<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1997
REGISTRATION NO. 33-67854
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CMI INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
---------------------
DELAWARE
(State or other jurisdiction of incorporation or organization)
2211
(Primary Standard Industrial Classification Code Number)
57-0836097
(I.R.S. Employer Identification Number)
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1301 GERVAIS STREET, SUITE 700
COLUMBIA, SOUTH CAROLINA 29201
(803) 771-4434
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JOSEPH L. GORGA
PRESIDENT & CHIEF EXECUTIVE OFFICER
1301 GERVAIS STREET, SUITE 700
COLUMBIA, SOUTH CAROLINA 29201
(803) 771-4434
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES OF COMMUNICATIONS TO:
THOMAS C. HERMAN
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
999 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: From time to time after the effective date of this Post-Effective
Amendment to the Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
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<PAGE> 2
CMI INDUSTRIES, INC.
FORM S-1 REGISTRATION STATEMENT
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
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<S> <C> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.................... Prospectus Summary; The Company; Risk Factors
4. Use of Proceeds................................ Use of Proceeds
5. Determination of Offering Price................ Plan of Distribution
6. Dilution....................................... Not Applicable
7. Selling Security Holders....................... Not Applicable
8. Plan of Distribution........................... Outside Front Cover Page; Plan of
Distribution
9. Description of Securities to be Registered..... Prospectus Summary; Description of the
Notes
10. Interests of Named Experts and Counsel......... Not Applicable
11. Information with Respect to the Registrant
a. Description of Business.................. Prospectus Summary; The Company;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business
b. Description of Property.................. Business -- Facilities
c. Legal Proceedings........................ Business -- Litigation
d. Market Price of and Dividends on Equity
Securities............................. Not Applicable
e. Financial Statements..................... Financial Statements
f. Selected Financial Data.................. Prospectus Summary; Selected Financial
Data
g. Supplementary Financial Information...... Not Applicable
h. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
i. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure............................. Not Applicable
j. Directors and Executive Officers......... Management; Certain Transactions;
Ownership of the Company
k. Executive Compensation................... Management
l. Security Ownership of Certain Beneficial
Owners and Management.................. Ownership of the Company
m. Certain Relationships and Related
Transactions........................... Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
</TABLE>
<PAGE> 3
SUBJECT TO COMPLETION MAY 8, 1997
PROSPECTUS
$125,000,000
CMI INDUSTRIES, INC.
9 1/2% SENIOR SUBORDINATED NOTES DUE 2003
In October 1993, CMI Industries, Inc. (together with its subsidiaries "CMI"
or the "Company") issued $125 million aggregate principal amount of its 9 1/2%
Senior Subordinated Notes due 2003 (the "Notes"). Interest on the Notes is
payable semiannually on April 1 and October 1 of each year. The Notes are
redeemable at the option of CMI, in whole or in part, at any time on or after
October 1, 1998 at the redemption prices set forth herein, plus accrued and
unpaid interest to the date of redemption. Upon a Change of Control (as defined
herein), (i) the Company will have the option to redeem the Notes, in whole or
in part, at a redemption price equal to the principal amount thereof, plus
accrued and unpaid interest to the date of redemption, plus the Applicable
Premium (as defined herein) and (ii) subject to certain conditions, the Company
will be required to make an offer to purchase each holder's Notes at 101% of the
principal amount thereof, together with accrued and unpaid interest to the date
of purchase.
The Notes are unsecured and subordinated in right of payment to all
existing and future Senior Indebtedness (as defined herein) of the Company. As
of December 28, 1996, the aggregate outstanding principal amount of Senior
Indebtedness was approximately $24.9 million. Additional Senior Indebtedness may
be incurred by the Company from time to time, subject to certain restrictions
contained in the indenture pursuant to which the Notes were issued. See
"Description of the Notes."
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT IN THE NOTES.
------------------------
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.
------------------------
This Prospectus is to be used by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") in connection with offers and sales related to
market-making transaction in the over-the-counter market at negotiated prices
related to prevailing market rates at the time of sale. Merrill Lynch may act as
principal or agent in such transactions.
The date of this Prospectus is May , 1997.
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Notes. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted from the
Prospectus in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Notes, reference is made
to the Registration Statement. Statements made 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 Registration
Statement and other information filed by the Company may be inspected at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission at Suite 1400, Citicorp Center, 500 West Madison
Street, Chicago, Illinois 60661, and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material may also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission maintains a Web site
that contains reports and other information regarding registrants such as the
Company that file electronically with the Commission. The address of such site
is http://www.sec.gov.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, is required to file periodic reports and other information with
the Commission. Such obligation will be suspended if the Notes are not listed on
a national securities exchange or quoted on NASDAQ and are held of record by
less than 300 holders as of December 29, 1996 or the first day of any fiscal
year thereafter. In accordance with the indenture pursuant to which the Notes
were issued (the "Indenture"), the Company will, in any event, file with the
Commission, to the extent permitted under the Exchange Act, the annual reports,
quarterly reports and other documents required to be filed with the Commission
pursuant to Section 13(a) or 15(d) of the Exchange Act regardless of whether the
Company is subject to such Sections and will make such reports and documents
available to the holders of the Notes within 15 days after it files them with
the Commission or, if filing such reports and documents by the Company with the
Commission is not permitted under the Exchange Act, within 15 days after it
would otherwise have been required to file such reports and documents if
permitted.
The Company intends to furnish holders of the Notes with annual reports
containing consolidated financial statements audited and reported upon with an
opinion expressed by independent auditors and with quarterly reports containing
unaudited consolidated financial statements for the first three quarters of each
fiscal year.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless the
context otherwise requires, references in this Prospectus to "CMI" or the
"Company" shall refer to CMI Industries, Inc., a Delaware corporation, and its
subsidiaries.
THE COMPANY
CMI Industries, Inc. and its subsidiaries (collectively "CMI" or the
"Company") manufacture textile products that serve a variety of markets,
including the home furnishings, woven apparel, elasticized knit apparel,
furniture upholstery, transportation upholstery, consumer products and
industrial/medical markets. The Company operates through two groups: the
Greige Fabrics Division and the Finished Fabrics Division. The Company had net
sales of $374.0 million in 1996. The Greige Fabrics Division accounted for 42%
of 1996 net sales, and the Finished Fabrics Division accounted for 58% of 1996
net sales.
The Greige Fabrics Division is one of the largest domestic manufacturers of
light to midweight greige (unfinished) fabrics for sale to third parties. The
division's product line includes printcloths, broadcloths, twills and other
fabrics of 100% cotton and blends of polyester and combed or carded cotton, and
synthetic yarns. The division sells its fabrics primarily to integrated
manufacturers and converters for use in a wide variety of home furnishings,
woven apparel and industrial products. The Greige Fabrics Division also targets
selected niches in markets where value-added services can differentiate its
fabrics from imported fabrics. In addition, this division works closely with
certain manufacturers to customize fabrics, packaging and services to their
specific requirements.
The Finished Fabrics Division manufactures fabrics and products for sale to
the furniture upholstery, transportation upholstery, consumer products and
elasticized apparel markets. Furniture upholstery is supplied for use in
residential applications, office and public seating and wall panels for
open-plan office systems. Customers include contract and residential furniture
manufacturers. Furniture upholstery is also sold through an extensive
distributor network. Transportation upholstery is supplied for use in automobile
and light truck seating and interior component applications to domestic
automobile manufacturers and to Japanese manufacturers with domestic production
facilities. Consumer products such as blankets, mattress pads and afghans are
manufactured for sale to major retailers. The Finished Fabrics Division is a
leading manufacturer of dyed and finished elasticized fabrics primarily for use
in intimate apparel and foundation garments and also for use in stretch fabric
activewear and industrial and medical products. The division's vertically
integrated manufacturing operations produce woven and knit fabrics using a
variety of spandex, polyester, rayon, nylon and cotton yarns. Various dyeing and
finishing technologies are utilized which enable the division to finish and dye
its fabrics to achieve consistent specifications and color matching for its
products.
The Company was formed in 1986 at the direction of Merrill Lynch Capital
Partners, Inc. ("ML Capital Partners"), a wholly owned subsidiary of Merrill
Lynch & Co., Inc. ("ML & Co."), together with certain members of present or
former management for the purpose of acquiring Clinton Mills, Inc., a South
Carolina corporation, a predecessor in interest to the Greige Fabrics Division.
Affiliates of ML Capital Partners and certain members of management of the
Company who acquired shares of the Company's common stock (the "Common Stock")
in 1986 and thereafter and their affiliates (the "Management Investors")
currently own 58.8% and 40.9%, respectively, of the outstanding Common Stock.
THE NOTES
Notes Offered.............. $125,000,000 principal amount of 9 1/2% Senior
Subordinated Notes due 2003 (the "Notes").
Maturity Date.............. October 1, 2003.
Interest Payment Dates..... April 1 and October 1.
3
<PAGE> 6
Mandatory Redemption....... None; however, the Company must offer to purchase,
subject to certain conditions, each holder's
Notes (i) at 101% of the principal amount thereof
upon a Change of Control and (ii) at 100% of the
principal amount thereof upon certain Asset
Sales, up to the amount of the net proceeds from
such sales. See "Description of
Notes -- Covenants."
Optional Redemption........ The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after October 1, 1998 at the redemption prices
set forth herein, plus accrued and unpaid
interest to the date of redemption.
Change of Control.......... Upon a Change of Control, (i) the Company will have
the option to redeem the Notes, in whole or in
part, at a redemption price equal to the
principal amount thereof, plus accrued and unpaid
interest to the date of redemption, plus the
Applicable Premium and (ii) subject to certain
conditions, the Company will be required to make
an offer to purchase each holder's Notes at 101%
of the principal amount thereof, together with
accrued and unpaid interest to the date of
purchase. Certain transactions with Permitted
Holders (as defined herein) may not be deemed to
be a Change of Control.
Ranking.................... The Notes are unsecured obligations of the Company
subordinated to all existing and future Senior
Indebtedness of the Company. As of December 28,
1996, the aggregate outstanding amount of Senior
Indebtedness of the Company was approximately
$24.9 million and no senior subordinated or
subordinated indebtedness of the Company (other
than the Notes) was outstanding.
Covenants.................. The Indenture contains certain covenants that,
among other things, restrict the payment of
dividends on and redemptions of capital stock of
the Company, the making of certain investments by
the Company and its Restricted Subsidiaries (as
defined herein), the incurrence of additional
indebtedness by the Company and its Restricted
Subsidiaries, the incurrence of other senior
subordinated indebtedness, the issuance of
preferred stock by Restricted Subsidiaries, the
incurrence of liens, the application of the
proceeds of certain asset sales, transactions
with affiliates, the incurrence of restrictions
on the ability of Restricted Subsidiaries to pay
dividends or other payments to the Company and
the ability of the Company to engage in certain
mergers or consolidations or to transfer all or
substantially all of its assets to another
person.
Market..................... The Notes were sold to a limited number of
investors. The Notes are included in the Fixed
Income Pricing System data base maintained by the
NASDAQ stock market and are traded
over-the-counter. Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"), which makes
a market in the Notes and is an affiliate of ML
Capital Partners, has advised the Company that it
intends to make a market in the Notes but there
can be no assurance that Merrill Lynch will
continue to do so.
4
<PAGE> 7
RISK FACTORS
For a discussion of certain factors that should be considered in evaluating
an investment in the Notes, see "Risk Factors."
THE REFINANCING AND RELATED TRANSACTIONS
In October 1993, the Company consummated an underwritten public offering
(the "Offering") of $125 million principal amount of 9 1/2% Senior Subordinated
Notes due 2003 (the "Notes"). Immediately upon the issuance of the Notes, the
Company's principal operating subsidiaries, Clinton Mills, Inc. (including its
Elastic Fabrics of America Division) and Chatham Manufacturing, Inc., were
merged with and into the Company (the "Subsidiary Mergers"). The effect of the
Subsidiary Mergers was to convert the Company from a holding company to an
operating company. Subsequently, in February and March 1997, the Company
realigned two groups within the Finished Fabrics Division as separate operating
companies, Chatham Fabrics LLC, a Delaware limited liability company, and
Elastic Fabrics of America LLC, a Delaware limited liability company.
The Company offered the Notes as part of an effort to improve its financial
and operating flexibility. The net proceeds of the Offering, together with
initial borrowings under a $70 million revolving credit facility from The First
National Bank of Boston, which serves as the agent bank (the "Agent Bank"),
NationsBank of North Carolina, N.A. and The Wachovia Bank of South Carolina and
a $5.0 million uncommitted line of credit from The Wachovia Bank of South
Carolina, were used to refinance $118.7 million of outstanding debt, comprised
of $40.9 million in term loans and $46.7 million in revolving credit loans under
then-existing loan agreements with the Company's subsidiaries (the "Subsidiary
Loan Agreements"), and $31.1 million of 12% Senior Subordinated Debentures due
1999 issued by Clinton Mills, Inc. (the "Clinton Debentures"). In March 1996,
the unsecured revolving credit facility was replaced with an $80.0 million
secured revolving credit facility (the "Credit Agreement") with the same group
of lenders and the Wachovia line of credit was renewed at $4.0 million (the
"Wachovia Credit Facility" and, together with the Credit Agreement, constitute
the "Bank Credit Facilities"). The Company and the lenders amended the Credit
Agreement in February 1997 to reduce the borrowing limit to $65 million, to
contemplate the realignment of the Company's assets into separate operating
entities, which was completed during the second quarter of 1997, and to extend
the maturity of the Credit Agreement by two years to January 2000.
THE RESTRUCTURING
Effective December 1995, the Company approved a restructuring plan to
improve operating performance, reduce costs and realign certain resources in
order to better serve its customers (the "Restructuring"). In connection with
the plan, the Company recorded a $12.9 million nonrecurring charge ($8.1
million after related income tax benefits) to operating expenses in the fourth
quarter of 1995. The restructuring plan consisted of: (1) the closing of the
Greige Fabrics Division's Lydia plant in Clinton, SC; (2) the consolidation of
the Finished Fabrics Division's weaving operations in Elkin, NC from three
buildings to two buildings; (3) the downsizing of the Company's corporate
offices in Columbia, SC and relocation of certain resources back to the
operating divisions; (4) the write-off and proposed sale of certain idle and
impaired assets; and (5) other process improvement initiatives designed to
reduce costs but which also required severance, retirement, or other
nonrecurring charges in order to implement the facility closures and overhead
reductions. In total, the Company estimates that over 700 manufacturing and
administrative positions have been permanently eliminated. Although each of
the restructuring initiatives had been completed by the end of 1996, certain
assets are still being offered for sale.
SUMMARY FINANCIAL INFORMATION
Unless otherwise indicated or the context otherwise requires, references in
this Prospectus to years and quarters mean the Company's 52- or 53-week fiscal
years ended on or about December 31 and related fiscal quarters. Fiscal years
1993, 1994, 1995 and 1996 contained 52 weeks and ended January 1, 1994,
December 31, 1994, December 30, 1995 and December 28, 1996, respectively. Fiscal
year 1992 contained 53 weeks and ended January 2, 1993.
5
<PAGE> 8
The following table sets forth summary historical financial information for
the Company for fiscal years 1992 through 1996, which has been derived from the
audited financial statements of the Company for such periods. The information
contained in the following table reflects the results of operations of acquired
businesses from the respective dates of acquisition. For additional information,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements of the Company and the related Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Net sales......................... $352,338 $370,396 $390,067 $408,636 $374,044
Gross profit...................... 55,538 51,472 46,624 40,711 28,156
Selling, general and
administrative expenses......... 23,874 29,360 31,433 32,704 31,097
Restructuring and other
nonrecurring charges(1)......... -- -- -- 17,682 --
Operating income (loss)........... 31,664 22,112 15,191 (9,675) (2,941)
Interest expense.................. (10,104) (10,558) (14,430) (17,174) (15,425)
Other income (expense)............ (103) (419) 1,397 1,406 1,588
Income (loss) before income taxes
and extraordinary items......... 21,457 11,135 2,158 (25,443) (16,778)
-------- -------- -------- -------- --------
Net income (loss)................. $ 13,103 $ 4,653 $ 1,369 $(15,943) $(10,663)
======== ======== ======== ======== ========
Ratio of earnings to fixed
charges(2)...................... 3.04x 2.02x 1.15x (0.48)x (0.09)x
BALANCE SHEET DATA (AT END OF
PERIOD)
Working capital................... $ 64,412 $ 82,932 $ 94,139 $ 80,542 $112,623
Property, plant and equipment,
net............................. 112,337 120,411 135,800 125,774 112,545
Total assets...................... 230,462 249,575 281,949 257,108 233,534
Long-term debt, less current
portion......................... 100,608 124,052 153,962 154,245 143,749
Stockholders' equity.............. 55,749 60,402 61,771 42,508 31,845
OTHER DATA AND OTHER FINANCIAL
RATIOS
EBITDA(3)......................... $ 48,366 $ 41,430 $ 36,790 $ 17,040 $ 21,293
Depreciation and
amortization(4)................. 16,630 19,773 20,294 22,670 22,637
Capital expenditures.............. 22,857 25,179 28,390 8,850 9,288
Ratio of EBITDA to interest
expense(5)...................... 5.05x 4.18x 2.67x 1.03x 1.43x
Ratio of total debt (at end of
period) to EBITDA............... 2.22x 3.07x 4.25x 9.10x 6.94x
</TABLE>
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(1) In 1995, includes $4,782 of executive severance charges recorded in the
third quarter related to the retirement of Mr. G. T. Williams, the
Company's former President and Chief Executive Officer, and $12,900 of
charges recorded in the fourth quarter related to the Restructuring.
(2) For purposes of computing this ratio, earnings consist of income before
income taxes, extraordinary item plus fixed charges. Fixed charges consist
of interest expense on debt, amortization of deferred debt cost and debt
discount cost and the estimated interest component of rent expense.
(3) Represents income before interest, income taxes, depreciation and
amortization. The Company has included information concerning EBITDA as a
measure of the Company's ability to service its debt. EBITDA should not be
considered as an alternative to, or more meaningful than, operating income
or
6
<PAGE> 9
cash flow as an indicator of the Company's operating performance. See the
Statements of Cash Flows included in the Financial Statements.
(4) Excludes amortization of deferred debt cost and debt discount cost. Includes
amortization of a $5.0 million noncompetition agreement obtained in an
acquisition, which was amortized over a two year period from
February 14, 1992 to February 14, 1994. Amortization expense includes
approximately $2.2 million, $2.5 million, and $0.3 million for the years
ended January 2, 1993, January 1, 1994, and December 31, 1994,
respectively, with respect to this agreement.
(5) Interest expense excludes amortization of deferred debt cost and debt
discount cost.
7
<PAGE> 10
RISK FACTORS
SUBSTANTIAL LEVERAGE
The Company had total Indebtedness (as defined in the Indenture) of
approximately $152.3 million on December 28, 1996. In addition, the Company had
up to $42.4 million of additional borrowing capacity under the Bank Credit
Facilities as of that date.
The level of the Company's indebtedness could have important consequences
to holders of the Notes including, but not limited to, the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (ii) a portion of the Company's cash flow from
operations must be dedicated to the payment of principal and interest on its
indebtedness, thereby reducing the funds available to the Company for its
operations; (iii) the Company's borrowings under the Bank Credit Facilities will
be at floating rates of interest, which could result in higher interest expenses
in the event of an increase in interest rates; (iv) such indebtedness contains
and will contain financial and restrictive covenants which if violated may
result in an event of default which, if not cured or waived, could have a
material adverse effect on the Company; and (v) the Company's high degree of
leverage may make it more vulnerable to general economic downturns. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SUBORDINATION OF THE NOTES TO SENIOR INDEBTEDNESS; ASSET ENCUMBRANCES
The payment of principal of, premium, if any, and interest on, and any
other amounts owing in respect of the Notes will be subordinated to the prior
payment in full of all existing and future Senior Indebtedness of the Company,
which includes indebtedness under the Bank Credit Facilities. Therefore, in the
event of the bankruptcy, liquidation, dissolution, reorganization or other
winding up of the Company, the assets of the Company will be available to pay
obligations in respect of the Notes only after all Senior Indebtedness has been
paid in full, and there may not be sufficient assets remaining to pay amounts
due on any or all of the Notes. In addition, the Company may not pay the
principal of, premium, if any, or interest on, and any other amounts owing in
respect of, the Notes, or purchase, redeem or otherwise retire the Notes, if a
default in payment exists with respect to Senior Indebtedness. Under certain
circumstances, no payments may be made for a specified period with respect to
the principal of, premium, if any, or interest on, and any other amounts owing
in respect of, the Notes if a nonpayment default exists with respect to certain
Senior Indebtedness, including indebtedness under the Bank Credit Facilities.
See "Description of the Notes -- Subordination." The Company may incur up to
$65.0 million in revolving indebtedness under the Credit Agreement and up to
$4.0 million in indebtedness on an uncommitted basis under the Wachovia Credit
Facility.
The indebtedness under the Credit Agreement is secured by receivables,
certain inventories and certain intangibles, and contains a negative covenant
limiting the Company's right to grant security interests in its other assets.
The Wachovia Credit Facility is unsecured. The Notes are not secured by any
assets of the Company, and the Company has the right under the Indenture to
grant security interests in substantially all of its assets to secure Senior
Indebtedness. See "Description of Bank Credit Facilities" and "Description of
the Notes."
IMPACT OF DOWNTURNS IN GENERAL ECONOMIC OR TEXTILE INDUSTRY CONDITIONS
The Company and most of the United States textile industry are sensitive to
changes in general economic conditions. Downturns in general economic conditions
have led historically to periodic downturns in the Company's business. The
Company's production or sales prices could in the future be negatively affected
by several factors beyond the Company's control, including cyclical downturns in
the general economy or in the textile industry, increased competition, increases
in raw material prices and changes in consumer preferences.
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<PAGE> 11
In addition, the ability of the Company to maintain its margins during downturns
in the general economy is affected by the significant fixed costs of its
business. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview."
IMPACT OF COMPETITION AND REDUCTION IN IMPORT PROTECTION
The domestic textile industry is highly competitive and the Company
encounters direct competition from numerous domestic suppliers of fabric as well
as from integrated textile manufacturers. In addition, foreign textile
manufacturers are a significant competitive force in the market for commodity
style greige woven fabrics and affect the Greige Fabrics Division's competitive
environment. This division's fabrics are also used in apparel products which
compete with imported garments. Under the import tariff and quota framework
developed under the Arrangement Regarding International Trade in Textiles and
commonly known as the Multifiber Arrangement (the "MFA"), most significant
exporters of fabrics were subject to annual quotas. However, the MFA expired on
December 31, 1994 and was replaced by The Uruguay Round Agreement (the "Uruguay
Agreement") on textiles and clothing which contains a schedule for the gradual
phase-out of quotas established pursuant to the MFA over a ten year transition
period. After the transition period, textile and clothing trade will be fully
integrated into the World Trade Organization and subject to the same
restrictions as other sectors. The Uruguay Agreement contains a provision for
reducing tariffs on textiles and clothing products imposed by the United States
by approximately 12% overall, with the reductions phased in over a ten year
period. The reduction in the import protection accorded domestic fabric and
apparel manufacturers could adversely affect the Company. See
"Business -- Competition and International Trade Policy."
AVAILABILITY AND COST OF RAW MATERIALS
The principal raw materials used in the Company's operations are cotton and
man-made fibers and yarns. The price and availability of cotton are dependent
upon the level of cotton production. Cotton production is subject to factors
beyond the Company's control such as weather conditions and other forces of
nature. Additionally, the supply of cotton could be reduced as a result of
changes in federal agricultural policy. Similarly, the price and availability of
man-made fibers and yarns, some of which may only be obtained from a limited
number of suppliers, are influenced by demand, manufacturing capacity and costs,
and petroleum prices. The cost to the Company of these raw materials may
fluctuate significantly from time to time because of these factors and the
Company cannot provide assurance that it will be able to pass through any
increased costs to its customers. In such event, the Company's profitability
could be adversely affected. See "Business -- Raw Materials."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes are not listed on any securities exchange and the Company does
not intend to apply for listing of the Notes on any securities exchange;
however, the Notes are included in the Fixed Income Pricing System data base
maintained by the NASDAQ stock market and are traded over the counter. The
Company has been advised by Merrill Lynch that it intends to continue making a
market in the Notes, as it has done since the consummation of the Offering.
However, Merrill Lynch is not obligated to do so and any market-making
activities with respect to the Notes may be discontinued at any time without
notice. If Merrill Lynch conducts any market-making activities, it may be
required to deliver a "market-making prospectus" when effecting offers and sales
of the Notes because it is an affiliate of the Company. See "Ownership of the
Company." For so long as a market-making prospectus is required to be delivered,
the ability of Merrill Lynch to make a market in the Notes may, in part, be
dependent on the ability of the Company to maintain a current market-making
prospectus. Although the Company has agreed with Merrill Lynch to maintain a
current market-making prospectus for so long as such a prospectus is required to
be delivered, there can be no assurance that the Company will at all times be
able to maintain such a prospectus, and its doing so will not obligate Merrill
Lynch to make a market in the Notes. Accordingly, there can be no assurance as
to the
9
<PAGE> 12
liquidity of the trading market for the Notes or that an active public market
for the Notes will continue to exist. If an active public market does not
continue to exist, the market price and liquidity of the Notes may be adversely
affected.
ABILITY OF AFFILIATES OF ML CAPITAL PARTNERS TO CONTROL THE COMPANY
Certain affiliates of ML Capital Partners control 58.8% of the voting power
of the Company. See "Ownership of the Company." Accordingly, in the event such
affiliates of ML Capital Partners vote in concert in connection with matters
submitted to a stockholder vote, such as the election of the Company's Board of
Directors, they will be able to determine the outcome of such matters and
control the direction and future operations of the Company subject to the right
of management affiliated stockholders to approve certain transactions under the
supermajority voting requirements of a stockholders agreement. See "Ownership of
the Company -- Restated Stockholders Agreement."
10
<PAGE> 13
THE COMPANY
The Company is a diversified manufacturer of textile products serving a
variety of markets including the home furnishings, woven apparel, elasticized
knit apparel, furniture upholstery, transportation upholstery, consumer products
and industrial/medical markets. The Company operates through two groups: the
Greige Fabrics Division, which is one of the largest domestic manufacturers of
light to midweight greige (unfinished) fabrics for sale to third parties; and
the Finished Fabrics Division, which is a leading manufacturer of dyed and
finished elasticized knit fabrics, and a manufacturer of fabrics and products
for sale to the furniture upholstery, transportation upholstery and consumer
products markets. The Company had net sales of $374.0 million in 1996. The
Greige Fabrics Division and the Finished Fabrics Division accounted for
approximately 42% and 58%, respectively, of the Company's 1996 net sales.
The Company is the successor to businesses founded in the late 1800's. The
Greige Fabric Division's business was founded in 1896 and was controlled by
descendants of the founder until 1984 when it was acquired, together with the
former Elastic Fabrics of America Division, by Clinton Mills, Inc., a South
Carolina corporation ("Old Clinton"). The Company was formed in 1986 as CMI
Holdings, Inc. at the direction of ML Capital Partners, a wholly owned
subsidiary of ML & Co., together with certain present or former members of
management of the Company for the purpose of acquiring Old Clinton in December
1986 (the "1986 Acquisition").
In February 1992, the Company acquired a minority common stock interest in
Chatham Manufacturing, Inc. ("Chatham"), which was organized by the Company and
certain affiliates of ML Capital Partners who were not then stockholders of the
Company, to acquire the assets of Chatham Manufacturing Company ("Old Chatham")
and assets of another business affiliated with Old Chatham. Chatham acquired the
assets of Old Chatham in February 1992 for total consideration of approximately
$54.5 million, including the assumption of certain liabilities, and, pursuant to
an exchange arrangement entered into at that time, became a wholly owned
subsidiary of the Company in December of that year. In the Subsidiary Mergers,
the Clinton Mills subsidiary, including its Elastic Fabrics of America Division,
and the Chatham subsidiary, each became a division of the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financing Agreements" and "Ownership of the Company."
On May 9, 1994, the Company acquired certain assets of the Clarkesville
Mill division of United Merchants and Manufacturers, Inc., consisting primarily
of inventory and fixed assets, for a purchase price of approximately $12
million. The acquired assets consist principally of a manufacturing facility
located in Clarkesville, Georgia, which produces lightweight woven greige
fabrics primarily from man-made yarn. The acquired facility is part of the
Company's Greige Fabrics Division and currently manufactures fabrics for use in
the home furnishings, fashion apparel and, to a lesser extent, industrial
markets.
On January 3, 1995, the Company completed its acquisition of substantially
all of the assets of United Elastic Corporation for a purchase price of
approximately $20.4 million plus the assumption of certain liabilities. The
acquired operations consist of a principal manufacturing facility located in
Stuart, Virginia, which produces narrow elasticized woven fabrics and products
for sale to the intimate apparel, swimwear and medical markets, and two smaller
manufacturing facilities located in South Carolina and Mississippi, which the
Company has sold.
In February and March 1997, the Company realigned two groups within the
Finished Fabrics Division as separate operating companies. Chatham Fabrics,
LLC, a Delaware limited liability company ("New Chatham"), is comprised of
certain operating assets of the former Chatham subsidiary. Elastic Fabrics of
America LLC, a Delaware limited liability company ("EFA"), is comprised of the
operating assets of the former Elastic Fabrics of America Division and the
Stuart, Virginia facility.
ML Capital Partners' affiliates and certain members of management of the
Company who acquired shares of Common Stock in the 1986 Acquisition and
thereafter and their affiliates (the "Management Investors") currently own 58.8%
and 40.9%, respectively, of the Company's outstanding Common Stock. See
"Ownership of the Company."
The Company, a Delaware corporation, maintains its principal executive
offices at 1301 Gervais Street, Suite 700, Columbia, South Carolina, 29201, and
its telephone number is (803) 771-4434.
11
<PAGE> 14
USE OF PROCEEDS
The net proceeds from the sale of the Notes were $120.0 million (after
deducting underwriting and other discounts and expenses of the Offering). The
Company used such net proceeds to redeem all of the outstanding Clinton
Debentures at an aggregate price of approximately $32.4 million (including a
redemption premium of $1.2 million), plus accrued and unpaid interest thereon.
The remaining net proceeds, together with initial borrowings under the revolving
credit facility, were used to repay all of the Company's indebtedness under the
Subsidiary Loan Agreements, which was comprised of $40.9 million in term loans
and $46.7 million in revolving credit loans.
12
<PAGE> 15
CAPITALIZATION
The following table presents the capitalization of the Company at December
28, 1996. The table should be read in conjunction with the Financial Statements
of the Company and the Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 28,
1996
------------
(DOLLARS IN THOUSANDS)
<S> <C>
Short-term debt:(1)
Current portion of long-term debt.................................... $ 4,000
========
Long-term debt, excluding current portion:(1)
Bank Credit Facilities(2)............................................ $ 19,408
Notes, net of unamortized discount(3)................................ 124,341
--------
Total long-term debt......................................... $143,749
--------
Stockholders' equity:
Common stock, par value $1.00 per share.............................. 1,690
Additional paid-in capital........................................... 11,350
Retained earnings.................................................... 18,805
--------
Total stockholders' equity................................... 31,845
--------
Total capitalization......................................... $179,594
========
</TABLE>
- ---------------
(1) See Note 3 to the Company's audited financial statements at December 28,
1996 for additional information with respect to debt outstanding under the
Bank Credit Facilities.
(2) Excludes standby letters of credit of $1.25 million and accrued interest of
$0.18 million at December 28, 1996.
(3) Excludes accrued interest of $2.97 million at December 28, 1996.
13
<PAGE> 16
SELECTED FINANCIAL DATA
The following table sets forth selected historical financial information
for the Company for fiscal years 1992 through 1996, which has been derived from
the audited financial statements of the Company for such periods. The
information contained in the following table reflects the results of operations
of Chatham from February 14, 1992, the Clarkesville plant from May 9, 1994, and
the former United Elastic Corporation operations from January 3, 1995, the
respective dates of acquisition. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the audited financial statements of the Company,
together with the related notes and independent accountant's report. The
Company's consolidated balance sheet as of December 30, 1995, and December 28,
1996, and financial statements for each of the fiscal years in the three-year
period ended December 28, 1996, and the independent accountant's report thereon,
are included elsewhere in this Prospectus. See "Index to Financial Statements."
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------
1992(1) 1993 1994 1995 1996
--------- -------- -------- --------- ---------
STATEMENT OF INCOME DATA (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales $352,338 $370,396 $390,067 $408,636 $374,044
Depreciation 14,160 17,226 19,879 22,660 21,968
Other cost of sales 282,640 301,698 323,564 345,265 323,920
-------- -------- -------- -------- --------
Gross profit 55,538 51,472 46,624 40,711 28,156
Selling, general and administrative expense 23,874 29,360 31,433 32,704 31,097
Restructuring and other nonrecurring charges (2) -- -- -- 17,682 --
-------- -------- -------- -------- --------
Operating income (loss) 31,664 22,112 15,191 (9,675) (2,941)
Other income (expense)
Interest expense (10,104) (10,558) (14,430) (17,174) (15,425)
Other income (expense), net (103) (419) 1,397 1,406 1,588
-------- -------- -------- -------- --------
Total other income (expense) (10,207) (10,977) (13,033) (15,768) (13,837)
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary items 21,457 11,135 2,158 (25,443) (16,778)
Income taxes (benefit) 8,354 4,343 789 (9,500) (6,115)
-------- -------- -------- -------- --------
Income (loss) before extraordinary items 13,103 6,792 1,369 (15,943) (10,663)
Extraordinary item-loss on refinancing
senior subordinated debentures, net of
tax benefit of $1,368 -- 2,139 -- -- --
-------- -------- -------- -------- --------
Net income (loss) $13,103 $4,653 $1,369 $(15,943) $(10,663)
======== ======== ======== ======== ========
Ratio of earnings to fixed charges (3) 3.04x 2.02x 1.15x (0.48)x (0.09)x
BALANCE SHEET DATA (AT END OF YEAR)
Current assets $111,078 $122,300 $137,582 $123,281 $112,623
Property, plant and equipment, net 112,337 120,411 135,800 125,774 112,545
Other assets 7,047 6,864 8,567 8,053 8,366
Total assets 230,462 249,575 281,949 257,108 233,534
Current liabilities 46,666 39,377 43,443 42,739 44,117
Long-term debt, less current portion 100,608 124,052 153,962 154,245 143,749
Other liabilities and deferred items 27,439 25,744 22,773 17,616 13,823
Stockholders' equity 55,749 60,402 61,771 42,508 31,845
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------
1992(1) 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OTHER DATA AND OTHER FINANCIAL RATIOS
EBITDA (4) $48,366 $41,430 $36,790 $14,361 $21,293
Depreciation and amortization (5) 16,630 19,773 20,294 22,670 22,637
Capital expenditures 22,857 25,179 28,390 8,850 9,288
Ratio of EBITDA to interest expense (6) 5.05x 4.18x 2.67x 1.03x 1.43x
Ratio of total debt (at end of year) to EBITDA 2.22x 3.07x 4.25x 10.80x 6.94x
</TABLE>
________________________
(1) Financial information for fiscal 1992 excluding the operations of
Chatham, which were acquired in February 1992 as described herein, would
have been as follows: net sales of $238.7 million; gross profit of $38.0
million; operating income of $25.2 million; EBITDA of $39.0 million; and
a ratio of EBITDA to interest expense of 5.64x.
(2) In 1995, represents $4,782 of executive severance charges recorded in the
third quarter related to the retirement of Mr. G. T. Williams, the
Company's former President and Chief Executive Officer and $12,900 of
charges recorded in the fourth quarter related to the Restructuring.
(3) For purposes of computing this ratio, earnings consist of income before
income taxes and extraordinary items, plus fixed charges. Fixed charges
consist of interest expense on debt, amortization of deferred debt cost
and debt discount cost and the estimated interest component of rent
expense.
(4) Represents income before interest, income taxes, extraordinary items,
depreciation and amortization. The Company has included information
concerning EBITDA as a measure of the Company's ability to service its
debt. EBITDA should not be considered as an alternative to, or more
meaningful than, operating income or cash flow as an indicator of the
Company's operating performance. See the Statements of Cash Flows
included in the Financial Statements.
(5) Excludes amortization of deferred debt cost and debt discount cost.
Includes amortization of a $5.0 million noncompetition agreement obtained
in the Chatham acquisition, which was amortized over a two-year period
from February 14, 1992 to February 14, 1994. Amortization expense
includes approximately $2.2 million, $2.5 million and $0.3 million for the
years ended January 2, 1993, January 1, 1994 and December 31, 1994,
respectively, with respect to this agreement.
(6) Interest expense excludes amortization of deferred debt cost and debt
discount cost.
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
A number of factors influence the textile industry and operating results
for the Company including general economic conditions, competition, raw
material prices and capital expenditures, some of which are not within the
Company's control. The following factors have had an impact on the Company's
operating results over the past several years.
General Economic Conditions. The Company's past operating results
have been affected by the general condition of the United States economy.
The ability of the Company to maintain its operating margins during
downturns in the general economy is limited by the capital intensive
nature of its business. In 1992, the Company (excluding the results of
operations for Chatham, which was acquired in February 1992)
experienced increases in both sales and operating income, which the
Company attributes in part to the perception then held by the Company's
customers that general economic conditions were improving and, to a lesser
extent, to the Company's modernization program. Operating margins were
down in 1993, 1994, 1995 and even further in 1996 due primarily to
deteriorating market conditions for fabrics manufactured by the Greige
Fabrics Division. In 1995 the textile industry in general was impacted by
poor retail sales, overcapacity and unprecedented raw material costs.
Because inventory increases and excess capacity issues were more extreme
in the lightweight greige fabrics markets, the impact of market-wide price
erosion, plant shutdowns and significant capacity curtailments was more
severe and more prolonged in these markets. The Company was not immune to
these general conditions, and their impact prompted the Company to curtail
its operating schedule at all plant locations in 1995 and 1996 and
decrease capacity by the closure of the Greige Fabrics Division's Lydia
plant and the realignment of the Finished Fabrics Division's weaving
operations at the Elkin plant.
Modernization and Capital Expenditures. An important element of the
Company's business strategy is the continuing modernization of its
facilities, which has resulted in a reduction in cash unit manufacturing
costs and an increase in production capacity and flexibility. Increased
depreciation costs resulting from the Company's modernization programs
reduce the Company's operating income. Although the Company believes that
continued modernization of its facilities is essential in order to realize
the earnings potential of its existing businesses and to compete
effectively in its markets, the Company has not been able to benefit from
all these expenditures because of the weak market conditions and an
oversupply of certain fabrics. Consequently, the Company has not fully
utilized certain investments over the last two years, which has negatively
impacted results of operations.
Acquisitions. The acquisition of the assets of Old Chatham (the
Elkin and Boonville plants) in February 1992 has allowed the Company to
achieve greater market diversification and reduce its overall reliance
upon sales of greige fabrics.
16
<PAGE> 19
In addition to increased market diversification, the acquisition provided
the Company with access to markets that are more difficult to enter than
the markets of the Company's other businesses. Unfortunately, in 1993 and
1994, the Company experienced significant operating disruptions and quality
problems at the Elkin facility, which negatively impacted operating
margins. The Company attempted to address these issues through management
changes and the reorganization of its divisional structure in 1994.
Operating margins at Elkin in 1995 remained substantially below those of
the Company's other businesses as the division worked to improve its
product mix, complete the development of its information systems and
correct certain quality and manufacturing inefficiencies that negatively
impacted both the Elkin facility and its customers during this time period.
In 1996, operating margins improved significantly in response to the
business improvement initiatives and strategic investments in new equipment
at Elkin. The Company intends to continue to invest in new equipment at
its Elkin facility, and believes that current performance trends in
quality, on-time delivery and product development are more consistent with
fully realizing the earnings potential at the Elkin facility.
The acquisition of the Clarkesville plant in 1994 and the acquisition
of the former United Elastic Corporation operations in 1995 have allowed
the Company to diversify further its product offerings and provide its
existing customer base more value added products and service. To date,
these acquisitions have been positive and have added incremental sales
with margins equal to, or above, those of the Company's other businesses.
The Company believes that initiatives in 1995 and 1996 to reduce
inventories and to permanently shut down capacity in both its Greige Fabrics
Division and Finished Fabrics Division have helped correct the level of supply
relative to market demand. Additionally, the Company's ability to downsize its
corporate offices, coupled with improvements at the Elkin facility, the
elimination of inefficient capacity and other expense reduction initiatives
should help position the Company to respond quickly and cost effectively when
market conditions do improve.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages
that certain income and expense items bear to sales for such periods. All
years refer to the Company's fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net sales ..................................... 100.0% 100.0% 100.0%
Depreciation .................................. 5.1 5.5 5.8
Other cost of sales ........................... 82.9 84.5 86.6
----- ----- -----
Gross profit .................................. 12.0 10.0 7.6
Selling, general and administrative expenses .. 8.1 8.0 8.3
Restructuring and other nonrecurring charges -- 4.3 --
----- ----- -----
Operating income (loss) ....................... 3.9 (2.3) (0.7)
Other income (expense)
Interest expense ............................. (3.7) (4.2) (4.1)
Other, net ................................... 0.4 0.3 0.4
----- ----- -----
Income (loss) before income taxes ............. 0.6 (6.2) (4.5)
Income taxes (benefit) ........................ 0.2 (2.3) (1.6)
----- ----- -----
Net income (loss) ............................. 0.4% (3.9)% (2.9)%
===== ===== =====
</TABLE>
17
<PAGE> 20
Fiscal Year 1996 Compared to Fiscal Year 1995
The Company's net sales decreased $34.6 million or 8.5% from $408.6
million in 1995 to $374.0 million in 1996. Sales of the Greige Fabrics
Division decreased $26.1 million or 14.3% while sales of the Finished Fabrics
Division decreased $8.5 million or 3.7%. The reduction in sales for the Greige
Fabrics Division may be attributed to the weak market conditions for
lightweight greige printcloth fabrics and the related permanent closing of the
Lydia Plant in May. Consequently, sales for these fabrics in 1996 reflected a
8.4% reduction in average selling prices and a volume decline of 8.6%. The
sales decrease for the Finished Fabrics Division may be attributed to weak
market demand for the Company's woven elasticized fabrics and the Company's
decision to limit shipments to a significant elasticized fabric customer
because of credit concerns relating to the customer. Additionally, the
Finished Fabrics Division continued to experience declining sales in its
consumer products business.
In conjunction with the Company's lower sales, gross profit decreased
$12.6 million or 31.0% from $40.7 million to $28.1 million, as the gross margin
declined from 10.0% to 7.6%. The decline in gross profits may be directly
attributed to the weak market conditions for lightweight greige fabrics. This
resulted in reduced volumes, lower selling prices and the Company's decision
to curtail its operating schedule at certain locations during the first half of
1996 and incur unabsorbed fixed overhead costs in order to decrease inventories
and production to levels more consistent with market demand. Although 1996
earnings for the Finished Fabrics Division were improved over 1995 levels, they
only partially offset the significant reduction in the Greige Fabrics
Division's gross profits and margins.
Selling, general and administrative expenses decreased $1.6 million or
4.9% from $32.7 million in 1995 to $31.1 million in 1996; however as a
percentage of sales, expenses were up 0.3% from 8.0% to 8.3%. The reduction in
selling, general and administrative expenses relate to the Company's downsizing
of its Corporate offices. As a percentage of sales, costs were higher because
of an increase in the mix of commission based sales.
Interest expense decreased $1.7 million or 10.2% from $17.2 million in
1995 to $15.4 million in 1996. This decrease is due to lower debt balances in
1996 and may be attributed to the Company's reduced capital spending and
inventory reduction initiatives.
Income taxes (benefit) as a percent of income (loss) before taxes remained
unchanged at 37%.
As a result of the foregoing factors and the absence of any restructuring
or other nonrecurring charges in 1996, the Company reported a net loss of $10.7
million in 1996 as compared to a net loss of $15.9 million in 1995.
18
<PAGE> 21
Fiscal Year 1995 Compared to Fiscal Year 1994
The Company's net sales increased $18.5 million, or 4.7% from $390.1
million in 1994 to $408.6 million in 1995. Sales of the Greige Fabrics
Division increased $6.6 million, or 3.7% while sales of the Finished Fabrics
Division increased $11.9 million or 5.6%. The sales increase for the Greige
Fabrics Division may be attributed to the Clarkesville, Georgia facility which
reported a full year's sales in 1995 and only eight months of sales in 1994.
Without the inclusion of Clarkesville sales, the Greige Fabrics Division's
sales would have decreased $2.3 million or 1.4%. This decline was the result
of a 7.6% increase in average selling prices on a volume decline of 8.6%. The
sales increase for the Finished Fabrics Division may be attributed to sales
from the United Elastic business which was acquired on January 3, 1995.
Without the inclusion of United's sales for 1995, the Finished Fabrics
Division's sales would have declined $29.1 million or 13.6%. The sales
decrease relates to poor service issues in 1993 and 1994 at the Company's Elkin
facility, which negatively impacted customer demand in 1995 for furniture and
transportation upholstery fabrics. Additionally, the Finished Fabrics Division
was impacted by a reduction in automobile production by the Company's
transportation upholstery customers. Sales of consumer products were also down
in 1995 as market demand for woven cotton afghans declined after three years of
significant growth.
Despite the increase in the Company's sales, gross profit decreased $5.9
million or 12.7%, from $46.6 million to $40.7 million, as the gross margin
declined from 12.0% to 10.0%. Gross margins in 1994 reflected a nonrecurring
gain of $6.9 million relating to the curtailment of the Company's pension
plans, which was reflected as a reduction in cost of sales in 1994. Gross
margins in 1995 reflect the inclusion of $4.9 million of gross profits from the
United Elastic business purchased in January 1995 and incremental earnings
associated with reporting a full year of sales from Clarkesville. Excluding
the nonrecurring curtailment gain reported in 1994 and the incremental impact
of the United Elastic and Clarkesville acquisitions on profitability, gross
profits for the Company would have declined $5.7 million or 14.8% in 1995 as
compared to 1994, and gross margins would have declined from 10.1% to 9.4%. The
decline in gross profits may be attributed to unprecedented price levels for
cotton, polyester and certain other raw materials, coupled with the Company's
decision to significantly curtail its operating schedule at all locations in
the fourth quarter and incur unabsorbed fixed overhead costs in order to
decrease inventories and production to levels more consistent with market
demand.
Selling, general and administrative expenses increased $1.3 million or
4.1%, from $31.4 million in 1994 to $32.7 million in 1995; however as a
percentage of sales, expenses were down 0.1% from 8.1% to 8.0%. The increase
was the result of incremental expenses associated with the acquired United
Elastic business.
19
<PAGE> 22
Restructuring and nonrecurring charges include $4.8 million of executive
severance charges recorded in the third quarter of 1995 related to the
retirement of Mr. G. T. Williams, the Company's former President and Chief
Executive Officer. The remaining $12.9 million of restructuring and
nonrecurring charges relate to the Company's restructuring plan to improve
operating performance, reduce costs and realign manufacturing assets. Included
in those charges are incremental cash expenses of $5.0 million related to
severance, employee benefits and plant closure costs and $7.9 million of
noncash expenses related to the write-off of fixed assets and inventories.
Interest expense increased $2.7 million or 19.0% from $14.4 million in
1994 to $17.1 million in 1995. This increase reflects the impact of a rising
interest rate environment in 1995 and higher debt balances related to the
Company's capital spending, including the Clarkesville plant and United Elastic
acquisitions. Included in the $2.7 million increase in interest expense are
the Company's costs under an interest rate swap agreement which terminated on
July 19, 1996. Under this agreement, the Company converted $50 million of
fixed rate indebtedness to floating rate indebtedness and incurred additional
interest costs of $0.9 million in 1995. In 1994, the Company earned $0.1
million under the swap agreement. Other income, net of other expenses,
remained unchanged at $1.4 million.
Income taxes (benefit) as a percent of income (loss) before taxes remained
unchanged at 37%.
As a result of the foregoing factors, the Company reported a net loss of
$15.9 million in 1995 as compared to net income of $1.4 million in 1994.
20
<PAGE> 23
LIQUIDITY AND CAPITAL RESOURCES
In 1996, net cash provided by operations decreased $12.0 million from
$30.8 million in 1995 to $18.8 million in 1996, primarily as a result of lower
working capital reductions in 1996 as compared to the prior year.
Net cash used in investing activities decreased $19.6 million from $28.9
million in 1995 to $9.3 million in 1996. The reduction in 1996 investments
relates to the prior year acquisition of the former United Elastic Corporation
operations on January 3, 1995 for approximately $20.1 million.
Net cash used in financing activities increased $2.7 million from 1995 to
1996. The decline in investment activities noted above coupled with continued
cash flow from operations enabled the Company to repay $7.4 million on the
revolving credit facilities in 1996.
Working capital (excluding cash, marketable securities and the current
portion of long-term debt) decreased $10.9 million from $81.2 million at
December 30, 1995 to $70.3 million at December 28, 1996. The decrease in
working capital resulted from reductions in inventories and receivables.
The Company's primary ongoing cash requirements will be to cover debt
service, facilitate capital expenditures and position the Company to respond to
better business conditions. The Company currently intends to make capital
expenditures of approximately $20.0 million during 1997, of which a portion may
be financed with operating lease facilities. The Company believes that cash
flow from operations and amounts available under the Credit Agreement and the
Wachovia Credit Facility will be sufficient to fund current operations, meet
its debt service requirements and fund capital expenditures. See "Description
of Bank Credit Facilities."
21
<PAGE> 24
INFLATION
The Company does not believe that its financial results have been
materially impacted by the effects of inflation.
SEASONALITY
The Company experiences some seasonality in its sales at the Elkin
location. The Company estimates that this seasonality may increase sales in the
second half of each year by approximately 5 to 10 percent.
ENVIRONMENTAL
Federal and state laws and regulations relating to the discharge of
materials into the environment are continually changing; therefore it is
difficult to gauge the total future impact of such regulations on the Company.
In connection with the acquisition of the Elkin facility, environmental site
evaluations were performed by the Company which concluded that some form of
ground-water and soil remediation will be required and that some asbestos
abatement may be required at the Elkin facility. The Company believes that
sufficient amounts are accrued as of December 28, 1996 for the cost of these
expenditures. In the future, the Company may also construct facilities to
control flyash disposal and runoff from a coal pile at the Elkin facility. The
Company may also have remediation obligations with respect to contamination at
an off-site treatment facility and a previously removed leaking underground
storage tank. See "Business -- Regulation." The Company believes that based on
all currently available information, the resolution of environmental matters
will not have a material adverse effect on the Company. However, future events,
such as changes in or modified interpretations of existing laws and regulations
or enforcement policies, or further investigation or evaluation of potential
health hazards of certain business activities, may give rise to additional
compliance and other costs that could have a material adverse effect on the
Company. See Notes 7 and 8 to the Financial Statements included elsewhere in
this Prospectus.
22
<PAGE> 25
BUSINESS
The Company is a diversified manufacturer of textile products serving a
variety of markets, including the home furnishings, woven apparel, elasticized
knit apparel, furniture upholstery, transportation upholstery, consumer products
and industrial/medical markets. The Company conducts its operations through its
Greige Fabrics and Finished Fabrics Divisions.
SALES SUMMARY
The following table presents, for the last three fiscal years, the dollar
sales and the percentages of the Company's sales contributed by each division.
<TABLE>
<CAPTION>
SALES BY DIVISION
---------------------------------------------
(Dollars in thousands)
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Greige Fabrics Division $176,321 45% $182,923 45% $156,793 42%
Finished Fabrics Division 213,746 55% 225,713 55% 217,251 58%
-------- ---- -------- ---- -------- ----
Total $390,067 100% $408,636 100% $374,044 100%
======== ==== ======== ==== ======== ====
</TABLE>
23
<PAGE> 26
The following table presents, for the last five fiscal years, the
percentages of the Company's sales to the home furnishings, woven apparel,
elasticized fabric, furniture upholstery, transportation upholstery, consumer
products and industrial/medical/other markets, as estimated by the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF DOLLAR SALES
--------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Home furnishings market 29% 25% 28% 28% 28%
Woven apparel market 19% 18% 15% 11% 11%
Furniture upholstery market 17% 19% 18% 14% 15%
Elasticized fabric market 14% 15% 16% 25% 24%
Transportation upholstery market 7% 10% 11% 8% 11%
Consumer products market 7% 8% 9% 8% 7%
Industrial/medical/other markets 7% 5% 3% 6% 4%
--- --- --- --- ---
Total 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
GREIGE FABRICS DIVISION
Products. The Greige Fabrics Division manufactures light to midweight
greige (unfinished) fabrics, including printcloths, broadcloths, twills, crepes
and other fabrics of 100% cotton and blends of polyester and combed or carded
cotton, and 100% synthetic yarns. None of the division's customers accounts
for more than 10% of Company sales. The division can manufacture fabric in a
broad range of styles, which are determined by the fibers used, the number and
size of the yarns and the width of the fabric, but concentrates on a limited
number of styles and blends. The division currently produces fabric in widths
ranging from 43 to 135 inches and typically produces between 60 and 100 styles
at any one time. The division's production flexibility enables it to be a cost
effective manufacturer of traditional fabric styles available from a large
number of domestic and foreign producers and gives it the ability to respond to
changes in demand in its markets. The division works closely with major
integrated manufacturers to satisfy their specific requirements.
The fabrics sold by the Greige Fabrics Division are ultimately made into a
variety of home furnishings, woven apparel and industrial products. In the
home furnishings market, fabrics are used in comforters, bedspreads, sheets and
coordinating accessories, as well as curtains and other home furnishing
products. In the woven apparel markets, fabrics are used in a wide range of
items, including women's apparel, men's boxer shorts, trousers, and uniforms
and similar career apparel. Combed blends and 100% cotton fabrics are also
used in bolts of finished cloth sold at retail for home sewing and crafts. The
principal industrial uses for the division's fabrics are medical and athletic
tapes.
Manufacturing and Capacity. The Greige Fabrics Division's manufacture of
woven fabrics involves two principal operations: spinning cotton and blends of
cotton and polyester into yarn, and weaving yarn into fabric.
24
<PAGE> 27
Spinning. The division either spins or purchases the yarn it uses to
produce woven fabrics. Two types of spinning equipment are used: air-jet
spinning equipment, which combines spinning and winding into one process,
and traditional ring spinning equipment. Approximately 26% of the
division's current spinning capacity is air-jet spinning.
Weaving. The division employs only shuttleless weaving machines.
The division's shuttleless machines are more versatile than shuttle
weaving machines and are capable of weaving multiple fabrics of different
widths simultaneously on the same machine, with some machines capable of
producing fabrics as wide as 147 inches. The shuttleless machines require
a lower labor complement and weave fabric at higher speeds and with higher
quality levels than shuttle machines. The flexibility of the shuttleless
machines permits production to be shifted among fabric widths to meet
changing market requirements and demand levels.
The division currently operates six manufacturing plants. All of its
plants are equipped with projectile and air-jet shuttleless machines and
supporting equipment including carding, spinning and yarn preparation
equipment. The division plans to make further capital expenditures of $8
million during fiscal 1997. These expenditures will include additional air-jet
spinning equipment. Capital expenditures have been designed to expand
production capabilities, reduce production costs and increase quality.
All of the division's six plants are currently operating on a 24-hour,
seven-day week. As in the past, if market conditions soften, the Company has
the ability to curtail these operating schedules.
Marketing and Sales. The Greige Fabrics Division's fabrics are sold
primarily through the Company's New York sales office. Fabrics are sold to
integrated manufacturers and converters for use in various home furnishings
products, woven apparel and a variety of industrial applications. Fabrics are
typically manufactured to order. The division's sales are generally not
seasonal.
FINISHED FABRICS DIVISION
Products. The Finished Fabrics Division manufactures a variety of dyed
and finished fabrics for use in diverse markets.
Elasticized Fabrics. The division manufactures a variety of dyed
and finished elasticized knit and woven fabrics for use in intimate
apparel and foundation garments. It also has a significant presence in
the stretch fabric activewear market, including swimwear fabrics, and
produces fabrics for use in industrial and medical products. The
vertically integrated manufacturing operations produce warp knit, circular
knit and woven fabrics using a variety of spandex, polyester, rayon,
nylon, cotton and blends of cotton
25
<PAGE> 28
yarns. The division dyes and finishes the majority of its elasticized
fabrics as well as lace products manufactured by others.
Furniture Upholstery. The division produces furniture upholstery for
residential applications, office and public seating as well as wall panels
for open office systems. The division's customers include contract and
residential furniture manufacturers. Furniture upholstery is also sold
through an extensive distributor network. Furniture upholstery fabrics
are offered in both wool and a broad range of manmade fibers and in a
variety of constructions, from jacquard and dobby wovens to knitted and
tufted piles. These various fabric constructions primarily utilize
internally produced woolen spun, filament and novelty type yarns. A wide
variety of dyeing methods, including raw stock, yarn and piece dyeing, are
used.
Transportation Upholstery. The division supplies upholstery fabrics
for automobile and light truck seating and interior component applications
as well as for a variety of other transportation uses such as heavy truck
interiors, van conversions and after-market uses. Primary automotive
customers include domestic automobile manufacturers and Japanese
automobile manufacturers with United States manufacturing facilities. To
a limited extent, the division also exports its automotive fabrics to
Japan for overseas production. The Company has developed a strategic
alliance with Tatsumura Textile Company, Ltd., a leading supplier of
automotive fabrics to Toyota, Mazda and Mitsubishi, to help to increase
its business with the Japanese automakers. A wide variety of upholstery
fabrics are produced for the transportation market primarily from spun and
filament polyester. For the transportation upholstery market, the
division supplies flat and jacquard wovens, jacquard and dobby woven
velours, jacquard circular knits and double needle bar knits, and employs
stock, yarn, and piece dyeing technologies.
Consumer Products. The division produces blankets, mattress pads,
electric mattress pads, fringed throws, cotton jacquard afghans and infant
bedding for sale to the retail, institutional and health care markets. Its
consumer products are manufactured through either a loom woven process or a
non-woven Fiberwoven(R) process. Market placements have been made in
Mexico, Canada, Western Europe, Australia and the Far East.
Manufacturing and Capacity.
Elasticized Fabrics: Manufacturing warp knit, circular knit and woven
fabrics with elastomeric fibers is a more difficult and complicated process
than that required for other fabrics. Customers who purchase elasticized
fabrics typically require that the fabrics meet precise specifications related
to physical characteristics, shades, shrinkage and the like.
Knitting. Several types of warp knitting machines are used. These
machines are versatile with the capability of knitting high quality fabric
in many different styles at high speeds and low defect levels. For
circular knitting, the Company uses both single and double knit machines,
some of which have mini-jacquard capability.
26
<PAGE> 29
Weaving. Several types of looms are used. These looms are versatile
with the capability of weaving high quality narrow elastic fabric up to
twelve inches in width. Certain looms have jacquard capabilities, and can
weave logo designs into the fabric.
Finishing and Dyeing. Various dyeing and finishing technologies are
utilized which allow the division to dye and finish its fabrics on-site to
achieve consistent specifications and color matching for its products.
The processes used depend upon the type and style of fabrics being
produced. The division scours and dyes most of its fabric in either
pressurized or non-pressurized dyeing vessels. Fabrics of regular warp
construction are normally steamed in preparation for other finishing
processes. Fabrics are sent through finishing frames that stretch and set
the fabric at a desired width. Computerized color matching equipment
enables the division to meet the stringent requirements of the markets it
serves. For certain fabrics and shades, it uses dyed yarn for both
knitting and weaving.
The division manufactures its elasticized knit fabrics at a plant located
in Greensboro, North Carolina, which operates on a 24-hour, five or six-day
week. Since the acquisition of the former United Elastic Corporation
operations in January 1995, the division manufactures narrow elasticized woven
fabrics in Stuart, Virginia. This plant operates on a 24-hour, five day week.
Furniture Upholstery, Transportation Upholstery and Consumer Products:
The division operates a manufacturing complex in Elkin, North Carolina,
containing approximately 1.7 million square feet in 11 buildings and a plant
in Boonville, North Carolina. At the Elkin complex, manufacturing is
vertically integrated from fiber to finished fabric. The Boonville plant
produces yarn from fiber, which is then transferred to the Elkin facility for
weaving. Manufacturing processes include garnetting waste fiber, extruding
nylon and dyeing raw stock, yarn and fabric. The product of these processes
may flow through other processes such as carding, spinning, weaving, knitting,
the nonwoven Fiberwoven(R) process and finishing. The division employs
computer systems that allow for the design of fabrics without the production
cost associated with sampling, shorten fabric development time and promote
faster response to customer inquiries.
Marketing and Sales.
Elasticized Fabrics: The division sells its elasticized fabrics through
the Company's New York and Los Angeles sales offices, and sales representatives
located in Greensboro, North Carolina and Stuart, Virginia. These fabrics are
manufactured only to order.
Furniture Upholstery, Transportation Upholstery and Consumer Products:
Sales and marketing functions are conducted at the product level. Furniture
upholstery is sold by sales personnel in Elkin and High Point, North Carolina
(including a showroom), New York, Chicago, Los Angeles, and Grand Rapids,
Michigan, and sales agents in the Far East, Australia, and South America.
Transportation upholstery has sales and marketing offices in Elkin, North
Carolina and Detroit, Michigan. Consumer products are sold and marketed
through offices in Elkin, North Carolina and New York and sales associates
located throughout the United States. Foreign
27
<PAGE> 30
bedding sales are handled through agents or distributors in Mexico, Canada,
England, Western Europe, Australia, and the Far East.
RAW MATERIALS
The principal raw materials the Company uses are cotton and man-made
fibers and yarns. In 1996, raw materials accounted for approximately 46% of
cost of sales. The Company uses many types of fibers, both natural (cotton and
wool) and man-made (polyester, nylon, olefin, rayon and acrylic) as well as
yarns including Lycra(R), a spandex elastomeric yarn produced by DuPont (E.I.)
de Nemours & Company, in the manufacture of its textile products. The Company
believes that availability and future price levels for fibers and yarns will
depend primarily upon supply and demand conditions, crop conditions, general
inflation, government agricultural programs and prices of petroleum-based raw
materials.
Generally, the Company has had no difficulty in obtaining raw materials.
Cotton is available from a large number of suppliers. The Company maintains a
limited supply of cotton in inventory; its usual procedure is to purchase
cotton only when firm orders have been obtained for the goods in which it will
be used. When management concludes that a certain grade of cotton may be in
short supply or that prices may be substantially higher in the near term,
however, the Company may deviate from this procedure and buy additional cotton
for inventory. Historically, the Company has not purchased significant amounts
of cotton for inventory and continues to purchase cotton for future delivery
when orders are received.
The principal man-made fibers and yarns purchased by the Company are
polyester and nylon. The Company maintains a limited supply of man-made fibers
and yarns in inventory. The Company currently purchases man-made fibers for
its Greige Fabrics Division from two suppliers, although other suppliers are
available. The Company also purchases yarns of texturized filament polyester
primarily from a limited number of suppliers for use in its woven and knit
fabrics, although other suppliers are available. Currently, most of the
elastomeric yarn used in the production of elasticized fabrics is Lycra(R).
PATENTS AND TRADEMARKS
The Company has registered a stylized "Clinton," "EFA" and "Chatham" as
trademarks. The Company does not own or use any other patents, licenses or
trademarks that are currently material in the conduct of its business.
BACKLOG
At December 28, 1996, the Company had aggregate unfilled orders of $120
million, as compared to $64 million at December 30, 1995. As of December 28,
1996, the Greige Fabrics Division had approximately $87 million of unfilled
customer orders for woven fabrics, as compared to $41 million at December 30,
1995. The increase in the Greige Fabrics Division's order backlog from 1995 to
1996 is indicative of the recently improved market conditions for lightweight
greige woven fabrics. The division expects to fill substantially all of these
orders in
28
<PAGE> 31
1997. At December 28, 1996, the Finished Fabrics Division had unfilled orders
totaling $33 million, as compared to $23 million at December 30, 1995. The
increase in the Finished Fabrics Division's order backlog from 1995 to 1996 is
indicative of the increase in placements for the Company's transportation
upholstery fabrics. The division expects to fill all of these orders in 1997.
These backlogs consist of orders that are not generally subject to cancellation
prior to shipment, although the Company has in the past accommodated customer
requests for order deferments due to unusual circumstances.
COMPETITION AND INTERNATIONAL TRADE POLICY
The domestic textile industry is highly competitive with no one firm
dominating the United States market. Many companies compete only in limited
segments of the textile market. In recent years, there has been a trend toward
consolidation in the United States textile industry. Textile competition is
based in varying degrees on price, product styling and differentiation, quality
and customer service. The importance of each of these factors depends upon the
needs of particular markets and customers.
The domestic textile industry has been fundamentally affected by
competition from imports. The level of import protection for domestic
producers of textiles has been and will continue to be subject to domestic
political and foreign policy considerations. Under the import tariff and quota
framework developed under the Arrangement Regarding International Trade in
Textiles and commonly known as the Multifiber Arrangement (the "MFA"), most
significant exporters of fabrics were subject to annual quotas. However, the
MFA expired on December 31, 1994, and was replaced by The Uruguay Round
Agreement (the "Uruguay Agreement") on textiles and clothing which contains a
schedule for the gradual phase-out of quotas established pursuant to the MFA
over a ten year transition period. After the transition period, textile and
clothing trade will be fully integrated into the World Trade Organization and
subject to the same restrictions as other sectors. The Uruguay Agreement
contains a provision for reducing tariffs on textiles and clothing products
imposed by the United States by approximately 12% overall, with the reductions
phased in over a ten year period. The reduction in the import protection
accorded domestic fabric and apparel manufacturers could adversely affect the
Company.
The Company believes that the North American Free Trade Agreement
("NAFTA") has and will continue to affect competition in the domestic textile
manufacturing market by phasing out substantially all trade restrictions among
Canada, Mexico and the United States while maintaining such restrictions on
products imported from outside North America, subject to the Uruguay Agreement.
While the Company believes that as a result of NAFTA some labor-intensive
apparel production has and will continue to move to Mexico due to Mexico's
lower labor costs, the Company expects to compete for sales of fabric to these
apparel producers in what may become a larger market for the Company's
products. To the extent that U.S. apparel manufacturers move production to
Mexico and thus gain a competitive advantage over Asian producers facing
continuing import restrictions, the Company believes that it would benefit from
a resulting increase in North American production, as neither Mexico nor Canada
are currently competitive producers of the fabrics used in the manufacture of
apparel.
29
<PAGE> 32
The impact of import competition varies among the Company's divisions.
The Greige Fabrics Division sells its fabrics in markets where imports are a
significant competitive factor--estimated by the Company at 25% of the
division's United States markets. In addition, the division's fabrics are used
in apparel products which compete with imported garments. In response to the
increasing effect of imports, the division has engaged in an extensive
modernization program which has added flexibility to its manufacturing process
and increased its fabric offerings. This modernization program has resulted in
increases in productivity and lower unit costs, net of depreciation. In
addition, marketing has been redirected in an effort to reduce its dependence on
commodity fabrics and has focused on developing long-term customer relationships
where value added services can differentiate its fabrics from imports. To
implement this strategy, the division has generally endeavored to decrease its
sales to the apparel market and shift more of its sales to home furnishing
markets where competition from imports is less severe. However, depending on
market conditions, the division may from time to time redirect its sales from
home furnishings to apparel to avoid market weakness or to obtain a benefit from
opportunistic selling. The Greige Fabrics Division's principal competitors
include Greenwood Mills and Alice Manufacturing.
The Finished Fabrics Division and other United States manufacturers of
elasticized fabrics and garments, including intimate apparel, swimwear and
activewear, have not been subject to the same pressure from imports experienced
by many other sportswear apparel manufacturers. Customers place significant
emphasis on product design, component shade-matching and other quality-related
criteria. Customers establish strict specifications that place a premium on
customer service, which places foreign manufacturers at a disadvantage. The
Company also believes that the swimwear market is less susceptible to import
competition because sales in the U. S. retail market are generally made
within a four-month period, and therefore close proximity of the swimwear
manufacturer and the fabric producer is advantageous for initial orders and
reorders. The division's principal elasticized fabrics competitors include
Liberty Fabrics, Darlington, and Elastic Corporation of America.
Furniture upholstery, transportation upholstery and consumer products
compete in domestic markets that to date have experienced little competition
from imports. In these markets, product styling and differentiation, quality
and customer service are more significant considerations as compared to more
commodity-oriented markets that are more susceptible to import competition.
Principal competitors include Guilford of Maine (furniture upholstery),
Milliken (furniture and transportation upholstery), Collins and Aikman
(furniture and transportation upholstery) and Pillowtex (consumer products).
EMPLOYEES
On December 28, 1996 the Company had 4,196 employees, none of whom were
covered by a collective bargaining agreement. Of these employees, 3,756 were
employed as hourly associates while 440 were employed as salaried associates.
All of the Company's employees are full-time. The Company believes that its
employee relations are good.
30
<PAGE> 33
FACILITIES
The following table sets forth certain information relating to the
Company's principal facilities as of December 28, 1996. All of these facilities
are owned by the Company, except for the New York sales office and the Columbia
executive office. The Company's New York sales office is leased for a term
expiring in 2005. The Columbia executive office is leased for a term expiring in
2000. The Company believes all of its facilities are in good repair and are in
suitable condition for the purposes for which they are used.
<TABLE>
<CAPTION>
LOCATION SQ. FOOTAGE USE
- --------------------------------- ----------- ------------------------------------------------
<S> <C> <C>
Greige Fabrics Division
Clinton No. 1.................. 263,100 Manufacturing (191,000 sq. ft.)
Clinton, SC Warehouse and Office (72,000 sq. ft.)
Clinton No. 2.................. 544,900 Manufacturing (303,900 sq. ft.)
Clinton, SC Warehouse and Office (241,000 sq. ft.)
Lydia.......................... 472,100 Warehouse and Office (472,100 sq. ft.)
Clinton, SC
Bailey......................... 277,200 Manufacturing (224,100 sq. ft.)
Clinton, SC Warehouse and Office (53,100 sq. ft.)
Office -- Clinton, SC.......... 37,700 Office
Geneva No. 1................... 151,500 Manufacturing (128,300 sq. ft.)
Geneva, AL Warehouse and Office (23,200 sq. ft.)
Geneva No. 2................... 258,200 Manufacturing (211,900 sq. ft.)
Geneva, AL Warehouse and Office (46,300 sq. ft.)
Office -- Geneva, AL........... 7,500 Office
Clarkesville, GA............... 268,835 Manufacturing (170,119 sq. ft.)
Warehouse and Office (98,716 sq. ft.)
Finished Fabrics Division
Greensboro, NC................. 175,300 Manufacturing (138,800 sq. ft.)
Warehouse and Office (36,500 sq. ft.)
Stuart, VA..................... 415,340 Manufacturing (328,900 sq. ft.)
Warehouse and Office (86,440 sq. ft.)
Elkin, NC...................... 1,697,600 Manufacturing (1,270,500 sq. ft.)
Warehouse and Office (427,100 sq. ft.)
Boonville, NC.................. 128,500 Manufacturing (99,200 sq. ft.)
Warehouse and Office (29,300 sq. ft.)
Other
CMI Sales Office............... 16,332 Office
New York, NY
CMI Executive Office........... 9,330 Office
Columbia, SC
</TABLE>
As part of the Restructuring, the Company ceased manufacturing operations
at the Lydia plant, consolidated certain weaving operations at its Elkin
location and downsized its corporate administrative functions in Columbia.
Consequently, certain manufacturing space at Lydia and Elkin is being utilized
for warehousing, and the Company has subleased over one-half of its leased
facility in Columbia.
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<PAGE> 34
REGULATION
The Company's operations are subject to federal, state and local laws and
regulations relating to the environment, health and safety, and other regulatory
matters. Certain of the Company's operations may from time to time involve the
use of substances that are classified as toxic or hazardous substances within
the meaning of these laws and regulations. Environmental operating permits are,
or may be required, for certain of the Company's operations and such permits are
subject to modification, renewal and revocation. The Company monitors and
reviews its operations, procedures and policies for compliance with these laws
and regulations. Despite these compliance efforts, risk of environmental
liability is inherent in the operation of the Company's businesses, as it is
with other companies engaged in similar businesses, and there can be no
assurance that environmental liabilities will not have a material adverse effect
on the Company in the future.
The Company has identified certain groundwater and soil contamination which
will require remediation and asbestos which may require abatement at its Elkin
facility. The Company has accrued for the costs it expects to incur in
connection with this remediation and abatement. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Environmental" and
Notes 7 and 8 to Financial Statements.
In May 1993, the Greige Fabrics Division received a notice of potential
liability and an information request from the Environmental Protection Agency
("EPA") with respect to the AquaTech site in Greer, South Carolina. The Company
has been designated by the EPA as a potentially responsible party ("PRP") at the
site. The Company entered into a buyout agreement with a group of approximately
719 PRPs who funded a surface removal of hazardous substances from this site at
a cost in excess of $14.0 million. The Company's allocated share of the costs
of the surface cleanup under the buyout agreement was less than $1,000. The
buyout agreement does not commit the Company to any additional expenditures nor
protect it from liability for any additional costs. The Company has joined the
AquaTech PRP Group for Subsurface Remediation which is awaiting the completion
of soil and groundwater testing by the EPA at the AquaTech site. At this time
neither the extent of further cleanup nor the Company's share of any additional
remediation costs is known.
The Company has approval from the North Carolina Department of
Environment, Health and Natural Resources and from Guilford County
Environmental Health to begin cleanup of groundwater at its Greensboro facility
resulting from previously removed leaking underground storage tanks. The
Company estimates that remaining costs associated with the cleanup will be
approximately $320,000. Partial reimbursement has been approved from the North
Carolina Underground Storage Tank Trust Fund. Equipment has been ordered to
begin the cleanup as approved in the corrective action plan.
LITIGATION
The Company is from time to time involved in routine litigation incidental
to its business operations, as well as product liability litigation. In the
opinion of the Company's management, none of the litigation in which it is
currently involved is material.
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<PAGE> 35
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the current
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph L. Gorga 44 Director; President and Chief Executive Officer
James A. Ovenden 34 Director; Chief Financial Officer, Executive Vice
President and Secretary
Joshua T. Hamilton 45 Executive Vice President and President,
Greige Fabrics
James F. Robbins 43 Executive Vice President and President, Elasticized
Fabrics
W. James Raleigh 69 Director
Rupinder S. Sidhu 40 Director
Stephen M. McLean 39 Director
Michael H. deHavenon 56 Director
</TABLE>
______________________
Each member of the Board of Directors holds office until the next annual
meeting of the stockholders and until his successor is elected and qualified.
Officers are appointed by the Board of Directors and serve at the discretion of
the Board.
Joseph L. Gorga was named President and Chief Executive Officer and
appointed as a director of the Company in November 1995. Mr. Gorga joined a
predecessor of the Finished Fabrics Division as its President in 1991. He was
employed by Milliken & Co., an integrated textile manufacturer, from 1975
through 1991 and served as General Manager of the Automotive & Elastic Fabrics
Division from 1987 until his employment with the Company.
James A. Ovenden joined the Company in 1987 as Assistant Treasurer and
became Treasurer in 1988. He was appointed to the newly-created office of
Chief Financial Officer in 1993 and was elected Executive Vice President and
Assistant Secretary in 1993. He became a director of the Company in 1990 and
has served as Secretary since 1995.
Joshua T. Hamilton, Executive Vice President of the Company and President
of the Greige Fabrics Division, joined a predecessor of the Greige Fabrics
Division in 1983 and served as Vice President of Operations from 1989 until
becoming President in 1992.
James F. Robbins joined the Company in 1992 as Executive Vice President
for Marketing, Elastic Fabrics. In 1996, he was elected Executive Vice
President and President in charge of Elasticized Fabrics.
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<PAGE> 36
W. James Raleigh was elected as a director of the Company on April 2,
1996. Mr. Raleigh previously served as President of the Greige Division's
sales organization until his retirement in September 1995.
Rupinder S. Sidhu has served as a director of the Company since 1986.
Mr. Sidhu is the President of Merion Capital Management LLC, a private
investment company, a position he has held since 1994. He was also a special
limited partner of Stonington Partners, Inc., a private investment firm, from
1993 through 1994. He has been a member of the Board of Directors of ML
Capital Partners since 1987. From 1993 to July 1994, he was a Partner of ML
Capital Partners and a Senior Vice President of ML Capital Partners from 1987
to 1994. Mr. Sidhu was also a Managing Director of the Investment Banking
Division of ML & Co. from 1989 to 1994 and a Director of the Investment Banking
Division of Merrill Lynch from 1989 to 1994 and a Director of the Investment
Banking Division of Merrill Lynch from 1987 to 1989. Mr. Sidhu is a director
of First USA, Inc., and First USA Paymentech Inc.
Stephen M. McLean has served as a director of the Company since 1992.
Mr. McLean is a Partner and a Director of Stonington Partners, Inc., a private
investment firm, a position that he has held since 1993 and is a Partner and a
Director of Stonington Partners, Inc. II. He has also been a member of the
Board of Directors of ML Capital Partners since 1987. Mr. McLean was a
Partner of ML Capital Partners from 1993 to July 1994 and a Senior Vice
President of ML Capital Partners from 1987 to 1993. Mr. McLean was also a
Managing Director of the Investment Banking Division of Merrill Lynch from 1987
to 1994. Mr. McLean is a director of Dictaphone Corporation, Pathmark Stores,
Inc., and Supermarkets General Holding Corporation and several privately held
companies.
Michael H. deHavenon was first elected as a director of the Company in 1986
and served until 1994 when he did not stand for reelection. Mr. deHavenon was
subsequently appointed to the Board on October 24, 1995. Since January 1997
Mr. deHavenon has been President of Kulen Capital Corp., a firm engaged
primarily in making private investments. Prior thereto, Mr. deHavenon served
as President of Merrill Lynch Capital Corporation and its predecessor, a
wholly-owned subsidiary of ML & Co. which structures and manages leveraged
private investments.
34
<PAGE> 37
EXECUTIVE COMPENSATION
Compensation Summary. The following table shows, for the last three
fiscal years of the Company, annual compensation paid by the Company to Joseph
L. Gorga, the President and Chief Executive Officer and the three other
executive officers of the Company serving at the end of the 1996 fiscal year
(collectively, the "Named Executive Officers").
Summary Compensation Table(1)
================================================================================
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
---------------------------------------- -----------
Other Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
Name and Principal Position Year ($) ($)(2) ($) Options (#) ($)(3)
- ---------------------------- ----- ------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Gorga 1996 325,000 185,000 -- 40,000 15,400
President and Chief 1995 262,861 160,000 -- 15,000 5,620
Executive Officer 1994 250,296 236,513 -- 10,000 --
James A. Ovenden 1996 225,000 75,000 -- 15,000 10,740
Executive Vice President 1995 184,981 40,000 -- -- 3,764
and Chief Financial Officer 1994 177,734 -- -- -- --
Joshua T. Hamilton 1996 200,000 -- -- -- 11,600
President, Greige Fabrics 1995 191,113 20,000 -- -- 3,864
1994 181,665 -- -- -- --
James F. Robbins 1996 200,000 20,000 -- -- 11,400
President, Elastic Fabrics 1995 185,000 60,000 -- -- 3,697
1994 165,000 49,500 -- -- --
</TABLE>
___________________________
(1) The Company does not maintain a "long-term incentive plan," as that term
is defined by applicable rules of the Securities and Exchange Commission
(the "Commission"), and has not made any awards of restricted stock or
stock appreciation rights.
(2) Bonus amounts for Messrs. Gorga, Ovenden, Hamilton and Robbins represent
amounts paid under the Company's Incentive Compensation Program, which
provides for discretionary awards and for cash bonuses in years in which
earnings before interest, taxes and depreciation exceed predetermined
levels of earnings. Bonuses for Messrs. Gorga and Ovenden are based on
the performance of the Company and bonuses for Mr. Hamilton and Mr. Robbins
are based on the performance of the Greige Fabrics Division and the
Company's elasticized fabrics operations, respectively. See "--Employment
and Severance Agreements."
(3) Represents the Company's contribution on behalf of the Named Executive
Officer to the Company's 401(k) Plan for Associates of CMI Industries,
Inc. and the Company's 401(n) Deferred Compensation Plan.
35
<PAGE> 38
Grants of Stock Options and Stock Appreciation Rights. The following
table sets forth information with respect to options to purchase Common Stock
granted to the Named Executive Officers in the 1996 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value of Assumed Annual
----------------- Rates of Stock Price
Number of Percent of Total Appreciation for Option
Securities Under Options Granted Term
-lying Options to Employees in Exercise or Base Expiration -----------------------
Name Granted (#)(2) Fiscal Year (3) Price ($/Share) Date 5%($) 10%($)
---- -------------- --------------- ---------------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Gorga 40,000 73% $27.50 1/31/2006 $671,560 $1,753,120
James A. Ovenden 15,000 27% $27.50 1/31/2006 $251,835 $657,420
Joshua T. Hamilton -- -- -- -- -- --
James F. Robbins -- -- -- -- -- --
</TABLE>
_________________________
(1) The Company does not maintain a plan that authorizes the issuance of
stock appreciation rights.
(2) The options granted are non-qualified options, were granted at
estimated fair market value on the date of grant, have a term of 10
years and are immediately exercisable.
(3) Based on options for 55,000 shares of Common Stock granted to all
employees during 1996.
Stock Option Exercises. The following table sets forth information with
respect to unexercised stock options held by the Named Executive Officers as of
December 28, 1996. None of the Named Executive Officers exercised any options
during the Company's 1996 fiscal year.
<TABLE>
<CAPTION>
Aggregated Fiscal Year End Option Values
----------------------------------------
Number of Unexercised Value of Unexercised
Options at Fiscal Year End In-the-Money Options at
(#) Fiscal Year End ($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
------------------ -------------------------- -------------------------
<S> <C> <C>
Joseph L. Gorga 75,000/0 $0/$0
James A. Ovenden 45,000/0 $0/$0
Joshua T. Hamilton -- --
James F. Robbins -- --
</TABLE>
____________________
(1) Calculated based on the difference between the estimated value of the
Common Stock underlying the options at December 28, 1996 and the exercise
price. Because the Common Stock is privately held and not listed on any
securities exchange, the fair market value of the Common Stock is not
readily ascertainable. Management's estimate of the value of the Common
Stock underlying the options includes a discount to reflect the lack of a
public market for the Common Stock and the restrictions applicable to the
Common Stock held by Management Investors pursuant to the terms of the
Management Subscription Agreements and the Restated Stockholders
Agreement. See "--Management Subscription Agreements" and "Ownership of
the Company."
Awards Under Long-Term Incentive Plans. The Company does not maintain a
"long-term incentive plan" as that term is defined by applicable rules of the
Commission.
36
<PAGE> 39
The 401(k) Plan. Effective January 1, 1995, the Company established the
401(k) Plan for Associates of CMI Industries, Inc., which covers
substantially all of the Company's employees. The Company intends to provide
retirement benefits in the future through the 401(k) plan. Under the 401(k)
plan, the Company matches 50% of employee contributions, not to exceed 2% of
pay, for all eligible and participating employees. Messrs. Gorga, Ovenden,
Hamilton and Robbins participate in the 401(k) plan.
The 401(n) Plan. Effective January 1, 1995, the Company established the
401(n) Deferred Compensation Plan for CMI Industries, Inc., which covers a
select group of highly compensated associates. The 401(n) Plan is a
non-qualified plan established to provide retirement benefits for CMI's
executives whose retirement benefits were limited due to the freezing of the
accrued benefits under the Defined Benefit Retirement Plans, and the
restrictions on benefits in the 401(k) Plan. The Board in its discretion may
authorize a supplemental match for select executives. Messrs. Gorga, Ovenden,
Hamilton and Robbins participate in the 401(n) Deferred Compensation Plan.
Defined Benefit Retirement Plans. Effective December 31, 1994, the Company
merged its two defined benefit plans, the Chatham Manufacturing, Inc. Pension
Plan and the Clinton Retirement Income Program and curtailed future benefits.
This restructuring resulted in a curtailment gain of $6.9 million, which
reduced the cost of sales in 1994. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Clinton Retirement Income Program. In 1991 Clinton combined its Pension
Plan for salaried employees, its Retirement Plan for hourly employees and its
frozen Profit Sharing Plan to form the Clinton Retirement Income Program
("CRIP"). The CRIP is a noncontributory plan providing retirement benefits to
all salaried and hourly employees who meet certain age and service requirements.
Retirement benefits to salaried employees generally equal the greater of (i) 1
1/2% of the average total cash compensation for the five highest consecutive
years before retirement, multiplied by the number of years of service as a
salaried employee and reduced by 50% of the employee's primary Social Security
benefit payable at normal retirement date and (ii) 1% of the aggregate of the
participant's total cash compensation for all years of service as a salaried
employee after December 31, 1980. Benefits can be paid under the CRIP through
one of several annuity options selected by the participant, including joint and
survivor annuity options.
The following table sets forth estimated annual benefits payable upon
retirement in the Company's last fiscal year to CRIP participants at normal
retirement age in the compensation and service classifications specified.
37
<PAGE> 40
PENSION PLAN TABLE
YEARS OF SERVICE
<TABLE>
<CAPTION>
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000 $20,541 $29,916 $39,291 $48,666 $58,041
150,000 26,166 37,416 48,666 59,916 71,166
175,000 31,791 44,916 58,041 71,166 84,291
200,000 37,416 52,416 67,416 82,416 97,416
225,000 43,041 59,916 76,791 93,666 110,541
250,000 48,666 67,416 86,166 104,916 118,800
300,000 59,916 82,416 104,916 118,800 118,800
400,000 82,416 112,416 118,800 118,800 118,800
450,000 93,666 120,000 120,000 120,000 120,000
500,000 104,916 120,000 120,000 120,000 120,000
550,000 116,166 120,000 120,000 120,000 120,000
600,000 120,000 120,000 120,000 120,000 120,000
650,000 120,000 120,000 120,000 120,000 120,000
700,000 120,000 120,000 120,000 120,000 120,000
750,000 120,000 120,000 120,000 120,000 120,000
</TABLE>
Beginning in 1994, recognizable pay in tax qualified plans was limited to
$150,000 per year. Because of the grandfather treatment of prior accruals in
the CRIP, the above table recognizes accrued benefits on compensation in excess
of $150,000. The credited years of service for each of the Named Executive
Officers who participate in the CRIP are: Joseph L. Gorga, 4 years; James A.
Ovenden, 8 years; Joshua T. Hamilton, 12 years; and James F. Robbins, 3 years.
Chatham Pension Plan. On February 14, 1992, the Company's former Chatham
subsidiary became the sponsor of a pension plan that was originally established
in 1969 by Chatham's predecessor. The plan is a noncontributory plan and
covers all Chatham employees as of the first day of the first plan year after
the employee's date of employment. Participants accrue benefits as of January
1 of each year of eighty-five hundredths of one percent (.0085) of total
compensation for each plan year plus sixty-five hundredths of one percent
(.0065) of compensation which is in excess of $12,200. The plan is a career
average plan and has provision for accredited service prior to January 1,
1989. Benefits can be paid under the Chatham Pension Plan through one of
several annuity options. A lump-sum payment option is also offered with
spousal consent. The following table sets forth estimates of annual benefits
payable upon retirement in the Company's last fiscal year at normal retirement
age in the compensation and service classifications specified. The assumptions
used indicate the remuneration as career average compensation.
The following table sets forth estimated annual benefits payable upon
retirement in the Company's last fiscal year to plan participants at normal
retirement age in the compensation and service classifications specified.
38
<PAGE> 41
PENSION PLAN TABLE
YEARS OF SERVICE
<TABLE>
<CAPTION>
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000 $26,935 $35,914 $44,892 $53,871 $62,849
150,000 32,560 43,414 54,267 65,121 75,974
175,000 38,185 50,914 63,642 76,371 89,099
200,000 43,810 58,414 73,017 87,621 102,224
225,000 49,435 65,914 82,392 98,871 115,349
235,840 51,875 69,166 86,458 103,749 118,800
</TABLE>
The above table limits remuneration to $235,840 since the Chatham Pension
Plan has no participants with grandfathered compensation in excess of the 1993
maximum recognizable compensation limit for tax qualified plans. None of the
Named Executive Officers participate in the Chatham Pension Plan.
Compensation Committee Interlocks and Insider Participation. During the
1996 fiscal year, the Compensation Committee of the Company's Board of Directors
was composed of Messrs. Rupinder S. Sidhu, Stephen H. McLean, Michael H.
deHavenon and Joseph L. Gorga. Mr. Gorga is the President and Chief Executive
Officer of the Company. Messrs. Sidhu, McLean and deHavenon are not, and have
not been at any time, either officers or employees of the Company. Messrs.
Sidhu and McLean are affiliated with ML Capital Partners or ML & Co. ML Capital
Partners, through various affiliates, beneficially owns 58.8% of the outstanding
shares of Common Stock.
COMPENSATION OF DIRECTORS
The Company pays no remuneration to its directors for serving as such.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Mr. Gorga. Effective January 1, 1996, the Company and Mr. Gorga entered
into an amended and restated employment agreement providing for the employment
of Mr. Gorga as the President and Chief Executive Officer of the Company. The
agreement has a term of two years, subject to annual renewals unless either
party objects. Under the agreement, Mr. Gorga is entitled to an annual salary
of $325,000, subject to increase by the Board's Compensation Committee. He is
entitled to participate in Company benefit plans, including the Incentive
Compensation Plan; so long as the current Incentive Compensation Plan is in
effect, the maximum amount payable under the plan to Mr. Gorga would be 75% of
his base salary rather than the amount specified in the plan.
In the event Mr. Gorga is terminated without cause during the term of the
agreement or within six months after its expiration, the agreement provides for
the payment to him of the greater of the base salary which would accrue over
the remaining term of the agreement or one year's base salary, together with
continued health and life insurance benefits during the period in
39
<PAGE> 42
which the payments are made. If Mr. Gorga is terminated or resigns under
specified circumstances following a change of control (as defined) that occurs
during the term of the agreement or within six months after its expiration, Mr.
Gorga will be entitled to two years' base salary from the termination or
resignation and continued health and life insurance coverage for two years. In
addition, with respect to certain change of control situations, the bonus
payable to Mr. Gorga under any incentive compensation plan then in effect,
rather than being calculated on a pro rata basis as of the termination date,
would be double the maximum amount to which Mr. Gorga otherwise would be
entitled for the entire year, regardless of the actual performance of the
Company. Under certain circumstances with respect to change of control, the
severance amounts payable, including funding for the continued benefits, would
be payable contemporaneously with the occurrence of the change of control.
Payments that result in the imposition of an excise tax penalty under section
4999 of the Internal Revenue Code of 1986, as amended, would result in a
reimbursement payment so that Mr. Gorga's after tax situation is not affected by
the additional tax. The agreement also contains certain agreements of Mr. Gorga
relating to noncompetition with the Company. Contemporaneously with the
execution of the employment agreement in February 1996, Mr. Gorga was issued
non-qualified stock options to acquire up to 40,000 shares of Company stock for
an exercise price of $27.50 per share, the amount determined by the Company to
be the fair market value of the Company's shares at the time of issue, and the
Company adjusted the exercise prices of 25,000 of options already held by Mr.
Gorga to the $27.50 price level.
Mr. Ovenden. Effective January 1, 1996, the Company and Mr. Ovenden
entered into an amended and restated employment agreement providing for the
employment of Mr. Ovenden as the Executive Vice President and Chief Financial
Officer of the Company. The agreement has a term of two years, subject to
annual renewals unless either party objects. Under the agreement, Mr. Ovenden
is entitled to an annual salary of $225,000, subject to increase by the Board's
compensation committee. He is entitled to participate in Company benefit
plans, including the Incentive Compensation Plan; so long as the current
Incentive Compensation Plan is in effect, the maximum amount payable under the
plan to Mr. Ovenden would be 50% of his base salary rather than the amount
specified in the plan.
In the event Mr. Ovenden is terminated without cause during the term of
the agreement or within six months after its expiration, the agreement provides
for the payment to him of the greater of the base salary which would accrue
over the remaining term of the agreement or one year's base salary, together
with continued health and life insurance benefits during the period in which
the payments are made. If Mr. Ovenden is terminated or resigns under specified
circumstances following a change of control (as defined) that occurs during the
term of the agreement or within six months after its expiration, Mr. Ovenden
will be entitled to two years' base salary from the termination or resignation
and continued health and life insurance coverage for two years. In addition,
with respect to certain change of control situations, the bonus payable to Mr.
Ovenden under any incentive compensation plan then in effect, rather than being
calculated on a pro rata basis as of the termination date, would be double the
maximum amount to which Mr. Ovenden otherwise would be entitled for the entire
year, regardless of the actual performance of the Company. Under certain
circumstances with respect to change of control, the severance amounts payable,
including funding for the continued benefits, would be payable
40
<PAGE> 43
contemporaneously with the occurrence of the change of control. Payments that
result in the imposition of an excise tax penalty under section 4999 of the
Internal Revenue Code of 1986, as amended, would result in a reimbursement
payment so that Mr. Ovenden's after tax situation is not affected by the
additional tax. The agreement also contains certain agreements of Mr. Ovenden
relating to noncompetition with the Company. Contemporaneously with the
execution of the employment agreement in February 1996, Mr. Ovenden was issued
non-qualified stock options to acquire up to 15,000 shares of Company stock for
an exercise price of $27.50 per share, the amount determined by the Company to
be the fair market value of the Company's shares at the time of issue.
Mr. G. Thaddeus Williams. Until his retirement from the Company in August
1995, Mr. Williams was employed as President and Chief Executive Officer of
the Company pursuant to an employment agreement effective as of January 1,
1991, which was amended as of July 1, 1993.
Pursuant to the terms of a severance and consulting agreement (the
"Consulting Agreement") entered into upon Mr. Williams' retirement, the rights
and obligations of Mr. Williams and the Company under the employment agreement
have been terminated, except as expressly provided by the Consulting Agreement.
Pursuant to the Consulting Agreement, Mr. Williams is to receive two years
of severance payments at the annual rate of $275,000. Following the
expiration of the severance payment period, Mr. Williams will provide
consulting services to the Board of Directors and to the Chief Executive
Officer of the Company for a period of up to three years and shall receive an
annual consulting fee of $175,000. During the term of the severance payment
period and the consulting period, Mr. Williams has agreed that he will not
compete or interfere with any business conducted by the Company or its
affiliates. Mr. Williams and his dependents are also entitled to continued
participation in the Company's group medical insurance plan and the Company
will pay the required premiums until Mr. Williams attains age 62.
MANAGEMENT SUBSCRIPTION AGREEMENTS
Pursuant to a management subscription agreement (the "Management
Subscription Agreement"), certain of the Company's officers and employees,
including Mr. Hamilton, acquired shares of Common Stock in December 1986.
Mr. Ovenden, who acquired shares of Common Stock in 1987, is subject to a
subscription agreement substantially identical to the Management Subscription
Agreement, and is a Management Investor. The Management Subscription Agreement
and Mr. Ovenden's separate subscription agreement grant the Company an option
to purchase and each of the Management Investors an option under certain
circumstances to sell at fair market value the shares of Common Stock owned by
such Management Investor in the event of his death, incapacity or termination
of employment.
Under the Consulting Agreement with Mr. Williams, Mr. Williams waived his
rights under the Management Subscription Agreement to require the Company to
purchase his shares upon his retirement. The Consulting Agreement grants Mr.
Williams the option to sell all or a portion of the shares of Common Stock
directly owned by him to the Company in the event of an
41
<PAGE> 44
initial public offering of Common Stock, at the same price as shares of Common
Stock are being offered to the public. In addition, the Consulting Agreement
also provides Mr. Williams with the right to participate, at any time on or
prior to January 1, 1999, with ML Capital Partners in any sale by ML Capital
Partners to a third party of securities representing more than 15% of the
then-outstanding shares of Common Stock on a fully diluted basis. If Mr.
Williams exercises this right, he will be entitled to sell shares of Common
Stock in the same proportion as the shares of Common Stock ML Capital Partners
proposes to sell bear to the total number of outstanding shares of Common Stock
on a fully diluted basis at the same price and on the same terms as ML Capital
Partners sells its shares of Common Stock.
CERTAIN TRANSACTIONS
Market Making Activities. In April 1987, Merrill Lynch underwrote a public
offering of the Clinton Debentures and Clinton used the proceeds to repay a
bridge loan extended by ML & Co. The Company and Clinton Mills, Inc. agreed to
reimburse Merrill Lynch, ML & Co. and ML Capital Partners for their reasonable
out-of-pocket expenses in connection with the financing of the 1986 acquisition
of a predecessor of the Greige Fabrics Division and to indemnify them against
certain liabilities, including liabilities under the federal securities laws.
Prior to the redemption of the Clinton Debentures in 1993, Clinton maintained
the effectiveness of the registration statement pursuant to which the Clinton
Debentures were registered with the Commission to enable Merrill Lynch to make a
market in the Clinton Debentures. For a discussion of the relationship between
each of Merrill Lynch and its affiliates and the Company, see "Ownership of the
Company."
In October 1993, Merrill Lynch underwrote a public offering of the Notes.
The Company used proceeds of the Offering, together with borrowings under the
initial credit agreement, to refinance the indebtedness outstanding under the
Subsidiary Loan Agreements and to call the Clinton Debentures for redemption.
Merrill Lynch received an underwriting discount of $3,046,875 in connection with
the Offering. The Company has agreed to maintain the effectiveness of the
registration statement pursuant to which the Notes were registered with the
Commission to enable Merrill Lynch to make a market in the Notes. The Company
also agreed to indemnify Merrill Lynch against certain liabilities, including
liabilities under the federal securities laws.
Purchase of Common Stock. Pursuant to the terms of the Consulting
Agreement with Mr. Williams and the Management Subscription Agreement, the
Company in August 1995, purchased 83,000 shares of Common Stock owned by certain
trusts for the benefit of Mr. Williams' descendants (the "Trusts") at a price of
$40 per share or a total of $3.3 million. In addition, the Consulting Agreement
provides that the Trusts will have the right under certain circumstances to
receive an additional amount with respect to such shares if, on or before
January 1, 1999 (i) the Company undertakes an initial public offering of Common
Stock, (ii) the Company enters into a fundamental transaction such as a merger,
recapitalization or similar transaction, or (iii) the ML Capital Partners
affiliated stockholders agree to sell their shares of Common Stock to the
Company or a party not affiliated with ML Capital Partners and in connection
with any such transaction the shares of Common Stock are valued at a price
higher than $40 per share. If such a transaction is consummated, the Trusts will
be entitled to receive from the Company a payment equal to the difference
between the per share value of Common Stock in such transaction and $40
multiplied by 83,000 shares.
Registration Rights. All current stockholders of the Company have certain
registration rights with respect to their Common Stock. See "Ownership of the
Company."
42
<PAGE> 45
OWNERSHIP OF THE COMPANY
The following table sets forth information with respect to the beneficial
ownership of shares of Common Stock as of December 28, 1996 of all stockholders
known by the Company to be the beneficial owners of more than five percent of
its outstanding Common Stock, of each director of the Company, each Named
Executive Officer named in the Summary Compensation Table, and of all directors
and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLYOWNED
--------------------------
NUMBER PERCENT
OF SHARES OF TOTAL
------------ ------------
<S> <C> <C>
Merrill Lynch Capital Partners, Inc.(1)(2) .... 994,387 58.8%
767 Fifth Avenue
48th Floor
New York, NY 10153
G. Thaddeus Williams(3) ....................... 142,000 8.2%
333 Spring Lake Road
Columbia, SC 29206
Steve F. Warren(4) ............................ 120,000 7.1%
2 Baywater Lane
Greensboro, NC 27408
Joseph L. Gorga(5) ............................ 75,000 4.2%
W. James Raleigh(6) ........................... 60,000 3.5%
James A. Ovenden(7) ........................... 55,000 3.2%
Joshua T. Hamilton(8) ......................... 16,000 *
James F. Robbins .............................. -- --
Michael H. deHavenon .......................... 4,081 *
Rupinder S. Sidhu(2) .......................... -- --
Stephen M. McLean(2) .......................... -- --
M. S. Bailey and Son Bankers, as Trustee ...... 126,698 7.5%
211 North Broad Street
Clinton, SC 29325
All directors and executive officers as a
group (8 persons)(5)(6)(7)(8) ............... 210,081 11.6%
</TABLE>
*Less than 1%
(1) Ten limited partnerships, each of which is an affiliate of ML Capital
Partners and Merrill Lynch, are record owners of 894,986 of the presently
outstanding shares: Merrill Lynch Capital Appreciation Partnership No.
VII, L.P., Merrill Lynch Capital Appreciation Partnership No. B-XVI, L.P.,
ML Offshore LBO Partnership No. VII, ML Offshore LBO Partnership No.
B-XVI, ML Employees LBO Partnership No. I, L.P., ML Capital Partners
Associates L.P. No. II, Merrill Lynch Kecalp L.P. 1986, Merrill Lynch
Kecalp L.P. 1989, Merrill Lynch Kecalp L.P. 1991, and Merchant Banking
L.P. No. 1. Merrill
43
<PAGE> 46
Lynch LBO Partners No. II, L.P. ("LBO Partners II") is the general partner
of Merrill Lynch Capital Appreciation Partnership No. VII, L.P. and the
investment general partner of ML Offshore LBO Partnership No. VII. Merrill
Lynch LBO Partners No. B-III ("LBO Partners III") is the general partner of
Merrill Lynch Capital Appreciation Partnership No. B-XVI, L.P. and ML
Offshore LBO Partnership No. B-XVI. ML Capital Partners is in turn the
general partner of LBO Partners II and LBO Partners III. ML Employees
LBO Managers, Inc., a wholly-owned subsidiary of ML Capital Partners, is
the managing general partner of ML Employees LBO Partnership No. 1, L.P.
ML Capital Partners is the general partner of ML Capital Partners
Associates L.P. No. II. Kecalp, Inc., an indirect wholly-owned subsidiary
of ML&Co., is the general partner of Merrill Lynch Kecalp L.P. 1986,
Merrill Lynch Kecalp L.P. 1989 and Merrill Lynch Kecalp L.P. 1991.
Merrill Lynch MBP, Inc., an indirect wholly-owned subsidiary of ML&Co., is
the general partner of Merchant Banking L.P. No. 1. The remaining 99,401
outstanding shares deemed beneficially owned by ML Capital Partners are
owned of record by ML IBK Positions, Inc., an indirect wholly-owned
subsidiary of ML&Co. and an affiliate of ML Capital Partners and Merrill
Lynch.
(2) Rupinder S. Sidhu and Stephen M. McLean, directors of the Company, are
members of the Board of Directors of ML Capital Partners. By virtue of
their status as directors of ML Capital Partners, Messrs. Sidhu and McLean
may be deemed under the rules of the Commission to be beneficial owners of
856,165 shares of Common Stock owned of record by limited partnerships that
are wholly owned by ML Capital Partners. Messrs. Sidhu and McLean disclaim
beneficial ownership of these shares of Common Stock.
(3) Amounts for Mr. Williams include 45,000 shares of Common Stock issuable
to Mr. Williams pursuant to presently exercisable options.
(4) Amounts for Mr. Warren include 60,000 shares of Common Stock held by a
limited partnership in which Mr. Warren is a general partner.
(5) Amounts for Mr. Gorga represent shares issuable upon exercise of
presently exercisable options to acquire Common Stock.
(6) Amounts for Mr. Raleigh do not include 60,000 shares of Common Stock held
by a trust for the benefit of Mr. Raleigh's children, as to which Mr.
Raleigh disclaims beneficial ownership.
(7) Amounts for Mr. Ovenden include 45,000 shares issuable upon exercise of
presently exercisable options to acquire Common Stock.
(8) Amounts for Mr. Hamilton do not include 4,000 shares of Common Stock held
by a trust for the benefit of Mr. Hamilton's children, as to which Mr.
Hamilton disclaims beneficial ownership.
44
<PAGE> 47
RESTATED STOCKHOLDERS AGREEMENT
In connection with the original issuance of Common Stock to the ML Capital
Partners affiliates, certain of the Management Investors and others upon the
organization of the Company in 1986, all stockholders entered into a
stockholders agreement with the Company, which was amended and restated in its
entirety in February 1992 (the "Restated Stockholders Agreement"). The Restated
Stockholders Agreement provides that the ML Capital Partners affiliates are
entitled to designate four of the Company's seven directors and the Management
Investors are entitled to designate three of the Company's directors. The Board
of Directors is currently comprised of six members, three of whom (Messrs.
Sidhu, McLean and deHavenon) have been designated by ML Capital Partners.
Certain significant transactions between the Company and unrelated parties
require the approval of the Board of Directors and the holders of more than
two-thirds of the outstanding shares of Common Stock. Since the ML Capital
Partners affiliates have the right to elect the majority of the Board of
Directors, the approval of the directors elected by the ML Capital Partners
affiliates and Management Investors holding approximately 8% of the outstanding
Common Stock (in addition to the ML Capital Partners affiliated stockholders)
will be required to approve significant transactions. The Restated Stockholders
Agreement also provides for certain restrictions on the transfer of shares of
Common Stock by the current stockholders and rights of first refusal in
connection with certain proposed transfers of Common Stock. Pursuant to the
Consulting Agreement, Mr. Williams' shares of Common Stock will not be subject
to these transfer restrictions if the ML Capital Partners affiliated
stockholders sell their shares of Common Stock to an unaffiliated person or
distribute their shares of Common Stock to their respective partners or
investors.
Under the Restated Stockholders Agreement, all the stockholders of the
Company have certain registration rights with respect to their Common Stock.
These rights include demand and "piggyback" registration rights. The Company is
obligated to register shares of Common Stock under the demand registration
rights if holders of more than two-thirds of the outstanding shares request
registration. The registration rights extend until February 14, 2002 or
terminate sooner upon (i) the merger or consolidation of the Company with an
unaffiliated corporation in which the Management Investors and affiliates of ML
Capital Partners own less than 65% of the surviving or resulting corporation or
(ii) the sale of substantially all the assets of the Company to an unaffiliated
person. The remaining provisions of the Restated Stockholders Agreement would
terminate under the foregoing circumstances or sooner in the event of (i) a
public offering of Common Stock at the conclusion of which at least 30% of the
outstanding shares shall have been sold to the public or (ii) the sale of 60% or
more of the shares of Common Stock owned by either the Management
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<PAGE> 48
Investors as a group or the ML Capital Partners affiliates as a group (as fully
diluted by shares to be issued upon exercise of options).
DESCRIPTION OF BANK CREDIT FACILITIES
The Company used the proceeds of the Offering together with borrowings
under replacement facilities to redeem the Clinton Debentures and repay the
outstanding indebtedness under the Subsidiary Loan Agreements.
PRIOR CREDIT AGREEMENT
The Company's initial bank credit agreement originally provided an
unsecured revolving credit facility of up to $70.0 million, including a letter
of credit facility of up to $10.0 million until October 27, 1996, at which time
the entire amount outstanding was to mature. In December 1994, the revolving
credit agreement was increased to $92 million and extended until January 15,
1998 in anticipation of the acquisition of United Elastic Corporation on January
3, 1995.
NEW CREDIT AGREEMENT
In March 1996, the Company replaced the $92 million unsecured revolving
credit facility with the Credit Agreement and renewed the Wachovia Credit
Facility at $4 million. The Company and the lenders amended the Credit
Agreement in February 1997 to reduce the borrowing limit to $65 million, to
contemplate the realignment of the Company's assets into separate operating
entities, which will be completed during the second quarter of 1997, and to
extend the maturity of the Credit Agreement by two years to January 2000.
The Credit Agreement provides for a revolving credit facility of up to
$65.0 million, including a letter of credit facility of up to $5.0 million.
The amount available under the revolving credit facility is limited to a
percentage of the collateral pledged by the Company, as evidenced by a monthly
borrowing base certificate to be delivered by the Company, and is reduced by
any outstanding letters of credit issued under the letter of credit facility.
The maximum and average amounts outstanding during 1996 were $39.7 million and
$31.3 million, respectively; at December 28, 1996, $19.4 million was
outstanding and the per annum interest rate was 7.3%.
Interest Rates and Fees. Interest under the Credit Agreement is payable
at one of two specified rates, as selected by the Company, as follows: (i) the
rate announced as the base rate of the Agent Bank and (ii) a Eurodollar rate
plus 1.5%. The Company pays a commitment fee of 0.375% per annum on the unused
portion of the revolving credit facility, payable quarterly in arrears. The
Company also pays a quarterly agency fee of $12,500 to the Agent Bank. In
addition, the Company will pay a fee on the date any letter of credit is issued
under the Credit Agreement and each anniversary date thereafter in an amount
equal to (i) 1.0% of the stated amount of any standby letter of credit and
(ii) 0.375% of the stated amount of any documentary letter of credit.
Restrictive Covenants. The Credit Agreement contains covenants customary
for a secured revolving credit facility including, among others, covenants
restricting the incurrence of indebtedness, the creation or existence of liens,
the declaration or the payment of dividends, the
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repurchase or redemption of debt and equity securities of the Company, certain
transactions with related parties, and certain corporate transactions such as
sales and purchases of assets, mergers or consolidations. Under the Credit
Agreement, the Company may incur additional senior indebtedness in an aggregate
principal amount of up to $18.0 million, which amount includes borrowings under
the Wachovia Credit Facility, without obtaining the consent of the lenders. Up
to $10.0 million of such additional senior indebtedness may be secured by
purchase money liens. The Credit Agreement also contains affirmative covenants
relating to compliance with laws, preservation of corporate existence,
maintenance of insurance, payment of taxes, maintenance of properties, delivery
of financial and other information to the lenders under the Credit Agreement and
other matters.
The Company is required to maintain certain financial ratios, including a
minimum tangible net worth of $30.0 million in fiscal 1997, which minimum
increases each year thereafter by 50% of the consolidated net income of the
Company and certain of its subsidiaries for the previous fiscal year. The
Company is required to maintain a minimum interest coverage ratio (EBITDA to
interest) of not less than 1.5 to 1 for any four consecutive quarters. The
Company must also maintain a fixed charge coverage ratio of 1.0 to 1, meaning
that (i) consolidated EBITDA less cash used to pay for taxes and capital
expenditures must exceed (ii) all interest plus principal due on long term
indebtedness of the Company and its consolidated subsidiaries for the nine
months ended September 30, 1997 and for any four consecutive fiscal quarters
thereafter.
Security. Borrowings under the Credit Agreement are secured by
receivables, certain inventories and certain intangibles. The Credit Agreement
contains a negative covenant limiting the Company's right to grant security
interests or other liens in its other assets. However, up to $10.0 million of
any additional senior indebtedness permitted under the Credit Agreement,
excluding borrowings under the Wachovia Credit Facility, may be secured by
assets of the Company other than inventory or receivables.
Events of Default. The Credit Agreement contains certain events of
default customary for this type of credit facility, including, among others,
payment events of default, covenant defaults, an event of default based on a
change of control of the Company, and a cross-default to other indebtedness of,
and bankruptcy and judgment defaults to, the Company.
Wachovia Credit Facility
Under the Wachovia Credit Facility, loan amounts, interest rates and
maturities are offered by the bank in its discretion and are accepted by the
Company at the time of borrowing, subject to the execution of a note and
supporting loan documentation satisfactory to the bank. Borrowings under the
Wachovia Credit Facility constitute additional senior indebtedness under the
Credit Agreement and are unsecured. The maximum and average amounts
outstanding during 1996 were $4.0 million and $3.3 million respectively; at
December 28, 1996, $4.0 million was outstanding and the per annum interest rate
was 7.3%.
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DESCRIPTION OF THE NOTES
The Notes were issued under an indenture dated as of October 28, 1993 (the
"Indenture") between the Company and Chemical Bank, Trustee (the "Trustee"). The
Indenture is subject to and governed by the Trust Indenture Act of 1939, as
amended. The following summary of the material provisions of the Indenture does
not purport to be complete, and where reference is made to particular provisions
of the Indenture, such provisions, including the definition of certain terms,
are incorporated by reference as a part of such summaries or terms, which are
qualified in their entirety by such reference. The definitions of certain
capitalized terms used in the following summary are set forth below under
"-- Certain Definitions."
GENERAL
The Notes are unsecured senior subordinated obligations of the Company
limited to $125 million aggregate principal amount. The Notes were issued in
fully registered form, without coupons, in denominations of $1,000 and integral
multiples thereof. (Section 302) Principal of, premium, if any, and interest on
the Notes are payable, and the Notes are transferable, at the office or agency
of the Company in The City of New York maintained for such purposes, which
currently is the corporate trust office of the Trustee maintained at 450 West
33rd Street, New York, New York 10001. In addition, interest may be paid at the
option of the Company (i) by check mailed to the person entitled thereto as
shown on the security register or (ii) by transfer to an account maintained by
the payee located in the United States. (Section 301) No service charge will be
made for any registration of transfer or exchange of Notes, but the Company or
the Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (Section 305)
MATURITY, INTEREST AND PRINCIPAL
The Notes mature on October 1, 2003. Interest on the Notes accrues at the
rate of 9 1/2% per annum and is payable semiannually on April 1 and October 1 of
each year to the person in whose name the Note is registered at the close of
business on the March 15 or September 15 next preceding such interest payment
date. Interest is computed on the basis of a 360-day year comprised of twelve
30-day months. (Section 310)
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<PAGE> 51
REDEMPTION
Optional Redemption. The Notes will be subject to redemption, at the
option of the Company, in whole or in part, at any time on or after October 1,
1998, upon not less than 30 nor more than 60 days' notice at the following
Redemption Prices (expressed as percentages of principal amount) set forth
below, plus accrued interest to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date to receive interest due on
an Interest Payment Date that is on or prior to the Redemption Date), if
redeemed during the 12-month period beginning October 1 of the years indicated:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
--------------------------------------------------------------------- ----------------
<S> <C>
1998................................................................. 104.750%
1999................................................................. 102.375
2000 and thereafter.................................................. 100.000
</TABLE>
Optional Redemption upon Change of Control. Upon the occurrence of a
Change of Control (as defined below), the Notes are redeemable, in whole or in
part, at the option of the Company, upon not less than 30 nor more than 60 days'
prior notice to each Holder of Notes to be redeemed, which notice may be given
at any time within 180 days after the occurrence of a Change in Control, at a
redemption price equal to the sum of (i) the then outstanding principal amount
thereof plus (ii) accrued and unpaid interest, if any, to the redemption date
plus (iii) the Applicable Premium. (Section 203) The following definitions are
used to determine the Applicable Premium:
"Applicable Premium" is defined, with respect to a Note, as the
greater of (i) 1.0% of the then Outstanding principal amount of such Note
and (ii) the excess of (A) the present value of the required interest and
principal payments due on such Note, computed using a discount rate equal
to the Treasury Rate plus the Applicable Spread, over (B) the then
Outstanding principal amount of such Note; provided that in no event will
the Applicable Premium exceed the amount of the applicable redemption price
upon an optional redemption less 100%, at any time on or after October 1,
1998.
"Treasury Rate" is defined as the yield to maturity at the time of
computation of United States Treasury securities with a constant maturity
(as compiled and published in the most recent Federal Reserve Statistical
Release H.15(519) which has become publicly available at least two business
days prior to the date fixed for prepayment (or, if such Statistical
Release is no longer published, any publicly available source of similar
market data)) most nearly equal to the then remaining Average Life of the
Notes; provided, however, that if the Average Life of the Notes is not
equal to the constant maturity of a United States Treasury security for
which a weekly average yield is given, the Treasury Rate shall be obtained
by linear interpolation (calculated to the nearest one-twelfth of a year)
from the weekly average yields of United States Treasury securities for
which such yields are given, except that if the Average Life of the Notes
is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year
shall be used.
"Applicable Spread" is defined as 125 basis points.
A "Change of Control" is defined to mean the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act), excluding Permitted Holders,
is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
Voting Stock of the
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Company; (b) the Company consolidates with, or merges with or into, another
Person or sells, assigns, conveys, transfers, leases or otherwise disposes
of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other
property, other than any such transaction where (i) the outstanding Voting
Stock of the Company is converted into or exchanged for (1) Voting Stock
(other than Redeemable Capital Stock) of the surviving or transferee
corporation or (2) cash, securities and other property in an amount that
could be paid by the Company as a Restricted Payment under the Indenture
and (ii) immediately after such transaction no "person" or "group" (as such
terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding
Permitted Holders, is the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be deemed to have
"beneficial ownership" of all securities that such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 50% of the total
Voting Stock of the surviving or transferee corporation; or (c) during any
consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any
new directors whose election by such Board of Directors or whose nomination
for election by the stockholders of the Company was approved by a vote of
66 2/3% of the directors then still in office who were either directors at
the beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a majority
of the Board of Directors of the Company then in office.
"Permitted Holders" means ML Capital Partners and its Affiliates and
the Management Investors.
In addition, as described below, the Company is obligated to make an offer
to purchase all outstanding Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of purchase within 30 days after the occurrence of a Change of Control. See
"Covenants -- Change of Control." Although it is not obligated to do so, the
Company anticipates that, upon any Change of Control, it would make such offer
to purchase prior to making any decision as to whether to optionally redeem the
Notes.
The Company will comply with 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 the event that a Change of Control occurs and the
Company is required to purchase Notes as described above. (Section 1016) The
existence of a Holder's right to require, subject to certain conditions, the
Company to repurchase its Notes upon a Change of Control may deter a third party
from acquiring the Company in a transaction that constitutes a Change of
Control.
The use of the term "all or substantially all" in Indenture provisions such
as clause (b) of the definition of "Change of Control" and under "-- Mergers,
Consolidations and Transfer of Assets" has not been interpreted under New York
law (which is the governing law of the Indenture) to represent a specific
quantitative test. As a consequence, in the event the holders of the Notes
elected to exercise their rights under the Indenture and the Company elected to
contest such election, there could be no assurance as to how a court applying
New York law would interpret the phrase. Accordingly, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of a person, which
uncertainty should be considered by prospective purchasers of Notes.
If less than all the Notes are to be redeemed, the particular Notes (or any
portion thereof that is an integral multiple of $1,000) to be redeemed shall be
selected not more than 60 days prior to the Redemption Date by the Trustee, from
the outstanding Notes not previously called for redemption, by such method as
the Trustee shall deem fair and appropriate. (Section 1104) Accordingly, the
Holders of Notes do not have a right to a prorated redemption.
SUBORDINATION
The payment of the principal of (and premium, if any, on) and interest on
the Notes is, to the extent set forth in the Indenture, subordinated in right of
payment to the prior payment in full of all Senior Indebtedness.
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In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relating to the Company or to its creditors, as such, or
to its assets, or any liquidation, dissolution or other winding-up of the
Company, whether voluntary or involuntary and whether or not including
insolvency or bankruptcy, or any assignment for the benefit of creditors or
other marshaling of assets or liabilities of the Company (except in connection
with the consolidation or merger of the Company or its liquidation or
dissolution following the conveyance, transfer or lease of its properties and
assets substantially as an entirety upon the terms and conditions described
under "-- Covenants -- Mergers, Consolidations and Transfer of Assets" below),
the holders of Senior Indebtedness will first be entitled to receive payment in
full of all amounts due on or in respect of all Senior Indebtedness, or
provision shall be made for such payment, before the Holders of Notes will be
entitled to receive any payment or distribution of any kind or character (other
than any payment or distribution in the form of equity securities or
subordinated securities of the Company or any successor obligor with respect to
the Senior Indebtedness provided for by a plan of reorganization or
readjustment that, in the case of any such subordinated securities, are
subordinated in right of payment to all Senior Indebtedness that may at the
time be outstanding to substantially the same extent as, or to a greater extent
than, the Notes are so subordinated as provided in the Indenture (such equity
securities or subordinated securities hereinafter being "Permitted Junior
Securities")) on account of principal of (or premium, if any, on) or interest
on the Notes. In the event that notwithstanding the foregoing, the Trustee or
the Holder of any Note receives any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, in
respect of principal of (or premium, if any, on) or interest on the Notes
before all Senior Indebtedness is paid in full or payment thereof provided for,
then such payment or distribution (other than a payment or distribution in
Permitted Junior Securities) will be required to be paid over or delivered
forthwith to the trustee in bankruptcy, receiver, liquidator, trustee,
custodian, assignee, agent or other Person making payment or distribution of
assets of the Company for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in
full. (Section 1402)
No payment or distribution of any assets of the Company of any kind or
character (other than Permitted Junior Securities) may be made by the Company on
account of principal of (or premium, if any, on) or interest on the Notes or on
account of the purchase or redemption or other acquisition of Notes upon the
occurrence of a Payment Event of Default and receipt by the Trustee of written
notice thereof until such Payment Event of Default shall have been cured or
waived. (Section 1403(a))
No payment or distribution of any assets of the Company of any kind or
character (other than Permitted Junior Securities) may be made by the Company on
account of any principal of (or premium, if any, on) or interest on the Notes or
on account of the purchase or redemption or other acquisition of Notes for the
period specified below ("Payment Blockage Period") upon the occurrence of a
Nonpayment Event of Default and receipt by the Trustee of written notice thereof
from the Agent Bank or any other representative of a holder of Specified Senior
Indebtedness. The Payment Blockage Period will commence upon the earlier of the
dates of receipt by the Trustee or the Company of notice from the Agent Bank or
any other holder of Specified Senior Indebtedness and shall end on the earliest
of (i) 179 days thereafter, (ii) the date, as set forth in a written notice from
the Agent Bank or a representative of the Specified Senior Indebtedness to the
Company or the Trustee, on which such Nonpayment Event of Default is cured,
waived or ceases to exist or such Specified Senior Indebtedness is discharged or
(iii) such Payment Blockage Period shall have been terminated by written notice
to the Company or the Trustee from the Agent Bank or such other representative
initiating such Payment Blockage Period, after which the Company will resume
making any and all required payments in respect of the Notes, including any
missed payments. In any event, not more than one blockage period may be
commenced during any period of 360 consecutive days, and there shall be a period
of at least 181 consecutive days in each period of 360 consecutive days when no
blockage period is in effect. No Nonpayment Event of Default that existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Specified Senior Indebtedness initiating such blockage period
will be, or can be, made the basis for the commencement of a subsequent Payment
Blockage Period, unless such default has been cured or waived for a period of
not less than 90 consecutive days. In the event that, notwithstanding the
foregoing, the Company makes any payment to the Trustee or the Holder of any
Note prohibited by the subordination
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provisions, then such payment will be required to be paid over and delivered
forthwith to the Company. (Sections 1403(b) and 1403(c))
By reason of such subordination, in the event of liquidation, receivership,
reorganization or insolvency of the Company, creditors of the Company who are
holders of Senior Indebtedness may recover more, ratably, than the Holders of
the Notes, and assets which would be otherwise be available to pay obligations
in respect of the Notes will be available only after all Senior Indebtedness has
been paid in full, and there may not be sufficient assets remaining to pay
amounts due on any or all of the Notes.
"Senior Indebtedness" means the principal of (and premium, if any, on) and
interest on (including interest accruing after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law) and other amounts due
on or in connection with any Indebtedness of the Company, whether outstanding on
October 28, 1993 or thereafter created, incurred or assumed, unless, in the case
of any particular Indebtedness, the instrument creating or evidencing the same
or pursuant to which the same is outstanding expressly provides that such
Indebtedness will not be senior in right of payment to the Notes. Without
limiting the generality of the foregoing, "Senior Indebtedness" will include the
principal of (and premium, if any, on) and interest (including interest accruing
after the occurrence of an event of default or after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law) on all obligations of
every nature of the Company from time to time owed to the Banks under the Bank
Credit Agreement, including, without limitation, principal of and interest on,
and all fees related to, the revolving loans or term loans (or any combination
thereof) made pursuant to the Bank Credit Agreement, reimbursement and other
obligations owed by the Company to the Banks with respect to any letters of
credit and any obligations owed to the Banks with respect to interest rate
protection incurred to satisfy the requirements of the Bank Credit Agreement or
otherwise. Notwithstanding the foregoing, "Senior Indebtedness" will not include
(A) Indebtedness evidenced by the Notes, (B) Indebtedness of the Company that is
expressly subordinated in right of payment to any Senior Indebtedness of the
Company or the Notes, (C) Indebtedness that is represented by Redeemable Capital
Stock, (D) Indebtedness of the Company to the extent incurred in violation of
the "Limitation on Indebtedness" covenant of the Indenture and (E) Indebtedness
of the Company to any Subsidiary.
"Specified Senior Indebtedness" means (a) all Senior Indebtedness of the
Company under the Bank Credit Agreement or refinancings thereof and (b) any
other Senior Indebtedness or refinancings thereof having a principal amount of
at least $12.5 million as of any date prior to the date of determination. For
purposes of this definition, a refinancing of any Indebtedness shall be treated
as such only if it ranks or would rank pari passu with the Indebtedness
refinanced. (Section 101)
The subordination provisions described above will cease to be applicable to
the Notes upon any defeasance or covenant defeasance of the Notes as described
under "Defeasance." (Article Thirteen)
At December 28, 1996, the amount of Senior Indebtedness outstanding was
$24.9 million. The Indenture limits, but does not prohibit, the incurrence by
the Company of additional Indebtedness that is senior or pari passu in right of
payment to the Notes and prohibits the incurrence by the Company of Indebtedness
that is subordinated in right of payment to any other Indebtedness of the
Company and senior in right of payment to the Notes.
COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, make any Restricted
Payment unless at the time of and after giving effect to the proposed Restricted
Payment, (i) no Default or Event of Default shall have occurred and be
continuing, (ii) the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the first paragraph under the
"Limitation on Indebtedness" covenant and (iii) the aggregate amount of all
Restricted Payments declared or made after the date of the Indenture (plus the
amount of Investments made
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pursuant to clause (e)(ii)(A) under the "Limitation on Investments" covenant)
shall not exceed the sum (without duplication) of:
(A) 50% of the aggregate Consolidated Adjusted Net Income of the
Company accrued on a cumulative basis during the period beginning on
October 1, 1993 and ending on the last day of the Company's fiscal quarter
ending prior to the date of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Adjusted Net Income is a loss, minus 100%
of such loss), plus
(B) the aggregate net cash proceeds, plus the Fair Market Value of
property other than cash (as determined by the Company's Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution), received after October 28, 1993 by the Company from the
issuance or sale (other than to any of its Restricted Subsidiaries) of
shares of Qualified Capital Stock of the Company or warrants, options or
rights to purchase shares (other than issuances contemplated by clauses
(ii) and (iii) of the definition of Permitted Payments set forth in
paragraph (b) below) of Qualified Capital Stock of the Company, plus
(C) the aggregate net cash proceeds, plus the Fair Market Value of
property other than cash (as determined by the Company's Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution), received after October 28, 1993 by the Company as capital
contributions, plus
(D) the aggregate net cash proceeds received after October 28, 1993 by
the Company (other than from any of its Restricted Subsidiaries) upon the
exercise of options, warrants or rights to purchase shares of Qualified
Capital Stock of the Company, plus
(E) the aggregate net cash proceeds received after October 28, 1993 by
the Company from the issuance or sale (other than to any of its Restricted
Subsidiaries) of debt securities or shares of Redeemable Capital Stock that
have been converted into or exchanged for Qualified Capital Stock of the
Company, together with the aggregate cash received by the Company at the
time of such conversion or exchange, plus
(F) to the extent not otherwise included in the Company's Consolidated
Adjusted Net Income, the aggregate amount of principal repayments, interest
on Indebtedness, dividends, distributions or other return of capital
received by the Company or a Restricted Subsidiary from any Person (other
than the Company or any Restricted Subsidiary) in which the Company or any
of its Restricted Subsidiaries has an ownership interest, (including any
return of capital resulting from redesignation of a Unrestricted Subsidiary
as a Restricted Subsidiary) or any repayment of Indebtedness guaranteed by
the Company or a Restricted Subsidiary to the extent the incurrence of such
guarantee was an Investment pursuant to clause (e) of the "Limitation on
Investments" covenant (valued in each case as provided in the definition of
Investment) up to the amount of Investment made pursuant to clause (e) of
the "Limitation on Investments" covenant.
(b) Notwithstanding paragraph (a) above, the Company and any Restricted
Subsidiary may take the following actions (clauses (i) through (vi) being
referred to as "Permitted Payments") so long as, in the case of clauses (v) and
(vi), no Default or Event of Default has occurred and is continuing:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such declaration date such declaration complied
with the provisions of the previous paragraph;
(ii) the repurchase, redemption or other acquisition or retirement of
any shares of any class of Capital Stock of the Company or any Restricted
Subsidiary, in exchange for (including any such exchange pursuant to the
exercise of a conversion right or privilege in connection with which cash
is paid in lieu of the issuance of fractional shares or scrip) or out of
the net cash proceeds of a substantially concurrent issue and sale (other
than to a Restricted Subsidiary) of shares of Qualified Capital Stock of
the Company;
(iii) the redemption, defeasance, repurchase or acquisition or
retirement for value (each, for purposes of this clause, a "refinancing")
of any Indebtedness of the Company (other than Redeemable Capital Stock)
which is pari passu with or expressly subordinate in right of payment to
the Notes out of
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the net cash proceeds of a substantially concurrent issue and sale of (A)
new Indebtedness of the Company or (B) shares of Qualified Capital Stock of
the Company, provided that, with respect to clause (A), any such new
Indebtedness (1) has a principal amount that does not exceed the principal
amount so refinanced plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Indebtedness
refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing, plus the amount of
expenses of the Company incurred in connection with such refinancing;
provided that for purposes of this clause, the principal amount of any
Indebtedness shall be deemed to mean the principal amount thereof or, if
such Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration thereof,
such lesser amount as of the date of determination, (2) has an Average Life
that is equal to or greater than the remaining Average Life of the Notes,
(3) has a final Stated Maturity of principal that exceeds the final Stated
Maturity of principal of the Notes, and (4) is pari passu with or expressly
subordinated in right of payment to the Notes at least to the same extent
as the Indebtedness refinanced;
(iv) the declaration or payment of any dividend or distribution on any
Capital Stock of any Restricted Subsidiary, or the purchase, redemption,
acquisition or retirement for value of any Capital Stock of any Restricted
Subsidiary, provided that such declaration, payment, purchase, redemption,
acquisition or retirement is made pro rata among all holders of such
Capital Stock of such Restricted Subsidiary;
(v) payments to repurchase the capital stock of the Company from the
Management Investors upon or occasioned by the death, disability or
involuntary or voluntary termination of any such Management Investor in an
aggregate amount not to exceed $2,000,000 in any one fiscal year plus the
aggregate amount by which such repurchases under this clause (v) in the
immediately prior fiscal year were less than $2,000,000; and
(vi) payments or other actions described in the definition of
Restricted Payment that would otherwise be Restricted Payments in an
aggregate amount not to exceed $10,000,000.
Except as provided in this paragraph (b), nothing in this covenant limits
or restricts the making of any Permitted Payment and a Permitted Payment will
not be treated as a Restricted Payment.
(c) In computing Consolidated Adjusted Net Income under clause (iii)(A) of
paragraph (a) above, the Company (1) shall use audited financial statements for
the portions of the relevant period for which such statements are available on
the date of determination and unaudited financial statements and other current
financial data based on the books and records of the Company for the remaining
portion of such period, and (2) shall be permitted to rely in good faith on the
financial statements and other financial data derived from the books and records
of the Company that are available on the date of determination. If the Company
makes a Restricted Payment which, at the time of the making of such Restricted
Payment would in the good faith determination of the Company be permitted under
the requirements of the Indenture, such Restricted Payment shall be deemed to
have been made in compliance with the Indenture notwithstanding any subsequent
adjustment made in good faith to the Company's financial statements affecting
Consolidated Adjusted Net Income. (Section 1010)
Limitation on Investments. The Company will not, and will not permit any
Restricted Subsidiary to, make any Investment in any Person, except (a)
Investments in, or Investments that result in the creation of, any Restricted
Subsidiary by the Company or any other Restricted Subsidiary or Investments in
the Company by any Restricted Subsidiary; (b) Investments made in any Cash
Equivalents or in bonds or instruments issued by an industrial development
authority the repayment of which is dependent upon payments from the Company or
any Restricted Subsidiary; (c) loans or advances to employees made in the
ordinary course of business and consistent with past practices of the Company
and its Restricted Subsidiaries in an aggregate amount not to exceed $250,000
outstanding at any one time; (d) Investments in prepaid expenses, negotiable
instruments held for collection, lease, utility, workers' compensation,
performance and other similar deposits; or Investments in stock, obligations or
securities received in settlement of debts owing to the Company or a Restricted
Subsidiary as a result of foreclosure, perfection or enforcement of any Lien, in
each case as to debt
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that arose in the ordinary course of business of the Company or any such
Restricted Subsidiary; and (e) other Investments in an aggregate amount not
exceeding the sum of (i) $10,000,000, (ii) an amount equal to the sum of (A) the
amount permitted at such time to be made as Restricted Payments pursuant to the
provisions of paragraph (a) of the "Limitation on Restricted Payments" covenant
and (B) the amount allowed as Permitted Payments pursuant to paragraph (b)(vi)
of such covenant and (iii) an amount up to $5,000,000 for Investments in
Permitted Joint Ventures. (Section 1011)
Limitation on Indebtedness. (a) The Company will not incur, create,
assume, guarantee or in any other manner become directly or indirectly liable
for (collectively, "incur") the payment of any Indebtedness (including Acquired
Indebtedness), other than Permitted Indebtedness, unless the Company's Fixed
Charge Coverage Ratio for the four full fiscal quarters immediately preceding
the incurrence of such Indebtedness, taken as one period and after giving pro
forma effect to the incurrence of such Indebtedness (and all other Indebtedness
incurred since the end of the most recently completed fiscal quarter of the
Company preceding the date of determination) and (if applicable) the application
of the net proceeds therefrom (and from any other Indebtedness), including to
refinance other Indebtedness, as if such Indebtedness (and any such other
Indebtedness) had been incurred on the first day of such four-quarter period,
would have been greater than 2.0 to 1 for the period from the date of the
Indenture through April 28, 1995 and 2.25 to 1 for all periods thereafter.
(b) The Company will not permit any Restricted Subsidiary to incur any
Indebtedness (including any Acquired Indebtedness), other than Permitted
Subsidiary Indebtedness. (Section 1012)
Limitation on Other Senior Subordinated Indebtedness. The Company will not
incur, create, assume, guarantee or in any other manner become directly or
indirectly liable with respect to or responsible for, or permit to remain
outstanding, any Indebtedness, other than the Notes, that is subordinate or
junior in right of payment to any Senior Indebtedness unless such Indebtedness
is also pari passu with, or subordinate in right of payment to, the Notes
pursuant to subordination provisions substantially similar to those contained in
the Indenture. (Section 1013)
Limitation on Issuances and Sale of Preferred Stock by Restricted
Subsidiaries. The Company (a) will not permit any Restricted Subsidiary to
issue any Preferred Stock (other than to the Company or a Wholly owned
Restricted Subsidiary) and (b) will not permit any Person (other than the
Company or a Wholly owned Restricted Subsidiary) to own any Preferred Stock of
any Restricted Subsidiary. (Section 1014)
Limitation on Liens. (a) The Company will not create, incur, assume or
suffer to exist any Lien of any kind upon any of its property or assets, now
owned or hereafter acquired, to secure any Pari Passu Indebtedness or
Subordinated Indebtedness unless prior to or contemporaneously therewith the
Notes are secured equally and ratably, provided that (1) if such secured
Indebtedness is Pari Passu Indebtedness, the Lien securing such Pari Passu
Indebtedness shall be subordinate and junior to, or pari passu with, the Lien
securing the Notes and (2) if such secured Indebtedness is Subordinated
Indebtedness, the Lien securing such Subordinated Indebtedness shall be
subordinate and junior to the Lien securing the Notes at least to the same
extent as such Subordinated Indebtedness is subordinated to the Notes. The
foregoing shall not apply to any Lien securing Acquired Indebtedness of the
Company, provided that any such Lien only extends to the assets that were
subject to such Lien prior to the related acquisition by the Company and was not
created, incurred or assumed in contemplation of such transaction.
(b) The Company will not permit any Restricted Subsidiary to create, incur,
assume or suffer to exist any Lien of any kind upon any of its property or
assets, now owned or hereafter acquired, to secure any Indebtedness, other than
Permitted Subsidiary Indebtedness. (Section 1015)
Change of Control. Upon the occurrence of a Change of Control, the Company
will be obligated to make an offer to purchase (a "Change of Control Offer") and
shall, subject to the provisions described below, purchase, on a business day
(the "Change of Control Purchase Date") not more than 90 nor less than 30 days
following the occurrence of the Change of Control, all of the then outstanding
Notes at a purchase price (the "Change of Control Purchase Price") equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
Change of Control Purchase Date. The Company shall, subject to the provisions
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described below, be required to purchase all Notes properly tendered into the
Change of Control Offer and not withdrawn. Prior to the mailing of the notice to
Holders provided for below, the Company shall have (x) obtained the requisite
consents under the Bank Credit Agreement to permit the purchase of the Notes as
provided for under this covenant or (y) terminated the commitments under and
repaid the Outstanding Indebtedness under the Bank Credit Agreement to the
extent the requisite consents thereunder have not been obtained. If a notice has
been mailed when such condition precedent has not been satisfied, the Company
shall have no obligation to (and shall not) effect the purchase of Notes until
such time as such condition precedent is satisfied. Failure to mail the notice
on the date specified below or to have satisfied the foregoing condition
precedent by the date that the notice is required to be mailed shall in any
event constitute a covenant Default under clause (e) of "-- Events of Default"
herein. The Change of Control Offer is required to remain open for at least 20
business days and until the close of business on the Change of Control Purchase
Date. (Section 1016)
In order to effect such Change of Control Offer, the Company will, not
later than the 30th day after the Change of Control, mail to each Holder of
Notes notice of the Change of Control Offer, which notice shall govern the terms
of the Change of Control Offer and shall state, among other things, the
procedures that Holders of Notes must follow to accept the Change of Control
Offer.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by Holders of Notes
seeking to accept the Change of Control Offer. A failure to redeem all of the
Notes tendered pursuant to a Change of Control Offer would constitute a Default
under the Indenture. The Company will 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 at the same purchase price, at the same times and otherwise in
substantial compliance with the requirements 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.
Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company
or such Restricted Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the shares or
assets sold or otherwise disposed of and (ii) at least 75% of such consideration
consists of cash or Cash Equivalents. To the extent that the Net Cash Proceeds
of any Asset Sale are not required to be applied to prepay Senior Indebtedness
and thereby permanently reduce the commitments or amounts available to be
reborrowed under such Senior Indebtedness, as required by the terms thereof, or
are not so applied, the Company or such Restricted Subsidiary, as the case may
be, may apply the Net Cash Proceeds from such Asset Sale within 24 months of
such Asset Sale to an investment in properties and assets that replace the
properties and assets that were the subject of such Asset Sale or in properties
and assets that will be used in the business of the Company and its Restricted
Subsidiaries existing on the date of the Indenture or in any business reasonably
related thereto ("Replacement Assets") so long as the Company or such Restricted
Subsidiary has notified the Trustee in writing within 180 days of such Asset
Sale, that it has determined to apply the Net Cash Proceeds from such Asset Sale
to an investment in Replacement Assets. Any Net Cash Proceeds from any Asset
Sale as to which the Company does not so notify the Trustee within such 180-day
period or does not so invest in such Replacement Assets within such 24-month
period, or which are not used to repay Senior Indebtedness and thereby
permanently reduce the commitments of amounts available to be reborrowed under
such Senior Indebtedness (regardless of whether such repayment is required),
constitute "Excess Proceeds" subject to disposition as provided below.
When the aggregate amount of Excess Proceeds exceeds $10,000,000, the
Company shall make an offer to purchase, from all Holders of the Notes, an
aggregate principal amount of Notes equal to such Excess Proceeds, at a price in
cash equal to 100% of the outstanding principal amount thereof plus accrued and
unpaid interest, if any, to the purchase date. To the extent that the aggregate
principal amount of Notes tendered pursuant to an offer to purchase is less than
the Excess Proceeds, the Company may use such deficiency for general corporate
purposes. If the aggregate principal of Notes validly tendered and not withdrawn
by Holders thereof exceeds the Excess Proceeds, Notes to be purchased will be
selected on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset to zero.
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The Company will comply with 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 the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above. (Section 1017)
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of the Company (other than a Restricted Subsidiary)
unless (i) such transaction or series of related transactions is on terms that,
in the Company's reasonable judgment in light of all circumstances, are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that could have been obtained at the time of such transaction or series of
related transactions in a comparable transaction on an arm's length basis from a
person that is not such an Affiliate, (ii) with respect to any transaction or
series of related transactions involving aggregate consideration equal to or
greater than $1,000,000 or more, but less than $5,000,000, the Company shall
have delivered an Officer's Certificate to the Trustee certifying that such
transaction or transactions are fair to the Company or its Restricted
Subsidiary, as the case may be, from a financial point of view and (iii) with
respect to any transaction or series of related transactions including aggregate
consideration equal to or greater than $5,000,000 such transaction or series of
related transactions is approved by a majority of the disinterested members of
the Board of Directors or the Company has obtained a written opinion from an
independent nationally recognized investment banking firm to the effect set
forth in the preceding clause; provided, however, that the foregoing restriction
shall not apply to (1) the payment of reasonable and customary regular fees to
directors of the Company or any Restricted Subsidiary who are not employees of
any such Persons, (2) loans or advances to officers, directors and employees of
the Company or any Restricted Subsidiary made in the ordinary course of business
and consistent with past practices of the Company and its Restricted
Subsidiaries, (3) the payment of dividends in respect of the Capital Stock of
the Company or any Restricted Subsidiary permitted under the "Limitation on
Restricted Payments" covenant, as well as any payments permitted by clause (v)
of paragraph (b) of such covenant, (4) any transaction or series of related
transactions between the Company and any Restricted Subsidiary or between
Restricted Subsidiaries and (5) the payment of fees to Merrill Lynch & Co. and
its Affiliates (excluding ML Capital Partners and its controlled Affiliates) for
consulting, investment banking or financial advisory services rendered to the
Company or any Restricted Subsidiary. For purposes of this covenant, any
transaction or series of transactions between the Company or any Restricted
Subsidiary and any Affiliate of the Company that is approved as being on the
terms required by clause (i) in the prior sentence by a majority of the
disinterested members of the Board of Directors shall be deemed to be on terms
as favorable as those that might be obtained at the time of such transaction or
series of transactions in a comparable transaction on an arm's-length basis with
an unaffiliated third party, and thus shall be permitted under this covenant
without any further action. (Section 1018)
Limitation on Payment Restrictions Affecting Restricted Subsidiaries. The
Company will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist any consensual encumbrance or restriction
(other than pursuant to law or regulation) on the ability of any Restricted
Subsidiary to (i) pay, directly or indirectly, dividends or make any other
distributions in respect of its Capital Stock or pay any Indebtedness or other
obligation owed to the Company or any Restricted Subsidiary; (ii) make loans or
advances to the Company or any Restricted Subsidiary; or (iii) transfer any of
its property or assets to the Company (other than property or assets subject to
Liens permitted under paragraph (b) of the "Limitations on Liens" covenant
described above); except, in each such case, any such consensual encumbrance or
restriction (a) pursuant to any agreement in effect on the date of the
Indenture, or (b) pursuant to any agreement, instrument or charter of or in
respect of a Restricted Subsidiary entered into prior to the date on which such
Restricted Subsidiary became a Restricted Subsidiary and outstanding on such
date and not entered into in anticipation of becoming a Restricted Subsidiary,
or (c) pursuant to an agreement effecting a renewal, refunding or extension of
any agreement, instrument or charter referred to in clause (a) or (b) above;
provided, however, that the provisions relating to such encumbrance or
restriction are no more restrictive in any material respect in the reasonable
judgment of the Board of Directors. (Section 1019)
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Provision of Financial Information. So long as any of the Notes are
outstanding, the Company will file, to the extent permitted under the Exchange
Act, with the Commission the annual reports, quarterly reports and other
documents otherwise required to be filed with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act as if the Company were subject to such
Sections and will also provide to all Holders and file with the Trustee copies
of such reports and documents within 15 days after it files them with the
Commission or, if filing such reports and documents by the Company with the
Commission is not permitted under the Exchange Act, within 15 days after it
would otherwise have been required to file such reports and documents if
permitted, in each case at the Company's cost. (Section 1009)
Mergers, Consolidations and Transfer of Assets. The Company will not
consolidate with or merge with or into any other Person or convey, transfer or
lease its properties and assets substantially as an entirety to any Person after
the date of original issuance of the Notes, unless: (a) either (i) the Company
will be the continuing corporation or (ii) the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
that acquires by conveyance or transfer, or that leases, the properties and
assets of the Company substantially as an entirety shall be a corporation,
partnership or trust organized and validly existing under the laws of the United
States of America, any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture the Company's obligation for the
due and punctual payment of the principal of (and premium, if any, on) and
interest on all the Notes and the performance and observance of every covenant
of the Indenture on the part of the Company to be performed or observed; (b)
immediately thereafter, no Event of Default (and no event that, after notice or
lapse of time or both, would become an Event of Default) shall have occurred and
be continuing; (c) immediately thereafter, on a pro forma basis (including,
without limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction and the application of the
proceeds therefrom), either (i) the Company or such Person could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) under the first
paragraph of the "Limitation on Indebtedness" covenant or (ii) the Company's or
such Person's Fixed Charge Coverage Ratio would be equal to or greater than the
Company's Fixed Charge Coverage Ratio immediately prior to such transaction
(assuming a market rate of interest with respect to such additional
Indebtedness); (d) immediately thereafter the Company or such Person will have a
consolidated net worth, determined in accordance with generally accepted
accounting principles, consistently applied, equal to or greater than the
consolidated net worth of the Company determined in accordance with generally
accepted accounting principles, consistently applied, immediately prior to such
transaction; and (e) the Company or such Person will have delivered to the
Trustee an Officer's Certificate and Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, complies with the Indenture and that all conditions precedent
contained therein relating to such transaction have been satisfied. (Section
801)
EVENTS OF DEFAULT
The following are "Events of Default" under the Indenture:
(a) default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 30 days;
or
(b) default in the payment of the principal of (or premium, if any,
on) any Note when due; or
(c) default in the payment of principal of (or premium, if any, on)
and interest on Notes required to be purchased pursuant to an offer to
purchase made by the Company as described under the "Change of Control" and
"Disposition of Proceeds of Asset Sales" covenants when due and payable; or
(d) failure to perform or comply with the provisions described under
"-- Covenants -- Mergers, Consolidations and Transfer of Assets"; or
(e) default in the performance, or breach, of any other covenant of
the Company in the Indenture, continued for 60 days after written notice;
or
(f) acceleration of any Indebtedness of the Company or any of its
Material Subsidiaries in an aggregate amount in excess of $10,000,000; or
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(g) final judgments or orders rendered against the Company or any
Material Subsidiary that are unsatisfied and that require the payment in
money, either individually or in an aggregate amount, that is more than
$10,000,000 over the coverage under applicable insurance policies and
either (i) commencement by any creditor of an enforcement proceeding upon
such judgment (other than a judgment that is stayed by pending appeal or
otherwise) or (ii) the occurrence of a 30-day period during which a stay of
such judgment or order, by reason of pending appeal or otherwise, was not
in effect; or
(h) the entry of a decree or order by a court having jurisdiction in
the premises (A) for relief in respect of the Company or any Material
Subsidiary in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar
law, or (B) adjudging the Company or a Material Subsidiary bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of the Company or a Material Subsidiary under any
applicable federal or state law, or appointing under any such law a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Material Subsidiary or of a
substantial part of their consolidated assets, or ordering the winding up
or liquidation of their affairs, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect
for a period of 60 consecutive days; or
(i) the commencement by the Company or any Material subsidiary of a
voluntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or any other
case or proceeding to be adjudicated a bankrupt or insolvent, or the
consent by the Company or any Material Subsidiary to the entry of a decree
or order for relief in respect thereof in an involuntary case or proceeding
under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by
the Company or any Material Subsidiary of a petition or consent seeking
reorganization or relief under any applicable federal or state law, or the
consent by it under any such law to the filing of any such petition or to
the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of any of the Company or any Material Subsidiary or of any substantial part
of their consolidated assets, or the making by it of an assignment for the
benefit of creditors under any such law, or the admission by it in writing
of its inability to pay its debts generally as they become due or taking of
corporate action by the Company or any Material Subsidiary in furtherance
of any such action. (Section 501)
Subject to the provisions of the Indenture relating to the duties of the
Trustee, when an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request or direction of any of the Holders, unless such Holders shall
have offered to the Trustee reasonable security or indemnity. (Section 602)
Subject to certain provisions concerning the rights of the Trustee, the Holders
of a majority in aggregate principal amount of the outstanding Notes will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee under the Indenture. (Section 512)
If an Event of Default (other than as specified in clauses (h) and (i))
shall occur and be continuing, then the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Notes may, and the Trustee upon
the request of the Holders of not less than 25% in principal amount of the
outstanding Notes shall, by notice in writing as provided in the Indenture,
declare the principal of all the Notes to be due and payable immediately. If an
Event of Default specified in clauses (h) and (i) shall occur and be continuing,
the principal on the Notes shall be due and payable immediately without any
action on the part of the Trustee or any Holder. After any such acceleration,
but before a judgment or decree based on such acceleration, the Holders of a
majority in principal amount of Outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if all Events of Default,
other than the nonpayment of accelerated principal, have been cured or waived as
provided in the Indenture. (Section 502) For information with respect to waiver
of defaults, see "Modification and Waiver."
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a
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continuing Event of Default and unless also the Holders of not less than 25% in
aggregate principal amount of the outstanding Notes shall have made written
request, and offered reasonable indemnity, to the Trustee to institute such
proceeding as trustee, and the Trustee shall not have received from the Holders
of a majority in aggregate principal amount of the outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. (Section 507) However, such limitations do not apply
to a suit instituted by a Holder of a Note for enforcement of payment of the
principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note. (Section 508)
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 90 days after such occurrence. Except in the
case of a Default or an Event of Default in payment of principal of (or premium,
if any, on) or interest on any Notes, the Trustee may withhold the notice to the
holders of such Notes if the board of directors, the executive committee or a
committee of its trust officers determines in good faith that withholding the
notice is in the interest of the Holders; provided, that in the case of any
Default of the character specified in clause (e) above, no such notice to
Holders shall be given until at least 30 days after the occurrence thereof.
The Company is required to furnish to the Trustee annually a statement as
to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. The Company also is
required to notify the Trustee within five business days of the occurrence of
any event that is, or after notice or lapse of time or both would become, an
Event of Default. (Section 1008)
DEFEASANCE
The Company may, at its option and at any time, terminate the obligations
of the Company with respect to the outstanding Notes ("defeasance"). Such
defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding Notes, except for (i) the
rights of holders of outstanding Notes to receive payment in respect of the
principal of (and premium, if any, on) and interest on such Notes when such
payments are due, (ii) the Company's obligations to issue temporary Notes,
register the transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes and maintain an office or agency for payments in respect of
the Notes, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and (iv) the defeasance provisions of the Indenture. In addition, the
Company may, at its option and at any time, elect to terminate its obligations
with respect to certain covenants that are set forth in the Indenture, some of
which are described under "Certain Covenants" above, and any omission to comply
with such obligations shall not constitute a Default or an Event of Default with
respect to the Notes ("covenant defeasance"). (Sections 1302 and 1303)
In order to exercise either 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 United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of (and premium, if any,
on) and interest on the outstanding Notes to redemption or maturity; (ii) the
Company shall have delivered to the Trustee an opinion of counsel to the effect
that the holders of the outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance or 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 defeasance
or covenant defeasance had not occurred (in the case of defeasance, such opinion
must refer to and be based upon a ruling of the Internal Revenue Service or a
change in applicable federal income tax laws); (iii) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as clauses (h) and (i) under the first paragraph under "Events of
Default" are concerned, at any time during the period ending the 91st day after
the date of deposit; (iv) such defeasance or covenant defeasance shall not cause
the Trustee to have a conflicting interest with respect to any securities of the
Company; (v) such defeasance or covenant defeasance shall not result in a breach
or violation of, or constitute a default under, any material agreement or
instrument to which the Company is a party or by which it is bound; and (vi) the
Company shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent under the
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Indenture to either defeasance or covenant defeasance, as the case may be, have
been complied with and that no violations under agreements governing any other
outstanding Indebtedness would result. (Section 1304)
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money or certain United States governmental obligations
has theretofore been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such trust) have
been delivered to the Trustee for cancellation or (b) all Notes not theretofore
delivered to the Trustee for cancellation have become due and payable and the
Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire Indebtedness on
the Notes not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the date of deposit
together with irrevocable instructions from the Company directing the Trustee to
apply such funds to the payment thereof at maturity or redemption, as the case
may be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the Indenture
have been complied with. (Section 401)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of (or the premium, if any on) or interest on, any Note, (c)
change the place, coin or currency of payment of principal of (or the premium,
if any, on) or interest on, any Note, (d) impair the right to institute suit for
the enforcement of any payment on or with respect to any Note, (e) reduce the
above-stated percentage of outstanding Notes necessary to modify or amend the
Indenture, (f) reduce the percentage of aggregate principal amount of
outstanding Notes necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults, (g) modify any provisions of
the Indenture relating to the modification and amendment of the Indenture or the
waiver of past defaults or covenants, except as otherwise specified, (h) modify
the "Limitation on other Senior Subordinated Indebtedness" covenant or any of
the provisions of the Indenture relating to the subordination of the Notes in a
manner adverse to the Holders, or (i) amend, change or modify the obligation of
the Company to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate the offer with respect to any Asset
Sale or modify any of the provisions or definitions with respect thereto.
(Section 902)
The Holders of a majority in aggregate principal amount of the outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. (Section 1020) The Holders of a majority in aggregate principal
amount of the outstanding Notes may waive any past default under the Indenture,
except a default in the payment of principal, premium, if any, or interest.
(Section 513)
THE TRUSTEE
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein provide that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs.
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The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein also contain limitations on the rights of the Trustee, should
it become a creditor of the Company to obtain payment of the claims in certain
cases or to realize on certain property received by it in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions with the Company or any Affiliate; provided, however, that if it
acquires any conflicting interest (as defined in the Indenture or in the Trust
Indenture Act), it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Restricted Subsidiary or (ii) assumed in connection
with the acquisition of assets from such Person, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary or such acquisition, as the case may be.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Bank" means The First National Bank of Boston as agent under the
Bank Credit Agreement and any future agent under the Bank Credit Agreement.
"Asset Sale" means any conveyance, transfer, lease or other disposition
(including, without limitation, by way of merger or consolidation)
(collectively, for purposes of this definition, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (A) any Capital Stock
of any Restricted Subsidiary; (B) all or substantially all of the properties and
assets of any division or line of business of the Company or any Restricted
Subsidiary; or (C) any other properties or assets (other than transfers of cash
or property permitted by the "Limitation on Restricted Payments" covenant and
"Limitation on Investments" covenant) of the Company or any Restricted
Subsidiary other than in the ordinary course of business. For purposes of this
definition, the term "Asset Sale" shall not include any transfer of properties
and assets or Capital Stock (i) that is governed by the provisions described
under "Mergers, Consolidations and Transfer of Assets" above, (ii) of the
Company or any Restricted Subsidiary to the Company or any Wholly owned
Restricted Subsidiary, (iii) consisting of obsolete equipment, or of assets
that, in the Company's reasonable judgment, are either (x) no longer used or (y)
no longer useful in the business of the Company or its Restricted Subsidiaries,
or (iv) any transfers that, but for this clause (iv), would be Asset Sales, if
(a) the Company elects to designate such transfers as not constituting Asset
Sales and (b) after giving effect to such transfers, the aggregate Fair Market
Value of the properties or assets transferred since the date of the Indenture
pursuant to transfers so designated by the Company does not exceed $5,000,000.
"Average Life" means, with respect to any Indebtedness, as of the date of
determination, the quotient obtained by dividing (i) the sum of the products of
(a) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Bank Credit Agreement" means (i) the Loan Agreement dated as of October
28, 1993 between the Company and the Banks as in effect on the date of the
Indenture and as such agreement may be amended, restated, supplemented or
otherwise modified from time to time; (ii) the financing letter dated September
24, 1993 from The Wachovia Bank of South Carolina to the Company for an
uncommitted line of credit with terms to be determined at the time of borrowing
and as such financing letter may be amended, restated, supplemented or otherwise
modified from time to time; and (iii) any agreement or agreements refinancing or
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replacing either or both of such Agreement and financing letter or any
replacement agreement or agreements as the same may be amended, restated,
supplemented or otherwise modified from time to time.
"Banks" means the lenders from time to time who are parties to the Bank
Credit Agreement.
"Business Day" means any day that is not a Saturday, a Sunday or a day on
which banking institutions in the Borough of Manhattan, The City of New York,
New York are authorized or obligated by law, regulation or executive order to
close.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) real or
personal property that is required to be classified and accounted for as a
capital lease or obligation in accordance with generally accepted accounting
principles and, for the purposes of the Indenture, the amount of such obligation
at any date shall be the capitalized amount thereof at such date, determined in
accordance with such principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person. For purposes of the Indenture, a Person's Capital Stock that is
either unissued or held by such Person is not property or assets of such Person.
"Cash Equivalents" means (A) any evidence of Indebtedness, maturing not
more than one year after the date of acquisition, issued by the United States of
America or an instrumentality or agency thereof and guaranteed fully as to
principal, premium, if any, and interest by the United States of America, (B)
any certificate of deposit issued by, time deposit of (in either case maturing
not more than one year after the date of acquisition or deposit) or any
overnight bank deposits or bankers' acceptances at a commercial banking
institution that has combined capital and surplus of not less than $100,000,000,
whose debt is rated at the time as of which any Investment therein is made "A"
(or higher) according to Moody's or "A" (or higher) according to S&P, (C)
commercial paper, maturing not more than 90 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company or a Subsidiary)
organized and existing under the laws of the United States of America or any
state thereof with a rating, at the time as of which any Investment therein is
made, of "P-1" (or higher) according to Moody's or "A-1" (or higher) according
to S&P and (D) any money market or other deposit accounts issued or offered by
any domestic institution in the business of accepting money market accounts or
any commercial banking institution described in clause (B) above.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Adjusted Net Income" means, for any period, the consolidated
net income (or loss) of the Company and its Restricted Subsidiaries for such
period as determined in accordance with generally accepted accounting
principles, adjusted (i) by adding thereto (A) the amount of any depreciation
and amortization expense of the Company and its Restricted Subsidiaries for such
period resulting from the 1986 Acquisition, and (B) the amount of any expense
arising out of the non-competition agreement given by CMC Holding Corp., f/k/a
Chatham Manufacturing Company, and (ii) by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto), (b)
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to asset dispositions, (c) the net income (or net loss) of any
Person (other than the Company or any Restricted Subsidiary) in which the
Company or any of its Restricted Subsidiaries has an ownership interest, except
to the extent of the amount of dividends or interest on indebtedness actually
paid to the Company or any Restricted Subsidiary in cash by such other Person
during such period, (d) the net income (or net loss) of any Person combined with
the Company or any Restricted Subsidiary on a "pooling of interests" basis
attributable to any period prior to the date of combination, and (e) the net
income of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
its net income is not at the date of determination permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Interest Expense" means, for any period, the amount which, in
conformity with generally accepted accounting principles, would be set forth
opposite the caption "interest expense" (or any like
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caption) on a consolidated statement of operations of the Company and its
Restricted Subsidiaries for such period plus the aggregate amount for such
period of dividends on any Redeemable Capital Stock or Preferred Stock of the
Company and its Restricted Subsidiaries. Consolidated Interest Expense shall
include accruals in respect of interest rate contracts (but shall exclude
expenses relating to the amortization of front-end fees and deferred debt costs
or other similar payments).
"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, amortization and other non-cash charges of the Company and its
Restricted Subsidiaries for such period, as determined in accordance with
generally accepted accounting principles (excluding any such non-cash charge
that requires an accrual of or reserve for cash charges for any future period).
"Consolidated Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes of the Company and its Restricted
Subsidiaries for such period as determined in accordance with generally accepted
accounting principles.
"Fair Market Value" means the fair market value of an asset or Redeemable
Capital Stock as determined by the Board of Directors of the Company in good
faith; provided, however, that the Board of Directors of the Company shall be
under no obligation to obtain any valuation or assessment from any investment
banker, appraiser or other third party.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (a) the
sum of Consolidated Adjusted Net Income, Consolidated Interest Expense,
Consolidated Tax Expense, Consolidated Non-cash Charges deducted in computing
Consolidated Adjusted Net Income and not included in clause (i) of the
definition of Consolidated Adjusted Net Income and one-third of the rental
payments with respect to any operating leases under which the Company or any
Restricted Subsidiary is the lessee, in each case, for such period, of the
Company and its Restricted Subsidiaries on a consolidated basis, all determined
in accordance with generally accepted accounting principles, to (b) the sum of
such Consolidated Interest Expense for such period and one-third of the rental
payments for such period with respect to any operating leases under which the
Company or any Restricted Subsidiary is the lessee; provided that (i) in making
such computation, the Consolidated Interest Expense attributable to interest on
any Indebtedness computed on a pro forma basis and (A) bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or floating rate of interest,
shall be computed by applying, at the option of the Company, either the fixed or
floating rate, and (ii) in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period.
"Guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation.
"Holder" means a Person in whose name a Note is registered in the Note
Register.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade accounts payable and other
accrued current liabilities incurred in the ordinary course of business, but
including, without limitation, all obligations, contingent or otherwise, of such
Person in connection with any letters of credit and acceptances issued under
letter of credit facilities, acceptance facilities or other similar facilities,
(ii) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade accounts payable arising in the ordinary
course of business, (iv) all Capitalized Lease
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Obligations of such Person, (v) all Indebtedness referred to in (but not
excluded from) clause (i), (ii), (iii) or (iv) above of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vi) all
guarantees by such Person of Indebtedness referred to in (but not excluded from)
this definition, (vii) all Redeemable Capital Stock issued by such Person valued
at the greater of its voluntary or involuntary maximum fixed repurchase price
plus accrued and unpaid dividends, (viii) all obligations under interest rate
contracts of such Person and (ix) any amendment, supplement, modification,
deferral, renewal, extension or refinancing of any liability of the types
referred to in clauses (i) through (viii) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock that does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
Fair Market Value of such Redeemable Capital Stock.
"Investment" means any direct or indirect advance, loan, guarantee of
Indebtedness or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other securities issued by, any other
Person, excluding (i) advances to customers in the ordinary course of business
that are recorded as accounts receivable on the balance sheet of the Company or
its Restricted Subsidiaries, (ii) interest rate or currency protection
agreements entered into in the ordinary course of business or as required by any
Permitted Indebtedness; (iii) bonds, notes, debentures or other securities
received as a result of Asset Sales permitted under the "Disposition of Proceeds
of Asset Sales" covenant and dispositions of assets to the extent not prohibited
by the Indenture and (iv) split dollar insurance and similar funding
arrangements entered into in connection with employment agreements or
arrangements approved by a majority of the disinterested members of the Board of
Directors of the Company. For the purpose of making any calculations under the
Indenture (i) Investment shall include the Company's proportionate share of the
Net Worth of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary, (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at Fair Market
Value at the time of such transfer and (iii) any redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary shall be a return or
contribution of capital or both, as the case may be, in an amount equal to the
Net Worth of such Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary.
"Lien" means any mortgage, charge, pledge, lien, security interest or
encumbrance of any kind.
"Management Investors" means the former and current officers and other
members of the management of the Company who at any particular date shall
beneficially own, directly or indirectly, Voting Stock of the Company, as well
as trustees, custodians, partnerships, executors and other entities that
directly or indirectly hold such Voting Stock for the benefit of any such
officer, member of management or any of their respective family members.
"Material Subsidiary" means, at any particular time, any Restricted
Subsidiary of the Company that, together with the Subsidiaries of such
Restricted Subsidiary, (a) accounted for more than 10% of the consolidated
revenues of the Company and its Restricted Subsidiaries for the most recently
completed fiscal year of the Company or (b) was the owner of more than 10% of
the consolidated assets of the Company and its Restricted Subsidiaries as at the
end of such fiscal year, all as shown on the consolidated financial statements
of the Company and its Restricted Subsidiaries for such fiscal year.
"ML Capital Partners" means Merrill Lynch Capital Partners, Inc., a wholly
owned subsidiary of Merrill Lynch & Co., Inc.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the
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Company or any Restricted Subsidiary) net of (i) brokerage commissions and other
fees and expenses (including, without limitation, fees and expenses of legal
counsel and investment bankers) related to such Asset Sale, (ii) provisions for
all taxes payable as a result of such Asset Sale, (iii) amounts required to be
paid and that have been paid, or amounts required to be pledged and that are
pledged, to secure Indebtedness owed, to any Person (other than the Company or
any Restricted Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale (which, in the case of a Lien, is being pledged to permanently
reduce Indebtedness secured by such Lien) and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary, as the case may be, as a
reserve required in accordance with generally accepted accounting principles
consistently applied against any liabilities associated with such Asset Sale and
retained by the Company or any Restricted Subsidiary, as the case may be, after
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an Officers' Certificate delivered to the
Trustee; provided, however, that any amounts remaining after adjustments,
revaluations or liquidations of such reserves shall constitute Net Cash
Proceeds.
"Net Worth" means, at any date, the Fair Market Value of the consolidated
assets of any Person less all consolidated liabilities of such Person which
would appear on a consolidated balance sheet of such Person prepared as of such
date in accordance with generally accepted accounting principles consistently
applied.
"Non-payment Event of Default" means any event (other than a Payment Event
of Default), the occurrence of which entitles one or more Persons to accelerate
the maturity of any Specified Senior Indebtedness.
"Pari Passu Indebtedness" means any Indebtedness of the Company that is
pari passu in right of payment to the Notes.
"Payment Event of Default" means any default in the payment or required
prepayment of principal of (or premium, if any, on) or interest on any Specified
Senior Indebtedness when due (whether at final maturity, upon scheduled
installment, acceleration or otherwise).
"Permitted Indebtedness" means any of the following:
(i) Indebtedness of the Company under the Bank Credit Agreement in an
aggregate principal amount at any one time outstanding not to exceed
$100,000,000, less any amounts derived from Asset Sales and applied to the
permanent reduction of such Bank Credit Agreement as contemplated by the
"Disposition of Proceeds of Asset Sales" covenant;
(ii) Indebtedness of the Company under the Notes;
(iii) Indebtedness of the Company outstanding on the date of this
Indenture, other than Indebtedness pursuant to clause (i) hereof;
(iv) Indebtedness of the Company to any Wholly owned Restricted
Subsidiaries;
(v) any renewals, amendments, extensions, supplements, modifications,
deferrals, refinancings or replacements (each, for purposes of this clause, a
"refinancing") by the Company of any Indebtedness of the Company, including any
successive refinancings by the Company, so long as (A) any such new Indebtedness
shall be in a principal amount that does not exceed the principal amount (or, if
such Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination) so
refinanced, plus the amount of any premium required to be paid under the terms
of the instrument governing such Indebtedness being so refinanced or the amount
of any expenses incurred in connection therewith and premium reasonably
determined by the Company as necessary to accomplish such refinancing (it being
understood that, with respect to the refinancing of the Indebtedness permitted
to be incurred under clause (i) above, the amount of such Indebtedness
outstanding pursuant to such clause (i), together with any refinancings thereof,
shall not at any one time exceed $100,000,000) and (B) in the case of any
refinancing of Pari Passu Indebtedness or Subordinated Indebtedness, (1) such
new Indebtedness is made pari passu with or subordinate to the Notes at least to
the same extent as the Indebtedness being refinanced and (2) such new
Indebtedness has an Average
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Life and final Stated Maturity of principal that exceeds the Average Life and
final Stated Maturity of principal of the Notes;
(vi) interest rate contracts to the extent required by the terms of
the Indebtedness permitted by clause (i) of this definition and interest
rate cap agreements;
(vii) purchase money Indebtedness in the aggregate principal amount
outstanding at any time (together with the Indebtedness permitted by clause
(vi) of the definition of Permitted Subsidiary Indebtedness) not to exceed
$2,000,000; and
(viii) Indebtedness in addition to that permitted to be incurred
pursuant to clauses (i) through (vii) above with an aggregate principal
amount not in excess of $20,000,000 outstanding at any one time.
"Permitted Subsidiary Indebtedness" means any of the following:
(i) Indebtedness of any Restricted Subsidiary outstanding on the date
of the Indenture;
(ii) Indebtedness of any Restricted Subsidiary to any Wholly owned
Restricted Subsidiary of the Company or to the Company;
(iii) any renewals, amendments, extensions, supplements,
modifications, deferrals, refinancings or replacements (each, for purposes
of this clause, a "refinancing") by any Restricted Subsidiary of any
Permitted Subsidiary Indebtedness of such Restricted Subsidiary, including
any successive refinancings by such Restricted Subsidiary, so long as any
such new Indebtedness shall be in a principal amount that does not exceed
the principal amount (or, if such Indebtedness being refinanced provides
for an amount less than the principal amount thereof to be due and payable
upon a declaration of acceleration thereof, such lesser amount as of the
date of determination) so refinanced, plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness being so refinanced or the amount of any premium reasonably
determined by such Restricted Subsidiary as necessary to accomplish such
refinancing (it being understood that, with respect to the refinancing of
the Permitted Subsidiary Indebtedness permitted to be incurred under clause
(vii) below, the amount of such Indebtedness outstanding pursuant to such
clause (vii), together with any refinancings thereof, shall not at any one
time exceed $10,000,000);
(iv) guarantees by Restricted Subsidiaries of Senior Indebtedness of
the Company, so long as the Notes also are guaranteed with the same
relative priority as the Notes have with respect to such Senior
Indebtedness; provided that such guarantees will provide by their terms
that they will be automatically and unconditionally released and discharged
upon the release or discharge of the guarantee of Senior Indebtedness that
resulted in the creation of such guarantee, and guarantees by Restricted
Subsidiaries of Permitted Subsidiary Indebtedness of Wholly owned
Restricted Subsidiaries of the Company;
(v) Acquired Indebtedness so long as the Company on a pro forma basis
could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the first paragraph of the "Limitation on
Indebtedness" covenant;
(vi) purchase money Indebtedness in the aggregate principal amount
outstanding at any time (together with the Indebtedness permitted by clause
(vii) of the definition of Permitted Indebtedness) not to exceed
$2,000,000; and
(vii) Indebtedness in addition to that permitted to be incurred
pursuant to clauses (i) through (vi) above with an aggregate principal
amount not in excess of $10,000,000 outstanding at any one time.
"Permitted Joint Venture" means an entity in which the Company or any
Subsidiary has an equity interest together with Casa Distex S.A. de C.V. or any
of its Affiliates, and which is formed after the date of the Indenture for the
purpose of engaging in a business (i) in which the Company or its Subsidiaries
are engaged on the date of the Indenture or (ii) which is related to a business
in which the Company or its Subsidiaries are engaged on the date of the
Indenture.
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"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the date of the Indenture and includes, without limitation, all classes and
series or preferred or preference stock.
"Qualified Capital Stock" means any Capital Stock of the Company other than
Redeemable Capital Stock.
"Redeemable Capital Stock" means any equity security that by its terms is
required to be redeemed prior to the final Stated Maturity of principal of the
Notes, or is redeemable at the option of the holder thereof at any time prior to
the final Stated Maturity of principal of the Notes.
"Restricted Payment" means (i) any declaration or payment of any dividend
on, or any distribution in respect of, any shares of the Company's Capital Stock
(other than dividends or distributions payable solely in Qualified Capital Stock
of the Company or in options, warrants or other rights to acquire Qualified
Capital Stock of the Company), (ii) any purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company or any
options, warrants, or rights to purchase or acquire shares of Capital Stock of
the Company, (iii) any declaration or payment of any dividend on, or any
distribution to holders in respect of, any Capital Stock of any Restricted
Subsidiary (other than with respect to any such Capital Stock held by the
Company or any Wholly owned Restricted Subsidiary) or any purchase, redemption
or other acquisition or retirement for value, of any Capital Stock of any
Restricted Subsidiary (other than any such Capital Stock held by the Company or
any Wholly owned Restricted Subsidiary), and (iv) any principal payment on,
repurchase, redemption, defeasance, retirement or other acquisition or
retirement for value prior, in each such case, to any scheduled maturity,
repayment or sinking fund payment any Pari Passu Indebtedness or Subordinated
Indebtedness.
"Restricted Subsidiary" means any Subsidiary, whether existing on or after
the date of the Indenture, unless such Subsidiary is an Unrestricted Subsidiary
or is designated an Unrestricted Subsidiary on the date it becomes a Subsidiary.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon means the date specified in the instrument
evidencing or governing such Indebtedness as the fixed date on which the
principal amount of such Indebtedness or such installment of interest is due and
payable.
"Subordinated Indebtedness" means Indebtedness of the Company subordinated
in right of payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or the
outstanding Voting Stock of which is owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries.
"Unrestricted Subsidiary" means (i) any Subsidiary that at the time of
determination will be designated an Unrestricted Subsidiary by the Board of
Directors of the Company as provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary as
an Unrestricted Subsidiary so long as (a) neither the Company nor any Restricted
Subsidiary is directly or indirectly liable for any Indebtedness of such
Subsidiary, (b) no default with respect to any Indebtedness of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity and (c) neither the Company nor any
Restricted Subsidiary has made an Investment in such Subsidiary unless such
Investment was permitted under the "Limitation on Investments" covenant;
provided, however, that with respect to clause (a) the Company or a Restricted
Subsidiary may be liable for Indebtedness of an Unrestricted Subsidiary if (x)
such liability resulted in an Investment permitted under the "Limitation on
Investments" covenant at the time of incurrence or (y) the liability is
permitted under the "Limitation on Investments" covenant at the time of
designation of such Unrestricted Subsidiary. Any such designation by the Board
of Directors of the Company shall be evidenced to the Trustee by filing a board
resolution with the Trustee giving effect to such designation. The Board of
Directors of the Company may designate any Unrestricted Subsidiary as a
Restricted Subsidiary
68
<PAGE> 71
if, immediately after giving effect to such designation, there would be no
defaults or Event of Default under the Indenture.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent all of the Capital Stock or other ownership interests in such Restricted
Subsidiary, other than any director's qualifying shares mandated by applicable
law, is owned directly or indirectly by the Company.
PLAN OF DISTRIBUTION
This Prospectus is to be used by Merrill Lynch in connection with offers
and sales of the Notes in market-making transactions in the over-the-counter
market at negotiated prices related to prevailing market prices at the time of
sale. Merrill Lynch may act as principal or agent in such transactions.
Merrill Lynch is affiliated with entities that own capital stock
representing approximately 58.8% of the aggregate voting power of the capital
stock of the Company, and have the ability to elect a majority of the members of
the Company's Board of Directors. See "Ownership of the Company."
Merrill Lynch acted as underwriter in connection with the original offering
of the Notes and received an underwriting discount of $3,046,875.
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 28, 1996 and December 30, 1995 and for each of the three years ended
December 28, 1996 included in this Prospectus and elsewhere in the Registration
Statement, have been audited by Arthur Andersen LLP, independent public
accountants as stated in their report appearing in this Prospectus. Such
financial statements and related schedules audited by Arthur Andersen LLP have
been so included in reliance on such reports given upon the authority of that
firm as experts in accounting and auditing.
69
<PAGE> 72
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CMI INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Public Accountants....................................... F-2
Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996...... F-3
Consolidated Statements of Operations for the years ended December 31, 1994,
December 30, 1995, and December 28, 1996.................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1994, December 30, 1995 and December 28, 1996.......... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
December 30, 1995 and December 28, 1996................................... F-6
Notes to the Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE> 73
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of
CMI Industries, Inc.:
We have audited the accompanying consolidated balance sheets of CMI Industries,
Inc. (a Delaware corporation) and subsidiaries as of December 28, 1996 and
December 30, 1995, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CMI Industries, Inc. and
subsidiaries as of December 28, 1996 and December 30, 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 28, 1996, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Columbia, South Carolina
March 20, 1997.
F-2
<PAGE> 74
CMI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 227 $ 2,244
Receivables, net 50,684 47,509
Inventories, net 67,051 58,143
Deferred income taxes -- 3,139
Other current assets 5,319 1,588
-------- --------
Total current assets 123,281 112,623
Property, plant and equipment, net 125,774 112,545
Intangible and other assets, net 8,053 8,366
-------- --------
$257,108 $233,534
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Book overdraft $13,226 $11,500
Current portion of long-term debt 853 4,000
Accounts payable 13,471 15,528
Accrued expenses, including
restructuring charges 15,189 13,089
-------- --------
Total current liabilities 42,739 44,117
Long-term debt 154,245 143,749
Deferred income taxes 3,352 --
Other liabilities 14,264 13,823
-------- --------
171,861 157,572
Commitments and contingencies
Stockholders' Equity:
Common stock of $1 par value per
share; 2,100,000 shares
authorized, 1,690,318 shares issued
and outstanding in 1995 and 1996 1,690 1,690
Paid-in capital 11,350 11,350
Retained earnings 29,468 18,805
-------- --------
Total stockholders' equity 42,508 31,845
-------- --------
$257,108 $233,534
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-3
<PAGE> 75
CMI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
1994 1995 1996
-------- --------- ---------
Net sales $390,067 $408,636 $374,044
Cost of sales 343,443 367,925 345,888
-------- --------- ---------
Gross profit 46,624 40,711 28,156
Selling, general and administrative expenses 31,433 32,704 31,097
Executive severance charges -- 4,782 --
Provision for restructuring and other nonrecurring
asset writeoffs -- 12,900 --
-------- --------- ---------
Operating income (loss) 15,191 (9,675) (2,941)
-------- --------- ---------
Other income (expenses):
Interest expense (14,430) (17,174) (15,425)
Amortization of non-compete agreement (312) -- --
Other, net 1,709 1,406 1,588
-------- --------- ---------
Total other expenses, net (13,033) (15,768) (13,837)
Income (loss) before income taxes 2,158 (25,443) (16,778)
Income tax provision (benefit) 789 (9,500) (6,115)
-------- --------- ---------
Net income (loss) $1,369 $ (15,943) $ (10,663)
======== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE> 76
CMI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance as of January 1, 1994 1,773 $1,773 $14,587 $44,042 $60,402
Net income -- -- -- 1,369 1,369
------ ------ ------- -------- -------
Balance as of December 31, 1994 1,773 $1,773 $14,587 $45,411 $61,771
Retirement of common stock (83) (83) (3,237) -- (3,320)
Net loss -- -- -- (15,943) (15,943)
------ ------ ------- -------- --------
Balance as of December 30, 1995 1,690 $1,690 $11,350 $29,468 $42,508
Net loss -- -- -- (10,663) (10,663)
------ ------ ------- -------- --------
Balance as of December 28, 1996 1,690 $1,690 $11,350 $18,805 $31,845
====== ====== ======= ======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE> 77
CMI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994,
DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,369 $(15,943) $(10,663)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 20,834 23,241 23,226
(Gain) loss on disposal of equipment 609 195 (109)
Nonrecurring asset writeoffs -- 7,852 --
Changes in assets and liabilities:
Receivables (5,109) 8,855 3,175
Inventories (4,130) 11,516 8,908
Other current assets (992) 40 3,731
Intangible and other assets (2,408) 40 (817)
Payable--book overdraft 1,551 2,956 (1,726)
Accounts payable 531 (4,877) 2,057
Accrued expenses, including restructuring charges 2,318 2,070 (2,100)
Deferred income taxes 263 (9,736) (6,491)
Other liabilities (3,234) 4,579 (441)
------- -------- --------
Net cash provided by operating activities 11,602 30,788 18,750
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of United Elastic acquisition,
net of Chesterfield disposal
and cash acquired -- (20,062) --
Cost of Clarkesville acquisition, net of cash acquired (11,952) -- --
Purchases of property, plant and equipment, net (28,390) (8,850) (9,288)
------- -------- --------
Net cash used in investing activities (40,342) (28,912) (9,288)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on revolving credit facilities 29,129 (1,474) (7,445)
Purchase of common stock from management -- (3,320) --
------- -------- --------
Net cash provided by (used in) financing activities 29,129 (4,794) (7,445)
------- -------- --------
Net increase (decrease) in cash and cash equivalents 389 (2,918) 2,017
Cash and cash equivalents, beginning of period 2,756 3,145 227
------- -------- --------
Cash and cash equivalents, end of period $ 3,145 $ 227 $ 2,244
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $12,785 $ 16,466 $ 15,211
======= ========= =========
Income taxes $ 799 $ 932 $ --
======= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE> 78
CMI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF COMPANY
CMI Industries, Inc. ("CMI," a Delaware corporation and subsequently referred
to as the "Company") is a diversified manufacturer of textile products serving
a variety of markets. On October 28, 1993, the Company merged its two primary
operating subsidiaries, Clinton Mills, Inc. and Chatham Manufacturing, Inc.
("Chatham"), with and into the Company upon the closing of the Offering (see
note 3). The Company currently operates through two groups: the Greige
Fabrics Division and the Finished Fabrics Division.
On January 3, 1995, the Company completed its acquisition of $21,400 of assets
of United Elastic Corporation for a purchase price of $20,600 plus the
assumption of approximately $800 of liabilities. The acquired operation
consists of a manufacturing facility located in Stuart, Virginia, which
produces narrow elasticized woven fabrics and products for sale to the intimate
apparel, swimwear and medical markets. The acquired assets are included in the
Company's financial results in 1995 and 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. The Company uses a 52-53 week fiscal year. There
were 52 weeks in each of the years presented in the Company's accompanying
statements of operations. All significant intercompany balances and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE> 79
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company includes cash, demand deposits and highly liquid investments with
maturities of less than three months in cash and cash equivalents in its
consolidated financial statements. The book overdraft consists of outstanding
checks that had not been presented to a bank for payment.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and include the costs of raw materials, direct labor and manufacturing
overhead.
PROPERTY, PLANT AND EQUIPMENT
Additions to property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is calculated for financial reporting purposes
using the straight-line method over the estimated useful lives of the assets.
For income tax purposes, depreciation is calculated principally by accelerated
methods. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings 20 years
Land improvements 20 years
Machinery and equipment 3-10 years
</TABLE>
INTANGIBLE AND OTHER ASSETS
Capitalized debt issuance costs are amortized over the remaining terms of the
respective debt using the straight-line method.
REVENUE RECOGNITION
The Company recognizes revenue when goods are shipped or when ownership is
assumed by the customers.
LINE OF BUSINESS AND CREDIT RISK
The Company's line of business is the manufacturing and selling of fabrics and
other textile products for the home furnishings, apparel, furniture upholstery,
transportation upholstery, bedding and industrial markets. Export sales are
insignificant. Substantially all of the Company's accounts receivable are due
from companies in the above markets located throughout the United States. The
Company generally does not require collateral for its accounts receivable. The
Company performs ongoing credit evaluations of its customers' financial
condition and establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and other
information.
F-8
<PAGE> 80
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company follows Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes," which requires deferred income taxes to be
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
PRIOR-YEAR RECLASSIFICATIONS
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation.
3. LONG-TERM DEBT
In October 1993, the Company completed a public offering ("the Offering") of
$125,000 in aggregate principal amount of 9 1/2% Senior Subordinated Notes
("Notes") due October 1, 2003. The Offering was completed through an
underwriter which is affiliated with the Company's principal shareholders. The
Notes are general unsecured obligations of the Company and are due October 1,
2003. The Notes' interest is payable semiannually, and are redeemable at the
option of the Company at any time after October 1, 1998. Redemption prices
commence at 104-3/4% of the principal amount, declining annually to 100% of the
principal amount in October 2000, plus accrued interest. The recorded balance
of $124,341 at December 28, 1996, is presented net of $659 of unamortized bond
issue discount that is being amortized over the period to maturity. The latest
information available indicates the fair value of the Company's Notes was
$118,750 at December 28, 1996. The fair value presented herein is not
necessarily indicative of the amounts that the Company would realize in a
current market exchange.
The Company had a credit agreement at December 30, 1995 which provided an
unsecured revolving credit facility of $92,000 due January 15, 1998, and a
Wachovia Bank of South Carolina credit facility, which provided an unsecured,
uncommitted line of credit of $4,000. Effective March 19, 1996, the Company
replaced the unsecured revolving credit facility with a new credit agreement.
The new credit agreement provides for a revolving credit facility of up to
$80,000 including a letter of credit facility of up to $5,000. The borrowings
under the new credit agreement are secured by all inventories, all receivables,
and certain intangibles. The new credit agreement matures on January 15, 1998.
F-9
<PAGE> 81
3. LONG-TERM DEBT (CONTINUED)
Long-term debt as of December 30, 1995 and December 28, 1996 consists of:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Borrowings under credit agreements:
Unsecured revolving credit facility $ 30,000 $ --
Secured revolving credit facility -- 19,408
Unsecured Wachovia Bank of SC facility 853 4,000
Senior subordinated notes, net 124,245 124,341
-------- --------
155,098 147,749
Less current portion (853) (4,000)
-------- --------
Long-term debt $154,245 $143,749
======== ========
</TABLE>
The new credit agreement requires a commitment fee of 3/8 of 1% per annum on
all unused amounts and as of December 28, 1996, the Company could have borrowed
an additional $42,400 under the facility. Interest on the revolving credit
facility is based on a floating prime rate or an eurodollar rate plus 1 1/2%.
At December 28, 1996, the average interest rate on the revolving credit
facility was 7.3%. The Wachovia Bank of South Carolina facility is unsecured,
requires no commitment fee and may be terminated by the bank with 100 days
notice. Interest on the Wachovia Bank of South Carolina facility accrues at an
amount based on the daily Federal Funds rate, which was 7.3% at December 28,
1996.
The credit agreements and indenture contain various restrictive covenants and
conditions requiring, among other things, minimum levels of net worth, certain
interest coverage ratios, prohibitions against certain borrowings and advances,
and a negative covenant limiting the Company's right to grant security
interests or other liens on its assets. In addition, the credit agreements and
the indenture pursuant to which the Notes were issued contain restrictions on
the Company's ability to pay cash dividends or purchase its capital stock.
Under the most restrictive covenant, as of December 28, 1996, the Company was
not authorized to pay any cash dividends or purchase its capital stock. At
December 28, 1996, the Company was in compliance with, or had received waivers
for, all covenants under all credit agreements.
As part of the Company's workers' compensation insurance agreements in South
Carolina, Alabama, Georgia and Virginia, the Company has obtained letters of
credit for $750, $200, $250 and $50, respectively. The letters of credit expire
on February 10, 1997, June 30, 1997, January 11, 1997 and April 10, 1997,
respectively. At December 28, 1996, the Company owed no amount under these
letters of credit.
F-10
<PAGE> 82
4. INCOME TAXES
Components of income tax expense (benefit) for the years ended December 31,
1994, December 30, 1995 and December 28, 1996, consisted of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
-------- ------ --------
<S> <C> <C> <C>
1994:
Current $ 521 $ 5 $ 526
Deferred 81 182 263
-------- ------ --------
$ 602 $ 187 $ 789
======== ====== ========
1995:
Current $ -- $ -- $ --
Deferred (8,650) (850) (9,500)
-------- ------ --------
$ (8,650) $ (850) $ (9,500)
======== ====== ========
1996:
Current $ -- $ -- $ --
Deferred (5,705) (410) (6,115)
-------- ------ --------
$ (5,705) $ (410) $ (6,115)
======== ====== ========
</TABLE>
Alternative minimum taxes that have been paid as of December 28, 1996 and are
available indefinitely as carryforward credits for future federal income taxes
aggregated approximately $5,270. Such carryforward credits have been
considered in the determination of the net deferred income tax liability at
December 28, 1996.
Total income tax expense (benefit) differed from the amounts computed by
applying the U.S. federal income tax rate of 34 percent in 1994, 1995 and 1996
to income before income taxes and extraordinary item as a result of the
following:
<TABLE>
<CAPTION>
1994 1995 1996
---- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $734 $(8,650) $(5,705)
Increase in income taxes resulting from:
State income taxes, net of federal income tax benefit 71 (840) (554)
Other, net (16) (10) 144
---- ------- -------
Total income tax expense (benefit) $789 $(9,500) $(6,115)
==== ======= =======
</TABLE>
Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to the net deferred income tax
liability at December 30, 1995, and December 28, 1996 relate to the following:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Plant & equipment, principally due to difference in depreciation
methods $19,082 $ 19,014
Benefit of net operating loss for tax purposes (4,135) (10,531)
Alternative minimum tax credits (5,287) (5,270)
Accrued expenses not currently deductible and other, net (6,308) (6,352)
------- --------
Net deferred income tax liability (asset) $3,352 $ (3,139)
======= ========
</TABLE>
F-11
<PAGE> 83
5. BENEFIT PLANS
Effective December 31, 1994, the Company curtailed future benefits and merged
its two defined benefit plans, the Clinton Retirement Income Program (the
"CRIP") and the Pension Plan of Chatham Manufacturing, Inc. into the CRIP, which
covers substantially all of its associates who qualify as to age and service. In
general, the pension benefits are based on either years of service and
percentages of the average of the five highest years of compensation or total
compensation earned through December 31, 1994. The Company's funding policy is
to contribute the amounts recommended by its independent actuary, which are
determined after considering the funding status of the Company's plans, ERISA
guidelines and tax deductibility. The changes resulted in a curtailment gain of
$6,939, which reduced cost of goods sold in the accompanying 1994 statement of
operations. The curtailment of these plans did not reduce either plan assets or
vested benefits of the participants.
Effective December 30, 1995, the Company provided an early retirement window to
certain associates who were participants in the CRIP. In general, associates
offered the window were provided their age 65 benefit plus a social security
supplement until age 62, if applicable. The Company reported this $1,202
charge as part of its provision for restructuring in 1995.
The following table sets forth the funded status of the plans and amounts
recognized in the accompanying consolidated balance sheets at December 31,
1994, December 30, 1995, and December 28, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 33,601 $ 36,659 $ 31,217
Non-vested benefit obligation 807 618 1,827
--------- --------- ---------
Total accumulated benefit obligation $ 34,408 $ 37,277 $ 33,044
========= ========= =========
Projected benefit obligation $ (34,408) $ (37,277) $ (33,044)
Plan assets at fair value 37,142 37,305 38,155
--------- --------- ---------
Plan assets more than projected benefit obligation 2,734 28 5,111
Unrecognized net (gain) loss from past experience
different from that assumed and unrecognized
effects of changes in assumptions (1,172) 1,847 (3,807)
Additional cost due to early retirement window -- (1,202) --
--------- --------- ---------
Prepaid pension cost $ 1,562 $ 673 $ 1,304
========= ========= =========
</TABLE>
F-12
<PAGE> 84
5. BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
Net pension cost consists of the following components:
1994 1995 1996
-------- ------- -------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 2,214 $ -- $ --
Interest cost on projected benefit obligation 3,193 2,828 2,650
Actual return on plan assets (3,384) (3,788) (6,318)
Additional expense due to early retirement window -- 1,202 --
Curtailment gain (6,939) -- --
Net amortization -- 645 3,037
-------- ------- -------
Net pension expense (income) $ (4,916) $ 887 $ (631)
======== ======= =======
</TABLE>
The assumptions used in determining the actuarial present value of benefit
obligations and the net periodic pension costs are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- -----
<S> <C> <C> <C>
Expected long-term return on assets - both plans 9.0% 9.0% 9.0 %
Weighted average discount rate 8.5% 7.5% 7.75%
</TABLE>
The plans' assets include marketable equity securities, guaranteed interest
contracts, and corporate and government debt securities.
The Company had a contributory Profit Sharing and Retirement Savings Plan for
the employees of Chatham. The Plan provided for contributions to the Plan by
the Company as designated by the Board of Directors and voluntary contributions
by the employees from 1% to 10% of their compensation. The expense was $178
for the period ended December 31, 1994. Effective January 1, 1995, this plan
was amended and restated, converting it into The 401(k) Plan for Associates of
CMI Industries, Inc., which covers substantially all of the Company's
associates. Under the 401(k) Plan, the Company matches 50% of employee
contributions, not to exceed 2% of pay, for all eligible and participating
associates. The Company's matching contribution totaled $1,314 for 1995 and
$1,105 for 1996.
The Company is substantially self-insured for employee health and workers'
compensation benefits. Provision for claims under these self-insured programs
is recorded based upon actuarially determined estimates of the aggregate
liability for claims incurred. The Company has accrued $2,989 and $3,800 for
payments under these plans at December 30, 1995 and December 28, 1996,
respectively.
F-13
<PAGE> 85
5. BENEFIT PLANS (CONTINUED)
In connection with the acquisition of Chatham, the Company assumed obligations
under a Supplemental Executive Retirement Plan ("SERP"), which is a
non-qualified plan that provides certain current and former Chatham officers
defined pension benefits in excess of limits imposed by federal tax law. At
December 30, 1995, and December 28, 1996, the accrued SERP liability was $3,310
and $3,359, respectively, which equals the projected benefit obligation plus
deferred gains and is included in other liabilities in the accompanying balance
sheets. The expense was $229, $287 and $291 for the periods ended December 31,
1994, December 30, 1995, and December 28, 1996, respectively. An irrevocable
trust has been established to hold certain assets of the Company (life
insurance contracts with a net cash value of $1,882 at December 28, 1996) as a
reserve for the discharge of liabilities under the plan.
The 1989 CMI Industries, Inc. Non-Qualified Stock Option Plan provided for the
grant of up to 35,000 shares of common stock for $25 per share. All of the
options granted under this plan are fully vested. In 1992, Chatham's Board of
Directors adopted the Chatham Manufacturing, Inc. 1992 Non-Qualified Stock
Option Plan which provided for the grant of up to 140,000 shares of Chatham
common stock. Options for 9,000 shares vest upon the attainment of levels of
earnings as defined in the agreement or at the end of 10 years, whichever
occurs first, while 60,000 shares vested immediately, 26,000 shares were
vested in 1993, and 8,000 shares were vested in 1994. Options to purchase
Chatham common stock were converted to options to purchase the Company's stock.
In 1996, the Company granted the remaining 37,000 shares from the 1992 Plan
and vested the recipients' interest in these shares immediately. In 1994, the
Company adopted the 1994 CMI Industries, Inc. Stock Option Plan which provided
for the grant of up to 50,000 shares of the Company's stock. Options for 2,000
shares were granted and vested immediately in 1994 pursuant to the 1994 Plan.
In 1995, options for 30,000 shares were granted pursuant to the 1994 Plan, with
vesting upon the attainment of certain earnings levels as defined in the
agreement or at the end of ten years, whichever comes first. In 1996, the
Company granted the remaining 18,000 shares from the 1994 Plan and vested the
recipients' interest in these shares immediately. As of December 28, 1996,
options to acquire 225,000 shares of the Company's common stock were
outstanding. Exercise prices of the options range from $25 to $45 per share.
Management has determined that no compensation expense should be recorded based
on these options. Since the inception of these plans, no options have been
exercised. The Company accounts for stock option plans under APB Opinion No.
25, under which no compensation cost has been recognized. Had compensation
cost for these plans been determined with FASB Statement No. 123, there would
not have been a material impact on the Company's net loss.
F-14
<PAGE> 86
6. RECEIVABLES, INVENTORIES, PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE AND
OTHER ASSETS
Receivables, inventories, property, plant and equipment, and intangible and
other assets at December 30, 1995 and December 28, 1996 consist of the
following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Receivables:
Trade $ 50,965 $ 49,074
Other 1,448 435
--------- ---------
52,413 49,509
Less allowance for doubtful accounts (1,729) (2,000)
--------- ---------
$ 50,684 $ 47,509
========= =========
Inventories:
Raw materials $9,872 $ 10,484
Work-in-progress 22,295 21,234
Finished goods 29,603 21,576
Supplies 5,281 4,849
--------- ---------
$ $67,051 $ 58,143
========= =========
Property, plant and equipment:
Land and land improvements $ 3,813 $ 3,521
Buildings and leasehold improvements 39,455 38,039
Machinery and equipment 203,648 199,811
Construction in progress 1,346 1,277
--------- ---------
248,262 242,648
Less accumulated depreciation and amortization (122,488) (130,103)
--------- ---------
$ 125,774 $ 112,545
========= =========
Intangible and other assets:
Debt issuance costs $ 3,314 $ 2,872
Cash value of life insurance, net of policy loans of $3,387
at December 30, 1995 and $3,922 at December 28, 1996 1,968 1,991
Prepaid pension cost 673 1,304
Other 2,098 2,199
--------- ---------
$ 8,053 $ 8,366
========= =========
</TABLE>
Inventories and Property, plant and equipment include assets held for sale at
December 28, 1996 with an approximate net realizable value of $250.
F-15
<PAGE> 87
7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at December 30, 1995, and December 28,
1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Accrued interest $ 3,648 $ 3,281
Accrued compensation 725 801
Environmental cleanup accrual 337 291
Reserve for self insurance 2,989 3,800
Accrued restructuring charges 3,748 1,292
Other 3,742 3,624
------- -------
Total accrued expenses $15,189 $13,089
======= =======
Accrued SERP, deferred compensation and other $ 7,219 $ 7,850
Accrued severance liability 3,962 2,890
Environmental cleanup accrual 3,083 3,083
------- -------
Total noncurrent other liabilities $14,264 $13,823
======= =======
</TABLE>
8. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The Company leases certain office facilities and equipment under various
operating leases expiring at various dates through 2005. Future minimum lease
payments under noncancelable operating leases are as follows at December 28,
1996:
<TABLE>
<S> <C>
1997 $ 3,133
1998 3,182
1999 2,078
2000 1,790
2001 1,679
Thereafter 1,822
-------
Total minimum lease payments $13,684
=======
</TABLE>
Rental expense was $1,717 for 1994, $1,621 for 1995, and $1,581 for 1996. The
majority of these leases require the Company to pay taxes, maintenance,
insurance, and certain other operating expenses applicable to the leased
property.
Environmental site evaluations have been performed which concluded that some
form of groundwater and soil remediation will be required by the Company. In
the future, the Company may also construct facilities to control flyash
disposal and runoff from a coal pile, and may perform asbestos abatement.
The Company believes that sufficient amounts are accrued as of December 28,
1996 for the cost of these expenditures.
F-16
<PAGE> 88
8. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
The Company is involved in various legal proceedings arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
financial condition or results of operations.
As of December 28, 1996 the Company was committed to future capital
expenditures of $756.
The Company purchases significant amounts of cotton, one of its primary raw
materials, through commodity contracts. At December 28, 1996, all fixed
contracts were at prices which approximated or were below current market prices.
The Company's financial results are impacted by the variability of cotton and
other raw material prices.
Under the stockholders agreement, all of the stockholders of the Company have
certain registration rights with respect to their common stock. These rights
include demand and "piggyback" registration rights. The Company is obligated
to register shares of common stock under the demand registration rights if
holders of more than two-thirds of the outstanding shares request registration.
The registration rights extend until February 14, 2002 or terminate sooner
upon (i) the merger or consolidation of the Company with an unaffiliated
corporation in which the management investors and affiliates of Merrill Lynch
Capital Partners, Inc. own less than 65% of the surviving or resulting
corporation or (ii) the sale of substantially all the assets of the company to
an unaffiliated person. The remaining provisions of the stockholders agreement
would terminate under the foregoing circumstances or sooner in the event of (i)
a public offering of common stock at the conclusion of which at least 30% of
the outstanding shares shall have been sold to the public or (ii) the sale of
60% or more of the shares of common stock owned by either the management
investors as a group or the Merrill Lynch Capital Partners, Inc. affiliates as
a group (as fully diluted by shares to be issued upon exercise of options).
F-17
<PAGE> 89
9. RESTRUCTURING CHARGES AND ACCRUED SEVERANCE LIABILITY
In December 1995, the Company approved a plan to pursue restructuring
initiatives in all divisions. These initiatives were completed by December
1996. In the Greige Fabrics Division, the Company closed one of its
manufacturing facilities and is disposing of idle equipment and inventories.
In the Finished Fabrics Division, the Company consolidated certain operations
and is disposing of idle equipment and inventories. The Company also downsized
its corporate operations. The restructuring charges also consist of costs for
the severance and retirement of approximately 700 associates, including the
termination of consulting contracts, insurance, vacation, and related expenses.
Related to this decision, the Company reported a $12,900 charge to earnings in
1995 and has reserved for the following items:
<TABLE>
<CAPTION>
December 30, 1995 December 28, 1996
----------------- -----------------
<S> <C> <C>
Restructuring items:
CRIP early retirement window $ 1,202 $1,202
Termination of consulting contracts and
other items 1,345 497
Severance and related benefit costs 2,501 795
------ ------
5,048 2,494
Other nonrecurring asset write-offs related to the restructuring:
Inventory write-offs 2,915 657
Property, plant and equipment write-offs 4,937 2,092
------- ------
$12,900 $5,243
======= ======
</TABLE>
Included in the $12,900 of restructuring and related nonrecurring amounts at
December 30, 1995, were approximately $5,048 of incremental cash expenditures.
The Company expects to fund the early retirement amount from assets in the
Company's defined benefit plan and the balance from operations or amounts
available under the credit agreement. During 1996, the Company funded $2,554
of cash related restructuring items and disposed of $5,103 of assets related to
the restructuring.
In August 1995, the former President and Chief Executive Officer retired from
the Company. In connection with the retirement, the Company repurchased the
common stock of the former officer at a cost of $3,320. The repurchase price
is subject to future adjustment based on the occurrence of certain equity
transactions. The executive severance costs reported in the Company's
accompanying 1995 statement of operations of $4,782 includes retirement
benefits, salary, life insurance, consulting fees and other items.
10. SUBSEQUENT EVENT
Effective February 28, 1997, the Company and its lenders amended the new credit
agreement to reduce the borrowing limit to $65 million, to remove the bank's
security interest in certain inventories which the Company expects to be
realigned into separate operating entities in 1997 and to extend the maturity
of the new credit agreement by two years to January 2000. Additionally, the
Company and its lenders modified certain financial covenants to remedy a
previously waived covenant violation and to reflect the new duration of the
agreement.
F-18
<PAGE> 90
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION IN WHICH, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE
FACTS SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Company........................... 11
Use of Proceeds....................... 12
Capitalization........................ 13
Selected Financial Data............... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 23
Management............................ 33
Certain Transactions.................. 42
Ownership of the Company.............. 43
Description of Bank Credit
Facilities.......................... 46
Description of the Notes.............. 48
Plan of Distribution.................. 69
Experts............................... 69
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$125,000,000
CMI INDUSTRIES, INC.
9 1/2% SENIOR
SUBORDINATED
NOTES DUE 2003
---------------------------
PROSPECTUS
---------------------------
MAY , 1997
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Not Applicable
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
CERTIFICATE OF INCORPORATION
The Certificate of Incorporation of the Company provides for
indemnification of officers and directors as follows:
NINTH: The Corporation may, to the full extent permitted by Section
145 of the Delaware General Corporation Law, as amended from time to time,
indemnify all persons whom it may indemnify pursuant thereto.
TENTH: No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of
fiduciary duty by such director as a director; provided, however, that this
Article Tenth shall not eliminate or limit the liability of a director to
the extent provided by applicable law (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from
which the director derived an improper personal benefit. No amendment to or
repeal of this Article Tenth shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to
such amendment or repeal.
BYLAWS
The Bylaws of the Company provide for indemnification of officers and
directors as follows:
Section 5.01. General. The Corporation shall indemnify each of its
officers, directors, employees and agents (and any other person to whom the
Corporation is permitted to provide indemnification pursuant to the General
Corporation Law of the State of Delaware) to the fullest extent permitted
by Section 145 of the General Corporation Law of the State of Delaware, as
amended from time to time.
Section 5.02. Specific. Without limiting the indemnification
provisions set forth in Section 1 of this Article V:
(a) Advancement of Expenses. Expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if, or to the
extent that, it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation pursuant to this Article V or as
otherwise authorized by law. Such expenses incurred by other employees
and agents may be so paid upon such terms and conditions, if any, as the
Board of Directors deems appropriate.
(b) Insurance. The Corporation, at its expense, may purchase and
maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether
or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article V or under the
provisions of the General Corporation Law of the State of Delaware.
II-1
<PAGE> 92
(c) Retroactivity. The right to be indemnified or to the
reimbursement or advancement of expenses pursuant to this Article V is
intended to be retroactive and shall be available with respect to events
occurring prior to the adoption hereof.
(d) Repeal or Modification. Any repeal or modification of the
provisions of this Article V by the stockholders of the Corporation
shall not adversely affect any right or protection of a director,
officer, employee or agent of the Corporation existing at the time of
such repeal or modification.
(e) Continuation of Rights. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Article V shall
continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors
and administrators of such person.
(f) Other Rights and Remedies. The indemnification and advancement
of expenses provided by, or granted pursuant to, the other paragraphs of
this Article V shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or
disinterested Directors or otherwise, both as to action in its official
capacity and as to action in another capacity while holding such office.
(g) Savings Clause. If this Article V or any portion thereof shall
be invalidated on any ground by any court of competent jurisdiction,
then the Corporation shall nevertheless indemnify each person as
provided above as to expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement with respect to any action, suit or
proceeding, whether civil, criminal, administrative or investigative,
including a grand jury proceeding and an action by the Corporation, to
the full extent permitted by any applicable portion of this Article V
that shall not have been invalidated or by any other applicable law.
DELAWARE GENERAL CORPORATION LAW
Section 145 of the General Corporation Law of the State of Delaware
provides:
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction,
or upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or
II-2
<PAGE> 93
suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b)of
this section, or in defense of any claim, issue or matter therein, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification
of the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in
subsections (a) and (b) of this section. Such determination shall be made
(1) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than quorum, or (2) if there are no
such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the board of directors
deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding
such office.
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section.
(h) For purposes of this section, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this section.
II-3
<PAGE> 94
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section, or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).
PURCHASE AGREEMENT
The Purchase Agreement contained provisions under which the Underwriter
agreed to indemnify the Registrant, its directors, each of its officers who
signed the Registration Statement and each person who controls the Registrant
within the meaning of the Securities Act of 1933, as amended, against certain
liabilities, including liabilities under the Securities Act of 1933. See "Item
17, Undertakings."
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On February 14, 1992, the Company purchased a minority common stock
interest in Chatham Manufacturing, Inc. ("Chatham"), a newly organized Delaware
corporation formerly known as Chatham Manufacturing Acquisition Corp. Chatham
was organized by the Company and certain affiliates of ML Capital Partners, most
of whom were not then stockholders of the Company, for the purpose of acquiring
substantially all the assets of Chatham Manufacturing Company, a North Carolina
corporation ("Old Chatham") and the assets of an affiliated business. The ML
Capital Partners affiliates purchased the majority of the $.01 par value common
stock of Chatham ("Chatham Common Stock"). Chatham consummated the asset
acquisition on February 14, 1992. In connection with the asset acquisition, the
Company entered into an exchange agreement with Chatham and the other Chatham
stockholders to provide for the exchange in certain circumstances of the shares
of Chatham Common Stock held by stockholders other than the Company for shares
of Common Stock (the "Exchange Agreement").
On November 23, 1992 certain affiliates of ML Capital Partners, who then
held in the aggregate a majority of the outstanding Chatham Common Stock,
exercised their right under the Exchange Agreement to compel the exchange of all
outstanding shares of Chatham Common Stock (other than shares held by the
Company) for shares of Common Stock. The exchange of all 550,455 outstanding
shares of Chatham Common Stock not owned by the Company for 550,455 shares of
Common Stock was consummated effective December 31, 1992. At that time, all
outstanding options to purchase Chatham Common Stock were converted into options
to purchase Common Stock. The transaction was exempt from registration under the
Securities Act pursuant to section 4(2) as a transaction by an issuer not
involving any public offering. As described above, the transaction was a
privately negotiated exchange entered into by the Company and certain affiliates
of ML Capital Partners.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<C> <C> <S>
1.1 -- Purchase Agreement dated October 22, 1993.(3)
1.2 -- Form of Letter Agreement among the Company, the Underwriter and the Qualified
Independent Underwriter.(2)
2.1 -- Asset Purchase Agreement dated December 2, 1991 by and between Chatham Manufacturing
Acquisition Corp. and Chatham Manufacturing Company (together with a list of omitted
schedules and exhibits which the Registrant agreed to furnish supplementally to the
Commission upon request), as amended by an Amendment thereto dated February 14, 1992
and modified pursuant to a Release and Settlement Agreement dated April 8, 1993.(1)
</TABLE>
II-4
<PAGE> 95
<TABLE>
<C> <C> <S>
2.2 -- Exchange Agreement dated as of February 14, 1992 by and among CMI Holdings, Inc.,
Chatham Manufacturing Acquisition Corp. and the stockholders of Chatham
Manufacturing Acquisition Corp.(1)
2.3 -- Form of Plan of Merger of Clinton Mills, Inc. and Chatham Manufacturing, Inc. with
and into CMI Industries, Inc.(2)
3.1 -- Certificate of Incorporation of CMI Industries, Inc., as amended.(8)
3.2 -- Bylaws of CMI Industries, Inc.(1)
4.1 -- Indenture between the Company and Chemical Bank, Trustee (including the form of
Note).(5)
4.2 -- Loan and Security Agreement dated as of April 14, 1989 by and among Clinton Mills,
Inc., BancBoston Financial Company, individually and as agent, and The South
Carolina National Bank ("SCNB") (including Term Note and Revolving Credit Note
executed in connection therewith), and the Supplemental Revolving Loan Agreement
dated April 14, 1989 between Clinton and SCNB (including the Supplemental Revolving
Credit Note executed in connection therewith) together with a list of omitted
schedules and exhibits which the Registrant agreed to furnish supplementally to the
Commission upon request.(1)
4.3 -- Amendment No. 1 to Loan and Security Agreement dated as of May 2, 1989 among Clinton
Mills, Inc., BancBoston Financial Company, individually and as agent, and SCNB.(1)
4.4 -- Amendment No. 1 dated as of May 19, 1989 to Supplemental Revolving Loan Agreement
between Clinton Mills, Inc. and SCNB.(1)
4.5 -- Amendment No. 2 dated as of July 17, 1989 to Loan and Security Agreement among
Clinton Mills, Inc., BancBoston Financial Company, individually and as agent, SCNB
and Citicorp North America, Inc.(1)
4.6 -- Amendment No. 2 dated as of July 17, 1989 to Supplemental Revolving Loan Agreement
between Clinton Mills, Inc. and SCNB.(1)
4.7 -- Amendment No. 3 dated as of December 19, 1989 to Loan and Security Agreement between
Clinton Mills, Inc. and BancBoston Financial Company, individually and as agent.(1)
4.8 -- Amendment No. 4 dated as of January 1, 1992 to Loan and Security Agreement among
Clinton Mills, Inc., BancBoston Financial Company, individually and as agent, and
SCNB.(1)
4.9 -- Amendment No. 5 dated as of March 6, 1992 to Loan and Security Agreement among
Clinton Mills, Inc., BancBoston Financial Company, individually and as agent, and
SCNB.(1)
4.10 -- Eurodollar Agreement dated as of December 19, 1989 between Clinton Mills, Inc. and
BancBoston Financial Company as Lender and as Agent.(1)
4.11 -- Loan and Security Agreement dated as of February 14, 1992 by and among Chatham
Manufacturing Acquisition Corp., The First National Bank of Boston, individually and
as agent, CIT Financial Corp. and NationsBank of North Carolina, N.A. (including the
Term Note and Revolving Credit Note executed in connection therewith) together with
a list of omitted schedules and exhibits which the Registrant agreed to furnish
supplementally to the Commission upon request.(1)
4.12 -- Amendment No. 1 dated as of March 16, 1993 to Loan and Security Agreement among
Chatham Manufacturing, Inc. (f/k/a Chatham Manufacturing Acquisition Corp.), The
First National Bank of Boston, individually and as agent, CIT Financial Corp. and
NationsBank of North Carolina, N.A.(1)
4.13 -- Amendment No. 2 dated as of April 22, 1993 to Loan and Security Agreement among
Chatham Manufacturing, Inc. (f/k/a Chatham Manufacturing Acquisition Corp.), The
First National Bank of Boston, individually and as agent, CIT Financial Corp. and
NationsBank of North Carolina, N.A. (including forms of the Amended Revolving Credit
Note and Equipment Note executed in connection therewith).(1)
</TABLE>
II-5
<PAGE> 96
<TABLE>
<C> <C> <S>
4.14 -- Agreement in Principle dated August 16, 1993 between CMI Industries, Inc. and The
First National Bank of Boston.(1)
4.15 -- Indenture dated as of April 1, 1987 between Clinton Mills, Inc. and Manufacturers
Hanover Trust Company, as trustee, with respect to Clinton Mills, Inc. 12% Senior
Subordinated Debentures due 1999.(1)
4.16 -- Commitment letter dated as of September 10, 1993 among The First National Bank of
Boston, NationsBank of North Carolina, N.A., The South Carolina National Bank and
CMI Industries, Inc. with letter dated September 10, 1993 from The First National
Bank of Boston and NationsBank of North Carolina, N. A.(2)
4.17 -- Credit Agreement dated October 28, 1993 among CMI Industries, Inc., The First
National Bank of Boston, individually and as agent, NationsBank of North Carolina
N.A. and The South Carolina National Bank.(3)
4.18 -- Letter dated September 24, 1993 from the South Carolina National Bank to CMI
Industries, Inc.(2)
4.19 -- Form of ISDA Master Agreement dated as of January 14, 1994 between the First
National Bank of Boston and CMI Industries, Inc. including memorandum of swap
transaction dated January 14, 1994.(5)
4.20 -- Amendment No. 1 dated September 21, 1994 to Credit Agreement dated October 28, 1993
among CMI Industries, Inc., The First National Bank of Boston, individually and as
agent, NationsBank of North Carolina N.A., and The Wachovia Bank of South
Carolina.(9)
4.21 -- Amendment No. 2 dated December 28, 1994 to Credit Agreement dated October 28, 1993
among CMI Industries, Inc., The First National Bank of Boston, individually and as
agent, NationsBank of North Carolina, N.A., and the Wachovia Bank of South
Carolina.(9)
4.22 -- Amendment No. 3 dated December 28, 1994 to Credit Agreement dated October 28, 1993
among CMI Industries, Inc., The First National Bank of Boston, individually and as
agent, NationsBank of North Carolina, N.A., and The Wachovia Bank of South
Carolina.(9)
4.23 -- Amendment No. 4 dated June 25, 1995 to Credit Agreement dated October 28, 1993 among
CMI Industries, Inc., The First National Bank of Boston, individually and as agent,
NationsBank of North Carolina, N.A., and The Wachovia Bank of South Carolina.(10)
4.24 -- Amendment No. 5 dated August 22, 1995 to Credit Agreement dated October 28, 1993
among CMI Industries, Inc. The First National Bank of Boston, individually and as
agent, NationsBank of North Carolina, N.A., and The Wachovia Bank of South
Carolina.(11)
4.25 -- Interest Rate Collar Transaction letter agreement dated February 5, 1996 between The
First National Bank of Boston and CMI Industries, Inc.(12)
4.26 -- Credit Agreement dated as of March 19, 1996 among CMI Industries, Inc., The First
National Bank of Boston, individually and as agent, NationsBank of North Carolina,
N.A., and The Wachovia Bank of South Carolina, N.A.(12)
4.27 -- Waiver Letter dated October 11, 1996, among CMI Industries, Inc., and The First
National Bank of Boston, As Agent, NationsBank of North Carolina, and Wachovia Bank
of South Carolina, as Lenders. (15)
4.28 -- Amendment No. 1 and Consent and Waiver dated as of February 28, 1997 to Loan and
Security Agreement dated as of March 19, 1996 among CMI Industries, Inc.,
The First National Bank of Boston, as Agent and Lender, NationsBank, N.A. and
The Wachovia Bank of South Carolina, N.A., as Lenders. (16)
5 -- Opinion of Sutherland, Asbill & Brennan.(4)
10.1 -- Master Lease Agreement No. 700987 dated June 22, 1984 between Citicorp Industrial
Credit, Inc. and Clinton Mills, Incorporated, a South Carolina corporation (the
"Predecessor Company") together with Rider to Master Lease Agreement dated June 22,
1984 between Citicorp Industrial Credit, Inc. and the Predecessor Company; Leasing
Schedule No. 700987-001 dated June 22, 1984 between Citicorp Industrial Credit, Inc.
and the Predecessor Company; Assignment and Assumption of CIC Master Lease Agreement
dated December 28, 1984 between the Predecessor Company and Clinton Mills, Inc., a
South Carolina corporation ("Old Clinton"), with Consent and Release dated December
28, 1984 of Citicorp Industrial Credit, Inc. attached; and letter agreement dated
December 19, 1986 among Citicorp Industrial Credit, Inc., Old Clinton and Clinton
Mills, Inc.(1)
10.2 -- Letter Agreement dated April 13, 1989 between Clinton Mills, Inc. and Citicorp North
America, Inc. (as successor to Citicorp Industrial Credit, Inc.)(1)
</TABLE>
II-6
<PAGE> 97
<TABLE>
<C> <C> <S>
10.3 -- Amendment dated February 24, 1992 to Master Lease Agreement No. 700987 dated June
22, 1984 between Citicorp North America, Inc. (as successor to Citicorp Industrial
Credit, Inc.) and Clinton Mills, Inc.(1)
10.4 -- Tax Allocation Agreement dated as of April 1, 1987 between Clinton Mills, Inc. and
CMI Industries, Inc.(1)
10.5 -- Tax Allocation Agreement dated as of October 6, 1993 between Chatham Manufacturing,
Inc. and CMI Industries, Inc.(2)
10.6 -- Commitment Letter Agreement dated December 4, 1986 among Merrill Lynch Capital
Partners, Inc., Clinton Mills, Inc., Old Clinton and CMI Industries, Inc.(1)
10.7 -- Management Subscription Agreement dated as of December 23, 1986 among CMI
Industries, Inc. and the persons listed on Schedule I thereto.(1)
10.8 -- Subscription Agreement dated as of June 1, 1987 between CMI Industries, Inc. and
James A. Ovenden.(1)
10.9 -- Subscription Agreement dated as of November 9, 1988 between CMI Industries, Inc. and
Michael H. deHavenon.(1)
10.10 -- Amendment No. 1 to Management Subscription Agreement dated as of April 14, 1989
among CMI Industries, Inc. and the persons listed on Schedule 1 thereto.(1)
10.11 -- Amendment No. 1 to Subscription Agreement dated as of April 14, 1989 between CMI
Industries, Inc. and James A. Ovenden.(1)
10.12 -- Description of CMI Industries, Inc. Incentive Compensation Program.(2)
10.13 -- CMI Holdings, Inc. 1989 (now known as CMI Industries, Inc.) Non-Qualified Stock
Option Plan.(1)
10.14 -- CMI Industries, Inc. 1992 Non-Qualified Stock Option Plan.(1)
10.15 -- Letter Employment Agreement dated December 28, 1990 between Clinton Mills, Inc. and
Joseph L. Gorga.(1)
10.16 -- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga.(2)
10.17 -- Amended and Restated Stockholders Agreement dated February 14, 1992 among CMI
Industries, Inc. and its Stockholders.(1)
10.18 -- Amended and Restated Employment Agreement dated as of January 1, 1991 between
Clinton Mills, Inc. and G. Thaddeus Williams as amended effective as of July 1, 1993
by Amendment No. 1 to Amended and Restated Employment Agreement dated August 24,
1993 between Clinton Mills, Inc. and G. Thaddeus Williams.(2)
10.19 -- Employment Agreement dated December 17, 1991 between Clinton Mills, Inc. and James
A. Ovenden.(1)
10.20 -- Employment Agreement dated as of February 14, 1992 between Anthony J. Raffo and
Chatham Manufacturing Acquisition Corp. (now known as Chatham Manufacturing,
Inc.)(1)
10.21 -- Management Subscription Agreement dated February 14, 1992 by and between Chatham
Manufacturing Acquisition Corp. (now known as Chatham Manufacturing, Inc.) and
Anthony J. Raffo.(1)
10.22 -- Protected Interest Rate Agreement dated May 22, 1991 between Clinton Mills, Inc. and
The First National Bank of Boston.(1)
10.23 -- Split-Dollar Life Insurance Agreement (re: The Travelers Insurance Company Policy
No. 7304387) dated August 24, 1993 between the 1989 G. Thaddeus Williams Insurance
Trust and Clinton Mills, Inc.(2)
10.24 -- Split-Dollar Life Insurance Agreement (re: Phoenix Home Life Mutual Life Insurance
Company Policy No. 2603444) dated August 24, 1993 between the 1989 G. Thaddeus
Williams Insurance Trust and Clinton Mills, Inc.(2)
</TABLE>
II-7
<PAGE> 98
<TABLE>
<C> <C> <S>
10.25 -- Split-Dollar Life Insurance Agreement (re: Phoenix Home Life Mutual Life Insurance
Company Policy No. 2617865) dated August 24, 1993 between the 1989 G. Thaddeus
Williams Insurance Trust and Clinton Mills, Inc.(2)
10.26 -- Management Services and Option Agreement dated July 8, 1993 by and among Clinton
Mexico, Inc., Promointex S.A. de C.V., Casa Distex S.A. de C.V. and Textiles
Hercules S.A. de C.V. as amended by Amendment No. 1 thereto dated as of July 23,
1993.(3)
10.27 -- 1994 Stock Option Plan.(7)
10.28 -- Amendment No. 1 to Amended and Restated Stockholders Agreement.(7)
10.29 -- Amendment No. 1 to Employment Agreement effective January 2, 1994 between CMI
Industries, Inc. and Joseph L. Gorga.(6)
10.30 -- Amendment No. 1 to Employment Agreement dated February 28, 1994, between CMI
Industries, Inc. and Anthony J. Raffo.(6)
10.31 -- Option Agreement dated January 2, 1994 between CMI Industries, Inc. and Joseph L.
Gorga pursuant to the CMI Industries, Inc. 1992 Stock Option Plan.(9)
10.32 -- Option Agreement dated January 2, 1994 between CMI Industries, Inc. and Joseph L.
Gorga pursuant to CMI Industries, Inc. 1993 Stock Option Plan.(9)
10.33 -- Modification and Consulting Agreement dated December 6, 1994 between CMI Industries,
Inc. and Anthony J. Raffo.(9)
10.34 -- Severance and Consulting Agreement dated August 23, 1995, by and between CMI
Industries, Inc. and G. Thaddeus Williams.(11)
10.35 -- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga dated January 23,
1995, pursuant to CMI Industries, Inc. 1994 Stock Option Plan(12)
10.36 -- Amended and Restated Employment Agreement dated January 1, 1996, between CMI
Industries, Inc. and Joseph L. Gorga(12)
10.37 -- Amended and Restated Employment Agreement dated January 1, 1996, between CMI
Industries, Inc. and James A. Ovenden(12)
10.38 -- Amendment No. 1 to Option Agreement between CMI Industries, Inc. and Joseph L. Gorga
dated January 31, 1996(12)
10.39 -- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga dated January 31,
1996, pursuant to CMI Industries, Inc. 1992 Stock Option Plan(12)
10.40 -- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga dated January 31,
1996, pursuant to the CMI Industries, Inc. 1994 Stock Option Plan(12)
10.41 -- Option Agreement between CMI Industries, Inc. and James A. Ovenden dated January 31,
1996, pursuant to the CMI Industries, Inc. 1994 Stock Option Plan(12)
10.42 -- Option Agreement between CMI Industries, Inc. and James F. Robbins dated January 31,
1997, pursuant to the CMI Industries, Inc. 1992 Stock Option Plan (16)
12 -- Computation of Ratio of Earnings to Fixed Charges (filed with this Amendment).
16 -- Letter dated April 3, 1991 from KPMG Peat Marwick to the Securities and Exchange
Commission.(3)
21 -- Subsidiaries of CMI Industries, Inc.(12)
23.1 -- Consent and Report on Financial Statement Schedules of Arthur Andersen & Co. (filed
with this Amendment).
23.2 -- Consent and Report on Financial Statement Schedules of KPMG Peat Marwick(3)
23.3 -- Consent of Sutherland, Asbill & Brennan dated October 1993.(4)
24.1 -- Power of Attorney dated August 24, 1993 by each of James A. Ovenden, Michael H.
deHavenon, Rupinder S. Sidhu, Warner A. Fite and Stephen M. McLean appointing G.
Thaddeus Williams as his attorney-in-fact is located at page II-9 of the
Registration Statement.(1)
</TABLE>
II-8
<PAGE> 99
<TABLE>
<C> <C> <S>
24.2 -- Power of Attorney dated May 1, 1996 by each of James A. Ovenden, W. James Raleigh,
Michael H. deHavenon, Rupinder S. Sidhu and Stephen M. McLean appointing Joseph L.
Gorga as his attorney-in-fact is located at page II-17 of Post-Effective Amendment
No. 3 to the Registration Statement.(13)
25 -- Statement of Eligibility and Qualification of Chemical Bank to act as Trustee under
the Indenture on Form T-1.(3)
27 -- Financial Data Schedule(14)
</TABLE>
(b) Financial Statement Schedules:
Schedule V -- Property, Plant and Equipment
Schedule VI -- Accumulated Depreciation and Amortization of Property,
Plant and Equipment
Schedule VIII -- Valuation and Qualifying Accounts
Other prescribed financial statement schedules have been omitted either
because they are not applicable or because the information that would be
included in such schedules is included elsewhere in this Registration Statement.
- ---------------
(1) Filed as an exhibit to the Registration Statement on August 24, 1993.
(2) Filed as an exhibit to Amendment No. 1 to the Registration Statement on
October 8, 1993.
(3) Filed as an exhibit to Amendment No. 2 to the Registration Statement on
October 19, 1993.
(4) Filed as an exhibit to Amendment No. 3 to the Registration Statement on
October 22, 1993.
(5) Filed as an exhibit to the Company's quarterly report on Form 10-Q on
December 22, 1993 and incorporated herein by reference.
(6) Filed as an exhibit to the Company's annual report on Form 10-K on March
29, 1994, and incorporated herein by reference.
(7) Filed as an exhibit to the Company's quarterly report on Form 10-Q on May
16, 1994 and incorporated herein by reference.
(8) Filed as an exhibit to the Company's quarterly report on Form 10-Q on
August 16, 1994 and incorporated herein by reference.
(9) Filed as an exhibit to the Company's annual report on Form 10-K on March
31, 1995 and incorporated herein by reference.
(10) Filed as an exhibit to the Company's quarterly report on Form 10-Q on
August 15, 1995 and incorporated herein by reference.
(11) Filed as an exhibit to the Company's quarterly report on Form 10-Q on
November 14, 1995 and incorporated herein by reference.
(12) Filed as an exhibit to the Company's annual report on Form 10-K on March
29, 1996 and incorporated herein by reference.
(13) Filed as an exhibit to the Company's Post-Effective Amendment No. 3 to the
Registration Statement on May 1, 1996.
(14) Filed as an exhibit to the Company's quarterly report on Form 10-Q on May
13, 1996 and incorporated herein by reference.
(15) Filed as an exhibit to the Company's Quarterly Report on Form 10-Q on
November 12, 1996 and incorporated herein by reference.
(16) Filed as an exhibit to the Company's Annual Report on Form 10-K on
March 27, 1997 and incorporated herein by reference.
II-9
<PAGE> 100
ITEM 17. 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%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of Regulation S-X at the start
of any delayed offering or throughout a continuous offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
II-10
<PAGE> 101
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT NO. 4 TO THE REGISTRATION
STATEMENT (NO. 33-67854) TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF COLUMBIA, STATE OF SOUTH CAROLINA, ON
May 8, 1997.
CMI INDUSTRIES, INC.
By: /s/ JOSEPH L. GORGA
------------------------------------
Joseph L. Gorga
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT NO. 4 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------------- -------------
<C> <S> <C>
/s/ JOSEPH L. GORGA President and Chief Executive May 8, 1997
- ----------------------------------------------- Officer, and Director
Joseph L. Gorga
/s/ JAMES A. OVENDEN Principal Financial and May 8, 1997
- ----------------------------------------------- Accounting Officer and
James A. Ovenden Director
* Director May 8, 1997
- -----------------------------------------------
W. James Raleigh
* Director May 8, 1997
- -----------------------------------------------
Rupinder S. Sidhu
* Director May 8, 1997
- -----------------------------------------------
Stephen M. McLean
* Director May 8, 1997
- -----------------------------------------------
Michael H. deHavenon
*By: /s/ JOSEPH L. GORGA May 8, 1997
- -----------------------------------------------
Joseph L. Gorga,
Attorney-in-Fact
</TABLE>
II-11
<PAGE> 102
CMI INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Three Years Ended December 31, 1994, December 30, 1995, and December
28, 1996
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Additions at Other End of
of Period Cost(1) Retirements Changes Period
---------- ------------ ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
1994
Land and land improvements $ 3,322 $ 803 $ (489) $ -- $ 3,636
Buildings 27,155 2,849 (300) 685 30,389
Machinery and equipment 163,520 11,444 (5,268) 24,624 194,320
Leasehold improvements 382 -- -- 1,107 1,489
Construction in progress 5,132 22,544 -- (26,416) 1,260
-------- ------- --------- -------- --------
$199,511 $37,640 $ (6,057) $ -- $231,094
======== ======= ========= ======== ========
1995
Land and land improvements $ 3,636 $ 126 $ -- $ 51 $ 3,813
Buildings 30,389 5,974 -- 1,562 37,925
Machinery and equipment 194,320 3,117 (1,327) 7,538 203,648
Leasehold improvements 1,489 -- (271) 312 1,530
Construction in progress 1,260 9,549 -- (9,463) 1,346
-------- ------- --------- -------- --------
$231,094 $18,766 $ (1,598) $ -- $248,262
======== ======= ========= ======== ========
1996
Land and land improvements $ 3,813 $ -- $ (308) $ 16 $ 3,521
Buildings 37,925 -- (1,592) 758 37,091
Machinery and equipment 203,648 -- (12,980) 9,143 199,811
Leasehold improvements 1,530 -- (582) -- 948
Construction in progress 1,346 9,848 -- (9,917) 1,277
-------- ------- --------- -------- --------
$248,262 $ 9,848 $(15,462) $ 0 $242,648
======== ======= ========= ======== ========
</TABLE>
<PAGE> 103
CMI INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
For the Three Years Ended December 31, 1994, December 30, 1995, and December
28, 1996
(in thousands)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Additions at Other End of
of Period Cost(1) Retirements Changes(2) Period
---------- ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1994
Land and land improvements $ 6 $ 3 $ (2) $ -- $ 7
Buildings 7,690 1,454 (36) -- 9,108
Machinery and equipment 71,348 18,386 (3,647) -- 86,087
Leasehold improvements 56 36 -- -- 92
-------- ------- -------- -------- --------
$ 79,100 $19,879 $ (3,685) $ -- $ 95,294
======== ======= ======== ======== ========
1995
Land and land improvements $ 7 $ 4 $ -- $ 193 $ 204
Buildings 9,108 1,847 -- 794 11,749
Machinery and equipment 86,087 20,618 (330) 3,423 109,798
Leasehold improvements 92 191 (73) 527 737
-------- ------- -------- -------- --------
$ 95,294 $22,660 $ (403) $ 4,937 $122,488
======== ======= ======== ======== ========
1996
Land and land improvements $ 204 $ 5 $ -- $ (193) $ 16
Buildings 11,749 1,880 (684) (768) 12,177
Machinery and equipment 109,798 20,714 (11,434) (1,474) 117,604
Leasehold improvements 737 216 (236) (411) 306
-------- ------- -------- ------- --------
$122,488 $22,815 $(12,354) $(2,846) $130,103
======== ======= ======== ======= ========
</TABLE>
(1) Depreciation is provided for financial reporting purposes on the
straight-line method over the following estimated useful lives for the periods
indicated.
<TABLE>
<Captiom>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Buildings 20 years 20 years 20 years
Land improvements 20 years 20 years 20 years
Machinery and equipment 3-10 years 3-10 years 3-10 years
</TABLE>
(2) The Company has recorded the 1995 nonrecurring write-off of property, plant
and equipment in other changes to accumulated depreciation and amortization.
<PAGE> 104
CMI INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995,
AND DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Additions End of
Description of Period at Cost Deductions Period
---------- --------- ---------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts $ 800 $ 508 $ (78) $1,230
====== ====== ===== ======
Year ended December 30, 1995:
Allowance for doubtful accounts $1,230 $1,399 $(900) $1,729
====== ====== ===== ======
Year ended December 28, 1996:
Allowance for doubtful accounts $1,729 $ 760 $(489) $2,000
====== ====== ===== ======
</TABLE>
<PAGE> 105
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF EXHIBITS PAGE NUMBER
- ------ ----------------------------------------------------------------------- -----------
<C> <C> <S> <C>
12 -- Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent and Report on Financial Statement Schedules of Arthur Andersen
LLP
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES*
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income before income taxes
and extraordinary items $21,457 $11,135 $ 2,158 $(25,443) $(16,778)
Fixed charges:
Interest expense 9,580 9,919 13,895 16,599 14,843
Amortization of debt expense 524 639 535 575 582
Interest component of rent expense 397 397 148 -- --
------- -------- -------- --------- ---------
Total fixed charges $10,501 $10,955 $14,578 $ 17,174 $ 15,425
======= ======== ======== ========= =========
Income before income taxes, extraordinary
items and fixed charges $31,958 $22,090 $16,736 $ (8,269) $ (1,353)
======= ======== ======== ========= =========
Ratio of earnings to fixed charges 3.04x 2.02x 1.15x (0.48)x (0.09)x
======= ======== ======== ========= =========
</TABLE>
*For purposes of calculation of earnings to fixed charges, earnings consist of
income before income taxes and extraordinary items, plus fixed charges. Fixed
charges consist of interest on all indebtedness, amortization of debt expenses
and the estimated interest component of rent expense.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and all references to our firm included in or made a part of this
Post-Effective Amendment No. 4 to Form S-1 Registration Statement
(Registration No. 33-67854).
/s/ Arthur Andersen LLP
Columbia, South Carolina
May 8, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CMI INDUSTRIES FOR THE YEAR ENDED DECEMBER 28, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 2,244
<SECURITIES> 0
<RECEIVABLES> 47,509
<ALLOWANCES> 0
<INVENTORY> 58,143
<CURRENT-ASSETS> 112,623
<PP&E> 242,648
<DEPRECIATION> 130,103
<TOTAL-ASSETS> 233,534
<CURRENT-LIABILITIES> 44,117
<BONDS> 143,749
0
0
<COMMON> 1,690
<OTHER-SE> 30,155
<TOTAL-LIABILITY-AND-EQUITY> 233,534
<SALES> 374,044
<TOTAL-REVENUES> 374,044
<CGS> 345,888
<TOTAL-COSTS> 376,985
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,425
<INCOME-PRETAX> (16,778)
<INCOME-TAX> (6,115)
<INCOME-CONTINUING> (10,663)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,663)
<EPS-PRIMARY> (6.31)
<EPS-DILUTED> (6.31)
</TABLE>
