the operations of Worldtex are conducted through its
direct and indirect wholly owned subsidiaries. Accordingly, Worldtex's ability
to service its indebtedness, including the Notes, is dependent upon earnings and
cash flow of its subsidiaries and the payment of funds by those subsidiaries to
Worldtex in the form of loans, dividends or otherwise. In addition, the ability
of Worldtex's subsidiaries to pay dividends, repay intercompany liabilities or
make other advances to Worldtex is subject to restrictions imposed by corporate
law and certain United States, state and foreign tax considerations. Although
the Guarantors have provided the Subsidiary Guarantees, such Subsidiary
Guarantees may not be enforceable under certain circumstances. See
"-- Fraudulent Transfer Considerations; Unenforceability of Subsidiary
Guarantees."
ACQUISITION RISKS
The Company intends to seek additional acquisition opportunities. There can
be no assurance, however, that the Company will be able to successfully identify
suitable acquisition candidates, negotiate appropriate acquisition terms, obtain
financing which may be needed to effect such acquisitions, complete
acquisitions, integrate acquired operations into its existing operations or
expand into new markets. In addition, there can be no assurance that the Company
will be able to successfully integrate ECA and Elastex with the Company.
Acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, technologies, services and products of the acquired companies
and the diversion of management's attention from other
17
<PAGE> 19
business concerns. Future acquisitions by the Company could result in the
incurrence of substantial additional indebtedness, the amortization of expenses
related to goodwill and other intangible assets and other increased expenses,
particularly in the fiscal quarters immediately following the completion of such
acquisitions while the operations of the acquired business are being integrated
into the Company's operations, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Once
integrated, acquired operations may not achieve levels of revenues,
profitability or productivity comparable with those achieved by the Company's
existing operations, or otherwise perform as expected. In addition, the Company
competes for acquisition and expansion opportunities with companies that have
substantially greater resources.
INTERNATIONAL OPERATIONS
In 1996 and the first nine months of 1997, approximately 69.1% and 66.5%,
respectively, of the Company's sales (51.4% and 45.7%, respectively, on a pro
forma basis assuming that the Transactions occurred at the beginning of such
periods) and approximately 89.0% and 82.0%, respectively, of operating profits
(67.3% and 51.6%, respectively, on such pro forma basis) were derived from
international operations and export sales, which are subject in varying degrees
to risks inherent in doing business abroad. Such risks include the possibility
of unfavorable circumstances arising from host country laws or regulations. In
addition, foreign operations include risks of partial or total expropriation;
currency exchange rate fluctuations and restrictions on currency repatriation;
significant taxation policies; the disruption of operations from labor and
political disturbances, insurrection or war; and the requirements of partial
local ownership of operations in certain countries. For example, France recently
increased the corporate income tax rate from 36.67% to 41.67%, which will result
in a charge to 1997 earnings of approximately $0.6 million and a one-time charge
to increase the reserve for deferred income taxes of approximately $1.2 million.
Any change in the value of the currencies of the foreign countries in which
the Company does business against the U.S. dollar could have a material adverse
impact on the Company's business, financial condition and results of operations.
For example, the decline in the value of the French franc and Colombian peso as
compared to the U.S. dollar during 1997 resulted in a reduction in the Company's
sales for financial reporting purposes. In addition, the economies of Colombia
and certain of the Company's target Latin American markets have experienced
significant and in some periods extremely high rates of inflation over the past
few years. Inflation and rapid fluctuation in exchange rates have had and may
continue to have negative effects on these economies and could have a material
adverse impact on the Company's business, financial condition and results of
operations.
TEXTILE INDUSTRY AND CYCLICALITY
The textile and retail apparel industries are highly cyclical and are
characterized by rapid shifts in fashion and consumer demand, as well as
competitive pressures and price and demand volatility. The demand for the
Company's products is principally dependent upon the level of United States
demand for retail apparel. The demand for retail apparel is in turn dependent on
United States consumer spending, which may be adversely affected by an economic
downturn, changing retailer and consumer demands, a decline in consumer
confidence or spending, and other factors beyond the Company's control. A
reduction in the level of demand for retail apparel could have a material
adverse effect on the Company.
The Company's success depends in part upon its ability to anticipate and
respond to changing consumer preferences and fashion trends in a timely manner.
Although the Company attempts to stay abreast of emerging lifestyle and consumer
preferences affecting its products, any sustained failure by the Company to
identify and be able to respond to such trends could have a material adverse
effect on the Company.
The Company believes that recent trends in consumer preferences have put
downward pressure on demand for sheer pantyhose, and that alternative apparel,
such as trouser socks, knee highs and anklets, have gained favor. Although the
Company's business strategy has included the continued development of new end
use applications for covered elastic yarn, a substantial portion of the
Company's sales in 1996 and the first nine months of 1997 were to pantyhose
manufacturers. See "Business -- Business Strategy -- Continue to Develop
18
<PAGE> 20
New End Uses for Covered Elastic Yarn and Narrow Elastic Fabric." The Company
cannot predict the extent to which these trends may continue or their future
effect on the Company.
RAW MATERIAL SOURCES
Spandex and nylon are the principal raw materials used in the manufacture
of covered elastic yarn by Worldtex. In 1996 Worldtex purchased over half of its
nylon and spandex from a single source, DuPont. In recent years, DuPont and its
competitors have expanded their spandex production capacity, and Worldtex has
been able to obtain sufficient supplies to meet its customers' requirements. If
the supply of spandex from DuPont should be interrupted or cease for any reason,
Worldtex believes it might be difficult to find adequate alternative suppliers
of spandex.
COMPETITION; RISKS ASSOCIATED WITH CHANGING INDUSTRY
The textile and apparel industries are highly competitive. The apparel
markets are served by a variety of producers, many of which are located in
rapidly growing, low-wage countries and use textiles produced in those regions.
Many of these textile producers have substantially greater financial and other
resources and lower cost of funds than the Company.
Unifi, Inc. ("Unifi"), Spanco Industries, Inc. ("Spanco") and Worldtex are
the three largest suppliers of covered elastic yarns in the United States.
Unifi, which is also a leading producer of other yarns, recently acquired
Spanco. The Company cannot predict the effect that such acquisition will have on
the Company, although Unifi has substantially greater financial resources than
the Company and is less leveraged.
Future technological advances in the textile industry may result in the
availability of new products or increase the efficiency of existing
manufacturing and distribution systems. If a new technology becomes available
that is more cost-effective or creates a competing product, the Company may be
unable to access such technology or its use may involve substantial capital
expenditure that the Company may be unable to finance. There can be no assurance
as to whether existing, proposed or yet undeveloped technologies will render the
Company's technology less profitable or less viable, or that the Company will
have available the financial and other resources to compete effectively against
companies possessing such technologies. The Company is unable to predict which
of the many possible future products and services will meet the evolving
industry standards and consumer demands. There can be no assurance that the
Company will be able to adapt to such technological changes or offer such
products on a timely basis or establish or maintain competitive positions.
DEPENDENCE ON EXISTING MANAGEMENT
The depth of experience in the business represented by the Company's
executive management team, including Barry D. Setzer, President and Chief
Executive Officer, and Richard J. Mackey, Chairman of the Board and Chief
Financial Officer, and the managers of the Company's subsidiaries, is a key
component of the Company's competitiveness. Although the Company has entered
into employment contracts with Messrs. Setzer and Mackey, the continued presence
of such persons within the Company's management structure cannot be assured. In
addition, although the Company has entered into an employment contract with
Edward Gleadall, the chief executive officer of ECA, the continued employment of
Mr. Gleadall cannot be assured. Mr. Gleadall will receive a substantial bonus
from NFA Corp. upon consummation of the ECA Acquisition. The loss of the
services of any of the foregoing persons could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company does not maintain any key person insurance.
ENVIRONMENTAL LAWS AND REGULATIONS
The Company is subject to various federal, state and local environmental
laws and regulations governing the discharge, emission, storage, handling and
disposal of a variety of substances and wastes used in or resulting from the
Company's operations. There can be no assurance that environmental regulations
(or the interpretation of existing regulations) will not become more stringent
in the future, that the Company will not
19
<PAGE> 21
incur substantial costs in the future to comply with such requirements or that
the Company will not discover currently unknown environmental problems or
conditions. Any such event could have a material adverse effect on the Company.
CHANGE OF CONTROL
Upon a Change of Control, the Company will be required to offer to
repurchase all of the outstanding Notes at 101% of the principal amount hereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase. There can be no assurance that the Company will have the financial
resources necessary or be permitted by its other debt agreements to repurchase
the Notes upon the occurrence of a Change of Control. The inability to
repurchase all of the tendered Notes would constitute an Event of Default (as
defined herein) under the Indenture. See "Description of Notes -- Repurchase at
the Option of Holders -- Change of Control."
LACK OF PUBLIC MARKET FOR THE NOTES
There is no existing trading market for the Notes, and there can be no
assurance regarding the future development of a market for the Notes or the
ability of holders of the Notes to sell their Notes or the price at which such
holders may be able to sell their Notes. If such a market were to develop, the
Notes could trade at prices that may be higher or lower than the initial
offering price depending on many factors, including prevailing interest rates,
the Company's operating results and the market for similar securities. The
Initial Purchasers have advised the Company that they currently intend to make a
market in the New Notes. The Initial Purchasers are not obligated to do so,
however, and any market making with respect to the Notes may be discontinued at
any time without notice. Therefore, there can be no assurance as to the
liquidity of any trading market for the Notes or that an active trading market
for the Notes will develop. The Company does not intend to apply for listing or
quotation of the Notes on any securities exchange or stock market.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Notes will not be
subject to similar disruptions. Any such disruptions may have an adverse effect
on holders of the Notes.
FRAUDULENT TRANSFER CONSIDERATIONS; UNENFORCEABILITY OF SUBSIDIARY GUARANTEES
The obligations of any Guarantor as a guarantor under the Indenture may be
subject to review under applicable fraudulent transfer or similar laws, in the
event of the bankruptcy or other financial difficulty of any such Guarantor. In
the United States, under such laws, if a court in a lawsuit by an unpaid
creditor or representative of creditors of any such Guarantor, such as a trustee
in bankruptcy or any such person as debtor in possession, were to find that at
the time such Guarantor incurred its obligations under its guarantee, it (i)
received less than fair consideration or reasonably equivalent value therefore,
and (ii) either (a) was insolvent, (b) was rendered insolvent, (c) was engaged
in a business or transaction for which its remaining unencumbered assets
constituted unreasonably small capital, or (d) intended to incur or believed
that it would incur debts beyond its ability to pay as such debts matured, such
court could void all or a portion of such obligations under its guarantee and
direct the return of any amounts paid with respect thereof. Moreover, regardless
of the factors identified in the foregoing clauses (i) and (ii), a court could
take such action if it found that the guarantee was entered into with actual
intent to hinder, delay or defraud creditors. The measure of insolvency for
purposes of the foregoing will vary depending on the law of the jurisdiction
being applied. Generally, however, an entity would be considered insolvent if
the sum of its debts (including contingent or unliquidated debts) is greater
than all of its property at a fair valuation or if the present fair salable
value of its assets is less than the amount that would be required to pay its
probable liability on its existing debts as they become absolute and matured.
20
<PAGE> 22
CONSEQUENCES TO NON-TENDERING HOLDERS OF OLD NOTES
Upon consummation of the Exchange Offer, the Company will have no further
obligation to register the Notes except pursuant to a shelf registration
statement to be filed under certain limited circumstance specified in "The
Exchange Offer -- Purpose of the Exchange Offer." Thereafter, subject to such
exception, any Holder of Old Notes who does not tender its Old Notes in the
Exchange Offer will continue to hold restricted securities which may not be
offered, sold or otherwise transferred, pledged or hypothecated except pursuant
to Rule 144 and Rule 144A under the Securities Act or pursuant to any other
exemption from registration under the Securities Act relating to the disposition
of securities, in which case, an opinion of counsel must be furnished to the
Company that such an exemption is available.
21
<PAGE> 23
THE COMPANY
Worldtex is a holding company engaged through its subsidiaries in the
manufacture and supply of covered elastic yarn and narrow elastic fabrics.
Worldtex, a Delaware corporation, was organized in July 1992 to acquire the
covered elastic yarn manufacturing operations of Rexel, Inc., formerly known as
Willcox & Gibbs, Inc., a New York corporation ("W&G"). Prior to November 12,
1992, Worldtex was a wholly owned subsidiary of W&G. On that date, W&G declared
a dividend of one share of Worldtex Common Stock for each share of W&G Common
Stock outstanding on November 23, 1992.
Worldtex's principal subsidiaries engaged in the production of covered
elastic yarn are Regal Manufacturing Company, Inc. ("Regal"), based in Hickory,
North Carolina, Rubyco (1987), Inc. ("Rubyco"), based in Montreal, Canada, Filix
Lastex, S.A. ("Filix"), based in Troyes, France, and Fibrexa, Ltda. ("Fibrexa"),
based in Bogota, Colombia. W&G acquired Regal in 1983, acquired Rubyco in 1986
and acquired Filix in 1990, and transferred them to Worldtex in August 1992.
Worldtex acquired Fibrexa in 1995.
Worldtex's principal subsidiaries engaged in the production of narrow
elastic fabrics are Elastic Corporation of America, Inc., based in Columbiana,
Alabama, which acquired ECA on December 1, 1997, and Elastex, Inc., based in
Asheboro, North Carolina, which acquired Elastex on October 3, 1997.
The following chart indicates the principal subsidiaries of Worldtex
(although certain subsidiaries are owned indirectly through other subsidiaries),
the percentage of Worldtex's 1996 net sales attributable to each principal
subsidiary, on a pro forma basis after giving effect to the Transactions, and
whether or not such subsidiary is a Guarantor.
[PRINCIPAL SUBSIDIARIES OF WORLDTEX]
(The chart contains a single box, labeled "Worldtex," linked by solid lines to
six boxes arranged horizontally below it, each representing a principal
subsidiary of Worldtex.
Each of the six lower boxes contains specific text as follows: (1) "Filix,
39.3% of pro forma 1996 sales, Non-Guarantor"; (2) "Regal, 23.0% of pro forma
1996 sales, Guarantor"; (3) "Rubyco, 7.9% of pro forma 1996 sales,
Non-Guarantor"; (4) "Fibrexa, 4.2% of pro forma 1996 sales, Non-Guarantor"; (5)
"ECA, 20.0% of pro forma 1996 sales, Guarantor"; (6) "Elastex, 5.6% of pro
forma 1996 sales, Guarantor.")
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<PAGE> 24
USE OF PROCEEDS
THE EXCHANGE OFFER
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes offered in the
Exchange Offer. In consideration for issuing the New Notes as contemplated in
this Prospectus, the Company will receive in exchange Old Notes in like
principal amount, the form and terms of which are the same in all material
respects as the form and terms of the New Notes except that the New Notes have
been registered under the Securities Act and hence do not include certain rights
to registration thereunder or contain transfer restrictions or terms with
respect to Liquidated Damages. The Old Notes surrendered in exchange for the New
Notes will be retired and canceled and cannot be reissued. Accordingly, issuance
of the New Notes will not result in any proceeds to the Company or increase in
the indebtedness of the Company.
THE SALE OF THE OLD NOTES
A portion of the net proceeds received by the Company from the sale of the
Old Notes (the "Offering") was used by the Company to pay the purchase price in
the ECA Acquisition, repay certain indebtedness and to pay transaction fees and
expenses relating thereto. The Company expects to use the balance of the net
proceeds from the sale of the Old Notes, together with the $25.0 million
available to be borrowed under the New Credit Facility, for general corporate
purposes, including working capital and capital expenditures. In addition, such
available liquidity may be used for future acquisitions of businesses, although
the Company currently has no acquisition commitment. Pending use of such cash,
the balance of the net proceeds of the sale of the Notes will be invested in
cash equivalents.
The following table sets forth the estimated sources and uses of funds on a
pro forma basis, assuming the Transactions had been consummated on September 30,
1997 (in thousands):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Old Notes....................................................................... $175,000
USES OF FUNDS:
Elastex Acquisition purchase price(1)........................................... $ 8,260
ECA Acquisition purchase price.................................................. 76,300
Repayment of 7.50% senior notes(2).............................................. 51,500
Repayment of Existing Credit Facility(3)........................................ 19,030
Estimated transaction fees and expenses......................................... 6,000
Cash proceeds to the Company.................................................... 13,910
--------
Total Uses.............................................................. $175,000
========
</TABLE>
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(1) Reflects purchase price of $7.7 million and a $0.6 million payment to cancel
an equipment operating lease assumed from the seller. The Elastex
Acquisition was consummated on October 3, 1997 utilizing borrowings under
the Existing Credit Facility (as defined below). Such borrowings were repaid
with the proceeds of the sale of the Old Notes.
(2) The 7.50% senior notes were payable in annual installments of $7.1 million
commencing July 1, 1998, with final maturity on July 1, 2004, and paid
interest at a rate of 7.50% per annum.
(3) The Company's existing Credit Facility, dated as of November 12, 1992, as
amended (the "Existing Credit Facility"), provided for revolving credit
loans from time to time through May 31, 1999. Loans under the Existing
Credit Facility paid interest at rates based on LIBOR, the prime rate and
certificate of deposit rates. For the nine months ended September 30, 1997,
the weighted average interest rate under the Existing Credit Facility was
7.05% per annum.
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<PAGE> 25
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on December 1, 1997 (the "Closing
Date") through the Initial Purchasers to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act). In connection with the sale of
the Old Notes, the Company, the Guarantors and the Initial Purchasers entered
into the Registration Rights Agreement pursuant to which the Company and the
Guarantors agreed to cause to be filed with the Commission within 60 days after
the Closing Date, and use their best efforts to cause to become effective on or
prior to 120 days after December 1, 1997, a registration statement with respect
to the Exchange Offer. However, if (i) the Company is not required to file an
Exchange Offer registration statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) if any holder of Old Notes shall notify the Company within 20
business days of the consummation of the Exchange Offer (A) that such holder is
prohibited by applicable law or Commission policy from participating in the
Exchange Offer, or (B) that such holder may not resell the New Notes acquired by
it in the Exchange Offer to the public without delivering a prospectus and that
the Prospectus contained in the Exchange Offer registration statement is not
appropriate or available for such resales by such holder, or (C) that such
holder is a broker-dealer and holds Old Notes acquired directly from the Company
or one of its affiliates, then the Company within six months of such date, the
Company and the Subsidiary Guarantors shall (A) use their best efforts to cause
to become effective a shelf registration statement (the "Shelf Registration
Statement") with respect to resales of the Old Notes, and (B) keep the Shelf
Registration Statement effective for a period of at least two years after the
Closing Date.
The Exchange Offer is being made by the Company to satisfy its obligations
pursuant to the Registration Rights Agreement. A copy of the Registration Rights
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. Once the Exchange Offer is consummated, the Company
will have no further obligations to register any of the Old Notes not tendered
by the Holders for exchange, except pursuant to a Shelf Registration Statement
filed under the limited circumstances described in the immediately preceding
paragraph. Thereafter, any Holder of Old Notes who does not tender its Old Notes
in the Exchange Offer and which is not eligible to use such a Shelf Registration
Statement will continue to hold restricted securities which may not be offered,
sold or otherwise transferred, pledged or hypothecated except pursuant to Rule
144 and Rule 144A under the Securities Act or pursuant to any other exemption
from registration under the Securities Act relating to the disposition of
securities.
Based on interpretations by the staff of the Commission set forth in
several no-action letters issued to third parties, including the Exchange Offer
No-Action Letters, the Company believes that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by Holders thereof who are not affiliates of the Company
(other than a broker-dealer who acquired such Old Notes directly from the
Company for resale pursuant to Rule 144A under the Securities Act or any other
available exemption under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act; provided
that the Holder is acquiring New Notes in its ordinary course of business and
has no arrangement or understanding with any person to participate in any
distribution (within the meaning of the Securities Act) of the New Notes.
Persons wishing to exchange Old Notes in the Exchange Offer must represent to
the Company that such conditions have been met. However, any Holder who may be
deemed an "affiliate" (as defined under Rule 405 of the Securities Act) of the
Company or who tenders in the Exchange Offer with the intention to participate,
or for the purpose of participating, in a distribution of the New Notes cannot
rely on the interpretation by the staff of the Commission set forth in such
no-action letters, including the Exchange Offer No-Action Letters, and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any 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 New Notes for its own account pursuant to
the Exchange Offer in exchange for Old Notes where such Old Notes were acquired
by such broker-dealer as a result of market-
24
<PAGE> 26
making activities or other trading activities (other than acquisitions directly
from the Company) must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a brokerdealer in connection with resales of New Notes
received as aforesaid. The Company has agreed that for a period of 180 days
after the Exchange Offer is consummated, it will, upon reasonable request, make
this Prospectus available promptly to such broker-dealers for use in connection
with any such resale. See "Plan of Distribution."
Except as set forth above, this Prospectus may not be used for an offer to
resell, or for a resale or other transfer of New Notes.
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer registration statement with the Commission on or prior to 60
days after the Closing Date, (ii) the Company will use its best efforts to have
the Exchange Offer registration statement declared effective by the Commissions
on or prior to 120 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 statement
was declared effective by the Commission, New Notes in exchange for all Old
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 60 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"), or (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 Transfer Restricted Securities, with
respect to the first 90-day period immediately following the occurrence of the
first Registration Default in an amount equal to $.05 per week per $1,000
principal amount of Transfer Restricted Securities held by such Holder. The
amount of the Liquidated Damages will increase by an additional $.05 per week
per $1,000 principal amount of Transfer Restricted Securities with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of Liquidated Damages for all Registration Defaults of
$.30 per week per $1,000 principal amount of Transfer Restricted Securities. All
accrued Liquidated Damages will be paid by the Company on each interest payment
date to the Global Note Holder by wire transfer of immediately available funds
or by federal funds check and to Holders of certificated Notes 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. For
purposes of the foregoing, "Transfer Restricted Securities" means each Old Note
until (i) the date on which such Old Note has been exchanged by a person other
than a broker-dealer for a New Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of an Old Note for a New Note,
the date on which such New 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 Old Note 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 Old Note is distributed to the public pursuant to Rule 144 under
the Act.
25
<PAGE> 27
TERMS OF THE EXCHANGE OFFER
General
Upon the terms and subject to the conditions of the Exchange Offer set
forth in this Prospectus and in the Letter of Transmittal, the Company will
accept any and all Old Notes validly 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 New Notes in exchange for each $1,000 principal amount of
outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in integral multiples of $1,000.
As of [ ], 1998, there was $175 million aggregate principal
amount of the Old Notes outstanding. This Prospectus, together with the Letter
of Transmittal, is being sent to all registered holders as of [ ],
1998.
In connection with the issuance of the Old Notes, the Company arranged for
the Old Notes to be issued and transferable in book-entry form through the
facilities of DTC, acting as depositary. The New Notes exchanged for the Old
Notes will initially be issued and transferable in book-entry form through DTC.
See "Description of Notes -- Book-Entry Delivery and Form."
The Company shall be deemed to have accepted validly tendered Old 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 Old Notes for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay the expenses, other than
certain applicable taxes, of the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Company has the right to extend the Exchange Offer but only to the
extent necessary to comply with applicable federal and state securities laws or
if any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the Exchange Offer which, in the
reasonable judgment of the Company, might impair the ability of the Company to
proceed with the Exchange Offer. In order to extend the Expiration Date, the
Company will notify the Exchange Agent and the record Holders of Old Notes of
any extension by oral or written notice, each prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date.
The Company reserves the right to delay accepting any Old Notes, to extend
the Exchange Offer, to amend the Exchange Offer or to terminate the Exchange
Offer and not accept Old Notes not previously accepted if the applicable
condition set forth herein under "Conditions" shall have occurred and shall not
have been waived by the Company by giving oral or written notice of such delay,
extension, amendment or termination to the Exchange Agent. Any such delay in
acceptance, extension, amendment or termination 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 as necessary to provide to such holders a period of five to ten business
days after such amendment, depending upon the significance of the amendment and
the manner of disclosure to Holders of the Old Notes. if the Exchange Offer
would otherwise expire during such five to ten business day period.
26
<PAGE> 28
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.
ACCRUED AMOUNTS ON THE NOTES
The New Notes will bear interest at a rate equal to 9 5/8% per annum from
the last date on which interest was paid on the Old Notes surrendered in
exchange therefor or, if no interest has been paid, from the date of original
issue of such Old Notes. Interest on the Notes is payable semi-annually on June
15 and December 15 of each year, commencing on June 15, 1998.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a Holder of Old Notes must complete, sign
and date the Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the instructions to the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile,
together with the Old Notes and any other required documents, so that it is
received by the Exchange Agent prior to 5:00 p.m., New York City time, on the
Expiration Date.
Any financial institution that is a participant in DTC (the "Book-Entry
Transfer Facility") may make book-entry delivery of the Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account in accordance with the Book-Entry Transfer Facility procedure
for such transfer. Although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility, the Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth in "-- Exchange Agent" below prior to 5:00 p.m., New York City time,
on the Expiration Date. DELIVERY OF DOCUMENTS TO THE COMPANY IN ACCORDANCE WITH
ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a Holder 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.
Delivery of all documents must be made to the Exchange Agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for such Holders.
The method of delivery of the tendered Old Notes, the Letter of Transmittal
and all other required documents to the Exchange Agent is at the election and
risk of the Holder. Instead of delivery by mail, it is recommended that the
Holder use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery. No Letter of Transmittal or Old
Notes should be sent to the Company.
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "Holder" with respect to the Exchange Offer means any person in whose
name Old 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.
ANY BENEFICIAL HOLDER WHOSE OLD NOTES ARE REGISTERED IN THE NAME OF ITS
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 ITS BEHALF. IF SUCH BENEFICIAL HOLDER WISHES TO
TENDER ON ITS OWN BEHALF, SUCH BENEFICIAL HOLDER MUST, PRIOR TO COMPLETING AND
EXECUTING THE LETTER OF TRANSMITTAL AND DELIVERING ITS OLD NOTES, EITHER MAKE
APPROPRIATE ARRANGEMENTS TO REGISTER OWNERSHIP OF THE OLD 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.
27
<PAGE> 29
Signatures on a Letter of Transmittal (or a facsimile thereof) or a notice
of withdrawal, as the case may be, must be guaranteed by an Eligible Institution
(as defined below) unless the Old Notes tendered pursuant thereto are tendered
(i) by a registered Holder who has not completed the box entitled "Special
Payment 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 facsimile thereof) or a notice
of withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by or 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
institution which falls within the definition of "Eligible Guarantor
Institution" contained in Rule 17Ad-15 promulgated by the Commission under the
Exchange Act (each an "Eligible Institution").
If the Letter of Transmittal (or facsimile thereof) is signed by a person
other than the registered Holder of the Old Notes tendered thereby, such Old
Notes must be endorsed or accompanied by appropriate bond powers signed as the
name of the registered Holder or Holders appears on the Old Notes, with the
signatures on the endorsement or bond power guaranteed by an Eligible
Institution.
If the Letter of Transmittal (or facsimile thereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
absolute right to reject any and all Old Notes not properly tendered or any Old
Notes the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to the Exchange Offer and/or
particular Old 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 Old Notes must be cured within such
time as the Company shall determine. None of the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of defect or
irregularities with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which any defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering
Holder(s) of Old Notes, unless otherwise provided in the Letter of Transmittal,
as soon as practicable following the Expiration Date.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being acquired
in the ordinary course of such Holder's business, that such Holder has no
arrangement or understanding with any person to participate in the distribution
of such New Notes, and that such Holder is not an "affiliate" (as defined under
Rule 405 of the Securities Act) of the Company or any of its subsidiaries. If
the Holder is a broker-dealer that will receive New Notes for is own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, such Holder by tendering will
acknowledge that it will deliver a Prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the
28
<PAGE> 30
Exchange Agent, or cannot complete the procedure for book-entry transfer, prior
to 5:00 p.m. on 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 Old Notes and the
principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed
Delivery, the Letter of Transmittal (or facsimile thereof) together with
the certificate(s) representing the Old Notes to be tendered in proper form
for transfer (or a confirmation of a book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility of Old Notes delivered
electronically) 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 the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of a bookentry
transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility of Old Notes delivered electronically) and all other documents
required by the Letter of Transmittal are received by the Exchange Agent
within three New York Stock Exchange trading days after the date of
execution of the Notice of Guaranteed Delivery. Upon request to the
Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who
wish to tender their Old Notes according to the guaranteed delivery
procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old 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 Old Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
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 Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the principal amount of such
Old Notes), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to have the trustee with respect to the Old Notes register
the transfer of such Old Notes into the name of the person withdrawing the
tender, and (iv) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, which determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly retendered. Any
Old 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 Old Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company may
terminate or amend the Exchange Offer as provided herein and will not be
required to accept for exchange, or exchange New Notes for, any Old Notes not
theretofore accepted for exchange, if any of the following conditions exist:
(a) the Exchange Offer, or the making of any exchange by a Holder,
violates applicable law or any applicable policy of the Commission; or
29
<PAGE> 31
(b) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might impair the ability
of the Company to proceed with the Exchange Offer; or
(c) there shall have been adopted or enacted any law, statute, rule or
regulation which, in the reasonable judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer.
If any such conditions exist, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to exchanging Holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of Holders to withdraw such Old
Notes (see "-- Withdrawal of Tenders") or (iii) waive certain of such conditions
with respect to the Exchange Offer and accept all properly tendered Old Notes
which have not been withdrawn or revoked. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver in
a manner reasonably calculated to inform Holders of Old Notes of such waiver.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, (i) if, because of any change in applicable law or applicable
policy thereof by the Commission the Company is not permitted to effect the
Exchange Offer, (ii) the Exchange Offer is not consummated within 180 days after
the date of original issue of the Old Notes, (iii) the Initial Purchaser so
requests within six months after consummation of the Exchange Offer with respect
to the Old Notes not eligible to be exchanged for New Notes in the Exchange
Offer and held by it following consummation of the Exchange Offer or (iv) any
Holder of Old Notes notified the Company within 20 days of the consummation of
the Exchange Offer that, for certain specified reasons, such Holder is precluded
from participating in the Exchange Offer or, in the case of any Holder that
participates in the Exchange Offer, such Holder does not receive freely
tradeable New Notes on the date of the exchange and such Holder notifies the
Company within six months of such date, then the Company shall file a Shelf
Registration Statement. Thereafter, the Company's obligation to consummate the
Exchange Offer shall be terminated.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By registered or certified mail:
IBJ Schroder Bank & Trust-Company
Bowling Green Station
P.O. Box 84
New York, New York 10274-0084
Attention: Reorganization Operations Department
By hand or by overnight courier:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window
Subcellar one, (SC-1)
By facsimile: (212) 858-2611
Attention: Customer Service
Confirm by telephone: (212) 858-2103
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<PAGE> 32
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by facsimile, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The
Company may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of the Prospectus and related documents to the beneficial owners of the
Old Notes, and in handling or forwarding tenders for exchange.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company, are estimated in the aggregate not to exceed $750,000,
and include fees and expenses of the Exchange Agent and Trustee under the
Indenture and accounting and legal fees.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old 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 Holder of the Old Notes tendered, or
if tendered Old 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 Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the Holder or any
other person(s)) 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 New Notes will be recorded at the same carrying value as the Old Notes,
that is, face value less unamortized original issue discount, if any, as
reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized upon the
consummation of the Exchange Offer. The issuance costs incurred in connection
with the Exchange Offer will be capitalized and amortized over the term of the
New Notes.
A copy of the Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
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<PAGE> 33
CAPITALIZATION
The following table sets forth as of September 30, 1997, the consolidated
capitalization of the Company (i) on an historical basis and (ii) on a pro forma
basis assuming that the ECA Acquisition, the Elastex Acquisition and the
application of the net proceeds from the sale of the Old Notes each had occurred
as of such date. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
---------------------
PRO
ACTUAL FORMA
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Long-term debt, including current maturities(1):
Debt of Foreign Subsidiaries......................................... $ 5,205 $ 5,205
Existing Credit Facility, due 1999(2)................................ 19,030 --
New Credit Facility(3)............................................... -- --
7.50% Notes, due 2004(4)............................................. 50,000 --
Industrial Development Bonds(5)...................................... -- 6,000
Notes offered hereby................................................. -- 175,000
-------- --------
Total long-term debt including current maturities............ 74,235 186,205
Stockholders' equity................................................... 81,289 79,789
-------- --------
Total capitalization......................................... $155,524 $265,994
======== ========
</TABLE>
- ---------------
(1) For further description of the Company's long-term debt, see Note 6 of the
Notes to Consolidated Financial Statements.
(2) Reflects repayment and termination of the Existing Credit Facility from the
proceeds of the sale of the Old Notes. See "Use of Proceeds."
(3) There is $25.0 million available for borrowing under the New Credit Facility
for general corporate purposes, subject to a borrowing base limitation. See
"Description of Other Indebtedness -- The New Credit Facility."
(4) Reflects repayment of 7.50% Notes from the proceeds of the sale of the Old
Notes. See "Use of Proceeds."
(5) Reflects the assumption of debt of ECA.
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<PAGE> 34
PRO FORMA COMBINED FINANCIAL INFORMATION
The following Unaudited Pro Forma Combined Statements of Operations for the
year ended December 31, 1996 and the nine months ended September 30, 1997 give
effect to the Transactions as if each had occurred at the beginning of the
earliest period presented. The following Unaudited Pro Forma Combined Balance
Sheet as of September 30, 1997 gives effect to the Transactions as if each had
occurred on September 30, 1997.
The Unaudited Pro Forma Combined Financial Statements have been prepared
using the purchase method of accounting for the ECA Acquisition and the Elastex
Acquisition, whereby the total cost of each acquisition is allocated to the
tangible and intangible assets acquired and liabilities assumed based upon their
respective fair values at the effective dates of such acquisitions. For purposes
of the Unaudited Pro Forma Combined Financial Statements, such allocations have
been made based upon currently available information and management's estimates.
For convenience, the thirty-nine week period ended September 27, 1997 for ECA is
hereinafter referred to as the nine months then ended.
The Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 1996 is based on the respective audited financial statements for
the year ended December 31, 1996 of the Company and the fiscal year ended
December 28, 1996 of ECA and the unaudited financial statements for the year
ended November 1, 1996 of Elastex; the Unaudited Pro Forma Combined Statement of
Operations for the nine months ended September 30, 1997 is based on the
respective unaudited financial statements for the nine months ended September
30, 1997 of the Company, ended September 27, 1997 of ECA and ended August 1,
1997 of Elastex; and the Unaudited Pro Forma Combined Balance Sheet as of
September 30, 1997 is based on the respective unaudited financial statements as
of September 30, 1997 of the Company, as of September 27, 1997 of ECA, and as of
August 1, 1997 of Elastex. The unaudited financial statements reflect all
adjustments, consisting of normal recurring accruals, which in the opinion of
management of the applicable company are necessary for a presentation of results
for the respective periods in accordance with the basis of presentation
described in the respective company's financial statements.
The Unaudited Pro Forma Combined Financial Statements do not purport to
represent what the results of operations or financial position of the Company
would actually have been if any of the Transactions had occurred on such dates
or to project the results of operations or financial position of the Company for
any future date or period. The Unaudited Pro Forma Combined Financial Statements
set forth below should be read in conjunction with the respective Consolidated
Financial Statements and Notes thereto of the Company and ECA included elsewhere
in this Prospectus, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
33
<PAGE> 35
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------
WORLDTEX ELASTEX ECA ADJUSTMENTS PRO FORMA
-------- ------- ------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales......................... $207,829 $15,756 $55,798 $ -- $ 279,383
Cost of goods sold................ 168,754 13,055 41,828 -- 223,637
-------- ------- ------- -------- --------
Gross profit...................... 39,075 2,701 13,970 -- 55,746
Selling, general and
administrative expenses......... 16,582 866 6,664 969(a) 25,081
-------- ------- ------- -------- --------
Operating profit.................. 22,493 1,835 7,306 (969) 30,665
Interest expense.................. 5,826 814 12,264(b) 18,904
Other income (expense), net....... 694 -- -- -- 694
-------- ------- ------- -------- --------
Income before income taxes........ 17,361 1,835 6,492 (13,233) 12,455
Income taxes...................... 6,415 -- -- (1,865)(c) 4,550
-------- ------- ------- -------- --------
Net income........................ $ 10,946 $ 1,835 $ 6,492 $ (11,368) $ 7,905
======== ======= ======= ======== ========
OTHER OPERATING DATA:
EBITDA(d)......................... $ 29,471 $ 2,314 $ 9,183 $ 1,366 $ 42,334
Depreciation and amortization..... 6,284 479 1,877 2,335 10,975
Capital expenditures.............. 13,785 -- 1,171 -- 14,956
Cash interest expense............. -- -- -- -- 18,204
SELECTED RATIOS:
EBITDA/cash interest expense...... 2.33x
EBITDA less capital
expenditures/cash interest
expense......................... 1.50x
Total debt/EBITDA................. 4.47x(e)
Ratio of earnings to fixed
charges(f)...................... 1.62x
</TABLE>
(See Notes to Pro Forma Combined Statement of Operations on the following page.)
34
<PAGE> 36
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------------------------------
WORLDTEX ELASTEX ECA ADJUSTMENTS PRO FORMA
-------- ------- ------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $148,350 $14,964 $52,739 $ -- $ 216,053
Cost of goods sold................. 122,040 12,265 38,914 -- 173,219
-------- ------- ------- ------- --------
Gross profit..................... 26,310 2,699 13,825 -- 42,834
Selling, general and administrative
expenses......................... 11,688 1,156 6,447 443(a) 19,734
-------- ------- ------- ------- --------
Operating profit................... 14,622 1,543 7,378 (443) 23,100
Interest expense................... 4,417 21 983 8,876(b) 14,297
Other income (expense), net........ 30 (65) -- -- (35)
-------- ------- ------- ------- --------
Income before income taxes.... 10,235 1,457 6,395 (9,319) 8,768
Income taxes....................... 3,492 -- -- (557)(c) 2,935
-------- ------- ------- ------- --------
Net income............... $ 6,743 $ 1,457 $ 6,395 $(8,762) $ 5,833
======== ======= ======= ======= ========
OTHER OPERATING DATA:
EBITDA(d).......................... $ 19,371 $ 1,855 $ 8,766 $ 1,222 $ 31,214
Depreciation and amortization...... 4,719 377 1,388 1,665 8,149
Capital expenditures............... 5,826 1 2,174 -- 8,001
Cash interest expense.............. -- -- -- -- 13,772
SELECTED RATIOS:
EBITDA/cash interest expense....... 2.27x
EBITDA less capital
expenditures/cash interest
expense.......................... 1.69x
Total debt/EBITDA.................. 4.53x(e)
Ratio of earnings to fixed
charges(f)....................... 1.56x
</TABLE>
- ---------------
(a) Reflects (i) amortization of goodwill associated with the acquisitions of
Elastex and ECA of $1.8 million and $1.2 million for the year ended December
31, 1996 and nine months ended September 30, 1997, respectively; (ii)
reduction of lease expense of $162,000 and $122,000 for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively, resulting from the buyout of certain leases of Elastex; and
(iii) adjustment to reduce management fees charged by the former parent of
ECA of $637,000 and $641,000 for the year ended December 31, 1996 and the
nine months ended September 30, 1997, respectively, net of $200,000 and
$150,000 for the year ended December 31, 1996 and nine months ended
September 30, 1997, respectively, for estimated costs on a stand alone
basis.
(b) Reflects (i) pro forma interest expense calculated using an assumed interest
rate of 95/8% per annum on the Senior Notes; (ii) estimated additional
amortization of deferred financing costs of $567,000 and $424,000 for the
year ended December 31, 1996 and the nine months ended September 30, 1997,
respectively; and (iii) elimination of allocated interest charges from the
former Parent of ECA of $437,000 and $707,000 for the year ended December
31, 1996 and the nine months ended September 30, 1997, respectively. If
actual interest rates vary by 25 basis points from assumed rates, total pro
forma interest expense will increase or decrease by $328,000 for the nine
months ended September 30, 1997.
(c) Reflects an assumed effective corporate income tax rate of 38% on the
earnings of Elastex, ECA and the pro forma adjustments.
(d) EBITDA represents income before income taxes plus interest expense,
depreciation and amortization for the applicable company. EBITDA should not
be considered as an alternative measure of net income or cash provided by
operating activities (both as determined in accordance with generally
accepted accounting principles), but is presented to provide additional
information relating to the Company's debt
35
<PAGE> 37
service capability. EBITDA should not be considered in isolation or as a
substitute for other measures of financial performance or liquidity.
(e) Total debt includes $175 million in Senior Notes at December 31, 1996 and
September 30, 1997, respectively.
(f) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and a portion
of rental expense which is representative of the interest factor in these
rentals.
36
<PAGE> 38
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
----------------------------------------------------------------
WORLDTEX ELASTEX ECA ADJUSTMENTS PRO FORMA
-------- ------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.............................. $ 8,435 $ -- $ 180 $ 13,730(a)(c) $ 22,345
Accounts and notes receivable..... 38,708 -- 12,041 (800)(a) 49,949
Inventories....................... 37,896 2,291 11,752 -- 51,939
Prepaid expenses and other current
assets......................... 2,780 33 506 -- 3,319
-------- ------ ------- -------- --------
Total current assets...... 87,819 2,324 24,479 12,930 127,552
Property, plant and
equipment -- net.................. 84,145 3,946 9,929 -- 98,020
Other assets........................ 29,636 -- 760 62,692(b) 93,088
-------- ------ ------- -------- --------
$201,600 $ 6,270 $35,168 $ 75,622 $ 318,660
======== ====== ======= ======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C>
Current liabilities:
Short-term borrowings............. $ 2,128 $ -- $ -- $ -- $ 2,128
Current installments of long-term
debt........................... 7,807 -- -- (7,143)(c) 664
Accounts and notes payable-trade
and other liabilities.......... 25,396 1,680 4,193 -- 31,269
Income taxes payable.............. 1,431 -- -- -- 1,431
-------- ------ ------- -------- --------
Total current
liabilities............. 36,762 1,680 4,193 (7,143) 35,492
Long-term debt...................... 66,428 -- 6,000 113,113(c) 185,541
Other long-term liabilities......... 17,121 -- 717 -- 17,838
-------- ------ ------- -------- --------
Total liabilities......... 120,311 1,680 10,910 105,970 238,871
-------- ------ ------- -------- --------
Stockholders' equity:
Preferred stock................... -- -- -- -- --
Common stock...................... 147 -- -- -- 147
Paid-in capital................... 30,059 4,590 24,258 (28,848)(b) 30,059
Retained earnings................. 63,662 -- -- (1,500)(d) 62,162
Cumulative foreign translation
adjustment..................... (11,081) -- -- -- (11,081)
Less -- Treasury stock, at cost... (1,498) -- -- -- (1,498)
-------- ------ ------- -------- --------
Total stockholders'
equity.................. 81,289 4,590 24,258 (30,348) 79,789
-------- ------ ------- -------- --------
$201,600 $ 6,270 $35,168 $ 75,622 $ 318,660
======== ====== ======= ======== ========
</TABLE>
- ---------------
(a) Reflects adjustments for certain assets not acquired in connection with the
acquisitions of Elastex and ECA.
(b) Reflects the estimated allocation of the purchase price for the acquisitions
of Elastex and ECA over the net book value of the respective assets acquired
and liabilities assumed using the purchase method and capitalized debt
issuance costs.
(c) Reflects the impact of the sources and uses of funds related to the
Company's cash and debt from the sale of the Old Notes and the Elastex and
ECA Acquisitions.
(d) Reflects the write-off of financing costs associated with the Company's
existing debt due to the sale of the Old Notes.
37
<PAGE> 39
SELECTED HISTORICAL FINANCIAL INFORMATION
WORLDTEX
The following table sets forth selected consolidated financial information
of the Company for each of the five years in the period ended December 31, 1996.
Such information was derived from the Consolidated Financial Statements of the
Company, which in the case of the three-year period ended December 31, 1996 have
been audited by KPMG Peat Marwick LLP, independent public accountants. The
consolidated financial statements as of December 31, 1996 and 1995, and for each
of the years in the three-year period ended December 31, 1996, and the report
thereon, are included elsewhere in this Prospectus. The following table also
sets forth selected consolidated financial information of the Company as of
September 30, 1996 and 1997 and for the nine months then ended. Such information
was derived from the unaudited Consolidated Financial Statements of the Company,
which are included elsewhere in this Prospectus. Such unaudited Consolidated
Financial Statements, in the opinion of the Company's management, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the financial position and results of operations for such
periods. The results of operations for the nine months ended September 30, 1997
are not necessarily indicative of results that may be expected for the full
year. The selected consolidated financial information set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $148,350 $155,189 $207,829 $187,981 $164,654 $152,709 $174,936
Cost of goods sold................. 122,040 126,200 168,754 156,519 138,666 125,739 142,326
-------- -------- -------- -------- -------- -------- --------
Gross profit....................... 26,310 28,989 39,075 31,462 25,988 26,970 32,610
Selling, general and administrative
expenses......................... 11,688 11,536 16,582 15,708 13,502 12,108 13,716
-------- -------- -------- -------- -------- -------- --------
Operating profit................... 14,622 17,453 22,493 15,754 12,486 14,862 18,894
Interest expense................... 4,417 4,391 5,826 5,693 3,951 3,298 7,285
Other income (expense), net........ 30 456 694 170 333 (74) 4
-------- -------- -------- -------- -------- -------- --------
Income before income taxes......... 10,235 13,518 17,361 10,231 8,868 11,490 11,613
Income tax expense................. 3,492 5,111 6,415 4,979 3,058 4,206 4,314
-------- -------- -------- -------- -------- -------- --------
Net income......................... $ 6,743 $ 8,407 $ 10,946 $ 5,252 $ 5,810 $ 7,284 $ 7,299
======== ======== ======== ======== ======== ======== ========
OTHER OPERATING DATA:
EBITDA (a)......................... $ 19,371 $ 22,443 $ 29,471 $ 22,057 $ 17,708 $ 18,869 $ 23,083
Depreciation and amortization...... 4,719 4,534 6,284 6,133 4,889 4,081 4,185
Capital expenditures............... 5,826 12,837 13,785 8,356 8,077 5,803 11,734
Ratio of earnings to fixed charges
(b).............................. 3.03x 3.76x 3.63x 2.65x 3.07x 4.14x 2.53x
BALANCE SHEET DATA (AT PERIOD END):
Working capital.................... $ 51,057 $ 49,125 $ 47,470 $ 47,342 $ 42,953 $ 34,554 $ 35,753
Total assets....................... 201,600 206,279 206,032 196,065 166,405 145,996 154,339
Total debt......................... 76,363 75,993 70,730 71,126 61,821 60,337 63,855
Stockholders' equity............... 81,289 83,612 85,178 78,939 69,033 59,042 55,527
</TABLE>
(See Notes to the Selected Historical Financial Information on following page.)
38
<PAGE> 40
ECA
The following table sets forth selected financial information of ECA for
each of the three fiscal years in the period ended December 28, 1996. Such
information was derived from the stand alone Financial Statements of ECA, which
have been audited and are included elsewhere in this Prospectus. The following
table also sets forth the selected financial information of ECA as of September
28, 1996 and September 27, 1997 and for the thirty-nine week periods then ended.
For convenience, the thirty-nine week periods ended September 28, 1996 and
September 27, 1997 are referred to as the nine months then ended. Such
information was derived from the unaudited stand alone Financial Statements of
ECA. Such unaudited Financial Statements, in the opinion of ECA's management,
include all adjustments (consisting of normal recurring accruals) necessary for
a stand alone presentation of the financial position and results of operations
for such periods in accordance with the basis of presentation described in Note
1 to the audited ECA financial statements. The results of operations for the
nine months ended September 27, 1997 are not necessarily indicative of results
that may be expected for the full year. The selected financial information set
forth below should be read in conjunction with the Financial Statements and
Notes thereto of ECA included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
----------------------------- ------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, DECEMBER 28, DECEMBER 30, DECEMBER 31,
1997 1997 1996 1995 1994
------------- ------------- ------------ ------------ ------------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $52,739 $41,779 $ 55,798 $ 58,055 $ 61,339
Cost of goods sold................ 38,914 31,151 41,828 45,060 45,666
------- ------- ------- ------- -------
Gross profit...................... 13,825 10,628 13,970 12,995 15,673
Selling, general and
administrative expenses......... 6,447 5,241 6,664 6,219 9,379
------- ------- ------- ------- -------
Operating income.................. 7,378 5,387 7,306 6,776 6,294
Interest expense.................. 983 615 814 1,147 1,001
------- ------- ------- ------- -------
Net income........................ $ 6,395 $ 4,772 $ 6,492 $ 5,629 $ 5,293
======= ======= ======= ======= =======
OTHER OPERATING DATA:
EBITDA(a)......................... $ 8,766 $ 7,060 $ 9,183 $ 8,719 $ 8,287
Depreciation and amortization..... 1,388 1,673 1,877 1,943 1,992
Capital expenditures.............. 2,174 678 1,171 944 1,371
Ratio of earnings to fixed
charges(b)...................... 5.10x 5.00x 6.25x 4.42x 5.51x
BALANCE SHEET DATA (AT PERIOD
END):
Working capital................... $20,286 $15,436 $ 18,356 $ 13,055 $ 16,757
Total assets...................... 35,168 28,738 30,189 25,955 32,468
Total debt........................ 6,000 6,000 6,000 6,000 6,700
Divisional equity................. 24,258 17,798 20,942 16,362 21,478
</TABLE>
- ---------------
(a) EBITDA represents income before income taxes plus interest expense,
depreciation and amortization for the applicable company. EBITDA should not
be considered as an alternative measure of net income or cash provided by
operating activities (both as determined in accordance with generally
accepted accounting principles), but is presented to provide additional
information relating to the Company's debt service capability. EBITDA should
not be considered in isolation or as a substitute for other measures of
financial performance or liquidity.
(b) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, earnings include pre-tax income from
continuing operations plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and a portion
of rental expense which is representative of the interest factor in these
rentals.
39
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
In recent years, the worldwide fabric/apparel industry has been undergoing
significant changes relating to the types of garments produced. Specifically,
two trends have significantly impacted the Company: (i) the growth of covered
elastic yarn applications in fabric/apparel production, and (ii) increased
consumer demand for more casual, comfortable and durable apparel. As a leading
supplier of covered elastic yarns and narrow elastic fabrics, the Company
believes it is well-positioned to benefit from both of these trends.
The Company believes that it is the largest supplier of covered elastic
yarn in the world and as a result of the ECA Acquisition, the Company believes
that it is the largest manufacturer of woven and knitted narrow elastic fabrics
in the world. Covered elastic yarns manufactured by the Company are principally
used in the production of sheer and opaque pantyhose, men's, women's and
children's socks, sweaters, swimwear, active and athletic wear and men's,
women's and children's stretch apparel. Narrow elastic fabrics are elasticized
fabric bands, typically under six inches in width, that are used as components
in the production of a broad range of apparel products, such as waistbands for
men's, women's and children's underwear, athletic apparel and other garments,
straps, facings and edgings in women's intimate apparel and elastic bands in
women's hosiery.
The Company's covered elastic yarn business operates around the world
through its subsidiaries Regal, based in Hickory, North Carolina, Rubyco, based
in Montreal, Canada, Filix, based in Troyes, France, and Fibrexa, based in
Bogota, Colombia. The Company also has a 38% interest in a manufacturing joint
venture in Estonia, has entered into a joint venture agreement for the
establishment of manufacturing operations in China and is currently in
negotiations for a similar venture in India.
The Company's narrow elastic fabrics business is conducted through Elastex,
acquired October 3, 1997, and through ECA, acquired on December 1, 1997. ECA and
Elastex together own five manufacturing facilities, in Columbiana, Alabama,
Asheboro, North Carolina, Hemingway, South Carolina and Woolwine, Virginia.
Worldtex is a holding company, the only assets of which are the stock of
its subsidiaries. All of the operations of Worldtex are conducted through its
direct and indirect wholly owned subsidiaries. Accordingly, Worldtex's ability
to service its indebtedness, including the Notes, is dependent upon earnings and
cash flow of its subsidiaries and the payment of funds by those subsidiaries to
Worldtex in the form of loans, dividends or otherwise. In addition, the ability
of Worldtex's subsidiaries to pay dividends, repay intercompany liabilities or
make other advances to Worldtex is subject to restrictions imposed by corporate
law and certain United States, state and foreign tax considerations.
A substantial portion of the Company's sales and operating profits have
historically been derived from international operations and export sales, which
are subject in varying degrees to risks inherent in doing business abroad. Such
risks include the possibility of unfavorable circumstances arising from host
country laws or regulations. In addition, foreign operations include risks of
partial or total expropriation; currency exchange rate fluctuations and
restrictions on currency repatriation; significant taxation policies; the
disruption of operations from labor and political disturbances, insurrection or
war; and the requirements of partial local ownership of operations in certain
countries. Moreover, any change in the value of the currencies of the foreign
countries in which the Company does business against the U.S. dollar could have
a material adverse impact on the Company's business, financial condition and
results of operations. See "Risk Factors -- International Operations."
The textile and retail apparel industries are highly cyclical and are
characterized by rapid shifts in fashion and consumer demand, as well as
competitive pressures and price and demand volatility. The demand for the
Company's products is principally dependent upon the level of United States
demand for retail apparel. The demand for retail apparel is in turn dependent on
United States consumer spending, which may be adversely affected by an economic
downturn, changing retailer and consumer demands, a decline in consumer
40
<PAGE> 42
confidence or spending, and other factors beyond the Company's control. In
recent years, sales in the United States of sheer pantyhose have declined.
Although pantyhose manufacturers have historically accounted for a significant
portion of the Company's sales of covered elastic yarn, the Company's business
strategy includes the continued development of new end use applications for
covered elastic yarn. See "Risk Factors -- Textile Industry and Cyclicality" and
"Business -- Business Strategy -- Continue to Develop New End Uses for Covered
Elastic Yarn and Narrow Elastic Fabric."
Spandex and nylon are the principal raw materials used in the manufacture
of covered elastic yarn by Worldtex. In 1996 Worldtex purchased over half of its
nylon and spandex from a single source, DuPont. In recent years, DuPont and its
competitors have expanded their spandex production capacity, and Worldtex has
been able to obtain sufficient supplies to meet its customers' requirements. If
the supply of spandex from DuPont should be interrupted or cease for any reason,
Worldtex believes it might be difficult to find adequate alternative suppliers
of spandex.
The textile and apparel industries are highly competitive. The apparel
markets are served by a variety of producers, many of which are located in
rapidly growing, low-wage countries and use textiles produced in those regions.
Many of these textile producers have substantially greater financial and other
resources and lower cost of funds than the Company. Unifi, Spanco and Worldtex
are the three largest suppliers of covered elastic yarns in the United States.
Unifi, which is also a leading producer of other yarns, recently acquired
Spanco. The Company cannot predict the effect that such acquisition will have on
the Company, although Unifi has substantially greater financial resources than
the Company and is less leveraged. See "Risk Factors -- Competition; Risks
Associated with Changing Industry."
The following table sets forth the percentage of Worldtex's historical
sales and operating profit (loss) accounted for by each of Worldtex's geographic
areas during the periods indicated, which does not reflect the ECA Acquisition
(which occurred on December 1, 1997) or the Elastex Acquisition (which occurred
on October 3, 1997). For purposes of determining operating profit, parent
company expenses have been allocated to each area in accordance with its
percentage of total sales. See Note 12 of the Notes to Consolidated Financial
Statements of Worldtex for additional financial information (sales, operating
profits and identifiable assets) by geographic location.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------------------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994
---------------- -------------------- ---------------- ---------------------- ----------------
OPERATING OPERATING OPERATING OPERATING OPERATING
SALES PROFIT SALES PROFIT SALES PROFIT SALES PROFIT(LOSS) SALES PROFIT
----- --------- ----- ------------- ----- --------- ----- --------------- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North America.......... 46% 18% 41% 9% 41% 11% 42% (2%) 54% 10%
Europe................. 48% 69% 53% 79% 53% 85% 54% 94% 46% 90%
South America.......... 6% 13% 6% 12% 6% 4% 4% 8% -- --
</TABLE>
41
<PAGE> 43
RESULTS OF OPERATIONS -- WORLDTEX
The following table sets forth the relationship of percentages which
certain income and expense items have to net sales:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------- -------------------------
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
==== ==== ==== ==== ====
Gross margin............................... 17.7% 18.7% 18.8% 16.7% 15.8%
Selling, general & administrative
expenses 7.9 7.4.. 8.0 8.3 8.2
---- ---- ---- ---- ----
Operating profit........................... 9.8 11.3 10.8 8.4 7.6
Interest expense........................... 3.0 2.8 2.8 3.1 2.4
Other income -- net........................ 0.1 0.2 0.4 0.1 0.2
---- ---- ---- ---- ----
Income before income taxes................. 6.9% 8.7% 8.4% 5.4% 5.4%
==== ==== ==== ==== ====
</TABLE>
Nine Months Ended September 30, 1997 vs. September 30, 1996
Sales for the nine months ended September 30, 1997 were $148.4 million and
net income was $6.7 million compared with sales of $155.2 million and net income
of $8.4 million for the comparable period in 1996. Net income per share was $.46
for the 1997 nine month period compared with $.58 in 1996. For the nine months
ended September 30, 1997, sales decreased by $6.8 million or 4.4% compared with
the nine months ended September 30, 1996.
Sales from North American operations increased 7.0% for the nine months
ended September 30, 1997 from the corresponding period in 1996. Sales from
French operations decreased 13.7% for the nine months ended September 30, 1997
from the corresponding period in 1996. The stronger U.S. dollar versus the
French franc reduced the French subsidiary sales by approximately 12.0% for the
nine months ended September 30, 1997 compared with the corresponding period in
1996. Sales in the Company's South American operation increased 26.3% (including
intercompany sales of $7.3 million for the nine month period of 1997 and $3.7
million for the nine month period of 1996) for the nine months ended September
30, 1997 from the corresponding period in 1996. The reduced value of the
Colombian peso versus the U.S. dollar lowered South American sales by
approximately 5.7% for the nine months ended September 30, 1997 compared with
the corresponding period in 1996.
The volume increase for the nine months of 1997 in North America was due
primarily to increased market share and expanding diversification into markets
that offer higher margins. Sales from the French operations, net of currency
translations for reporting purposes, decreased approximately 1.7% for the nine
months of 1997 compared with the nine months of 1996 primarily due to one less
working day in the 1997 period and to soft economic conditions in Europe. The
volume increases in South America reflect the continuing efforts to expand
production in the Company's lower cost operation.
Gross profit margins decreased primarily because the Company's costs were
spread over lower sales. Gross profit margins also decreased due to an
unfavorable change in the French subsidiary product mix. Selling and
administrative expenses increased as a percentage of net sales because the fixed
component of these expenses was spread over a lower sales base.
Interest expense for the nine months ending September 30, 1997 increased
from the corresponding periods in 1996 primarily due to higher effective
interest rates.
The Company had an effective income tax rate of 34.1% for the nine months
ended September 30, 1997 compared to 37.8% for the same period in 1996. This
decrease resulted primarily because of a lower effective tax rate attributable
to lower taxation on income of the Company's South American operation.
42
<PAGE> 44
1996 vs. 1995
Worldtex's sales in 1996 increased $19.8 million, or 10.6%, when compared
with 1995. Sales in the Company's European operation increased $9.2 million, or
9.2%, compared with 1995, primarily because of increased demand for covered yarn
used by the weaving industry in Europe. The lower value of the French franc
compared with the U.S. dollar reduced 1996 sales by $2.6 million. In the
Company's North American operations, sales increased $5.6 million, or 6.9%, from
1995 levels, primarily because of increased demand in non-pantyhose end used for
covered elastic yarn. Sales in the Company's South American operation were $11.8
million (excluding $6.2 million of inter-company sales) compared with $6.7
million in 1995 primarily due to a full year of operation in 1996 compared with
the partial year of 1995. The reduced value of the Colombian peso lowered 1996
sales by $1.8 million.
Worldtex's gross margin increased in 1996 to 18.8% of sales as compared to
16.7% for 1995. This increase was primarily caused by increased sales resulting
from the Company's continuing efforts to develop additional applications and end
uses for its products, lower manufacturing costs of the Company's Colombian
operations and reduced costs associated with the 1995 restructuring.
Additionally, the Company's fixed expenses were spread over substantially higher
sales.
Selling and administrative expense increased in 1996 by $.9 million to
$16.6 million. The increase was caused principally by the increased business
levels in 1996 and the full year operation of the Colombian subsidiary acquire
in April 1995.
The increase in interest expense of $.1 million was caused primarily by
weighted average outstanding debt increasing approximately 8% but was mostly
offset by lower average interest rates.
1995 vs. 1994
Worldtex's sales in 1995 increased $23.3 million, or 14.2%, when compared
with 1994. Sales in the Company's European operation increased $24.2 million, or
31.6%, compared with 1994, primarily because of increased demand for covered
yarn used by the weaving and knitting industries in Europe. The increased value
of the French franc over the U.S. dollar increased 1995 sales by 11.0%. In the
Company's North American operations, sales declined $7.5 million, or 8.5%, from
1994 levels, primarily because of slower retail sales for pantyhose that contain
covered yarn and continued competitive pressures caused by excess industry
capacity. Fibrexa, S.A., the company acquired by the Company as of April 1,
1995, contributed sales of $6.6 million.
The Company recorded nonrecurring charges in 1995 of $2.6 million. A
restructuring charge of $1.7 million ($1.3 million of which was reflected as
cost of goods sold and $.4 million as selling and administrative expenses), was
recorded in the fourth quarter to take account of the closing of two facilities.
In the third quarter a reserve was increased to accommodate higher corporate
taxes in France which resulted in $.9 million in deferred tax expense.
Worldtex's gross margin increased in 1995 to 16.7% of sales as compared to
15.8% for 1994. Gross margin increased to 17.4% before the restructuring charge
recorded in the fourth quarter which included $1.3 million recorded as cost of
goods sold. This increase in gross margin was primarily due to improved margins
of the Company's French operation, attributable to the strong demand in Europe
for the specialty yarns produced by the Company's French subsidiary and the
favorable exchange rate. In addition, the Company's fixed expenses were spread
over substantially higher sales.
Selling and administrative expense increased in 1995 by $2.2 million to
$15.7 million. The increase was caused principally by the increased business
levels of European operations, the acquisition of the Colombian subsidiary in
April 1995 and the $.4 million fourth quarter restructure charge.
The increase in interest expense of $1.7 million was caused primarily by
higher effective interest rates in 1995 and by additional borrowings to acquire
the Colombian subsidiary.
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RESULTS OF OPERATIONS -- ECA
The following table sets forth the relationship of percentages which
certain income and expense items have to net sales. For convenience, the
thirty-nine week periods ending September 28, 1996 and September 27, 1997 are
hereinafter referred to as the nine months then ended.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
------------------------------------------ -----------------------------
DECEMBER 28, DECEMBER 30, DECEMBER 31, SEPTEMBER 27, SEPTEMBER 28,
1996 1995 1994 1997 1996
------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales......................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Gross margin...................... 25.0% 22.4% 25.5% 26.2% 25.4%
Selling, general &
administrative.................. 11.9 10.7 15.3 12.2 12.5
----- ----- ----- ----- -----
Operating profit.................. 13.1 11.7 10.2 14.0 12.9
Interest expense.................. 1.5 2.0 1.6 1.9 1.5
----- ----- ----- ----- -----
Income before income taxes........ 11.6% 9.7% 8.6% 12.1% 11.4%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended September 27, 1997 vs. September 28, 1996
Sales for the nine months ended September 27, 1997 were $52.7 million and
net income was $6.4 million compared with sales of $41.8 million and net income
of $4.8 million for the comparable period in 1996.
For the nine months ended September 27, 1997, sales increased by $11.0
million or 26.2% compared with the same period in 1996. This increase was due
primarily to regaining a larger volume of sales to ECA's largest customer,
Warnaco.
Gross profit margin increased 0.8%, as a percentage of net sales, for the
nine months ended September 27, 1997 compared to the corresponding period in
1996.
Selling and administrative expenses increased by $1.2 million for the nine
months ended September 27, 1997, or 23% compared to the 1996 period, principally
due to additional expenses relating to higher levels of sales and a $0.5 million
provision for potential bad debts as a result of financial difficulties of two
significant customers. As a percentage of net sales, selling and administrative
expenses decreased by 0.3%, for the nine months ended September 27, 1997
compared to the comparable period in 1996 as a result of the higher level of
sales in the 1997 period to which our expenses were applicable.
Interest expenses increased by .4%, as a percentage of net sales, for the
nine months ended September 27, 1997 compared to the same period in 1996. This
increase was principally due to higher interest rates in 1997.
1996 vs. 1995
ECA's net sales in 1996 decreased 3.9%, as a percentage of net sales, to
$55.8 million from $58.1 million in 1995. This decrease was primarily due to a
reduction in sales to ECA's largest customer, Warnaco. At the end of 1994, ECA
raised prices to Warnaco and realized a decline in sales in both 1995 and 1996.
ECA's gross margin increased in 1996 to 25.0% of net sales as compared to
22.4% for 1995. This increase was attributable to increased operational
efficiencies compared to 1995, as costs and overhead associated with the
unrealized sales to Warnaco were absorbed by a shift in product mix and
personnel adjustments.
Selling and administrative expenses as a percentage of net sales increased
in 1996 by 1.2%. This increase was caused principally by an increase in legal
costs associated with the defense of ECA's patented QuikCord(R) technology. As a
percentage of total sales, selling and administrative expenses were 11.9% in
1996, as compared to 10.7% in 1995.
Interest expense decreased by $.3 million. This decrease was caused by a
reduction in working capital requirements.
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<PAGE> 46
1995 vs. 1994
ECA's net sales in 1995 decreased $3.3 million, or 5.4%, when compared to
1994. This was principally attributable to a decline in sales to ECA's largest
customer, Warnaco. At the end of 1994, ECA raised prices to Warnaco and realized
a decline in sales in both 1995 and 1996.
ECA's gross margin decreased in 1995 to 22.4% of net sales as compared to
25.5% for 1994. This decrease was due to the unabsorbed costs associated with
ECA's personnel and overhead structure, which had been augmented in anticipation
of higher sales volume to Warnaco.
Selling and administrative expense decreased in 1995 by $3.2 million, or
33.7%. This decrease in expense was caused primarily by a reduction in legal
expenses associated with the defense of ECA's patented QuikCord(R) technology.
Interest expense in 1995 increased by $0.15 million. This increase was the
result of greater working capital requirements.
INCOME TAXES
Income tax provisions for Worldtex have been calculated in accordance with
Statement of Financial Accounting Standards No. 109 ("SFAS 109"). Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the carrying amounts of assets and
liabilities for tax purposes and financial statement purposes and operating loss
and tax credit carry forwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The French
parliament enacted a provision that increased the tax rate from 33.33% to 36.67%
in July 1995. The rate increase resulted in a $.889 million charge to the 1995
tax provision to increase the deferred tax liability as of January 1, 1995, to
the higher enacted income tax rate. In 1997, France increased the corporate tax
rate from 36.67% to 41.67%, which will result in a charge to 1997 earnings of
approximately $0.6 million and a one-time charge to increase the reserve for
deferred income taxes of approximately $1.2 million.
FOREIGN OPERATIONS
Approximately 69% of Worldtex's net sales in 1996 were attributable to
sales outside the United States. Currency exchange fluctuations in countries in
which Worldtex is doing business could adversely affect its operating results.
The Company engages in transactions primarily in the currencies of the
countries of its four major operating subsidiaries -- the U.S., France, Canada
and Colombia -- with little intercompany exchange. In 1996, over 83% of the
Company's sales were in such currencies. The majority of the remaining sales
were sales into the European Community by the Company's French subsidiary. Hedge
transactions are immaterial and are detailed in Note 3 of the Notes to
Consolidated Financial Statements. Foreign currency transaction gains and losses
have not been material to the Company.
LIQUIDITY; CAPITAL RESOURCES
The principal indicators of the Company's liquidity are cash flows from
operating activities and cash flows from financing activities, primarily
borrowings under the Company's credit facilities.
On December 1, 1997, the Company sold the Old Notes for net proceeds of
approximately $170.0 million, which was used to pay the purchase price in the
ECA Acquisition, repay certain indebtedness and to pay transaction fees and
expenses relating thereto. The Company expects to use the balance of the net
proceeds from the sale of the Old Notes for general corporate purposes.
Worldtex generated $15 million from its operating activities in 1996,
compared to $12 million in 1995 and $9.6 million in 1994. The increase in net
cash provided in 1996 was caused primarily by the increase in net income.
Operating activities generated $2.7 million in the first nine months of 1997, as
compared to $11.4
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<PAGE> 47
million in the 1996 period. The decline was principally attributable to lower
net income and changes in working capital items in the 1997 period.
During 1996, capital expenditures amounted to $13.8 million. Capital
expenditures were $8.4 million in 1995 and $8.1 million in 1994. During the
second quarter of 1995, a wholly owned subsidiary of the Company acquired
substantially all of the assets of Fibrexa, S.A., a manufacturer of covered yarn
based in Bogota, Colombia. The consideration for the purchase of Fibrexa was
approximately $4.4 million cash, assumption of approximately $6.5 million in
debt and contingent payments based on earnings from the Company's South American
operations over a five year period. The majority of such capital expenditures
during the years 1994-1996 was primarily used to purchase additional
manufacturing equipment in order to increase and improve efficiencies to the
Company's production capacity. During the first nine months of 1997, the
Company's capital expenditures aggregated $5.8 million, and the Company
anticipates that its 1997 capital expenditures (excluding those with respect to
the ECA Acquisition and Elastex Acquisition) totalled approximately $11.0
million, primarily for the purchase of equipment. The Company currently expects
that capital expenditures for 1998 will aggregate approximately $16.0 million,
primarily for machinery and property improvements.
On October 3, 1997, the Company purchased Elastex for approximately $7.7
million and paid $0.6 million to cancel an equipment operating lease assumed
from the seller, which funds were borrowed under the Existing Credit Facility.
On December 1, 1997, a wholly-owned subsidiary of the Company purchased
substantially all of the assets of ECA for a cash purchase price of
approximately $76.3 million, which was funded with a portion of the net proceeds
from the sale of the Old Notes. In connection with the ECA Acquisition, such
subsidiary of the Company assumed an industrial revenue bond obligation relating
to ECA in the aggregate principal amount of $6.0 million, operating leases (as
to which the present value of remaining lease payment obligations will not
exceed $2.3 million) and certain current liabilities. The Company's business
strategy includes the pursuit of strategic acquisitions of other businesses. Any
acquisition would be funded through cash on hand (including the balance of the
net proceeds of the Offering and cash generated by the Company's operations),
the issuance of additional securities, the sale of other assets or the
incurrence of additional indebtedness (including borrowings under the New Credit
Facility). The Company's ability to sell assets and incur indebtedness are
restricted under the Indenture and the New Credit Facility.
The Company has entered into an interest rate swap agreement with a
commercial bank that effectively converts the interest rate on one-half of its
$50 million 7.50% senior notes to a floating rate for three years ending July
1999. The agreement effectively changed the interest rate to approximately
6.24%, 7.87%, 7.08%, 6.59%, 6.77%, 6.52% and 6.77% for the six months intervals
ended January 21, 1995 through January 21, 1998. The effective rate is 6.49% for
the six months ending July 21, 1998 at which time the rate for the swap
agreement will reset for an additional six months based on market rates in
effect at that time. Net amounts due under this agreement decreased interest
expense for 1996 by $.201 million, for 1995 by $.02 million and for 1994 by
$.137 million. The Company has entered into an interest rate swap agreement with
respect to its interest obligations on a portion of the Notes with such
commercial bank and expects to enter into additional interest rate swap
agreements relating to the Notes in the future. Management believes the risk of
incurring losses resulting from the inability of the bank to fulfill its
obligation under the swap agreements to be remote and that any losses would be
immaterial. The 7.50% senior notes were repaid with a portion of the proceeds of
the Offering. The Company has not determined whether it will terminate the
interest rate swap agreement with respect to the 7.50% senior notes, but any
termination or continuation of such agreement will not have a material effect on
the Company's financial condition or results of operations.
In connection with the ECA Acquisition, the Company entered into the New
Credit Facility and repaid and terminated the Existing Credit Facility. The New
Credit Facility provides for revolving credit borrowings in an aggregate
principal amount of up to $25.0 million. The New Credit Facility terminates and
all amounts borrowed thereunder will be due December 1, 2002. Loans under the
New Credit Facility bear interest at rates based upon a base rate (the higher of
the NationsBank, N.A. prime rate or the Federal Funds rate), certificates of
deposit rates or Eurodollar rates, in each case plus an applicable margin. Loans
under the New Credit Facility are guaranteed by all U.S. subsidiaries of the
Company and are secured by liens on the accounts receivable and inventory of the
Company and its U.S. subsidiaries, 100% of the outstanding capital
46
<PAGE> 48
stock of the Company's U.S. subsidiaries and 65% of the outstanding capital
stock of each of the Foreign Subsidiaries. For a more complete description of
the New Credit Facility, see "Description of Other Indebtedness."
As a result of the ECA Acquisition and the Offering, the Company is highly
leveraged. On September 30, 1997, after giving pro forma effect to the Offering,
the ECA Acquisition and the Elastex Acquisition, the Company would have had
total indebtedness of approximately $188.3 million (of which $175.0 million
would have consisted of the Notes and the balance would have consisted of debt
of Foreign Subsidiaries and the ECA Industrial Development Bonds) and
stockholders' equity of approximately $79.8 million. In addition, for the nine
months ended September 30, 1997, on a pro forma basis assuming that the
Transactions had occurred on January 1, 1997, the Company's ratio of earnings to
fixed charges would have been 1.56x. The Company and its subsidiaries will be
permitted to incur additional indebtedness in the future. See "Descriptions of
Notes -- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock."
Worldtex is a holding company, the only assets of which are the stock of
its subsidiaries. All of the operations of Worldtex are conducted through its
direct and indirect wholly owned subsidiaries. Accordingly, Worldtex's ability
to service its indebtedness, including the Notes, is dependent upon earnings and
cash flow of its subsidiaries and the payment of funds by those subsidiaries to
Worldtex in the form of loans, dividends or otherwise. Although there are no
contractual restrictions on the ability of Worldtex's subsidiaries to pay
dividends, repay intercompany liabilities or make other advances to Worldtex,
such actions are subject to restrictions imposed by corporate law and certain
United States, state and foreign tax considerations.
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures will
depend on its future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of operations
and anticipated revenue growth, management believes that cash flow from
operations and available cash, together with available borrowings under the New
Credit Facility, will be adequate to meet the Company's future liquidity needs
for at least the next several years. The Company may, however, need to refinance
all or a portion of the principal of the Notes on or prior to maturity. There
can be no assurance that the Company's business will generate sufficient cash
flow from operations, that anticipated revenue growth and operating improvements
will be realized or that future borrowings will be available under the New
Credit Facility in an amount sufficient to enable the Company to service its
indebtedness, including the Notes, or to fund its other liquidity needs. In
addition, there can be no assurance that the Company will be able to effect any
such refinancing on commercially reasonable terms or at all.
The degree to which the Company is leveraged following the sale of the Old
Notes could have important consequences to holders of the Notes, including, but
not limited to: (i) making it more difficult for the Company to satisfy its
obligations with respect to the Notes, (ii) increasing the Company's
vulnerability to general adverse economic and industry conditions, (iii)
limiting the Company's ability to obtain additional financing to fund future
working capital, capital expenditures, and other general corporate requirements,
(iv) requiring the dedication of a substantial portion of the Company's cash
flow from operations to the payment of principal of, and interest on, its
indebtedness, thereby reducing the availability of such cash flow to fund
working capital, capital expenditures, research and development or other general
corporate purposes, (v) limiting the Company's flexibility in planning for, or
reacting to, changes in its business and the industry, and (vi) placing the
Company at a competitive disadvantage vis-a-vis less leveraged competitors. In
addition, the Indenture and the New Credit Facility contain financial and other
restrictive covenants that limit the ability of the Company to, among other
things, borrow additional funds. Failure by the Company to comply with such
covenants could result in an event of default which, if not cured or waived,
could have a material adverse effect on the Company. In addition, the degree to
which the Company is leveraged could prevent it from repurchasing all of the
Notes tendered to it upon the occurrence of a Change of Control. See
"Description of Notes -- Repurchase at Option of Holder -- Change of Control"
and "Description of Other Indebtedness -- New Credit Facility."
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<PAGE> 49
THREE-YEAR COMPARISONS
Worldtex
Total long-term debt was $61.1 million, $68.9 million and $67.8 million,
respectively, at December 31, 1994, 1995 and 1996.
Working capital was $43 million, $47.3 million and $47.5 million,
respectively, at December 31, 1994, 1995 and 1996.
Net worth was $69 million, $78.9 million and $85.2 million, respectively,
at December 31, 1994, 1995 and 1996. (See the Consolidated Statements of
Stockholders' Equity of Worldtex for additional information.)
The number of days that sales were represented by accounts receivable was
61, 68 and 69, respectively, at December 31, 1994, 1995 and 1996. Net accounts
receivable increased by approximately $1.2 million, or 3.2%, in 1996 compared
with 1995, and sales increased 10.6%. Inventories, as a percentage of cost of
sales, were 21.3% at December 31, 1994, 21.5% at December 31, 1995 and 22.1% at
December 31, 1996.
ECA
Total long-term debt was $6.7 million, $6.0 million and $6.0 million,
respectively, at December 31, 1994, December 30, 1995 and December 28, 1996.
Working capital was $16.8 million, $13.1 million and $18.4 million,
respectively, at December 31, 1994, December 30, 1995 and December 28, 1996.
Net worth was $21.5 million, $16.4 million and $20.9 million, respectively,
at December 31, 1994, December 30, 1995 and December 28, 1996.
The number of days that sales were represented by accounts receivable was
57, 43 and 62, respectively, at December 31, 1994, December 30, 1995 and
December 28, 1996. Net accounts receivable increased by approximately $2.7
million, or 39%, in 1996 compared with 1995, and sales decreased 4%.
Inventories, as a percentage of cost of sales, were 22% at December 31, 1994,
19% at December 30, 1995 and 26% at December 28, 1996.
INFLATION
The results of operations and financial condition of Worldtex and ECA are
based upon historical cost. While it is difficult to accurately measure the
impact of inflation due to the imprecise nature of estimates required, Worldtex
believes the effects on the results of operations and financial condition have
been minor. Worldtex will continue to monitor the impact of inflation in setting
its pricing and other policies.
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<PAGE> 50
BUSINESS
GENERAL
The Company believes that it is the largest supplier of covered elastic
yarn in the world. Covered elastic yarns are used by the Company's customers to
produce stretch fabrics for apparel that provide enhanced styling capabilities,
better shape retention, and improved aesthetics, durability and comfort. The
principal products that utilize covered elastic yarn produced by the Company are
sheer and opaque pantyhose, men's, women's and children's socks, sweaters,
swimwear, active and athletic wear and men's, women's and children's stretch
apparel. During 1996, Worldtex yarns were used in the products of some of the
world's best known brands and designers, including Giorgio Armani, Hugo Boss,
Pierre Cardin, Liz Claiborne, Danskin, Dim, Christian Dior, Fogal, Fruit of the
Loom, Givenchy, Jockey, Calvin Klein, Evan Picone, Polo, Round the Clock, Nina
Ricci, Ellen Tracy and others. The Company, which was one of the first
independent producers of covered elastic yarn when it began operations in 1934,
currently operates 11 manufacturing and distribution facilities located in the
United States, Canada, France and South America. The Company also has a 38%
interest in a joint venture production facility in Estonia, and currently plans
joint venture production facilities in China and India. For the year ended
December 31, 1996, Worldtex had net sales of $207.8 million.
As a result of the ECA Acquisition and the Elastex Acquisition, the Company
believes that it is the largest manufacturer of woven and knitted narrow elastic
fabrics in the world. Narrow elastic fabrics are elasticized fabric bands,
typically under six inches in width, that are used as components in the
production of a broad range of apparel products, such as waistbands for men's,
women's and children's underwear, athletic apparel and other garments, straps,
facing and edgings in women's intimate apparel and elastic bands in women's
hosiery. For the year ended December 28, 1996, ECA had net sales of $55.8
million, and for the year ended November 1, 1996, Elastex had net sales of $15.8
million. During 1996, ECA's and Elastex's narrow elastic fabrics were used in
apparel produced by Bassett Walker, Fruit of the Loom, Tommy Hilfiger, Jockey,
Michael Jordan Sports, Donna Karan, Calvin Klein, Ralph Lauren, Russell
Corporation, Sara Lee (Hanes products), Vanity Fair, Warnaco (Warner, Olga and
Speedo brands) and others. ECA and Elastex together own a total of five
manufacturing facilities, which are located in Alabama, North Carolina, South
Carolina and Virginia. On a pro forma basis assuming that the ECA Acquisition
and the Elastex Acquisition had been consummated January 1, 1996, the Company
would have had net sales of $279.4 million for the year ended December 31, 1996,
and $216.1 million for the nine months ended September 30, 1997.
INDUSTRY OVERVIEW
In recent years, the worldwide fabric/apparel industry has been undergoing
significant changes relating to the types of garments produced. Specifically,
two trends have significantly impacted the Company: (i) the growth of covered
elastic yarn applications in fabric/apparel production, and (ii) increased
consumer demand for more casual, comfortable and durable apparel. As a leading
supplier of covered elastic yarns and narrow elastic fabrics, the Company
believes it is well-positioned to benefit from both of these trends.
Covered elastic yarns are produced by wrapping nylon, polyester, cotton or
other fibers around spandex or latex rubber. The core of spandex or rubber
provides stretch capability and durability, while the wrapped fiber results in
more comfort to the touch and permits the covered yarn to be dyed. Advanced
manufacturing equipment permits production of ultrafine covered elastic yarns
that result in fabrics comparable in appearance to natural fibers, but with
superior flexibility, shape retention and durability. Historically, covered
elastic yarns were principally used in the manufacture of women's pantyhose and
other hosiery products. However, advances in production techniques and trends in
consumer apparel preferences have led to a substantial expansion of the end uses
for covered elastic yarn. Today, covered elastic yarn is used in a broad range
of apparel, including sweaters, swimwear, running clothes, athletic uniforms,
slacks, skirts and dresses, as well as in pantyhose and socks.
Consumer demand for increased comfort has also favorably affected the
market for narrow elastic fabrics. These fabrics are produced by weaving covered
elastic yarn or knitting spandex or latex rubber, in each case with other yarn,
such as nylon, polyester or cotton, in order to create narrow bands of
elasticized fabric.
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Although the market for narrow elastic fabrics has been relatively flat over the
past five years, demand has grown during such period for intimate apparel and
athletic wear that include designer or other logos in the waistband, which are
generally higher-margin products compared to unadorned elasticized waistbands.
ECA has focused on the development and production of such specialized
waistbands, through investment in advanced weaving machines, development of
specialized dyeing techniques and close working relationships with apparel
producers to determine their requirements, and ECA is currently the leading
manufacturer of such waistbands in the United States.
BUSINESS STRATEGY
The Company's strategy is to increase revenues and margins through
expansion into new markets while reducing costs. The Company's business plan
consists of the following key elements:
- MAINTAIN LEADING POSITION IN NICHE MARKETS. The Company believes that it
is the largest supplier of covered elastic yarn in the world. The Company
believes that such leadership is based primarily on the high quality of
the Company's products, the Company's responsiveness to customer's needs
and the Company's initiative and creativity in developing new end uses
for covered elastic yarns. ECA has followed a similar strategy to become,
it believes, the largest producer of narrow elastic fabrics in the world.
As a result of their focus on quality and service, both Worldtex and ECA
have exclusive or significant supplier relationships for certain product
lines with certain leading apparel manufacturers. The Company intends to
focus on maintaining leadership in niche markets, such as covered elastic
yarn and narrow elastic fabrics, where it can market its specialized
expertise to more broadly-based fabric and apparel producers. The Company
believes that this expertise, when applied to produce high quality
products and to develop solutions to customers' needs, should result in
growth in sales of the Company's products.
- CONTINUE TO DEVELOP NEW END USES FOR COVERED ELASTIC YARN AND NARROW
ELASTIC FABRIC. In 1992, 65.4% of the Company's sales were to pantyhose
manufacturers, as compared to 38.4% of sales in 1996. Sales of pantyhose
in the United States during this period have declined approximately 13%,
although the Company's sales (including sales outside the United States)
have grown 19% during the period. The Company has actively worked with
apparel fabric producers and others to develop new fabrics utilizing
covered elastic yarn. For example, the Company was selected by DuPont to
create and manufacture yarns for use in the production of casual shoes to
be sold by Marks and Spencer in the European market, and the Company has
also developed covered elastic yarn solutions for furniture slip covers,
lace lingerie and stretch denim fabrics. Similarly, ECA has sought to be
a leader in the development of narrow elastic fabric products, including
its focus on weaving designer logos into elastic waistbands, its
production of the patented "QuikCord"(R) system that embeds a drawstring
within an elastic waistband, and its production of silicon-backed narrow
elastics used in certain specialty hosiery. In addition, the growth in
consumer demand for more casual, comfortable and durable garments has
increased the interest of apparel fabric producers in the development of
new covered elastic yarn and narrow elastic fabric applications. In light
of the Company's long history and extensive knowledge relating to the
production of covered elastic yarn and ECA's and Elastex's extensive
experience and expertise regarding narrow elastic fabrics, the Company is
well positioned to work with apparel fabric manufacturers and others in
developing new end uses for covered elastic yarns and narrow elastic
fabrics.
- EXPAND INTERNATIONAL OPERATIONS. Prior to 1995, the Company's
manufacturing facilities were based in the United States, Canada and
France. In 1995, the Company acquired Fibrexa, a covered elastic yarn
manufacturer located in Colombia, and established a manufacturing joint
venture in Estonia. In 1997, the Company entered into a letter of intent
to form a joint venture for the establishment of manufacturing facilities
in China, and it is currently in negotiations for a similar venture in
India. Although the Estonian, Chinese and Indian ventures are relatively
small -- each involving an investment of less than $1 million -- the
Company believes that the potential for growth in these markets is
significant. These new operations are expected to provide improved access
to growing new markets for the Company's products, as well as
cost-efficient facilities capable of manufacturing
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covered elastic yarn for export to the Company's customers worldwide. For
example, the Company has shifted manufacturing equipment to its
lower-cost South American operation, Fibrexa. In 1996, Fibrexa had net
sales of $17.9 million, including sales to other subsidiaries of the
Company of $6.2 million for resale in North America and Europe. This
compares to total net sales by Fibrexa of $6.7 million in the last six
months of 1995 following the Company's acquisition of Fibrexa. The
Company plans to expand Fibrexa's production capacity substantially in
the near term.
- PURSUE STRATEGIC ACQUISITIONS. The Company intends to pursue
acquisitions of companies in niche segments of the textile industry. The
Company plans to seek businesses that offer the opportunity to improve
the Company's financial results through increased purchasing power with
suppliers, elimination of duplicative operations or cross-selling of
products to common customers. For example, DuPont, Globe and Bayer are
major suppliers of raw materials to the Company, ECA and Elastex, and the
Company expects that its increased purchasing power as a result of the
ECA Acquisition will result in more favorable supply agreements. In
addition, the Company expects to shift ECA's production of covered
elastic yarns to the Company's existing covering operations to allow ECA
to focus on narrow elastic fabric production, and Worldtex will replace
other suppliers as ECA's sole source for covered elastic yarns and
textured nylon. Moreover, the Company expects to distribute and market
the narrow elastic fabric products of ECA and Elastex through its
existing European, North American and South American sales operations.
THE ECA ACQUISITION
On December 1, 1997, a wholly-owned subsidiary of the Company purchased
substantially all of the assets of ECA for a cash purchase price of
approximately $76.3 million, which was funded with a portion of the net proceeds
from the sale of the Old Notes. In connection with the ECA Acquisition, such
subsidiary of the Company assumed an industrial revenue bond obligation relating
to ECA in the aggregate principal amount of $6.0 million, operating leases (as
to which the present value of remaining lease payment obligations will not
exceed $2.3 million) and certain current liabilities.
COVERED ELASTIC YARN BUSINESS
Worldtex believes that Regal is one of the three largest suppliers of
covered elastic yarn in the United States, that Filix is the largest in Europe,
that Rubyco is the largest in Canada and that Fibrexa is the largest in South
America (in each case measured by 1996 sales). Regal's and Rubyco's products are
sold primarily in their respective home countries, Filix sells principally to
European Community countries and Fibrexa sells principally in South American
countries, as well as to other Worldtex subsidiaries. See Note 12 to Worldtex's
Consolidated Financial Statements for information relating to Worldtex's
domestic and foreign operations.
Products
The covered elastic yarn manufactured by Worldtex is produced by wrapping
material, principally nylon, polyester, cotton or other fibers, around spandex
or latex rubber. The core of spandex or rubber provides stretch capability and
durability, while the wrapped fiber results in more comfort to the touch.
Worldtex's principal product is nylon covered spandex used in the
manufacture of a variety of men's, women's and children's apparel. Worldtex also
sells covered spandex and covered latex rubber for use in the manufacture of
men's, women's and children's socks. Cotton-covered spandex yarn sold by
Worldtex is used primarily in the manufacture of ladies' opaque tights and of
fashion and active-wear apparel.
Sales and Distribution
The Company's manufacturing and distribution centers are strategically
located to serve the Company's principal markets. The Company's operations in
the United States and Canada serve customers throughout North America, its
operations in France and joint venture in Estonia serve Europe and its
operations in Bogota, Colombia serve South America and also provide lower-cost
products for the Company's other markets. In addition, the Company has entered
into a joint venture for the establishment of manufacturing
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<PAGE> 53
facilities in China, and it is currently in negotiations for a similar venture
in India. Upon implementation of the Chinese and Indian ventures, the Company
will have strategically located manufacturing facilities able to promptly supply
customers' needs in major fabric producing markets around the world.
As of September 30, 1997, the Company maintained a marketing staff of 21
people, including 8 located in Hickory, North Carolina, 8 in Troyes, France, 2
in Montreal, Canada, and 3 in Bogota, Columbia. Each sales employee has a
designated territory. In addition, certain sales personnel are specialists in
designated applications for covered yarn, such as circular knitting or woven
fabrics. The sales staff is compensated by salary and sales incentive bonus. The
Company also has a network of 55 independent sales agents compensated on a
commission basis.
The Company's sales force is trained to work with the customer to develop
new uses for covered elastic yarns that may improve the customer's products. The
Company's 63 years experience in the production and utilization of covered
elastic yarns has provided the Company with expertise not generally available to
more broadly-based fabric and apparel producers. The Company utilizes this
expertise to develop solutions utilizing covered elastic yarns for the
customer's fabric needs.
Customers
In 1996, the Company served over 1,500 customers, and no single customer
accounted for more than 10% of 1996 sales. The Company's ten largest customers
in 1996 accounted for 30% of 1996 sales.
The Company's customers are principally producers of fabric sold for use in
apparel products. In 1996, the Company's principal customers included, in the
United States, Jockey International, Ithaca Industries, U.S. Textile Corp. and
Danskin; in Europe, Iril, S.A., Vanwijnsberghe and Gaillard, S.A.; in Canada,
Doris Hosiery, Hafner Elastics and Nalpac; and in South America, Richi, CMR and
Valenciana. During 1996, Worldtex yarns were used in the products of some of the
world's best known brands and designers, including Giorgio Armani, Hugo Boss,
Pierre Cardin, Liz Claiborne, Danskin, Dim, Christian Dior, Fogal, Fruit of the
Loom, Givenchy, Jockey, Calvin Klein, Evan Picone, Polo, Round the Clock, Nina
Ricci and Ellen Tracy.
Manufacturing
Covered elastic yarns are produced by wrapping strands of conventional
fabric materials around elastic materials such as spandex or latex rubber. In
the manufacturing process, a "cover component" such as nylon, polyester, cotton,
or other fiber is fed through high-speed spindles where it is wrapped or twisted
around a "core component" of spandex or latex rubber. Strands of elastic may be
single or double covered, depending on the desired end use application. After
wrapping, the yarn, which is white in color and otherwise unfinished, is then
wound on a "take-up package" which is adaptable to the customer's machinery and
equipment for further processing.
Worldtex's research and development activities are directed toward
improvements in existing products and manufacturing processes and toward
development of new uses for its products. During 1996, Worldtex's expenditures
for these purposes totaled less than 1% of its sales.
Raw Materials
In 1996, approximately 60% of the Company's operating expenses were
attributable to raw material costs. The principal raw materials utilized by the
Company are spandex, nylon and rubber. Spandex is principally supplied by
DuPont, Globe and Bayer, and Globe is also a principal supplier of rubber. The
major suppliers of nylon to the Company in 1996 were DuPont, BASF, Nilit,
Nylstar and Radaci. In 1996 Worldtex purchased over half of its nylon and
spandex from a single source, DuPont. In recent years, DuPont and its
competitors have expanded their spandex production capacity, and Worldtex has
been able to obtain sufficient supplies to meet its customers' requirements. If
the supply of spandex from DuPont should be interrupted or cease for any reason,
Worldtex believes it might be difficult to find adequate alternative suppliers
of spandex.
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Competition
While Worldtex believes that it is the largest supplier of covered elastic
yarn in the world, several companies actively compete with Worldtex, at least
one of which has greater assets and financial resources than Worldtex. In the
United States, Unifi, Spanco and Worldtex are the leading suppliers of covered
elastic yarn, and Unifi has recently acquired Spanco. The Company cannot predict
the effect that such acquisition will have on its business. See "Risk
Factors -- Competition; Risks Associated with Changing Industry." Most of
Worldtex's major customers do not buy exclusively from Worldtex. Competition is
based primarily on product quality, customer service and price.
Employees
As of December 31, 1996, Worldtex had a total of approximately 1,177
employees, of whom approximately 471 were employed by Regal in the United
States, approximately 181 were employed in Canada by Rubyco, approximately 321
were employed in France by Filix and approximately 204 were employed in Colombia
by Fibrexa. A substantial amount of the covered elastic yarn sold by Filix is
produced by subcontractors, whose employees are not included in the foregoing
totals. Employees of Regal and Fibrexa are not covered by collective bargaining
agreements, and certain employees of Filix and Rubyco are covered by such
agreements. Worldtex has experienced no significant labor problems during recent
years in its covered elastic yarn operations and considers its employee
relations to be good.
NARROW ELASTIC FABRICS BUSINESS
The Company believes that ECA and Elastex together comprise the leading
supplier of woven and knitted narrow elastic fabrics to the apparel industry in
the world.
Products
Narrow elastic fabrics are elasticized fabric bands, typically under six
inches in width, that are used as components in the production of a broad range
of apparel products, such as waistbands for men's, women's and children's
underwear, athletic apparel and other garments, straps, facings and edgings in
women's intimate apparel and elastic bands in women's hosiery.
ECA and Elastex manufacture a full range of narrow elastic fabric products,
from specialty designs to commodity items. These varied product offerings,
together with sophisticated weaving and dyeing capabilities, enable the Company
to provide bundled and customized products to its customers.
In addition to a traditional line of woven elastic inserts and commodity
narrow elastic fabrics, ECA has enhanced its product line with several narrow
elastic fabric product advancements. For example, in 1983, ECA developed and
patented QuikCord, which embeds a drawstring within an elastic waistband. This
product offers cost savings to apparel manufacturers by avoiding the costly
operation of threading the drawstring cord through the elastic. Cordon
Cristal(TM), a banded silicon-backed narrow elastic fabric used in women's
thigh-high hosiery, is another trademarked ECA product. ECA's most advanced
narrow fabrics products are waistbands with brand name logos and other designs
woven into the elastics, principally used in designer label underwear. ECA
believes that it currently has the largest number of operating logo looms in the
United States.
Elastex produces generic narrow elastic fabric for use in apparel. In
addition, Elastex manufactures gauze and elastic wrap products for the medical
industry and specialized elastic fabric used by the automotive industry.
Sales and Distribution
ECA and Elastex sell their products to apparel manufacturers throughout the
United States, and have begun selling to foreign manufacturers. ECA has a sales
staff of eight with an average of over ten years of experience in the narrow
elastics industry. The sales manager and one additional salesperson are based in
Greensboro, North Carolina. The other six salespeople are based in Miami,
Florida, San Francisco and Los Angeles, California, and New York City. There is
no product specialization among the salesforce, and each
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<PAGE> 55
salesperson calls on an average of 25 accounts regularly. The salesforce is
compensated by salary and bonus incentive awards.
ECA's key marketing strategy is to sell a customized product and service
program that meets specific customer needs and to create relationships with
designers at premier apparel manufacturers such as Calvin Klein, Ralph Lauren,
Tommy Hilfiger, Donna Karan and Jockey. A customer's order often comprises more
than one type of narrow elastic fabric product, and ECA believes that it is
critical to offer a coordinated comprehensive supply program for its customers.
Customers
In 1996, ECA had approximately 100 key customer accounts, whose sales, in
the aggregate, accounted for approximately 95% of total sales. ECA's three
largest customers were responsible for 28% of 1996 sales, and the ten largest
customers accounted for 55% of 1996 sales.
ECA's and Elastex's top 15 customers in 1996 included apparel manufacturers
such as Bassett Walker, Fruit of the Loom, Tommy Hilfiger, Jockey, Michael
Jordan Sports, Donna Karan, Calvin Klein, Ralph Lauren, Russell Corporation,
Sara Lee (Hanes products), Vanity Fair, Warnaco (Warner, Olga and Speedo brands)
and others. The principal customer in 1996 for Elastex's medical product was
Johnson & Johnson and for its automotive products was Crotty Corporation a
supplier of General Motors Corporation.
Manufacturing
Knit elastic fabrics are primarily used in underwear and sportswear
applications. Most commodity knit elastic products are not "finished," and the
elastic yarn in the fabric is often bare. In contrast, the elastic yarn used in
woven elastic fabrics is covered by natural or synthetic yarns and the products
are finished or dyed. ECA and Elastex each operate a dye house for such purpose.
Nylon, polyester, spandex and rubber are the basic raw materials used in
the manufacture of narrow elastic fabrics. At the start of the manufacturing
process for woven narrow elastic fabrics, natural or synthetic yarns, such as
nylon, polyester or cotton, are "warped" (transferred) onto beams used to hold
warped yarns. During warping, the appropriate number of yarns are collected onto
"creels" (spool-like yarn holders) and then wound onto beams configured for the
width of the narrow fabric and for the appropriate set-up of the loom.
For the manufacturing of knit elastics, the natural or synthetic yarns and
the elastic threads (spandex or rubber) are knitted together to form the knitted
elastic narrow fabric products on the knitting machines. In woven narrow elastic
fabrics, the elastic threads must be covered. High-speed covering machines wrap
the elastic core with natural or synthetic yarns under tension to cover the
elastic. The covered elastic is collected on take-up packages and then is
typically put onto beams. ECA's proprietary covering technology allows the
covered elastic to be fed directly onto the loom, thereby eliminating a step
wherein the covered elastic is wound onto beams and then sent to the looms. On
ECA's weaving looms, the covered elastic is woven with the synthetic yarns from
the beams to create the narrow elastic fabrics. If logos are required, special
looms are used and programmed to weave into the narrow elastic fabric the name
of the designer or brand, such as Calvin Klein or Jockey.
All woven narrow fabrics are "finished." The rough-edged materials that
result from the weaving process are put through a finishing process during which
the narrow elastic fabrics are wetted and resin-treated and then dryed. Certain
knitted narrow elastics are finished as well, depending on customer
requirements. Due to ECA's focus on the high-end knitted products for intimate
apparel, many of its fine quality knitted elastics are finished and dyed.
Narrow fabrics may be dyed according to color formulations developed
in-house to meet specific customer color requirements. ECA's dyeing processes
include continuous acid, pressure beam or batch dyeing methods. ECA believes
that it has the largest and most diversified dye lab, computer color matching
equipment and dyeing equipment in the industry. ECA uses lab equipment which
simulates the dye process, resulting in high accuracy of dye quality and color
uniformity in actual production.
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<PAGE> 56
ECA licensed the process for making silicon-backed fabrics from Cheynet, a
major French narrow elastic fabric manufacturer, in 1989. This process is
typically used for narrow elastics found in hosiery products, particularly in
thigh-high stockings. Silicon is applied to knit, lace and simulated lace
uniformly on one side of the fabric and then dried to create a non-slip band.
The band grips the thigh allowing the stocking to stay in place without garters.
The silicon-backed fabrics are banded (requiring special robotic equipment) to
the specific size requirements of the customers before inspection and final
packaging.
Raw Materials
Raw materials costs comprised approximately 42% of ECA's 1996 costs of
production. Key raw materials for ECA include synthetic fibers, such as nylon
and polyester, spandex, rubber, cotton, chemical dyes and silicon. The Company
buys its synthetic materials and spandex primarily from DuPont and Bayer. Its
rubber supply originates in Malaysia and is obtained via various US importers.
Chemical dyes and auxiliary dye ingredients are supplied by various prominent
chemical companies, such as Crompton & Knowles and Ciba-Geigy, and silicon is
supplied by Dow Corning.
Competition
ECA believes that it is the leader in many of the market categories in
which it operates. There are approximately ten competitors who manufacture
narrow elastic fabrics for the apparel industry. Principal competitors in logo
elastics include CMI -- United Elastics and George C. Moore. Over the years,
competitors have created their own drawstring systems which compete with the
QuikCord design, and principal competitors with regard to this product include
Southern Webbing and Asheboro Elastics.
Employees
As of October 3, 1997, ECA and Elastex had a combined work force of
approximately 820 employees, none of whom are unionized.
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PROPERTIES
Worldtex maintains its headquarters in Hickory, North Carolina, on property
owned by Regal and used for its administrative personnel.
Covered Elastic Yarn
The Company operates a total of eleven covered elastic yarn manufacturing
plants and distribution centers, of which seven are owned and four are leased.
In addition, the Company has a 38% interest in a joint venture in Estonia that
owns and operates a 52,000 square foot covered elastic yarn manufacturing and
distribution facility. In general, the Company's facilities are adequate and
suitable for the purposes for which they are utilized by the Company. The plants
and distribution centers are listed below:
<TABLE>
<CAPTION>
LOCATION SQUARE FEET OWNED/LEASED USE
-------------------------- ----------- ------------ -------------------------------------
<S> <C> <C> <C>
UNITED STATES:
Hickory, NC............. 82,000 Owned Manufacturing Plant and Headquarters
of Regal
Hickory, NC............. 144,000 Owned Manufacturing Plant
Hickory, NC............. 41,000 Owned Manufacturing Plant
Hickory, NC............. 18,000 Leased Distribution Center
Hickory, NC............. 80,000 Leased Distribution Center
CANADA:
Montreal, Quebec........ 85,000 Leased Manufacturing Plant and Headquarters
of Rubyco
FRANCE:
Troyes.................. 48,000 Owned Distribution Center and Headquarters
of Filix
Athis................... 202,000 Owned Manufacturing Plant
Conde................... 195,000 Owned Manufacturing Plant
Le Grand Serre.......... 94,000 Owned Manufacturing Plant
COLOMBIA:
Bogota.................. 130,000 Leased Manufacturing Plant and Headquarters
of Fibrexa
</TABLE>
Narrow Elastic Fabrics
ECA and Elastex operate a total of five manufacturing plants, all of which
are owned. In addition, a rented sales office is maintained in New York City.
The manufacturing plants are listed below.
<TABLE>
<CAPTION>
LOCATION SQUARE FEET OWNED/LEASED USE
-------------------------------------- ----------- ------------ --------------------
<S> <C> <C> <C>
UNITED STATES:
Columbiana, AL...................... 165,000 Owned Manufacturing Plant
Columbiana, AL...................... 115,000 Owned Manufacturing Plant
Asheboro, NC........................ 115,000 Owned Manufacturing Plant
Hemingway, SC....................... 62,000 Owned Manufacturing Plant
Woolwine, VA........................ 77,000 Owned Manufacturing Plant
</TABLE>
LEGAL MATTERS
There is currently no pending legal dispute that is reasonably likely to
have a material adverse effect on the Company.
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DESCRIPTION OF OTHER INDEBTEDNESS
THE NEW CREDIT FACILITY
The New Credit Facility provides for up to $25.0 million in revolving
credit loans ("Revolving Credit Loans") and commercial letters of credit.
Availability of borrowings is subject to a borrowing base equal to 85% of the
Company's and its U.S. subsidiaries' eligible accounts receivable and 50% of
their eligible inventory. Borrowings under the New Credit Facility are secured
by a first priority lien on the outstanding capital stock of the Company's U.S.
subsidiaries and 65% of the outstanding capital stock of each of the Foreign
Subsidiaries and all present and future accounts receivable and inventory of the
Company and its U.S. subsidiaries. The New Credit Facility will terminate
December 1, 2002.
All Revolving Credit Loans bear interest, at the Company's option (subject
to a performance based pricing grid), at: (i) the London Interbank Offered Rate
("LIBOR"), as adjusted, plus up to 1.75%, (ii) a certificates of deposit rate,
as adjusted, plus up to 1.75% or (iii) a base rate (the higher of the
NationsBank, N.A. prime rate or the Federal Funds rate plus 0.50%) plus up to
0.75%.
The Company pays a commitment fee of up to 0.375% per annum of the unused
commitment under the New Credit Facility. Such fee is payable quarterly in
arrears.
The Company pays a letter of credit fee equal to the interest rate spread
on LIBOR loans on the outstanding amount of all letters of credit and a fronting
and negotiation fee of 0.125% per annum of the outstanding amount of each letter
of credit. Such fees are payable quarterly in arrears. In addition, the Company
pays customary transaction charges in connection with any letter of credit.
The New Credit Facility contains customary covenants and restrictions on
the Company's ability to engage in certain activities. In addition, the New
Credit Facility provides that the Company must meet certain financial conditions
including (i) a minimum consolidated current ratio, (ii) a maximum leverage
ratio and (iii) a minimum interest coverage ratio. The New Credit Facility
includes customary events of default.
OTHER INDEBTEDNESS
Each of the Company's Foreign Subsidiaries maintains credit facilities for
working capital purposes. At September 30, 1997, Filix had available
approximately $15.2 million, Rubyco had available approximately $1.1 million,
and Fibrexa had available approximately $2.8 million under various bank lines of
credit and overdraft facilities. At September 30, 1997, Filix had no outstanding
debt under these agreements, Rubyco had outstanding $0.5 million and Fibrexa had
outstanding $1.6 million. In addition, at such date Fibrexa had $1.8 million in
variable interest long-term debt obligations due 2000 and Filix had $3.4 million
in capitalized lease obligations and fixed interest debt obligations due 2002.
In connection with the ECA Acquisition, the Company assumed obligations
with respect to an Industrial Development Bond financing relating to ECA in an
aggregate principal amount of $6 million. These bonds bear interest at
approximately 60% of the prime rate, require no amortization and are due in full
in 2014. The letter of credit supporting these bonds is secured by ECA's
Columbiana, Alabama facility.
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<PAGE> 59
DESCRIPTION OF NOTES
GENERAL
The Notes are issued under the Indenture, dated as of December 1, 1997,
among the Company, as issuer, the Guarantors and IBJ Schroder Bank & Trust
Company, as trustee (the "Trustee"). The terms of the Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The Notes are subject to all
such terms, and Holders of 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 and the Registration Rights Agreement 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 proposed form of Indenture and Registration Rights Agreement are
available as set forth below under "-- Additional Information." The definitions
of certain terms used in the following summary are set forth below under
"-- Certain Definitions." For purposes of this summary, the term "Company"
refers only to Worldtex, Inc. and not to any of its Subsidiaries.
The Notes are general unsecured obligations of the Company and rank pari
passu in right of payment to all existing and future unsubordinated Indebtedness
of the Company, including Indebtedness under the New Credit Facility. The
obligations of the Company under the New Credit Facility, however, are secured
by the accounts receivable and inventory of the Company and its U.S.
Subsidiaries, as well as by all of the outstanding capital stock of the
Company's U.S. Subsidiaries and 65% of the outstanding capital stock of each of
the Company's Foreign Subsidiaries. Accordingly, the New Credit Facility
effectively ranks senior in right of payment to the Notes to the extent of the
assets subject to such security interest. The Company's payment of principal,
premium, if any, interest and Liquidated Damages, if any, on the Notes is fully
and unconditionally guaranteed on a senior unsecured basis by the Guarantors,
but Subsidiary Guarantees are not provided by the Foreign Subsidiaries. The
Subsidiary Guarantees rank pari passu in right of payment with all unsecured and
unsubordinated indebtedness of the Guarantors but secured indebtedness of a
Guarantor (including the secured guarantees granted under the New Credit
Facility) effectively ranks senior in right of payment to the Notes to the
extent of the assets subject to such security interest. The Notes effectively
rank junior to the secured and unsecured indebtedness and trade payables of the
Foreign Subsidiaries. As of September 30, 1997, on a pro forma basis after
giving effect to the ECA Acquisition, the Elastex Acquisition and the
application of the net proceeds from the sale of the Old Notes, the Company and
the Guarantors would have had $188.3 million of indebtedness outstanding
(including approximately $13.3 million of secured Indebtedness outstanding), the
Company would have an additional approximately $25.0 million of secured
Indebtedness available to be incurred under the New Credit Facility and the
Foreign Subsidiaries would have had approximately $23.0 million of Indebtedness
and trade payables outstanding. The terms of the Indenture permit the Company
and its subsidiaries to incur additional Indebtedness (including secured
Indebtedness), subject to certain limitations. See "Risk Factors -- Ranking of
the Notes and Subsidiary Guarantees."
The Company is a holding company, the only assets of which are the stock of
its subsidiaries. All of the operations of the Company are conducted through its
direct and indirect wholly owned subsidiaries. Accordingly, the Company's
ability to service its indebtedness, including the Notes, is dependent upon
earnings and cash flow of its subsidiaries and the payment of funds by those
subsidiaries to the Company in the form of loans, dividends or otherwise. In
addition, the ability of the Company's subsidiaries to pay dividends, repay
intercompany liabilities or make other advances to the Company is subject to
restrictions imposed by corporate law and certain United States, state and
foreign tax considerations. Although the Guarantors have provided the Subsidiary
Guarantees, such Subsidiary Guarantees may not be enforceable under certain
circumstances. See "Risk Factors -- Fraudulent Transfer Considerations;
Unenforceability of Subsidiary Guarantees."
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $175.0 million and
will mature on December 15, 2007. Interest on the New Notes accrues at the rate
of 9 5/8% per annum from the last date on which interest was paid on the Old
Notes surrendered in exchange therefor, or if no interest has been paid, from
the date of
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<PAGE> 60
the original issuance of such Old Notes. Interest on the New Notes is payable
semi-annually in arrears on June 15 and December 15 of each year, commencing on
June 15, 1998, to Holders of record on the immediately preceding June 1 and
December 1. Interest is computed on the basis of a 360-day year comprised of
twelve 30-day months. Principal, premium, if any, and interest and Liquidated
Damages on the Notes is payable at the office or agency of the Company
maintained for such purpose within the City and State of New York or, at the
option of the Company, payment of interest and Liquidated Damages may be made by
check mailed to the Holders of the Notes at their respective addresses set forth
in the register of Holders of Notes; provided that all payments of principal,
premium, interest and Liquidated Damages with respect to Notes the Holders of
which have given wire transfer instructions to the Company are required to be
made by wire transfer of immediately available funds to the accounts specified
by the Holders thereof. Until otherwise designated by the Company, the Company's
office or agency in New York is the office of the Trustee maintained for such
purpose. The Notes are issued in denominations of $1,000 and integral multiples
thereof.
SUBSIDIARY GUARANTEES
The Notes are fully and unconditionally guaranteed by each of the existing
and future U.S. Subsidiaries of the Company, but Subsidiary Guarantees are not
provided by the Company's Foreign Subsidiaries. The Guarantees rank pari passu
in right of payment with all existing and future unsecured and unsubordinated
Indebtedness of the Guarantors, including the guarantees granted under the New
Credit Facility, but secured Indebtedness of a Guarantor effectively ranks
senior in right of payment to the Notes to the extent of the assets subject to
such security interest. The Guarantors' obligations under the New Credit
Facility are secured by a lien on the accounts receivable and inventory of the
Guarantors and, accordingly, such indebtedness ranks prior to the Subsidiary
Guarantees with respect to such assets. See "Risk Factors -- Fraudulent Transfer
Considerations; Unenforceability of Subsidiary Guarantees."
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor) assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, and the Indenture; and (ii) immediately after giving
effect to such transaction, no Default or Event of Default exists.
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, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "-- Repurchase
at Option of Holders -- Asset Sales."
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to December 15,
2002. Thereafter, the Notes are 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
thereon to the applicable
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<PAGE> 61
redemption date, if redeemed during the twelve-month period beginning on
December 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---------------------------------------------------------- ----------
<S> <C>
2002...................................................... 104.813%
2003...................................................... 103.208%
2004...................................................... 101.604%
2005 and thereafter....................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or before, December 15, 2000,
the Company may redeem up to 35% of the aggregate principal amount of Notes
originally issued under the Indenture at a redemption price of 109.625% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds of a
public offering of common stock of the Company; provided that at least $113.75
million in aggregate principal amount of Notes remain outstanding immediately
after the occurrence of such redemption (excluding Notes held by the Company or
any of its Subsidiaries); and provided, further, that such redemption shall
occur within 45 days of the date of the closing of such public offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no 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 Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes has the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within ten days following any 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
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 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 Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the
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Paying Agent an amount equal to the Change of Control Payment in respect of all
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the Notes so accepted together with an Officers' Certificate
stating the aggregate principal amount of Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
Notes so tendered the Change of Control Payment for such Notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new Note equal in principal amount to any unpurchased portion
of the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. 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 are 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 Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The Company's other senior indebtedness contains prohibitions of certain
events that would constitute a Change of Control. In addition, the exercise by
the Holders of Notes of their right to require the Company to repurchase the
Notes could cause a default under such other senior indebtedness, even if the
Change of Control itself does not, due to the financial effect of such
repurchases on the Company. Finally, the Company's ability to pay cash to the
Holders of Notes upon a repurchase may be limited by the Company's then existing
financial resources. See "Risk Factors -- Change of Control."
The Company is not required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
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 issued or sold or otherwise disposed
of and (ii) at least 80% of the consideration therefor received by the Company
or such Subsidiary is in the form of cash; provided that the amount of (x) any
liabilities (as shown on the Company's or such Subsidiary's most recent balance
sheet), of the Company or any Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Subsidiary from
further liability and (y) any securities, notes or other obligations received by
the Company or any such Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Company or such Subsidiary into cash (to the extent of the cash received), shall
be deemed to be cash for purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds either (i) to the acquisition of a
majority of the assets of, or a majority of the Voting Stock of, another
Permitted Business, the making of a capital expenditure or the acquisition of
other long-term assets that are used or useful in a Permitted Business or (ii)
to reduce Indebtedness of the Company or any Subsidiary under a Credit Facility.
Pending the final application of any such Net Proceeds, the Company may
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temporarily reduce revolving credit borrowings 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 is
required to make an offer to all Holders of Notes and all holders of other
Indebtedness containing provisions similar to those set forth in the Indenture
with respect to offers to purchase or redeem with the proceeds of sales of
assets (an "Asset Sale Offer") to purchase the maximum principal amount of Notes
and such other Indebtedness 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 thereon, if any,
to the date of purchase, in accordance with the procedures set forth in the
Indenture and such other Indebtedness. To the extent that any Excess Proceeds
remain after consummation of an Asset Sale Offer, the Company may use such
Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If
the aggregate principal amount of Notes and such other Indebtedness tendered
into such Asset Sale Offer surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes and such other Indebtedness
to be purchased on a pro rata basis. Upon completion of such offer to purchase,
the amount of Excess Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's or any of
its Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company or any of
its Subsidiaries) or to the direct or indirect holders of the Company's or any
of its Subsidiaries' Equity Interests in their capacity as such (other than
dividends or distributions payable (x) in Equity Interests (other than
Disqualified Stock) of the Company or (y) to the Company or a 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 or other Affiliate of the Company (other than any
such Equity Interests owned by the Company or any Wholly Owned 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 that is
subordinated to the Notes, 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; and
(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 Subsidiaries after
the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv) and (v) of the next succeeding paragraph), is
less than the sum, without duplication, of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from
October 1, 1997 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 the
aggregate net cash proceeds received by the Company since the date of the
Indenture as a contribution to its common equity capital or from the issue
or sale of Equity Interests of the Company
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(other than Disqualified Stock) or from the issue or sale of Disqualified
Stock or debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company), plus
(iii) to the extent that any Restricted Investment that was made after the
date of the Indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment, plus (iv) $2.0 million.
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the Company
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 payment of any
dividend by a Subsidiary of the Company to the holders of its common Equity
Interests on a pro rata basis; (v) the making of any Restricted Investment in
exchange for, or out of the net cash proceeds of, the substantially concurrent
sale (other than to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); provided that the amount of any such
net cash proceeds that are utilized for any such Restricted Investment shall be
excluded from clause (c)(ii) of the preceding paragraph; and (vi) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any Subsidiary of the Company held by any
employee or director of the Company (or any of its Subsidiaries) pursuant to any
management equity subscription agreement or stock option agreement approved by
the Board of Directors of the Company; 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.
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 Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment shall be determined by the Board of Directors whose
resolution with respect thereto shall be conclusive and shall be delivered to
the Trustee. Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its 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 issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock and the Guarantors may incur
Indebtedness or 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 Disqualified Stock or 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 Disqualified Stock or
preferred stock had been issued, as the case may be, at the beginning of such
four-quarter period.
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The Indenture also provides that the Company and the Guarantors will not
incur any Indebtedness that is contractually subordinated in right of payment to
any other Indebtedness of the Company or the Guarantors unless such Indebtedness
is also contractually subordinated in right of payment to the Notes on
substantially identical terms; provided, however, that no Indebtedness of the
Company or the Guarantors shall be deemed to be contractually subordinated in
right of payment to any other Indebtedness of the Company or the Guarantors
solely by virtue of being unsecured.
The provisions of the first paragraph of this covenant do not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company or a Guarantor of Indebtedness and
letters of credit (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company and its
Subsidiaries thereunder) under Credit Facilities; provided that the
aggregate principal amount of all Indebtedness and letters of credit of the
Company and its Subsidiaries outstanding under Credit Facilities after
giving effect to such incurrence does not exceed an amount equal to the
greater of (x) $25.0 million less the aggregate amount of all Net Proceeds
of Asset Sales applied to reduce Indebtedness of the Company or any
Subsidiary under a Credit Facility or (y) the sum of 85% of Eligible
Receivables and 60% of Eligible Inventory as of the date of such
incurrence;
(ii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes and the Exchange Notes;
(iv) the incurrence by the Company or any of its Subsidiaries 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 Subsidiary, in an aggregate principal amount not to exceed
$5.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, renew, defease, refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was permitted by
the Indenture to be incurred under the first paragraph hereof or clauses
(iii), (iv) or (v) of this paragraph;
(vi) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company or any of its
Subsidiaries; provided, however, that (i) if the Company is the obligor on
such Indebtedness, such Indebtedness is expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Notes and
(ii)(A) 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 Subsidiary thereof and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a
Subsidiary thereof shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Subsidiary, as the
case may be, that was not permitted by this clause (vi);
(vii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of (a) fixing or
hedging interest rate risk with respect to any Indebtedness that is
permitted by the terms of this Indenture to be outstanding or (b) limiting
currency exchange rate risks in connection with transactions entered into
in the ordinary course of business;
(viii) the guarantee by the Company or any of the Subsidiaries of the
Company of Indebtedness of the Company or a Subsidiary of the Company that
was permitted to be incurred by another provision of this covenant;
(ix) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company or any Subsidiary in the ordinary
course of business; and
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(x) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (x), not to exceed $15.0
million.
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. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and the
payment of dividends on Disqualified Stock in the form of additional shares of
the same class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges of the Company as accrued.
Liens
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien 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.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, enter into any sale and leaseback transaction; provided
that the Company or any Subsidiary may enter into a sale and leaseback
transaction if (i) the Company could have (a) incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "-- Incurrence of
Additional Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien
to secure such Indebtedness pursuant to the covenant described above under the
caption "-- Liens," (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the proceeds of
such transaction in compliance with, the covenant described above under the
caption "Repurchase of the Option of Holders -- Asset Sales."
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its 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
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Indenture and
the Notes, (c) applicable law, (d) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its 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, (e) customary non-assignment provisions in leases entered into in
the ordinary course of business
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and consistent with past practices, (f) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (g) any
agreement for the sale of a Subsidiary that restricts distributions by that
Subsidiary pending its sale, (h) Permitted Refinancing Indebtedness, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced, (i)
Liens securing Indebtedness otherwise permitted to be incurred pursuant to the
provisions of the covenant described above under the caption "-- Liens" that
limits the right of the debtor to dispose of the assets securing such
Indebtedness, (j) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business and (k) restrictions on cash or
other deposits or net worth imposed by customers under contracts entered into in
the ordinary course of business.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company 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 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
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 under the Registration Rights Agreement, the Notes 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 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 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 the relevant Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and 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 $5.0
million, 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. Notwithstanding the foregoing, the
following items shall not be deemed to be Affiliate Transactions: (i) reasonable
employee
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compensation and other benefit arrangements approved by the disinterested
members of the Board of Directors of the Company, (ii) transactions between or
among the Company and/or its Subsidiaries, (iii) payment of reasonable directors
fees to Persons who are not otherwise Affiliates of the Company, (iv) reasonable
indemnities of officers, directors and employees of the Company or any
Subsidiary permitted by applicable law and (v) Restricted Payments that are
permitted by the provisions of the Indenture described above under the caption
"-- Restricted Payments."
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Equity Interests in any Wholly Owned Subsidiary of the
Company to any Person (other than the Company or a Wholly Owned Subsidiary of
the Company), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Equity Interests in such Wholly Owned Subsidiary and
(b) the cash Net Proceeds from such transfer, conveyance, sale, lease or other
disposition are applied in accordance with the covenant described above under
the caption "-- Asset Sales," and (ii) will not permit any Wholly Owned
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Subsidiary of
the Company.
Business Activities
The Company will not, and will not permit any Subsidiary to, engage in any
business other than Permitted Businesses, except to such extent as would not be
material to the Company and its Subsidiaries taken as a whole.
Payments for Consent
The Indenture provides that neither the Company nor any of its 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 Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the 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 Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
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" 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 each case within the time periods specified in the Commission's
rules and regulations. In addition, following the consummation of the exchange
offer contemplated by the Registration Rights Agreement, 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 availability
within the time periods specified in the Commission's rules and regulations
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, the Company and the Guarantors have agreed that, for so long as any
Notes remain outstanding, they will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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Additional Subsidiary Guarantees
The Indenture provides that if the Company or any of the Guarantors shall
acquire or create another U.S. Subsidiary after the date of the Indenture, then
such newly acquired or created Subsidiary shall become a Guarantor by executing
a Supplemental Indenture and deliver an Opinion of Counsel, in accordance with
terms of the Indenture.
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 with respect to, the Notes, (ii) default in payment when due
of the principal of or premium, if any, on the Notes; (iii) failure by the
Company or any of its Subsidiaries to comply with the provisions described under
the captions "-- Change of Control," "-- Asset Sales," "-- Restricted Payments"
or "-- Incurrence of Indebtedness and Issuance of Preferred Stock", (iv) failure
by the Company or any of its Subsidiaries for 60 days after notice to comply
with any of its other agreements in the Indenture or the 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 Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (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, provided that this clause (v) will
not apply to any Payment Default on, or acceleration of, the Existing Senior
Notes so long as such Existing Senior Notes are repaid in full within 30 days of
the Closing Date; (vi) failure by the Company or any of its Subsidiaries to pay
final judgments (other than judgments as to which a reputable insurance company
has acknowledged full coverage in writing) aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee 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 Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations under
its Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency
with respect to the Company or any of its 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 Notes may
declare all the 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 Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the 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 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 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 Notes. If an Event of Default occurs prior to
December 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes
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prior to December 15, 2002 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 Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
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 Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the 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 Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen 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 Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the 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 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, premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the 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 date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant
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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 must 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 must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
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 must deliver 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 Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a 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 or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the 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 Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders") or (viii) make any change in
the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency,
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to provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to Holders of
Notes in the case of a merger or consolidation or sale of all or substantially
all of the Company's assets, to make any change that would provide any
additional rights or benefits to the Holders of 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 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 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 Worldtex, Inc., 212
12th Avenue, N.E., Hickory, NC, 28601, Attention: Treasurer.
BOOK-ENTRY, DELIVERY AND FORM
The Old Notes have been issued to qualified institutional buyers in the
form of a permanent global certificate in definitive, fully registered form (the
"Global Note") and the New Notes will be issued in the form of a permanent
global certificate in definitive, fully registered form (the "Global New Note"
and, together with the Global Old Note, the "Global Notes"). The Global Old Note
was deposited on the date of the closing of the sale of the Old Notes with, or
on behalf of, DTC and registered in the name of the nominee of DTC. Except as
set forth below, the Global Notes may be transferred, in whole and not in part,
only to another nominee of DTC or to a successor of DTC or its nominee.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised that pursuant to procedures established by it
ownership of beneficial interest in the Global Notes will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
DTC (with respect to Participants' interest), the Participants and the indirect
participants. The laws of some states require that certain persons take physical
delivery in definitive form of securities which
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they own. Consequently, the ability to transfer beneficial interests in the
Global Notes is limited to such extent.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global New Note registered in the name of DTC
or its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interest in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Notes or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants. DTC has
advised the Company that its current practice, upon receipt of any payment in
respect of securities such as the Notes (including principal and interest), is
to credit the accounts of the relevant Participants with the payment on the
payment date, in amounts proportionate to their respective holdings in the
principal amount of beneficial interest in the relevant security as shown on the
records of DTC unless DTC has reason to believe it will not receive payment on
such payment date. Payments by the Participants and the Indirect Participants to
the beneficial owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee or
the Company. Neither the Company nor the Trustee will be liable for any delay by
DTC or any of its Participants in identifying the beneficial owners of the
Notes, and the Company and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee for all purposes.
Interest in the Global Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its Participants. See "-- Same Day
Settlement and Payment."
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the right
to exchange the Global Notes for legended Notes in certificated form, and to
distribute such Notes to its Participants.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global New Note is exchangeable for definitive New Notes in registered
certificated form ("Certificated Notes") if (i) DTC (x) notifies the Company
that it is unwilling or unable to continue as depositary for the Global New
Notes and the Company thereupon fails to appoint a successor depositary or (y)
has ceased to be a clearing agency registered under the Exchange Act, (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of the Certificated Notes or (iii) there shall have occurred and be
continuing a Default or Event of Default with respect to the Notes. In addition,
beneficial interests in a Global New Note may be exchanged for Certificated
Notes upon request but only upon prior written notice given to the Trustee by or
on behalf of DTC in accordance with the Indenture. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests therein
will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures).
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SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Notes in
certificated form, the Company will make all payments of principal, premium, if
any, 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. The Notes represented by the Global Notes are expected to be eligible
to trade in the Depositary's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such Notes will, therefore, be required by
the Depositary to be settled in immediately available funds. The Company expects
that secondary trading in any
certificated Notes will also be settled in immediately available funds.
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.
"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 Stock of a Person shall be
deemed to be control.
"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) other than sales of inventory in the ordinary course of business
(provided that the sale, lease, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole will be governed by the provisions of the Indenture described above under
the caption "-- Repurchase at the Option of Holders -- Change of Control" and/or
the provisions described above under the caption "-- Certain
Covenants -- 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 items shall not be deemed to be Asset Sales: (i) a
transfer of assets by the Company to a Subsidiary or by a Subsidiary to the
Company or to another Subsidiary, (ii) an issuance of Equity Interests by a
Subsidiary to the Company or to another Subsidiary, (iii) a Restricted Payment
that is permitted by the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments," (iv) the sale or lease of equipment,
inventory, accounts receivable or other assets in the ordinary course of
business, (v) the sale or other disposition of cash or Cash Equivalents, and (v)
the making of a Permitted Investment.
"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)
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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) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of deposit
and eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any lender party to the New
Credit Facility or with any domestic commercial bank having capital and surplus
in excess of $500 million and a Thompson Bank Watch Rating of "B" or better,
(iv) 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, (v) commercial paper having the highest rating obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Ratings Services and
in each case maturing within six months after the date of acquisition and (vi)
money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (i)-(v) of this definition.
"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 Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act); (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) 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, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of the
Company (measured by voting power rather than number of shares); (iv) the first
day on which a majority of the members of the Board of Directors of the Company
are not Continuing Directors or; (iv) the Company consolidates with, or merges
with or into, any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where the
Voting Stock of the Company outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person (immediately
after giving effect to such issuance).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, 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), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for
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such period to the extent that such depreciation, amortization and other
non-cash expenses were deducted in computing such Consolidated Net Income, minus
(v) non-cash items increasing such Consolidated Net Income for such period, in
each case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation and amortization and other non-cash expenses of, a
Subsidiary of the referent Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent that a corresponding amount
would be permitted at the date of determination to be dividended to the Company
by such Subsidiary without prior governmental approval (that has not been
obtained), and without direct or indirect restriction pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that 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 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 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 Subsidiary thereof that is a Guarantor, (ii)
the Net Income of any Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that 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 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 and (iv) the cumulative effect of
a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the New Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time. Indebtedness under Credit Facilities
outstanding on the date on which Notes are first issued and authenticated under
the Indenture shall be deemed to have been incurred on such date in reliance on
the exception provided by clause (i) or (ii) of the definition of Permitted
Debt.
"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.
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"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, at the option of the holder thereof), 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 Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require the Company to repurchase such Capital Stock upon the occurrence of a
Change of Control or an Asset Sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that the Company may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such repurchase
or redemption complies with the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments."
"Eligible Inventory" means, as of any date of determination, all inventory
of the Company and its Subsidiaries, wherever located, valued in accordance with
GAAP and reflected on the most recent consolidated balance sheet of the Company
prior to such date of determination for which financial statements of the
Company are available.
"Eligible Receivables" means, as of any date of determination, all accounts
receivable of the Company and its Subsidiaries (including amounts denominated as
due from factor) arising out of the sale of inventory or manufacturing services
in the ordinary course of business, valued in accordance with GAAP and reflected
on the most recent consolidated balance sheet of the Company prior to such date
of determination for which financial statements of the Company are available.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of the Indenture (including without limitation the $6
million principal amount Industrial Development Bonds (NFA Corp. Project),
Series 1992A, issued by the Industrial Development Board of the City of
Columbiana, Alabama), until such amounts are repaid.
"Existing Senior Notes" means the 7.50% Senior Notes due July 1, 2004 of
the Company.
"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 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) and (ii) the consolidated interest of
such Person and its Subsidiaries that was capitalized during such period, and
(iii) any interest expense on Indebtedness of another Person that is Guaranteed
by such Person or one of its Subsidiaries or secured by a Lien on assets of such
Person or one of its 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
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company (other than Disqualified Stock) or to the
Company or a Subsidiary 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 for such period. In the event that the
referent Person or any of its Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues or
redeems 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
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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 Subsidiaries, including through 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, and (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 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.
"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, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Guarantors" means each of (i) Willcox & Gibbs Filix of Delaware, Inc.,
Regal Manufacturing Company, Inc., Elastic Corporation of America, Inc.,
Elastex, Inc., Regal Yarns of Argentina, Inc., Worldtex Colombiana I, Inc. and
Worldtex Colombiana II, Inc. and (ii) any other subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest or currency rate swaps, caps, collars, floors or
other similar agreements and (ii) other agreements or arrangements designed to
protect such Person against fluctuations in interest rates or currency exchange
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or 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 (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such Person (whether or not such Indebtedness is
assumed by such Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person. The amount of any
Indebtedness outstanding as of any date shall be (i) the accreted value thereof,
in the case of any Indebtedness issued with original issue discount, and (ii)
the principal amount thereof, together with any interest thereon that is more
than 30 days past due, in the case of any other Indebtedness.
"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
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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 "-- Certain Covenants -- 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 thereof, any option or other agreement to sell or give a security
interest).
"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 (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its 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 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 (other than Indebtedness under a Credit Facility) 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 that certain Credit Agreement, dated as of
December 1, 1997, by and among the Company, NationsBank, N.A., and the other
lenders named therein, providing for up to $25.0 million of revolving credit
borrowings, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the same or similar line of business as the
Company or any of its Subsidiaries was engaged in on the date that the Notes
were originally issued or any reasonable extension or expansion thereof.
"Permitted Investments" means (a) any Investment in the Company or in a
Subsidiary of the Company that is engaged in a Permitted Business; (b) any
Investment in Cash Equivalents; (c) any Investment by the Company or any
Subsidiary of the Company in a Person that is engaged in a Permitted Business,
if as a result of such Investment (i) such Person becomes a Subsidiary of the
Company or (ii) 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 Subsidiary of the Company; (d) any 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 Option of Holders -- Asset Sales"; (e) any
acquisition of assets solely in exchange for the issuance of Equity Interests
(other than Disqualified Stock) of the Company; and (f) other Investments in any
Person having an aggregate fair market value (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 (f)
that are at the time outstanding, not to exceed $5.0 million.
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"Permitted Liens" means (i) Liens on assets of the Company or any of the
Guarantors securing obligations of such persons under Credit Facilities that
were permitted by the terms of the Indenture to be incurred; (ii) Liens in favor
of the Company; (iii) Liens on property of a Person existing at the time such
Person is merged into or consolidated with the Company or any 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 or such Subsidiary;
(iv) Liens on property existing at the time of acquisition thereof by the
Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Liens or deposits
to secure the performance of statutory obligations, surety or appeal bonds,
performance bonds, leases and return of money 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 third paragraph of the covenant entitled "Incurrence of Indebtedness and
Issuance of Preferred Stock" covering only the assets acquired with such
Indebtedness; (vii) Liens existing on the date of the Indenture; (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 therefor; (ix) Liens to secure Permitted Refinancing Indebtedness,
provided that such Liens extend only to the assets that secured the Indebtedness
refinanced with the proceeds of such Permitted Refinancing Indebtedness; (x)
statutory Liens of landlords and Liens of carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen and other Liens imposed by law incurred in the
ordinary course of business for sums not delinquent or being contested in good
faith, if such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made in respect thereof; (xi) Liens securing
Hedging Obligations and (xii) easements, rights-of-way, municipal and zoning
ordinances and similar charges, encumbrances, title defects or other
irregularities that do not materially interfere with the ordinary course of
business of the Company and its Subsidiaries; (xiii) Liens on assets of
Subsidiaries securing Indebtedness of such persons that was permitted by the
terms of the Indenture to be incurred; and (xiv) Liens incurred in the ordinary
course of business of the Company or any Subsidiary of the Company with respect
to obligations that do not exceed $5.0 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 Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries (other than intercompany
Indebtedness); provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted 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 equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Senior
Notes on terms at least as favorable to the Holders of Senior 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 Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the Indenture.
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"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).
"U.S. Subsidiary" means any Subsidiary that is incorporated in a State in
the United States or the District of Columbia or that guaranteed any
Indebtedness of the Company.
"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 Subsidiary" of any Person means a 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, by one or more Wholly Owned Subsidiaries of such Person or by such
person and one or more Wholly Owned Subsidiaries of such Person.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
EXCHANGE OF OLD NOTES FOR NEW NOTES
The following is a summary of the material generally applicable U.S.
federal income tax consequences resulting from the exchange of Old Notes for New
Notes pursuant to the Exchange Offer.
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer should not be treated as a taxable transaction for federal income tax
purposes because the New Notes do not differ materially in kind or extent from
the Old Notes. Accordingly, no gain or loss should be recognized by a Holder who
exchanges an Old Note for a New Note pursuant to the Exchange Offer, and each
New Note should be viewed as a continuation of the corresponding Old Note. For
purposes of determining gain or loss upon a subsequent sale or exchange of the
New Notes, a holder's initial basis in the New Notes will be the same as such
holder's adjusted basis in the Old Notes exchanged therefor, and the holding
period of a holder for the New Note should include the period during which such
holder held such corresponding Old Note.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the acquisition, ownership and disposition
of Notes by an initial beneficial owner of Notes that, for United States federal
income tax purposes, is not a "United States person" (a "Non-United States
Holder"). This discussion is based upon the United States federal tax law now in
effect, which is subject to change, possibly retroactively. For purposes of this
discussion, a "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in the
United States or under the
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laws of the United States or of any political subdivision thereof, an estate
whose income is includible in gross income for United States federal income tax
purposes regardless of its source, or a trust if (i) a U.S. court is able to
exercise primary supervision over the administration of the trust and (ii) one
or more United States persons have the authority to control all substantial
decisions of the trust. The tax treatment of the holders of the Notes may vary
depending upon their particular situations. United States persons acquiring the
Notes are subject to different rules from those discussed below. In addition,
certain other holders (including insurance companies, tax exempt organizations,
financial institutions and broker-dealers) may be subject to special rules not
discussed below. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE UNITED STATES FEDERAL TAX CONSEQUENCES OF ACQUIRING, HOLDING AND
DISPOSING OF NOTES, AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE
LAWS OF ANY FOREIGN, STATE, LOCAL OR OTHER TAXING JURISDICTION.
INTEREST
Interest paid by the Company to a Non-United States Holder will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder and (i) the Non-United States
Holder does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company; (ii) the Non-United States
Holder is not a controlled foreign corporation with respect to which the Company
is a "related person" within the meaning of the United States Internal Revenue
Code of 1986, as amended (the "Code"); and (iii) either (A) the Non-United
States Holder certifies, under penalties of perjury, that such holder is not a
United States person and provides such holder's name and address or (B) a
securities clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
"financial organization") and holds the Notes certifies, under penalties of
perjury, that such statement has been received from the Non-United States Holder
by it or by another financial organization and furnishes the payor with a copy
thereof.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption or other disposition
of a Note unless (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-United States Holder or
(ii) in the case of a Non-United States Holder who is a nonresident alien
individual and holds the Note as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year and certain other
requirements are met.
FEDERAL ESTATE TAXES
If interest on the Notes is exempt from withholding of United States
federal income tax under the rules described above, the Notes will not be
included in the estate of a deceased Non-United States Holder for United States
federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will, where required, report to the holders of Notes and the
Internal Revenue Service the amount of any interest paid on the Notes in each
calendar year and the amounts of tax withheld, if any, with respect to such
payments.
In the case of payments of interest to Non-United States Holders, temporary
Treasury regulations provide that the 31% backup withholding tax and certain
information reporting requirements will not apply to such payments with respect
to which either the requisite certification, as described above, has been
received or an exemption has otherwise been established; provided that neither
the Company nor its paying agent has actual knowledge that the holder is a
United States person or that the conditions of any other exemption are not in
fact satisfied. Under temporary Treasury regulations, these information
reporting and backup withholding requirements will apply, however, to the gross
proceeds paid to a Non-United States Holder on the disposition of the Notes by
or through a United States office of a United States or foreign broker, unless
the holder certifies to the broker under penalties of perjury as to its name,
address and status as a foreign person or the holder otherwise establishes an
exemption. Information reporting requirements, but not backup
81
<PAGE> 83
withholding, will also apply to a payment of the proceeds of a disposition of
the Notes by or through a foreign office of a United States broker or foreign
brokers with certain types of relationships to the United States unless such
broker has documentary evidence in its file that the holder of the Notes is not
a United States person, and such broker has no actual knowledge to the contrary,
or the holder otherwise establishes an exception. Neither information reporting
nor backup withholding generally will apply to a payment of the proceeds of a
disposition of the Notes by or through a foreign office of a foreign broker not
subject to the preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
The Treasury Department recently promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general, the
final regulations do not significantly alter the substantive withholding and
information reporting requirements but rather modify certain certification
procedures and forms and clarify reliance standards applicable to withholding
agents. The final regulations are generally effective for payments made after
December 31, 1998, subject to certain transition rules. NON-UNITED STATES
HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE IMPACT,
IF ANY, OF THE NEW FINAL REGULATIONS.
PLAN OF DISTRIBUTION
Each broker-dealer who holds Old Notes that are Transfer Restricted
Securities that were acquired for its own account as a result of market-making
activities or other trading activities (other than Transfer Restricted
Securities acquired directly from the Company) may exchange such Old Notes
pursuant to the Exchange Offer; however, such broker-dealer may be deemed an
"underwriter" within the meaning of the Securities Act and must, therefore,
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. This Prospectus as it may be amended or supplemented from time
to time may be used by a broker-dealer for such purpose. The Company has agreed
that for a period of 180 days after the Exchange Offer is consummated, it will,
upon reasonable request, make this Prospectus, as amended or supplemented,
available promptly to any broker-dealer for use in connection with any such
resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act, and any profit on any such resale of New Notes and any
commissions and concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the effective date of the Registration
Statement of which this Prospectus is a part, the Company will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. The Company has agreed to pay the expenses incident to the Exchange
Offer and will indemnify the Holders of the Old Notes against certain
liabilities, including certain liabilities under the Securities Act, in
connection with the Exchange Offer.
LEGAL MATTERS
The legality of the New Notes will be passed upon by Hughes Hubbard & Reed
LLP, New York, New York.
82
<PAGE> 84
EXPERTS
The consolidated financial statements and schedule of Worldtex, Inc. as of
December 31, 1996 and 1995 and for each of the years in the three-year period
ended December 31, 1996, have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The statements of assets, liabilities, and divisional equity of ECA as of
December 28, 1996, December 30, 1995 and December 31, 1994, and the related
statements of income, divisional equity and cash flows for each of the three
fiscal years in the period ended December 28, 1996, included in this Prospectus
which is part of this registration statement, have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report appearing herein and
elsewhere in this Prospectus which is part of this registration statement (which
report expressed an unqualified opinion and includes an explanatory paragraph
referring to the basis of presentation of the ECA financial statements) and have
been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act for the registration of the New Notes offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the New Notes offered hereby, reference is made to the Registration
Statement and to the exhibits filed therewith. Statements contained in this
Prospectus concerning the contents of any contract or other document are not
necessarily complete. With respect to each such contract or other document filed
with the Commission as an exhibit to the Registration Statement, reference is
made to the exhibit for a more complete description of the matter involved, and
each such statement shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy and information statements
and other information with the Commission. Such reports, proxy statements and
other information, including the exhibits thereto, 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 at the following Regional
Offices of the Commission: 500 West Madison Street, Suite 1400, Chicago, IL
60661 and 7 World Trade Center, Suite 1300, New York, NY 10048. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a website at http:www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. In addition,
such material can be inspected at the offices of the New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005.
The Company has agreed that, whether or not it is required to do so by the
rules and regulations of the Commission, for so long as any of the Notes remain
outstanding, it will furnish (excluding exhibits and schedules) to the holders
of the Notes and file with the Commission (unless the Commission will not accept
such a filing) as specified in the Commission's rules and regulations: (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" and, with respect to
the annual financial statements only, a report thereon by the Company's
independent certified public accountants and (ii) all reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports, in each case within the time periods specified in
the Commission's rules and regulations. In addition, for so long as any of the
Notes remain outstanding, the Company has agreed to make available to any
prospective purchaser of the Notes or beneficial owner of the Notes in
connection with any sale thereof the information required by Rule 144A(d)(4)
under the Securities Act.
83
<PAGE> 85
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WORLDTEX, INC. AND SUBSIDIARIES
Audited Financial Statements:
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995........................ F-3
Consolidated Statements of Income for the years ended December 31, 1996, 1995 and
1994............................................................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1996, 1995 and 1994.............................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994......................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Unaudited Financial Statements:
Consolidated Balance Sheets as of September 30, 1997................................ F-24
Consolidated Statements of Income for the nine months ended September 30, 1997 and
1996............................................................................. F-25
Consolidated Statements of Cash Flows for the nine months ended September 30, 1997
and 1996......................................................................... F-26
Notes to Unaudited Consolidated Financial Statements................................ F-27
ELASTIC CORPORATION OF AMERICA (A DIVISION OF NFA CORP.)
Audited Financial Statements:
Independent Auditors' Report........................................................ F-31
Statements of assets, liabilities and divisional equity as of December 28, 1996,
December 30, 1995 and December 31, 1994.......................................... F-32
Statements of income and divisional equity for the fiscal years ended December 28,
1996, December 30, 1995 and December 31, 1994.................................... F-33
Statements of cash flows for the fiscal years ended December 28, 1996, December 30,
1995 and December 31, 1994....................................................... F-34
Notes to Financial Statements....................................................... F-35
Unaudited Financial Statements:
Statement of assets, liabilities and divisional equity as of September 27, 1997..... F-40
Statements of income and divisional equity for the thirty-nine weeks ended September
27, 1997 and September 28, 1996.................................................. F-41
Statements of cash flows for the thirty-nine weeks ended September 27, 1997 and
September 28, 1996............................................................... F-42
Notes to Unaudited Financial Statements............................................. F-43
</TABLE>
F-1
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Worldtex, Inc.
We have audited the accompanying consolidated balance sheets of Worldtex,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 financial position of Worldtex,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Greensboro, North Carolina
March 4, 1997
F-2
<PAGE> 87
WORLDTEX, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash................................................................... $ 2,117 $ 1,845
Accounts and notes receivable, less allowance for doubtful accounts of
$2,589 in 1996 and $2,623 in 1995 (Note 4).......................... 39,868 38,619
Inventories (Note 3)................................................... 37,265 33,660
Prepaid expenses and other current assets (Note 11).................... 2,975 3,432
-------- --------
Total current assets........................................... 82,225 77,556
Property, plant and equipment -- net (Note 3)............................ 90,282 83,991
Other assets (Notes 3 and 15)............................................ 5,147 4,724
Cost in excess of net assets of acquired businesses, net of accumulated
amortization of $7,115 in 1996 and $6,126 in 1995...................... 28,378 29,794
-------- --------
$206,032 $196,065
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings (Note 5)......................................... $ 1,342 $ 939
Current installments of long-term debt (Note 6)........................ 1,634 1,240
Accounts and notes payable-trade and other liabilities (Notes 8 and
10)................................................................. 30,254 24,990
Income taxes payable (Note 11)......................................... 1,525 3,045
-------- --------
Total current liabilities...................................... 34,755 30,214
Long-term debt (Note 6).................................................. 67,754 68,947
Other long-term liabilities.............................................. 1,316 1,014
Deferred income taxes (Note 11).......................................... 17,029 16,951
-------- --------
Total liabilities.............................................. 120,854 117,126
-------- --------
Stockholders' equity (Notes 6, 7 and 8):
Preferred stock 0 Common Stock......................................... 147 0
Paid-in capital........................................................ 29,946 29,913
Retained earnings...................................................... 56,919 45,973
Cumulative foreign translation adjustment.............................. (336) 3,817
Less -- Treasury stock, at cost........................................ (1,498) (911)
-------- --------
Total stockholders' equity..................................... 85,178 78,939
-------- --------
$206,032 $196,065
======== ========
Commitments and contingencies (Note 9)...................................
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 88
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales (Notes 12 and 16).................................... $207,829 $187,981 $164,654
Cost of goods sold............................................. 168,754 156,519 138,666
-------- -------- --------
Gross profit.............................................. 39,075 31,462 25,988
Selling and administrative expense............................. 16,582 15,708 13,502
-------- -------- --------
Operating profit.......................................... 22,493 15,754 12,486
Interest expense............................................... 5,826 5,693 3,951
Other income, net.............................................. 694 170 333
-------- -------- --------
Income before income taxes................................ 17,361 10,231 8,868
Provision for income taxes (Note 11)........................... 6,415 4,979 3,058
-------- -------- --------
Net income........................................... $ 10,946 $ 5,252 $ 5,810
======== ======== ========
Net income per share........................................... $ 0.75 $ 0.36 $ 0.40
======== ======== ========
Weighted average shares outstanding (Notes 3 and 7)............ 14,669 14,567 14,639
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 89
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
------ ------- -------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at Dec. 31, 1993................ $147 $29,913 $ 34,911 $(5,929) $ 0 $59,042
Net income.............................. 0 0 5,810 0 0 5,810
Foreign currency translation
adjustment......................... 0 0 0 5,092 0 5,092
Purchases of treasury stock........... 0 0 0 0 (911) (911)
---- ------ ------ ------- ------- -------
Balance at Dec. 31, 1994................ 148 29,913 40,721 (837) (911) 69,033
Net income............................ 0 0 5,252 0 0 5,252
Foreign currency translation
adjustment......................... 0 0 0 4,654 0 4,654
---- ------ ------ ------- ------- -------
Balance at Dec. 31, 1995................ 147 39,913 45,973 3,817 (911) 78,939
Net income............................ 0 0 10,946 0 0 10,946
Foreign currency translation
adjustment......................... 0 0 0 (4,153) 0 (4,153)
Purchases of treasury stock........... 0 0 0 0 (587) (587)
Stock issued.......................... 0 33 0 0 0 33
---- ------ ------ ------- ------- -------
Balance at Dec. 31, 1996 (Notes 6, 7 and
8).................................... $147 $29,946 $ 56,919 $ (336) $ (1,498) $85,178
==== ====== ====== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 90
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 10,946 $ 5,252 $ 5,810
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 6,284 6,133 4,889
Provision for losses on accounts receivable................. 139 1,332 658
Deferred income taxes....................................... 825 (161) 502
Change in assets and liabilities net of effects of
acquisition of Fibrexa:
Accounts and notes receivable............................ (2,788) (2,751) (7,356)
Inventories.............................................. (4,557) (1,276) (2,626)
Prepaid expenses and other current assets................ 163 (527) 517
Accounts and notes payable -- trade and other current
liabilities............................................ 5,344 3,950 6,994
Income taxes payable..................................... (1,324) 94 204
--------- -------- --------
Net cash provided by operating activities........... 15,032 12,046 9,592
--------- -------- --------
Cash flows from investing activities:
Capital expenditures........................................ (13,785) (8,356) (8,077)
Acquisition of Fibrexa, S.A., net of cash acquired.......... 0 (4,067) 0
Other investing activities.................................. (1,149) (3,011) (876)
--------- -------- --------
Net cash used in investing activities............... (14,934) (15,434) (8,953)
--------- -------- --------
Cash flows from financing activities:
Borrowings under line of credit arrangements................ 16,724 7,813 7,583
Payments under line of credit arrangements.................. (16,321) (6,874) (7,699)
Borrowings under revolving credit facility.................. 104,660 46,038 34,830
Payments under revolving credit facility.................... (104,940) (40,578) (86,140)
Borrowings under long-term loans............................ 0 0 50,000
Stock (reacquired) or issued, net........................... (554) 0 (911)
Other financing activities.................................. 830 (4,217) 2,465
--------- -------- --------
Net cash provided by financing activities........... 399 2,182 128
--------- -------- --------
Effects of exchange rate changes on cash...................... (225) (100) 175
--------- -------- --------
Net increase (decrease) in cash..................... 272 (1,306) 942
Cash at beginning of year..................................... 1,845 3,151 2,209
--------- -------- --------
Cash at end of year........................................... $ 2,117 $ 1,845 $ 3,151
========= ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................ $ 5,784 $ 5,265 $ 2,278
========= ======== ========
Income taxes........................................ $ 7,630 $ 3,722 $ 1,464
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 91
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
NOTE 1 -- ORGANIZATION AND BUSINESS
Worldtex, Inc. ("Worldtex" or the "Company"), a Delaware corporation
organized in July 1992, is a holding company engaged through its subsidiaries in
the manufacture of covered elastic yarn, which is used to manufacture hosiery
products and other apparel items. Worldtex's principal markets are in North
America, South America and Europe. Worldtex's operations are concentrated in one
segment: the manufacture of covered elastic yarns.
Worldtex's principal subsidiaries are Regal Manufacturing Company, Inc.
("Regal"), based in Hickory, North Carolina, Rubyco (1987), Inc. ("Rubyco"),
based in Montreal, Canada, Filix Lastex, S.A. ("Filix"), based in Troyes,
France, and Fibrexa, Ltda. ("Fibrexa"), based in Bogota, Colombia. Reference to
Worldtex shall include its subsidiaries unless the context shall indicate
otherwise.
NOTE 2 -- BASIS OF PRESENTATION
The consolidated financial statements of Worldtex as of December 31, 1996
and 1995 and for the years ended December 31, 1996, 1995 and 1994 include the
accounts of Regal, Rubyco, Filix and, since April 1, 1995, the accounts of
Fibrexa. All significant intercompany balances and transactions for all periods
are eliminated in the consolidated financial statements.
NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash
At December 31, 1996 and 1995, other assets include restricted cash on
deposit of $2,004 and $2,234, respectively, as security for loans to Fibrexa in
Colombia, South America.
(b) Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market.
As of December 31, 1996 and 1995, the major classes of inventory are:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Raw Materials...................................... $12,614 $12,728
Work in Process.................................... 6,428 5,429
Finished Goods..................................... 18,223 15,503
------- -------
$37,265 $33,660
======= =======
</TABLE>
(c) Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated
primarily using the straight-line method over the following estimated useful
lives of the related assets: machinery and equipment (10 to 20 years, with
approximately 77% being depreciated over 20 years), structures (20 to 40 years),
other equipment (5 to 10 years). Leasehold improvements are amortized over their
respective lease terms or their estimated useful lives, if shorter. Repair and
maintenance costs are charged to expense as incurred. Renewals
F-7
<PAGE> 92
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
and betterments which substantially extend the useful life of an asset are
capitalized and depreciated. As of December 31, 1996 and 1995, property, plant
and equipment consists of:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land............................................. $ 2,471 $ 2,538
Buildings and leasehold improvements............. 31,181 29,729
Machinery and equipment.......................... 91,008 84,598
-------- --------
124,660 116,865
Less accumulated depreciation and amortization... 34,378 32,874
-------- --------
$ 90,282 $ 83,991
======== ========
</TABLE>
(d) Cost in Excess of Net Assets of Acquired Businesses
The cost in excess of net assets of acquired businesses is amortized on the
straight-line method over the expected periods to be benefited, generally 40
years. The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the cost in excess of net assets of
acquired businesses over its remaining life can be recovered through the
undiscounted future operating cash flows of the acquired business. The
assessment of the recoverability of goodwill will be impacted if estimated
future cash flows are not achieved.
(e) Forward Exchange Contracts
Rubyco enters into forward exchange contracts as a hedge against accounts
payable denominated in foreign currency. These contracts are used by Rubyco to
minimize exposure and reduce risk from exchange rate fluctuations in the regular
course of its foreign business. Gains and losses on forward contracts, which are
not material, are deferred and included in the measurement of the related
foreign currency transactions. The impact of forward contracts on cash flows is
reflected in the change in accounts and notes payable -- trade. As of December
31, 1996 and 1995, $500 and $100, respectively, in contracts were outstanding.
(f) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the carrying amounts
of assets and liabilities for tax purposes and financial statement purposes and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
No provision is made for income taxes which may be payable if undistributed
earnings of foreign subsidiaries were to be paid as dividends to Worldtex, since
Worldtex intends that such earnings will continue to be invested in those
countries. At December 31, 1996, the cumulative amount of foreign undistributed
earnings amounted to approximately $40,633. Foreign tax credits may be available
as a reduction of United States income taxes in the event of such distributions.
(g) Foreign Exchange
Assets and liabilities denominated in foreign currencies have been
translated into U.S. dollars at the period-end exchange rate. Translation gains
and losses are accounted for in a separate component of stockholders' equity.
The exchange gains and losses arising on transactions are charged to income as
incurred.
F-8
<PAGE> 93
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
Revenues and expenses denominated in foreign currencies have been translated
into U.S. dollars at the weighted average exchange rate.
(h) Earnings per Share
Earnings per share are calculated based upon the weighted average number of
common shares outstanding and common equivalent shares during the year.
(i) Revenue Recognition
Revenue from sales is recognized when goods are shipped to the customer.
(j) Interest Rate Swap
The interest rate swap agreement is accounted for like a hedge of the
underlying debt obligation and interest expense is recorded using the revised
interest rate, with fees and other payments amortized as yield adjustments.
(k) Stock Options
Prior to January 1, 1996, the Company accounted for its stock option plan
in accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
January 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which allows entities to continue to apply the provisions of APB
Opinion No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
(l) Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
(m) Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation. The reclassifications did not impact net earnings as
previously reported.
NOTE 4 -- NOTES RECEIVABLES
Filix has the U.S. dollar equivalent of approximately $4,500 and $5,252 of
non-interest bearing notes receivable as of December 31, 1996 and 1995,
respectively, with maturities within four months of the periods ended.
NOTE 5 -- SHORT-TERM BORROWINGS
Short-term debt consists of notes payable to banks and advances under bank
lines of credit and overdraft facilities.
F-9
<PAGE> 94
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
Fibrexa has available the U.S. dollar equivalent of $2,800 under various
bank lines of credit providing for unsecured borrowings and letter of credit
financing generally due in 90 days. At December 31, 1996 and 1995, $1,324 and
$939, respectively, were outstanding under these agreements at average interest
rates of 7.57% and 7.44% respectively.
Filix has available the U.S. dollar equivalent of $17,341 under various
bank lines of credit and overdraft facilities bearing interest at 4.21%. At
December 31, 1996 and 1995, no amounts were outstanding under these facilities.
Rubyco has available the U.S. dollar equivalent of $1,095 under a bank line
of credit, due on demand, providing for unsecured borrowings and letter of
credit financing at the bank's prime rate (4.75% at December 31, 1996). The line
of credit is guaranteed by the Company. At December 31, 1996 and 1995, $18 and
$0, amounts respectively, were outstanding under this agreement.
NOTE 6 -- LONG-TERM DEBT
As of December 31, 1996 and 1995, long-term debt consists of:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
7.50% Senior Notes due July 1, 1998 through July 1,
2004................................................ $50,000 $50,000
Revolving credit facilities with interest at variable
rates (6.56% and 6.86% weighted average rate as of
December 31, 1996 and 1995) due May 31, 1999........ 12,390 12,670
Other indebtedness, primarily fixed rate debt, due at
various dates through 2007.......................... 6,998 7,517
------- -------
69,388 70,187
Less current installments.............................. 1,634 1,240
------- -------
$67,754 $68,947
======= =======
</TABLE>
The aggregate annual maturities of long-term debt during each of the five
years subsequent to December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
----------------------------------------------------------- -------
<S> <C>
1997....................................................... $ 1,634
1998....................................................... 7,849
1999....................................................... 20,068
2000....................................................... 9,089
2001....................................................... 7,889
Thereafter................................................. 22,859
-------
$69,388
=======
</TABLE>
During 1994, the Company entered into Senior Note Agreements which provide
a total $50,000 ten year loan due July 1, 2004 with interest at the annual rate
of 7.5%. Annual principal payments of $7,100 are due beginning July 1, 1998. The
agreements contain various covenants requiring the maintenance of certain ratios
and amounts pertaining to stockholders' equity, working capital and net income.
In addition, the agreements restrict future borrowings, capital spending and the
payment of dividends. At December 31, 1996, Worldtex was in compliance with the
various covenants.
F-10
<PAGE> 95
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
The Company has an interest rate swap agreement with a commercial bank that
effectively converts a portion of its $50,000 Senior Notes from fixed rate debt
to a floating rate based on LIBOR for a period of three years ending July 1999.
At December 31, 1996, the swap agreement had a notional principal amount of
$25,000. The floating rate is reset every six months during the term of the
interest rate swap agreement with interest due January 21 and July 21. The
agreement effectively changed the interest rate on $25,000 from 7.5% to
approximately 6.24%, 7.87%, 7.08%, 6.59% and 6.77% for the six month intervals
ended January 21, 1995 through January 21, 1997 at which time the effective
interest rate for this portion of the debt was decreased to 6.52% for the next
six months. The estimated amount at which the Company could terminate this
agreement was approximately at a gain of $398 at December 31, 1996. Net amounts
due under this agreement decreased interest expense for 1996 by $201, for 1995
by $20 and for 1994 by $137. Management believes the risk of incurring losses
resulting from the inability of the bank to fulfill its obligation under the
swap agreement to be remote and that any losses would be immaterial.
The Company's revolving credit agreement provides a maximum of $35,000 in
revolving credit, of which $12,390 was outstanding at December 31, 1996 and
$12,670 was outstanding at December 31, 1995. The agreement carries a commitment
fee of .25% of the unused revolving credit. The revolving credit facilities
terminate May 31, 1999 with an option to extend for two years at the Company's
discretion. The revolving credit agreement contains various covenants requiring
the maintenance of certain ratios and amounts pertaining to stockholders'
equity, working capital, debt to capitalization and fixed charge coverage. In
addition, the agreement restricts capital spending and the payment of dividends.
At December 31, 1996, Worldtex was in compliance with the various covenants.
Under the most restrictive of these debt agreements, $8,900 of retained
earnings was unrestricted as to the payment of dividends and other distributions
as of December 31, 1996.
NOTE 7 -- STOCKHOLDERS' EQUITY
Worldtex is authorized to issue up to forty million shares of common stock,
$.01 par value and ten million shares of preferred stock, $.01 par value. As of
December 31, 1996 and 1995, there were issued and outstanding 14,403,271 and
14,475,571 shares of common stock, respectively, and no shares of preferred
stock. Worldtex is authorized to repurchase up to one million shares of its
common stock. In 1996, 78,500 shares were purchased and as a result 266,300
shares are carried at cost as Treasury Stock.
Preferred stock is issuable in one or more series with dividend rates,
liquidation preferences and redemption, conversion and voting rights as may be
determined by Worldtex's Board of Directors.
In connection with Worldtex's formation, each shareholder received, in
addition to one share of Worldtex common stock, one share purchase right for
each outstanding share of the former parent's common stock. Each right entitles
the registered holder to purchase from Worldtex a unit ("Unit") consisting of
one one-hundredth of a share of preferred stock of Worldtex, at a price of $30
per Unit. The share purchase rights are not exercisable or transferable apart
from Worldtex common stock until the earlier to occur of 1) the tenth day
following a public announcement that a person or group of affiliated or
associated persons has acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the outstanding Worldtex common stock (an "Acquiring
Person"), or 2) the tenth business day following the commencement of a tender
offer or exchange offer if, upon consummation thereof, any person or group would
be an Acquiring Person. The share purchase rights will expire at the close of
business on December 31, 2002, unless earlier redeemed or exchanged by Worldtex.
Under the terms of the Worldtex 1992 Stock Incentive Plan, as amended by
the stockholders in May 1994, options to purchase up to 1,400,000 shares of
common stock may be awarded to officers and employees. Options granted under the
plan may be for such terms and exercised at such times as determined at the time
F-11
<PAGE> 96
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
of grant by the Compensation Committee of the Board of Directors. In addition,
the Plan provides that each outside director will be granted an option to
purchase 10,000 shares of common stock of the Company. As of December 31, 1996,
78,000 shares were reserved for future awards under the plan. The 1992 Stock
Incentive Plan also includes provisions for the granting of stock appreciation
rights, restricted stock, deferred stock, employee loans and tax offset
payments. At December 31, 1996, no such grants had been issued, except for
limited stock appreciation rights applicable if there is a change of control (as
defined) of the Company.
The following table summarizes stock option activity during each of the
last three years:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Balance at December 31, 1993................................... 578,000 $ 6.49
Options Granted.............................................. 436,000 $ 4.19
Options Exercised............................................ 0 --
Options Canceled............................................. 18,000 $ 5.33
Balance at December 31, 1994................................... 996,000 $ 5.50
Options Granted.............................................. 86,000 $ 6.44
Options Exercised............................................ 0 --
Options Canceled............................................. 5,000 $ 6.44
---------
Balance at December 31, 1995................................... 1,077,000 $ 5.57
Options Granted.............................................. 255,000 $ 4.82
Options Exercised............................................ 6,200 $ 5.43
Options Canceled............................................. 10,000 $ 4.19
---------
Balance at December 31, 1996................................... 1,315,800 $ 5.44
=========
Options Exercisable:
December 31, 1994............................................ 281,333 $ 6.39
December 31, 1995............................................ 507,200 $ 6.03
December 31, 1996............................................ 737,400 $ 5.91
Weighted Average fair value of options granted:
December 31, 1995............................................ $ 3.01
December 31, 1996............................................ $ 2.27
</TABLE>
Options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER OF CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE PRICE
-------------------------------------------- --------- ----------- --------
<S> <C> <C> <C>
$4.19 - $4.75............................... 657,800 8.0 yrs $ 4.40
$6.44 - $6.75............................... 658,000 6.3 yrs $ 6.48
</TABLE>
F-12
<PAGE> 97
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
Options exercisable at December 31, 1996:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING AVERAGE
NUMBER OF CONTRACTUAL EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE PRICE
-------------------------------------------- --------- ----------- --------
<S> <C> <C> <C>
$4.19 - $4.75............................... 179,700 8.0 yrs $ 4.40
$6.44 - $6.75............................... 557,700 6.3 yrs $ 6.48
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and
accordingly recognizes compensation expense to the extent the quoted market
price of the stock exceeds the amount the employee is required to pay as of the
date of grant of the option. 200,000 options were issued at less than quoted
market value and $30 has been charged to compensation cost in 1996, 1995 and
1994 respectively. These 200,000 options, plus 200,000 options issued at quoted
market value, vest ratably over three years while all other options vest ratably
over five years. The options have a ten year term.
Had compensation cost for the Company's stock option plan been determined
consistent with Financial Accounting Standards Statement No. 123, "Accounting
for Stock-Based Compensation", the Company's net income and net income per share
would be as follows:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Net income as reported............................ $10,946 $5,252
Pro forma......................................... $10,872 $5,240
Net income per share as reported.................. $ .75 $ .36
Pro forma......................................... $ .75 $ .36
</TABLE>
The fair value of each option grant is established on the date of the grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: dividend yield of 0%; expected
volatility of 27% and 29%; risk-free interest rates of 5.5% and expected lives
of eight years.
NOTE 8 -- EMPLOYEE BENEFIT PLANS
Employees of Regal participate in a non-contributory profit-sharing plan
for all eligible employees, including officers. The plan provides for minimum
employer contributions of the lesser of five percent of Regal's income before
taxes plus a discretionary amount determined by the Regal Board of Directors or
the maximum amount deductible for Federal income tax purposes. Provisions for
the years ended December 31, 1996, 1995 and 1994 were $60, $27 and $23
respectively.
Regal employees participate in the Worldtex Employee Stock Ownership Plan
("Worldtex ESOP"). The Worldtex ESOP provides eligible employees with an
opportunity to purchase Worldtex common stock through payroll deductions, and
subject to certain limitations was matched by Worldtex. The Worldtex
contribution was suspended indefinitely effective June 1, 1996. Contributions to
the Worldtex ESOP are invested by an independent trustee in common stock of
Worldtex. Stock attributable to Worldtex contributions vests at the rate of 20%
for after two years of service, with 20% vesting added for each year, up to five
years of service, at which point an employee is 100% vested in the plan.
Contributions to the Worldtex ESOP were $50, $124 and $150 in 1996, 1995 and
1994 respectively. Effective June 1, 1996, the Worldtex ESOP was amended and
renamed The Worldtex, Inc. Profit Sharing and Retirement Savings Plan in order
to merge the Regal profit-sharing, the Worldtex ESOP, and the Worldtex, Inc.
401(k) plans. All vesting schedules for Company contributions were conformed to
the one described above for the ESOP plan.
F-13
<PAGE> 98
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
Employees of Rubyco participate in a Registered Retirement Savings plan.
The plan provides for employee contributions of 4% of salary to a maximum of
$2.6 per employee with corresponding contributions by Rubyco of 5% of salary in
1996 and 1995 (and 4% in 1994), to a maximum of $2.6 per employee. Provisions
for the years ended December 31, 1996, 1995 and 1994 were $27, $27 and $25
respectively.
Filix is legally obligated to contribute to an employee profit-sharing plan
whereby annual contributions are determined on the basis of a prescribed formula
using capitalization, salaries and certain revenues. Amounts are paid into a
bank trust fund the year following the contribution calculation. Provisions for
the years ended December 31, 1996, 1995 and 1994 were $902, $780 and $580
respectively.
Under the terms of an industry-wide labor agreement, Filix employees are
entitled to a lump-sum payment at normal retirement age of up to four months
salary depending on their number of years of service. Such amounts are payable
only if the employee remains with Filix until retirement. The plan is not
funded. The following table sets forth the plan's unfunded status as of December
31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations.................................. $ -- $ --
===== =====
Accumulated benefit obligation.............................. $(256) $(327)
===== =====
Projected benefit obligation................................ $(299) $(384)
Plan assets at fair value................................... -- --
----- -----
Projected benefit obligation in excess of plan assets....... (299) (384)
Unrecognized net loss....................................... 99 120
----- -----
Accrued pension liability................................... $(200) $(264)
===== =====
</TABLE>
Net periodic pension cost of the Filix agreement for the years ended
December 31, 1996, 1995 and 1994 included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost............................................ $11 $ 9 $ 7
Interest cost on projected benefit obligation........... 25 26 19
Amortization of (gain)/loss............................. 11 0 0
--- --- ---
Net periodic pension cost............................... $47 $35 $26
=== === ===
</TABLE>
The projected benefit obligation at December 31, 1996 and 1995 was
determined using an assumed discount rate of 7.5% and 7% respectively. The
assumed long-term rate of increase in compensation was 3% for 1996 and 1995.
Worldtex has an unfunded supplemental death and retirement plan for certain
key employees. The accrued pension liability at December 31, 1996 and 1995 was
$1,287 and $765 respectively. Net periodic pension cost was $522, $72 and $68 in
1996, 1995 and 1994 respectively.
F-14
<PAGE> 99
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
Future minimum lease payments under noncancelable operating leases,
primarily for real property, as of December 31, 1996 are:
<TABLE>
<S> <C>
1997........................................................ $1,130
1998........................................................ 1,138
1999........................................................ 1,154
2000........................................................ 1,246
2001........................................................ 59
------
Total....................................................... $4,727
======
</TABLE>
Rental expense for cancelable and noncancelable operating leases charged to
operations for the years ended December 31, 1996, 1995 and 1994 was
approximately $974, $647 and $427 respectively. In the normal course of
business, Worldtex and its subsidiaries may sometimes be named as a defendant in
litigation. In the opinion of management, based upon the advice of counsel, any
uninsured liability which may result from the resolution of any present
litigation or asserted claim will not have a material effect on Worldtex's
operations, financial position or liquidity.
NOTE 10 -- ACCOUNTS AND NOTES PAYABLE -- TRADE AND OTHER LIABILITIES
Accounts and notes payable -- trade and other liabilities consist of the
following as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Accounts and other payables -- trade..................... $21,229 $16,206
Salaries, wages and other compensation................... 3,502 2,982
Pensions, profit sharing and employee benefits........... 1,530 1,445
Taxes, other than income taxes........................... 831 457
Interest................................................. 2,109 2,110
Other.................................................... 1,053 1,790
------- -------
Total.................................................... $30,254 $24,990
======= =======
</TABLE>
F-15
<PAGE> 100
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
NOTE 11 -- INCOME TAXES
The provisions for income taxes for the years ended December 31, 1996, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
U.S. U.S. STATE
FEDERAL FOREIGN & LOCAL TOTAL
------- ------- ---------- ------
<S> <C> <C> <C> <C>
1996
Current............................... $ 90 $ 5,711 $ 22 $5,823
Deferred.............................. (154) 758 (12) 592
----- ------ ----- ------
Total................................. $ (64) $ 6,469 $ 10 $6,415
===== ====== ===== ======
1995
Current............................... $ 0 $ 5,037 $ 0 $5,037
Deferred.............................. (717) 834 (175) (58)
----- ------ ----- ------
Total................................. $(717) $ 5,871 $ (175) $4,979
===== ====== ===== ======
1994
Current............................... $(424) $ 3,093 $ (103) $2,566
Deferred.............................. 195 245 52 492
----- ------ ----- ------
Total................................. $(229) $ 3,338 $ (51) $3,058
===== ====== ===== ======
</TABLE>
Income before income taxes for the years ended December 31, 1996, 1995 and
1994 is comprised as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
U.S. .......................................... $ (365) $(1,959) $ (813)
Foreign........................................ 17,726 12,190 9,681
------- ------- ------
$17,361 $10,231 $8,868
======= ======= ======
</TABLE>
A reconciliation for the years ended December 31, 1996, 1995 and 1994
between the amount computed using the U.S. Federal income tax rate and the
effective rate of tax on book income is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. Federal income tax rate................. 34.0% 34.0% 34.0%
State and local income taxes, net of U.S. Federal
income tax benefit................................... -- (1.1) (0.5)
Effect of increase in French tax rate on deferred
taxes................................................ -- 8.7 --
Amortization of goodwill............................... 1.9 3.0 3.2
Other, net............................................. 1.1 4.1 (2.2)
---- ---- ----
Effective rate of tax on book income................... 37.0% 48.7% 34.5%
==== ==== ====
</TABLE>
In July 1995, the French parliament enacted a provision that increased the
tax rate from 33.33% to 36.67%. The rate increase resulted in a $889 charge to
the 1995 income tax provision to increase the deferred tax liability as of
January 1, 1995, to the higher enacted income tax rate.
F-16
<PAGE> 101
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventories.......................................... $ 196 $ 199
Employee benefits.................................... 739 551
Other nondeductible reserves........................... 1,136 1,635
-------- --------
2,071 2,385
-------- --------
Deferred tax liabilities:
Property, plant and equipment........................ (16,813) (16,792)
Imputed interest....................................... (838) (868)
-------- --------
(17,651) (17,660)
-------- --------
Net deferred income taxes.............................. $(15,580) $(15,275)
======== ========
</TABLE>
Deferred taxes are classified in the accompanying Consolidated Balance
Sheet captions as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Prepaid expenses and current assets.................... $ 1,449 $ 1,676
Deferred income taxes.................................. (17,029) (16,951)
-------- --------
$(15,580) $(15,275)
======== ========
</TABLE>
There was no valuation allowance for deferred tax assets as of December 31,
1996 and there was no change in this valuation allowance during the years ended
December 31, 1996 and 1995. Based upon the level of historical taxable income
and the expected reversal of future taxable temporary differences, management
believes it is more likely than not that the Company will realize the benefits
of these deductible differences at December 31, 1996.
NOTE 12 -- GEOGRAPHIC INFORMATION
Financial information by geographic area for the years ended December 31,
1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
NORTH SOUTH
AMERICA EUROPE AMERICA TOTAL
------- -------- ------- --------
<S> <C> <C> <C> <C>
1996
Net Sales......................................... $86,280 $109,785 $11,764 $207,829
Operating Profit.................................. 2,469 19,049 975 22,493
Identifiable Assets............................... 79,598 101,452 24,982 206,032
1995
Net Sales......................................... 80,721 100,577 6,683 187,981
Operating Profit (loss)........................... (311) 14,878 1,187 15,754
Identifiable Assets............................... 80,514 99,439 16,112 196,065
1994
Net Sales......................................... 88,241 76,413 -- 164,654
Operating Profit.................................. 1,280 11,206 -- 12,486
Identifiable Assets............................... 80,480 85,925 -- 166,405
</TABLE>
F-17
<PAGE> 102
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
NOTE 13 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires all entities to disclose the fair value
of certain on- and off-balance sheet financial instruments in their financial
statements.
(a) Cash, Accounts and Notes Receivable and Accounts and Notes Payable
The carrying amount approximates fair value because of the short maturity
of these instruments.
(b) Long-Term Debt
The fair values of each of the Company's long-term debt instruments are
based on the amount of future cash flows associated with each instrument
discounted using the Company's current borrowing rate for similar debt
instruments of comparable maturity. The estimated fair values of the Company's
long-term debt instruments are:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
<S> <C> <C>
7.50% Senior Notes...................................... $ 50,000 $ 52,509
Revolving credit facilities............................. 12,390 12,365
Other indebtedness...................................... 6,998 7,070
------- -------
Total................................................... $ 69,388 $ 71,944
======= =======
</TABLE>
(c) Forward Exchange Contracts
The forward exchange contracts described in Note 3(e) are relatively
simple, short-term instruments in which future exchange rates are locked in for
a fee.
(d) Interest Rate Swap
The interest rate swap described in Note 3(j) is discussed further in Note
6.
(e) Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
NOTE 14 -- ACQUISITIONS
During the second quarter of 1995, a wholly owned subsidiary of the Company
acquired substantially all of the assets of Fibrexa, a manufacturer of covered
yarn based in Bogota, Colombia. The consideration for the purchase was
approximately $4,400 in cash, assumption of approximately $6,500 in debt and
contingent payments based on earnings from the Company's South American
operations over a five-year period. The funds for this purchase were obtained
from the Company's cash on hand and borrowings under the Company's Revolving
Credit Agreement. The excess of cost over fair value of the net assets acquired
was approximately $800 at acquisition and $1,500 at year end 1995, and $2,000 at
December 1996 due to contingency payments per the purchase agreement and will be
amortized on a straight-line method over 40 years. The acquisition was
F-18
<PAGE> 103
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
accounted for as a purchase and accordingly, the net assets and operations of
Fibrexa have been included in the Company's consolidated financial statements
beginning on the effective acquisition date of April 1, 1995.
NOTE 15 -- RELATED PARTY TRANSACTIONS
In 1996 and 1995, other assets include a $600 noninterest bearing note
receivable due in the year 2000 from a senior executive.
NOTE 16 -- CONCENTRATIONS
The company currently buys a significant portion of its Lycra and spandex
yarn, an important component of its products, from a single supplier. There are
a limited number of manufacturers of this raw material and a change in suppliers
could cause a delay in manufacturing and a possible loss of sales, which would
adversely affect operating results.
Worldtex served over 1,500 customers in 1996. In 1995, one customer
accounted for 10.5% of consolidated net sales. In 1996 and 1994, no customer
represented over 10% of consolidated net sales. Trade accounts receivable to
South American customers as of December 31, 1996 are approximately $4,245 of
which $2,544 are collateralized by letters of credit, insurance or other
security. The majority of Worldtex's sales are attributable to the sale of
covered elastic yarn. Any significant decline in demand for covered elastic yarn
would have a material adverse effect on the operations of Worldtex.
NOTE 17 -- RESTRUCTURING CHARGE
In December 1995, the Company recorded a year-end charge of $1,715 (or
eight cents per share, net of taxes) for the closure of a Canadian manufacturing
facility and the Company's Buenos Aires, Argentina distribution branch. The
charge included accruals for severance, inventory adjustments, accounts
receivable reserves, and equipment and building write downs to estimated fair
market values. Of the total charges, $1,300 was reflected as cost of goods sold
and $400 as selling and administrative expenses.
As of December 31, 1996, $1,315 is reserved primarily for the disposition
of a manufacturing facility, inventory valuation, and allowances for the
collectibility of accounts receivables related to the closed operations.
NOTE 18 -- SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
In contemplation of the proposed offering of $175,000,000 senior Notes, the
following is summarized consolidating financial information for the Company,
segregating the Parent and guarantor subsidiaries from nonguarantor
subsidiaries. The guarantor subsidiaries are wholly owned subsidiaries of the
Company and guarantees are full, unconditional and joint and several. Separate
financial statements of the guarantor subsidiaries and the eliminating entries
have not been included because management believes that they are not material to
investors.
F-19
<PAGE> 104
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS OF DOLLARS)
NOTE 18 -- SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash........................................................................ $ 601 $ 1,516 $ 2,117
Accounts and notes receivable, net.......................................... 7,358 32,510 39,868
Inventories................................................................. 12,926 24,339 37,265
Prepaid expenses and other current assets................................... 1,560 1,415 2,975
-------- -------- --------
Total current assets.................................................. 22,445 59,780 82,225
Property, plant and equipment -- net.......................................... 30,988 59,294 90,282
Other assets.................................................................. 4,460 687 5,147
Cost in excess of net assets of acquired businesses, net...................... 8,212 20,166 28,378
Intercompany investments...................................................... 54,999 (54,999) --
-------- -------- --------
$121,104 $ 84,928 $206,032
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings....................................................... $ -- $ 1,342 $ 1,342
Current installments of long-term debt...................................... -- 1,634 1,634
Accounts and notes payable-trade and other liabilities...................... 9,130 21,124 30,254
Income taxes payable.......................................................... (985) 2,510 1,525
-------- -------- --------
Total current liabilities............................................. 8,145 26,610 34,755
Long-term debt................................................................ 62,390 5,364 67,754
Other long-term liabilities................................................... -- 1,316 1,316
Deferred income taxes......................................................... 6,112 10,917 17,029
-------- -------- --------
Total liabilities..................................................... 76,647 44,207 120,854
Stockholders' equity:
Preferred stock............................................................. -- -- --
Common stock................................................................ 147 -- 147
Paid-in capital............................................................. 29,946 -- 29,946
Retained earnings........................................................... 15,862 41,057 56,919
Cumulative foreign translation adjustment................................... -- (336) (336)
Less-Treasury stock, at cost................................................ (1,498) -- (1,498)
-------- -------- --------
Total stockholders' equity............................................ 44,457 40,721 85,178
-------- -------- --------
$121,104 $ 84,928 $206,032
======== ======== ========
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash........................................................................ $ 168 $ 1,677 $ 1,845
Accounts and notes receivable, net.......................................... 7,643 30,976 38,619
Inventories................................................................. 13,207 20,453 33,660
Prepaid expenses and other current assets................................... 1,530 1,902 3,432
-------- -------- --------
Total current assets.................................................. 22,548 55,008 77,556
Property, plant and equipment -- net.......................................... 31,492 52,499 83,991
Other assets.................................................................. 4,409 314 4,724
Cost in excess of net assets of acquired businesses, net...................... 8,529 21,265 29,794
Intercompany investments...................................................... 54,494 (54,494) --
-------- -------- --------
$121,473 $ 74,592 $196,065
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings....................................................... $ -- $ 939 $ 939
Current installments of long-term debt...................................... 7 1,233 1,240
Accounts and notes payable-trade and other liabilities...................... 7,623 16,846 24,990
Income taxes payable.......................................................... (940) 3,985 3,04
-------- -------- --------
Total current liabilities............................................. 6,690 23,003 30,214
Long-term debt................................................................ 62,670 6,277 68,947
Other long-term liabilities................................................... -- 1,014 1,014
Deferred income taxes......................................................... 6,270 10,681 16,951
-------- -------- --------
Total liabilities..................................................... 76,151 40,975 117,126
Stockholders' equity:
Preferred stock............................................................. -- -- --
Common stock................................................................ 147 -- 147
Paid-in capital............................................................. (29,913) -- 29,913
Retained earnings........................................................... 16,173 29,800 45,973
Cumulative foreign translation adjustment................................... -- 3,817 3,817
Less-Treasury stock, at cost................................................ (911) -- (911)
-------- -------- --------
Total stockholders' equity............................................ 45,322 33,617 78,939
-------- -------- --------
$121,473 $ 74,592 $196,065
======== ======== ========
</TABLE>
F-20
<PAGE> 105
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS OF DOLLARS)
NOTE 18 -- SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------------- -------------------------------------------
GUARANTOR NON-GUARANTOR GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 57,497 $ 150,332 $207,829 $ 60,871 $ 127,110 $187,981
Cost of goods sold.............. 50,816 117,938 168,754 55,935 100,584 156,519
------- -------- -------- ------- -------- --------
Gross profit.................... 6,681 32,394 39,075 4,936 26,526 31,462
Selling and administrative
expense....................... 5,825 10,757 16,582 6,414 9,294 15,708
Operating profit................ 856 21,637 22,493 (1,478) 17,232 15,754
Interest expense................ (2,993) (2,833) (5,826) (2,558) (3,135) (5,693)
Other income (expense) -- net... 1,772 (1,078) 694 1,543 (1,373) 170
------- -------- -------- ------- -------- --------
Income before income taxes...... (365) 17,726 17,361 (2,493) 12,724 10,231
Provision for income
taxes (benefit)............... (54) 6,469 6,415 (892) 5,871 4,979
------- -------- -------- ------- -------- --------
Net income (loss)............... $ (311) $ 11,257 $ 10,946 $ (1,601) $ 6,853 $ 5,252
======= ======== ======== ======= ======== ========
<CAPTION>
DECEMBER 31, 1994
-------------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------- ------------
<S> <<C> <C> <C>
Net sales....................... $ 66,693 $97,961 $164,654
Cost of goods sold.............. 60,887 77,779 138,666
------- ------- --------
Gross profit.................... 5,806 20,182 25,988
Selling and administrative
expense....................... 6,228 7,274 13,502
Operating profit................ (422) 12,908 12,486
Interest expense................ (1,579) (2,372) (3,951)
Other income (expense) -- net... 1,101 (768) 333
------- ------- --------
Income before income taxes...... (900) 9,768 8,868
Provision for income
taxes (benefit)............... (279) 3,337 3,058
------- ------- --------
Net income (loss)............... $ (621) $ 6,431 $ 5,810
======= ======= ========
</TABLE>
F-21
<PAGE> 106
WORLDTEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS OF DOLLARS)
NOTE 18 -- SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------------------------ ------------------------------------------
NON- NON-
GUARANTOR GUARANTOR GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flow from operating activities..... $ 3,355 $ 11,677 $ 15,032 $ 2,966 $ 9,080 $ 12,046
---------- -------- ---------- -------- -------- --------
Cash flows from investing activities....
Capital expenditures.................... (1,525) (12,260) (13,785) (545) (7,811) (8,356)
Acquisition of Fibrexa..................
Acquisition of Fibrexa, S.A. net cash
acquired.............................. -- -- -- (4,540) 473 (4,067)
Other investing activities.............. (280) (869) (1,149) 63 (3,074) (3,011)
---------- -------- ---------- -------- -------- --------
Net cash used in investing activities... (1,805) (13,129) (14,934) (5,022) (10,412) (15,434)
---------- -------- ---------- -------- -------- --------
Cash flows from financing activities....
Borrowings under line of credit
arrangements.......................... -- 16,724 16,724 -- 7,813 7,813
Payments under line of arrangements..... -- (16,321) (16,321) -- (6,874) (6,874)
Borrowings under revolving credit
facility.............................. 104,660 -- 104,660 46,038 -- 46,038
Payments under revolving credit
facility.............................. (104,940) -- (104,940) (40,578) -- 40,578
Borrowings under long term loans........ -- -- -- -- -- --
Stock (reacquired) or issued, net....... (554) -- (554) -- -- --
Other financing activities.............. (129) 959 830 (1,919) (2,298) (4,217)
---------- -------- ---------- -------- -------- --------
Net cash provided by financing
activities............................ (963) 1,362 399 3,541 (1,359) 2,182
---------- -------- ---------- -------- -------- --------
Effects of exchange rate changes on
cash.................................. (153) (71) (225) (89) (11) (100)
---------- -------- ---------- -------- -------- --------
Net increase (decrease) in cash......... 434 (161) 272 1,396 (2,702) (1,306)
Cash beginning of year.................. 168 1,677 1,845 (1,228) 4,379 3,151
---------- -------- ---------- -------- -------- --------
Cash end of year........................ $ 601 $ 1,516 $ 2,117 $ 168 $ 1,677 $ 1,845
========== ======== ========== ======== ======== ========
<CAPTION>
DECEMBER 31, 1994
------------------------------------------
NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------ ------------
<S> <<C> <C> <C>
Cash flow from operating activities..... $ 2,659 $ 6,933 $ 9,592
-------- -------- --------
Cash flows from investing activities....
Capital expenditures.................... (4,560) (3,517) (8,077)
Acquisition of Fibrexa..................
Acquisition of Fibrexa, S.A. net cash
acquired.............................. -- -- --
Other investing activities.............. (782) (94) (876)
-------- -------- --------
Net cash used in investing activities... (5,342) (3,611) (8,953)
-------- -------- --------
Cash flows from financing activities....
Borrowings under line of credit
arrangements.......................... 7,583 -- 7,583
Payments under line of arrangements..... (7,583) (116) (7,699)
Borrowings under revolving credit
facility.............................. 34,830 -- 34,830
Payments under revolving credit
facility.............................. (86,140) -- (86,140)
Borrowings under long term loans........ 50,000 -- 50,000
Stock (reacquired) or issued, net....... (911) -- (911)
Other financing activities.............. 4,510 (2,045) 2,465
-------- -------- --------
Net cash provided by financing
activities............................ 2,289 (2,161) 128
-------- -------- --------
Effects of exchange rate changes on
cash.................................. (141) 316 175
-------- -------- --------
Net increase (decrease) in cash......... (535) 1,477 942
Cash beginning of year.................. (693) 2,902 2,209
-------- -------- --------
Cash end of year........................ $ (1,228) $ 4,379 $ 3,151
======== ======== ========
</TABLE>
F-22
<PAGE> 107
WORLDTEX, INC.
SUPPLEMENTARY FINANCIAL INFORMATION
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET GROSS NET NET INCOME
SALES PROFIT INCOME PER SHARE(A)
-------- ------- ------- ------------
<S> <C> <C> <C> <C>
Unaudited Quarterly Financial Data
1996 Quarter
First............................................... $ 51,899 $ 9,746 $ 2,700 $.19
Second.............................................. 53,140 10,279 3,226 .22
Third............................................... 50,150 8,965 2,481 .17
Fourth.............................................. 52,640 10,085 2,539 .17
-------- ------- -------
$207,829 $39,075 $10,946
======== ======= =======
1995 Quarter
First............................................... $ 46,395 $ 8,269 $ 2,138 $.15
Second.............................................. 49,100 8,605 2,360 .16
Third............................................... 47,314 7,818 395 .03
Fourth.............................................. 45,172 6,770 359 .02
-------- ------- -------
$187,981 $31,462 $ 5,252
======== ======= =======
1994 Quarter
First............................................... $ 36,426 $ 5,386 $ 1,115 $.08
Second.............................................. 42,887 7,011 1,842 .13
Third............................................... 41,626 6,158 1,387 .10
Fourth.............................................. 43,715 7,433 1,466 .10
-------- ------- -------
$164,654 $25,988 $ 5,810
======== ======= =======
</TABLE>
- ---------------
(A) Net income per share are calculated based upon the weighted average number
of common shares outstanding and common equivalent shares during the period.
F-23
<PAGE> 108
WORLDTEX, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash...................................................................... $ 8,435
Accounts and notes receivable, less allowance for doubtful accounts of
$2,605 in 1997 and $2,589 in 1996...................................... 38,708
Inventories:
Raw materials............................................................. 13,393
Work-in-process........................................................... 7,767
Finished goods............................................................ 16,736
--------
Total inventories......................................................... 37,896
Prepaid expenses and other current assets................................. 2,780
--------
Total current assets.............................................. 87,819
Property, plant and equipment, at cost:
Land...................................................................... 2,235
Buildings and leasehold improvements...................................... 29,445
Machinery and equipment................................................... 89,524
121,204
Less accumulated depreciation and amortization............................ 37,059
--------
Property, plant and equipment -- net...................................... 84,145
Other assets................................................................ 4,178
Cost in excess of net assets of acquired businesses, net of accumulated
amortization of $7,340 in 1997 and $7,115 in 1996......................... 25,458
--------
$201,600
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:........................................................
Short-term borrowings..................................................... $ 2,128
Current installments of long-term debt.................................... 7,807
Accounts and notes payable -- trade and other liabilities................. 25,396
Income taxes payable...................................................... 1,431
--------
Total current liabilities......................................... 36,762
Long-term debt............................................................ 66,428
Other long-term liabilities............................................... 1,125
Deferred income taxes..................................................... 15,996
--------
Total liabilities................................................. 120,311
Stockholders' equity:
Preferred stock........................................................... --
Common stock.............................................................. 147
Paid-in capital........................................................... 30,059
Retained earnings......................................................... 63,662
Cumulative foreign translation adjustment................................. (11,081)
Treasury stock, at cost................................................... (1,498)
--------
Total stockholders' equity........................................ 81,289
--------
$201,600
========
Commitments and contingencies...............................................
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-24
<PAGE> 109
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS AND SHARES IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net sales.............................................................. $148,350 $155,189
Cost of goods sold..................................................... 122,040 126,200
-------- --------
Gross profit......................................................... 26,310 28,989
Selling & administration expense....................................... 11,688 11,536
-------- --------
Operating profit..................................................... 14,622 17,453
Interest expense....................................................... (4,417) (4,391)
Other income (expense) -- net.......................................... 30 456
-------- --------
Income before income taxes........................................... 10,235 13,518
Provision for income taxes............................................. 3,492 5,111
-------- --------
Net income........................................................... $ 6,743 $ 8,407
======== ========
Net income per share................................................... $ 0.46 $ 0.58
======== ========
Weighted average shares outstanding.................................... 14,809 14,620
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-25
<PAGE> 110
WORLDTEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 6,743 $ 8,407
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 4,719 4,534
Provision for losses on accounts receivable.......................... 167 274
Deferred income taxes................................................ 183 1,227
Change in assets and liabilities:
Accounts and notes receivable..................................... (3,264) (5,441)
Inventories....................................................... (3,777) (329)
Prepaid expenses and other current assets......................... 43 431
Accounts and notes payable -- trade and other.....................
Accounts and notes payable -- trade and other current
liabilities...................................................... (2,318) 3,496
Income taxes payable.............................................. 209 (1,245)
-------- --------
Net cash provided by operating activities.................... 2,705 11,354
Cash flows from investing activities:
Capital expenditures................................................. (5,826) (12,837)
Other investing activities........................................... 997 (123)
-------- --------
Net cash used in investing activities........................ (4,829) (12,960)
-------- --------
Cash flows from financing activities:
Borrowings under line of credit arrangements......................... 3,180 15,160
Payments under line of credit arrangements........................... (2,395) (14,572)
Borrowings under revolving credit facility........................... 80,140 94,700
Payments under revolving credit facility............................. (73,500) (83,380)
Stock issued or (reacquired) -- net.................................. 113 (16)
Other financing activities........................................... (1,108) (6,754)
-------- --------
Net cash provided by financing activities.................... 6,430 5,138
-------- --------
Effects of exchange rate changes on cash..................... 2,012 (86)
-------- --------
Net increase in cash......................................... 6,318 3,446
Cash at beginning of period............................................ 2,117 1,845
-------- --------
Cash at end of period.................................................. $ 8,435 $ 5,291
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest..................................................... $ 5,110 $ 5,237
======== ========
Income taxes................................................. $ 4,619 $ 5,749
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-26
<PAGE> 111
WORLDTEX, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
NOTE 1 -- BASIS OF PRESENTATION
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments consisting of only normal recurring
accruals necessary to present fairly the financial position and results of
operations for the interim periods reported hereon. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's annual
report for the year ended December 31, 1996.
NOTE 2 -- TRANSACTIONS
On October 3, 1997, the Company purchased certain assets from Texfi
Industries for $7.7 million and paid $600,000 to cancel an equipment operating
lease assumed from the seller. The acquisition will be recorded using the
purchase method of accounting, with the excess purchase price allocated to the
fair value of the assets purchased and liabilities assumed.
On December 1, 1997, the Company purchased substantially all assets of
Elastic Corporation of America for a purchase price of approximately $76.3
million and assumed obligations including a $6.0 million bond obligation. The
acquisition will be recorded using the purchase method of accounting, with the
excess purchase price allocated to the fair value of the assets purchased and
liabilities assumed.
NOTE 3 -- SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION
In contemplation of the proposed offering of $175,000,000 senior Notes, the
following is summarized consolidating financial information for the Company,
segregating the parent and guarantor subsidiaries from nonguarantor
subsidiaries. The guarantor subsidiaries are wholly owned subsidiaries of the
Company and guarantees are full, unconditional and joint and several. Separate
financial statements of the guarantor subsidiaries and the eliminating entries
have not been included because management believes that they are not material to
investors.
F-27
<PAGE> 112
CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------------------------------
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash................................................ $ 330 $ 8,105 $ 8,435
Accounts and notes receivable -- net................ 9,164 29,544 38,708
Inventories......................................... 14,682 23,214 37,896
Prepaid expenses and other current assets........... 1,432 1,348 2,780
-------- -------- --------
Total current assets........................ 25,608 62,211 87,819
Property, plant and equipment -- net.................. 31,412 52,733 84,145
Other assets.......................................... 3,589 589 4,178
Cost in excess of net assets of acquired businesses... 7,974 17,484 25,458
Intercompany investments.............................. 59,695 (59,695) --
-------- -------- --------
$128,278 $ 73,322 $201,600
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings............................... $ -- $ 2,128 $ 2,128
Current installments of long-term debt.............. 7,143 664 7,807
Accounts and notes payable-trade and other
liabilities...................................... 9,702 15,694 25,396
Income taxes payable................................ (611) 2,042 1,431
-------- -------- --------
Total current liabilities................... 16,234 20,528 36,762
Long-term debt........................................ 61,887 4,541 66,428
Other long-term liabilities........................... -- 1,125 1,125
Deferred income taxes................................. 5,992 10,004 15,996
-------- -------- --------
Total liabilities........................... 84,113 36,198 120,311
Stockholders' equity:
Preferred stock..................................... -- -- --
Common stock........................................ 147 -- 147
Paid-in capital..................................... 30,059 -- 30,059
Retained earnings................................... 15,457 48,205 63,662
Cumulative foreign translation adjustment........... -- (11,081) (11,081)
Less-Treasury stock, at cost........................ (1,498) -- (1,498)
-------- -------- --------
Total stockholders' equity.................. 44,165 37,124 81,289
-------- -------- --------
Commitments and contingencies......................... $128,278 $ 73,322 $201,600
======== ======== ========
</TABLE>
F-28
<PAGE> 113
CONSOLIDATING STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------- -------------------------------------------
GUARANTOR NON-GUARANTOR GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $ 42,370 $ 105,980 $148,350 $ 43,246 $ 111,943 $155,189
Cost of goods sold.......... 36,768 85,272 122,040 38,848 87,352 126,200
------- -------- -------- ------- -------- --------
Gross profit................ 5,602 20,708 26,310 4,398 24,591 28,989
Selling and administrative
expense................... 4,383 7,305 11,688 4,044 7,492 11,536
------- -------- -------- ------- -------- --------
Operating profit............ 1,219 13,403 14,622 354 17,099 17,453
Interest expense............ (2,432) (1,985) (4,417) (2,223) (2,168) (4,391)
Other income -- net......... 888 (858) 30 1,303 (847) 456
------- -------- -------- ------- -------- --------
Income before income
taxes..................... (325) 10,560 10,235 (566) 14,084 13,518
Provision for income
taxes..................... 79 3,413 3,492 (178) 5,289 5,111
------- -------- -------- ------- -------- --------
Net income.................. $ (404) $ 7,147 $ 6,743 $ (388) $ 8,795 $ 8,407
======= ======== ======== ======= ======== ========
</TABLE>
F-29
<PAGE> 114
CONSOLIDATING STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------------- -------------------------------------------
GUARANTOR NON-GUARANTOR GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARIES CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
------------ ------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:............... $ (1,238) $ 3,943 $ 2,705 $ 459 $ 10,895 $ 11,354
Cash flows from investing
activities:
Capital expenditures...... (1,962) (3,864) (5,826) (2,482) (10,355) (12,837)
Other investing
activities.............. 983 14 997 254 (377) (123)
------- -------- -------- ------- -------- --------
Net cash used in
investing
activities....... (979) (3,850) (4,829) (2,228) (10,732) (12,960)
Cash flows from financing
activities:
Borrowings under line of
credit arrangements..... -- 3,180 3,180 -- 15,160 15,160
Payments under line of
credit arrangements..... -- (2,395) (2,395) -- (14,572) (14,572)
Borrowings under revolving
credit facility......... 80,140 -- 80,140 94,700 -- 94,700
Payments under revolving
credit facility......... (73,500) -- (73,500) (83,380) -- (83,380)
Borrowings under long-term
loans................... -- -- -- -- -- --
Stock (reacquired) or
issued, net............. 113 -- 113 (16) -- (16)
Other financing
activities.............. (7,161) 6,053 (1,108) (9,464) 2,710 (6,754)
Net cash provided
by financing
activities....... (408) 6,838 6,430 1,840 3,298 5,138
Effects of exchange rate
changes on cash......... 2,354 (342) 2,012 26 (112) (86)
------- -------- -------- ------- -------- --------
Net increase
(decrease) in
cash............. (271) 6,589 6,318 97 3,349 3,446
Cash beginning of year...... 601....... 1,516 2,117 168 1,677 1,845
------- -------- -------- ------- -------- --------
Cash end of year............ $ 330 $ 8,105 $ 8,435 $ 265 $ 5,026 $ 5,291
======= ======== ======== ======= ======== ========
</TABLE>
F-30
<PAGE> 115
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
NFA Corp.
Chestnut Hill, Massachusetts
We have audited the accompanying statements of assets, liabilities and
divisional equity of the Elastic Corporation of America ("ECA") (a division of
NFA Corp. ("NFA")) as of December 28, 1996, December 30, 1995, and December 31,
1994, and the related statements of income and divisional equity, and cash flows
for the periods then ended. These financial statements are the responsibility of
ECA'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, such financial statements present fairly, in all material
respects, the financial position of ECA at December 28, 1996, December 30, 1995,
and December 31, 1994, and the results of its operations and its cash flows for
the periods then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared from the separate
records maintained by ECA and may not necessarily be indicative of the
conditions that would have existed or the results of operations if ECA had been
operated as an unaffiliated company. As discussed in Note 1 to the financial
statements, a portion of expenses represents allocations made from NFA
home-office items applicable to ECA and other NFA corporate charges.
DELOITTE & TOUCHE LLP
October 14, 1997
F-31
<PAGE> 116
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
STATEMENTS OF ASSETS, LIABILITIES AND DIVISIONAL EQUITY
DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................................ $ 109,005 $ 111,559 $ 153,853
Accounts receivable, less allowance for doubtful
accounts of $330,000, $230,000, and $230,000,
respectively (Note 9).......................... 9,569,967 6,865,331 9,652,638
Employee loans.................................... 233,188 94,987 84,687
Inventories (Note 2).............................. 10,676,161 8,646,900 10,174,377
Prepaid expenses.................................. 297,433 194,118 316,335
----------- ----------- -----------
Total current assets...................... 20,885,754 15,912,895 20,381,890
----------- ----------- -----------
Property, plant and equipment:
Land.............................................. 159,558 159,558 159,558
Building and leasehold improvements............... 5,346,247 5,251,544 4,482,994
Machinery and equipment........................... 19,476,965 18,722,645 18,372,419
Construction in progress.......................... 286,500 144,520 361,847
----------- ----------- -----------
25,269,270 24,278,267 23,376,818
Less accumulated depreciation and amortization.... 16,137,534 14,440,390 12,542,623
----------- ----------- -----------
Property, plant and equipment -- net........... 9,131,736 9,837,877 10,834,195
----------- ----------- -----------
Escrow funds restricted under bond indenture........ -- 8,808 1,031,517
----------- ----------- -----------
Deferred financing cost............................. 171,615 195,079 220,043
----------- ----------- -----------
Total..................................... $30,189,105 $25,954,659 $32,467,645
=========== =========== ===========
</TABLE>
LIABILITIES AND DIVISIONAL EQUITY
<TABLE>
<S> <C> <C> <C>
Current liabilities:
Accounts payable.................................. $ 1,959,779 $ 1,079,467 $ 1,832,469
Accrued pension costs (Note 4).................... -- 556,050 395,372
Accrued commissions............................... 20,475 100,000 269,356
Accrued expenses (other).......................... 549,343 422,854 427,383
Current maturities of long-term debt (Note 3)..... -- 700,000 700,000
----------- ----------- -----------
Total current liabilities................. 2,529,597 2,858,371 3,624,580
Long-term debt (Note 3)............................. 6,000,000 6,000,000 6,700,000
Deferred compensation (Note 6)...................... 717,496 734,512 664,796
----------- ----------- -----------
Total liabilities................................... 9,247,093 9,592,883 10,989,376
Commitments (Note 5)
Divisional equity (Note 7).......................... 20,942,012 16,361,776 21,478,269
----------- ----------- -----------
Total..................................... $30,189,105 $25,954,659 $32,467,645
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-32
<PAGE> 117
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
STATEMENTS OF INCOME AND DIVISIONAL EQUITY
FIFTY-TWO-WEEK PERIODS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
AND FIFTY-THREE-WEEK PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Net sales (Note 9)................................. $55,797,589 $ 58,055,129 $61,339,740
Cost of sales...................................... 41,827,674 45,059,635 45,666,324
----------- ------------ -----------
Gross profit....................................... 13,969,915 12,995,494 15,673,416
----------- ------------ -----------
Selling, general and administrative expenses (Notes
8 and 10)........................................ 6,664,083 6,219,131 9,379,301
Interest expense (Notes 3, 7, and 8)............... 813,898 1,147,251 1,000,785
----------- ------------ -----------
Total expenses..................................... 7,477,981 7,366,382 10,380,086
----------- ------------ -----------
Net income......................................... 6,491,934 5,629,112 5,293,330
Divisional equity, beginning of period............. 16,361,776 21,478,269 20,729,793
Distributions to corporate......................... (1,911,698) (10,745,605) (4,544,854)
----------- ------------ -----------
Divisional equity, end of period................... $20,942,012 $ 16,361,776 $21,478,269
=========== ============ ===========
</TABLE>
See notes to financial statements.
F-33
<PAGE> 118
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
STATEMENTS OF CASH FLOWS
FIFTY-TWO-WEEK PERIODS ENDED DECEMBER 28, 1996 AND DECEMBER 30, 1995
AND FIFTY-THREE-WEEK PERIOD ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income......................................... $ 6,491,934 $ 5,629,112 $ 5,293,330
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on disposal of property, plant and
equipment..................................... -- (15,081) (3,000)
Depreciation and amortization.................... 1,876,702 1,943,071 1,992,437
Changes in assets and liabilities:
Accounts receivable, net...................... (2,842,837) 2,777,007 (978,832)
Inventories................................... (2,029,261) 1,527,477 (992,703)
Prepaid expenses.............................. (103,315) 122,217 170,463
Accounts payable and accrued expenses......... 371,226 (766,209) (4,544)
Deferred compensation......................... (17,016) 69,716 307,682
----------- ------------ -----------
Net cash provided by operating
activities............................. 3,747,433 11,287,310 5,784,833
----------- ------------ -----------
Cash Flows From Investing Activities:
Addition to property, plant and equipment.......... (1,170,937) (943,513) (1,370,691)
Decrease in escrow funds restricted under bond
indenture........................................ 8,808 1,022,709 335,546
Proceeds from sale of equipment.................... 23,840 36,805 200,240
----------- ------------ -----------
Net cash (used in) provided by investing
activities............................. (1,138,289) 116,001 (834,905)
----------- ------------ -----------
Cash Flow From Financing Activities:
Repayments on notes payables....................... -- -- (7,299)
Payments for long-term debt........................ (700,000) (700,000) (400,000)
Cash remitted to corporate......................... (1,911,698) (10,745,605) (4,544,854)
----------- ------------ -----------
Net cash used in financing activities.... (2,611,698) (11,445,605) (4,952,153)
----------- ------------ -----------
Net Decrease in Cash:.............................. (2,554) (42,294) (2,225)
Cash, Beginning of Period:......................... 111,559 153,853 156,078
----------- ------------ -----------
Cash, end of Period:............................... $ 109,005 $ 111,559 $ 153,853
=========== ============ ===========
Supplemental Cash Flow Information Cash paid for
interest......................................... $ 379,969 $ 399,678 $ 294,302
=========== ============ ===========
</TABLE>
See notes to financial statements.
F-34
<PAGE> 119
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- Elastic Corporation of America ("ECA") is a
division of NFA Corp. ("NFA"). ECA is engaged in the manufacture and
distribution of narrow elastic and other specialty textiles. On September 19,
1997, NFA entered into a letter of intent to sell the ECA business of NFA.
The accompanying financial statements include the historical basis
financial statements of ECA. ECA has been operated as a division of NFA, sharing
corporate services (audit, legal and group administrative functions) with other
NFA divisions. The financial statements have been prepared from the separate
records maintained for the ECA division for the periods presented, and include
the historical assets, liabilities, revenues and expenses related to the ECA
division. For the periods presented, selling, general and administrative
expenses include a corporate charge which was determined based on 1.5% of sales.
In addition, employee pension costs are allocated based on number of personnel.
A cost of capital, at prime, is also charged by NFA for the average daily
balance of net advances and loans ("divisional equity") in excess of specified
amounts (Note 7).
Management believes that the foregoing allocation for pension costs is
reasonable; however, this allocation and the corporate charges do not
necessarily equal the costs which would have been incurred on a stand-alone
basis.
The financial information included herein does not reflect any adjustments
that may be made by the buyer to record the allocation of purchase price to the
assets purchased and liabilities assumed in preparing an opening balance sheet,
nor does it reflect what the results of operations are expected to be in the
future or what the financial position and results of operations would have been
had ECA been a separate stand-alone entity during the periods presented.
Cash -- ECA was included in the centralized cash management system of NFA,
whereby net daily cash activity of ECA's zero balance disbursement account was
charged or credited to ECA through its divisional equity account (Note 7 ). Cash
balances represent amounts associated with payroll and other miscellaneous bank
accounts.
Inventories -- Inventories are stated at the lower of cost, on a first-in,
first-out ("FIFO") method, or market.
Property, Plant and Equipment -- Property, plant and equipment is recorded
at cost. Depreciation and amortization are computed principally by use of the
straight-line method over the estimated useful lives (generally three to thirty
years).
Deferred Financing Cost -- The cost relating to long-term debt is
capitalized and amortized using the interest method over the maturities of the
related obligation.
Revenue Recognition -- Sales are reflected in the statements of income and
divisional equity when products are shipped.
Income Taxes -- NFA has elected to be an S Corporation for federal income
tax purposes. Income earned by NFA is allocated to stockholders who are
responsible for the payment of taxes thereon. The states in which ECA operates
permit S Corporation status for state income tax purposes. As a result of ECA
operating in states which permit S Corporation status, no provision for income
taxes has been provided in the accompanying financial statements.
Use of Estimates -- The preparation of ECA's financial statements in
conformity with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-35
<PAGE> 120
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO FINANCIAL STATEMENTS
Impairment of Long-Lived Assets -- In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." ECA's adoption of SFAS No. 121 in 1996 had
no financial statement impact.
Fiscal Year -- ECA operates on a fifty-two or fifty-three-week year ending
on the last Saturday in December. The fiscal years ended December 28, 1996 and
December 30, 1995 contained fifty-two weeks and December 31, 1994 contained
fifty-three weeks.
2. INVENTORIES
Inventories at the balance sheet dates are as follows:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Raw materials and supplies........... $ 2,019,078 $2,152,763 $ 2,318,698
Work in process...................... 4,774,643 3,968,341 3,830,128
Finished goods....................... 3,882,440 2,525,796 4,025,551
----------- ---------- -----------
$ 10,676,161 $8,646,900 $ 10,174,377
=========== ========== ===========
</TABLE>
3. LONG-TERM DEBT
Long-term debt at the balance sheet dates consists of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Industrial Revenue Bonds, Columbiana,
Alabama ("IRB-AL") rental payments
payable $700,000 annually through
1996, the remaining $6 million is
due June 1, 2014 plus interest at
variable rates ranging from
3.12%-4.15%........................ $ 6,000,000 $6,700,000 $ 7,400,000
Less current maturities.............. -- (700,000) (700,000)
---------- ---------- ----------
$ 6,000,000 $6,000,000 $ 6,700,000
========== ========== ==========
</TABLE>
In June 1992 NFA entered into a lease agreement ("the Agreement") with the
Industrial Development Board of the City of Columbiana ("IDBCC"). Pursuant to
the agreement, IDBCC, the issuer of $8,100,000 of Revenue Bonds ("the Bonds")
issued for the purpose of financing the cost of acquiring, constructing and
equipping an industrial facility ( ECA's Headquarters, "the NFA Project"),
leased the NFA Project to NFA. NFA agreed to pay rentals to IDBCC equal to the
debt service on the Bonds. The final maturity of the Bonds and the termination
of the lease was June 1, 2004. IDBCC assigned and pledged to the bond trustee
all of its rights under the lease. As security for the payment of the debt
service on the Bonds, NFA entered into a Guaranty Agreement in favor of the bond
trustee, guaranteeing payment on the debt service. The Guaranty is supported by
an irrevocable direct pay Letter of Credit ("LOC") which permits the bond
trustee to draw an amount sufficient to pay, when due, the principal of, and up
to 200 days interest on, the bonds. The LOC was established to not exceed
$6,333,334. There were no balances drawn or outstanding on this LOC at the
balance sheet dates. As security for NFA's obligations under the LOC, NFA and
IDBCC executed a mortgage, assignment of leases and security agreement in favor
of the bank that issued the LOC, whereby the bank was granted a mortgage, and
security interest in the NFA project. Under the terms of the Agreement and bond
indenture, funds available to NFA were required to be deposited into an escrow
project fund with
F-36
<PAGE> 121
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO FINANCIAL STATEMENTS
the bond trustee. Use of such funds was limited to the NFA Project. NFA is also
required to comply with certain affirmative and negative covenants; these
covenants restrict NFA from incurring other indebtedness, limit distributions of
income and require the maintenance of certain financial ratios. NFA was in
compliance with these covenants at the balance sheet dates. The obligation
associated with the bond issuance and the related capital costs of the NFA
Project have been recorded by ECA.
The capitalized costs of the NFA project were approximately $7,700,000,
$7,700,000 and $7,100,000 at December 28, 1996, December 30, 1995 and December
31, 1994, respectively.
The net book value of the NFA Project costs was approximately $3,900,000,
$4,100,000, and $4,400,000 at December 28, 1996, December 30, 1995, and December
31, 1994, respectively.
In May 1997 the lease was amended to extend the term of the agreement from
June 1, 2004 to June 1, 2014. In conjunction with the execution of the
amendment, bond holders approved an amendment to the bond indenture to remove
the requirements for scheduled annual mandatory redemption of the bonds on June
1, 1997 and thereafter. The indenture was also amended to extend the final
maturity of the bonds from June 1, 2004 to June 1, 2014. The expiration of the
LOC has been extended to March 31, 1999. The scheduled maturity of long-term
debt as of December 28, 1996 reflects the lease amendment.
4. RETIREMENT PLANS
Until December 30, 1995, NFA had a noncontributory defined benefit
retirement plan covering substantially all nonunion employees, including
employees of ECA. The plan provided benefits to employees upon retirement that
were correlated to the Social Security law.
The benefits under the plan were based on the employee's highest seven
years of compensation. NFA's policy was to fund the minimum required
contribution necessary to meet the present and future obligations of the plan.
Contributions were intended to provide not only benefits attributed to service
to date but also for those expected to be earned in the future. Contributions
were made to a tax-exempt master trust. Plan assets consisted principally of
listed equity securities, corporate obligations and U.S. Government bonds.
In 1995, NFA adopted a plan amendment, effective December 31, 1995, ceasing
the addition of new participants to the plan. The plan obligations were
remeasured using an assumed discount rate of 6% and a long-term rate of return
of 6%. In 1996 the plan was terminated and the plan obligation was settled in
1997. NFA recognized a curtailment gain of approximately $1,129,000 upon
amending the plan. There was no allocation of the curtailment gain to ECA. As
all activity determined costs have previously been recorded, NFA believes that
it has no further costs relating to this plan after 1995.
Pension costs for 1995 and 1994 related to the employees of the ECA
business were determined based on actuarial calculations and allocations, based
on number of employees, as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Service cost -- benefits earned during the
period........................................... $ 431,849 $ 358,790
Interest cost on projected benefit obligation...... 362,245 295,712
Actual return on plan asset........................ (237,710) (266,630)
Net amortization and deferral...................... 916 (11,743)
-------- --------
Net pension expense................................ $ 557,300 $ 376,129
======== ========
</TABLE>
NFA maintains a 401(k) defined contribution plan covering substantially all
employees. Beginning in 1996, the plan includes an employer annually elective
matching contribution provision. The 401(k) expense applicable to ECA employees
amounted to $77,115 in 1996.
F-37
<PAGE> 122
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO FINANCIAL STATEMENTS
5. COMMITMENTS
NFA leases certain equipment and vehicles under noncancelable leases
expiring at various dates through 2002. Certain of these leases contain renewal
and purchase options. Future minimum rental commitments on leases applicable to
the ECA business were as follows:
<TABLE>
<S> <C>
1997................................................... $ 801,318
1998................................................... 603,043
1999................................................... 561,259
2000................................................... 551,805
2001................................................... 493,820
2002................................................... 97,342
----------
$3,108,587
==========
</TABLE>
Rentals charged to operations under these leases were $759,505, $623,772,
and $214,177 for 1996, 1995, and 1994, respectively.
Under patent agreements entered into by NFA, NFA is required to pay
royalties relating to the sale of certain ECA products. Royalty amounts charged
to selling, general and administrative expenses were $385,200, $381,900, and
$460,500 for 1996, 1995, and 1994, respectively.
6. DEFERRED COMPENSATION AND EMPLOYMENT AGREEMENTS
NFA has established nonqualified unfunded deferred compensation agreements
for certain ECA employees. One agreement provides for fixed monthly benefits
payable until February 1, 1997, on which date the remaining balance will be paid
out in full. The outstanding unfunded obligation under this agreement amounted
to $98,022 and was included in accrued expenses at December 28, 1996. The other
agreement is part of an employment agreement and pertains to a bonus arrangement
based on ECA's annual pretax income in excess of a specified base, less certain
adjustments. The base amounts for periods subsequent to December 31, 1994 were
not exceeded and, as such, no accrual has been recorded for 1995 and 1996. The
deferred compensation is payable on January 1, 2006, or earlier in the event of
termination, and earns interest at 66% of the prime rate (8.5% at December 28,
1996). The employment agreement, which expires on January 1, 2006, provides for
an annual base salary of $160,000, effective January 1, 1996 with annual
increases based on the greater of the consumer price index or a specified
amount. The minimum base salary will be $200,000 through December 31, 2000 and
$240,000 thereafter. Provisions of the agreement also provide for the payment by
NFA of a portion of the proceeds, subject to certain conditions, from a sale, as
defined, of NFA. Proceeds to which the employee would be entitled shall be
determined based on a formula as specified in the agreement. As a result of the
letter of intent entered into by NFA (Note 1), NFA intends on paying a portion
of the proceeds from the proposed sale of ECA to the employee under this
provision of his employment agreement. The financial statements do not include
any amounts that might be payable upon the sale of ECA. Any amounts paid will be
recorded in the period in which a sale is consummated. Severance payments are
also provided for under the agreement.
Deferred compensation expense, including interest, aggregated $43,724,
$40,218, and $285,432 in 1996, 1995, and 1994, respectively.
7. DIVISIONAL EQUITY
Divisional equity represents NFA's investment in the ECA business and is
comprised of permanent loans and advances, net income of the ECA business,
intracompany receivables and payables and cumulative
F-38
<PAGE> 123
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO FINANCIAL STATEMENTS
receipts less disbursements through ECA's zero balance cash account. NFA charges
ECA an interest (or cost of capital) charge based on the average daily balance
of divisional equity in excess of $7,500,000 at prime (8.5%, 8.5%, and 8% at
December 28, 1996, December 30, 1995, and December 31, 1994, respectively) (Note
8).
8. RELATED-PARTY TRANSACTIONS
ECA is charged a home office service fee of 1.5% of its total sales by NFA.
The home office service fee, which is included in selling, general and
administrative expense, was $836,922, $870,827, and $920,097 for 1996, 1995, and
1994, respectively.
ECA is also charged a cost of capital in the form of interest by NFA (Note
7). Total interest expense charged to ECA by NFA was $437,157, $703,282, and
$629,063 for 1996, 1995, and 1994, respectively.
9. SIGNIFICANT CUSTOMERS
During 1996, 1995, and 1994, one unrelated customer accounted for
approximately 13%, 24%, and 29%, and another unrelated customer accounted for
approximately 10%, 9%, and 10%, respectively, of ECA's revenues. Additionally,
at December 28, 1996, December 30, 1995, and December 31, 1994, accounts
receivable from one customer approximated 31%, 31%, and 42%, respectively;
accounts receivable from the other customer approximated 6%, 4%, and 4%,
respectively, of ECA's accounts receivable.
10. CONTINGENCIES
NFA is a defendant in certain litigation relating to counterclaims filed
against ECA in connection with patents used by ECA. It is the opinion of
management that any losses in connection with this matter will not have a
material adverse effect on the financial position or results of operations of
ECA. Legal fees associated with certain litigation have been recorded by ECA in
the amount of approximately $855,200, $49,000, and $956,700 for 1996, 1995, and
1994, respectively. In addition, in 1995, NFA settled certain litigation
pertaining to ECA for $2,000,000. This amount, which was recorded by NFA in
1994, has been allocated to ECA and is included in selling, general and
administrative expenses for 1994.
F-39
<PAGE> 124
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
STATEMENTS OF ASSETS, LIABILITIES AND DIVISIONAL EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 27, 1997
------------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash...................................................................... $ 179,772
Accounts receivable less allowance for doubtful accounts of $906,000.... 11,826,938
Employee loans.......................................................... 213,544
Inventories............................................................. 11,752,408
Prepaid expenses........................................................ 506,278
---------
Total current assets............................................ 24,478,940
---------
Property, plant and equipment:
Land.................................................................... 159,558
Building and leasehold improvements..................................... 5,577,360
Machinery and equipment................................................. 20,154,087
Construction in progress................................................ 1,551,835
---------
27,442,840
Less accumulated depreciation........................................... 17,513,209
---------
9,929,631
---------
Other assets.............................................................. 759,786
---------
Total........................................................... $ 35,168,357
=========
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities:
Accounts payable........................................................ $ 2,827,182
Accrued expenses........................................................ 1,365,728
Current maturities of long-term debt.................................... --
---------
Total current liabilities....................................... 4,192,910
Long-term debt............................................................ 6,000,000
Deferred compensation..................................................... 717,496
---------
Total liabilities............................................... 10,910,406
---------
Commitments
Divisional equity......................................................... 24,257,951
---------
Total........................................................... $ 35,168,357
=========
</TABLE>
See notes to financial statements.
F-40
<PAGE> 125
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
STATEMENTS OF INCOME AND DIVISIONAL EQUITY
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net sales....................................................... $52,738,894 $41,779,106
Cost of sales................................................... 38,913,629 31,151,218
----------- -----------
Gross Profit.................................................... 13,825,265 10,627,888
----------- -----------
Selling, general and administrative expenses.................... 6,447,226 5,241,023
Interest expense................................................ 983,361 615,274
----------- -----------
Total expenses.................................................. 7,430,587 5,856,297
----------- -----------
Net income...................................................... 6,394,678 4,771,591
----------- -----------
Divisional equity, beginning of period.......................... 20,942,012 16,361,776
Distributions to corporate...................................... (3,078,739) (3,335,556)
----------- -----------
Divisional equity, end of period................................ $24,257,951 $17,797,811
=========== ===========
</TABLE>
F-41
<PAGE> 126
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 6,394,678 $ 4,771,591
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 1,387,502 1,673,151
Changes in assets and liabilities provided (used) cash:
Accounts receivable, net................................... (2,837,327) (2,424,444)
Inventories................................................ (1,076,247) (1,222,345)
Prepaid expenses........................................... (208,845) (108,271)
Accounts payable and accrued expenses...................... 1,663,315 2,102,149
Deferred compensation...................................... -- (54,533)
----------- -----------
Net cash provided operating activities................ 5,323,076 4,737,298
----------- -----------
Cash flows from investing activities:
Decrease in escrow funds restricted under bond indenture...... -- 4,778
Additions to property, plant and equipment.................... (2,173,570) (677,931)
----------- -----------
(2,173,570) (673,153)
----------- -----------
Cash flows from financing activities:
Cash remitted to NFA Corp..................................... (3,078,739) (3,335,556)
Payments for long term debt................................... -- (700,000)
----------- -----------
(3,078,739) (4,035,556)
----------- -----------
Net increase cash............................................... 70,767 28,589
Cash, beginning of period....................................... 109,005 111,559
----------- -----------
Cash, end of period............................................. $ 179,772 $ 140,148
=========== ===========
Supplemental cash flow information -- cash paid for interest.... 240,734 256,878
----------- -----------
</TABLE>
F-42
<PAGE> 127
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- Elastic Corporation of America ("ECA") is a
division of NFA Corp. ("NFA"). ECA is engaged in the manufacture and
distribution of narrow elastic and other specialty textiles. On December 1,
1997, NFA sold the ECA business to Worldtex, Inc.
The accompanying unaudited interim financial statements include the
historical basis financial statements of ECA. ECA has been operated as a
division of NFA, sharing corporate services (audit, legal and group
administrative functions) with other NFA divisions. The financial statements
have been prepared from the separate records maintained for the ECA division.
Certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. As such, these interim financial statements should be read in
conjunction with ECA's 1996 financial statements and notes thereto.
In the opinion of ECA management, the accompanying interim unaudited
financial statements as of September 27, 1997 and for the thirty-nine weeks
ended September 27, 1997 have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a presentation of the financial position
and operating results of ECA for the period in accordance with the basis of
presentation described in Note 1 to the audited ECA financial statements.
Accounts Receivable and Other Assets -- Other assets consist of long term
accounts receivable and deferred financing costs. Accounts receivable and Other
Assets include approximately $1,900,000 (of which $600,000 was classified as
long term accounts receivable) of accounts receivable which were not sold to
Worldtex, Inc. At September 27, 1997, ECA provided for an additional allowance
of $500,000 for doubtful accounts. Subsequently, in December 1997, the entire
amount of accounts receivable not sold were determined to be substantially
uncollectible.
2. INVENTORIES
Inventories at the balance sheet date are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 27,
1997
-------------
<S> <C>
Raw materials and supplies.............................. $ 2,377,046
Work in process......................................... 5,398,844
Finished goods.......................................... 3,976,518
------------
$ 11,752,408
============
</TABLE>
3. LONG-TERM DEBT
In June 1992 NFA entered into a lease agreement ("the Agreement") with the
Industrial Development Board of the City of Columbiana ("IDBCC"). Pursuant to
the agreement, IDBCC, the issuer of $8,100,000 of Revenue Bonds ("the Bonds")
issued for the purpose of financing the cost of acquiring, constructing and
equipping an industrial facility (ECA's Headquarters, "the NFA Project"), leased
the NFA Project to NFA. NFA agreed to pay rentals to IDBCC equal to the debt
service on the Bonds. The final maturity of the Bonds and the termination of the
lease was June 1, 2004. IDBCC assigned and pledged to the bond trustee all of
its rights under the lease. As security for the payment of the debt service on
the Bonds, NFA entered into a
F-43
<PAGE> 128
ELASTIC CORPORATION OF AMERICA
(A DIVISION OF NFA CORP.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Guaranty Agreement in favor of the bond trustee, guaranteeing payment on the
debt service. The Guaranty is supported by an irrevocable direct pay Letter of
Credit ("LOC") which permits the bond trustee to draw an amount sufficient to
pay, when due, the principal of, and up to 200 days interest on, the bonds. The
LOC was established to not exceed $6,333,334. There were no balances drawn or
outstanding on this LOC at the balance sheet dates. As security for NFA's
obligations under the LOC, NFA and IDBCC executed a mortgage, assignment of
leases and security agreement in favor of the bank that issued the LOC, whereby
the bank was granted a mortgage, and security interest in the NFA project. Under
the terms of the Agreement and bond indenture, funds available to NFA were
required to be deposited into an escrow project fund with the bond trustee. Use
of such funds was limited to the NFA Project. NFA is also required to comply
with certain affirmative and negative covenants; these covenants restrict NFA
from incurring other indebtedness, limit distributions of income and require the
maintenance of certain financial ratios. NFA was in compliance with these
covenants at the balance sheet dates. The obligations associated with the bond
issuance and the related capital costs of the NFA Project have been recorded by
ECA.
In May 1997 the lease was amended to extend the term of the agreement from
June 1, 2004 to June 1, 2014. In conjunction with the execution of the
amendment, bond holders approved an amendment to the bond indenture to remove
the requirements for scheduled annual mandatory redemption of the bonds on June
1, 1997 and thereafter. The indenture was also amended to extend the final
maturity of the bonds from June 1, 2004 to June 1, 2014. The expiration of the
LOC has been extended to March 31, 1999.
4. DEFERRED COMPENSATION AND EMPLOYMENT AGREEMENTS
NFA has established nonqualified unfunded deferred compensation agreements
for certain ECA employees. One agreement provides for fixed monthly benefits
payable until February 1, 1997, on which date the remaining balance was paid out
in full. The other agreement is part of an employment agreement and pertains to
a bonus arrangement based on ECA's annual pretax income in excess of a specified
base, less certain adjustments. The base amounts for periods subsequent to
December 31, 1994 were not exceeded and, as such, no accrual has been recorded
subsequent to December 31, 1994. The deferred compensation is payable on January
1, 2006, or earlier in the event of termination, and earns interest at 66% of
the prime rate. The employment agreement, which expires on January 1, 2006,
provides for an annual base salary of $160,000, effective January 1, 1996 with
annual increases based on the greater of the consumer price index or a specified
amount. The minimum base salary will be $200,000 through December 31, 2000 and
$240,000 thereafter. Provisions of the agreement also provide for the payment by
NFA of a portion of the proceeds, subject to certain conditions, from a sale, as
defined, of NFA. Proceeds to which the employee would be entitled shall be
determined based on a formula as specified in the agreement. As a result of the
sale of the assets of the ECA business to Worldtex, Inc. on December 1, 1997,
amounts due to the employee under the provision of his employment agreement were
paid by NFA. The amounts paid were recorded in the period in which the sale was
consummated. Severance payments are also provided for under the agreement.
5. DIVISIONAL EQUITY
Divisional equity represents NFA's investment in the ECA business and is
comprised of permanent loans and advances, net income of the ECA business,
intracompany receivables and payables and cumulative receipts less disbursements
through ECA's zero balance cash account. NFA charges ECA an interest (or cost of
capital) charge based on the average daily balance of divisional equity in
excess of $7,500,000 at prime.
6. CONTINGENCIES
NFA is a defendant in certain litigation relating to counterclaims filed
against ECA in connection with patents used by ECA. It is the opinion of
management that any losses in connection with this matter will not have a
material adverse effect on the financial position or results of operations of
ECA.
F-44
<PAGE> 129
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR THE INITIAL PURCHASER. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING
LETTER OF TRANSMITTAL CONSTITUTES AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION.
NEITHER DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL
NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS NOT BEEN A CHANGE IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Prospectus Summary..................... 5
Risk Factors........................... 16
The Company............................ 22
Use of Proceeds........................ 23
The Exchange Offer..................... 24
Capitalization......................... 32
Pro Forma Combined Financial
Information.......................... 33
Selected Historical Financial
Information.......................... 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 40
Business............................... 49
Description of Other Indebtedness...... 57
Description of Notes................... 58
Certain United States Federal Tax
Considerations....................... 80
Plan of Distribution................... 82
Legal Matters.......................... 82
Experts................................ 83
Available Information.................. 83
Index to Financial Statements.......... F-1
</TABLE>
======================================================
======================================================
WORLDTEX
OFFER TO EXCHANGE ITS
9 5/8% SERIES B SENIOR NOTES
DUE 2007 WHICH HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS
AMENDED, FOR ANY AND ALL
OF ITS OUTSTANDING 9 5/8%
SERIES A SENIOR NOTES DUE 2007
---------------------------
PROSPECTUS
---------------------------
, 1998
======================================================
<PAGE> 130
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that no director of the
Company shall be liable to the Company or any stockholder for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law (governing distributions to stockholders) or
(iv) for any transaction from which the director derived an improper personal
benefit.
The Company's Certificate of Incorporation also provides that if Delaware
law is amended to further eliminate or limit the liability of directors, then
the liability of a director of the Company shall be eliminated or limited,
without further shareholder action, to the fullest extent possible under
Delaware law as so amended.
Section 145 of the Delaware General Corporation Law contains provisions
permitting and, in some situations, requiring Delaware corporations, such as the
Company, to provide indemnification to their officers and directors for losses
and litigation expense incurred in connection with their service to the
corporation in those capacities. The Company's Certificate of Incorporation
contains provisions requiring indemnification by the Company of its directors
and officers to the fullest extent that is permitted by law. Among other things,
these provisions will provide indemnification for officers and directors against
liabilities for judgments in and settlements of lawsuits and other proceedings
and for the advance and payment of fees and expenses reasonably incurred by the
director or officer in defense of any such lawsuit or proceeding.
The Company has a contract for insurance coverage under which the Company's
officers and directors (as well as the Company) are indemnified under certain
circumstances with respect to litigation and other costs and liabilities arising
out of actual or alleged misconduct of such directors and officers.
ITEM 21. EXHIBITS.
The Index to Exhibits to this Registration Statement is incorporated herein
by reference.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(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 end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
II-1
<PAGE> 131
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) shall not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 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.
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 Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-2
<PAGE> 132
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hickory, State of North Carolina, on January 30, 1998.
WORLDTEX, INC.
By: /s/ BARRY D. SETZER
------------------------------------
Barry D. Setzer
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on January 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------------- ------------------------------------------------------
<C> <S>
/s/ BARRY D. SETZER President, Chief Executive Officer and Director
- ------------------------------------- (Principal Executive Officer)
Barry D. Setzer
/s/ RICHARD J. MACKEY Chairman of the Board, Chief Financial Officer and
- ------------------------------------- Director
Richard J. Mackey (Principal Financial and Accounting Officer)
- ------------------------------------- Director
Claude D. Egler
JOHN B. FRASER* Director
- -------------------------------------
John B. Fraser
Director
- -------------------------------------
Salim M. Ibrahim
WILLI ROELLI* Director
- -------------------------------------
Willi Roelli
MICHAEL B. WILSON* Director
- -------------------------------------
Michael B. Wilson
JOHN K. ZIEGLER* Director
- -------------------------------------
John K. Ziegler
BY: /s/ BARRY D. SETZER
- -------------------------------------
Barry D. Setzer
(Attorney-in-fact for persons
indicated by an asterisk)
</TABLE>
II-3
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hickory, State of North Carolina, on January 30, 1998.
REGAL MANUFACTURING COMPANY, INC.
By: /s/ BARRY D. SETZER
------------------------------------
Barry D. Setzer
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on January 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ BARRY D. SETZER Chairman of the Board,
- --------------------------------------------- Chief Executive Officer and Director
Barry D. Setzer (Principal Executive Officer)
/s/ RICHARD J. MACKEY Vice President, Chief Financial Officer and
- --------------------------------------------- Director
Richard J. Mackey (Principal Financial and Accounting Officer)
/s/ KENNETH W. O'NEILL Director
- ---------------------------------------------
Kenneth W. O'Neill
</TABLE>
II-4
<PAGE> 134
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hickory, State of North Carolina, on January 30, 1998.
WILLCOX & GIBBS FILIX OF DELAWARE,
INC.
By: /s/ BARRY D. SETZER
------------------------------------
Barry D. Setzer
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on January 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ BARRY D. SETZER Chairman of the Board,
- --------------------------------------------- Chief Executive Officer and Director
Barry D. Setzer (Principal Executive Officer)
/s/ RICHARD J. MACKEY Vice President, Chief Financial Officer and
- --------------------------------------------- Director
Richard J. Mackey (Principal Financial and Accounting Officer)
/s/ KENNETH W. O'NEILL Director
- ---------------------------------------------
Kenneth W. O'Neill
</TABLE>
II-5
<PAGE> 135
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hickory, State of North Carolina, on January 30, 1998.
ELASTIC CORPORATION OF AMERICA, INC.
By: /s/ BARRY D. SETZER
------------------------------------
Barry D. Setzer
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on January 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ BARRY D. SETZER Chairman of the Board,
- --------------------------------------------- Chief Executive Officer and Director
Barry D. Setzer (Principal Executive Officer)
/s/ RICHARD J. MACKEY Vice President, Chief Financial Officer and
Director
- --------------------------------------------- (Principal Financial and Accounting Officer)
Richard J. Mackey
/s/ MITCHELL R. SETZER Director
- ---------------------------------------------
Mitchell R. Setzer
</TABLE>
II-6
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hickory, State of North Carolina, on January 30, 1998.
ELASTEX, INC.
By: /s/ BARRY D. SETZER
------------------------------------
Barry D. Setzer
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on January 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ BARRY D. SETZER Chairman of the Board,
- --------------------------------------------- Chief Executive Officer and Director
Barry D. Setzer (Principal Executive Officer)
/s/ RICHARD J. MACKEY Vice President, Chief Financial Officer and
Director
- --------------------------------------------- (Principal Financial and Accounting Officer)
Richard J. Mackey
/s/ MITCHELL R. SETZER Director
- ---------------------------------------------
Mitchell R. Setzer
</TABLE>
II-7
<PAGE> 137
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hickory, State of North Carolina, on January 30, 1998.
REGAL YARNS OF ARGENTINA, INC.
By: /s/ BARRY D. SETZER
------------------------------------
Barry D. Setzer
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on January 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ BARRY D. SETZER Chairman of the Board,
- --------------------------------------------- Chief Executive Officer and Director
Barry D. Setzer (Principal Executive Officer)
/s/ RICHARD J. MACKEY Vice President and Chief Financial Officer
- --------------------------------------------- (Principal Financial and Accounting Officer)
Richard J. Mackey
/s/ KENNETH W. O'NEILL Director
- ---------------------------------------------
Kenneth W. O'Neill
/s/ MITCHELL R. SETZER Director
- ---------------------------------------------
Mitchell R. Setzer
</TABLE>
II-8
<PAGE> 138
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hickory, State of North Carolina, on January 30, 1998.
WTX COLOMBIA I, INC.
By: /s/ BARRY D. SETZER
------------------------------------
Barry D. Setzer
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on January 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ BARRY D. SETZER Chairman of the Board,
- --------------------------------------------- Chief Executive Officer and Director
Barry D. Setzer (Principal Executive Officer)
/s/ RICHARD J. MACKEY Vice President, Chief Financial Officer and
Director
- --------------------------------------------- (Principal Financial and Accounting Officer)
Richard J. Mackey
/s/ MITCHELL R. SETZER Director
- ---------------------------------------------
Mitchell R. Setzer
</TABLE>
II-9
<PAGE> 139
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Hickory, State of North Carolina, on January 30, 1998.
WTX COLOMBIA II, INC.
By: /s/ BARRY D. SETZER
------------------------------------
Barry D. Setzer
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following persons
in the capacities indicated, on January 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ BARRY D. SETZER Chairman of the Board,
- --------------------------------------------- Chief Executive Officer and Director
Barry D. Setzer (Principal Executive Officer)
/s/ RICHARD J. MACKEY Vice President, Chief Financial Officer and
Director
- --------------------------------------------- (Principal Financial and Accounting Officer)
Richard J. Mackey
/s/ MITCHELL R. SETZER Director
- ---------------------------------------------
Mitchell R. Setzer
</TABLE>
II-10
<PAGE> 140
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ------------------------------------------------------------------------- ----
<C> <S> <C>
2.1 Asset Purchase Agreement, dated as of October 29, 1997, among Elastic
Corporation of America, Inc. (a wholly-owned subsidiary of Worldtex,
Inc.), Worldtex, Inc., and NFA Corp. Filed as Exhibit 2.1 to the
Worldtex, Inc. Current Report on Form 8-K dated December 1, 1997 and
incorporated herein by reference.
4.1 Indenture, dated as of December 1, 1997, by and among Worldtex, Inc.,
Willcox & Gibbs Filix of Delaware, Inc., Regal Manufacturing Company,
Inc., Elastic Corporation of America, Inc., Elastex, Inc., Regal Yarns of
Argentina, Inc., WTX Colombia I, Inc. and WTX Colombia II, Inc.
(together, other than Worldtex, Inc., the "Guarantors"), and IBJ Schroder
Bank & Trust Company, as Trustee, with respect to the Series A and Series
B 9 5/8% Senior Notes due 2007.
4.2 Purchase Agreement, dated November 20, 1997, by and among Worldtex, Inc.
and NationsBanc Montgomery Securities, Inc., BancAmerica Robertson
Stephens and Interstate/Johnson Lane Corporation (the "Initial
Purchasers").
4.3 Registration Rights Agreement, dated as of December 1, 1997, by and among
Worldtex, Inc., the Guarantors and the Initial Purchasers.
4.4 Form of New Note (contained in Exhibit 4.1).
5.1 Opinion of Hughes Hubbard & Reed LLP, as to the legality of securities
registered hereunder.
12.1 Computation of ratio of earnings to fixed charges.
23.1 Consent of Hughes Hubbard & Reed LLP (contained in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney of certain directors and officers of the Company.
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939, as amended, of IBJ Schroder Bank & Trust Company,
as Trustee.
99.1 Form of Letter of Transmittal with respect to the Exchange Offer.
99.2 Form of Letter of Guaranteed Delivery.
99.3 Form of Letter to Brokers, Dealers.
99.4 Form of Letter to Clients.
</TABLE>
<PAGE> 1
Exhibit 4.1
================================================================================
Worldtex, Inc.
Willcox & Gibbs Filix of Delaware, Inc.
Regal Manufacturing Company, Inc.
Elastic Corporation of America, Inc.
Elastex, Inc.
Regal Yarns of Argentina, Inc.
WTX Colombia I, Inc.
WTX Colombia II, Inc.
----------------------------------------------
SERIES A AND SERIES B
9 5/8% SENIOR NOTES DUE 2007
------------------------------
INDENTURE
------------------------------
Dated as of December 1, 1997
------------------------------
IBJ Schroder Bank & Trust Company
Trustee
================================================================================
<PAGE> 2
CROSS-REFERENCE TABLE*
(a) Trust Indenture
Act Section Indenture Section
310 (a)(1)..........................................................7.10
(a)(2) .............................................................7.10
(a)(3)..............................................................N.A.
(a)(4)..............................................................N.A.
(a)(5)..............................................................7.10
(i)(b)..............................................................7.10
(ii)(c).............................................................N.A.
311(a)..............................................................7.11
(b).................................................................7.11
(iii(c).............................................................N.A.
312 (a).............................................................2.05
(b).................................................................11.03
(iv)(c).............................................................11.03
313(a)..............................................................7.06
(b)(1)..............................................................10.03
(b)(2)..............................................................7.07
(v)(c)..............................................................7.06;
11.02
(vi)(d).............................................................7.06
314(a)..............................................................4.03;
11.02
(A)(b)..............................................................10.02
(c)(1)..............................................................11.04
(c)(2)..............................................................11.04
(c)(3)..............................................................N.A.
(d).................................................................10.03,
10.04, 10.05
(vii)(e)............................................................11.05
(f).................................................................NA
315 (a).............................................................7.01
(b).................................................................7.05,
11.02
(A)(c)..............................................................7.01
(d).................................................................7.01
(e).................................................................6.11
316 (a)(last sentence)..............................................2.09
(a)(1)(A)...........................................................6.05
(a)(1)(B)...........................................................6.04
(a)(2)..............................................................N.A.
(b).................................................................6.07
(B)(c)..............................................................2.12
317 (a)(1)..........................................................6.08
(a)(2)..............................................................6.09
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(b).................................................................2.04
318 (a).............................................................11.01
(b).................................................................N.A.
(c).................................................................11.01
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
3
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TABLE OF CONTENTS
Page
----
ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE..........................1
Section 1.01. Definitions...................................................1
Section 1.02. Other Definitions............................................14
Section 1.03. Provisions of the TIA........................................14
Section 1.04. Rules of Construction........................................15
ARTICLE 2. THE NOTES..........................................................15
Section 2.01. Form and Dating..............................................15
Section 2.02. Execution and Authentication.................................16
Section 2.03. Registrar and Paying Agent...................................17
Section 2.04. Paying Agent to Hold Money in Trust..........................17
Section 2.05. Holder Lists.................................................18
Section 2.06. Transfer and Exchange........................................18
Section 2.07. Replacement Notes............................................30
Section 2.08. Outstanding Notes............................................30
Section 2.09. Treasury Notes...............................................30
Section 2.10. Temporary Notes..............................................31
Section 2.11. Cancellation.................................................31
Section 2.12. Defaulted Interest...........................................31
ARTICLE 3. REDEMPTION AND PREPAYMENT..........................................31
Section 3.01. Notices to Trustee...........................................31
Section 3.02. Selection of Notes to Be Redeemed............................31
Section 3.03. Notice of Redemption.........................................32
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Section 3.04. Effect of Notice of Redemption...............................33
Section 3.05. Deposit of Redemption Price..................................33
Section 3.06. Notes Redeemed in Part.......................................33
Section 3.07. Optional Redemption..........................................33
Section 3.08. Mandatory Redemption.........................................34
Section 3.09. Offer to Purchase by Application of Excess Proceeds..........34
ARTICLE 4. COVENANTS..........................................................36
Section 4.01. Payment of Notes.............................................36
Section 4.02. Maintenance of Office or Agency..............................36
Section 4.03. Reports......................................................36
Section 4.04. Compliance Certificate.......................................37
Section 4.05. Taxes........................................................38
Section 4.06. Stay, Extension and Usury Laws...............................38
Section 4.07. Restricted Payments..........................................38
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries.................................................40
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock...40
Section 4.10. Asset Sales..................................................42
Section 4.11. Transactions with Affiliates.................................43
Section 4.12. Liens........................................................43
Section 4.13. Line of Business.............................................44
Section 4.14. Corporate Existence..........................................44
Section 4.15. Offer to Repurchase Upon Change of Control...................44
Section 4.16. No Senior Subordinated Debt..................................45
Section 4.17. Limitation on Sale and Leaseback Transactions................45
Section 4.18. Limitation on Issuances and Sales of Equity Interests of
Wholly Owned Subsidiaries....................................46
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Section 4.19. Payments for Consent.........................................46
Section 4.20. Additional Note Guarantees...................................46
ARTICLE 5. SUCCESSORS.........................................................46
Section 5.01. Merger, Consolidation, or Sale of Assets.....................46
Section 5.02. Successor Corporation Substituted............................47
ARTICLE 6. DEFAULTS AND REMEDIES..............................................47
Section 6.01. Events of Default............................................47
Section 6.02. Acceleration.................................................49
Section 6.03. Other Remedies...............................................49
Section 6.04. Waiver of Past Defaults......................................50
Section 6.05. Control by Majority..........................................50
Section 6.06. Limitation on Suits..........................................50
Section 6.07. Rights of Holders of Notes to Receive Payment................50
Section 6.08. Collection Suit by Trustee...................................51
Section 6.09. Trustee May File Proofs of Claim.............................51
Section 6.10. Priorities...................................................51
Section 6.11. Undertaking for Costs........................................52
ARTICLE 7. TRUSTEE............................................................52
Section 7.01. Duties of Trustee............................................52
Section 7.02. Rights of Trustee............................................53
Section 7.03. Individual Rights of Trustee.................................53
Section 7.04. Trustee's Disclaimer.........................................54
Section 7.05. Notice of Defaults...........................................54
Section 7.06. Reports by Trustee to Holders of the Notes...................54
Section 7.07. Compensation and Indemnity...................................54
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Section 7.08. Replacement of Trustee.......................................55
Section 7.09. Successor Trustee by Merger, etc.............................56
Section 7.10. Eligibility; Disqualification................................56
Section 7.11. Preferential Collection of Claims Against Company............56
ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE...........................56
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.....56
Section 8.02. Legal Defeasance and Discharge...............................56
Section 8.03. Covenant Defeasance..........................................57
Section 8.04. Conditions to Legal or Covenant Defeasance...................57
Section 8.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions........................59
Section 8.06. Repayment to Company.........................................59
Section 8.07. Reinstatement................................................59
ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER...................................60
Section 9.01. Without Consent of Holders of Notes..........................60
Section 9.02. With Consent of Holders of Notes.............................60
Section 9.03. Compliance with Trust Indenture Act..........................62
Section 9.04. Revocation and Effect of Consents............................62
Section 9.05. Notation on or Exchange of Notes.............................62
Section 9.06. Trustee to Sign Amendments, etc..............................62
ARTICLE 10. NOTE GUARANTEES...................................................62
Section 10.01. Guarantee...................................................62
Section 10.02. Limitation on Guarantor Liability...........................63
Section 10.03. Execution and Delivery of Note Guarantee....................64
Section 10.04. Guarantors May Consolidate, etc., on Certain Terms..........64
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Section 10.05. Releases Following Sale of Assets...........................65
ARTICLE 11. SATISFACTION AND DISCHARGE........................................65
Section 11.01. Satisfaction and Discharge of Indenture.....................65
Section 11.02. Application of Trust Money..................................66
ARTICLE 12. MISCELLANEOUS.....................................................66
Section 12.01. Trust Indenture Act Controls................................66
Section 12.02. Notices.....................................................67
Section 12.03. Communication by Holders of Notes with Other Holders of
Notes.......................................................67
Section 12.04. Certificate and Opinion as to Conditions Precedent..........68
Section 12.05. Statements Required in Certificate or Opinion...............68
Section 12.06. Rules by Trustee and Agents.................................68
Section 12.07. No Personal Liability of Directors, Officers,
Employees and Stockholders..................................68
Section 12.08. Governing Law...............................................69
Section 12.09. No Adverse Interpretation of Other Agreements...............69
Section 12.10. Successors..................................................69
Section 12.11. Severability................................................69
Section 12.12. Counterpart Originals.......................................69
Section 12.13. Table of Contents, Headings, etc............................69
EXHIBITS
Exhibit A FORM OF NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit E FORM OF NOTE GUARANTEE
Exhibit F FORM OF SUPPLEMENTAL INDENTURE
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INDENTURE dated as of December 1, 1997 by and among Worldtex, Inc.,
a Delaware corporation (the "Company"), each of the existing domestic
subsidiaries of the Company listed on the signature page of this Indenture
(together, the "Initial Guarantors"), and IBJ Schroder Bank & Trust Company, as
trustee (the "Trustee").
The Company, the Initial Guarantors and the Trustee agree as follows
for the benefit of each other and for the equal and ratable benefit of the
Holders of the 9 5/8% Series A Senior Notes due 2007 (the "Series A Notes") and
the 9 5/8% Series B Senior Notes due 2007 (the "Series B Notes" and, together
with the Series A Notes, the "Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS.
"144A Global Note" means a global note in the form of Exhibit A1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of, and registered in the name of, the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold in reliance on Rule 144A.
"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 assets acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the Voting Stock of a Person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or
exchange of or for beneficial interests in any Global Note, the rules and
procedures of the Depositary, Euroclear and Cedel that apply to such transfer or
exchange.
"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) other than sales of inventory in the ordinary course of
business (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company and its Subsidiaries taken as
a whole will be governed by Section 4.15 hereof and/or by Section 5.01 hereof
and not by the provisions of Section 4.10 hereof, 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
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excess of $1.0 million. Notwithstanding the foregoing, the following items shall
not be deemed to be Asset Sales: (i) a transfer of assets by the Company to a
Subsidiary or by a Subsidiary to the Company or to another Subsidiary, (ii) an
issuance of Equity Interests by a Subsidiary to the Company or to another
Subsidiary, (iii) a Restricted Payment that is permitted by Section 4.07 hereof,
(iv) the sale or lease of equipment, inventory, accounts receivable or other
assets in the ordinary course of business, (v) the sale or other disposition of
cash or Cash Equivalents, and (v) the making of a Permitted Investment.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company, or
any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"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) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (provided that the full
faith and credit of the United States is pledged in support thereof) having
maturities of not more than six months from the date of acquisition, (iii)
certificates of deposit and eurodollar time deposits with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any lender party to the New Credit Facility or with any domestic commercial
bank having capital and surplus in excess of $500.0 million and a Thompson Bank
Watch Rating of "B" or better, (iv) 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, (v) commercial paper having the
highest rating obtainable from either Moody's Investors Service, Inc. or
Standard & Poor's Rating Services and in each case maturing within six months
after the date of acquisition and (vi) money market funds at least 95% of the
assets of which constitute Cash Equivalents of the kinds described in clauses
(i) - (v) of this definition.
"Cedel" means Cedel Bank, SA.
"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 Subsidiaries taken
as a whole to any "person" (as such term is used in Section 13(d)(3) of the
Exchange Act); (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
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<PAGE> 11
any "person" (as defined above) 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, whether such right is currently
exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of the
Company (measured by voting power rather than number of shares); (iv) the first
day on which a majority of the members of the Board of Directors of the Company
are not Continuing Directors or; (iv) the Company consolidates with, or merges
with or into, any Person, or any Person consolidates with, or merges with or
into, the Company, in any such event pursuant to a transaction in which any of
the outstanding Voting Stock of the Company is converted into or exchanged for
cash, securities or other property, other than any such transaction where the
Voting Stock of the Company outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person (immediately
after giving effect to such issuance).
"Company" means Worldtex, Inc., and any and all successors thereto.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, 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), to the extent that any
such expense was deducted in computing such Consolidated Net Income, plus (iv)
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense that was
paid in a prior period) of such Person and its Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income, minus (v) non-cash items
increasing such Consolidated Net Income for such period, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash expenses of, a Subsidiary of
the referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent that a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Subsidiary without prior governmental approval (that has not been obtained), and
without direct or indirect restriction pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that 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 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
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to
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<PAGE> 12
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof that is a Guarantor, (ii)
the Net Income of any Subsidiary shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that 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 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 and (iv) the cumulative effect of
a change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of this Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of
the Trustee specified in Section 12.02 hereof or such other address as to which
the Trustee may give notice to the Company.
"Credit Facilities" means, with respect to the Company, one or more
debt facilities (including, without limitation, the New Credit Facility) or
commercial paper facilities with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including through
the sale of receivables to such lenders or to special purpose entities formed to
borrow from such lenders against such receivables) or letters of credit, in each
case, as amended, restated, modified, renewed, refunded, replaced or refinanced
in whole or in part from time to time. Indebtedness under Credit Facilities
outstanding on the date on which Notes are first issued and authenticated under
this Indenture shall be deemed to have been incurred on such date in reliance on
the exception provided by clause (i) or (ii) of the definition of Permitted
Debt.
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"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.
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<PAGE> 13
"Definitive Note" means a certificated Note registered in the name
of the Holder thereof and issued in accordance with Section 2.06 hereof, in the
form of Exhibit A1 hereto except that such Note shall not bear the Global Note
Legend and shall not have the "Schedule of Exchanges of Interests in the Global
Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"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, at the option of the holder thereof), 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 Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because of the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such provisions
unless such repurchase or redemption complies with Section 4.07 hereof.
"Eligible Inventory" means, as of any date of determination, all
inventory of the Company and its Subsidiaries, wherever located, valued in
accordance with GAAP and reflected on the most recent consolidated balance sheet
of the Company prior to such date of determination for which financial
statements of the Company are available.
"Eligible Receivables" means, as of any date of determination, all
accounts receivable of the Company and its Subsidiaries (including amounts
denominated as due from factor) arising out of the sale of inventory or
manufacturing services in the ordinary course of business, valued in accordance
with GAAP and reflected on the most recent consolidated balance sheet of the
Company prior to such date of determination for which financial statements of
the Company are available.
"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).
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the Notes issued in the Exchange Offer
pursuant to Section 2.06(f) hereof.
"Exchange Offer" has the meaning set forth in the Registration
Rights Agreement.
"Exchange Offer Registration Statement" has the meaning set forth in
the Registration Rights Agreement.
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"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Credit Facility) in
existence on the date of this Indenture (including without limitation
obligations of the Company and its Subsidiaries with respect to the $6.0 million
principal amount Industrial Development Bonds (NFA Corp. Project), Series 1992A,
issued by the Industrial Development Board of the City of Columbiana, Alabama),
until such amounts are repaid.
"Existing Senior Notes" means the 7.50% Senior Notes due July 1,
2004 of the Company.
"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 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) and (ii) the consolidated
interest of such Person and its Subsidiaries that was capitalized during such
period, and (iii) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Subsidiaries or secured by a Lien on
assets of such Person or one of its 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 Subsidiaries, other than dividend payments on Equity Interests payable
solely in Equity Interests of the Company (other than Disqualified Stock) or to
the Company or a Subsidiary 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 for such period. In the event that
the referent Person or any of its Subsidiaries incurs, assumes, Guarantees or
redeems any Indebtedness (other than revolving credit borrowings) or issues or
redeems 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
Subsidiaries, including through 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, and (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 Subsidiaries following the Calculation Date.
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"Foreign Subsidiary" means any Subsidiary of the Company that is not
a U.S. Subsidiary.
"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.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, in the form of
Exhibit A1 hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section
2.06(g)(ii), which is required to be placed on all Global Notes issued under
this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"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, by way of a
pledge of assets or through letters of credit and reimbursement agreements in
respect thereof), of all or any part of any Indebtedness.
"Guarantors" means each of (i) Willcox & Gibbs Filix of Delaware,
Inc., Regal Manufacturing Company, Inc., Elastic Corporation of America, Inc.,
Elastex, Inc., Regal Yarns of Argentina, Inc., WTX Colombia I, Inc. and WTX
Colombia II, Inc. and (ii) any other Subsidiary that executes and delivers to
the Trustee a Supplemental Indenture in substantially the form of Exhibit F
hereto in accordance with the provisions of this Indenture, and their respective
successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest or currency rate swaps, caps,
collars, floors or other similar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"Holder" means a Person in whose name a Note is registered.
"IAI Global Note" means the global Note in the form of Exhibit A1
hereto bearing the Global Note Legend and the Private Placement Legend and
deposited with or on behalf of and registered in the name of the Depositary or
its nominee that will be issued in a denomination equal to the outstanding
principal amount of the Notes sold to Institutional Accredited Investors.
"Indebtedness" means, with respect to any Person, any indebtedness
of such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or 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 (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others secured
by a Lien on any asset of such
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Person (whether or not such Indebtedness is assumed by such Person) and, to the
extent not otherwise included, the Guarantee by such Person of any indebtedness
of any other Person. The amount of any Indebtedness outstanding as of any date
shall be (i) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount, and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from
time to time.
"Indirect Participant" means a Person who holds a beneficial
interest in a Global Note through a Participant.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"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 Section 4.07 hereof.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be
prepared by the Company and sent to all Holders of the Notes for use by such
Holders in connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest).
"Liquidated Damages" means all liquidated damages then owing
pursuant to the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the disposition of any securities by such Person or any
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<PAGE> 17
of its Subsidiaries or the extinguishment of any Indebtedness of such Person or
any of its 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 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 (other than Indebtedness under a Credit Facility) 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 that Credit Agreement, dated as of
December 1, 1997, by and among the Company and NationsBank, N.A. and the other
lenders named therein, providing for up to $25.0 million of revolving credit
borrowings, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each cash as
amended, modified, renewed, refunded, replaced or refinanced from time to time.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Note Custodian" means the Trustee, as custodian with respect to the
Notes in global form, or any successor entity thereto.
"Note Guarantee" means the Guarantee by each Guarantor of the
Company's payment obligations under this Indenture and the Notes, executed
pursuant to the provisions of this Indenture.
"Notes" has the meaning assigned to it in the preamble to this
Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Company.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Operating Officer,
the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the
Controller, the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
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"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to The Depository Trust Company, shall include
Euroclear and Cedel).
"Participating Broker-Dealer" has the meaning set forth in the
Registration Rights Agreement.
"Permitted Business" means the same or similar line of business as
the Company or any of its Subsidiaries was engaged in on the date that the Notes
were originally issued or any reasonable extension or expansion thereof.
"Permitted Investments" means (a) any Investment in the Company or
in a Subsidiary of the Company that is engaged in a Permitted Business; (b) any
Investment in Cash Equivalents; (c) any Investment by the Company or any
Subsidiary of the Company in a Person that is engaged in a Permitted Business,
if as a result of such Investment (i) such Person becomes a Subsidiary of the
Company or (ii) 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 Subsidiary of the Company; (d) any 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 Section 4.10 hereof; (e) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; and (f) other Investments in any Person
having an aggregate fair market value (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 (f) that are at
the time outstanding, not to exceed $5.0 million.
"Permitted Liens" means (i) Liens on assets of the Company or any of
the Guarantors securing obligations of such persons under Credit Facilities that
were permitted by the terms of this Indenture to be incurred; (ii) Liens in
favor of the Company; (iii) Liens on property of a Person existing at the time
such Person is merged into or consolidated with the Company or any 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 or
such Subsidiary; (iv) Liens on property existing at the time of acquisition
thereof by the Company or any Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (v)
Liens or deposits to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds, leases and return of money 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
Section 4.09(iv) hereof covering only the assets acquired with such
Indebtedness; (vii) Liens existing on the date of the Indenture; (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 therefor; (ix) Liens to secure Permitted Refinancing Indebtedness,
provided that such Liens extend only to the assets that secured the Indebtedness
refinanced with the proceeds of such Permitted Refinancing Indebtedness; (x)
statutory Liens of landlords and Liens of carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen and other Liens imposed by law incurred in the
ordinary course of business for sums not delinquent or being contested in good
faith, if such reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made in respect thereof; (xi) Liens securing
Hedging Obligations and (xii) easements, rights-of-way, municipal and zoning
ordinances and similar charges, encumbrances, title defects or other
irregularities that do not materially interfere with the ordinary course of
business of the Company and its Subsidiaries; (xiii) Liens on assets of
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Subsidiaries securing Indebtedness of such persons that was permitted by the
terms of this Indenture to be incurred; and (xiv) Liens incurred in the ordinary
course of business of the Company or any Subsidiary of the Company with respect
to obligations that do not exceed $5.0 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 Subsidiary.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries (other than intercompany
Indebtedness); provided that: (i) the principal amount (or accreted value, if
applicable) of such Permitted Refinancing Indebtedness does not exceed the
principal amount of (or accreted 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 equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Senior
Notes on terms at least as favorable to the Holders of Senior 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 Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
"QIB" means a "qualified institutional buyer" as defined in Rule
144A.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of December 1, 1997, by and among the Company and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time.
"Regulation S" means Regulation S promulgated under the Securities
Act.
"Regulation S Global Note" means a Regulation S Temporary Global
Note or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Note
in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination
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equal to the outstanding principal amount of the Regulation S Temporary Global
Note upon expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global Note
in the form of Exhibit A2 hereto bearing the Global Note Legend, the Regulation
S Temporary Legend and the Private Placement Legend and deposited with or on
behalf of and registered in the name of the Depositary or its nominee, issued in
a denomination equal to the outstanding principal amount of the Notes initially
sold in reliance on Rule 903 of Regulation S.
"Regulation S Temporary Legend" means the legend set forth in
Section 2.06 (g)(iii) to be placed on the Regulation S Temporary Global Note.
"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of this Indenture.
"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
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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 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).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date on which this Indenture is qualified
under the TIA.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"Unrestricted Global Note" means a permanent global Note in the form
of Exhibit A1 attached hereto that bears the Global Note Legend and that has the
"Schedule of Exchanges of Interests in the Global Note" attached thereto, and
that is deposited with or on behalf of and registered in the name of the
Depositary, representing a series of Notes that do not bear the Private
Placement Legend or the Regulation S Temporary Legend.
"Unrestricted Definitive Note" means one or more Definitive Notes
that do not bear and are not required to bear the Private Placement Legend.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under
the Securities Act.
"U.S. Subsidiary" means any Subsidiary that is incorporated in a
State in the United States or the District of Columbia or that guaranteed any
Indebtedness of the Company, but excluding any Subsidiary of a Foreign
Subsidiary unless it has guaranteed any Indebtedness of the Company.
"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 Subsidiary" of any Person means a 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, by one or more Wholly Owned Subsidiaries of such Person or by such
person and one or more Wholly Owned Subsidiaries of such Person.
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SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"..............................4.11
"Asset Sale Offer"...................................3.09
"Authentication Order"...............................2.02
"Change of Control Offer"............................4.15
"Change of Control Payment Date" ....................4.15
"Covenant Defeasance"................................8.03
"DTC"................................................2.03
"Event of Default"...................................6.01
"Excess Proceeds"....................................4.10
"incur"..............................................4.09
"Legal Defeasance" ..................................8.02
"Offer Amount".......................................3.09
"Offer Period".......................................3.09
"Paying Agent".......................................2.03
"Payment Default"....................................6.01
"Permitted Debt".....................................4.09
"Purchase Date"......................................3.09
"Registrar"..........................................2.03
"Restricted Payments"................................4.07
SECTION 1.03. PROVISIONS OF THE TIA
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
and
"obligor" on the Notes and the Note Guarantees means the Company and
the Guarantors, respectively, and any successor obligor upon the Notes and the
Note Guarantees, respectively.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
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SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in
the plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) references to sections of or rules under the
Securities Act shall be deemed to include
substitute, replacement or successor sections or
rules adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
SECTION 2.01. FORM AND DATING.
(a) General. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The Notes
may have notations, legends or endorsements required by law, stock exchange rule
or usage. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute,
and are hereby expressly made, a part of this Indenture and the Company, the
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby. However,
to the extent any provision of any Note conflicts with the express provisions of
this Indenture, the provisions of this Indenture shall govern and be
controlling.
(b) Global Notes. Notes issued in global form shall be substantially
in the form of Exhibits A1 or A2 attached hereto (including the Global Note
Legend thereon and the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Notes issued in definitive form shall be substantially in the
form of Exhibit A1 attached hereto (but without the Global Note Legend thereon
and without the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the Note
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.
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(c) Temporary Global Notes. Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S Temporary
Global Note, which shall be deposited on behalf of the purchasers of the Notes
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary, and registered in the name of the Depositary or the nominee of
the Depositary for the accounts of designated agents holding on behalf of
Euroclear or Cedel Bank, duly executed by the Company and authenticated by the
Trustee as hereinafter provided. The Restricted Period shall be terminated upon
the receipt by the Trustee of (i) a written certificate from the Depositary,
together with copies of certificates from Euroclear and Cedel Bank certifying
that they have received certification of non-United States beneficial ownership
of 100% of the aggregate principal amount of the Regulation S Temporary Global
Note (except to the extent of any beneficial owners thereof who acquired an
interest therein during the Restricted Period pursuant to another exemption from
registration under the Securities Act and who will take delivery of a beneficial
ownership interest in a 144A Global Note or an IAI Global Note bearing a Private
Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii)
an Officers' Certificate from the Company. Following the termination of the
Restricted Period, beneficial interests in the Regulation S Temporary Global
Note shall be exchanged for beneficial interests in Regulation S Permanent
Global Notes pursuant to the Applicable Procedures. Simultaneously with the
authentication of Regulation S Permanent Global Notes, the Trustee shall cancel
the Regulation S Temporary Global Note. The aggregate principal amount of the
Regulation S Temporary Global Note and the Regulation S Permanent Global Notes
may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee, as the case may be, in
connection with transfers of interest as hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by Participants through
Euroclear or Cedel Bank.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
One Officer shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal may be reproduced on the Notes and may
be in facsimile form.
If an Officer whose signature is on a Note no longer holds that
office at the time a Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture.
The Trustee shall, upon a written order of the Company signed by two
Officers (an "Authentication Order"), authenticate Notes for original issue up
to the aggregate principal amount stated in paragraph 4 of the Notes. The
aggregate principal amount of Notes outstanding at any time may not exceed such
amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Company.
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SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Company may appoint one or more co-registrars and one or more additional
paying agents. The term "Registrar" includes any co-registrar and the term
"Paying Agent" includes any additional paying agent. The Company may change any
Paying Agent or Registrar without notice to any Holder. The Company shall notify
the Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company ("DTC")
to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar
and Paying Agent and to act as Note Custodian with respect to the Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
will notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Company, the
Trustee shall serve as Paying Agent for the Notes.
Subject to applicable escheat and abandoned property laws, any money
deposited with the Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of (and premium, if any, on) or interest
or Liquidated Damages, if any, on any Note and remaining unclaimed for two years
after such principal (and premium, if any) or interest or Liquidated Damages, if
any, has become due and payable shall be paid to the Company on Company request,
or (if then held by the Company) shall be discharged from such trust; and the
Holder of such Note shall thereafter, as an unsecured general creditor, look
only to the Company for payment hereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; provided, however, that the Trustee
or such Paying Agent, before being required to make any such repayment, may at
the expense of the Company cause to be published once, in a newspaper published
in the English language, customarily published on each Business Day and of
general circulation in the Borough of Manhattan, the City of New York, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
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SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA ss. 312. If the Trustee is not
the Registrar, the Company shall furnish to the Trustee at least seven Business
Days before each interest payment date and at such other times as the Trustee
may request in writing, a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of the Holders of Notes and
the Company shall otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, the Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary. All Global Notes will be exchanged by the
Company for Definitive Notes if (i) the Company delivers to the Trustee notice
from the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by the
Company within 120 days after the date of such notice from the Depositary, (ii)
the Company in its sole discretion determines that the Global Notes (in whole
but not in part) should be exchanged for Definitive Notes and delivers a written
notice to such effect to the Trustee, (iii) there shall have occurred and be
continuing a Default or Event of Default or (iv) upon request but only upon
prior written notice given to the Trustee by or on behalf of the Depositary and
upon compliance with the other applicable requirements of this Indenture;
provided that in no event shall the Regulation S Temporary Global Note be
exchanged by the Company for Definitive Notes prior to (x) the expiration of the
Restricted Period and (y) the receipt by the Registrar of any certificates
required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act. Upon the
occurrence of any of the preceding events in (i), (ii), (iii) or (iv) above,
Definitive Notes shall be issued in such names as the Depositary shall instruct
the Trustee. Global Notes also may be exchanged or replaced, in whole or in
part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and
delivered in exchange for, or in lieu of, a Global Note or any portion thereof,
pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be
authenticated and delivered in the form of, and shall be, a Global Note. A
Global Note may not be exchanged for another Note other than as provided in this
Section 2.06(a), however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global Notes.
The transfer and exchange of beneficial interests in the Global
Notes shall be effected through the Depositary, in accordance with the
provisions of this Indenture and the Applicable Procedures. Beneficial interests
in the Restricted Global Notes shall be subject to restrictions on transfer
comparable to those set forth herein to the extent required by the Securities
Act. Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
the same Restricted Global Note in accordance with the transfer
restrictions set forth in the Private Placement Legend; provided, however,
that prior to the expiration of the Restricted Period, transfers of
beneficial interests in the Temporary
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Regulation S Global Note may not be made to a U.S. Person or for the
account or benefit of a U.S. Person (other than an Initial Purchaser).
Beneficial interests in any Unrestricted Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in
an Unrestricted Global Note. No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of beneficial
interests that are not subject to Section 2.06(b)(i) above, the transferor
of such beneficial interest must deliver to the Registrar either (A) (1) a
written order from a Participant or an Indirect Participant given to the
Depositary in accordance with the Applicable Procedures directing the
Depositary to credit or cause to be credited a beneficial interest in
another Global Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given in accordance with the
Applicable Procedures containing information regarding the Participant
account to be credited with such increase or (B) (1) a written order from
a Participant or an Indirect Participant given to the Depositary in
accordance with the Applicable Procedures directing the Depositary to
cause to be issued a Definitive Note in an amount equal to the beneficial
interest to be transferred or exchanged and (2) instructions given by the
Depositary to the Registrar containing information regarding the Person in
whose name such Definitive Note shall be registered to effect the transfer
or exchange referred to in (1) above; provided that in no event shall
Definitive Notes be issued upon the transfer or exchange of beneficial
interests in the Regulation S Temporary Global Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar
of any certificates required pursuant to Rule 903 under the Securities
Act. Upon consummation of an Exchange Offer by the Company in accordance
with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii)
shall be deemed to have been satisfied upon receipt by the Registrar of
the instructions contained in the Letter of Transmittal delivered by the
Holder of such beneficial interests in the Restricted Global Notes. Upon
satisfaction of all of the requirements for transfer or exchange of
beneficial interests in Global Notes contained in this Indenture and the
Notes or otherwise applicable under the Securities Act, the Trustee shall
adjust the principal amount of the relevant Global Note(s) pursuant to
Section 2.06(h) hereof.
(iii) Transfer of Beneficial Interests to Another Restricted Global
Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor
must deliver a certificate in the form of Exhibit B hereto,
including the certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or the
Regulation S Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
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(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications and certificates and Opinion of Counsel required by
item (3) thereof.
(iv) Transfer and Exchange of Beneficial Interests in a Restricted
Global Note for Beneficial Interests in the Unrestricted Global Note. A
beneficial interest in any Restricted Global Note may be exchanged by any
holder thereof for a beneficial interest in an Unrestricted Global Note or
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of the beneficial interest to be transferred, in the
case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1)
a broker-dealer, (2) a Person participating in the distribution of
the Exchange Notes or (3) a Person who is an affiliate (as defined
in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement;
(D) such transfer is effected pursuant to an effective
registration statement under the Securities Act and the transferor
delivers a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof; or
(E) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global
Note, a certificate from such holder in the form of Exhibit C
hereto, including the certifications in item (1)(a) thereof;
or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note,
a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (E), if the
Registrar or the Company so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably
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acceptable to the Registrar and the Company to the effect that such
exchange or transfer is in compliance with the Securities Act and that the
restrictions on transfer contained herein and in the Private Placement
Legend are no longer required in order to maintain compliance with the
Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (E)
above at a time when an Unrestricted Global Note has not yet been issued, the
Company shall issue and, upon receipt of an Authentication Order in accordance
with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
aggregate principal amount of beneficial interests transferred pursuant to
subparagraph (B) or (E) above.
Beneficial interests in an Unrestricted Global Note cannot be
exchanged for, or transferred to Persons who take delivery thereof in the form
of, a beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive
Notes.
(i) Beneficial Interests in Restricted Global Notes to
Restricted Definitive Notes. If any holder of a beneficial interest in a
Restricted Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note or to transfer such beneficial interest to a
Person who takes delivery thereof in the form of a Restricted Definitive
Note, then, upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such holder in the
form of Exhibit C hereto, including the certifications in item
(2)(a) thereof;
(B) if such beneficial interest is being transferred to a QIB
in accordance with Rule 144A under the Securities Act, a certificate
to the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than that
listed in subparagraph (B) above, a certificate to the effect set
forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3)(d) thereof,
if applicable; or
(D) if such beneficial interest is being transferred to the
Company or any of its Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
and the Company shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive Note in
the appropriate principal amount. Any Definitive Note issued in exchange
for a beneficial interest in a Restricted Global Note pursuant to this
Section 2.06(c) shall be registered
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in such name or names and in such authorized denomination or denominations
as the holder of such beneficial interest shall instruct the Registrar
through instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to the
Persons in whose names such Notes are so registered. Any Definitive Note
issued in exchange for a beneficial interest in a Restricted Global Note
pursuant to this Section 2.06(c)(i) shall bear the Private Placement
Legend and shall be subject to all restrictions on transfer contained
therein.
(ii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A holder of a beneficial interest in a Restricted Global
Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes
delivery thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of such beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in
the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
Exchange Notes or (3) a Person who is an affiliate (as defined in
Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Participating Broker-Dealer
pursuant to the Exchange Offer Registration Statement in accordance
with the Registration Rights Agreement;
(D) such transfer is effected pursuant to an effective
registration statement under the Securities Act and the transferor
delivers a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof; or
(E) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form
of Exhibit C hereto, including the certifications in item
(1)(b) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the
form of a Definitive Note that does not bear the Private
Placement Legend, a certificate from such holder in the form
of Exhibit B hereto, including the certifications in item (4)
thereof;
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and, in each such case set forth in this subparagraph (E), if the
Registrar or the Company so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable to the
Registrar and the Company to the effect that such exchange or transfer is
in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities Act.
(iii) Beneficial Interests in Unrestricted Global Notes to
Unrestricted Definitive Notes. If any holder of a beneficial interest in
an Unrestricted Global Note proposes to exchange such beneficial interest
for a Definitive Note or to transfer such beneficial interest to a Person
who takes delivery thereof in the form of a Definitive Note, then, upon
satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
and the Company shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive Note in
the appropriate principal amount. Any Definitive Note issued in exchange
for a beneficial interest pursuant to this Section 2.06(c)(iii) shall be
registered in such name or names and in such authorized denomination or
denominations as the holder of such beneficial interest shall instruct the
Registrar through instructions from the Depositary and the Participant or
Indirect Participant. The Trustee shall deliver such Definitive Notes to
the Persons in whose names such Notes are so registered. Any Definitive
Note issued in exchange for a beneficial interest pursuant to this Section
2.06(c)(iii) shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial
Interests.
(i) Restricted Definitive Notes to Beneficial Interests in
Restricted Global Notes. If any Holder of a Restricted Definitive Note
proposes to transfer such Restricted Definitive Notes to a Person who
takes delivery thereof in the form of a beneficial interest in a
Restricted Global Note, then, upon receipt by the Registrar of the
following documentation:
(A) if such Restricted Definitive Note is being transferred to
a QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including
the certifications in item (1) thereof;
(B) if such Restricted Definitive Note is being transferred to
a Non-U.S. Person in an offshore transaction in accordance with Rule
903 or Rule 904 under the Securities Act, a certificate to the
effect set forth in Exhibit B hereto, including the certifications
in item (2) thereof;
(C) if such Restricted Definitive Note is being transferred to
an Institutional Accredited Investor in reliance on an exemption
from the registration requirements of the Securities Act other than
that listed in subparagraph (B) above, a certificate to the effect
set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3)(d) thereof;
or
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(D) if such Restricted Definitive Note is being transferred to
the Company or any of its Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause
to be increased the aggregate principal amount of, in the case of clause
(A) above, the 144A Global Note, in the case of clause (B) above, the
Regulation S Global Note, and in all other cases, the IAI Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Restricted Definitive Note to a Person who takes
delivery thereof in the form of a beneficial interest in an Unrestricted
Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights
Agreement and the Holder, in the case of an exchange, or the
transferee, in the case of a transfer, certifies in the
applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of
the Exchange Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration
Rights Agreement;
(C) such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration
Statement in accordance with the Registration Rights Agreement;
(D) such transfer is effected pursuant to an effective
registration statement under the Securities Act and the
transferor delivers a certificate to the effect set forth in
Exhibit B hereto, including the certifications in item (3)(c)
thereof; or
(E) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the
Unrestricted Global Note, a certificate from such
Holder in the form of Exhibit C hereto, including the
certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery
thereof in the form of a beneficial interest in the
Unrestricted Global Note, a certificate from such
Holder in the form of Exhibit B hereto, including the
certifications in item (4) thereof,
and, in each such case set forth in this subparagraph (E), if the
Registrar or the Company so requests or if the Applicable Procedures so
require, an Opinion of Counsel in form reasonably acceptable to the
Registrar and the Company to the effect that such exchange or transfer is
in compliance with the Securities Act and that the restrictions on
transfer contained herein and in
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the Private Placement Legend are no longer required in order to maintain
compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in this
Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global
Note or transfer such Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in an Unrestricted Global
Note at any time. Upon receipt of a request for such an exchange or
transfer, the Trustee shall cancel the applicable Unrestricted Definitive
Note and increase or cause to be increased the aggregate principal amount
of one of the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(E) or
(iii) above at a time when an Unrestricted Global Note has not yet been issued,
the Company shall issue and, upon receipt of an Authentication Order in
accordance with Section 2.02 hereof, the Trustee shall authenticate one or more
Unrestricted Global Notes in an aggregate principal amount equal to the
principal amount of Definitive Notes so transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes.
Upon request by a Holder of Definitive Notes and such Holder's compliance with
the provisions of this Section 2.06(e), the Registrar shall register the
transfer or exchange of Definitive Notes. Prior to such registration of transfer
or exchange, the requesting Holder shall present or surrender to the Registrar
the Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by his attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the
name of Persons who take delivery thereof in the form of a Restricted
Definitive Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under
the Securities Act, then the transferor must deliver a certificate
in the form of Exhibit B hereto, including the certifications in
item (1) thereof;
(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2) thereof;
and
(C) if the transfer will be made pursuant to any other
exemption from the registration requirements of the Securities Act,
then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications, certificates and
Opinion of Counsel required by item (3) thereof, if applicable.
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(ii) Restricted Definitive Notes to Unrestricted Definitive Notes.
Any Restricted Definitive Note may be exchanged by the Holder thereof for
an Unrestricted Definitive Note or transferred to a Person or Persons who
take delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in
the case of a transfer, certifies in the applicable Letter of
Transmittal that it is not (1) a broker-dealer, (2) a Person
participating in the distribution of the Exchange Notes or (3) a
Person who is an affiliate (as defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Participating
Broker-Dealer pursuant to the Exchange Offer Registration Statement
in accordance with the Registration Rights Agreement;
(D) such transfer is effected pursuant to an effective
registration statement under the Securities Act and the transferor
delivers a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof; or
(E) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(d) thereof;
or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof,
and, in each such case set forth in this subparagraph (E), if the
Registrar or the Company so requests, an Opinion of Counsel in form
reasonably acceptable to the Registrar and the Company to the effect that
such exchange or transfer is in compliance with the Securities Act and
that the restrictions on transfer contained herein and in the Private
Placement Legend are no longer required in order to maintain compliance
with the Securities Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive
Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes
to a Person who takes delivery thereof in the form of an Unrestricted
Definitive Note. Upon receipt of a request to register such a transfer,
the Registrar shall register the Unrestricted Definitive Notes pursuant to
the instructions from the Holder thereof.
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(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Company shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (i) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not
broker-dealers, (y) they are not participating in a distribution of the Exchange
Notes and (z) they are not affiliates (as defined in Rule 144) of the Company,
and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with
the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and
the Company shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of all
Global Notes and Definitive Notes issued under this Indenture unless
specifically stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND THIS NOTE MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (SUBJECT TO THE
DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED UNDER THE INDENTURE PURSUANT
TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
(1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE
THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), SUBJECT TO THE RECEIPT
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BY THE REGISTRAR OF A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF
COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
(B) Notwithstanding the foregoing, any Global Note or
Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii),
(c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this
Section 2.06 (and all Notes issued in exchange therefor or
substitution thereof) shall not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
"UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK,
NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE
HEREOF."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the following
form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES,
ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER
NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL
BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any
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time prior to such cancellation, if any beneficial interest in a Global Note is
exchanged for or transferred to a Person who will take delivery thereof in the
form of a beneficial interest in another Global Note or for Definitive Notes,
the principal amount of Notes represented by such Global Note shall be reduced
accordingly and an endorsement shall be made on such Global Note by the Trustee
or by the Depositary at the direction of the Trustee to reflect such reduction;
and if the beneficial interest is being exchanged for or transferred to a Person
who will take delivery thereof in the form of a beneficial interest in another
Global Note, such other Global Note shall be increased accordingly and an
endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Company's order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer
of or exchange any Note selected for redemption in whole or in part,
except the unredeemed portion of any Note being redeemed in part.
(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global
Notes or Definitive Notes surrendered upon such registration of transfer
or exchange.
(v) The Company shall not be required (A) to issue, to register the
transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business
on the day of selection, (B) to register the transfer of or to exchange
any Note so selected for redemption in whole or in part, except the
unredeemed portion of any Note being redeemed in part or (c) to register
the transfer of or to exchange a Note between a record date and the next
succeeding Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer of
any Note, the Trustee, any Agent and the Company may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent
or the Company shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02 hereof.
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(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.
SECTION 2.07. REPLACEMENT NOTES
If any mutilated Note is surrendered to the Trustee or the Company
and the Trustee and the Company each receives evidence to its satisfaction of
the destruction, loss or theft of any Note, the Company shall issue and the
Trustee, upon receipt of an Authentication Order, shall authenticate a
replacement Note if the requirements of this Indenture are met. If required by
the Trustee or the Company, an indemnity bond must be supplied by the Holder
that is sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Note is replaced. The Company may charge for its
expenses in replacing a Note.
Every replacement Note is an additional obligation of the Company
and shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
SECTION 2.08. OUTSTANDING NOTES.
The Notes outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Note effected by the
Trustee in accordance with the provisions hereof, and those described in this
Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note
does not cease to be outstanding because the Company or an Affiliate of the
Company holds the Note; however, Notes held by the Company or a Subsidiary of
the Company shall not be deemed to be outstanding for purposes of Section
3.07(b) hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
SECTION 2.09. TREASURY NOTES.
In determining whether the Holders of the required principal amount
of Notes have concurred in any direction, waiver or consent, Notes owned by the
Company, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee knows are so owned shall be so disregarded.
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SECTION 2.10. TEMPORARY NOTES
Until certificates representing Notes are ready for delivery, the
Company may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Company
considers appropriate for temporary Notes and as shall be reasonably acceptable
to the Trustee. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits
of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Company. The Company may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes, it
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Company shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Company (or, upon the written request of the Company, the Trustee in the name
and at the expense of the Company) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
ARTICLE 3.
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (i) the clause of this Indenture pursuant to
which the redemption shall occur, (ii) the redemption date, (iii) the principal
amount of Notes to be redeemed and (iv) the redemption price.
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED
If less than all of the Notes are to be redeemed at any time,
selection of Notes for redemption will be made by the Trustee in compliance with
the requirements of the principal national
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securities exchange, if any, on which the Notes are listed, or, if the Notes are
not so listed, on a pro rata basis, by lot or by such method the Trustee shall
deem fair and appropriate and otherwise in accordance with applicable law;
provided that no Notes of $1,000 or less shall be redeemed in part. In the event
of partial redemption by lot, the particular Notes to be redeemed shall be
selected, unless otherwise provided herein, not less than 30 nor more than 60
days prior to the redemption date by the Trustee from the outstanding Notes not
previously called for redemption.
The Trustee shall promptly notify the Company in writing of the
Notes selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION
Subject to the provisions of Section 3.09 hereof, at least 30 days
but not more than 60 days before a redemption date, the Company shall mail or
cause to be mailed, by first class mail, a notice of redemption to each Holder
of Notes to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part, the portion of the
principal amount of such Note to be redeemed and that, after the
redemption date upon surrender of such Note, a new Note or Notes in
principal amount equal to the unredeemed portion shall be issued upon
cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Notes called for redemption ceases to accrue on and
after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that the
Company shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee
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give such notice and setting forth the information to be stated in such notice
as provided in the preceding paragraph.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price; provided, however, that the failure to
provide such notice shall not affect the liability of the Company to pay the
redemption price. A notice of redemption may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE
On or before 11:00 a.m. Eastern time, on the redemption date, the
Company shall deposit with the Trustee or with the Paying Agent money sufficient
to pay the redemption price of and accrued interest on all Notes to be redeemed
on that date. The Trustee or the Paying Agent shall promptly return to the
Company any money deposited with the Trustee or the Paying Agent by the Company
in excess of the amounts necessary to pay the redemption price of, and accrued
interest on, all Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, interest shall cease to accrue on
the Notes or the portions of Notes called for redemption. If a Note is redeemed
on or after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the Person
in whose name such Note was registered at the close of business on such record
date. If any Note called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Company to comply with the preceding
paragraph, interest shall be paid on the unpaid principal, from the redemption
date until such principal is paid, and to the extent lawful on any interest not
paid on such unpaid principal, in each case at the rate provided in the Notes
and in Section 4.01 hereof.
SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this Section 3.07, the
Company shall not have the option to redeem the Notes pursuant to this
Section 3.07 prior to December 15, 2002. Thereafter, the Company shall
have the option to redeem the Notes, in whole or in part, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest and Liquidated Damages thereon, if
any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on December 15 of the years indicated below:
Year Percentage
---- ----------
2002.................................................104.813%
2003.................................................103.208%
2004.................................................101.604%
2005 and thereafter..................................100.000%
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(b) Notwithstanding the provisions of clause (a) of this Section
3.07, at any time prior to December 15, 2000, the Company may redeem up to
35% of the aggregate principal amount of Notes originally issued under
this Indenture at a redemption price equal to 109.625% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages
thereon, if any, to the redemption date, with the net proceeds of a public
offering of common stock of the Company; provided that at least $113.5
million in aggregate principal amount of Notes remain outstanding
immediately after the occurrence of such redemption and provided, further
that such redemption shall occur within 45 days of the date of the closing
of such public offering.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
The Company shall not be required to make mandatory redemption
payments with respect to the Notes.
SECTION 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS.
In the event that, pursuant to Section 4.10 hereof, the Company
shall be required to commence an offer to all Holders to purchase Notes (an
"Asset Sale Offer"), it shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business
Days following its commencement and no longer, except to the extent that a
longer period is required by applicable law (the "Offer Period"). No later than
five Business Days after the termination of the Offer Period (the "Purchase
Date"), the Company shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on
or before the related interest payment date, any accrued and unpaid interest
shall be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Company shall
send, by first class mail, a notice to the Trustee and each of the Holders, with
a copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer
shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall
continue to accrue interest;
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(d) that, unless the Company defaults in making such payment, any
Note accepted for payment pursuant to the Asset Sale Offer shall cease to
accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may only elect to have all of such Note purchased and may
not elect to have only a portion of such Note purchased;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, or transfer by book-entry transfer, to the Company, a
depositary, if appointed by the Company, or a Paying Agent at the address
specified in the notice prior to the expiration of the Offer Period;
(g) that Holders shall be entitled to withdraw their election if the
Company, the depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his election to have such Note
purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Notes in denominations of $1,000,
or integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Company shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Company in accordance
with the terms of this Section 3.09. The Company, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Note, and
the Trustee, upon written request from the Company shall authenticate and mail
or deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce the results of the Asset Sale Offer on or prior to the
Purchase Date. The Company shall 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 Notes in connection with an Asset Sale Offer and, to the extent
inconsistent with the provisions of this Indenture, such laws and regulations
shall govern.
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ARTICLE 4.
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium,
if any, and interest on the Notes on the dates and in the manner provided in the
Notes. Principal, premium, if any, and interest shall be considered paid on the
date due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 11:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company shall pay all
Liquidated Damages, if any, in the same manner on the dates and in the amounts
set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 1% per annum in excess of the then applicable interest rate on the Notes to
the extent lawful; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of
New York, an office or agency (which may be an office of the Trustee or an
affiliate of the Trustee, Registrar or co-registrar) where Notes may be
surrendered for registration of transfer or for exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Company shall give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency. If at any
time the Company shall fail to maintain any such required office or agency or
shall fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the SEC,
so long as any Notes are outstanding, the Company shall furnish to the
Trustee and the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
SEC 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" and, with respect to the annual
information only, a report thereon by
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the Company's certified independent accountants and (ii) all current
reports that would be required to be filed with the SEC on Form 8-K if the
Company were required to file such reports, in each case, within 15 days
after the date required for filing specified in the SEC's rules and
regulations. In addition, following consummation of the Exchange Offer,
whether or not required by the rules and regulations of the SEC, the
Company shall file a copy of all such information and reports with the SEC
for public availability within the time periods specified in the SEC's
rules and regulations (unless the SEC will not accept such a filing) and
make such information available to securities analysts and prospective
investors upon request. The Company shall at all times comply with TIA ss.
314(a).
(b) For so long as any Notes remain outstanding, the Company and the
Guarantors shall furnish to the Holders and to prospective investors, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company and each Guarantor (to the extent that such
Guarantor is so required under the TIA) shall deliver to the Trustee,
within 90 days after the end of each fiscal year, an Officers' Certificate
stating that a review of the activities of the Company and its
Subsidiaries during the preceding fiscal year has been made under the
supervision of the signing Officers with a view to determining whether the
Company has kept, observed, performed and fulfilled its obligations under
this Indenture, and further stating, as to each such Officer signing such
certificate, that to the best of his or her knowledge the Company has
kept, observed, performed and fulfilled each and every covenant contained
in this Indenture and is not in default in the performance or observance
of any of the terms, provisions and conditions of this Indenture (or, if a
Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and
what action the Company is taking or proposes to take with respect
thereto) and that to the best of his or her knowledge no event has
occurred and remains in existence by reason of which payments on account
of the principal of or interest, if any, on the Notes is prohibited or if
such event has occurred, a description of the event and what action the
Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the Officers'
Certificate delivered pursuant to Section 4.04(a) above shall be
accompanied by a written statement of the Company's independent public
accountants (who shall be a firm of established national reputation) that
in making the examination necessary for certification of such financial
statements, nothing has come to their attention that would lead them to
believe that the Company has violated any provisions of Article 4 or
Article 5 hereof or, if any such violation has occurred, specifying the
nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for
any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or
proposes to take with respect thereto.
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SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and each of the Guarantors covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that may affect the covenants or the performance of this Indenture; and the
Company and each of the Guarantors (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it shall not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any other
payment or distribution on account of the Company's or any of its Subsidiaries'
Equity Interests (including, without limitation, any payment in connection with
any merger or consolidation involving the Company or any of its Subsidiaries) or
to the direct or indirect holders of the Company's or any of its Subsidiaries'
Equity Interests in their capacity as such (other than dividends or
distributions payable (x) in Equity Interests (other than Disqualified Stock) of
the Company or (y) to the Company or a 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 or other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Wholly Owned 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 that is subordinated to
the Notes, 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; and
(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 Section 4.09 hereof; and
(c) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by the Company and its Subsidiaries
after the date of this Indenture (excluding Restricted Payments permitted
by clauses (ii), (iii), (iv) and (v) of the next succeeding
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paragraph), is less than the sum, without duplication, of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from October 1, 1997 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 the aggregate net cash proceeds received by the Company since
the date of this Indenture as a contribution to its common equity capital
or from the issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or
debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company), plus
(iii) to the extent that any Restricted Investment that was made after the
date of this Indenture is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (A) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and (B)
the initial amount of such Restricted Investment, plus (iv) $2.0 million.
The foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said 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
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 payment of any
dividend by a Subsidiary of the Company to the holders of its common Equity
Interests on a pro rata basis; (v) the making of any Restricted Investment in
exchange for, or out of the net cash proceeds of, the substantially concurrent
sale (other than to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); provided that the amount of any such
net cash proceeds that are utilized for any such Restricted Investment shall be
excluded from clause (c)(ii) of the preceding paragraph; and (vi) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company or any Subsidiary of the Company held by any
employee or director of the Company (or any of its Subsidiaries) pursuant to any
management equity subscription agreement or stock option agreement approved by
the Board of Directors of the Company; 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.
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
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted payment shall be determined by the Board
of Directors whose resolution with respect thereto shall be conclusive and shall
be delivered to the Trustee. Not later than the date of making any Restricted
Payment, the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this Section 4.07 were computed.
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SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Subsidiary
to (i) (a) pay dividends or make any other distributions to the Company or any
of its 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 Subsidiaries, (ii) make loans or
advances to the Company or any of its Subsidiaries or (iii) transfer any of its
properties or assets to the Company or any of its Subsidiaries. However, the
foregoing restrictions will not apply to encumbrances or restrictions existing
under or by reason of (a) Existing Indebtedness as in effect on the date of this
Indenture, (B) this Indenture and the Notes, (c) applicable law, (d) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its 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
this Indenture to be incurred, (e) customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (f) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (g) any agreement for the sale of a
Subsidiary that restricts distributions by that Subsidiary pending its sale, (h)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive, taken as a whole, than those contained in the agreements governing
the Indebtedness being refinanced, (i) Liens securing Indebtedness otherwise
permitted to be incurred pursuant to the provisions of Section 4.12 hereof that
limits the right of the debtor to dispose of the assets securing such
Indebtedness, (j) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business and (k) restrictions on cash or
other deposits or net worth imposed by customers under contracts entered into in
the ordinary course of business.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall not permit any of its 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 the
Company shall not issue any Disqualified Stock and shall not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company may incur Indebtedness (including Acquired Debt) or issue shares of
Disqualified Stock and the Guarantors may incur Indebtedness or 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 Disqualified Stock or 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 Disqualified Stock or preferred stock had been issued, as the
case may be, at the beginning of such four-quarter period.
The Company and the Guarantors shall not incur any indebtedness that
is contractually subordinated in right of payment to any other Indebtedness of
the Company or the Guarantors unless such Indebtedness is also contractually
subordinated in right of payment to the Notes on substantially
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identical terms; provided, however, that no Indebtedness of the Company or the
Guarantors shall be deemed to be contractually subordinated in right of payment
to any other Indebtedness of the Company or the Guarantors solely by virtue of
being unsecured.
The provisions of the first paragraph of this Section 4.09 will not
apply to the incurrence of any of the following items of Indebtedness
(collectively, "Permitted Debt"):
(i) the incurrence by the Company or a Guarantor of Indebtedness and
letters of credit (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company and its
Subsidiaries thereunder) under Credit Facilities; provided that the
aggregate principal amount of all Indebtedness and letters of credit of
the Company and its Subsidiaries outstanding under Credit Facilities after
giving effect to such incurrence does not exceed an amount equal to the
greater of (x) $25.0 million less the aggregate amount of all Net Proceeds
of Asset Sales applied to reduce Indebtedness of the Company or any
Subsidiary under a Credit Facility or (y) the sum of 85% of Eligible
Receivables and 60% of Eligible Inventory as of the date of such
incurrence;
(ii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by
the Notes and the Exchange Notes;
(iv) the incurrence by the Company or any of its Subsidiaries 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 Subsidiary, in an aggregate principal amount not to exceed
$5.0 million at any time outstanding;
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, renew, defease, refund, refinance or replace
Indebtedness (other than intercompany Indebtedness) that was permitted by
the Indenture to be incurred under the first paragraph hereof or clauses
(iii), (iv) or (v) of this paragraph;
(vi) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company or any of its
Subsidiaries; provided, however, that (i) if the Company is the obligor on
such Indebtedness, such Indebtedness is expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the Notes
and (ii)(A) 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 Subsidiary thereof and (B) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a
Subsidiary thereof shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Subsidiary, as the
case may be, that was not permitted by this clause (vi);
(vii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of (a) fixing or
hedging interest rate risk with respect to any Indebtedness that is
permitted by the terms of this Indenture to be outstanding or (b) limiting
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currency exchange rate risks in connection with transactions entered into
in the ordinary course of business;
(viii) the guarantee by the Company or any of the Subsidiaries of
the Company of Indebtedness of the Company or a Subsidiary of the Company
that was permitted to be incurred by another provision of this covenant;
(ix) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company or any Subsidiary in the ordinary
course of business; and
(x) the incurrence by the Company or any of its Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (x), not to exceed $15.0
million.
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. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and the
payment of dividends on Disqualified Stock in the form of additional shares of
the same class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this covenant;
provided, in each such case, that the amount thereof is included in Fixed
Charges of the Company as accrued.
SECTION 4.10. ASSET SALES
The Company shall not, and shall not permit any of its Subsidiaries
to, consummate an Asset Sale unless (i) the Company (or the 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 issued or sold or otherwise disposed of and (ii) at
least 80% of the consideration therefor received by the Company or such
Subsidiary is in the form of cash; provided that the amount of (x) any
liabilities (as shown on the Company's or such Subsidiary's most recent balance
sheet), of the Company or any Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases the Company or such Subsidiary from
further liability and (y) any securities, notes or other obligations received by
the Company or any such Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by the
Company or such Subsidiary into cash (to the extent of the cash received), shall
be deemed to be cash for purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds either (i) to the acquisition of a
majority of the assets of, or a majority of the Voting Stock of, another
Permitted Business, the making of a capital expenditure or the acquisition of
other long-term assets that are used or useful in a Permitted Business or (ii)
to reduce Indebtedness of the Company or any Subsidiary under a Credit Facility.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such
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Net Proceeds in any manner that is not prohibited by this 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."
Within five days after the aggregate amount of Excess Proceeds exceeds $5.0
million, the Company will be required to make an offer to all Holders of Notes
and all holders of other Indebtedness containing provisions similar to those set
forth in this Indenture with respect to Asset Sale Offers to purchase the
maximum principal amount of Notes and such other Indebtedness 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 thereon, if any, to the date of purchase, in accordance
with the procedures set forth in Section 3.09 hereof and such other
Indebtedness. To the extent that any Excess Proceeds remain after consummation
of an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose
not otherwise prohibited by this Indenture. If the aggregate principal amount of
Notes and such other Indebtedness tendered into such Asset Sale Offer
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes and such other Indebtedness to be purchased on a
pro rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall not permit any of its 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 the relevant Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and 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 $5.0 million, 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. Notwithstanding the foregoing, the following items shall not be deemed
to be Affiliate Transactions: (i) reasonable employee compensation and other
benefit arrangements approved by the disinterested members of the Board of
Directors of the Company, (ii) transactions between or among the Company and/or
its Subsidiaries, (iii) payment of reasonable directors fees to Persons who are
not otherwise Affiliates of the Company, (iv) reasonable indemnities of
officers, directors and employees of the Company or any Subsidiary permitted by
applicable law and (v) Restricted Payments that are permitted by the Section
4.07 hereof.
SECTION 4.12. LIENS.
The Company shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly create, incur, assume or suffer to exist any Lien 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.
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SECTION 4.13. LINE OF BUSINESS.
The Company shall not, and shall not permit any of its Subsidiaries
to, engage in any business other than Permitted Businesses, except to such
extent as would not be material to the Company and its Subsidiaries taken as a
whole.
SECTION 4.14. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Company or any such
Subsidiary and (ii) the rights (charter and statutory), licenses and franchises
of the Company and its Subsidiaries; provided, however, that the Company shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of its Subsidiaries, if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Subsidiaries,
taken as a whole, and that the loss thereof is not adverse in any material
respect to the Holders of the Notes.
SECTION 4.15. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, the Company shall
make an offer (a "Change of Control Offer") to each Holder to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of each
Holder's Notes at a purchase price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of purchase. Within 10 days following
any Change of Control, the Company shall mail a notice to each Holder
stating: (1) that the Change of Control Offer is being made pursuant to
this Section 4.15 and that all Notes tendered will be accepted for
payment; (2) the purchase price and the purchase date, which shall be no
earlier than 30 days and no later than 60 days from the date such notice
is mailed (the "Change of Control Payment Date"); (3) that any Note not
tendered will continue to accrue interest; (4) that, unless the Company
defaults in the payment of the Change of Control Payment, all Notes
accepted for payment pursuant to the Change of Control Offer shall cease
to accrue interest after the Change of Control Payment Date; (5) that
Holders electing to have any Notes purchased pursuant to a Change of
Control Offer will be required to surrender the Notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Notes
completed, to the Paying Agent at the address specified in the notice
prior to the expiration of the Change of Control Payment Offer; (6) that
Holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the expiration of the Change of Control Payment
Offer, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of Notes delivered for
purchase, and a statement that such Holder is withdrawing his election to
have the Notes purchased; and (7) that Holders whose Notes are being
purchased only in part will be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered, which unpurchased
portion must be equal to $1,000 in principal amount or an integral
multiple thereof. The Company shall 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 Notes in connection with a Change of
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Control and, to the extent inconsistent with the provisions of this
Indenture, such laws and regulations shall govern.
(b) On the Change of Control Payment Date, the Company shall, to the
extent lawful, (1) accept for payment all Notes or portions thereof
properly tendered pursuant to the Change of Control Offer, (2) deposit
with the Paying Agent an amount equal to the Change of Control Payment in
respect of all Notes or portions thereof so tendered and (3) deliver or
cause to be delivered to the Trustee the Notes so accepted together with
an Officers' Certificate stating the aggregate principal amount of Notes
or portions thereof being purchased by the Company. The Paying Agent shall
promptly mail to each Holder of Notes so tendered payment in an amount
equal to the purchase price for the Notes, and the Trustee shall promptly
authenticate and mail (or cause to be transferred by book entry) to each
Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered by such Holder, if any; provided that each such new
Note shall be in a principal amount of $1,000 or an integral multiple
thereof. The Company shall publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control
Payment Date.
(c) The Company shall not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change of
Control Offer in the manner, at the times and otherwise in compliance with
the requirements set forth in this Indenture applicable to a Change of
Control Offer made by the Company and purchases all Notes validly tendered
and not withdrawn under such Change of Control Offer.
SECTION 4.16. NO SENIOR SUBORDINATED DEBT.
Notwithstanding the provisions of Section 4.09 hereof, (i) the
Company shall not incur any Indebtedness that is subordinate or junior in right
of payment to any Senior Debt and senior in any respect in right of payment to
the Notes, and (ii) no Guarantor shall incur any Indebtedness that is
subordinated or junior in right of payment to any Guarantees of Senior Debt and
senior in any respect in right of payment to the Note Guarantees.
SECTION 4.17. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
The Company shall not, and shall not permit any of its Subsidiaries
to, enter into any sale and leaseback transaction; provided that the Company or
any Subsidiary may enter into a sale and leaseback transaction if (i) the
Company could have (a) incurred Indebtedness in an amount equal to the
Attributable Debt relating to such sale and leaseback transaction pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section
4.09 hereof and (b) incurred a Lien to secure such Indebtedness pursuant to
Section 4.12 hereof, (ii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction and (iii) the transfer of assets in such sale and
leaseback transaction is permitted by, and the Company applies the proceeds of
such transaction in compliance with Section 4.10 hereof.
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SECTION 4.18. LIMITATION ON ISSUANCES AND SALES OF EQUITY INTERESTS OF WHOLLY
OWNED SUBSIDIARIES.
The Company (i) shall not, and shall not permit any Wholly Owned
Subsidiary of the Company to, transfer, convey, sell, lease or otherwise dispose
of any Equity Interests in any Wholly Owned Subsidiary of the Company to any
Person (other than the Company or a Wholly Owned Subsidiary of the Company),
unless (a) such transfer, conveyance, sale, lease or other disposition is of all
the Equity Interests in such Wholly Owned Subsidiary and (b) the cash Net
Proceeds from such transfer, conveyance, sale, lease or other disposition are
applied in accordance with Section 4.10 hereof, and (ii) will not permit any
Wholly Owned Subsidiary of the Company to issue any of its Equity Interests
(other than, if necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company or a Wholly Owned
Subsidiary of the Company.
SECTION 4.19. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or is
paid to all Holders of the 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.
SECTION 4.20. ADDITIONAL NOTE GUARANTEES
If the Company or any Subsidiary of the Company shall acquire or
create another U.S. Subsidiary after the date of this Indenture, then such newly
acquired or created Subsidiary shall become a Guarantor by executing a
Supplemental Indenture in the form attached hereto as Exhibit F and deliver an
Opinion of Counsel to the Trustee to the effect that such Supplemental Indenture
has been duly authorized, executed and delivered by such Subsidiary and
constitutes a valid and binding obligation of such Subsidiary, enforceable
against such Subsidiary in accordance with its terms (subject to customary
exceptions).
ARTICLE 5.
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION OR SALE OF ASSETS.
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another corporation, Person or
entity unless (i) the Company 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 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 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 under the
Registration Rights Agreement, the Notes and this 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
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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) shall 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) shall, 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 Section 4.09 hereof.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale of all of
the Company's assets that meets the requirements of Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default" :
(a) default in the payment when due of interest on, or Liquidated
Damages with respect to, the Notes and such default continues for a period
of 30 days;
(b) default in the payment when due of principal of or premium, if
any, on the Notes when the same becomes due and payable at maturity, upon
redemption (including in connection with an offer to purchase) or
otherwise;
(c) failure by the Company or any of its Subsidiaries to comply with
the provisions of Section 4.07, 4.09, 4.10 or 4.15 hereof;
(d) failure by the Company or any of its Subsidiaries to comply with
any of its other agreements in this Indenture or the Notes for 60 days
after notice to the Company by the Trustee or the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding voting as a
single class;
(e) 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 Subsidiaries
(or the payment of which is guaranteed by the Company or any of its
Subsidiaries) whether such Indebtedness or guarantee now exists, or is
created after the date of this Indenture, which default (i) is caused by a
failure to pay
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principal of or premium, if any, or interest on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness on the
date of such default (a "Payment Default") or (ii) 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, provided that this clause (e) will not
apply to any Payment Default on, or acceleration of, the Existing Senior
Notes so long as such Existing Senior Notes are repaid in full within 30
days of the date of this Indenture;
(f) failure by the Company or any of its Subsidiaries to pay final
judgments for the payment of money entered by a court or courts of
competent jurisdiction against the Company or any of its Subsidiaries
(other than judgments as to which a reputable insurance company has
acknowledged full coverage in writing) aggregating in excess of $5.0
million, which judgments are not paid, discharged or stayed for a period
of 60 days;
(g) the Company or any of its Subsidiaries pursuant to or within the
meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due; or
(h) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Subsidiaries in an involuntary case;
(ii) appoints a Custodian of the Company or any of its
Subsidiaries or for all or substantially all of the property of the
Company or any of its Subsidiaries; or
(iii) orders the liquidation of the Company or any of its
Subsidiaries;
and the order or decree remains unstayed and in effect for 60 consecutive
days; or
(i) except as permitted by this Indenture, any Note Guarantee is
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 Guarantor, or
any Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Note Guarantee.
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SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (g) or (h) of Section 6.01 hereof ) occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, if an Event of Default specified in clause (g) or (h) of Section 6.01
hereof occurs with respect to the Company, any Significant Subsidiary or any
group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes shall be due and payable immediately without
further action or notice. Holders of the Notes may not enforce this Indenture or
the Notes except as provided in this Indenture. The Holders of a majority in
aggregate principal amount of the then outstanding Notes by written notice to
the Trustee may on behalf of all of the Holders rescind an acceleration and its
consequences if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (except nonpayment of principal, interest
or premium that has become due solely because of the acceleration) have been
cured or waived.
In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of the Company
with the intention of avoiding payment of the premium that the Company would
have had to pay if the Company then had elected to redeem the Notes pursuant to
the optional redemption provisions of this Indenture, an equivalent premium
shall also become and be immediately due and payable to the extent permitted by
law upon the acceleration of the Notes. If an Event of Default occurs prior to
December 15, 2002 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to such date, then to the extent
permitted by law, upon acceleration of the Notes, an additional premium shall
also become and be immediately due and payable in an amount, for each of the
years beginning on December 15 of the years set forth below, as set forth below
(expressed as a percentage of the aggregate principal amount of the Notes
outstanding to the date of payment that would otherwise be due but for the
provisions of this sentence):
Year Percentage
---- ----------
1997...............................................109.625%
1998...............................................108.663%
1999...............................................107.700%
2000...............................................106.738%
2001...............................................105.755%
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal, premium, if
any, and interest on the Notes or to enforce the performance of any provision of
the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
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SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive an existing Default or Event of Default and its consequences
hereunder, except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes (including in connection with an
offer to purchase) (provided, however, that the Holders of a majority in
aggregate principal amount of the then outstanding Notes may rescind an
acceleration and its consequences, including any related payment default that
resulted from such acceleration). Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been cured for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Default or impair any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then outstanding
Notes may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
SECTION 6.06 LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this
Indenture or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the
rights of another Holder of a Note or to obtain a preference or priority over
another Holder of a Note.
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Note to receive payment of principal, premium and Liquidated
Damages, if any, and interest on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
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SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs
and is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, premium and Liquidated Damages, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Holder to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize the
Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the Notes
for principal, premium and Liquidated Damages, if any, and interest, ratably,
without preference or priority of any kind, according to the amounts due and
payable on the Notes for principal, premium and Liquidated Damages, if any and
interest, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
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The Trustee may fix a record date and payment date for any payment
to Holders of Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent man would exercise or use under the circumstances in the conduct
of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by
the express provisions of this Indenture and the Trustee need
perform only those duties that are specifically set forth in this
Indenture and no others, and no implied covenants or obligations
shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts;
and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05 hereof.
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(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to
paragraphs (a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the
Company. Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee
shall not be liable for any action it takes or omits to take in good faith
in reliance on such Officers' Certificate or Opinion of Counsel. The
Trustee may consult with counsel and the written advice of such counsel or
any Opinion of Counsel shall be full and complete authorization and
protection from liability in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the
rights or powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient
if signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders unless such Holders shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses
and liabilities that might be incurred by it in compliance with such
request or direction.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as
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trustee or resign. Any Agent may do the same with like rights and duties. The
Trustee is also subject to Sections 7.10 and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Company's use of the proceeds from the Notes or any money
paid to the Company or upon the Company's direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any statement in the Notes or
any other document in connection with the sale of the Notes or pursuant to this
Indenture other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to Holders of Notes a notice of
the Default or Event of Default within 90 days after it occurs. Except in the
case of a Default or Event of Default in payment of principal of, premium, if
any, or interest on any Note, the Trustee may withhold the notice if and so long
as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of the Holders of the Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA ss. 313(a) (but if no event described in
TIA ss. 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA ss.
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA ss. 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Company and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA ss. 313(d). The
Company shall promptly notify the Trustee when the Notes are listed on any stock
exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its
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powers or duties hereunder, except to the extent any such loss, liability or
expense may be attributable to its negligence or bad faith. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity.
Failure by the Trustee to so notify the Company shall not relieve the Company of
its obligations hereunder. The Company shall defend the claim and the Trustee
shall cooperate in the defense. The Trustee may have separate counsel and the
Company shall pay the reasonable fees and expenses of such counsel. The Company
need not pay for any settlement made without its consent, which consent shall
not be unreasonably withheld.
The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Notes on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Notes. Such Lien shall survive the satisfaction and
discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and
the compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of Notes of a
majority in principal amount of the then outstanding Notes may remove the
Trustee by so notifying the Trustee and the Company in writing. The Company may
remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(c) a Custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Notes of at least 10% in principal amount of the then outstanding
Notes may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
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If the Trustee, after written request by any Holder of a Note who
has been a Holder of a Note for at least six months, fails to comply with
Section 7.10, such Holder of a Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Notes. The retiring Trustee shall promptly transfer
all property held by it as Trustee to the successor Trustee, provided all sums
owing to the Trustee hereunder have been paid and subject to the Lien provided
for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant
to this Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the successor corporation without any further act shall be the
successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a
corporation organized and doing business under the laws of the United States of
America or of any state thereof that is authorized under such laws to exercise
corporate trustee power, that is subject to supervision or examination by
federal or state authorities and that has a combined capital and surplus of at
least $100 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1), (2) and (5). The Trustee is subject to TIA
ss. 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced
by a resolution set forth in an Officers' Certificate, at any time, elect to
have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04
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hereof, be deemed to have been discharged from its obligations with respect to
all outstanding Notes on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes, which shall thereafter be deemed to be
"outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following provisions which
shall survive until otherwise terminated or discharged hereunder: (a) the rights
of Holders of outstanding Notes to receive solely from the trust fund described
in Section 8.04 hereof, and as more fully set forth in such Section, payments in
respect of the principal of, premium, if any, and interest on such Notes when
such payments are due, (b) the Company's obligations with respect to such Notes
under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and the Company's obligations in
connection therewith and (d) this Article Eight. Subject to compliance with this
Article Eight, the Company may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19 and 4.20 hereof with
respect to the outstanding Notes on and after the date the conditions set forth
in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the
Notes shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes, the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section 6.01
hereof, but, except as specified above, the remainder of this Indenture and such
Notes shall be unaffected thereby. In addition, upon the Company's exercise
under Section 8.01 hereof of the option applicable to this Section 8.03 hereof,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
Sections 6.01(d) through 6.01(f) hereof shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders, cash in United States dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally
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recognized firm of independent public accountants, to pay the principal
of, premium and Liquidated Damages, if any, and interest on the
outstanding Notes on the stated date for payment thereof or on the
applicable redemption date, as the case may be;
(b) in the case of an election under Section 8.02 hereof, 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 date of this Indenture, there
has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the outstanding 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;
(c) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding 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;
(d) 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 incurrence of Indebtedness all or a portion of
the proceeds of which will be used to defease the Notes pursuant to this
Article Eight concurrently with such incurrence) or insofar as Sections
6.01(g) or 6.01(h) hereof is concerned, at any time in the period ending
on the 91st day after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this 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;
(f) the Company shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary exceptions) to the effect that
on 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;
(g) 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 over any other creditors of the Company
or with the intent of defeating, hindering, delaying or defrauding any
other creditors of the Company; and
(h) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
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SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable
Government Securities (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the
outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as
Paying Agent) as the Trustee may determine, to the Holders of such Notes of all
sums due and to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Company on its request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as a
secured creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to such trust money,
and all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal (national
edition), notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification or publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Company makes any
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payment of principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes or to alter the provisions of Article 2 hereof
(including the related definitions) in a manner that does not materially
adversely affect any Holder;
(c) to provide for the assumption of the Company's obligations to
the Holders of the Notes by a successor to the Company pursuant to Article
5 hereof or of a Guarantor's obligations by a successor to the Guarantor
pursuant to Section 10.04;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the
legal rights hereunder of any Holder of the Note;
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA; or
(f) to reflect the release of any Guarantor from its Note Guarantee
pursuant to Section 10.05 or to add any U.S. Subsidiary as a Guarantor
pursuant to Section 4.20.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon receipt by the Trustee of the documents described in Section
7.02 hereof, the Trustee shall join with the Company and the Guarantors in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company and the
Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and
4.15 hereof) and the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the Notes then
outstanding voting as a single class (including, without limitation, consents
obtained in connection with a tender offer or exchange offer for, or purchase
of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing
Default or Event of Default (other than a Default or Event of Default in the
payment of the principal of, premium, if any, or interest on the Notes, except a
payment default resulting from an acceleration that has been rescinded) or
compliance with any provision of this
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Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes voting as a single
class (including, without limitation, consents obtained in connection with a
tender offer or exchange offer for, or purchase of, the Notes). Section 2.08
hereof shall determine which Notes are considered to be "outstanding" for
purposes of this Section 9.02.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or supplemental
Indenture, and upon the filing with the Trustee of evidence satisfactory to the
Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by
the Trustee of the documents described in Section 7.02 hereof, the Trustee shall
join with the Company in the execution of such amended or supplemental Indenture
unless such amended or supplemental Indenture directly affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise, in which case
the Trustee may in its discretion, but shall not be obligated to, enter into
such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes then outstanding voting as a
single class may waive compliance in a particular instance by the Company with
any provision of this Indenture or the Notes. However, without the consent of
each Holder affected, an amendment or waiver under this Section 9.02 may not
(with respect to any Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter or waive any of the provisions with respect to the redemption of
the Notes (except as provided above with respect to Section 4.10 and 4.15
hereof;
(c) reduce the rate of or change the time for payment of interest on
any Note;
(d) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment
default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive
payments of or premium, if any, principal of or interest on the Notes;
(g) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions; or
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(h) waive a redemption payment with respect to any Note (other than
a payment required by one of the covenants described in Sections 4.10 or
4.15 hereof).
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall
be set forth in an amended or supplemental Indenture that complies with the TIA
as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Note is a continuing consent by the Holder of a
Note and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note, even if notation of the consent
is not made on any Note. However, any such Holder of a Note or subsequent Holder
of a Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Company in
exchange for all Notes may issue and the Trustee shall, upon receipt of an
Authentication Order, authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall
not affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Company may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 12.04 hereof, an Officers' Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
ARTICLE 10.
NOTE GUARANTEES
SECTION 10.01. GUARANTEE.
Subject to this Article 10, each of the Guarantors hereby, jointly
and severally, unconditionally guarantees to each Holder of a Note authenticated
and delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Notes or
the obligations of the Company hereunder or thereunder, that: (a) the principal
of and interest on the Notes will be promptly paid in full when due, whether at
maturity, by acceleration, redemption or otherwise, and interest on the overdue
principal of and interest on the Notes, if any, if lawful, and all other
obligations of the Company to the Holders or the Trustee hereunder or thereunder
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will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; and (b) in case of any extension of time of payment or
renewal of any Notes or any of such other obligations, that same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated maturity, by acceleration or otherwise.
Failing payment when due of any amount so guaranteed or any performance so
guaranteed for whatever reason, the Guarantors shall be jointly and severally
obligated to pay the same immediately. Each Guarantor agrees that this is a
guarantee of payment and not a guarantee of collection.
The Guarantors hereby agree that their obligations hereunder shall
be unconditional, irrespective of the validity, regularity or enforceability of
the Notes or this Indenture, the absence of any action to enforce the same, any
waiver or consent by any Holder of the Notes with respect to any provisions
hereof or thereof, the recovery of any judgment against the Company, any action
to enforce the same or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. Each Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Company, any right to require a
proceeding first against the Company, protest, notice and all demands whatsoever
and covenants that this Note Guarantee shall not be discharged except by
complete performance of the obligations contained in the Notes and this
Indenture.
If any Holder or the Trustee is required by any court or otherwise
to return to the Company, the Guarantors or any custodian, trustee, liquidator
or other similar official acting in relation to either the Company or the
Guarantors, any amount paid by either to the Trustee or such Holder, this Note
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.
Each Guarantor agrees that it shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations guaranteed
hereby until payment in full of all obligations guaranteed hereby. Each
Guarantor further agrees that, as between the Guarantors, on the one hand, and
the Holders and the Trustee, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Article 6 hereof
for the purposes of this Note Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6 hereof, such obligations (whether or
not due and payable) shall forthwith become due and payable by the Guarantors
for the purpose of this Note Guarantee. The Guarantors shall have the right to
seek contribution from any non-paying Guarantor so long as the exercise of such
right does not impair the rights of the Holders under the Note Guarantee.
SECTION 10.02. LIMITATION ON GUARANTOR LIABILITY.
Each Guarantor, and by its acceptance of Notes, each Holder, hereby
confirms that it is the intention of all such parties that the Note Guarantee of
such Guarantor not constitute a fraudulent transfer or conveyance for purposes
of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent
Transfer Act or any similar federal or state law to the extent applicable to any
Note Guarantee. To effectuate the foregoing intention, the Trustee, the Holders
and the Guarantors hereby irrevocably agree that the obligations of such
Guarantor under its Note Guarantee and this Article 10 shall be limited to the
maximum amount as will, after giving effect to such maximum amount and all other
contingent and fixed liabilities of such Guarantor that are relevant under such
laws, and after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under this Article 10, result
in
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the obligations of such Guarantor under its Note Guarantee not constituting a
fraudulent transfer or conveyance.
SECTION 10.03. EXECUTION AND DELIVERY OF NOTE GUARANTEE.
To evidence its Note Guarantee set forth in Section 10.01, each
Guarantor hereby agrees that a notation of such Note Guarantee substantially in
the form included in Exhibit E shall be endorsed by an Officer of such Guarantor
on each Note authenticated and delivered by the Trustee and that this Indenture
shall be executed on behalf of such Guarantor by its President or one of its
Vice Presidents.
Each Guarantor hereby agrees that its Note Guarantee set forth in
Section 10.01 shall remain in full force and effect notwithstanding any failure
to endorse on each Note a notation of such Note Guarantee.
If an Officer whose signature is on this Indenture or on the Note
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Note Guarantee is endorsed, the Note Guarantee shall be valid
nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Note Guarantee set forth
in this Indenture on behalf of the Guarantors.
In the event that the Company or any Guarantor creates or acquires
any new U.S. Subsidiary subsequent to the date of this Indenture, if required by
Section 4.20 hereof, the Company shall cause each such Subsidiary to execute
supplemental indentures to this Indenture and Note Guarantees in accordance with
Section 4.20 hereof and this Article 10, to the extent applicable.
SECTION 10.04. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
No Guarantor may consolidate with or merge with or into (whether or
not such Guarantor is the surviving Person) another Person whether or not
affiliated with such Guarantor unless:
(a) subject to Section 10.05 hereof, the Person formed by or
surviving any such consolidation or merger (if other than a Guarantor or the
Company) unconditionally assumes all the obligations of such Guarantor, pursuant
to a supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Indenture and the Note Guarantee on the terms set forth
herein or therein; and
(b) immediately after giving effect to such transaction, no Default
or Event of Default exists.
In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor Person, by supplemental indenture, executed
and delivered to the Trustee and satisfactory in form to the Trustee, of the
Note Guarantee endorsed upon the Notes and the due and punctual performance of
all of the covenants and conditions of this Indenture to be performed by the
Guarantor, such successor Person shall succeed to and be substituted for the
Guarantor with the same effect as if it had been named herein as a Guarantor.
Such successor Person thereupon may cause to be signed any or all of the Note
Guarantees to be endorsed upon all of the Notes issuable hereunder which
theretofore shall not have been signed by such Guarantor and delivered to the
Trustee. All the Note Guarantees so issued shall in all respects have the same
legal rank and benefit under this Indenture as the
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Note Guarantees theretofore and thereafter issued in accordance with the terms
of this Indenture as though all of such Note Guarantees had been issued at the
date of the execution hereof.
Except as set forth in Articles 4 and 5 hereof, and notwithstanding
clauses (a) and (b) above, nothing contained in this Indenture or in any of the
Notes shall prevent any consolidation or merger of a Guarantor with or into the
Company or another Guarantor, or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety to the
Company or another Guarantor.
SECTION 10.05. RELEASES FOLLOWING SALE OF ASSETS.
In the event of a sale or other disposition of all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the capital stock of any Guarantor, then such Guarantor
(in the event of a sale or other disposition, by way of merger, consolidation or
otherwise, of all of the capital stock of such Guarantor) or the corporation
acquiring the property (in the event of a sale or other disposition of all or
substantially all of the assets of such Guarantor) will be released and relieved
of any obligations under its Note Guarantee; provided that the Net Proceeds of
such sale or other disposition are applied in accordance with the applicable
provisions of this Indenture, including without limitation Section 4.10 hereof.
Upon delivery by the Company to the Trustee of an Officers' Certificate and an
Opinion of Counsel to the effect that such sale or other disposition was made by
the Company in accordance with the applicable provisions of this Indenture,
including without limitation Section 4.10 hereof, the Trustee shall execute any
documents reasonably required in order to evidence the release of any Guarantor
from its obligations under its Note Guarantee.
Any Guarantor not released from its obligations under its Note
Guarantee shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of any Guarantor under this Indenture
as provided in this Article 10.
ARTICLE 11.
SATISFACTION AND DISCHARGE
SECTION 11.01. SATISFACTION AND DISCHARGE OF INDENTURE
This Indenture shall upon Company request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Notes, as expressly provided for in this Indenture) as to all outstanding Notes,
and the Trustee, at the expense of the Company, shall, upon payment of all
amounts due to the Trustee under Section 7.07 hereof, execute proper instruments
acknowledging satisfaction and discharge of this Indenture when
(a) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.07 hereof and (ii) Notes for whose
payment money or United States governmental obligations of the type described in
clause (ii) of the definition of Cash Equivalents have theretofore been
deposited in trust with the Trustee or any Paying Agent or segregated and held
in trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 2.04 hereof) have been delivered to the
Trustee for cancellation, or
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(2) all such Notes not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their final Stated
Maturity within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the serving of notice of
redemption by the Trustee in the name, and at the expense, of the Company
and the Company, in the case of clause (2)(i), (2)(ii) or (2)(iii)
above, has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
such Notes not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and Liquidated Damages, if any, on such Notes and
interest to the date of such deposit (in the case of Notes which have become due
and payable) or to the final Stated Maturity or Redemption Date, as the case may
be, together with the Company order irrevocably directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case may be;
(b) the Company has paid or caused to be paid all other sums then
due and payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, which, taken together, state that all
conditions precedent herein relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture,
the obligations of the Company to the Trustee under Section 7.07 hereof and, if
the money shall have been deposited with the Trustee pursuant to this Section,
the obligations of the Trustee under Section 11.2 hereof and the last paragraph
of Section 2.04 hereof and the Trustee's right under Article 7 hereof shall
survive.
SECTION 11.02. APPLICATION OF TRUST MONEY
Subject to the provisions of the last paragraph of Section 2.04
hereof, all money deposited with the Trustee pursuant to Section 11.01 hereof
shall be held in trust and applied by it, in accordance with the provisions of
the Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium and Liquidated Damages, if any) and interest for whose payment such
money has been deposited with the Trustee.
ARTICLE 12.
MISCELLANEOUS
SECTION 12.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts
with the duties imposed by TIA ss. 318(c), the imposed duties shall control.
66
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SECTION 12.02 NOTICES.
Any notice or communication by the Company, any Guarantor or the
Trustee to the others is duly given if in writing and delivered in Person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight air courier guaranteeing next day delivery, to
the others' address
If to the Company or any Guarantor:
Worldtex, Inc.
212 12th Avenue, N.E.
Hickory, N.C. 28601
Telecopier No.: (704) 328-4936
Attention: Treasurer
If to the Trustee:
IBJ Schroder Bank & Trust Company
One State Street
New York, N.Y. 10004
Telecopier No.: (212) 858-2952
Attention: Corporate Trust Administration
The Company or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first
class mail or by overnight air courier guaranteeing next day delivery to its
address shown on the register kept by the Registrar. Any notice or communication
shall also be so mailed to any Person described in TIA ss. 313(c), to the extent
required by the TIA. Failure to mail a notice or communication to a Holder or
any defect in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 12.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA ss. 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA ss. 312(c).
67
<PAGE> 76
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
SECTION 12.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA ss. 314(a)(4)) shall comply with the provisions of TIA
ss. 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with.
SECTION 12.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting
of Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 12.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No past, present or future director, officer, employee, incorporator
or stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes, this Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
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<PAGE> 77
SECTION 12.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT GIVING
EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE
APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
SECTION 12.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture,
loan or debt agreement of the Company or its Subsidiaries or of any other
Person. Any such indenture, loan or debt agreement may not be used to interpret
this Indenture.
SECTION 12.10. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
SECTION 12.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 12.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
69
<PAGE> 78
SIGNATURES
Dated as of December 1, 1997
WORLDTEX, INC.
By:
------------------------------
Name: Richard J. Mackey
Title: Chairman of the Board
Attest:
- -------------------------
Name: Mitchell R. Setzer
Title: Secretary
WILLCOX & GIBBS FILIX OF DELAWARE, INC.
REGAL MANUFACTURING COMPANY, INC.
ELASTIC CORPORATION OF AMERICA, INC.
ELASTEX, INC.
REGAL YARNS OF ARGENTINA, INC.
WTX COLOMBIA I, INC.
WTX COLOMBIA II, INC.
By:
------------------------------
Name: Richard J. Mackey
Title: Vice President
Attest:
- -------------------------
Name: Mitchell R. Setzer
Title: Secretary
IBJ SCHRODER BANK & TRUST COMPANY
By:
------------------------------
Name:
Title:
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<PAGE> 79
EXHIBIT A1
(Face of Note)
================================================================================
CUSIP/CINS ___________
9 5/8% [Series A] [Series B] Senior Notes due 2007
No.______ $_____________
WORLDTEX, INC.
promises to pay to____________________________________________________
or registered assigns,
the principal sum of________________________________________________
Dollars on December 15, 2007.
Interest Payment Dates: June 15 and December 15.
Record Dates: June 1 and December 1.
DATED: DECEMBER 1, 1997
WORLDTEX, INC.
By:
---------------------------------
Name: Richard J. Mackey
Title: Chairman of the Board
This is one of the Global
Notes referred to in the
within-mentioned Indenture:
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee
By:
---------------------------------
================================================================================
A1-1
<PAGE> 80
(Back of Note)
95/8 % [Series A] [Series B] Senior Notes due 2007
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK,
NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND THIS NOTE MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (SUBJECT TO THE
DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED UNDER THE INDENTURE PURSUANT
TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
(1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE
THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), SUBJECT TO THE RECEIPT BY THE REGISTRAR OF A CERTIFICATION OF
THE TRANSFEROR AND AN OPINION OF
A1-2
<PAGE> 81
COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (B) THE HOLDER WILL AND EACH SUBSEQUENT HOLDER
IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE.
Capitalized terms used herein shall have the meanings assigned to
them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Worldtex, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 9 5/8% per
annum from December 1, 1997 until maturity and shall pay the Liquidated Damages
payable pursuant to the Registration Rights Agreement referred to below. The
Company will pay interest and Liquidated Damages semi-annually on June 15 and
December 15 of each year, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance; provided that if there is no
existing Default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
June 15, 1998. The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at a rate that is 1% per annum in excess of the
rate then in effect; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace periods) from time to
time on demand at the same rate to the extent lawful. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the June 1 or December 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. The Notes
will be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Company maintained for such purpose
within or without the City and State of New York, or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to the Holders at their addresses set forth in the register of Holders, and
provided that payment by wire transfer of immediately available funds will be
required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank & Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
A1-3
<PAGE> 82
4. INDENTURE. The Company issued the Notes under an Indenture dated
as of December 1, 1997 ("Indenture") among the Company, the Guarantors and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to the Indenture and such Act for a statement of
such terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the indenture shall govern and be
controlling. The Notes are obligations of the Company limited to $175.0 million
in aggregate principal amount, plus amounts, if any, issued to pay Liquidated
Damages on outstanding Notes as set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this paragraph 5, the
Company shall not have the option to redeem the Notes pursuant to this
paragraph 5 prior to December 15, 2002. Thereafter, the Company shall have
the option to redeem the Notes, in whole or in part, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on December 15 of the years indicated below:
Year Percentage
---- ----------
2002................................................ 104.813%
2003................................................ 103.208%
2004................................................ 101.604%
2005 and thereafter................................. 100.000%
(b) Notwithstanding the provisions of clause (a) of this paragraph
5, at any time prior to December 15, 2000, the Company may redeem up to
35% of the aggregate principal amount of Notes originally issued under the
Indenture at a redemption price equal to 109.625% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the redemption date, with the net proceeds of a public offering
of common stock of the Company; provided that at least $113.75 million in
aggregate principal amount of Notes remain outstanding immediately after
the occurrence of such redemption and provided, further that such
redemption occurs within 45 days of the date of the closing of such public
offering.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required
to make an offer (a "Change of Control Offer") to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase (in either case, the "Change of Control Payment"). Within 10 days
following any Change of Control, the
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<PAGE> 83
Company shall mail a notice to each Holder setting forth the procedures
governing the Change of Control Offer as required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales,
within five days after the aggregate amount of Excess Proceeds exceeds $5
million, the Company shall commence an offer to all Holders of Notes (an "Asset
Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum
principal amount of 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 thereon, if any, to the date fixed for the
closing of such offer, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use such
deficiency for any purposes not prohibited by the Indenture. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Holders of Notes that are the subject of an Asset Sale Offer from
the Company may elect to have such Notes purchased by completing the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Notes and
otherwise complying with the terms of the Asset Sale Offer.
8. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in 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 need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes voting as a single class, and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes voting
as a single class. Without the consent of any Holder of a Note, the Indenture or
the Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or
Guarantor's obligations to Holders of the Notes in case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, to comply with the requirements
of the
A1-5
<PAGE> 84
Commission in order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default
for 30 days in the payment when due of interest on, or Liquidated Damages with
respect to, the Notes; (ii) default in payment when due of the principal of or
premium, if any, on the Notes; (iii) failure by the Company to comply with the
provisions of Section 4.07, 4.09, 4.10 or 4.15 of the Indenture; (iv) failure by
the Company or any of its Subsidiaries for 60 days after notice to comply with
any of its other agreements in the Indenture or the 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 Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (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, provided that this clause (v) will not apply to any Payment
Default on, or acceleration of, the Existing Senior Notes so long as such
Existing Senior Notes are repaid in full within 30 days of the Closing Date;
(vi) failure by the Company or any of its Subsidiaries to pay final judgment
(other than judgments as to which a reputable insurance company has acknowledged
full coverage in writing) aggregating in excess of $5.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days; (vii) except as
permitted by the Indenture, any Guarantee 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 Guarantor, or any Person acting on behalf of any
Guarantor, 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 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 Notes may
declare all the 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, all outstanding Notes will become due and payable
without further action or notice. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the 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. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the 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 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.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
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14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of December 1, 1997 between the Company and the parties named
on the signature pages thereof (the "Registration Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Worldtex, Inc.
212 12th Avenue, N.E.
Hickory, North Carolina 28601
Attention: Treasurer
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Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax I.D. no.)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date:_______________
Your Signature:_________________________
(Sign exactly as your name appears on the face of
this Note)
Signature Guarantee.
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<PAGE> 87
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
|_| Section 4.10 |_| Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.15 of the Indenture, state the amount you elect to
have purchased: $________
Date:________________ Your Signature:____________________
(Sign exactly as your name
appears on the Note)
Tax Identification No:________________
Signature Guarantee.
A1-9
<PAGE> 88
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of Amount of increase of
decrease in in Principal this Global Note Signature of
Principal Amount Amount following such authorized officer
of of decrease of Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- ---------------- ---------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
A1-10
<PAGE> 89
EXHIBIT A2
(Face of Regulation S Temporary Global Note)
================================================================================
CUSIP/CINS ___________
9 5/8% [Series A] [Series B] Senior Notes due 2007
No.________ $___________
WORLDTEX, INC.
promises to pay to__________________________________________
or registered assigns,
the principal sum of________________________________________
Dollars on December 15, 2007.
Interest Payment Dates: June 15 and December 15.
Record Dates: June 1 and December 1.
DATED: DECEMBER 1, 1997
WORLDTEX, INC.
By:
---------------------------------
Name: Richard J. Mackey
Title: Chairman of the Board
This is one of the Temporary Regulation S
Global Notes referred to in the
within-mentioned Indenture:
IBJ SCHRODER BANK & TRUST COMPANY
as Trustee
By:
---------------------------------
================================================================================
A2-1
<PAGE> 90
(Back of Regulation S Temporary Global Note)
9 5/8% [Series A] [Series B] Senior Notes due 2007
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES,
ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER
NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL
BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK,
NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME
OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND THIS NOTE MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR IN ACCORDANCE WITH AN APPLICABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (SUBJECT TO THE
DELIVERY OF SUCH EVIDENCE, IF ANY, REQUIRED UNDER THE INDENTURE PURSUANT
TO WHICH THIS NOTE IS ISSUED) AND IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
JURISDICTION. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY
NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF
THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT
(A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
(1)(a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN
A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c)
A2-2
<PAGE> 91
OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), SUBJECT TO THE RECEIPT BY THE REGISTRAR OF A CERTIFICATION OF
THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER
IS IN COMPLIANCE WITH THE SECURITIES ACT, (2) TO THE COMPANY OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL AND
EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE.
Capitalized terms used herein shall have the meanings assigned to
them in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Worldtex, Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at 9 5/8% per
annum from December 1, 1997 until maturity and shall pay the Liquidated Damages
payable pursuant to the Registration Rights Agreement referred to below. The
Company will pay interest and Liquidated Damages semi-annually on June 15 and
December 15 of each year, or if any such day is not a Business Day, on the next
succeeding Business Day (each an "Interest Payment Date"). Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance; provided that if there is no
existing Default in the payment of interest, and if this Note is authenticated
between a record date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such next succeeding Interest
Payment Date; provided, further, that the first Interest Payment Date shall be
June 15, 1998. The Company shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue principal and premium, if
any, from time to time on demand at a rate that is 1% per annum in excess of the
rate then in effect; it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace periods) from time to
time on demand at the same rate to the extent lawful. Interest will be computed
on the basis of a 360-day year of twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged for one
or more Regulation S Permanent Global Notes, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Senior Notes under the Indenture.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) and Liquidated Damages to the Persons who are
registered Holders of Notes at the close of business on the June 1 or December 1
next preceding the Interest Payment Date, even if such Notes are canceled after
such record date and on or before such Interest Payment Date, except as provided
in Section 2.12 of the Indenture with respect to defaulted interest. The Notes
will be payable as to principal, premium and Liquidated Damages, if any, and
interest at the office or agency of the Company maintained for such purpose
within or without the City and State of New York, or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check mailed
to
A2-3
<PAGE> 92
the Holders at their addresses set forth in the register of Holders, and
provided that payment by wire transfer of immediately available funds will be
required with respect to principal of and interest, premium and Liquidated
Damages on, all Global Notes and all other Notes the Holders of which shall have
provided wire transfer instructions to the Company or the Paying Agent. Such
payment shall be in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, IBJ Schroder Bank & Trust
Company, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without notice
to any Holder. The Company or any of its Subsidiaries may act in any such
capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated
as of December 1, 1997 ("Indenture") among the Company, the Guarantors and the
Trustee. The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such
terms, and Holders are referred to the Indenture and such Act for a statement of
such terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the indenture shall govern and be
controlling. The Notes are obligations of the Company limited to $175.0 million
in aggregate principal amount, plus amounts, if any, issued to pay Liquidated
Damages on outstanding Notes as set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clause (b) of this paragraph 5, the
Company shall not have the option to redeem the Notes pursuant to this
paragraph 5 prior to December 15, 2002. Thereafter, the Company shall have
the option to redeem the Notes, in whole or in part, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on December 15 of the years indicated below:
Year Percentage
---- ----------
2002................................................ 104.813%
2003................................................ 103.208%
2004................................................ 101.604%
2005 and thereafter................................. 100.000%
(b) Notwithstanding the provisions of clause (a) of this paragraph
5, at any time prior to December 15, 2000, the Company may redeem up to
35% of the aggregate principal amount of Notes originally issued under the
Indenture at a redemption price equal to 109.625% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the redemption date, with the net proceeds of a public offering
of common stock of the Company; provided that at least $113.75 million in
aggregate principal amount of Notes remain outstanding immediately after
the occurrence of such redemption and provided, further that such
redemption occurs within 45 days of the date of the closing of such public
offering.
A2-4
<PAGE> 93
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Company shall be required
to make an offer (a "Change of Control Offer") to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a
purchase price equal to 101% of the aggregate principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase (in either case, the "Change of Control Payment"). Within 10 days
following any Change of Control, the Company shall mail a notice to each Holder
setting forth the procedures governing the Change of Control Offer as required
by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales,
within five days after the aggregate amount of Excess Proceeds exceeds $5
million, the Company shall commence an offer to all Holders of Notes (an "Asset
Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum
principal amount of 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 thereon, if any, to the date fixed for the
closing of such offer, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of Notes tendered pursuant to
an Asset Sale Offer is less than the Excess Proceeds, the Company may use such
deficiency for any purposes not prohibited by the Indenture. If the aggregate
principal amount of Notes surrendered by Holders thereof exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro
rata basis. Holders of Notes that are the subject of an Asset Sale Offer from
the Company may elect to have such Notes purchased by completing the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Notes and
otherwise complying with the terms of the Asset Sale Offer.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date interest ceases to accrue on Notes or
portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in 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 need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be
treated as its owner for all purposes.
A2-5
<PAGE> 94
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes voting as a single class, and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes voting
as a single class. Without the consent of any Holder of a Note, the Indenture or
the Notes may be amended or supplemented to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or
Guarantor's obligations to Holders of the Notes in case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights under the Indenture of any such Holder, to comply with the requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default
for 30 days in the payment when due of interest on, or Liquidated Damages with
respect to, the Notes; (ii) default in payment when due of the principal of or
premium, if any, on the Notes; (iii) failure by the Company to comply with the
provisions of Section 4.07, 4.09, 4.10 or 4.15 of the Indenture; (iv) failure by
the Company or any of its Subsidiaries for 60 days after notice to comply with
any of its other agreements in the Indenture or the 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 Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (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, provided that this clause (v) will not apply to any Payment
Default on, or acceleration of, the Existing Senior Notes so long as such
Existing Senior Notes are repaid in full within 30 days of the Closing Date;
(vi) failure by the Company or any of its Subsidiaries to pay final judgment
(other than judgments as to which a reputable insurance company has acknowledged
full coverage in writing) aggregating in excess of $5.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days; (vii) except as
permitted by the Indenture, any Guarantee 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 Guarantor, or any Person acting on behalf of any
Guarantor, 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 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 Notes may
declare all the 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, all outstanding Notes will become due and payable
without further action or notice. Holders may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the 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. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the
A2-6
<PAGE> 95
Trustee may on behalf of the Holders of all of the 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 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.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND
RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of
Notes under the Indenture, Holders of Restricted Global Notes and Restricted
Definitive Notes shall have all the rights set forth in the Registration Rights
Agreement dated as of December 1, 1997 between the Company and the parties named
on the signature pages thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Worldtex, Inc.
212 12th Avenue, N.E.
Hickory, North Carolina 28601
Attention: Treasurer
A2-7
<PAGE> 96
Assignment Form
To assign this Note, fill in the form below: (I) or (we) assign and transfer
this Note to
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax I.D. no.)
and irrevocably appoint_________________________________________________________
to transfer this Note on the books of the Company. The agent may substitute
another to act for him.
________________________________________________________________________________
Date:_______________
Your Signature:_________________________
(Sign exactly as your name appears on the face of
this Note)
Signature Guarantee.
A2-8
<PAGE> 97
Option of Holder to Elect Purchase
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.15 of the Indenture, check the box below:
|_| Section 4.10 |_| Section 4.15
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.15 of the Indenture, state the amount you elect to
have purchased: $________
Date:________________ Your Signature:____________________
(Sign exactly as your name
appears on the Note)
Tax Identification No:________________
Signature Guarantee.
A2-9
<PAGE> 98
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an
interest in another Global Note or for a Definitive Note, or exchanges of a part
of another Global Note or Definitive Note for an interest in this Global Note,
have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of Amount of increase of
decrease in in Principal this Global Note Signature of
Principal Amount Amount following such authorized officer
of of decrease of Trustee or Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- ---------------- ---------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
</TABLE>
A2-10
<PAGE> 99
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Worldtex, Inc.
212 12th Avenue N.E.
Hickory, North Carolina 28601
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Re: 9 5/8% Senior Notes due 2007 of Worldtex, Inc.
Reference is hereby made to the Indenture, dated as of December 1,
1997 (the "Indenture"), between Worldtex, Inc., as issuer (the "Company"), and
IBJ Schroder Bank & Trust Company, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
______________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to __________ (the "Transferee"), as further specified in Annex A hereto. In
connection with the Transfer, the Transferor hereby certifies that:
[CHECK ALL THAT APPLY]
1. Check if Transferee will take delivery of a beneficial interest in the 144A
Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer is being
effected pursuant to and in accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the
Transferor hereby further certifies that (i) the beneficial interest or
Definitive Note is being transferred to a Person that the Transferor reasonably
believed and believes is purchasing the beneficial interest or Definitive Note
for its own account, or for one or more accounts with respect to which such
Person exercises sole investment discretion, in a transaction meeting the
requirements of Rule 144A and such Transfer is in compliance with any applicable
blue sky securities laws of any state of the United States, (ii) the Transferor
and each person acting on behalf of the Transferor reasonably believe that such
Person and each such account is a "qualified institutional buyer" within the
meaning of Rule 144A and (iii) the Transferor has advised such Person that the
Transferor may rely on the exemption from registration provisions of the
Securities Act provided by Rule 144A. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the 144A Global Note
and/or the Definitive Note and in the Indenture and the Securities Act.
2. Check if Transferee will take delivery of a beneficial interest in the
Temporary Regulation S Global Note, the Regulation S Global Note or a Definitive
Note pursuant to Regulation S. The Transfer is being effected pursuant to and in
accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly,
the Transferor hereby further certifies that (i) the Transfer is not being made
to a person in the United States and (x) at the time the buy order was
originated, the
B-1
<PAGE> 100
Transferee was outside the United States or such Transferor and any Person
acting on its behalf reasonably believed and believes that the Transferee was
outside the United States or (y) the transaction was executed in, on or through
the facilities of a designated offshore securities market and neither such
Transferor nor any Person acting on its behalf knows that the transaction was
prearranged with a buyer in the United States, (ii) no directed selling efforts
have been made in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S under the Securities Act, (iii) the transaction is not
part of a plan or scheme to evade the registration requirements of the
Securities Act and (iv) if the proposed transfer is being made prior to the
expiration of the Restricted Period, the transfer is not being made to a U.S.
Person or for the account or benefit of a U.S. Person (other than an Initial
Purchaser) and, if the Transferee is a dealer (as defined in Section 2(12) of
the Securities Act), or is a person receiving a selling concession, fee or other
remuneration in respect of the Notes sold, the Transferor or person acting on
behalf of the Transferor has sent to the Transferee the notice required by Rule
903(c)(2)(iv) or 904(c)(1)(ii), whichever is applicable. Upon consummation of
the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on Transfer enumerated in the Private Placement Legend printed on
the Regulation S Global Note, the Temporary Regulation S Global Note and/or the
Definitive Note and in the Indenture and the Securities Act.
3. Check and complete if Transferee will take delivery of a beneficial interest
in the IAI Global Note or a Definitive Note pursuant to any provision of the
Securities Act other than Rule 144A or Regulation S. The Transfer is being
effected in compliance with the transfer restrictions applicable to beneficial
interests in Restricted Global Notes and Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act and any applicable blue
sky securities laws of any state of the United States, and accordingly the
Transferor hereby further certifies that (check one):
(a) |_| such Transfer is being effected pursuant to and in
accordance with Rule 144 under the Securities Act;
or
(b) |_| such Transfer is being effected to the Company or a
subsidiary thereof;
or
(c) |_| such Transfer is being effected pursuant to an effective
registration statement under the Securities Act and in compliance with the
prospectus delivery requirements of the Securities Act;
or
(d) |_| such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904,
and the Transferor hereby further certifies that it has not engaged in any
general solicitation within the meaning of Regulation D under the Securities Act
and the Transfer complies with the transfer restrictions applicable to
beneficial interests in a Restricted Global Note or Restricted Definitive Notes
and the requirements of the exemption claimed, which certification is supported
by (1) a certificate executed by the Transferee in the form of Exhibit D to the
Indenture and (2) an Opinion of Counsel provided by the Transferor or the
Transferee (a copy of which the Transferor has attached to this certification),
to the effect that such Transfer is in compliance with the Securities Act. Upon
B-2
<PAGE> 101
consummation of the proposed transfer in accordance with the terms of the
Indenture, the transferred beneficial interest or Definitive Note will be
subject to the restrictions on transfer enumerated in the Private Placement
Legend printed on the IAI Global Note and/or the Definitive Notes and in the
Indenture and the Securities Act.
4. Check if Transferee will take delivery of a beneficial interest in an
Unrestricted Global Note or of an Unrestricted Definitive Note.
(a) Check if Transfer is pursuant to Rule 144. (i) The Transfer is
being effected pursuant to and in accordance with Rule 144 under the Securities
Act and in compliance with the transfer restrictions contained in the Indenture
and any applicable blue sky securities laws of any state of the United States
and (ii) the restrictions on transfer contained in the Indenture and the Private
Placement Legend are not required in order to maintain compliance with the
Securities Act. Upon consummation of the proposed Transfer in accordance with
the terms of the Indenture, the transferred beneficial interest or Definitive
Note will no longer be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the Restricted Global Notes, on Restricted
Definitive Notes and in the Indenture.
(b) Check if Transfer is Pursuant to Regulation S. (i) The Transfer
is being effected pursuant to and in accordance with Rule 903 or Rule 904 under
the Securities Act and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any state of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will no longer be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes, on Restricted Definitive Notes and in the Indenture.
(c) Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 or Rule 904 and in compliance with the transfer restrictions contained in
the Indenture and any applicable blue sky securities laws of any State of the
United States and (ii) the restrictions on transfer contained in the Indenture
and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will not be subject to the restrictions on transfer
enumerated in the Private Placement Legend printed on the Restricted Global
Notes or Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company.
---------------------------------------
[Insert Name of Transferor]
By:
---------------------------------
Name:
Title:
Dated:____________, _______
B-3
<PAGE> 102
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) a beneficial interest in the:
(i) 144A Global Note (CUSIP ), or
(ii) Regulation S Global Note (CUSIP ), or
(iii) IAI Global Note (CUSIP ); or
(b) a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) a beneficial interest in the:
(i) 144A Global Note (CUSIP ______), or
(ii) Regulation S Global Note (CUSIP _____), or
(iii) IAI Global Note (CUSIP _____); or
(iv) Unrestricted Global Note (CUSIP _____); or
(b) a Restricted Definitive Note; or
(c) an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-4
<PAGE> 103
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Worldtex, Inc.
212 12th Avenue, N.E.
Hickory, North Carolina 28601
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Re: 9 5/8% Senior Notes due 2007 of Worldtex, Inc.
(CUSIP______________)
Reference is hereby made to the Indenture, dated as of December 1,
1997 (the "Indenture"), between Worldtex, Inc., as issuer (the "Company"), and
IBJ Schroder Bank & Trust Company, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
____________, (the "Owner") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. Exchange of Restricted Definitive Notes or Beneficial Interests in a
Restricted Global Note for Unrestricted Definitive Notes or Beneficial Interests
in an Unrestricted Global Note
(a) Check if Exchange is from beneficial interest in a Restricted
Global Note to beneficial interest in an Unrestricted Global Note. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the United States Securities Act of
1933, as amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) Check if Exchange is from beneficial interest in a Restricted
Global Note to Unrestricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
C-1
<PAGE> 104
the Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.
(c) Check if Exchange is from Restricted Definitive Note to
beneficial interest in an Unrestricted Global Note. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) Check if Exchange is from Restricted Definitive Note to
Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in Restricted
Global Notes for Restricted Definitive Notes or Beneficial Interests in
Restricted Global Notes
(a) Check if Exchange is from beneficial interest in a Restricted
Global Note to Restricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
This certificate and the statements contained herein are made for
your benefit and the benefit of the Company.
-----------------------------------
[Insert Name of Owner]
By:
-------------------------------
Name:
Title:
Dated:________________,____
C-2
<PAGE> 105
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Worldtex, Inc.
212 12th Avenue, N.E.
Hickory, North Carolina 28601
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Re: 9 5/8% Senior Notes due 2007 of Worldtex, Inc.
Reference is hereby made to the Indenture, dated as of December 1,
1997 (the "Indenture"), between Worldtex, Inc., as issuer (the "Company"), and
IBJ Schroder Bank & Trust Company, as trustee. Capitalized terms used but not
defined herein shall have the meanings given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) a beneficial interest in a Global Note, or
(b) a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined therein), (c) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes (or has furnished on its
behalf by a U.S. broker-dealer) to you and to the Company a signed letter
substantially in the form of this letter and an Opinion of Counsel in form
reasonably acceptable to the Company to the effect that such transfer is in
compliance with the Securities Act, (D) outside the United States in accordance
with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the
provisions of Rule 144(k) under the Securities Act or (F) pursuant to an
effective registration statement under the
D-1
<PAGE> 106
Securities Act, and we further agree to provide to any person purchasing the
Definitive Note or beneficial interest in a Global Note from us in a transaction
meeting the requirements of clauses (A) through (D) of this paragraph a notice
advising such purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or
beneficial interest therein, we will be required to furnish to you and the
Company such certifications, legal opinions and other information as you and the
Company may reasonably require to confirm that the proposed sale complies with
the foregoing restrictions. We further understand that the Notes purchased by us
will bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes or beneficial interest therein
purchased by us for our own account or for one or more accounts (each of which
is an institutional "accredited investor") as to each of which we exercise sole
investment discretion and as to which we have authority to make, and do make,
the statements contained in this letter.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
------------------------------------------
[Insert Name of Accredited Investor]
By:
-------------------------------
Name:
Title:
Dated: __________________, ____
D-2
<PAGE> 107
EXHIBIT E
FORM OF NOTATION OF GUARANTEE
For value received, each Guarantor (which term includes any
successor Person under the Indenture) has, jointly and severally,
unconditionally guaranteed, to the extent set forth in the Indenture and subject
to the provisions in the Indenture dated as of December 1, 1997 (the
"Indenture") among Worldtex, Inc., the Guarantors and IBJ Schroder Bank & Trust
Company, as trustee (the "Trustee"), (a) the due and punctual payment of the
principal of, premium, if any, and interest on the Notes (as defined in the
Indenture), whether at maturity, by acceleration, redemption or otherwise, the
due and punctual payment of interest on overdue principal and premium, and, to
the extent permitted by law, interest, and the due and punctual performance of
all other obligations of the Company to the Holders or the Trustee all in
accordance with the terms of the Indenture and (b) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, that
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise. The obligations of the Guarantors to the Holders of
Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are
expressly set forth in Article 10 of the Indenture and reference is hereby made
to the Indenture for the precise terms of the Note Guarantee and may be released
or limited under certain circumstances. Each Holder of a Note, by accepting the
same, agrees to and shall be bound by such provisions. The Note Guarantee shall
not be valid or obligatory for any purpose until the certificate or
authentication of the Note upon which this Note Guarantee is endorsed shall have
been executed by the Trustee by the manual signature of one of its authorized
signatories.
Willcox & Gibbs Filix of Delaware, Inc.
Regal Manufacturing Company, Inc.
Elastic Corporation of America, Inc.
Elastex, Inc.
Regal Yarns of Argentina, Inc.
WTX Colombia I, Inc.
WTX Colombia II, Inc.
By:
--------------------------------
Name:
Title:
E-1
<PAGE> 108
EXHIBIT F
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
Supplemental Indenture (this "Supplemental Indenture"), dated as of
________________, among __________________ (the "Guaranteeing Subsidiary"),
Worldtex, Inc. (or its permitted successor), a Delaware corporation (the
"Company"), and IBJ Schroder Bank & Trust Company, as trustee under the
indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of December 1, 1997 providing
for the issuance of an aggregate principal amount of up to $175.0 million of
9 5/8% Senior Notes due 2007 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Company's Obligations under the Notes and the Indenture on
the terms and conditions set forth herein (the "Note Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees
to be bound by the terms of the Indenture as a Guarantor and agrees to be
subject to the provisions of the Indenture applicable to Guarantors as though
originally a signatory and party to the Indenture.
3 EXECUTION AND DELIVERY. The Guaranteeing Subsidiary agrees that
the Note Guarantees shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Note Guarantee.
4. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, stockholder or agent of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the Company
or any Guaranteeing Subsidiary under the Notes, any Note Guarantees, the
Indenture or this Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes.
5. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS
F-1
<PAGE> 109
OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION
WOULD BE REQUIRED THEREBY.
6. COUNTERPARTS The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
7. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
8. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Subsidiary and the Company.
F-2
<PAGE> 110
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _______________, ____
[Guaranteeing Subsidiary]
By:
--------------------------------
Name:
Title:
Worldtex, Inc.
By:
--------------------------------
Name:
Title:
IBJ Schroder Bank & Trust Company
as Trustee
By:
--------------------------------
Name:
Title:
<PAGE> 1
Exhibit 4.2
EXECUTION COPY
WORLDTEX, INC.
$175,000,000
9 5/8% SENIOR NOTES DUE 2007
PURCHASE AGREEMENT
November 20, 1997
NationsBanc Montgomery Securities, Inc.
BancAmerica Robertson Stephens
Interstate / Johnson Lane Corporation
c/o NationsBanc Montgomery Securities, Inc.
100 North Tryon Street
Charlotte, North Carolina 28255
Ladies and Gentlemen:
Worldtex, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to you (the "Initial Purchasers") $175,000,000 in aggregate
principal amount of its 9 5/8% Senior Notes due 2007 (the "Notes"). The Notes
will be fully and unconditionally guaranteed (the "Guarantees" and, collectively
with the Notes, the "Securities") on a senior unsecured basis, jointly and
severally, by each domestic subsidiary of the Company listed on the signature
page hereto (the "Guarantors"). The Securities are to be issued pursuant to an
indenture, dated as of December 1, 1997 (the "Indenture"), by and among the
Company, the Guarantors and IBJ Schroder Bank & Trust Company, as Trustee. As
used in this Agreement, references to the "Issuers" shall mean the Company and
the Guarantors and references to the Company's "subsidiaries" shall mean each of
the subsidiaries listed on Schedule A hereto.
The sale of the Securities to the Initial Purchasers will be made
without registration of the Securities under the Securities Act of 1933, as
amended (the "Securities Act"), in reliance upon exemptions from the
registration requirements of the Securities Act. You have advised the Issuers
that you will offer and sell the Securities purchased by you hereunder in
accordance with Section 3 hereof as soon as you deem advisable.
In connection with the sale of the Securities, the Issuers have
prepared a preliminary offering memorandum, dated October 30, 1997 (the
"Preliminary Memorandum") and a final offering memorandum, dated November 20,
1997 (the "Final Memorandum"). Each of the Preliminary Memorandum and the Final
Memorandum sets forth certain information concerning the Issuers and the
Securities. The Issuers hereby confirm that they have authorized the use of the
Preliminary Memorandum and the Final Memorandum, and any amendment or supplement
thereto furnished to you by the Issuers, in connection with the offer and sale
of the Securities by the Initial Purchasers. Unless stated to the contrary, all
references herein to the Final Memorandum are to the Final Memorandum at the
time of execution and delivery of this Agreement (the "Execution Time") and are
not meant to include any amendment or supplement, or any information
incorporated by reference therein, subsequent to the Execution Time.
The Initial Purchasers and their direct and indirect transferees
will be entitled to the
<PAGE> 2
benefits of the Registration Rights Agreement, to be entered into on the Closing
Date (the "Registration Rights Agreement"), pursuant to which the Issuers will
agree to use their best efforts to commence an offer to exchange the Securities
for Exchange Notes (the "Exchange Notes") and Guarantees thereof (together, the
"Exchange Securities") that have been registered under the Securities Act, and
that otherwise are identical in all respects to the Securities, or to cause a
shelf registration statement to become effective under the Securities Act and to
remain effective for the period designated in such Registration Rights
Agreement.
1. Representations and Warranties. The Issuers jointly and severally
represent and warrant to each Initial Purchaser as follows:
(a) The Preliminary Memorandum, at the date thereof, did not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Final
Memorandum, at the date hereof, does not, and at the Closing Date (as
defined below) will not (and any amendment or supplement thereto, at the
date thereof and at the Closing Date, will not), contain any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however that the Issuers
make no representation or warranty as to the information contained in or
omitted from the Preliminary Memorandum or the Final Memorandum, or any
amendment or supplement thereto, in reliance upon and in conformity with
information furnished in writing to the Issuers by or on behalf of the
Initial Purchasers specifically for inclusion therein.
(b) Neither the Issuers, nor any of their "Affiliates" (as defined
in Rule 501(b) of Regulation D under the Securities Act ("Regulation D")),
nor any person acting on their behalf has, directly or indirectly, made
offers or sales of any security, or solicited offers to buy any security,
under circumstances that would require the registration of the Securities
under the Securities Act, provided, that the Issuers make no
representation in this sentence regarding the Initial Purchasers. Neither
the Issuers, nor any of their Affiliates, nor any person acting on their
behalf has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with any
offer or sale of the Securities, provided, that the Issuers make no
representation in this sentence regarding the Initial Purchasers. The
Securities satisfy the eligibility requirements of Rule 144A(d)(3) under
the Securities Act. The Final Memorandum and each amendment or supplement
thereto, as of its date, contains the information specified in Rule
144A(d)(4) under the Act.
(c) None of the Issuers nor any of their respective Affiliates or
any person acting on its or their behalf (other than the Inial Purchasers,
as to whom the Issuers make no representation) has engaged or will engage
in any directed selling efforts within the meaning of Regulation S under
the Securities Act ("Regulation S") with respect to the Securities. The
Securities offered and sold in reliance on Regulation S have been and will
be offered and sold only in offshore transactions. The sale of the
Securities pursuant to Regulation S is not part of a plan or scheme by the
Issuers to evade the registration provisions of the Securities Act. No
registration under the Securities Act of the Securities is required for
the sale of the Securities to the Initial Purchasers as contemplated
hereby or for the Exempt Resales (as defined below) assuming the matters
set forth in clauses (b) through (e) of Section 7(g)(ii) below are
accurate. The Securities sold pursuant to Regulation S will initially be
represented by a temporary global security as required by Rule 903 of
Regulation S.
2
<PAGE> 3
(d) Neither the Company nor any of its subsidiaries is, or will be
after giving effect to the offering and sale of the Securities and the
application of the proceeds therefrom as described in the Final
Memorandum, an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company Act").
(e) Assuming the accuracy of the matters set forth in clauses (b)
through (e) of Section 7(g)(ii) below, (A) registration under the
Securities Act of the Securities or qualification of the Indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"),
is not required in connection with the offer and sale of the Securities to
the Initial Purchasers in the manner contemplated by the Final Memorandum
or this Agreement and (B) initial resales of the Securities by the Initial
Purchasers on the terms and in the manner set forth in the Final
Memorandum and Section 3 hereof are exempt from the registration
requirements of the Securities Act.
(f) Since the respective dates as of which information is given in
the Preliminary Memorandum and the Final Memorandum, except as otherwise
stated therein, (i) there has been no material adverse change in the
condition (financial or otherwise), results of operations, affairs or
business prospects of the Company and its subsidiaries considered as a
whole, whether or not arising in the ordinary course of business and (ii)
there have been no material transactions entered into by the Company or
any of its subsidiaries (collectively, a "Material Adverse Change").
(g) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its
incorporation with corporate power and authority to own, lease and operate
its properties and conduct its business as described in the Preliminary
Memorandum and the Final Memorandum; and the Company is duly qualified as
a foreign corporation to transact business and is in good standing in each
jurisdiction in which the conduct of its business requires such
qualification, except to the extent that the failure to be so qualified or
be in good standing would not, singly or in the aggregate, reasonably be
expected to have a material adverse effect on the financial condition,
results of operations, affairs or business prospects of the Company and
its subsidiaries considered as a whole (a "Material Adverse Effect").
(h) All of the outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Attached as Schedule A hereto is a complete and accurate
list of each subsidiary of the Company. Each of the Guarantors has been
duly incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Preliminary Memorandum and the
Final Memorandum and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which
the conduct of its business requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would
not, singly or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each subsidiary of the Company that is not a Guarantor was
duly organized and is validly existing under the laws of the jurisdiction
of its organization and has the power and authority to own, lease and
operate its properties and conduct its business as described in the
Preliminary and the Final Memorandum. All of the issued and outstanding
capital stock of each Guarantor has been duly authorized and validly
issued and is fully paid and nonassessable, and, except as described in
the Preliminary Memorandum and the Final Memorandum, all shares of capital
stock or other equity interests issued by each subsidiary are owned by the
Company, directly or through subsidiaries, free and clear of any mortgage,
pledge, lien, encumbrance, claim or security interest.
3
<PAGE> 4
(i) This Agreement has been duly authorized, executed and delivered
by the Issuers and constitutes the valid and binding agreement of the
Issuers, enforceable against the Issuers in accordance with its terms,
except that (i) enforcement thereof may be subject to (A) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law) and (ii) the enforceability of any indemnification or
contribution provisions thereof may be limited under applicable securities
laws or the public policies underlying such laws.
(j) The Notes have been duly authorized by the Company, and, when
executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial Purchasers in
accordance with this Agreement, will constitute the valid and binding
obligations of the Company enforceable against the Company in accordance
with their terms, and will be entitled to the benefits of the Indenture,
except that enforcement thereof may be subject to (A) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (B) general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(k) The Guarantees endorsed on the Notes have been duly authorized
by each Guarantor and, when the Notes are executed and authenticated in
accordance with the provisions of the Indenture and delivered to the
Initial Purchasers in accordance with this Agreement, the Guarantees will
constitute the valid and binding obligation of the Guarantors enforceable
against the Guarantors in accordance with their terms and will be entitled
to the benefits of the Indenture except that enforcement thereof may be
subject to (A) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and (B)
general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
(l) The Indenture has been duly authorized by the Issuers. When the
Securities are delivered and paid for pursuant to this Agreement on the
Closing Date, the Indenture will have been duly executed and delivered by
the Issuers and, assuming the due execution and delivery thereof by the
Trustee, will constitute a valid and binding agreement of the Issuers,
enforceable against the Issuers in accordance with its terms, except that
enforcement thereof may be subject to (A) bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
now or hereafter in effect relating to or affecting creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
(m) The Exchange Securities have been duly authorized and, when duly
executed, authenticated, issued and delivered, will be validly issued and
outstanding, and will constitute the valid and binding obligations of the
Issuers, entitled to the benefits of the Indenture and enforceable against
the Issuers in accordance with their terms except that enforcement thereof
may be subject to (A) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and (B)
general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
(n) The Registration Rights Agreement has been duly authorized by
the Company
4
<PAGE> 5
and the Guarantors and, when duly executed and delivered by the Issuers
(assuming the due execution and delivery by the Initial Purchasers), will
constitute a valid and binding agreement of the Issuers, enforceable
against the Issuers in accordance with its terms except that (i)
enforcement thereof may be subject to (A) bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
now or hereafter in effect relating to or affecting creditors' rights
generally and (B) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law) and (ii)
the enforceability of any indemnification or contribution provisions
thereof may be limited under applicable securities laws or the public
policies underlying such laws.
(o) On the Closing Date, the New Credit Facility (as defined in the
Final Memorandum) and the guarantee of the obligations thereunder by the
Guarantors (a) shall have been duly authorized, executed and delivered by
the Company and the Guarantors, respectively, and will constitute the
valid and binding agreement of the Company and the Guarantors,
respectively, enforceable against the Company and the Guarantors, as
applicable, in accordance with their terms except that (i) enforcement
thereof may be subject to (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally
and (B) general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law) and (ii) the
enforceability of any indemnification or contribution provisions thereof
may be limited under applicable securities laws or public policies; and
(b) shall be in full force and effect. On the Closing Date, no event of
default or event which, with the giving of notice or passage of time or
both, would constitute an event of default shall have occurred under the
New Credit Facility or the guarantees thereof by the Guarantors and all
conditions to the extension of credit thereunder still have been satisfied
without waiver.
(p) The Asset Purchase Agreement, dated October 29, 1997, among the
Company, Elastic Corporation of America, Inc. ("Buyer") and NFA Corp. (the
"Acquisition Agreement"), pursuant to which Buyer will purchase
substantially all of the assets of the Elastic Corporation of America
division of NFA Corp. ("ECA"), has been duly authorized, executed and
delivered by the Company and Buyer and constitutes the valid and binding
agreement of the Company and Buyer enforceable against the Company and
Buyer in accordance with its terms except as (i) enforcement thereof may
be subject to (A) bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally and (B)
general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law). The Acquisition Agreement
is in full force and effect and there exists no breach by any of the
Issuers (to the extent that each is a party thereto) or, to the knowledge
of the Issuers, any other party of any representation or covenant
thereunder and no facts have come to the attention of the Issuers (to the
extent that each is a party thereto) that have led such Issuers to believe
that the conditions to the consummation of the transactions contemplated
thereby will not be satisfied in accordance with the terms thereof.
(q) The execution, delivery and performance of this Agreement, the
Indenture, the Registration Rights Agreement, the Acquisition Agreement
and the New Credit Facility (as defined in the Final Memorandum) by the
Issuers (to the extent each is a party thereto), and the consummation of
the transactions contemplated hereby and thereby will not conflict with or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
or credit agreement or other agreement or instrument to which either the
Company or any of its subsidiaries is a party or by which the Company or
any of its subsidiaries is bound or to which any of the properties or
assets of the Company or any of its
5
<PAGE> 6
subsidiaries are subject (so long as the 7.5% Senior Notes due 2004 of the
Company are repaid and the Note Agreements relating thereto are terminated
as of the Closing), nor will such actions result in any violation of the
provisions of the charter or by-laws of the Company or any of its
subsidiaries or any statute to which they may be subject or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties or assets (except to the extent any such conflict, breach,
violation or default singly or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect); and except for such consents,
approvals, authorizations, registrations or qualifications as may be
required under applicable state securities and Blue Sky laws in connection
with the purchase and distribution of the Securities by the Initial
Purchasers or as set forth in the Registration Rights Agreement, the
Acquisition Agreement or the New Credit Facility, no consent, approval,
authorization or order of, or filing or registration with, any such court
or governmental agency or body is required for the execution, delivery and
performance of this Agreement, the Indenture, the Registration Rights
Agreement, the Acquisition Agreement and the New Credit Facility by the
Issuers (to the extent each is a party thereto), the consummation of the
transactions contemplated hereby and thereby, and the issuance and sale of
the Notes and Exchange Securities by the Issuers.
(r) Neither the Company nor any of its subsidiaries is in breach or
violation of any of the terms or provisions of any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the properties or
assets of the Company or any of its subsidiaries are subject, nor is the
Company or any of its subsidiaries in violation of the provisions of its
respective charter or by-laws or any statute or any judgment, order, rule
or regulation of any court or governmental agency or body having
jurisdiction over the Company, any of its subsidiaries or any of their
properties or assets (except to the extent any such conflict, breach,
violation or default is cured at or prior to the Closing Date and within
the grace period applicable thereto or would not, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect).
(s) As of the Closing Date, the Securities and the Indenture will
conform in all material respects to the descriptions thereof contained in
the Final Memorandum. As of the Closing Date, the provisions of the
Registration Rights Agreement, the Acquisition Agreement and the New
Credit Facility (as defined in the Final Memorandum), to the extent that
such provisions are summarized in the Final Memorandum, will conform in
all material respects to the descriptions thereof contained in the Final
Memorandum.
(t) Except as set forth in the Registration Rights Agreement, there
are no contracts, agreements or understandings between the Company or any
of its subsidiaries and any person granting such person the right to
require the Company or any of its subsidiaries to file a registration
statement under the Securities Act with respect to any securities owned or
to be owned by such person or to require the Company or any of its
subsidiaries to include such securities in any securities being registered
pursuant to any registration statement filed by the Company or any of its
subsidiaries under the Securities Act.
(u) Except as set forth in the Preliminary Memorandum and the Final
Memorandum, there is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending or, to
the knowledge of the Issuers, threatened against or affecting the Company
or any of its subsidiaries, which would, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect or materially and
adversely affect the
6
<PAGE> 7
offering of the Securities.
(v) The Company and each of its subsidiaries has good and
indefeasible title in fee simple to all real property and good and
indefeasible title to all personal property owned by it and necessary in
the conduct of the business of the Company or such subsidiary, in each
case free and clear of all liens, encumbrances and defects except (i) such
as are referred to in the Final Memorandum or (ii) such as do not
materially and adversely affect the value of such property to the Company
or such subsidiary, and do not interfere with the use made and proposed to
be made of such property by the Company or such subsidiary to an extent
that such interference would, singly or in the aggregate, reasonably be
expected to have a Material Adverse Effect. All leases to which the
Company or its subsidiaries is a party are valid and binding, and no
default has occurred or is continuing thereunder which could, singly or in
the aggregate, reasonably be expected to have a Material Adverse Effect or
materially and adversely affect the offering of the Securities, and the
Company and its subsidiaries enjoy peaceful and undisturbed possession
under all such leases to which any of them is a party as lessee (with such
exceptions as do not materially interfere with the use made by the Company
or such subsidiary or which would not, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect). The Company and
its subsidiaries possess adequate certificates, authorizations or permits
issued by the appropriate state, federal or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them, and except
as set forth in the Final Memorandum, neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit
which, singly or in the aggregate, would, singly or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(w) Each of KPMG Peat Marwick LLP, who have certified certain
financial statements of the Company and its subsidiaries, and Deloitte &
Touche LLP, who have certified certain financial statements of ECA, are
independent public accountants within the meaning of the Securities Act
and the rules and regulations thereunder. The financial statements
included in the Preliminary Memorandum and the Final Memorandum present
fairly in all material respects the consolidated financial position of (i)
the Company and its subsidiaries, on a consolidated basis, and (ii) ECA,
in each case as at the dates indicated and the results of their respective
operations and the changes in their consolidated financial position for
the periods specified, subject, in the case of the interim period
financial statements, to normal year-end adjustments; said financial
statements have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis during the periods
involved, except as indicated therein and except in the case of interim
financial statements for the absence of certain footnotes required by such
accounting principles, and comply as to form in all material respects with
the requirements applicable to such financial statements included in
registration statements under the Securities Act.
The pro forma financial statements included in the Preliminary
Memorandum and the Final Memorandum have been prepared on a basis
consistent with the historical financial statements of the Company and its
subsidiaries and give effect to assumption used in the preparation thereof
on a reasonable basis and in good faith and present fairly the historical
and proposed transactions contemplated by the Preliminary Memorandum and
the Final Memorandum; and such pro forma financial statements comply as to
form in all material respects with the requirements applicable to pro
forma financial statements included in registration statements on Form S-1
under the Act. The other pro forma financial and statistical information
and data included in the Preliminary Memorandum and the Final Memorandum
are, in all material respects, accurately presented and prepared on a
basis consistent with the pro forma
7
<PAGE> 8
financial statements.
The historical and pro forma financial statements included in
the Preliminary Memorandum and the Final Memorandum include all of the
financial statements that would be required to be included in a
registration statement on Form S-1 under the Securities Act.
(x) Neither the Company nor any of its subsidiaries is now or, after
giving effect to the issuance of the Securities, and the application of
the proceeds thereof, will be (i) insolvent, (ii) left with unreasonably
small capital with which to engage in its anticipated businesses or (iii)
incurring debts beyond its ability to pay such debts as they become due.
(y) Except as would not reasonably be expected to have a Material
Adverse Effect, the Company and its subsidiaries own, or otherwise possess
the right to use, all patents, trademarks, service marks, trade names and
copyrights, all applications and registrations for each of the foregoing,
and all other proprietary rights and confidential information used in the
conduct of their respective businesses as currently conducted; and neither
the Company nor any of its subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with the rights of any
third party with respect to any of the foregoing which, singly or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
(z) The Company and its subsidiaries are (i) in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms
and conditions of such permits, licenses or approvals would not, singly or
in the aggregate, reasonably be expected to have a Material Adverse
Effect.
(aa) No labor problem or disturbance with the employees of the
Company or any of its subsidiaries exists or, to the knowledge of the
Issuers, is threatened which, singly or in the aggregate, would reasonably
be expected to have a Material Adverse Effect.
(ab) Neither the Company nor any of its subsidiaries, nor, to any
Issuers' knowledge, any director, officer, agent, employee, stockholder or
other person, in any such case, acting on behalf of the Company or any of
its subsidiaries, has used any corporate funds during the last five years
for any unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity; made any unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the Foreign Corrupt
Practices Act of 1977, as amended; or made any bribe, payoff, influence
payment, kickback or other payment that is unlawful, except in the case of
any of the foregoing where such action or activity would not have a
Material Adverse Effect.
(ac) Neither the Company nor any of its subsidiaries has taken, and
none of them will take, any action that would cause this Agreement or the
issuance or sale of the Securities and Exchange Securities to violate
Regulation G, T, U or X of the Board of Governors of the Federal Reserve
System or analogous foreign laws and regulations.
8
<PAGE> 9
(ad) Other than as set forth on Schedule B hereto or as filed by the
Company as an exhibit to its Annual Report on Form 10-K for 1996 or any
subsequently filed Quarterly Report on Form 10-Q, neither the Company nor
any subsidiary is a party to any contract or agreement that would be
required to be filed with the Commission as an exhibit to a registration
statement on Form S-1 pursuant to entries (2), (4) and (10) of the Exhibit
Table of Item 601 of Regulation S-K under the Securities Act.
(ae) No Issuer or Affiliate of any Issuer has sold, offered for sale
or solicited offers to buy or otherwise negotiated in respect of any
security (as defined in the Securities Act) in a transaction would require
the registration under the Securities Act of the Securities.
(af) Neither the Company nor any subsidiary is a "public utility" or
a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
2. Purchase and Sale. On the basis of the representations and
warranties contained in, and subject to the terms and conditions of, this
Agreement, the Issuers agree to sell to the Initial Purchasers and each of the
Initial Purchasers agrees to purchase the aggregate principal amount of
Securities set forth opposite its name as shown in Schedule C hereto, at a
purchase price equal to 97.125% of the principal amount thereof, plus accrued
interest, if any, from December 1, 1997. The Initial Purchasers shall pay the
Company in an amount equal to $968,750 for certain costs and expenses in
connection with the offering of the Securities and Exchange Securities.
The Issuers shall not be obligated to deliver any of the Securities
to be delivered except upon payment for all the Securities to be purchased as
provided herein.
3. Sale and Resale of the Securities by the Initial Purchaser. Each
of the Initial Purchasers represents and warrants to the Issuers that:
(a) It will offer the Securities to be purchased hereunder for
resale only upon the terms and conditions set forth in this Agreement and
in the Final Memorandum.
(b) It (i) will not solicit offers for, or offer or sell, the
Securities by means of any form of general solicitation or general
advertising within the meaning of Regulation D or in any manner involving
a public offering within the meaning of Section 4(2) of the Securities
Act, and (ii) will solicit offers for the Securities only from, and will
offer, sell or deliver (the "Exempt Resales") the Securities, as part of
its distribution thereof, only to the following persons (each an "Eligible
Purchaser") (A) persons whom such Initial Purchaser and any person acting
on behalf of such Initial Purchaser reasonably believe to be qualified
institutional buyers ("QIBs") as defined in Rule 144A under the Securities
Act, as such rule may be amended from time to time ("Rule 144A") and, if
any such person is buying for one or more institutional accounts for which
such person is acting as fiduciary or agent, only when such person has
represented to such Initial Purchaser that each such account is a QIB, in
each case, to whom notice has been given that such sale or delivery is
being made in reliance on Rule 144A, (B) to a limited number of
institutional accredited investors as defined in Rule 501(a) (1), (2), (3)
or (7) under Regulation D ("Accredited Investors") that, prior to their
purchase of the Securities, executes and delivers a letter containing
certain representations and agreements in the form attached as Annex A to
the Final Memorandum and (C) outside the United States in offshore
transactions in reliance on Regulation S.
(c) With respect to Securities sold in reliance on Regulation S, (i)
neither such Initial
9
<PAGE> 10
Purchaser nor any of its affiliates nor anyone acting on its behalf has
offered or sold, or will offer or sell, any Securities by means of any
directed selling efforts (as defined in Rule 902 of Regulation S) in the
United States, (ii) all offers and sales of the Securities prior to the
expiration of 40 days after the later of the date of commencement of the
offering of Securities and the Closing Date (as defined below) (the
"restricted period") shall be made only in accordance with the provisions
of Rules 903 or 904 under Regulation S, pursuant to registration of the
Securities under the Securities Act or pursuant to an available exemption
from the registration requirements of the Securities Act and (iii) at or
prior to confirmation of all sales of Securities made in reliance on
Regulation S, it will have sent to each distributor, dealer or person
receiving a selling concession, fee or other remuneration that purchases
the Securities from it during the restricted period a confirmation or
notice to substantially the following effect:
"The Securities covered hereby have not been registered under the
U.S. Securities Act of 1933 (the "Securities Act") and may not be
offered or sold within the United States or to, or for the account
or benefit of, U.S. persons (i) as part of a distribution thereof at
any time or (ii) otherwise until 40 days after the later of the date
of the commencement of the offering and the closing date, except in
either case in accordance with an exemption from or in a transaction
not subject to the Securities Act. Terms used above have the
meanings given them by Regulation S."
The sale of the Securities to non-U.S. persons in offshore transactions is
not part of a plan or scheme to avoid the registration requirements of the
Securities Act. Terms defined for purposes of Regulation S and used in
this subsection (c) have such respective defined meanings.
(d) (i) It has not solicited, and will not solicit, offers to
purchase any of the Securities from, (ii) it has not sold, and will not
sell, any of the Securities to, and (iii) it has not distributed, and will
not distribute, the Preliminary Memorandum or the Final Memorandum to, any
person or entity in any jurisdiction outside of the United States except,
in each case, in compliance in all material respects with all applicable
laws of such jurisdiction. For purposes of this Agreement, "United States"
means the United States of America, its territories, its possessions
(including the Commonwealth of Puerto Rico), and other areas subject to
its jurisdiction.
(e) Unless prohibited by applicable law, (i) it will furnish to each
person to whom it offers any Securities, a copy of the Preliminary
Memorandum or Final Memorandum or (unless delivery of such Preliminary
Memorandum is required by applicable law) shall inform each such person
that a copy of such Preliminary Memorandum or the Final Memorandum will be
available upon request and (ii) it will furnish to each person to whom it
sells Securities a copy of the Final Memorandum (as then amended or
supplemented by applicable law) and shall inform each such person that a
copy of such Final Memorandum will be available upon request.
(f) It and each of its affiliates has not entered and will not enter
into any contractual arrangement with any distributor (as that term is
defined for purposes of Regulation S) with respect to the distribution of
the Securities except for any such arrangements with the other Initial
Purchasers or affiliates of the other Initial Purchasers or with the prior
written consent of the Company.
(g) It is an "accredited investor" within the meaning of Regulation
D.
4. Delivery of and Payment for the Notes. Delivery of and payment
for the
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<PAGE> 11
Securities (the "Closing") shall be made at the office of Hughes Hubbard & Reed
LLP, One Battery Park Plaza, New York, New York at 9:00 A.M., New York City
time, on December 1, 1997, or at such other date or place as shall be determined
by agreement between the Initial Purchasers and the Company. This date and time
are sometimes referred to as the "Closing Date." On the Closing Date, the
Issuers shall deliver or cause to be delivered the Securities to the Initial
Purchasers for the account of the Initial Purchasers against payment to or upon
the order of the Company of the purchase price by wire transfer in federal
(same-day) funds. Time shall be of the essence, and delivery at the time and
place specified pursuant to this Agreement is a further condition of the
obligation of the Initial Purchasers hereunder. Upon delivery, the Securities
shall be in definitive fully registered form and registered in the name of Cede
& Co., as nominee of the Depositary Trust Company ("DTC"), or such other name or
names and in such denominations as the Initial Purchasers shall request in
writing not less than one business day prior to the Closing Date. For the
purpose of expediting the checking and packaging of the Securities, the Issuers
shall make the Securities available for inspection by the Initial Purchasers in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the Closing Date.
5. Further Agreements of the Issuers. The Issuers jointly and
severally agree with each Initial Purchaser as set forth below in this Section
5:
(a) The Issuers will furnish to the Initial Purchasers,
without charge, as many copies of the Final Memorandum and any supplements
and amendments thereto as they may reasonably request.
(b) Prior to making any amendment or supplement to the
Preliminary Memorandum or the Final Memorandum, the Issuers shall furnish
a copy thereof to the Initial Purchasers and counsel to the Initial
Purchasers and will not effect any such amendment or supplement to which
the Initial Purchasers shall reasonably object by notice to the Company
after a reasonable period of review.
(c) If, at any time prior to completion of the distribution of
the Securities by the Initial Purchasers, any event shall occur or
condition exist as a result of which it is necessary, in the opinion of
counsel for the Initial Purchasers or counsel for the Issuers, to amend or
supplement the Final Memorandum in order that the Final Memorandum will
not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading in light of the circumstances existing at the time it is
delivered to a purchaser, or if it is necessary to amend or supplement the
Final Memorandum to comply with applicable law, the Issuers will promptly
prepare such amendment or supplement as may be necessary to correct such
untrue statement or omission or so that the Final Memorandum, as so
amended or supplemented, will comply with applicable law and furnish to
the Initial Purchasers such number of copies of such amendment or
supplement as they may reasonably request.
(d) So long as any Securities are outstanding and are
"Restricted Securities" within the meaning of Rule 144(a)(3) under the
Securities Act and during any period in which the Issuers are not subject
to Section 13 or 15(d) of the Exchange Act of 1934, as amended (the
"Exchange Act"), the Issuers will furnish to holders of the Securities and
prospective purchasers of Securities designated by such holders, upon
request of such holders or such prospective purchasers, the information,
if any, required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
(e) So long as the Securities and Exchange Securities are
outstanding, the Issuers will furnish to the Initial Purchasers copies of
any annual reports, quarterly reports and
11
<PAGE> 12
current reports filed with the Securities and Exchange Commission ("SEC")
on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be
designated by the SEC, and such other documents, reports and information
as shall be furnished by the Issuers to the Trustee or to the holders of
the Securities and Exchange Securities pursuant to the Indenture.
(f) The Issuers will use their best efforts to qualify the
Securities for sale under the securities or Blue Sky laws of such
jurisdictions as the Initial Purchasers reasonably designate and to
continue such qualifications in effect so long as reasonably required for
the distribution of the Securities. The Issuers will also arrange for the
determination of the eligibility for investment of the Securities under
the laws of such jurisdictions as the Initial Purchasers reasonably
request. Notwithstanding the foregoing, the Issuers shall not be obligated
to qualify as a foreign corporation in any jurisdiction in which they are
not so qualified or to file a general consent to service of process or to
subject themself to taxation in respect of doing business in any
jurisdiction in which it is not otherwise subject.
(g) The Issuers will use their best efforts to permit the
Securities to be designated PORTAL securities in accordance with the rules
and regulations adopted by the National Association of Securities Dealers,
Inc. relating to trading in the PORTAL market and to permit the Securities
to be eligible for clearance and settlement through DTC.
(h) Except following the effectiveness of any Registration
Statement (as defined in the Registration Rights Agreement) and except for
such offers as may be made as a result of, or subsequent to, filing such
Registration Statement or amendments thereto prior to the effectiveness
thereof, the Issuers will not, and will cause their Affiliates not to,
solicit any offer to buy or offer to sell the Securities by means of any
form of general solicitation or general advertising (as those terms are
used in Regulation D under the Securities Act) or in any manner involving
a public offering within the meaning of Section 4(2) of the Securities
Act.
(i) The Company will consummate the transactions contemplated
by the Acquisition Agreement in accordance with the terms thereof but
subject to the satisfaction of the conditions thereof, and apply the net
proceeds from the sale of the Securities, in each case, as set forth in
the Final Memorandum.
(j) The Issuers will take such steps as shall be necessary to
ensure that neither the Company nor any of its subsidiaries shall become
(i) an "investment company" within the meaning of the Investment Company
Act, or (ii) a "holding company" or a "subsidiary company" or an
"affiliate" of a holding company within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
(k) The Company and its subsidiaries will not, and will cause
their affiliates not to, take any action that would require the
registration under the Securities Act of the Securities (other than
pursuant to the Registration Rights Agreement) including, without
limitation, (i) engaging in any directed selling efforts (within the
meaning of Regulation S) during any applicable restricted period or (ii)
offering any other securities in a manner that would be integrated with
the transactions contemplated hereby and thereby require such
registration.
(l) Prior to the consummation of the Exchange Offer or the
effectiveness of an applicable shelf registration statement if, in the
reasonable judgment of the Initial Purchasers, the Initial Purchasers or
any of their affiliates are required to deliver an offering memorandum in
connection with sales of, or market-making activities with respect to, the
Securities, (A) the
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Issuers will periodically amend or supplement the Final Memorandum so that
the information contained in the Final Memorandum complies with the
requirements of Rule 144A of the Securities Act, (B) the Issuers will
amend or supplement the Final Memorandum when necessary to reflect any
material changes in the information provided therein so that the Final
Memorandum will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances existing as of the date the Final
Memorandum is so delivered, not misleading and (C) the Issuers will
provide the Initial Purchasers with copies of each such amended or
supplemented Final Memorandum, as the Initial Purchasers may reasonably
request.
The Issuers hereby expressly acknowledge that the indemnification
and contribution provisions of Section 8 hereof are specifically
applicable and relate to each offering memorandum, registration statement,
prospectus, amendment or supplement referred to in this Section 5(l).
(m) The Issuers will do all things reasonably necessary to
satisfy the closing conditions set forth in Section 7 hereof.
6. Expenses. The Issuers, jointly and severally, agree to pay (other
than any transfer taxes and fees and disbursements of counsel for the Initial
Purchasers, except as set forth under Section 9 below and clause (d) of this
Section) (a) the costs incident to the authorization, issuance, sale and
delivery of the Securities and Exchange Securities and any issue or stamp taxes
payable in that connection; (b) the costs incident to the preparation and
printing of the Preliminary Memorandum, the Final Memorandum and any amendments,
supplements and exhibits thereto; (c) the costs of distributing the Preliminary
Memorandum, the Final Memorandum and any amendment or supplement thereto; (d)
the fees and expenses of qualifying the Securities and Exchange Securities under
the securities laws of the several jurisdictions as provided in Section 5(f) and
of preparing, printing and distributing a Blue Sky Memorandum (including
reasonable related fees and expenses of counsel to the Initial Purchasers); (e)
the cost of printing the Securities and the Exchange Securities; (f) the fees
and expenses of the Trustee and any agent of the Trustee and the fees and
disbursements of any counsel for the Trustee in connection with the Indenture
and the Securities and Exchange Securities; (g) any fees paid to rating agencies
in connection with the rating of the Securities and Exchange Securities; (h) the
costs and expenses of DTC and its nominee, including its book-entry system; (i)
all expenses and listing fees incurred in connection with the application for
quotation of the Securities on the PORTAL market; and (j) all other costs and
expenses incident to the performance of the obligations of the Issuers under
this Agreement.
7. Conditions of Initial Purchaser's Obligations. The obligations of
the Initial Purchasers to purchase the Securities shall be subject to the
accuracy of the representations and warranties on the part of the Issuers
contained herein at the Execution Time and the Closing Date, to the accuracy of
the statements of the Issuers made in any certificates pursuant to the
provisions hereof, to the performance by the Issuers of their obligations
hereunder in all material respects and to the following additional conditions:
(a) The Initial Purchasers shall not have discovered and
disclosed to the Company that, as of the Closing Date, the Final
Memorandum, together with any amendment or supplement thereto contains an
untrue statement of a fact which, in the opinion of Latham & Watkins,
counsel for the Initial Purchasers, is material or omits to state a fact
which, in the opinion of such counsel, is material and is necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
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<PAGE> 14
(b) The Final Memorandum shall have been printed and copies
distributed to the Initial Purchasers as soon as practicable but in no
event later than on the Business Day following the date of this Agreement
or at such later date and time as to which the Initial Purchasers may
agree, and no stop order suspending the qualification or exemption from
qualification of the Securities in any jurisdiction referred to in Section
5(f) shall have been issued and no proceeding for that purpose shall have
been commenced or shall be pending or threatened.
(c) No action shall have been taken and no statute, rule,
regulation or order shall have been enacted, adopted or issued by any
governmental agency which would, as of the Closing Date, singly or in the
aggregate, reasonably be expected to have a Material Adverse Effect; no
action, suit or proceeding shall have been commenced and be pending
against or affecting or, to the knowledge of the Company, threatened
against, the Company or any of its subsidiaries before any court or
arbitrator or any governmental body, agency or official that, singly or in
the aggregate, if adversely determined, would reasonably be expected to
result in a Material Adverse Effect; and no stop order shall have been
issued by the SEC or any governmental agency of any jurisdiction referred
to in Section 5(f) preventing the use of the Final Memorandum, or any
amendment or supplement thereto, or which would reasonably be expected to
have a Material Adverse Effect.
(d) Since the dates as of which information is given in the
Final Memorandum and other than as set forth in the Final Memorandum, (i)
there shall not have been any Material Adverse Change, or any development
that is reasonably likely to result in a Material Adverse Change, or any
material change in the long-term debt, or material increase in the
short-term debt, from that set forth in the Final Memorandum; (ii) no
dividend or distribution of any kind shall have been declared, paid or
made by the Company on any class of its capital stock; (iii) the Company
and its subsidiaries shall not have incurred any liabilities or
obligations, direct or contingent, that are material, individually or in
the aggregate, to the Company and its subsidiaries, taken as a whole, and
that are required to be disclosed on a balance sheet or notes thereto in
accordance with generally accepted accounting principles and are not
disclosed on the latest balance sheet or notes thereto included in the
Final Memorandum.
(e) The Initial Purchasers shall have received a certificate,
dated the Closing Date, signed on behalf of the Company by (i) Mitchell R.
Setzer, Treasurer and (ii) Richard J. Mackey, Chairman of the Board and
Chief Financial Officer, confirming that (A) such officers have
participated in conferences with other officers and representatives of the
Issuers, representatives of the independent public accountants of the
Issuers and representatives of counsel to the Issuers at which the
contents of the Final Memorandum and related matters were discussed and
(B) the matters set forth in paragraphs (b), (c) and (d) of this Section 7
are true and correct as of the Closing Date.
(f) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Securities,
the Exchange Securities, the Indenture, the Registration Rights Agreement,
the Final Memorandum, the New Credit Facility, the Acquisition Agreement
and all other legal matters relating to this Agreement and the
transactions contemplated hereby and thereby, shall be reasonably
satisfactory in all material respects to counsel for the Initial
Purchasers, and the Issuers shall have furnished to such counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters.
(g) Hughes Hubbard & Reed LLP, counsel for the Issuers, shall
have
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<PAGE> 15
furnished to the Initial Purchasers its written opinion (containing
customary qualifications, limitations and assumptions that shall be
reasonably satisfactory in all material respects to the Initial
Purchasers' counsel), addressed to the Initial Purchasers and dated the
Closing Date, in form and substance reasonably satisfactory to the Initial
Purchasers, with respect to the Federal laws of the United States, the
laws of the State of New York and the General Corporation Law of the State
of Delaware, to the effect that:
(i) The Company and each of the Guarantors is validly
existing as a corporation and is in good standing under the laws of
its jurisdiction of incorporation.
(ii) Assuming, (a) the accuracy of and compliance with
the representations, warranties and covenants of the Issuers set
forth in Section 1 of this Agreement, (b) the accuracy of and
compliance with the Initial Purchasers' representations, warranties
and covenants set forth in this Agreement, (c) the accuracy of the
representations and warranties and performance of the agreements of
each of the purchasers to whom you initially resell the Securities
as contemplated by the Final Memorandum, (d) compliance with the
offering and transfer procedures and restrictions described in the
Final Memorandum and (e) receipt by the purchasers to whom you
initially resell the Securities of a copy of the Final Memorandum
prior to such sale, the offer, issuance, sale and delivery of the
Securities to the Initial Purchasers, and the initial reoffer,
resale and delivery of the Securities by the Initial Purchasers as
part of their initial distribution thereof, as contemplated by this
Agreement and the Final Memorandum, do not require registration
under the Securities Act, or qualification of the Indenture under
the Trust Indenture Act, it being understood that no opinion is
expressed as to any subsequent resale of Securities or any resale of
Securities by any person other than the Initial Purchasers.
(iii) Each of the Company and the Guarantors has the
corporate power and authority to execute and deliver, and to
consummate the transactions contemplated by, this Agreement; the
Company has the corporate power and authority to issue and deliver
the Notes as contemplated by this Agreement; and the Guarantors have
the corporate power and authority to issue and deliver the
Guarantees as contemplated by this Agreement.
(iv) The execution and delivery of this Agreement have
been duly authorized by all requisite corporate action of the
Company and each Guarantor, and this Agreement has been duly
executed and delivered by the Company and each Guarantor.
(v) The execution and delivery of the Indenture have
been duly authorized by all requisite corporate action of the
Company and each Guarantor; and the Indenture has been duly executed
and delivered by the Company and each Guarantor, and assuming due
authorization, execution and delivery by the Trustee, is a valid and
binding agreement of the Company and each Guarantor, enforceable
against the Company and each Guarantor in accordance with its terms,
except that enforcement thereof may be subject to (A) bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws now or hereafter in effect relating to or
affecting creditors' rights generally and (B) general principles of
equity (regardless of whether enforceability is considered in a
proceeding in equity or at law) and the exercise of discretionary
authority of any court before which a proceeding may be brought.
(vi) The execution and delivery of the Notes have been
duly
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<PAGE> 16
authorized by all requisite corporate action of the Company and the
execution and delivery of the Guarantees endorsed on the Notes have
been duly authorized by all requisite corporate action of each of
the Guarantors; the Notes have been duly executed and delivered by
the Company and the Guarantees endorsed on the Notes have been duly
executed and delivered by the Guarantors and, assuming due
authentication by the Trustee, the Notes and the Guarantees endorsed
on the Notes are valid and binding obligations of the Company and
each of the Guarantors, respectively, entitled to the benefits of
the Indenture, enforceable against the Company and each of the
Guarantors in accordance with their terms, except that enforcement
thereof may be subject to (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights
generally and (B) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at
law) and the exercise of discretionary authority of any court before
which a proceeding may be brought.
(vii) The execution and delivery of the Exchange Notes
have been duly authorized by all requisite corporate action of the
Company, and the execution and delivery of the Guarantees endorsed
on the Exchange Notes have been duly authorized by all requisite
corporate action of each of the Guarantors; and, when the Exchange
Notes are duly executed and delivered by the Company and duly
authenticated by the Trustee and the Guarantees endorsed on the
Exchange Notes are duly executed and delivered by each of the
Guarantors, the Exchange Notes will be valid and binding obligations
of the Company and the Guarantees endorsed on the Exchange Notes
will be valid and binding obligations of each of the Guarantors,
entitled to the benefits of the Indenture, enforceable against the
Company and each of the Guarantors, respectively, in accordance with
their terms, except that enforcement thereof may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and (B) general
principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law) and the exercise of
discretionary authority of any court before which a proceeding may
be brought.
(viii) The execution and delivery of the Registration
Rights Agreement have been duly authorized by all requisite
corporate action of the Company and each of the Guarantors; the
Registration Rights Agreement has been duly executed and delivered
by the Company and each of the Guarantors and, assuming due
authorization, execution and delivery by the Initial Purchasers, the
Registration Rights Agreement is a valid and binding agreement of
the Company and each of the Guarantors, enforceable against the
Company and each of the Guarantors in accordance with its terms,
except that (i) enforcement thereof may be subject to (A)
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and (B) general
principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law) and the exercise of
discretionary authority of any court before which a proceeding may
be brought and (ii) the validity and enforceability of any
indemnification or contribution provisions thereof may be limited
under applicable securities laws or public policies.
(ix) The execution and delivery of the New Credit
Facility have been duly authorized by all requisite corporate action
of the Company and each of the Guarantors; and the New Credit
Facility has been duly executed and delivered by the
16
<PAGE> 17
Company and each of the Guarantors and, assuming the due
authorization, execution and delivery by the other parties thereto,
is a valid and binding agreement of the Company and each of the
Guarantors, enforceable against each of the Company and the
Guarantors in accordance with its terms, except that enforcement
thereof may be subject to (A) bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws now or
hereafter in effect relating to or affecting creditors' rights
generally and (B) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at
law) and the exercise of discretionary authority of any court before
which a proceeding may be brought.
(x) The execution and delivery by the Company and each
of the Guarantors of this Agreement, the Indenture, the Registration
Rights Agreement, the New Credit Facility and, in the case of the
Company and Buyer, the Acquisition Agreement, the consummation by
the Company and the Guarantors of the transactions contemplated
hereby and thereby and by the Final Memorandum will not (A) to the
knowledge of such counsel, result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
agreement or instrument of the Company or any of its subsidiaries
filed as an exhibit to the Company's Annual Report on Form 10-K for
1996 or any subsequently filed Quarterly Report on Form 10-Q of the
Company, assuming that the Existing Credit Facility (as defined in
the Final Memorandum) and the Note Agreements relating to the
Company's 7.50% Senior Notes due 2004 are terminated and all amounts
due thereunder are paid prior to the Closing or (B) result in any
violation of the provisions of the charter or bylaws of the Company
or any of the Guarantors, or, to the knowledge of such counsel, any
applicable law, rule or regulation (other than Securities Laws (as
defined below) as to which an opinion is given in paragraph (ii)
above) with respect to the Company or any of the Guarantors or, to
the knowledge of such counsel, any rule or regulation (other than
Securities Laws (as defined below) as to which an opinion is given
in paragraph (ii) above) or order of any court or governmental
agency having jurisdiction over the Company or any of the
Guarantors, except for such violations that would not, singly or in
the aggregate, reasonably be expected to have a Material Adverse
Effect; and, to the knowledge of such counsel, except (A) for such
consents, approvals or authorizations of, or filings, registrations
or qualifications with, governmental authorities as may be required
under the Securities Act and the rules and regulations thereunder,
the Trust Indenture Act and the rules and regulations thereunder or
applicable states securities or Blue Sky laws, rules or regulations
(all of such laws, rules and regulations are collectively referred
to herein as "Securities Laws") in connection with the purchase and
distribution of the Securities by the Initial Purchasers and (B) as
set forth in, and in order to consummate the transactions
contemplated by, the Registration Rights Agreement, the New Credit
Facility or the Acquisition Agreement, no consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required in connection with
the execution and delivery by the Company and the Guarantors of this
Agreement, the Indenture, the Registration Rights Agreement, in the
case of the Company and Buyer, the Acquisition Agreement or the New
Credit Facility, the consummation by the Company and the Guarantors
of the transactions contemplated hereby and thereby and the issuance
and sale of the Securities and Exchange Securities by the Company
and the Guarantors.
(xi) The Indenture, the Securities, the Registration
Rights Agreement and the New Credit Facility conform in all material
respects to the description thereof contained in the Final
Memorandum.
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<PAGE> 18
(xii) To such counsel's knowledge, no legal or
governmental proceedings are pending to which the Company or any of
its subsidiaries is a party that would be required under the
Securities Act to be described in a registration statement on Form
S-1 or a prospectus contained therein delivered at the time of the
confirmation of the sale of an offering of securities registered
under the Securities Act that are not described in the Final
Memorandum, or, to such counsel's knowledge, that seek to restrain,
enjoin, prevent the consummation of or otherwise challenge the
issuance or sale of the Securities to the Initial Purchasers or the
consummation of the transactions described in the Final Memorandum
under the caption "Use of Proceeds."
(xiii) The Company is not subject to registration and
regulation as an "investment company" within the meaning of the
Investment Company Act.
(xiv) When the Securities are issued and delivered
pursuant to this Agreement, such Securities will not be of the same
class (within the meaning of Rule 144A(d)(3) under the Securities
Act) as securities of the Company or any of its subsidiaries (other
than ECA) that are listed on a national securities exchange
registered under Section 6 of the Exchange Act or quoted on an
automated inter-dealer quotation system.
(xv) Neither the issuance nor the sale of the Securities
nor the application by the Company of the net proceeds thereof as
set forth in the Final Memorandum will violate Regulation G, T, U or
X of the Board of Governors of the Federal Reserve System.
In addition, such counsel shall also state that such counsel has
participated in conferences with officers and representatives of the
Issuers, representatives of the independent public accountants for the
Issuers and the Initial Purchasers and their counsel at which the contents
of the Final Memorandum and related matters were discussed and, although
such counsel is not passing upon and does not assume any responsibility
for and has not verified the accuracy, completeness or fairness of the
statements contained in the Final Memorandum, and has not made any
independent check or verification thereof, on the basis of the foregoing
(relying as to materiality to the extent they deemed appropriate upon
facts provided by officers and other representatives of the Issuers), no
facts have come to the attention of such counsel that lead such counsel to
believe that the Final Memorandum, as of its date or the Closing Date,
contained an untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need express no belief or opinion with
respect to the financial statements and notes thereto and other financial
and statistical data included therein).
(h) You shall have received on the Closing Date an opinion of
Latham & Watkins, counsel for the Initial Purchasers, dated the Closing
Date and addressed to you, in form and substance reasonably satisfactory
to you.
(i) The Issuers and the Trustee shall have entered into the
Indenture and the Initial Purchasers shall have received counterparts,
conformed as executed, thereof.
(j) The Issuers and the Initial Purchasers shall have entered
into the Registration Rights Agreement and the Initial Purchasers shall
have received counterparts,
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conformed as executed, thereof.
(k) The Issuers shall have entered into the New Credit
Facility (the form and substance of which shall be reasonably acceptable
to the Initial Purchasers) and the Initial Purchasers shall have received
counterparts, conformed as executed, thereof and of all other documents
and agreements entered into in connection therewith. There shall exist at
and as of the Closing Date no conditions that would constitute a default
(or an event that with notice or the lapse of time, or both, would
constitute a default) under the New Credit Facility. On the Closing Date,
the New Credit Facility shall be in full force and effect and shall not
have been modified.
(l) At the Execution Time and at the Closing Date, KPMG Peat
Marwick LLP and Deloitte & Touche LLP shall have furnished to the Initial
Purchasers a letter or letters, dated respectively as of the Execution
Time and as of the Closing Date, in form and substance reasonably
satisfactory to the Initial Purchasers, confirming that they are
independent accountants within the meaning of the Securities Act and the
Exchange Act and the applicable rules and regulations thereunder and Rule
101 of the Code of Professional Conduct of the American Institute of
Certified Public Accountants (the "AICPA") and otherwise reasonably
satisfactory in form and substance to the Initial Purchasers and their
counsel.
(m) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest financial statements included
in the Final Memorandum losses or interferences with their businesses,
taken as a whole, from fire, explosion, flood or other calamity, whether
or not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Final Memorandum and (ii) since such date there shall
not have been any change in the capital stock or long-term debt of the
Company or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company or its subsidiaries, taken as a whole, otherwise
than as set forth or contemplated in the Final Memorandum, the effect of
which, in any such case described in clause (i) or (ii), is, in the
reasonable judgment of the Initial Purchasers, so material and adverse as
to make it impracticable or inadvisable to proceed with the offering or
the delivery of the Securities being delivered on the Closing Date on the
terms and in the manner contemplated herein and in the Final Memorandum.
(n) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or The NASDAQ Stock
Market's National Market or in the over-the-counter market shall have been
suspended or materially limited, or minimum prices shall have been
established on such exchange by the SEC, or by such exchange or by any
other regulatory body or governmental authority having jurisdiction, (ii)
a banking moratorium shall have been declared by Federal or state
authorities, (iii) the United States shall have become engaged in
hostilities, there shall have been an escalation in hostilities involving
the United States or there shall have been a declaration of a national
emergency or war by the United States or (iv) there shall have occurred
such a material adverse change in general economic, political or financial
conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the
reasonable judgment of the Initial Purchasers, impracticable or
inadvisable to proceed with the offering or delivery of the Securities
being delivered on the Closing Date on the terms and in the manner
contemplated herein and in the Final Memorandum.
(o) As of the Closing Date, no "nationally recognized
statistical rating
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<PAGE> 20
organization" as such term is defined for purposes of Rule 436(g)(2) under
the Securities Act (i) will have imposed (or will have informed the
Company or any Guarantor that it is considering imposing) any condition
(financial or otherwise) on the Company's or any Guarantor's retaining any
rating assigned to the Company or any Guarantor, any securities of the
Company or any Guarantor or (ii) will have indicated to the Company or any
Guarantor that it is considering (a) the downgrading, suspension, or
withdrawal of, or any review for a possible change that does not indicate
the direction of the possible change in, any rating so assigned or (b) any
change in the outlook for any rating of the Company, any Guarantor or any
securities of the Company or any Guarantor.
(p) Latham & Watkins shall have been furnished with such
documents, in addition to those set forth above, as they may reasonably
require for the purpose of enabling them to review or pass upon the
matters referred to in this Section 7 and in order to evidence the
accuracy, completeness or satisfaction in all material respects of any of
the representations, warranties or conditions herein contained.
(q) As of the Closing Date, the acquisition of ECA by Buyer
shall have been consummated.
(r) The Company shall have furnished to the Initial Purchasers
evidence satisfactory to them that all Indebtedness contemplated to be
repaid with the proceeds of the offering of the Notes has either (i) been
repaid on the Closing Date or (ii) irrevocably called for redemption on
the Closing Date and the funds to be used for such redemption deposited
into a trust or escrow for such purpose on terms satisfactory to the
Initial Purchasers.
(s) Prior to the Closing Date, the Issuers shall have
furnished to the Initial Purchasers such further information, certificates
and documents as the Initial Purchasers may reasonably request.
(t) At the Closing Date, KPMG Peat Marwick LLP shall have
furnished to the Initial Purchasers a letter, dated as of the Closing
Date, in form and substance reasonably satisfactory to the Initial
Purchasers and their counsel and substantially in the form of Exhibit A
hereto, with respect to the financial information in "Note
18--Supplemental Consolidating Financial Information" in the notes to the
consolidated financial statements of the Company prepared by KPMG Peat
Marwick LLP.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchasers.
8. Indemnification and Contribution. (a) The Issuers jointly and
severally agree to indemnify and hold harmless the Initial Purchasers, the
directors, officers, employees and agents (including, without limitation,
attorneys) of the Initial Purchasers and each person who controls any Initial
Purchaser within the meaning of either the Securities Act or the Exchange Act
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Securities Act, the
Exchange Act or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Preliminary
Memorandum or the Final Memorandum, or in any amendment thereof or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact
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<PAGE> 21
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agree to reimburse each such
indemnified party, as incurred, for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action: provided, however, that the Issuers will not
be liable in any such case to any Initial Purchaser to the extent that any such
loss, claim, damage, liability or action arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made in the Preliminary Memorandum or the Final Memorandum, or in any amendment
thereof or supplement thereto, in reliance upon and in conformity with written
information furnished to the Issuers by or on behalf of any Initial Purchaser
specifically for inclusion therein; provided, further however, that the Issuers
shall not be liable pursuant to this subsection (a) with respect to the
Preliminary Memorandum to the extent that any such loss, claim, damage or
liability arises solely from the fact that an Initial Purchaser sold Securities
to a person to whom there was not sent or given, on or prior to the written
confirmation of such sale, a copy of the Final Memorandum, as amended and
supplemented, provided that the Issuers shall have established the burden of
proving that the Issuers had previously furnished copies thereof to such Initial
Purchaser in accordance with this Agreement and the Final Memorandum, as amended
and supplemented, would have corrected any such untrue statement or omission and
that the Initial Purchaser failed to deliver such Final Memorandum.
(b) Each Initial Purchaser agrees severally and not jointly to
indemnify and hold harmless the Issuers, their directors, officers, employees
and agents (including, without limitation, attorneys), and each person who
controls the Issuers within the meaning of either the Securities Act or the
Exchange Act, to the same extent as the foregoing indemnity from the Issuers to
each Initial Purchaser, but only with reference to written information relating
to such Initial Purchaser furnished to the Issuers by or on behalf of the
Initial Purchaser specifically for inclusion in the Preliminary Memorandum or
the Final Memorandum (or in any amendment or supplement thereto). This indemnity
agreement will be in addition to any liability which any Initial Purchaser may
otherwise have. The Issuers and the Initial Purchasers acknowledge that the
statements set forth in the last paragraph of the cover page, the statements
that the Initial Purchasers intend to make a market in the Notes, the statement
preceding the caption "Disclosure Regarding Forward Looking Statements"
regarding transactions that stabilize the price of the Notes and the statements
under the heading "Plan of Distribution" in the Preliminary Memorandum and the
Final Memorandum constitute the only information furnished in writing by or on
behalf of the Initial Purchasers for inclusion in the Preliminary Memorandum or
the Final Memorandum (or any amendment or supplement thereto).
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof, but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure
materially prejudices the substantial rights and defenses of the indemnifying
party and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification obligation
provided in paragraph (a) or (b) above. The indemnifying party shall be entitled
to appoint counsel of the indemnifying party's choice at the indemnifying
party's expense to represent the indemnified party in any action for which
indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel if (i) the use of counsel chosen by
21
<PAGE> 22
the indemnifying party to represent the indemnified party would, in the opinion
of legal counsel to the indemnified party, present such counsel with a conflict
of interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have been informed in writing by legal counsel that
there may be legal defenses available to it and/or other indemnified parties
which are different from or additional to those available to the indemnifying
party, (iii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all such
indemnified parties. Such firm shall be designated in writing by NationsBanc
Montgomery Securities, Inc. in the case of parties indemnified pursuant to
paragraph (a) above and by the Company in the case of parties indemnified
pursuant to paragraph (b) above. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent, but if
settled with such consent of if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. An indemnifying
party will not, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, in each case in respect of any loss, claim,
damage or liability required to be indemnified thereunder, the Issuers and the
Initial Purchasers agree to contribute to such aggregate losses, claims, damages
and liabilities (including legal or other expenses reasonably incurred in
connection with investigating or defending same) (collectively "Losses") to
which the Issuers and one or more of the Initial Purchasers may be subject in
such proportion as is appropriate to reflect the relative benefits received by
the Issuers and by the Initial Purchasers from the offering of the Securities;
provided, however, that in no case shall any Initial Purchaser be responsible
for any amount in excess of the purchase discount or commission applicable to
the Securities purchased by the such Initial Purchaser hereunder. If the
allocation provided by the immediately preceding sentence is unavailable for any
reason, the Issuers and the Initial Purchasers shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Issuers and of the Initial Purchasers in connection
with the statements or omissions which resulted in such Losses as well as any
other relevant equitable considerations. Benefits received by the Issuers shall
be deemed to be equal to the total net proceeds from the offering (before
deducting expenses), and benefits received by the Initial Purchasers shall be
deemed to be equal to the total purchase discounts and commissions received by
the Initial Purchasers from the Issuers in connection with the purchase of the
Securities hereunder. Relative fault shall be determined by reference to whether
any alleged untrue statement or omission relates to information provided by the
Issuers or the Initial Purchasers. The Issuers and the Initial Purchasers agree
that it would not be just and equitable if contribution were determined by pro
rata allocation or any other method of allocation that does not take account of
the equitable considerations referred to above. Notwithstanding the provisions
of this paragraph (d), no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person who controls an
Initial Purchaser within the meaning of either the Securities Act or the
Exchange Act and each director, officer, employee and
22
<PAGE> 23
agent of an Initial Purchaser shall have the same rights to contribution as such
Initial Purchaser, and each person who controls the Issuers within the meaning
of either the Securities Act or the Exchange Act and each partner, officer,
director, employee and agent of the Issuers shall have the same rights to
contribution as the Issuers, subject in each case to the applicable terms and
conditions of this paragraph (d).
9. Termination. The obligations of the Initial Purchasers hereunder
may be terminated by the Initial Purchasers by notice given to and received by
the Company prior to delivery of and payment for the Securities if, prior to
that time, any of the events described in Sections 7(m) or 7(n) shall have
occurred or if the Initial Purchasers shall decline to purchase the Securities
for any reason permitted under this Agreement.
10. Reimbursement of Initial Purchaser's Expenses. If (a) the
Issuers shall fail to tender the Securities for delivery to the Initial
Purchasers otherwise than for any reason permitted under this Agreement or (b)
the Initial Purchasers shall decline to purchase the Securities for any reason
permitted under this Agreement (except the occurrence of any of the events
described in Section 7(n)), the Issuers shall reimburse the Initial Purchasers
for the reasonable fees and expenses of their counsel and for such other
reasonable out-of-pocket expenses as shall have been incurred by them in
connection with this Agreement and the proposed purchase of the Securities.
11. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent
by mail, telex or facsimile transmission to NationsBanc Montgomery
Securities, Inc., 100 North Tryon Street, 20th Floor, Charlotte, North
Carolina 28255, Attention: Scott Holmes, with a copy to Latham & Watkins,
885 Third Avenue, New York, New York 10022, Attention: Kirk A. Davenport;
(b) if to the Company, shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set forth in
the Final Memorandum, Attention: Barry D. Setzer, with a copy to Hughes
Hubbard & Reed LLP, Attention: John K. Hoyns.
Any such statements, requests, notices or agreements shall take
effect at the time of receipt thereof. The Issuers shall be entitled to act and
rely upon any request, consent, notice or agreement given or made on behalf of
the Initial Purchasers.
12. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Initial Purchasers, the Issuers
and their respective successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Issuers contained
in this Agreement shall also be deemed to be for the benefit of directors,
officers, employees and agents (including, without limitation, attorneys) of the
Initial Purchasers and the person or persons, if any, who control an Initial
Purchasers within the meaning of Section 15 of the Securities Act and (B) the
indemnity agreement of the Initial Purchasers contained in Section 8(b) of this
Agreement shall be deemed to be for the benefit of directors of the Issuers,
officers, employees and agents (including, without limitation, attorneys) of the
Issuers and any person controlling any of the Issuers within the meaning of
Section 15 of the Securities Act. Nothing in this Agreement is intended or shall
be construed to give any person, other than the persons referred to in this
Section 12, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
13. Survival. The respective indemnities, representations,
warranties and agreements
23
<PAGE> 24
of the Issuers and the Initial Purchasers contained in this Agreement or made by
or on behalf on them, respectively, pursuant to this Agreement, shall survive
the delivery of and payment for the Securities and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any of them
or any person controlling any of them.
14. Definition of "Business Day." For purposes of this Agreement,
"business day" means each Monday, Tuesday, Wednesday, Thursday and Friday that
is not a day on which banking institutions in The City of New York, New York are
authorized or obligated by law, executive order or regulation to close.
15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
17. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
[Signature page follows]
24
<PAGE> 25
If the foregoing correctly sets forth the agreement between the
Issuers and the Initial Purchaser, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
WORLDTEX, INC.
By: _____________________________________
Name: Richard J. Mackey
Title: Chairman of the Board
THE GUARANTORS:
Regal Manufacturing Company, Inc.
Elastic Corporation of America, Inc.
Elastex, Inc.
WTX Colombia I, Inc.
WTX Colombia II,Inc.
Regal Yarns of Argentina,Inc.
Willcox & Gibbs Filix of Delaware, Inc.
By: _____________________________________
Name: Richard J. Mackey
Title: Vice President
<PAGE> 26
The foregoing Agreement is hereby
confirmed, accepted and agreed as
of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES, INC.
BANCAMERICA ROBERTSON STEPHENS
INTERSTATE / JOHNSON LANE CORPORATION
By: NATIONSBANC MONTGOMERY SECURITIES, INC.
By: ___________________________________
Name: Scott Holmes
Title: Director
<PAGE> 27
SCHEDULE A
Subsidiaries
Name Jurisdiction of Incorporation
---- -----------------------------
Regal Manufacturing Company, Inc. Delaware
Elastic Corporation of America, Inc. Delaware
Elastex, Inc. Delaware
WTX Colombia I, Inc. Delaware
WTX Colombia II, Inc. Delaware
Regal Yarns of Argentina, Inc. North Carolina
Willcox & Gibbs Filix of Delaware, Inc. Delaware
Worldtex France, S.A. France
Filix Lastex, S.A. France
Galaurtex Sarl France
Moulinage de la Galaure, S.A. France
Rubyco (1987), Inc. Quebec
Fibrexa, Ltda. Colombia
<PAGE> 28
SCHEDULE B
MATERIAL CONTRACTS
The Indenture
Registration Rights Agreement
Acquisition Agreement
The New Credit Facility
The IRB Agreements (as defined in the Acquisition Agreement)
<PAGE> 29
SCHEDULE C
WORLDTEX, INC.
<TABLE>
<CAPTION>
Initial Purchaser Amount
- ----------------- ------
<S> <C>
NationsBanc Montgomery Securities, Inc............................$145,000,000
BancAmerica Robertson Stephens.....................................$22,500,000
Interstate/Johnson Lane Corporation.................................$7,500,000
$175,000,000.00
===============
</TABLE>
<PAGE> 30
EXHIBIT A
<PAGE> 1
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
Dated as of December 1, 1997
by and among
Worldtex, Inc.,
each domestic subsidiary of
Worldtex, Inc.
and
NationsBanc Montgomery Securities, Inc.,
BancAmerica Robertson Stephens and
Interstate / Johnson Lane Corporation
<PAGE> 2
Exhibit 4.3
This Registration Rights Agreement (this "Agreement") is made and
entered into as of December 1, 1997 by and among Worldtex, Inc., a Delaware
corporation (the "Company"), and each of the domestic subsidiaries of the
Company set forth on the signature pages hereto (each a "Guarantor" and,
collectively, the "Guarantors"), and NationsBanc Montgomery Securities, Inc.,
BancAmerica Robertson Stephens and Interstate / Johnson Lane Corporation (each a
"Purchaser" and, collectively, the "Purchasers"), each of whom has agreed to
purchase the Company's 9 5/8% Series A Senior Notes due 2007 (the "Series A
Notes") pursuant to the Purchase Agreement (as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
November 20, 1997 (the "Purchase Agreement"), by and among the Company, the
Guarantors and the Purchasers. In order to induce the Purchasers to purchase the
Series A Notes, the Company and the Guarantors (collectively, the "Issuers")
have agreed to provide the registration rights set forth in this Agreement. The
execution and delivery of this Agreement is a condition to the obligations of
the Purchasers set forth in Section 7 of the Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall
have the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered under the Exchange
Act.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed
"Consummated" for purposes of this Agreement upon the occurrence of (i) the
filing and effectiveness under the Act of the Exchange Offer Registration
Statement relating to the Series B Notes to be issued in the Exchange Offer,
(ii) the maintenance of such Registration Statement continuously effective and
the keeping of the Exchange Offer open for a period not less than the minimum
period required pursuant to Section 3(b) hereof, and (iii) the delivery by the
Issuers to the Registrar under the Indenture of Series B Notes in the same
aggregate principal amount as the aggregate principal amount of Series A Notes
that were tendered by Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Series A Notes, each
Interest Payment Date.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Issuers under the Act of the
Series B Notes pursuant to a Registration Statement pursuant to which the
Issuers offer the Holders of all outstanding Transfer Restricted Securities the
opportunity to exchange all such outstanding Transfer Restricted Securities held
by such Holders for Series B Notes in an aggregate principal amount equal to the
<PAGE> 3
aggregate principal amount of the Transfer Restricted Securities tendered in
such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Purchasers propose to
sell the Series A Notes (i) to certain "qualified institutional buyers," as such
term is defined in Rule 144A under the Act, (ii) to certain institutional
"accredited investors," as such term is defined in Rule 501(a)(1), (2), (3) and
(7) of Regulation D under the Act ("Accredited Institutions") and (iii) in
offshore transactions pursuant to Regulation S under the Act.
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of December 1, 1997, among the
Issuers and IBJ Schroder Bank & Trust Company, as trustee (the "Trustee"),
pursuant to which the Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Notes.
NASD: National Association of Securities Dealers, Inc.
Notes: The Series A Notes and the Series B Notes.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
Purchaser: As defined in the preamble hereto.
Record Holder: With respect to any Damages Payment Date relating to
the Notes, each Person who is a Holder of Notes on the record date with respect
to the Interest Payment Date on which such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Issuers
relating to (a) an offering of Series B Notes pursuant to an Exchange Offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, which is filed pursuant to the provisions of
this Agreement, in each case, including the Prospectus included therein, all
amendments and supplements thereto (including post-effective amendments) and all
exhibits and material incorporated by reference therein.
Series B Notes: The Company's 9 5/8% Series B Senior Notes due 2007
to be issued
2
<PAGE> 4
pursuant to the Indenture in the Exchange Offer.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section
77aaa-77bbbb) as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been effectively registered under the Act and disposed of in accordance with
a Shelf Registration Statement or (c) the date on which such Note is distributed
to the public pursuant to Rule 144 under the Act or by a Broker-Dealer pursuant
to the "Plan of Distribution" contemplated by the Exchange Offer Registration
Statement (including delivery of the Prospectus contained therein).
Underwriter(s): The underwriter(s) in an Underwritten Offering.
Underwritten Registration or Underwritten Offering: A registration
in which securities of the Company are sold to an underwriter for reoffering to
the public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
Person owns Transfer Restricted Securities.
3
<PAGE> 5
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with), the Issuers shall (i) cause to be filed
with the Commission as soon as practicable after the Closing Date, but in no
event later than 60 days after the Closing Date, a Registration Statement under
the Act relating to the Series B Notes and the Exchange Offer, (ii) use their
best efforts to cause such Registration Statement to become effective at the
earliest possible time, but in no event later than 120 days after the Closing
Date, (iii) in connection with the foregoing, file (A) all pre-effective
amendments to such Registration Statement as may be necessary in order to cause
such Registration Statement to become effective, (B) if applicable, a
post-effective amendment to such Registration Statement pursuant to Rule 430A
under the Act and (C) cause all necessary filings in connection with the
registration and qualification of the Series B Notes to be made under the Blue
Sky laws of such jurisdictions as are necessary to permit Consummation of the
Exchange Offer, and (iv) upon the effectiveness of such Registration Statement,
commence the Exchange Offer. The Exchange Offer shall be on the appropriate form
permitting registration of the Series B Notes to be offered in exchange for the
Transfer Restricted Securities and to permit resales of Notes held by
Broker-Dealers as contemplated by Section 3(c) below.
(b) The Company shall cause the Exchange Offer Registration
Statement to be effective continuously and shall keep the Exchange Offer open
for a period of not less than the minimum period required under applicable
federal and state securities laws to Consummate the Exchange Offer; provided,
however, that in no event shall such period be less than 20 business days. The
Company shall cause the Exchange Offer to comply with all applicable federal and
state securities laws. No securities other than the Notes shall be included in
the Exchange Offer Registration Statement. The Company shall use its best
efforts to cause the Exchange Offer to be Consummated on the earliest
practicable date after the Exchange Offer Registration Statement has become
effective, but in no event later than 30 business days thereafter.
(c) The Company shall indicate in a "Plan of Distribution" section
contained in the Prospectus contained in the Exchange Offer Registration
Statement that any Broker-Dealer who holds Series A Notes that are Transfer
Restricted Securities and that were acquired for its own account as a result of
market-making activities or other trading activities (other than Transfer
Restricted Securities acquired directly from the Company), may exchange such
Series A Notes pursuant to the Exchange Offer; however, such Broker-Dealer may
be deemed to be an "underwriter" within the meaning of the Act and must,
therefore, deliver a prospectus meeting the requirements of the Act in
connection with any resales of the Series B Notes received by such Broker-Dealer
in the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such Broker-Dealer of the Prospectus contained in the Exchange
Offer Registration Statement. Such "Plan of Distribution" section shall also
contain all other information with respect to such resales by Broker-Dealers
that the Commission may require in order to permit such resales pursuant
thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer
or disclose the amount of Notes held by any such Broker-Dealer except to the
extent required by the Commission as a result of a change in policy after the
date of this Agreement.
The Issuers shall use their best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for resales of Notes acquired by Broker-Dealers for
their own accounts as a result of market-making activities or other trading
activities, and to ensure that it conforms with the requirements of this
Agreement, the Act and the policies, rules and regulations of the Commission as
announced from time to time, for a period of 180 days after the Exchange Offer
is
4
<PAGE> 6
consummated.
The Issuers shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon reasonable request at any time
during such 180 day period in order to facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Issuers are not required to file
an Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a) below have been complied
with) or (ii) if any Holder of Transfer Restricted Securities shall notify the
Company within 20 business days of the Consummation of the Exchange Offer (A)
that such Holder is prohibited by applicable law or Commission policy from
participating in the Exchange Offer, or (B) that such Holder may not resell the
Series B Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and that the Prospectus contained in the Exchange Offer
Registration Statement is not appropriate or available for such resales by such
Holder, or (C) that such Holder is a Broker-Dealer and holds Series A Notes
acquired directly from the Company or one of its affiliates, then the Issuers
shall
(x) cause to be filed a shelf registration statement pursuant
to Rule 415 under the Act, which may be an amendment to the Exchange Offer
Registration Statement (in either event, the "Shelf Registration
Statement") on or prior to the earliest to occur of (1) the 60th day after
the date on which the Company determines that it is not required to file
the Exchange Offer Registration Statement or (2) the 60th day after the
date on which the Company receives notice from a Holder of Transfer
Restricted Securities as contemplated by clause (ii) above (such earliest
date being the "Shelf Filing Deadline"), which Shelf Registration
Statement shall provide for resales of all Transfer Restricted Securities
the Holders of which shall have provided the information required pursuant
to Section 4(b) hereof; and
(y) use their best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission on or before the 30th
day after the Shelf Filing Deadline.
The Issuers shall use their best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended as required by the
provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for resales of Notes by the Holders of Transfer Restricted
Securities entitled to the benefit of this Section 4(a), and to ensure that it
conforms with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period of at least two years following the Closing Date.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 15 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
5
<PAGE> 7
such Holder shall have used its best efforts to provide all such reasonably
requested information. Each Holder as to which any Shelf Registration Statement
is being effected agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the
Exchange Offer has not been Consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself immediately declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Issuers hereby
jointly and severally agree to pay liquidated damages to each Holder of Transfer
Restricted Securities with respect to the first 90-day period immediately
following the occurrence of such Registration Default, in an amount equal to
$.05 per week per $1,000 principal amount of Transfer Restricted Securities held
by such Holder for each week that the Registration Default continues. The amount
of the liquidated damages shall increase by an additional $.05 per week per
$1,000 in principal amount of Transfer Restricted Securities with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum amount of liquidated damages of $.30 per week per $1,000
principal amount of Transfer Restricted Securities. All accrued liquidated
damages shall be paid to Record Holders by the Company by wire transfer of
immediately available funds or by federal funds check on each Damages Payment
Date, as provided in the Indenture. Following the cure of all Registration
Defaults relating to any particular Transfer Restricted Securities, the accrual
of liquidated damages with respect to such Transfer Restricted Securities will
cease.
All obligations of the Issuers set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such Security shall have
been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Issuers shall comply with all of the provisions of Section
6(c) below, shall use their best efforts to effect such exchange to permit the
sale of Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof, and shall comply with all of
the following provisions:
(i) If in the reasonable opinion of counsel to the Company
there is a question as to whether the Exchange Offer is permitted by
applicable law, the Issuers hereby agree to seek a no-action letter or
other favorable decision from the Commission allowing the Issuers to
Consummate an Exchange Offer for such Series A Notes. The Issuers hereby
agree to pursue the issuance of such a decision to the Commission staff
level but shall not be required to take
6
<PAGE> 8
commercially unreasonable action to effect a change of Commission policy.
The Issuers hereby agree, however, to (A) participate in telephonic
conferences with the Commission, (B) deliver to the Commission staff an
analysis prepared by counsel to the Company setting forth the legal bases,
if any, upon which such counsel has concluded that such an Exchange Offer
should be permitted and (C) diligently pursue a resolution (which need not
be favorable) by the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation thereof, a written representation to the Company
(which may be contained in the letter of transmittal contemplated by the
Exchange Offer Registration Statement) to the effect that (A) it is not an
affiliate of the Issuers, (B) it is not engaged in, and does not intend to
engage in, and has no arrangement or understanding with any person to
participate in, a distribution of the Series B Notes to be issued in the
Exchange Offer and (C) it is acquiring the Series B Notes in its ordinary
course of business. In addition, all such Holders of Transfer Restricted
Securities shall otherwise cooperate in the Issuers' preparations for the
Exchange Offer. Each Holder hereby acknowledges and agrees that any
Broker-Dealer and any such Holder using the Exchange Offer to participate
in a distribution of the securities to be acquired in the Exchange Offer
(1) could not under Commission policy as in effect on the date of this
Agreement rely on the position of the Commission enunciated in Morgan
Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings
Corporation (available May 13, 1988), as interpreted in the Commission's
letter to Shearman & Sterling dated July 2, 1993, and similar no-action
letters (including any no-action letter obtained pursuant to clause (i)
above), and (2) must comply with the registration and prospectus delivery
requirements of the Act in connection with a secondary resale transaction
and that such a secondary resale transaction should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K
if the resales are of Series B Notes obtained by such Holder in exchange
for Series A Notes acquired by such Holder directly from the Company.
(iii) Prior to effectiveness of the Exchange Offer
Registration Statement, the Issuers shall provide a supplemental letter to
the Commission (A) stating that the Issuers are registering the Exchange
Offer in reliance on the position of the Commission enunciated in Exxon
Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and
Co., Inc. (available June 5, 1991) and, if applicable, any no-action
letter obtained pursuant to clause (i) above and (B) including a
representation that neither the Company nor any Guarantor has entered into
any arrangement or understanding with any Person to distribute the Series
B Notes to be received in the Exchange Offer and that, to the best of the
Company's information and belief, each Holder participating in the
Exchange Offer is acquiring the Series B Notes in its ordinary course of
business and has no arrangement or understanding with any Person to
participate in the distribution of the Series B Notes received in the
Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Issuers shall comply with all the provisions of
Section 6(c) below and shall use their best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Issuers will as expeditiously as possible prepare and file
with the Commission a Registration Statement relating to the registration on any
appropriate form under the Act, which form shall be available for the sale of
the
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Transfer Restricted Securities in accordance with the intended method or methods
of distribution thereof.
(c) General Provisions. In connection with any Registration
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
Notes by Broker-Dealers), the Issuers shall:
(i) use their best efforts to keep such Registration Statement
continuously effective for the period specified in Section 3 or 4 of this
Agreement, as applicable;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as applicable, or such shorter
period as will terminate when all Transfer Restricted Securities covered
by such Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Act, and to comply fully with
the applicable provisions of Rules 424 and 430A under the Act in a timely
manner; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement
during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus;
(iii) advise the Underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, to confirm such advice in
writing, (A) with respect to any Shelf Registration Statement or any
related Prospectus, when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed with the Commission, and, with
respect to any Shelf Registration Statement or any post-effective
amendment thereto, when the same has become effective, (B) with respect to
any Shelf Registration Statement or any related Prospectus, of any request
by the Commission for amendments to the Shelf Registration Statement or
amendments or supplements to the related Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement
under the Act or of the suspension by any state securities commission of
the qualification of the Transfer Restricted Securities for offering or
sale in any jurisdiction, or the initiation of any proceeding for any of
the preceding purposes, (D) of the existence of any fact or the happening
of any event that makes any statement of a material fact made in the
Registration Statement, the Prospectus, any amendment or supplement
thereto, or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the Registration
Statement or the Prospectus with respect to any omission to state a
material fact in order to make the statements therein not misleading. If
at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, or any state securities
commission or other regulatory authority shall issue an order suspending
the qualification or exemption from qualification of the Transfer
Restricted Securities under state securities or Blue Sky laws, the Issuers
shall use their best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time;
(iv) furnish to each of the selling Holders and each of the
Underwriter(s), if any, before filing with the Commission, copies of any
Shelf Registration Statement or any related Prospectus included therein or
any amendments or supplements to any such Shelf Registration Statement or
related Prospectus (including all documents incorporated by reference
after the initial
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<PAGE> 10
filing of such Shelf Registration Statement), which documents will be
subject to the review of such Holders and Underwriter(s), if any, for a
period of at least three business days, and the Issuers will not file any
such Shelf Registration Statement or related Prospectus or any amendment
or supplement to any such Shelf Registration Statement or related
Prospectus (including all such documents incorporated by reference) to
which a selling Holder of Transfer Restricted Securities covered by such
Shelf Registration Statement or the Underwriter(s), if any, shall
reasonably object within three business days after the receipt thereof;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Shelf Registration Statement or related
Prospectus, provide copies of such document to the selling Holders and to
the Underwriter(s), if any, make the Issuers representatives available for
discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as
such selling Holders or underwriter(s), if any, reasonably may request;
(vi) make available at reasonable times for inspection by the
selling Holders, any Underwriter participating in any disposition pursuant
to such Shelf Registration Statement, and any attorney or accountant
retained by such selling Holders or any of the Underwriter(s), all
financial and other records, pertinent corporate documents and properties
of the Issuers and cause the Issuers' officers, directors and employees to
supply all information reasonably requested by any such Holder,
underwriter, attorney or accountant in connection with such Shelf
Registration Statement subsequent to the filing thereof and prior to its
effectiveness;
(vii) if requested by any selling Holders or the
Underwriter(s), if any, promptly incorporate in any Shelf Registration
Statement or related Prospectus, pursuant to a supplement or
post-effective amendment if necessary, such information as such selling
Holders and Underwriter(s), if any, may reasonably request to have
included therein, including, without limitation, information relating to
the "Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer Restricted
Securities being sold to such Underwriter(s), the purchase price being
paid therefor and any other terms of the offering of the Transfer
Restricted Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon
as practicable after the Issuers are notified of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
(viii) furnish to each selling Holder and each of the
Underwriter(s), if any, without charge, upon request therefrom, at least
one copy of the Shelf Registration Statement, as first filed with the
Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(ix) deliver to each selling Holder and each of the
Underwriter(s), if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) included in any Shelf Registration
Statement and any amendment or supplement thereto as such Persons
reasonably may request; the Issuers hereby consent to the use of the
Prospectus and any amendment or supplement thereto included in any Shelf
Registration Statement by each of the selling Holders and each of the
Underwriter(s), if any, in connection with the offering and the sale of
the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto in the manner described therein;
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<PAGE> 11
(x) enter into such agreements (including an underwriting
agreement), and make such representations and warranties, and take all
such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities pursuant
to any Shelf Registration Statement contemplated by this Agreement, all to
such extent as may be reasonably requested by any Purchaser or by any
Holder of Transfer Restricted Securities or Underwriter in connection with
any sale or resale pursuant to any Shelf Registration Statement
contemplated by this Agreement; and whether or not an underwriting
agreement is entered into and whether or not the registration is an
Underwritten Registration, the Issuers shall in connection with a Shelf
Registration Statement:
(A) furnish to each Purchaser, each selling Holder and each
Underwriter, if any, in such substance and scope as they may
reasonably request and as are customarily made by issuers to
underwriters in primary underwritten offerings, upon the date of the
effectiveness of the Shelf Registration Statement:
(1) a certificate, dated the date of effectiveness of
the Shelf Registration Statement signed by (y) the President
or any Vice President and (z) a principal financial or
accounting officer of the Company confirming, as of the date
thereof, the matters set forth in paragraphs (b), (c) and (d)
of Section 7 of the Purchase Agreement (or stating any
exceptions thereto) and such other matters as such parties may
reasonably request;
(2) an opinion, dated the date of effectiveness of the
Shelf Registration Statement of counsel for the Issuers,
covering the matters set forth in paragraph (g) of Section 7
of the Purchase Agreement and such other matter as such
parties may reasonably request, and in any event including a
statement to the effect that such counsel has participated in
conferences with officers and other representatives of the
Issuers and representatives of the independent public
accountants for the Issuers in connection with the preparation
of such Registration Statement and the related Prospectus and
have considered the matters required to be stated therein and
the statements contained therein, and although such counsel
has not independently verified the accuracy, completeness or
fairness of such statements, on the basis of the foregoing
(relying as to materiality to a large extent upon facts
provided to such counsel by officers and other representatives
of the Issuers and without independent check or verification),
no facts came to such counsel's attention that caused such
counsel to believe that the applicable Shelf Registration
Statement, at the time such Shelf Registration Statement
became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, or that the Prospectus contained in such
Registration Statement as of its date contained an untrue
statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading. Without limiting the foregoing, such counsel may
state further that such counsel assumes no responsibility for,
and has not independently verified, the accuracy, completeness
or fairness of exhibits, the financial statements, notes and
schedules and other financial and statistical data included in
any Registration Statement contemplated by this Agreement or
the related Prospectus; and
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<PAGE> 12
(3) a customary comfort letter, dated as of the date of
effectiveness of the Shelf Registration Statement, from the
Issuers' independent accountants, in the customary form and
covering matters of the type customarily covered in comfort
letters by underwriters in connection with primary
underwritten offerings, and affirming the matters set forth in
the comfort letters delivered pursuant to Section 7(l) of the
Purchase Agreement, subject to receipt of appropriate
documentation, and only if permitted by Statement of Auditing
Standards No. 72;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the
Issuers pursuant to this clause (xi), if any.
(xi) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the Underwriter(s), if
any, and their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities
or Blue Sky laws of such jurisdictions within the United States as the
selling Holders or Underwriter(s) may reasonably request and do any and
all other acts or things reasonably necessary or advisable to enable the
disposition in such jurisdictions within the United States of the Transfer
Restricted Securities covered by the Shelf Registration Statement;
provided, however, that neither the Company nor any of the Guarantors
shall be required to register or qualify as a foreign corporation where it
is not now so qualified or to take any action that would subject it to the
service of process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any jurisdiction
where it is not now so subject;
(xii) shall issue, upon the request of any Holder of Series A
Notes covered by the Shelf Registration Statement, Series B Notes, having
an aggregate principal amount equal to the aggregate principal amount of
Series A Notes surrendered to the Company by such Holder being sold by
such Holder; such Series B Notes to be registered in the name of the
purchaser(s) of such Notes; in return, the Series A Notes held by such
Holder shall be surrendered to the Company for cancellation;
(xiii) in connection with a Shelf Registration Statement,
cooperate with the selling Holders and the Underwriter(s), if any, to
facilitate the timely preparation and delivery of certificates
representing Transfer Restricted Securities to be sold and not bearing any
restrictive legends; and enable such Transfer Restricted Securities to be
in such denominations and registered in such names as the Holders or the
Underwriter(s), if any, may request at least two business days prior to
any sale of Transfer Restricted Securities made by such Underwriter(s);
(xiv) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities within the
United States as may be necessary to enable the seller or sellers thereof
or the underwriter(s), if any, to consummate the disposition of such
Transfer Restricted Securities,
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subject to the proviso contained in clause (viii) above;
(xv) if any fact or event contemplated by clause (c)(iii)(D)
above or the last sentence of clause (c)(iii) shall exist or have
occurred, (A) prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, as
thereafter delivered to the purchasers of Transfer Restricted Securities,
the Prospectus will not contain an untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein
not misleading and/or (B) use their best efforts to cause such amendment
or supplement to be declared effective and such Registration Statement and
the related Prospectus to become usable for their intended purpose(s) as
soon as practicable thereafter;
(xvi) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration Statement
and provide the Trustee under the Indenture with certificates for the
Transfer Restricted Securities which are in a form eligible for deposit
with the Depositary Trust Company;
(xvii) in connection with a Shelf Registration Statement,
cooperate and assist in any filings required to be made with the NASD and
in the performance of any due diligence investigation by any Underwriter
(including any "qualified independent underwriter") that is required to be
retained in accordance with the rules and regulations of the NASD, and use
its reasonable best efforts to cause such Registration Statement to become
effective and approved by such governmental agencies or authorities within
the United States as may be necessary to enable the Holders selling
Transfer Restricted Securities to consummate the disposition of such
Transfer Restricted Securities;
(xviii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as practicable, a consolidated
earnings statement meeting the requirements of Rule 158 (which need not be
audited) for the twelve-month period (A) commencing at the end of any
fiscal quarter in which Transfer Restricted Securities are sold to
Underwriters in a firm or best efforts Underwritten Offering or (B) if not
sold to Underwriters in such an offering, beginning with the first month
of the Company's first fiscal quarter commencing after the effective date
of the Registration Statement;
(xix) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required
by this Agreement, and, in connection therewith, cooperate with the
Trustee and the Holders of Notes to effect such changes to the Indenture
as may be required for such Indenture to be so qualified in accordance
with the terms of the TIA; and execute and use their best efforts to cause
the Trustee to execute, all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
(xx) provide promptly to each Holder upon request each
document filed with the Commission pursuant to the requirements of Section
13(a) and Section 15(d) of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D)
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hereof, such Holder will forthwith discontinue disposition of Transfer
Restricted Securities pursuant to the applicable Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(xv) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus. If so directed by the Company, each Holder will
deliver to the Company (at the Issuers' expense) all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Transfer Restricted Securities that was current at the time of
receipt of such notice. In the event the Company shall give any such notice, the
time period regarding the effectiveness of such Registration Statement set forth
in Section 3 or 4 hereof, as applicable, shall be extended by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 6(c)(iii)(D) hereof to and including the date when each
selling Holder covered by such Registration Statement shall have received the
copies of the supplemented or amended Prospectus contemplated by Section
6(c)(xv) hereof or shall have received the Advice.
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Issuers' performance of or
compliance with this Agreement will be borne by the Company or the respective
Guarantor, regardless of whether a Registration Statement becomes effective,
including without limitation: (i) all registration and filing fees and expenses
(including filings made by any Purchaser or Holder with the NASD (and, if
applicable, the fees and expenses of any "qualified independent underwriter" and
its counsel that may be required by the rules and regulations of the NASD));
(ii) all fees and expenses of compliance with federal securities and state Blue
Sky or securities laws; (iii) all expenses of printing (including printing
certificates for the Series B Notes to be issued in the Exchange Offer and
printing of Prospectuses), messenger and delivery services and telephone; (iv)
all fees and disbursements of counsel for the Company and, subject to Section
7(b) below, the Holders of Transfer Restricted Securities; (v) all application
and filing fees in connection with listing Notes on a national securities
exchange or automated quotation system pursuant to the requirements hereof; and
(vi) all fees and disbursements of independent certified public accountants of
the Issuers (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Issuers will bear their internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), the expenses of any annual audit and the fees and
expenses of any Person, including special experts, retained by any Issuer.
Notwithstanding the foregoing or anything in this Agreement to the
contrary, each Holder shall pay all underwriting discounts and commissions of
any Underwriters with respect to Notes sold by or on behalf of such Holder.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Issuers will reimburse the
Purchasers and the Holders of Transfer Restricted Securities being tendered in
the Exchange Offer and/or resold pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or registered pursuant to
the Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Latham & Watkins or
such other counsel as may be chosen by the Holders of a majority in principal
amount of the Transfer Restricted Securities for whose benefit such Registration
Statement is being prepared.
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SECTION 8. INDEMNIFICATION
(a) The Issuers jointly and severally, agree to indemnify and hold
harmless (i) each Holder and (ii) each person, if any, who controls (within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act) any Holder
(any of the persons referred to in this clause (ii) being hereinafter referred
to as a "controlling person") and (iii) the respective officers, directors,
partners, employees, representatives and agents of any Holder or any controlling
person (any person referred to in clause (i), (ii) or (iii) may hereinafter be
referred to as an "Indemnified Holder"), to the fullest extent lawful, from and
against any and all losses, claims, damages, liabilities, judgments, actions and
expenses (including without limitation and as soon as reasonably practicable,
reimbursement of all reasonable costs of investigating, preparing, pursuing or
defending any claim or action, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, including the reasonable
fees and expenses of counsel to any Indemnified Holder) directly or indirectly
caused by, related to, based upon, arising out of or in connection with any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (or any amendment or supplement thereto),
or any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses are
caused by an untrue statement or omission or alleged untrue statement or
omission that is made in reliance upon and in conformity with information
relating to any of the Holders furnished in writing to the Company by any of the
Holders expressly for use therein; provided, however, that the Issuers shall not
be liable pursuant to this subsection (a) with respect to any preliminary
prospectus to the extent that any such loss, claim, damage, liability, judgment,
action or expense arises solely from the fact that an Indemnified Holder sold
Notes to a person to whom there was not sent or given, on or prior to the
written confirmation of such sale, a copy of the final Prospectus, as amended
and supplemented, provided that the Issuers shall have established the burden of
proving that the Issuers had previously furnished copies thereof to such
Indemnified Holder in accordance with this Agreement and the final Prospectus,
as amended and supplemented, would have corrected any such untrue statement or
omission and that the Indemnified Holder failed to deliver such final
Prospectus.
In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be brought or asserted against any
of the Indemnified Holders with respect to which indemnity may be sought against
the Issuers, such Indemnified Holder (or the Indemnified Holder controlled by
such controlling person) shall promptly notify the Issuers in writing (provided,
that the failure to give such notice (i) will not relieve the Issuers from
liability under paragraph (a) above unless and to the extent it did not
otherwise learn of such action and such failure materially prejudices the
substantial rights and defenses of the Issuers and (ii) will not, in any event,
relieve the indemnifying party from any obligations to any indemnified party
other than the indemnification obligation provided in paragraph (a) above). The
indemnifying party shall be entitled to appoint counsel of the indemnifying
party's choice at the indemnifying party's expense to represent the Indemnified
Holders in any action for which indemnification is sought (in which case the
indemnifying party shall not thereafter be responsible for the fees and expenses
of any separate counsel retained by the Indemnified Holders or parties except as
set forth below); provided, however that such counsel shall be reasonably
satisfactory to the Indemnified Holders. Notwithstanding the indemnifying
party's election to appoint counsel to represent the Indemnified Holders in an
action, the Indemnified Holders shall have the right to employ separate counsel
(including local counsel), and the indemnifying party shall bear the reasonable
fees, costs and expenses of such separate counsel if (i) the use of counsel
chosen by the indemnifying party to represent the Indemnified Holders would, in
the opinion of legal counsel to the Indemnified Holders, present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action
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include both the Indemnified Holders and the indemnifying party and the
Indemnified Holders shall have been informed in writing by legal counsel that
there may be legal defenses available to it and/or other Indemnified Holders
which are different from or additional to those available to the indemnifying
party, (iii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the Indemnified Holders to represent the Indemnified Holders
within a reasonable time after notice of the institution of such action or (iv)
the indemnifying party shall authorize the Indemnified Holders to employ
separate counsel at the expense of the indemnifying party. The Issuers shall
not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same jurisdiction
arising out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) at any time for such Indemnified Holders, which
firm shall be designated by the Holders. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the Indemnified
Holders from and against any loss or liability by reason of such settlement or
judgment. The Issuers shall not, without the prior written consent of each
Indemnified Holder, settle or compromise or consent to the entry of judgment in
or otherwise seek to terminate any pending or threatened action, claim,
litigation or proceeding in respect of which indemnification or contribution may
be sought hereunder (whether or not any Indemnified Holder is a party thereto),
unless such settlement, compromise, consent or termination includes an
unconditional release of each Indemnified Holder from all liability arising out
of such action, claim, litigation or proceeding.
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Issuers, and their
respective directors, officers, and any person controlling (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act) the Issuers, and the
respective officers, directors, partners, employees, representatives and agents
of each such person, to the same extent as the foregoing indemnity from the
Issuers to each of the Indemnified Holders, but only with respect to information
relating to such Holder furnished in writing by such Holder expressly for use in
any Registration Statement. In case any action or proceeding shall be brought
against any of the Issuers or their directors or officers or any such other
person in respect of which indemnity may be sought against a Holder of Transfer
Restricted Securities, such Holder shall have the rights and duties given the
Issuers and the Issuers or their directors or officers or such other persons
shall have the rights and duties given to each Holder by the preceding
paragraph. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the proceeds received by such Holder
upon the sale of the Transfer Restricted Securities giving rise to such
indemnification obligation.
(c) If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under Section 8(a) or Section 8(b) hereof
(other than by reason of exceptions provided in those Sections) in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative benefits received by the
Issuers on the one hand and the Holders on the other hand from the sale by the
Company of the Series A Notes or if such allocation is not permitted by
applicable law, the relative fault of the Issuers on the one hand and of the
Indemnified Holder on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of the
Issuers on the one hand and of the Indemnified Holder on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuers or by the
Indemnified Holder and the parties' relative intent, knowledge, access to
information
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and opportunity to correct or prevent such statement or omission. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in the second paragraph of Section 8(a), any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Issuers and each Holder of Transfer Restricted Securities agree
that it would not be just and equitable if contribution pursuant to this Section
8(c) were determined by pro rata allocation (even if the Holders were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The Holders'
obligations to contribute pursuant to this Section 8(c) are several in
proportion to the respective principal amount of Series A Notes held by each of
the Holders hereunder and not joint.
SECTION 9. RULE 144A
The Issuers hereby agree with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities from such Holder or beneficial owner, the information required by
Rule 144A(d)(4) under the Act in order to permit resales of such Transfer
Restricted Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements. The Issuers shall not be obligated to
engage in more than one Underwritten Registration hereunder.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
16
<PAGE> 18
SECTION 12. MISCELLANEOUS
(a) Remedies. The Issuers agree that monetary damages (including the
liquidated damages contemplated hereby) would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agree to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Issuers will not, on or after
the date of this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. Neither the Company
nor the Guarantors has previously entered into any agreement granting any
registration rights with respect to the Notes to any Person. The rights granted
to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Issuers' securities
under any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. The Issuers will not take any
action with respect to the Notes that would materially and adversely affect the
ability of the Holders to consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless the Issuers have obtained the
written consent of Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or
consent to departure from the provisions hereof that relates exclusively to the
rights of Holders whose securities are being tendered pursuant to the Exchange
Offer and that does not affect directly or indirectly the rights of other
Holders whose securities are not being tendered pursuant to such Exchange Offer
may be given by the Holders of a majority of the outstanding principal amount of
Transfer Restricted Securities being tendered or registered.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Issuers:
Worldtex, Inc.
212 12th Avenue N.E.
Hickory, N.C. 28601
Phone No.: (704) 328-5381
Telecopier No.: (704) 328-6172
Attention: Barry D. Setzer
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and on the next business day, if
timely delivered to an air courier guaranteeing overnight delivery.
17
<PAGE> 19
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent Holders of Transfer Restricted Securities; provided,
however, that this Agreement shall not inure to the benefit of or be binding
upon a successor or assign of a Holder unless and to the extent such successor
or assign acquired Transfer Restricted Securities from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the other
Operative Documents (as defined in the Purchase Agreement) is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein with respect to the registration rights granted by the Issuers with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
18
<PAGE> 20
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
WORLDTEX, INC.
By:
-------------------------------
Name: Richard J. Mackey
Title: Chairman of the Board
THE GUARANTORS:
Regal Manufacturing Company, Inc.
Elastic Corporation of America, Inc.
Elastex, Inc.
WTX Colombia I, Inc.
WTX Colombia II,Inc.
Regal Yarns of Argentina,Inc.
Willcox & Gibbs Filix of Delaware, Inc.
By:
-------------------------------
Name: Richard J. Mackey
Title: Vice President
<PAGE> 21
The foregoing Registration Rights Agreement is hereby confirmed, accepted
and agreed as of the date first above written.
NATIONSBANC MONTGOMERY SECURITIES, INC.
BANCAMERICA ROBERTSON STEPHENS
INTERSTATE / JOHNSON LANE CORPORATION
By: NATIONSBANC MONTGOMERY SECURITIES, INC.
By:
-----------------------------------
Name: Scott Holmes
Title: Director
<PAGE> 1
EXHIBIT 5.1
JANUARY 30, 1998
Worldtex, Inc.
212 12th Avenue, N.E.
Hickory, North Carolina 28601
Ladies & Gentlemen:
We have acted as counsel to Worldtex, Inc., a Delaware corporation (the
"Company"), in connection with the Registration Statement on Form S-4 filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), (the "Registration Statement"), relating to the proposed
offer by the Company to exchange its 9 5/8% Series B Senior Notes due 2007 (the
"New Notes") for its outstanding 9 5/8% Series A Senior Notes due 2007 (the "Old
Notes"), of which $175,000,000 aggregate principal amount is outstanding (the
"Exchange Offer").
In connection with this opinion letter, we have examined: the Registration
Statement, including the Prospectus which forms a part of the Registration
Statement, the Indenture, dated as of December 1, 1997 (the "Indenture"), among
the Company, the subsidiary guarantors named therein (the "Guarantors") and IBJ
Schroder Bank & Trust Company, as trustee, the forms of Old Note and New Note,
each attached as an exhibit to the Indenture, and originals, or copies certified
or otherwise identified to our satisfaction, of such other documents, records,
instruments and certificates of public officials as we have deemed necessary or
appropriate to enable us to render this opinion. In addition, we have assumed:
(i) that all signatures are genuine, (ii) that all documents submitted to us as
originals are genuine, (iii) that all copies submitted to us conform to the
originals, (iv) the Indenture has been duly authorized, executed and delivered
by the Trustee and is a legal, valid, binding and enforceable agreement of the
Trustee and (v) the Old Notes and the guaranties endorsed thereon and created
under the Indenture (the "Old Guaranties") were duly and validly executed and
delivered by the Company and the Guarantors and that the Old Notes were duly and
validly authenticated by the Trustee pursuant to the terms of the Indenture.
We are members of the bar of the State of New York, and the opinion set
forth below is restricted to matters controlled by federal laws, the laws of the
State of New York and the General Corporation Law of the State of Delaware.
Based on the foregoing, it is our opinion that, when (1) the applicable
provisions of the Act and such "Blue Sky" or other state securities laws as may
be applicable shall have been complied with and (ii) New Notes with the
guaranties of the Guarantors endorsed thereon (the "New Guaranties"), in the
form included as an Exhibit to the Indenture, have been duly executed and
authenticated in accordance with the Indenture and duly issued and delivered by
the Company and the Guarantors in exchange for an equal principal amount of Old
Notes and related Old Guaranties pursuant to the terms of the Exchange Offer,
such New Notes will constitute legal, valid, binding and enforceable obligations
of the Company and the New Guaranties will constitute legal, valid, binding and
enforceable obligations of the Guarantors, subject to (i) limitations imposed by
bankruptcy, reorganization, moratorium, insolvency, fraudulent conveyance,
fraudulent transfer, preferential transfer and other laws of general application
relating to or affecting the enforceability of creditors' rights and to general
principles of equity, including, without limitation, laches and estoppel as
equitable defenses, concepts of materiality, reasonableness, good faith and fair
dealing, and considerations of impracticability or impossibility or performance
and defenses based upon unconscionability (regardless of whether such
enforceability is considered or applied in a proceeding in equity or at law) and
(b) the qualification that the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
<PAGE> 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Securities and
Exchange Commission thereunder.
Very truly yours,
/s/ Hughes Hubbard & Reed LLP
<PAGE> 1
Exhibit 12.1
Worldtex, Inc.
Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------
(Dollars in thousands)
Income before
income taxes $17,361 $10,231 $8,868 $11,490 $11,613
Plus:
Interest expense 5,826 5,693 3,951 3,298 7,285
Capitalized interest 0 0 0 0 0
Portion of
rental expense
representative
of interest
expense 779 518 342 364 324
------- ------- ------- ------- -------
Total Earnings $23,966 $16,442 $13,161 $15,152 $19,222
Fixed charges:
Interest expense $ 5,826 $ 5,693 $ 3,951 $ 3,298 $ 7,285
Portion of
rental expense
representative
of interest
expense 779 518 342 364 324
--- --- --- --- ---
Total fixed charges $ 6,605 $ 6,211 $ 4,293 $ 3,662 $ 7,609
Ratio of earnings
to fixed charges 3.63x 2.65x 3.07x 4.14x 2.53x
</TABLE>
E.C.A., Inc.
Computation of Ratio
of Earnings to
Fixed Charges
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- --------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------
(Dollars in thousands)
Income before $6,492 $5,629 $5,293
income taxes
Plus:
Interest expense 814 1,147 1,001
Capitalized interest 0 0 0
Portion of
rental expense
representative
of interest
expense 422 499 172
----- ----- -----
Total Earnings $7,728 $7,275 $6,466
Fixed charges:
Interest expense $ 814 $1,147 $1,001
Portion of
rental expense
representative
of interest
expense 422 499 172
------ ------ ------
Total fixed charges $1,236 $1,646 $1,173
Ratio of earnings
to fixed charges 6.25x 4.42x 5.51x
</TABLE>
<PAGE> 1
EXHIBIT 23.2
The Board of Directors
Worldtex Inc.
The audits referred to in our report dated March 4, 1997, included the related
financial statement schedule as of December 31, 1996, and for each of the years
in the three-year period ended December 31, 1996, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
January 29, 1998
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Worldtex, Inc. on Form
S-4 of our report dated October 14, 1997 (relating to the financial statements
of Elastic Corporation of America ("ECA") (a division of NFA Corp.) as of and
for the fiscal years ended December 28, 1996, December 30, 1995 and December
31, 1994, which report expresses an unqualified opinion and includes an
explanatory paragraph that describes the basis of presentation of the ECA
financial statements) appearing in the Prospectus, which is part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
January 28, 1998
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
The undersigned director and/or officer of Worldtex, Inc., a
Delaware corporation (the "Company"), does hereby constitute and appoint Richard
J. Mackey and Barry D. Setzer, or either of them, as the undersigned's true and
lawful attorneys in-fact and agents to do any and all things in the
undersigned's name and behalf in the undersigned's capacity as a director and/or
officer of the Company, and to execute any and all instruments for the
undersigned and in the undersigned's name and capacity as a director and/or
officer that such person or persons may deem necessary or advisable to enable
the Company to comply with the Securities Act of 1933, as amended, and any
rules, regulations or requirements of the Securities and Exchange Commission in
connection with that certain Registration Statement on Form S-4 relating to the
Company's 9 5/8% Series B Notes due 2007 and Guarantees of the 9 5/8% Series B
Senior Notes Due 2007 (the "Registration Statement"), including specifically,
but not limited to, power and authority to sign for the undersigned in the
capacity as a director and/or officer of the Company the Registration Statement,
and any and all amendments thereto, including post-effective amendments, and the
undersigned does hereby ratify and confirm all that such person or persons shall
do or cause to be done by virtue hereof.
/s/ John B. Fraser
---------------------------------
(Signature)
Printed Name: John B. Fraser
Dated and effective as of January 24, 1998
<PAGE> 2
POWER OF ATTORNEY
The undersigned director and/or officer of Worldtex, Inc., a
Delaware corporation (the "Company"), does hereby constitute and appoint Richard
J. Mackey and Barry D. Setzer, or either of them, as the undersigned's true and
lawful attorneys in-fact and agents to do any and all things in the
undersigned's name and behalf in the undersigned's capacity as a director and/or
officer of the Company, and to execute any and all instruments for the
undersigned and in the undersigned's name and capacity as a director and/or
officer that such person or persons may deem necessary or advisable to enable
the Company to comply with the Securities Act of 1933, as amended, and any
rules, regulations or requirements of the Securities and Exchange Commission in
connection with that certain Registration Statement on Form S-4 relating to the
Company's 9 5/8% Series B Notes due 2007 and Guarantees of the 9 5/8% Series B
Senior Notes Due 2007 (the "Registration Statement"), including specifically,
but not limited to, power and authority to sign for the undersigned in the
capacity as a director and/or officer of the Company the Registration Statement,
and any and all amendments thereto, including post-effective amendments, and the
undersigned does hereby ratify and confirm all that such person or persons shall
do or cause to be done by virtue hereof.
/s/ Willi Roelli
---------------------------------
(Signature)
Printed Name: Willi Roelli
Dated and effective as of January 15, 1998
<PAGE> 3
POWER OF ATTORNEY
The undersigned director and/or officer of Worldtex, Inc., a
Delaware corporation (the "Company"), does hereby constitute and appoint Richard
J. Mackey and Barry D. Setzer, or either of them, as the undersigned's true and
lawful attorneys in-fact and agents to do any and all things in the
undersigned's name and behalf in the undersigned's capacity as a director and/or
officer of the Company, and to execute any and all instruments for the
undersigned and in the undersigned's name and capacity as a director and/or
officer that such person or persons may deem necessary or advisable to enable
the Company to comply with the Securities Act of 1933, as amended, and any
rules, regulations or requirements of the Securities and Exchange Commission in
connection with that certain Registration Statement on Form S-4 relating to the
Company's 9 5/8% Series B Notes due 2007 and Guarantees of the 9 5/8% Series B
Senior Notes Due 2007 (the "Registration Statement"), including specifically,
but not limited to, power and authority to sign for the undersigned in the
capacity as a director and/or officer of the Company the Registration Statement,
and any and all amendments thereto, including post-effective amendments, and the
undersigned does hereby ratify and confirm all that such person or persons shall
do or cause to be done by virtue hereof.
/s/ Michael B. Wilson
---------------------------------
(Signature)
Printed Name: Michael B. Wilson
Dated and effective as of January 13, 1998
<PAGE> 4
POWER OF ATTORNEY
The undersigned director and/or officer of Worldtex, Inc., a
Delaware corporation (the "Company"), does hereby constitute and appoint Richard
J. Mackey and Barry D. Setzer, or either of them, as the undersigned's true and
lawful attorneys in-fact and agents to do any and all things in the
undersigned's name and behalf in the undersigned's capacity as a director and/or
officer of the Company, and to execute any and all instruments for the
undersigned and in the undersigned's name and capacity as a director and/or
officer that such person or persons may deem necessary or advisable to enable
the Company to comply with the Securities Act of 1933, as amended, and any
rules, regulations or requirements of the Securities and Exchange Commission in
connection with that certain Registration Statement on Form S-4 relating to the
Company's 9 5/8% Series B Notes due 2007 and Guarantees of the 9 5/8% Series B
Senior Notes Due 2007 (the "Registration Statement"), including specifically,
but not limited to, power and authority to sign for the undersigned in the
capacity as a director and/or officer of the Company the Registration Statement,
and any and all amendments thereto, including post-effective amendments, and the
undersigned does hereby ratify and confirm all that such person or persons shall
do or cause to be done by virtue hereof.
/s/ John K. Ziegler
---------------------------------
(Signature)
Printed Name: John K. Ziegler
Dated and effective as of January 15, 1998
<PAGE> 1
Exhibit 25.1
-----------------------
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)
--------
IBJ SCHRODER BANK & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-6022258
(Jurisdiction of incorporation (I.R.S. employer
or organization if not a U.S. national bank) identification No.)
One State Street, New York, New York 10004
(Address of principal executive offices) (Zip code)
LUIS PEREZ, ASSISTANT VICE PRESIDENT
IBJ SCHRODER BANK & TRUST COMPANY
One State Street
New York, New York 10004
(212) 858-2000
(Name, address and telephone number of agent for service)
Worldtex, Inc.
(Exact names of obligor as specified in its charter)
Delaware 56-1789271
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
212 12th Avenue N.E.
Hickory, North Carolina
28601
(Address of principal executive offices) (Zip code)
$175,000,000 9 5/8%Senior Secured Notes Due 2007
--------
(Title of indenture securities)
<PAGE> 2
Item 1. General information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
New York State Banking Department
Two Rector Street
New York, New York
Federal Deposit Insurance Corporation
Washington, D.C.
Federal Reserve Bank of New York
Second District,
33 Liberty Street
New York, New York
(b) Whether it is authorized to exercise corporate trust powers.
Yes
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee.
Item 13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such
default.
None
2
<PAGE> 3
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in
any other securities, of the obligors are outstanding, or is trustee
for more than one outstanding series of securities under the
indenture, state whether there has been a default under any such
indenture or series, identify the indenture or series affected, and
explain the nature of any such default.
None
Item 16. List of exhibits.
List below all exhibits filed as part of this statement of
eligibility.
*1. A copy of the Charter of IBJ Schroder Bank & Trust Company as
amended to date. (See Exhibit 1A to Form T-1, Securities and
Exchange Commission File No. 22-18460).
*2. A copy of the Certificate of Authority of the trustee to Commence
Business (Included in Exhibit 1 above).
*3. A copy of the Authorization of the trustee to exercise corporate
trust powers, as amended to date (See Exhibit 4 to Form T-1,
Securities and Exchange Commission File No. 22-19146).
*4. A copy of the existing By-Laws of the trustee, as amended to date
(See Exhibit 4 to Form T-1, Securities and Exchange Commission File
No. 22- 19146).
5. Not Applicable
6. The consent of United States institutional trustee required by
Section 321(b) of the Act.
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.
* The Exhibits thus designated are incorporated herein by reference as
exhibits hereto. Following the description of such Exhibits is a reference
to the copy of the Exhibit heretofore filed with the Securities and
Exchange Commission, to which there have been no amendments or changes.
3
<PAGE> 4
NOTE
In answering any item in this Statement of Eligibility which relates to matters
peculiarly within the knowledge of the obligor and its directors or officers,
the trustee has relied upon information furnished to it by the obligor.
Inasmuch as this Form T-1 is filed prior to the ascertainment by the trustee of
all facts on which to base responsive answers to Item 2, the answer to said Item
is based on incomplete information.
Item 2, may, however, be considered as correct unless amended by an amendment to
this Form T-1.
Pursuant to General Instruction B, the trustee has responded to Items 1, 2 and
16 of this form since to the best knowledge of the trustee as indicated in Item
13, the obligor is not in default under any indenture under which the applicant
is trustee.
4
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, IBJ Schroder Bank & Trust Company, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility & qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 16th day of January, 1998.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/Luis Perez
---------------------------
Luis Perez
Assistant Vice President
<PAGE> 6
Exhibit 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust
Indenture Act of 1939, as amended, in connection with the issuance by Worldtex,
Inc. of its $175,000,000 9 5/8%Senior Secured Notes Due 2007, we hereby consent
that reports of examinations by Federal, State, Territorial, or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/Luis Perez
-----------------------------
Luis Perez
Assistant Vice President
Dated: January 16, 1998
<PAGE> 7
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION OF
IBJ SCHRODER BANK & TRUST COMPANY
of New York, New York
And Foreign and Domestic Subsidiaries
Report as of September 30, 1997
<TABLE>
<CAPTION>
Dollar Amounts
in Thousands
--------------
<S> <C> <C>
ASSETS
Cash and balance due from depository institutions:
Noninterest-bearing balances and currency and coin ....................... $ 41,358
Interest-bearing balances ................................................ $ 314,171
Securities: Held-to-maturity securities ...................................... $ 196,749
Available-for-sale securities .................................... $ 63,064
Federal funds sold and securities purchased under agreements to resell in
domestic offices of the bank and of its Edge and Agreement subsidiaries and in
IBFs:
Federal Funds sold and Securities purchased under agreements to resell ... $ 10,151
Loans and lease financing receivables:
Loans and leases, net of unearned income ................................. $1,920,916
LESS: Allowance for loan and lease losses ................................ $ 59,498
LESS: Allocated transfer risk reserve .................................... $ -0-
Loans and leases, net of unearned income, allowance, and reserve ......... $1,861,418
Trading assets held in trading accounts ...................................... $ 452
Premises and fixed assets (including capitalized leases) ..................... $ 3,381
Other real estate owned ...................................................... $ 202
</TABLE>
<PAGE> 8
<TABLE>
<S> <C>
Investments in unconsolidated subsidiaries and associated companies .......... $ -0-
Customers' liability to this bank on acceptances outstanding ................. $ 122
Intangible assets ............................................................ $ -0-
Other assets ................................................................. $ 65,280
TOTAL ASSETS ................................................................. $2,556,348
</TABLE>
<PAGE> 9
<TABLE>
<S> <C> <C>
LIABILITIES
Deposits:
In domestic offices ....................................................... $ 787,592
Noninterest-bearing ................................................... $ 239,126
Interest-bearing ...................................................... $ 548,466
In foreign offices, Edge and Agreement subsidiaries, and IBFs ............. $ 1,125,802
Noninterest-bearing ................................................... $ 18,827
Interest-bearing ...................................................... $1,106,975
Federal funds purchased and securities sold under agreements to repurchase in
domestic offices of the bank and of its Edge and Agreement subsidiaries, and in
IBFs:
Federal Funds purchased and Securities sold under agreements to repurchase $ 225,000
Demand notes issued to the U.S. Treasury ...................................... $ 50,000
Trading Liabilities ........................................................... $ 61
Other borrowed money:
a) With a remaining maturity of one year or less .......................... $ 57,291
b) With a remaining maturity of more than one year ........................ $ 1,763
c) With a remaining maturity of more than three years ..................... $ 2,242
Bank's liability on acceptances executed and outstanding ...................... $ 122
Subordinated notes and debentures ............................................. $ -0-
Other liabilities ............................................................. $ 72,909
TOTAL LIABILITIES ............................................................. $ 2,322,782
Limited-life preferred stock and related surplus .............................. $ -0-
EQUITY CAPITAL
Perpetual preferred stock and related surplus ................................. $ -0-
Common stock .................................................................. $ 29,649
Surplus (exclude all surplus related to preferred stock) ...................... $ 217,008
Undivided profits and capital reserves ........................................ $ (13,211)
Net unrealized gains (losses) on available-for-sale securities ................ $ 120
Cumulative foreign currency translation adjustments ........................... $ -0-
TOTAL EQUITY CAPITAL .......................................................... $ 233,566
TOTAL LIABILITIES AND EQUITY CAPITAL .......................................... $ 2,556,348
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
[ ], [ ], 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
WORLDTEX, INC.
LETTER OF TRANSMITTAL
9 5/8% SERIES A SENIOR NOTES DUE 2007
TO: IBJ SCHRODER BANK & TRUST COMPANY, THE EXCHANGE AGENT
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Courier:
- ------------------------------------------------ -----------------------------------------
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
Bowling Green Station One State Street
P.O. Box 84 New York, New York 10004
New York, New York 10274-0084 Attention: Securities Processing Window
Attention: Reorganization Operations Department Subcellar One, (SC-1)
</TABLE>
By Facsimile:
(212) 858-2611
Attention: Customer Service
Confirm by telephone:
(212) 858-2103
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
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.
The undersigned acknowledges that he or she has received the Prospectus
dated February [ ], 1998, (the "Prospectus") of Worldtex, Inc. (the "Company")
and this Letter of Transmittal (the "Letter of Transmittal"), which together
constitute the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its 9 5/8% Series B Senior Notes due 2007 (the "New 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 principal amount of its outstanding 9 5/8% Series A
Senior Notes due 2007 (the "Old Notes"), of which $175,000,000 aggregate
principal amount is outstanding. Other capitalized terms used but not defined
herein have the meanings given to them in the Prospectus.
This Letter of Transmittal is to be used by Holders of Old Notes (i) if
certificates representing the Old Notes are to be physically delivered herewith;
or (ii) if tender of Old Notes is to be made by book-entry transfer to the
Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to
the procedures set forth in the Prospectus under "The Exchange
Offer -- Procedures for Tendering" by any financial institution that is a
participant in DTC and whose name appears on a security position listing as the
owner of Old Notes; or (iii) if tender of Old Notes is to be made according to
the guaranteed delivery procedures set forth in the Prospectus under "The
Exchange Offer -- Guaranteed Delivery Procedures." Delivery of documents to DTC
does not constitute delivery to the Exchange Agent.
<PAGE> 2
The term "Holder" with respect to the Exchange Offer means any person (i)
in whose name Old 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 Old Notes are held of record by DTC who desires to deliver
such Old 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 Old Notes must complete this Letter of Transmittal in its
entirety.
<PAGE> 3
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
- --------------------------------------------------------------------------------
DESCRIPTION OF 9 5/8% SERIES A SENIOR NOTES DUE 2007 ("OLD NOTES"):
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL PRINCIPAL AMOUNT
NAME(S) AND ADDRESS(ES) OF AMOUNT REPRESENTED TENDERED
REGISTERED HOLDER(S) CERTIFICATE BY (MUST BE IN INTEGRAL
(PLEASE FILL IN, IF BLANK) NUMBERS* CERTIFICATE(S) MULTIPLE OF $1,000*
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
TOTAL
------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer. Unless indicated in the column labeled "Principal Amount
Tendered," any tendering Holder of Old Notes will be deemed to have tendered
the entire aggregate principal amount in the column labeled "Aggregate
Principal Amount Represented by Certificate(s)."
If the space provided above is inadequate, list the principal amounts on a
separate signed schedule and affix the list to this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount of Old Notes. All
other tenders must be in integral multiples of $1,000.
- --------------------------------------------------------------------------------
LADIES AND GENTLEMEN:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Old Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Old Notes tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Company
all right, title and interest in and to the Old Notes tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent its
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Company) with respect to the tendered Old Notes with
full power of substitution to (i) deliver certificates for such Old Notes to the
Company, or transfer ownership of such Old Notes on the account books maintained
by DTC, and deliver all accompanying evidences of transfer and authenticity to,
or upon the order of, the Company; and (ii) present such Old Notes for transfer
on the books of the Company and receive all benefits and otherwise exercise all
rights of beneficial ownership of such Old Notes, all in accordance with the
terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign, and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered tile thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when such Notes are acquired by the Company. THE
UNDERSIGNED HEREBY FURTHER REPRESENTS THAT ANY NEW NOTES ACQUIRED IN EXCHANGE
FOR OLD NOTES TENDERED HEREBY WILL HAVE BEEN ACQUIRED IN THE ORDINARY COURSE OF
BUSINESS OF THE HOLDER RECEIVING SUCH NEW NOTES, WHETHER OR NOT THE UNDERSIGNED,
THAT NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON HAS AN ARRANGEMENT OR
UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN THE DISTRIBUTION OF SUCH NEW
NOTES AND THAT NEITHER THE HOLDER NOR ANY SUCH
<PAGE> 4
OTHER PERSON IS AN "AFFILIATE," AS DEFINED UNDER RULE 405 OF THE SECURITIES ACT,
OF THE COMPANY OR ANY OF ITS SUBSIDIARIES. If the undersigned is not a
broker-dealer, the undersigned represents that it is not engaged in, and does
not intend to engage in, a distribution of New Notes. If the undersigned is a
broker-dealer that will receive New Notes, it represents that the Old Notes to
be exchanged for New Notes were acquired as a result of market-making activities
or other trading activities and not acquired directly from the Company, and it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. The undersigned 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 assignment, transfer and purchase of
the Old Notes tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned (except as noted below with respect to tenders through DTC),
without expense, to the undersigned at the address shown below or at a different
address as may be indicated herein under "Special Payment Instructions" as
promptly as practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company in accordance with the
terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Payment Instructions," please
issue the certificates representing the New Notes issued in exchange for the Old
Notes accepted for exchange and return any Old Notes not tendered or not
exchanged, in the name(s) of the undersigned (or in either such event in the
case of Old Notes tendered by DTC, by credit to the undersigned's account at
DTC). Similarly, unless otherwise indicated under "Special Delivery
Instructions," please send the certificates representing the New Notes issued in
exchange for the Old Notes accepted for exchange and any certificates for Old
Notes not tendered or not exchanged (and accompanying documents, as appropriate)
to the undersigned at the address shown above in the box entitled "Description
of 9 5/8% Series A Senior Notes due 2007", unless, in either event, tender is
being made through DTC. In the event that both "Special Payment Instructions"
and "Special Delivery Instructions" are completed, please issue the certificates
representing the New Notes issued in exchange for the Old Notes accepted for
exchange and return any Old Notes not tendered or not exchanged in the name(s)
of, and send said certificates to, the person(s) so indicated. The undersigned
recognizes that the Company has no obligation pursuant to the "Special Payment
Instructions" and "Special Delivery Instructions" to transfer any Old Notes from
the name of the registered holder(s) thereof if the Company does not accept for
exchange any of the Old Notes so tendered.
Holders of Old Notes who wish to tender their Old Notes and (i) whose Old
Notes are not immediately available, or (ii) who cannot deliver their Old Notes,
this Letter of Transmittal or any other documents required hereby to the
Exchange Agent, or cannot complete the procedure for book-entry transfer, prior
to the Expiration Date, may tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 1 regarding the
completion of this Letter of Transmittal printed below.
<PAGE> 5
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 7)
To be completed ONLY if certificates for Old Notes in a principal
amount not tendered or not accepted for exchange, or New Notes issued in
exchange for Old Notes accepted for exchange, are to be issued in the name
of someone other than the undersigned, or if the Old Notes tendered by
book-entry transfer that are not accepted for exchange are to be credited
to an account maintained by DTC other than the account indicated below
from which the Old Notes were tendered.
ISSUE CERTIFICATE(S) TO:
Name
----------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------------
------------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------------
(SOCIAL SECURITY OR EMPLOYER IDENTIFICATION NUMBER)
Credit unexchanged Old Notes delivered by book-entry transfer to an
account maintained by DTC other than the account indicated below from
which the Old Notes were tendered.
------------------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER,
IF APPLICABLE)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if certificates for Old Notes in a principal
amount not tendered or not accepted for exchange, or New Notes issued in
exchange for Old Notes accepted for exchange, are to be sent to someone
other than the undersigned, or to the undersigned at an address other than
that shown above.
MAIL TO :
Name
----------------------------------------------------
(PLEASE PRINT)
Address
--------------------------------------------
------------------------------------------------------
(INCLUDE ZIP CODE)
------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY DTC TO THE EXCHANGE
AGENT'S ACCOUNT AT DTC AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
DTC Book-Entry Account No.:
Transaction Code No.:
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s):
Window Ticket Number (if any):
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution which guaranteed delivery:
IF DELIVERY BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number: Transaction Code Number:
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
<PAGE> 6
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
<TABLE>
<S> <C>
- ------------------------------------------------------------- ---------------------------
DATE
- ------------------------------------------------------------- ---------------------------
SIGNATURE(S) OF HOLDER(S) DATE
OR AUTHORIZED SIGNATORY
</TABLE>
Area Code and Telephone Number:
The above lines must be signed by the Holder(s) of Old Notes as their
name(s) appear(s) on the Old Notes or, if the Old Notes are tendered by a
participant in DTC, as such participant's name appears on a security position
listing as the owner of the Old Notes, or by person(s) authorized to become
Holder(s) by a properly completed bond power from the Holder(s), a copy of which
must be transmitted with this Letter of Transmittal. If Old Notes to which this
Letter of Transmittal relates are held of record by two or more joint Holders,
then all such Holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 4 regarding the completion of this
Letter of Transmittal printed below.
Name(s):
(PLEASE PRINT)
Capacity:
Address:
(INCLUDE ZIP CODE)
SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION:
(IF REQUIRED BY INSTRUCTION 4)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(NAME OF FIRM)
Dated: , 1998
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. The tendered Old
Notes (or a confirmation of a book-entry transfer into the Exchange Agent's
account at DTC of all Old Notes delivered electronically), as well as a properly
completed and duly executed copy of this Letter of Transmittal or facsimile
hereof and any other documents required by this Letter of Transmittal, must be
received by the Exchange Agent at its address set forth herein prior to 5:00
P.M., New York City time, on the Expiration Date. The method of delivery of the
tendered Old Notes, this Letter of Transmittal and all other required documents
to the Exchange Agent is at the election and risk of the Holder and, except as
otherwise provided below, the delivery will be deemed made only when actually
received or confirmed by the Exchange Agent. Instead of delivery by mail, it is
recommended that the Holder use an overnight or hand-delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. No Letter of
Transmittal or Old Notes should be sent to the Company.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available; or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent, or
cannot complete the procedure for book-entry transfer, prior to 5:00 P.M., New
York City time, on the Expiration Date must tender their Old Notes according to
the guaranteed delivery procedures set forth in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or 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 institution which falls within the
definition of "Eligible Guarantor Institution" contained in Rule 17Ad-15
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (each, an "Eligible Institution"); (ii) prior
to 5:00 P.M., New York City time, on the Expiration Date, the Exchange Agent
must have received from the 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 Old Notes and
the principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within three New York Stock Exchange trading
days after the date of execution of the Notice of Guaranteed Delivery, this
Letter of Transmittal (or facsimile hereof) together with the certificate(s)
representing the Old Notes to be tendered in proper form for transfer (or a
confirmation of electronic delivery of book-entry transfer into the Exchange
Agent's account at DTC) and any other required documents will be deposited by
the Eligible Institution with the Exchange Agent; and (iii) such properly
completed and executed Letter of Transmittal (or facsimile hereof), as well as
all other documents required by this Letter of Transmittal and the
certificate(s) representing all tendered Old Notes in proper form for transfer
(or a confirmation of electronic delivery of book-entry transfer into the
Exchange Agent's account at DTC), must be received by the Exchange Agent within
three New York Stock Exchange trading days after the date of execution of the
Notice of Guaranteed Delivery, all as provided in the Prospectus under the
caption "Exchange Offer -- Guaranteed Delivery Procedures." Any Holder of Old
Notes who wishes to tender his or her Old Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent receives
the Notice of Guaranteed Delivery prior to 5:00 P.M., New York City time, on the
Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed
Delivery will be sent to Holders who wish to tender their Old Notes according to
the guaranteed delivery procedures set forth above.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
absolute right to reject any and all Old Notes not properly tendered or any Old
Notes the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects
or irregularities or conditions of tender as to the Exchange Offer and/or
particular Old 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 Old Notes must be cured within such
time as the Company shall determine. None
<PAGE> 8
of 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 Old
Notes, nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such defects or irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that are not properly tendered and as to which any defects
or irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holder(s) of Old Notes, unless otherwise provided in this
Letter of Transmittal, as soon as practicable following the Expiration Date.
2. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instructions.
3. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Old Note is tendered, the tendering Holder should fill in the principal amount
tendered in the last column of the box entitled "Description of 9 5/8% Series A
Senior Notes due 2007 ("Old Notes")" above. The entire principal amount of Old
Notes delivered to the Exchange Agent will be deemed to have been tendered
unless otherwise indicated. If the entire principal amount of all Old Notes is
not tendered, then Old Notes for the principal amount of Old Notes not tendered
and a certificate or certificates representing New Notes issued in exchange for
any Old Notes accepted will be sent to the Holder at his or her registered
address, unless a different address is provided in the appropriate box on this
Letter of Transmittal, or credited to an appropriate account at DTC, if
applicable, promptly after the Old Notes are accepted for exchange.
4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile hereof) is
signed by the record Holder(s) of the Old Notes tendered hereby, the signature
must correspond with the name(s) as written on the face of the Old Notes or, if
the Old Notes are tendered by a participant in DTC, as such participant's name
appears on a security position listing as the owner of the Old Notes, without
alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
Holder(s) of the Old Notes tendered hereby and the certificate or certificates
for New Notes issued in exchange therefor are to be issued (or any untendered
principal amount of Old Notes is to be reissued) to the Holder, said Holder need
not and should not endorse any tendered Old Notes, nor provide a separate bond
power. In any other case, such Holder must either properly endorse the Old Notes
tendered or transmit a properly completed separate bond power with this Letter
of Transmittal, with the signatures on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the Holder(s) of the Old Notes tendered hereby, such Old Notes must
be endorsed or accompanied by appropriate bond powers signed as the name(s) of
the registered Holder(s) appear(s) on the Old Notes, with the signatures on the
endorsement or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) or any Old 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 so to act must be submitted with this Letter of Transmittal.
Except as otherwise provided below, all signatures on this Letter of
Transmittal (or facsimile hereof) must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal need not be guaranteed if (i) this
Letter of Transmittal is signed by the Holder(s) of the Old Notes tendered
herewith (which term, for these purposes, includes any participant in DTC whose
name appears on a security position listing as the holder of such Old Notes) and
such Holder(s) have not completed the box set forth herein entitled "Special
Payment Instructions" or the box entitled "Special Delivery Instructions"; or
(ii) such Old Notes are tendered for the account of an Eligible Institution.
5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which New
Notes or substitute Old Notes for principal amounts not
<PAGE> 9
tendered or not accepted for exchange are to be issued or sent, if different
from the name and address of the person signing this Letter of Transmittal (or
in the case of tender of Old Notes through DTC, if different from DTC). In the
case of issuance in a different name, the taxpayer identification or social
security number of the person named must also be indicated.
6. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a
Holder whose offered Old Notes are accepted for exchange must provide the
Company (as payer) with his, her or its correct Taxpayer Identification Number
("TIN"), which, in the case of an exchanging Holder who is an individual, is his
or her social security number. If the Company is not provided with the correct
TIN or an adequate basis for exemption, such Holder may be subject to a $50
penalty imposed by the Internal Revenue Service (the "IRS"). In addition,
delivery to such Holder of New Notes may be subject to backup withholding in an
amount equal to 31% of the gross proceeds resulting from the Exchange Offer. If
withholding results in an overpayment of taxes, a refund may be obtained from
the IRS by the Holder. Exempt Holders (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See instructions to the enclosed Guidelines of
Certificate of Taxpayer Identification Number on Substitute Form W-9.
To prevent backup withholding, each exchanging Holder must provide his, her
or its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such Holder is awaiting a
TIN) and that (i) the Holder is exempt from backup withholding; (ii) the Holder
has not been notified by the IRS that he, she or it is subject to backup
withholding as a result of a failure to report all interest or dividends; or
(iii) the IRS has notified the Holder that he, she or it is no longer subject to
backup withholding. In order to satisfy the Exchange Agent that a foreign
individual qualifies as an exempt recipient, such Holder must submit a statement
signed under penalty of perjury attesting to such exempt status. Such statements
may be obtained from the Exchange Agent. If the Old Notes are in more than one
name or are not in the name of the actual owner, consult the Form W-9 for
information on which TIN to report. If you do not provide your TIN to the
Company within 60 days, backup withholding will begin and continue until you
furnish your TIN to the Company.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old 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 Holder of the Old
Notes tendered hereby, or if tendered Old Notes are registered in the name of
any person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the Holder or on any other person(s)) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
8. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive or modify specified conditions in the Exchange Offer in the case of
any Old Notes tendered.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address
specified above. Holders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.
<PAGE> 10
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
CERTIFICATE(S) OLD NOTES OLD NOTES
SURRENDERED TENDERED ACCEPTED
<S> <C> <C>
=============================================================================================
=============================================================================================
- ---------------------------------------------------------------------------------------------
Delivery Prepared by Checked By Date
</TABLE>
<PAGE> 11
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 6)
PAYER'S NAME: WORLDTEX, INC.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1-PLEASE PROVIDE YOUR TIN IN THE BOX AT SOCIAL SECURITY NUMBER
FORM W-9 RIGHT AND CERTIFY BY SIGNING AND DATING OR
DEPARTMENT OF THE BELOW ------------------------------
TREASURY EMPLOYER IDENTIFICATION NUMBER
INTERNAL REVENUE
SERVICE
----------------------------------------------------------------------------
Certification-Under the penalties of perjury, I certify that:
PAYER'S REQUEST 1. The number shown on this form is my correct taxpayer identification
FOR TAXPAYER number (or I am waiting for a number to be issued to me), and
IDENTIFICATION 2. I am not subject to backup withholding because: (a) I am exempt from
NUMBER ("TIN") backup withholding, or (b) I have not been notified by the Internal Revenue
Service that I am subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified me that
I am no longer subject to backup withholding,
Certification Instructions-You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return.
----------------------------------------------------------------------------
Name
(PLEASE PRINT)
Address
(INCLUDE ZIP CODE)
Signature ------------------------- Date PART 2-Awaiting TIN [ ]
----------------
- ------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATION IF YOU
CHECKED THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (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, notwithstanding that I have checked the box in Part 2 (and have completed
this Certificate of Awaiting Taxpayer Identification Number), all reportable
payments made to me prior to the time I provide the US Depositary with a
properly certified taxpayer identification number will be subject to a 31%
back-up withholding tax.
===================================================
SIGNATURE DATE
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
9 5/8% SERIES A SENIOR NOTES DUE 2007
OF
WORLDTEX, INC.
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of Worldtex, Inc. (the "Company") made pursuant to the Prospectus
dated February [ ], 1998 (the "Prospectus") if certificates for the 9 5/8%
Series A Senior Notes due 2007 (the "Old Notes") of the Company are not
immediately available or if the Old Notes, the Letter of Transmittal or any
other documents required thereby cannot be delivered to the Exchange Agent or
the procedure for book-entry transfer cannot be completed, prior to 5:00 P.M.,
New York City time, on the Expiration Date (as defined in the Prospectus). Such
form may be delivered by hand or transmitted by facsimile transmission,
overnight courier or mail to the Exchange Agent. Capitalized terms used by not
defined herein have the meanings given to them in the Prospectus.
TO: IBJ SCHRODER BANK & TRUST COMPANY, THE EXCHANGE AGENT
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By Registered or Certified Mail: By Hand or Overnight Courier:
- ------------------------------------------------ -----------------------------------------
IBJ Schroder Bank & Trust Company IBJ Schroder Bank & Trust Company
Bowling Green Station One State Street
P.O. Box 84 New York, New York 10004
New York, New York 10274-0084 Attention: Securities Processing Window
Attention: Reorganization Operations Department Subcellar One, (SC-1)
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By Facsimile:
(212) 858-2611
Attention: Customer Service
Confirm by telephone:
(212) 858-2103
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID
DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal to be used to tender Old Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal.
LADIES AND GENTLEMEN:
The undersigned hereby tenders to Worldtex, Inc., a Delaware corporation
(the "Company"), upon the terms and subject to the conditions set forth in the
Prospectus and the Letter of Transmittal (which together constitute the
"Exchange Offer"), receipt of which is hereby acknowledged, the principal amount
of Old Notes pursuant to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus.
<PAGE> 2
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
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Principal Amount(s) of Old Notes Name(s) of Record Holder(s)
- ----------------------------------------- -----------------------------------------
- ----------------------------------------- -----------------------------------------
PLEASE PRINT OR TYPE
Address
ZIP CODE
Area Code and Tel. No.
Certificate Nos. (if available) Signature(s)
- ----------------------------------------- -----------------------------------------
Dated:
- -----------------------------------------
If Old Notes will be delivered by
book-entry transfer at The Depository
Trust
Company ("DTC"), Depository Account
No.:
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This Notice of Guaranteed Delivery must be signed by the Holder(s) of Old
Notes exactly as its (their) name(s) appear(s) on certificates for Old Notes or
on a security position listing as the owner of the Old Notes, or by person(s)
authorized to become Holder(s) by endorsements and documents transmitted with
this Notice of Guaranteed Delivery. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person must
provide the following information:
Please print name(s) and address(es)
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Name(s) -----------------------------------------------------------------------
-----------------------------------------------------------------------
Capacity:
-----------------------------------------------------------------------
Address(es):
=======================================================================
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<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, 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
Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby
guarantees that delivery to the Exchange Agent of certificates for the Old Notes
tendered hereby, in proper form for transfer (or confirmation of electronic
delivery of book-entry transfer of such Old Notes into the Exchange Agent's
account at DTC, pursuant to the procedures for book-entry transfer set forth in
the Prospectus), with delivery of a properly completed and duly executed Letter
of Transmittal (or manually signed facsimile thereof) with any required
signature guarantees and any other required documents, will be received by the
Exchange Agent at one of its addresses set forth above within three New York
Stock Exchange trading days after the date of execution of the Notice of
Guaranteed Delivery.
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Name of Firm AUTHORIZED SIGNATURE
- ----------------------------------
Name
Address PLEASE PRINT OR TYPE
Title
- -----------------------------------------
ZIP CODE
Area Code & Tel. No. Date
Dated: , 1998
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NOTE: DO NOT SEND OLD NOTES WITH THIS FORM; OLD NOTES SHOULD BE SENT WITH YOUR
LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE EXCHANGE AGENT
WITHIN THREE NEW YORK STOCK EXCHANGE TRADING DAYS AFTER THE DATE OF
EXECUTION OF THE NOTICE OF GUARANTEED DELIVERY.
<PAGE> 1
EXHIBIT 99.3
WORLDTEX, INC.
OFFER TO EXCHANGE ITS
9 5/8% SERIES B SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
9 5/8% SERIES A SENIOR NOTES DUE 2007
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON [ ], 1998, UNLESS THE OFFER IS EXTENDED.
February [ ], 1998
To Brokers, Dealers, Commercial
Banks, Trust Companies and
Other Nominees:
We are enclosing the material listed below relating to the offer of
Worldtex, Inc., a Delaware corporation (the "Company"), to exchange $1,000
principal amount of its 9 5/8% Series B Senior Notes due 2007 (the "New Notes"),
which have been registered under the Securities Act of 1933, as amended,
pursuant to a registration statement, for each $1,000 principal amount of its 9
5/8% Series A Senior Notes due 2007 (the "Old Notes"), of which $175,000,000
aggregate principal amount is outstanding, upon the terms and subject to the
conditions set forth in the Prospectus, dated February [ ], 1998 (the
"Prospectus") and in the related Letter of Transmittal (which together
constitute the "Exchange Offer").
THE EXCHANGE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF OLD NOTES
BEING TENDERED. The Exchange Offer is, however, subject to other conditions. See
the section "The Exchange Offer -- Conditions" in the Prospectus.
We are asking you to contact your clients for whom you hold Old Notes
registered in your name (or in the name of your nominee) or who hold Old Notes
registered in their own names. Please bring the Exchange Offer to their
attention as promptly as possible.
For your information and for forwarding to your clients, we are enclosing
the following documents:
1. The Prospectus, dated February [ ], 1998;
2. The Letter of Transmittal for your use and for the information of
your clients;
3. The Notice of Guaranteed Delivery to be used to accept the
Exchange Offer if the Old Notes are not immediately available or if the Old
Notes and all other required documents cannot be delivered to the Exchange
Agent, IBJ Schroder Bank & Trust Company, by the Expiration Date (as
defined in the Prospectus) or if the procedure for book-entry transfer
cannot be completed on a timely basis; and
4. A form of letter which may be sent to your clients for whose
account you hold Old Notes registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON [ ], 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent
<PAGE> 2
to the Exchange Agent and certificates representing the Old Notes should be
delivered to the Exchange Agent, all in accordance with the instructions set
forth in the Letter of Transmittal and the Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures."
Any questions or requests for assistance or additional copies of the
enclosed materials may be directed to IBJ Schroder Bank & Trust Company, the
Exchange Agent, at the address and telephone number set forth below:
By registered or certified mail:
IBJ Schroder Bank & Trust Company
Bowling Green Station
P.O. Box 84
New York, New York 10274-0084
Attention: Reorganization Operations Department
By hand or overnight courier:
IBJ Schroder Bank & Trust Company
One State Street
New York, New York 10004
Attention: Securities Processing Window
Subcellar one, (SC-1)
By facsimile: (212) 858-2611
Attention: Customer Service
Confirm by telephone: (212) 858-2103
Very truly yours,
WORLDTEX, INC.
<PAGE> 1
EXHIBIT 99.4
WORLDTEX, INC.
OFFER TO EXCHANGE ITS
9 5/8% SERIES B SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
9 5/8% SERIES A SENIOR NOTES DUE 2007
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON [ ], 1998, UNLESS THE OFFER IS
EXTENDED.
February [ ], 1998
To Our Clients:
Enclosed for your consideration are the Prospectus, dated February [ ],
1998 (the "Prospectus"), and the related Letter of Transmittal (which together
constitute the "Exchange Offer") setting forth an offer by Worldtex, Inc., a
Delaware corporation (the "Company"), to exchange $1,000 principal amount of its
9 5/8% Series B Senior Notes due 2007 (the "New Notes"), which have been
registered under the Securities Act of 1933, as amended, pursuant to a
registration statement, for each $1,000 principal amount of its 9 5/8% Series A
Senior Notes due 2007 (the "Old Notes"), of which $175,000,000 principal amount
is outstanding, upon the terms and subject to the conditions set forth in the
Prospectus.
WE ARE THE HOLDER OF RECORD OF OLD NOTES FOR YOUR ACCOUNT. A TENDER OF SUCH
OLD NOTES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR
INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION
ONLY AND CANNOT BE USED BY YOU TO TENDER OLD NOTES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish us to tender any or all of
the Old Notes held by us for your account, upon the terms and subject to the
conditions set forth in the Prospectus and the Letter of Transmittal.
Your attention is directed to the following:
(1) The Exchange Offer is for any and all outstanding Old Notes.
(2) The Exchange Offer is not conditioned upon any minimum number of
Old Notes being tendered.
(3) The Exchange Offer is subject to certain conditions set forth in
the Prospectus in the section captioned "The Exchange Offer -- Conditions."
(4) The Exchange Offer and withdrawal rights will expire at 5:00
p.m., New York City time, on [ ], 1998, unless the Exchange
Offer is extended. Your instructions to us should be forwarded to us in
ample time to permit us to submit a tender on your behalf.
(5) Any transfer taxes applicable to the exchange of Old Notes
pursuant to the Exchange Offer will be paid by the Company, except as
otherwise provided in Instruction 7 of the Letter of Transmittal.
If you wish to have us tender any or all of your Old Notes held by us for
your account upon the terms and subject to the conditions set forth in the
Exchange Offer, please so instruct us by completing, executing, detaching and
returning to us the instruction form on the detachable part hereof.
<PAGE> 2
WORLDTEX, INC.
INSTRUCTIONS WITH RESPECT TO
OFFER TO EXCHANGE ITS
9 5/8% SERIES B SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
9 5/8% SERIES A SENIOR NOTES DUE 2007
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON [ ], 1998, UNLESS THE OFFER IS EXTENDED.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Prospectus, dated February [ ], 1998, and the related Letter of Transmittal
(which together constitute the "Exchange Offer") in connection with the offer by
Worldtex, Inc., a Delaware corporation (the "Company"), to exchange $1,000
principal amount of its 9 5/8% Series B Senior Notes due 2007 (the "New Notes"),
which have been registered under the Securities Act of 1933, as amended,
pursuant to a registration statement, for each $1,000 principal amount of its
9 5/8% Series A Senior Notes due 2007 (the "Old Notes"), of which $175,000,000
aggregate principal amount is outstanding, upon the terms and subject to the
conditions set forth in the Prospectus.
This will instruct you to tender the Old Notes indicated below held by you
for the account of the undersigned, pursuant to the terms and conditions set
forth in the Prospectus and the related Letter of Transmittal. (Check one).
[ ] Please tender my Old Notes held by you for my account. If I do not wish to
tender all of the Old Notes held by you for my account, I have identified
on a signed schedule attached hereto the number of Old Notes that I do not
wish tendered.
[ ] Please do not tender any Old Notes held by you for my account.
Date , 1998
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SIGNATURE(S)
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PLEASE PRINT NAME(S) HERE
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AREA CODE AND TELEPHONE NO.
Unless a specific contrary instruction is given in the space provided, your
signature(s) hereon shall constitute an instruction to us to tender all Old
Notes.
