<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1996
REGISTRATION NO. 333-5455
333-5455-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
AVONDALE MILLS, INC.
(Exact name of co registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
ALABAMA 2228 63-0936782
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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AVONDALE INCORPORATED
(Exact name of co registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
GEORGIA 2228 58-0477150
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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506 SOUTH BROAD STREET
MONROE, GEORGIA 30655
(770) 267-2226
(Address, including zip code, and telephone number, including area code, of
registrants' principal executive offices)
G. STEPHEN FELKER
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
AVONDALE MILLS, INC.
506 SOUTH BROAD STREET
MONROE, GEORGIA 30655
(770) 267-2226
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH A COPY TO:
MARY A. BERNARD
KING & SPALDING
120W 45TH STREET
NEW YORK, NEW YORK 10036-4003
(212) 556-2100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF CLASS OF SECURITIES TO BE TO BE AGGREGATE PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
10 1/4% Senior Subordinated Notes Due
2006...................................... $125,000,000 100% $125,000,000 $43,104(2)
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Guarantees of 10 1/4% Senior Subordinated
Notes Due 2006............................ -- -- -- None(3)
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(f)(2) under the Securities Act of 1933.
(2) Previously paid.
(3) No fee required pursuant to Rule 457(h).
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
AVONDALE MILLS, INC.
CROSS REFERENCE TABLE
LOCATION IN PROXY STATEMENT/PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-4 LOCATION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus............... Outside Front Cover Page of Prospectus; Cover
Page of the Registration Statement
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front Cover Page; Outside Back Cover
Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ Prospectus Summary; Risk Factors; The Company;
Selected Historical Consolidated Financial
Data
4. Terms of the Transaction....................... Prospectus Summary; The Exchange Offer;
Description of the Notes; Certain Federal
Income Tax Consequences
5. Pro Forma Financial Information................ Summary; Selected Financial Information
6. Material Contacts with the Company Being
Acquired..................................... Not Applicable
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters................................. Not Applicable
8. Interests of Named Experts and Counsel......... Legal Matters
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants.... Not Applicable
11. Incorporation of Certain Information by
Reference.................................... Not Applicable
12. Information With Respect to S-2 or S-3
Registrants.................................. Not Applicable
13. Incorporation of Certain Information by
Reference.................................... Not Applicable
14. Information With Respect to Registrants Other
Than S-3 or S-2 Registrants.................. Prospectus Summary; Risk Factors;
Capitalization; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Selected Historical
Consolidated Financial Data; Business -- The
Company; Business -- Graniteville; The
Exchange Offer; The Transactions; Management;
Security Ownership of Certain Beneficial
Owners and Management; Description of Certain
Indebtedness; Description of the Notes;
Financial Statements
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Companies...... Not Applicable
16. Information With Respect to S-2 or S-3
Companies.................................... Not Applicable
17. Information With Respect to Companies Other
Than S-2 or S-3 Companies.................... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited........... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or in
an Exchange Offer............................ Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 13, 1996
AVONDALE MILLS, INC.
OFFER TO EXCHANGE ALL OF ITS OUTSTANDING
10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
FOR 10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
---------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON OCTOBER , 1996, UNLESS EXTENDED.
---------------------
Avondale Mills, Inc., an Alabama corporation (the "Company"), hereby offers
(the "Exchange Offer"), upon the terms and subject to the conditions set forth
in this Prospectus and the accompanying Letter of Transmittal relating to the
Exchange Offer (the "Letter of Transmittal"), to exchange $1,000 principal
amount of its 10 1/4% Senior Subordinated Notes Due 2006 (the "New Notes"),
which will be registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this Prospectus
is a part, for $1,000 principal amount of its outstanding 10 1/4% Senior
Subordinated Notes Due 2006 (the "Old Notes", and, together with the New Notes,
the "Notes"), of which an aggregate of $125,000,000 in principal amount is
outstanding as of the date of this Prospectus. The form and terms of the New
Notes are identical in all material respects to the form and terms of the Old
Notes, except for certain transfer restrictions and registration rights relating
to the Old Notes and except that, if the Exchange Offer is not consummated by
October 28, 1996, the rate at which the Old Notes bear interest will be 10 3/4%
per annum from and including October 28, 1996 until but excluding the date of
consummation of the Exchange Offer.
The New Notes are not redeemable prior to May 1, 2001, except that, until
May 1, 1999, the Company may redeem, at its option, up to $25 million of the
principal amount of the Notes at the redemption price set forth herein plus
accrued interest to the date of redemption with the net proceeds of one or more
Public Equity Offerings (as defined) if at least $100 million of the principal
amount of the Notes remains outstanding after each such redemption. On or after
May 1, 2001, the New Notes are redeemable at the option of the Company, in whole
or in part, at the redemption prices set forth herein plus accrued interest to
the date of redemption. Upon a Change of Control (as defined), each holder of
New Notes may require the Company to repurchase such Notes at 101% of the
principal amount thereof plus accrued interest to the date of repurchase. See
"Description of the Notes".
The New Notes will be unsecured and subordinated to all existing and future
Senior Indebtedness (as defined) of the Company and will be effectively
subordinated to all obligations of any subsidiaries of the Company as may exist
from time to time. As of August 30, 1996, the Company had $178.1 million of
Senior Indebtedness outstanding. The New Notes will rank pari passu in right of
payment with all existing and future senior subordinated indebtedness of the
Company and senior to any other subordinated indebtedness of the Company issued
after April 29, 1996. The New Notes will be fully and unconditionally guaranteed
on a senior subordinated basis by Avondale Incorporated, the sole shareholder of
the Company. Contemporaneously with the closing of the offering of the Old
Notes, the Company entered into an amended and restated revolving credit
facility (the "New Credit Facility") with a group of lenders providing for up to
$225 million of loans. The indebtedness under the New Credit Facility has been
guaranteed on a senior basis by Avondale Incorporated and secured by
substantially all of the assets of the Company. See "Capitalization" and "Pro
Forma Financial Information".
The Company will accept for exchange any and all validly tendered Old Notes
on or prior to 5:00 p.m., New York City time, on October , 1996, unless
extended (if and as extended, the "Expiration Date"). Tenders of Old Notes may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer".
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement (as
defined). Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than broker-dealers, as set forth
below, and any such holder that is an "affiliate" of the Company or Avondale
Incorporated within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holder's business and that such holder is not participating in, does not
intend to participate in and has no arrangement or understanding with any person
to participate in the distribution of such New Notes. Any holder who tenders in
the Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the New Notes or who is an affiliate of the
Company or Avondale Incorporated may not rely upon such interpretations by the
staff of the Commission and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction. Holders of
Old Notes wishing to accept the Exchange Offer must represent to the Company in
the Letter of Transmittal that such conditions have been met.
Each broker-dealer (other than an affiliate of the Company or Avondale
Incorporated) that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution." Any broker-dealer who is an
affiliate of the Company or Avondale Incorporated may not rely on such no-action
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction.
The Company will not receive any proceeds from this Exchange Offer. No
dealer-manager is being used in connection with this Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BEFORE TENDERING OLD NOTES IN THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is September , 1996.
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement", which term shall encompass all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder,
covering the New Notes being offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement. For further
information with respect to the Company and the Exchange Offer, reference is
made to the Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the document or matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement, including the exhibits thereto, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, at the
Regional Offices of the Commission at 75 Park Place, New York, New York 10007
and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
As a result of the filing of the Registration Statement with the
Commission, the Company and Avondale Incorporated will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. The Company intends
to request the Commission to conditionally exempt the Company from the
informational requirements of the Exchange Act pursuant to Staff Accounting
Bulletin No. 53 and Rule 12(h) of the Exchange Act. In the event that neither
the Company nor Avondale Incorporated is subject to the informational
requirements of the Exchange Act, the Company or Avondale Incorporated will be
required under the Indenture (as defined) to continue to file with the
Commission the annual and quarterly reports, information, documents or other
reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K,
which would be required pursuant to the information requirements of the Exchange
Act.
i
<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 historical and pro forma
financial statements and notes thereto appearing elsewhere in this Prospectus.
Unless the context otherwise requires, all references to (i) the Company or
Avondale are to Avondale Mills, Inc. (the issuer of the Notes) and its
subsidiaries, (ii) Graniteville are to substantially all of the assets and
certain of the liabilities of the textile business of Graniteville Company and
its subsidiaries, (iii) historical or pro forma financial statements or data of
the Company are to the historical or pro forma financial statements or data of
Avondale Incorporated, the sole shareholder of the Company, and the Company on a
consolidated basis and (iv) historical financial statements or data of
Graniteville are to the historical financial statements or data of the textile
business of Graniteville Company. Unless the context otherwise requires, any
reference to a "fiscal" year of the Company or Graniteville, as the case may be,
refers to (i) the Company's fiscal year ended or ending on the last Friday of
August in such year and (ii) Graniteville's fiscal year ended or ending on the
Sunday in December or January nearest the last day of December in such year.
AVONDALE
Avondale is one of the largest domestic manufacturers of cotton and
cotton-blend yarns and is a leading domestic producer of denim. Avondale markets
its products primarily in the United States to the apparel market and, to a
lesser extent, the home furnishings and industrial products markets. The
Company's three operating divisions -- yarns, finished fabrics and greige
(unfinished, undyed) fabrics -- operate 14 modern manufacturing facilities in
the Southeast. The Company's yarn, finished fabric and greige fabric products
accounted for 54.5%, 37.9% and 7.6%, respectively, of the Company's net sales of
$538.7 million in fiscal 1995.
Avondale Incorporated's predecessor was founded in 1895 by the family of G.
Stephen Felker, the Company's Chairman, President and Chief Executive Officer.
Prior to 1986, Avondale Incorporated's predecessor primarily manufactured and
marketed greige fabrics. In July 1986, Avondale Incorporated's predecessor,
together with Mr. Felker and certain other investors, acquired the Company (the
"1986 Acquisition"). The 1986 Acquisition expanded the Company's product line to
include yarns and finished fabrics and significantly increased the Company's
revenue base. In their respective last full fiscal years preceding the 1986
Acquisition, Avondale Incorporated's predecessor and Avondale had net sales of
$40.5 million and $238.3 million, respectively.
Since the 1986 Acquisition, the Company's management team has implemented a
strategy focused on producing high quality, value-added yarns and fabrics,
reducing incremental manufacturing unit costs, maximizing manufacturing
flexibility, optimizing raw material sourcing and utilization and providing
superior customer service. Over the past 11 years, through acquisitions and
improved performance, management has increased net sales from the $40.5 million
achieved by Avondale Incorporated's predecessor in fiscal 1985 (the last full
fiscal year prior to the 1986 Acquisition) to $538.7 million in fiscal 1995, a
compound annual growth rate of 29.5%. Since the 1986 Acquisition, the Company's
EBITDA margin has averaged 15.0% per year from fiscal 1987 through fiscal 1995.
Avondale is incorporated under the laws of the State of Alabama. Avondale
Incorporated is incorporated under the laws of the State of Georgia. The
Company's and Avondale Incorporated's principal executive offices are located at
506 South Broad Street, Monroe, Georgia 30655, and their telephone number is
(770) 267-2226.
GRANITEVILLE
Graniteville, founded over 150 years ago, is a leading manufacturer and
marketer of cotton and cotton-blend finished fabrics. Graniteville markets its
products, which include utility wear fabrics, sportswear fabrics, denim and
specialty fabrics, primarily in the United States to the apparel and industrial
products markets. Graniteville operates 10 manufacturing facilities, including a
modern piece-dyeing and finishing plant believed by the Company to be the
largest in the United States (in terms of pounds processed), all within a
20-mile
1
<PAGE> 6
radius of Graniteville, South Carolina. Graniteville's utility wear fabrics,
sportswear fabrics, denim and specialty fabrics accounted for 47.8%, 16.9%,
27.2% and 8.1%, respectively, of Graniteville's net sales of $505.7 million in
fiscal 1995. Over the past 10 years, Graniteville's net sales have increased on
a scale similar to the Company's sales growth, increasing from $279.5 million in
fiscal 1986 to $505.7 million in fiscal 1995, a compound annual growth rate of
6.8%.
THE RECENT TRANSACTIONS
On March 31, 1996, Avondale entered into an asset purchase agreement (the
"Asset Purchase Agreement") with Triarc Companies, Inc. ("Triarc") and
Graniteville Company pursuant to which Avondale acquired Graniteville on April
29, 1996 (the "Graniteville Acquisition") for aggregate consideration of $255
million in cash less the "deficit amount". The deficit amount, if any, will be
equal to the excess of $242 million over the net book value, as of April 29,
1996, of assets acquired and liabilities assumed in connection with the
Graniteville Acquisition. The parties are in the process of determining the
deficit amount, if any. If there is a deficit amount, Graniteville Company (or
Triarc as guarantor) will be required to repay to the Company an amount equal to
the deficit amount, plus interest thereon from April 29, 1996. On May 21, 1996,
Triarc, on behalf of Graniteville Company, paid to the Company $5.0 million,
which amount will be applied to the deficit amount, if any. Interest will not
accrue on such $5.0 million after the date of such payment. The Company has
estimated the deficit amount to be $15.1 million in its preliminary purchase
price allocation. See "Pro Forma Financial Information". In addition, Avondale
paid (or will pay) $5.0 million in acquisition costs, which include, among other
things, $2.6 million in prepayment penalties that were incurred by Graniteville
Company and reimbursed by the Company in connection with the repayment by
Graniteville Company of certain of its outstanding indebtedness.
The purchase price for the Graniteville Acquisition was financed with the
net proceeds of the following concurrent financing transactions (collectively,
the "Financings"):
(i) the offer and sale of $125.0 million principal amount of Old Notes
(the "Offering");
(ii) borrowings of $173.0 million under the New Credit Facility (which
included amounts used to refinance $130.0 million of borrowings outstanding
as of April 29, 1996 under the Old Credit Facility and $45.0 million to
repay in full the Company's 5.65% Payment-In-Kind Subordinated Notes (the
"5.65% Subordinated Notes")), which when combined with the Receivables
Securitization Facility (as defined below), replaced the Company's then
existing credit facility (the "Old Credit Facility"). Wachovia Bank of
Georgia, N.A. ("Wachovia") and The First National Bank of Chicago ("First
Chicago") act as agents under the New Credit Facility;
(iii) proceeds of $104.0 million from the sale of certain trade
receivables in connection with a securitization facility (the "Receivables
Securitization Facility") of certain trade receivables originated by the
Company. First Chicago provided the Receivables Securitization Facility to
the Company through a special purpose vehicle administered by it; and
(iv) an equity private placement of 2,222,223 shares of Class A Common
Stock, par value $.01 per share (the "Class A Common Stock"), of Avondale
Incorporated for an aggregate purchase price of $40.0 million (the "Equity
Private Placement"). Such shares were purchased by affiliates
(collectively, the "Clipper Group") of Clipper Capital Partners, L.P.
("Clipper") and represent 16.7% of the outstanding shares of all classes of
common stock of Avondale Incorporated and 7.0% of the combined outstanding
voting power thereof. In March 1994, the Company repurchased all of the
Class A Common Stock of Avondale Incorporated owned by certain entities
that participated in the 1986 Acquisition, some of which are affiliates of
certain purchasers in the Equity Private Placement.
The Graniteville Acquisition and the Financings and the application of the
net proceeds of each of the Financings (including repayment of all borrowings
outstanding under the Old Credit Facility and the 5.65% Subordinated Notes) are
herein collectively referred to as the "Transactions".
2
<PAGE> 7
THE EXCHANGE OFFER
Securities Offered......... $125,000,000 aggregate principal amount of 10 1/4%
Senior Subordinated Notes due 2006, which have been
registered under the Securities Act (the "New
Notes", and, together with the Old Notes, the
"Notes").
The Exchange Offer......... Upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying
Letter of Transmittal (the "Letter of
Transmittal"), the Company hereby offers to
exchange (the "Exchange Offer"), $1,000 principal
amount of New Notes in exchange for each $1,000
principal amount of Old Notes that are validly
tendered and not withdrawn on or prior to the
Expiration Date (as defined). Holders of Old Notes
whose Old Notes are not tendered and accepted in
the Exchange Offer will continue to hold such Old
Notes and will be entitled to all the rights and
preferences and will be subject to the limitations
applicable thereto under the Indenture governing
the Old Notes and the New Notes.
Resale..................... Based on interpretations by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes the New Notes
issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and
otherwise transferred by any holder thereof (other
than broker-dealers, as set forth below, and any
such holder that is an "affiliate" of the Company
or Avondale Incorporated within the meaning of Rule
405 under the Securities Act) without compliance
with the registration and prospectus delivery
requirements of the Securities Act, provided that
such New Notes are acquired in the ordinary course
of such holder's business and that such holder is
not participating in, does not intend to
participate in and has no arrangement or
understanding with any person to participate in the
distribution of such New Notes. Any holder who
tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating,
in a distribution of the New Notes or who is an
affiliate of the Company or Avondale Incorporated
may not rely upon such interpretations by the staff
of the Commission and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with any
secondary resale transaction. Failure to comply
with such requirements in such instance may result
in such holder incurring liabilities under the
Securities Act for which the holder is not
indemnified by the Company. Each broker-dealer
(other than an affiliate of the Company or Avondale
Incorporated) that receives New Notes for its own
account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the
Securities Act. The Company has agreed that, for a
period of 180 days after the Expiration Date (as
defined herein), it will make this Prospectus
available to any broker-dealer for use in
connection with any such resale. See "Plan of
Distribution". Any broker-dealer who is an
affiliate of the Company or Avondale Incorporated
may not rely on such no-action letters and must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with a secondary resale transaction. The
Exchange Offer is not being made to, nor
3
<PAGE> 8
will the Company accept surrenders for exchange
from, holders of Old Notes in any jurisdiction in
which this Exchange Offer or the acceptance thereof
would not be in compliance with the securities or
blue sky laws of such jurisdiction.
Expiration Date............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on October , 1996, unless
extended, in which case the term "Expiration Date"
shall mean the latest date and time to which the
Exchange Offer is extended.
Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer -- Conditions of the Exchange
Offer." The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being
tendered.
Procedures for Tendering
Old Notes................ Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or facsimile thereof,
together with such Old Notes and any other required
documentation to The Bank of New York, the Exchange
Agent, at the address set forth herein and therein.
By executing the Letter of Transmittal, each holder
will represent to the Company that, among other
things, the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New
Notes, whether or not such person is the holder,
that neither the holder nor any such other person
is participating in, intends to participate in or
has an arrangement or understanding with any person
to participate in the distribution of such New
Notes and that neither the holder nor any such
other person is an "affiliate" of the Company or
Avondale Incorporated within the meaning of Rule
405 under the Securities Act or, that if such
holder or other person is an affiliate of the
Company or Avondale Incorporated, such holder or
other person will comply with the registration and
prospectus delivery requirements of the Securities
Act to the extent applicable. See "The Exchange
Offer -- Terms of the Exchange Offer -- Procedures
for Tendering Old Notes" and "The Exchange
Offer -- Terms of the Exchange Offer -- Guaranteed
Delivery Procedures".
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender such Old Notes in the Exchange Offer should
contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf. If such beneficial owner
wishes to tender on his own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal and delivering his Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such beneficial
owner's name or obtain a properly completed bond
power from the registered holder.
The transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date. See "The
4
<PAGE> 9
Exchange Offer -- Terms of the Exchange
Offer -- Procedures for Tendering Old Notes".
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date, or who
cannot complete the procedure for book-entry
transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Terms of the Exchange Offer -- Guaranteed
Delivery Procedures".
Acceptance of Old Notes and
Delivery of New Notes.... Subject to certain conditions (as described more
fully in "The Exchange Offer -- Conditions of the
Exchange Offer"), the Company will accept for
exchange any and all Old Notes which are properly
tendered in the Exchange Offer and not withdrawn,
prior to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued pursuant to
the Exchange Offer will be delivered as promptly as
practicable following the Expiration Date.
Withdrawal Rights.......... Except as otherwise provided herein, tenders of Old
Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
See "The Exchange Offer -- Terms of the Exchange
Offer -- Withdrawal of Tenders of Old Notes".
Certain Federal Income Tax
Considerations........... For a discussion of certain federal income tax
considerations relating to the exchange of the New
Notes for the Old Notes, see "Certain Federal
Income Tax Considerations".
Exchange Agent............. The Bank of New York is the Exchange Agent. The
address, telephone number and facsimile number of
the Exchange Agent are set forth in "The Exchange
Offer -- Exchange Agent".
Consequences of Failure to
Exchange Old Notes....... Holders of Old Notes who do not exchange their Old
Notes for New Notes pursuant to the Exchange Offer
will continue to be subject to the restrictions on
transfer of such Old Notes as set forth in the
legend thereon as a consequence of the issuance of
the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration
requirements of the Securities Act and applicable
state securities laws. In general, the Old Notes
may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. The Company does not currently anticipate
that it will register Old Notes under the
Securities Act. See "Description of the
Notes -- Registration Rights".
SUMMARY OF TERMS OF NEW NOTES
The Exchange Offer applies to $125,000,000 aggregate principal amount of
Old Notes. The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New Notes
will be registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (ii) holders of the New Notes will
not be entitled to certain rights of
5
<PAGE> 10
holders of Old Notes under the Registration Rights Agreement, which will
terminate upon consummation of the Exchange Offer. The New Notes will evidence
the same debt as the Old Notes, will be entitled to the benefits of the
Indenture and will be treated as a single class thereunder with any Old Notes
that remain outstanding.
Securities Offered......... $125,000,000 aggregate principal amount of 10 1/4%
Senior Subordinated Notes Due 2006, which have been
registered under the Securities Act.
Maturity Date.............. May 1, 2006.
Interest Payment Dates..... May 1 and November 1 of each year, commencing
November 1, 1996.
Optional Redemption........ The Notes are not redeemable prior to May 1, 2001,
except that, until May 1, 1999, the Company may
redeem, at its option, up to an aggregate of $25
million of the principal amount of the Notes at the
redemption price set forth herein plus accrued
interest to the date of redemption with the net
proceeds of one or more Public Equity Offerings if
at least $100 million of the principal amount of
the Notes remain outstanding after each such
redemption. On or after May 1, 2001, the Notes are
redeemable at the option of the Company, in whole
or in part, at the redemption prices set forth
herein plus accrued interest to the date of
redemption. See "Description of the
Notes -- Optional Redemption".
Change of Control.......... Upon a Change of Control, each holder of the Notes
may require the Company to repurchase the Notes
held by such holder at 101% of the
principal amount thereof plus accrued interest to
the date of repurchase. There can be no assurance
that the Company will have the financial resources
necessary to purchase the Notes upon a Change of
Control. See "Risk Factors -- Change of Control and
Possible Inability to Repurchase Notes" and
"Description of the Notes -- Change of Control".
Ranking.................... The Notes are unsecured and subordinated to all
existing and future Senior Indebtedness of the
Company and are effectively subordinated to all
obligations of any subsidiaries of the Company as
may exist from time to time. As of August 30, 1996,
the Company had $178.1 million of Senior
Indebtedness outstanding. The Notes rank pari passu
in right of payment with all existing and future
senior subordinated indebtedness of the
subordinated indebtedness of the Company issued
after April 29, 1996. See "Description of the
Notes -- Ranking" and "Pro Forma Financial
Information".
Guaranty................... The payment of principal and interest on the Old
Notes is, and, with respect to the New Notes, will
be, fully and unconditionally guaranteed on a
senior subordinated basis by Avondale Incorporated.
The guarantee by Avondale Incorporated is
subordinated to all existing and future Senior
Indebtedness of Avondale Incorporated, including
Avondale Incorporated's guarantee of the Company's
obligations under the New Credit Facility. Avondale
Incorporated currently conducts no business and has
no significant assets other than the capital stock
of the Company, all of which is pledged to secure
Avondale Incorporated's obligations under the New
Credit Facility. See "Description of the Notes --
Guaranty".
Restrictive Covenants...... The indenture under which the Old Notes were, and
the New Notes will be, issued (the "Indenture")
limits (i) the issuance of additional debt by the
Company and its subsidiaries, (ii) the payment of
dividends on capital stock of the Company and the
purchase, redemption or retire-
6
<PAGE> 11
ment of capital stock or indebtedness, (iii)
investments, (iv) certain transactions with
affiliates, (v) sales of assets, including capital
stock of subsidiaries, and (vi) certain
consolidations, mergers and transfer of assets. The
Indenture also prohibits certain restrictions on
distributions from subsidiaries. All of these
limitations and prohibitions, however, are subject
to a number of important qualifications. See
"Description of the Notes -- Certain Covenants".
Use of Proceeds............ The Company will not receive any proceeds from the
Exchange Offer. The net proceeds from the Offering
were used, together with a portion of the net
proceeds of the other Financings, to finance the
purchase price of the Graniteville Acquisition.
Exchange Offer;
Registration Rights........ Holders of New Notes (other than as set forth
below) are not entitled to any registration rights
with respect to the New Notes. Pursuant to the
Registration Rights Agreement, the Company agreed,
for the benefit of the holders of Old Notes, to
file an Exchange Offer Registration Statement (as
defined). The Registration Statement of which this
Prospectus is a part constitutes the Exchange Offer
Registration Statement. Under certain
circumstances, certain holders of Notes (including
holders who may not participate in the Exchange
Offer or who may not freely resell New Notes
received in the Exchange Offer) may require the
Company to file, and cause to become effective, a
shelf registration statement under the Securities
Act, which would cover resales of Notes by such
Holders. See "Description of the
Notes -- Registered Exchange Offer; Registration
Rights".
Book-Entry; Delivery
and Form................. Transfers of Notes between participants in The
Depository Trust Company ("DTC") will be effected
in the ordinary way in accordance with DTC rules
and will be settled in same-day funds. See
"Description of the Notes -- Book-Entry; Delivery
and Form."
RISK FACTORS
Holders of Old Notes should consider carefully the information set forth
under the caption "Risk Factors" and all other information set forth in this
Prospectus before making a decision to tender their Old Notes in the Exchange
Offer.
7
<PAGE> 12
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth a summary of selected consolidated financial
data of (i) Avondale for each of the five fiscal years in the period ended
August 25, 1995, which were derived from the audited Consolidated Financial
Statements of the Company, and for the thirty-nine weeks ended May 26, 1995 and
May 24, 1996, which were derived from the unaudited Consolidated Financial
Statements of the Company and (ii) Graniteville for the ten months ended January
2, 1994 and each of the two fiscal years in the period ended December 31, 1995,
which were derived from the audited Financial Statements of Graniteville, and
for the two months ended February 28, 1993, the twelve months ended January 2,
1994 and the thirteen weeks ended April 2, 1995 and March 31, 1996, which were
derived from the unaudited Financial Statements of Graniteville.
AVONDALE
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
FISCAL YEAR ---------------------------
------------------------------------------ MAY 26, MAY 24,
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------------ ------------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIO)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales...................... $457.3 $528.4 $495.5 $481.6 $538.7 $410.6 $423.1
Gross profit................... 26.5 107.2 99.5 51.0 71.2 58.1 42.6
Operating income............... 7.0 85.9 76.8 28.9 47.6 40.0 21.3
Interest expense, net.......... 9.8 4.5 2.1 6.5 14.3 11.2 10.7
Income (loss) before
extraordinary item and
cumulative effect of
accounting change........... (2.2) 50.4 45.2 14.0 20.9 17.9 5.4
Net income (loss)(a)........... (5.7) 50.4 42.4 14.0 20.9 17.9 5.4
Net income (loss) per common
share(a).................... (.27) 2.40 2.06 .85 1.88 1.61 .48
OTHER DATA:
Capital expenditures........... $ 12.1 $ 25.2 $ 36.4 $ 17.6 $ 15.8 $ 11.4 $ 24.2
Depreciation and
amortization................ 21.3 20.3 22.4 23.3 23.8 17.8 20.5
EBITDA(b)...................... 28.1 101.8 98.3 57.8 75.1 59.2 41.2
Ratio of earnings to fixed
charges(c).................. (d) 19.0x 37.2x 4.5x 3.4x 3.6x 1.7x
</TABLE>
GRANITEVILLE
<TABLE>
<CAPTION>
TWO MONTHS
ENDED TEN MONTHS TWELVE MONTHS THIRTEEN WEEKS ENDED
FEBRUARY ENDED ENDED FISCAL YEAR --------------------
28, JANUARY 2, JANUARY 2, --------------- APRIL 2, MARCH 31,
1993(E) 1994(E) 1994(E) 1994 1995 1995 1996
---------- ---------- ------------- ------ ------ -------- ---------
(IN MILLIONS, EXCEPT RATIO)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 84.9 $416.4 $ 501.3 $497.1 $505.7 $ 134.4 $ 121.0
Gross profit............ 14.7 53.8 68.5 53.0 44.3 14.1 11.7
Operating income(f)..... 9.1 21.5 30.6 21.1 14.2 6.1 3.2
Net income (loss)(f).... 4.7 2.7 7.4 3.1 (6.3) 1.4 (1.4)
OTHER DATA:
Capital expenditures.... $ 4.3 $ 21.9 $ 26.2 $ 21.4 $ 11.7 $ 1.7 $ 0.7
Depreciation and
amortization......... 1.8 10.4 12.2 13.2 14.4 3.8 3.8
EBITDA(g)............... 8.9 30.0 38.9 36.5 34.1 12.0 7.5
Ratio of earnings to
fixed charges(h)..... 5.6x 1.6x 2.1x 1.3x (i) 1.6x (i)
</TABLE>
8
<PAGE> 13
- ---------------
(a) Reflects a charge of $3.5 million (net of income taxes) ($.16 per share) for
the cumulative effect of a change in accounting for postretirement benefits
in fiscal 1991 and an extraordinary loss of $2.8 million (net of income
taxes) ($.14 per share) on retirement of debt in fiscal 1993.
(b) EBITDA for Avondale is defined as net income plus (i) the extraordinary
item and cumulative effect of accounting change, (ii) provision for income
taxes, (iii) interest expense, net, (iv) discount and expenses on sale of
receivables, and (v) depreciation and amortization and, plus or minus, as
the case may be, adjustments to cost of goods sold made under the last in,
first out (LIFO) inventory valuation method. EBITDA is presented not as an
alternative measure of operating results or cash flow from operations (as
determined in accordance with generally accepted accounting principles),
but because it is a widely accepted financial indicator of a company's
ability to incur and service debt.
(c) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include operating income (loss)
before income taxes, extraordinary item and cumulative effect of accounting
change plus fixed charges. Fixed charges include interest, whether expensed
or capitalized, amortization of deferred financing costs, the discount and
expenses on sale of receivables and the portion of rental expense that is
representative of the interest factor in these rentals.
(d) In fiscal 1991, earnings were insufficient to cover fixed charges as fixed
charges exceeded earnings by $3.6 million.
(e) On October 27, 1993, the board of directors of Triarc approved a change in
Graniteville's fiscal year from a 52-53 week period ending on the Sunday
nearest the last day of February to a 52-53 week fiscal year ending on the
Sunday nearest the last day of December. Therefore, Graniteville's selected
financial data for the two months ended February 28, 1993 and the twelve
months ended January 2, 1994 are being presented for comparative purposes
only. The selected financial data for the two months ended February 28,
1993 is compiled from Graniteville's monthly unaudited financial
statements, and the selected financial data for the twelve months ended
January 2, 1994 is a compilation of the unaudited financial data for the
two months ended February 28, 1993 and the audited financial data for the
ten months ended January 2, 1994. As a result, such selected financial data
include estimates inherent in preparing interim financial statements, which
estimates were based on Graniteville's actual fiscal years. Such estimates
include LIFO adjustments resulting from interim and year-end calculations
based on Graniteville's actual fiscal years. Had such calculations been
based on the twelve months ended January 2, 1994, such calculations, and
the adjustments resulting therefrom, would have been different.
(f) Reflects management and other fees paid by Graniteville to Triarc of $0.6
million, $7.7 million, $8.3 million, $4.7 million, $4.6 million, $1.1
million and $1.2 million for the two months ended February 28, 1993, the ten
months ended January 2, 1994, the twelve months ended January 2, 1994,
fiscal 1994, fiscal 1995 and the thirteen weeks ended April 2, 1995 and
March 31, 1996, respectively.
(g) EBITDA for Graniteville is defined as net income plus (i) provision for
income taxes, (ii) interest expense with affiliate, (iii) interest expense
and (iv) depreciation and amortization and, plus or minus, as the case may
be, adjustments to cost of goods sold made under the LIFO inventory
valuation method. EBITDA is presented not as an alternative measure of
operating results or cash flow from operations (as determined in accordance
with generally accepted accounting principles), but because it is a widely
accepted financial indicator of a company's ability to incur and service
debt.
(h) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include operating income (loss)
before income taxes plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of deferred financing costs
and the portion of rental expense that is representative of the interest
factor in these rentals.
(i) In fiscal 1995 and the thirteen weeks ended March 31, 1996, earnings were
insufficient to cover fixed charges as fixed charges exceeded earnings by
$5.5 million and $2.2 million, respectively.
9
<PAGE> 14
SUMMARY PRO FORMA FINANCIAL DATA
The following table sets forth summary pro forma financial data of the
Company, which data are derived from the Pro Forma Combined Statements of Income
for the year ended August 25, 1995 and the thirty-nine weeks ended May 24, 1996
appearing elsewhere in this Prospectus. The pro forma statement of income data
and other data give effect to the Transactions as if they had occurred at the
beginning of the periods presented. See "Pro Forma Financial Information".
<TABLE>
<CAPTION>
FISCAL 1995(A)
--------------------------------------------------
AVONDALE GRANITEVILLE ADJUSTMENTS PRO FORMA
-------- ------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales...................................... $538,652 $504,097 $ (2,665) $1,040,084
Gross profit................................... 71,217 52,387 1,030 124,634
Operating income............................... 47,611 22,228 5,576 75,415
Interest expense, net.......................... 14,333 18,499 (4,592) 28,240
Discount and expenses on sale of receivables... -- -- 7,249 7,249
Net income..................................... 20,939 2,848 1,795 25,582
Net income per common share.................... 1.88 1.92
OTHER DATA:
Capital expenditures........................... $ 15,823 $ 12,815 $ -- $ 28,638
Depreciation and amortization.................. 23,849 13,820 (1,030) 36,639
EBITDA......................................... 75,124 39,568 4,546 119,238(b)
Pro forma ratio of EBITDA to interest expense,
net and discount and expenses on sale of
receivables................................. 3.4x
Pro forma ratio of earnings to fixed
charges(c).................................. 2.2x
</TABLE>
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED MAY 24, 1996(D)
--------------------------------------------------
AVONDALE GRANITEVILLE ADJUSTMENTS PRO FORMA
-------- ------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales...................................... $423,092 $335,502 $ (5,516) $ 753,078
Gross profit................................... 42,630 28,726 1,256 72,612
Operating income............................... 21,305 5,247 4,515 31,067
Interest expense, net.......................... 10,724 14,518 (5,695) 19,547
Discount and expenses on sale of receivables... 2,180 -- 4,990 7,170
Net income (loss).............................. 5,421 (8,770) 3,210 (139)
Net income (loss) per common share............. .48 (.01)
OTHER DATA:
Capital expenditures........................... $ 24,197 $ 3,905 $ -- $28,102
Depreciation and amortization.................. 20,487 9,865 1,256 29,096
EBITDA......................................... 41,242 18,851 3,259 63,352(b)
Pro forma ratio of EBITDA to interest expense,
net and discount and expenses on sale of
receivables................................. 2.4x
Pro forma ratio of earnings to fixed
charges(c).................................. 1.2x
</TABLE>
10
<PAGE> 15
- ---------------
(a) The pro forma statement of income data for fiscal 1995 are derived from the
unaudited Pro Forma Combined Statement of Income for the year ended August
25, 1995, which is based on Avondale's audited Consolidated Statement of
Income for the year ended August 25, 1995 and Graniteville's unaudited
Statement of Operations for the twelve months ended July 2, 1995. See "Pro
Forma Financial Information".
(b) Pro forma EBITDA for Avondale is defined as pro forma net income plus, on a
pro forma basis, (i) provision for income taxes, (ii) interest expense,
net, (iii) discount and expenses on sale of receivables, (iv) depreciation
and amortization and, plus or minus, as the case may be, adjustments to
cost of goods sold of Avondale and/or Graniteville made under the LIFO
inventory valuation method. EBITDA is presented not as an alternative
measure of operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles), but because it
is a widely accepted financial indicator of a company's ability to incur
and service debt.
(c) The pro forma ratio of earnings to fixed charges is computed by dividing pro
forma earnings by pro forma fixed charges. For this purpose, "pro forma
earnings" include pro forma operating income (loss) before income taxes
plus pro forma fixed charges. Pro forma fixed charges include pro forma
interest, whether expensed or capitalized, amortization of deferred
financing costs, the discount and expenses on sale of receivables and the
portion of rental expense that is representative of the interest factor in
these rentals.
(d) The pro forma statement of income data for the thirty-nine weeks ended May
24, 1996 are derived from the unaudited Pro Forma Combined Statement of
Income for the thirty-nine weeks ended May 24, 1996, which is based on
Avondale's unaudited Consolidated Statement of Income for the thirty-nine
weeks ended May 24, 1996 and Graniteville's unaudited Statement of
Operations for the eight months ended April 28, 1996. See "Pro Forma
Financial Information".
11
<PAGE> 16
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully before tendering Old Notes in the
Exchange Offer, although the risk factors set forth below (other than
"-- Consequences of Failure to Exchange and Requirements for Transfer of New
Notes") are generally applicable to the Old Notes as well as the New Notes.
CYCLICAL AND COMPETITIVE NATURE OF TEXTILE INDUSTRY
The demand for textile products, including those offered by the Company as
a result of the Graniteville Acquisition, tends to fluctuate with the general
business cycle of the U.S. economy. In addition, the popularity, supply and
demand for particular textile products may change significantly from year to
year based on prevailing fashion trends and other factors. These factors have
contributed to fluctuations in the sales and profitability of certain textile
products and in the Company's results of operations. A decline in the demand for
textile products, an increase in the supply of textile products due to expansion
of capacity within the textile industry, changes in fashion trends or
deteriorating economic conditions could have a material adverse effect on the
Company's results of operations and financial condition. Pro forma for the
Graniteville Acquisition, a substantial portion of the Company's pro forma net
sales in fiscal 1995 were attributable to sales of yarn or fabrics to the
apparel market.
Reflecting the cyclical nature of the textile industry, many textile
producers tend to increase capacity during years in which sales are strong. Such
increases in capacity tend to accelerate a general economic downturn in the
Company's textile markets. New yarn production capacity which became operational
in the last three years was one of the significant factors that negatively
impacted the results of Avondale's yarn division in fiscal 1994 and 1995 and
will adversely impact results for fiscal 1996. In North America, new production
capacity could negatively impact the Company's results in its denim and yarn
business. The Company believes that capital investment plans in calendar 1996
will increase industry capacity for denim by approximately 11% over the next
three years. Such increases and any future capacity increases in the yarn and
denim industries could influence future pricing depending upon market
conditions.
The textile industry is highly competitive, and no single company is
dominant. The Company's competitors include large, vertically integrated textile
companies and numerous smaller companies. Increases in domestic capacity and
imports of foreign-made textile and apparel products are a significant source of
competition for many domestic textile manufacturers. Competition in the form of
imported textile and apparel products, pricing strategies of domestic
competitors and the proliferation of newly styled fabrics competing for fashion
acceptance have been factors affecting the Company's business environment. The
primary competitive factors in the textile industry are price, product styling
and differentiation, quality, manufacturing flexibility, delivery time and
customer service. The importance of these factors is determined by the needs of
particular customers and the characteristics of particular products. The failure
of the Company to compete effectively with respect to any of these key factors
or to keep pace with rapidly changing markets could have a material adverse
effect on the Company's business. See "Business -- The Company -- Competition"
and "Business -- Graniteville -- Competition".
SUBSTANTIAL LEVERAGE; POSSIBLE INABILITY TO SERVICE DEBT
As a result of the consummation of the Transactions, Avondale has
substantial indebtedness and significant debt service requirements. As of August
30, 1996, the Company's total indebtedness was $303.1 million. The degree to
which the Company is leveraged will have important consequences to holders of
the Notes, including the following: (i) the ability of the Company to obtain
additional financing in the future, whether for working capital, capital
expenditures, acquisitions or other purposes, may be impaired; (ii) a
substantial portion of the Company's cash flow from operations will be required
to be dedicated to the payment of principal and interest on its indebtedness,
thereby reducing funds available to the Company for other purposes; (iii) the
Company's flexibility in planning for or reacting to changes in market
conditions may be limited; (iv) the Company may be more vulnerable in the event
of a downturn in its business; and (v) to the extent that the Company incurs any
indebtedness under the New Credit Facility, which indebtedness will
12
<PAGE> 17
be at variable rates, the Company will be vulnerable to increases in interest
rates. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- The Company". As of August 30,
1996, $161.1 million in aggregate borrowings were outstanding under the New
Credit Facility and available borrowings thereunder were $63.9 million. All
borrowings under the New Credit Facility will mature on April 28, 2001. See
"Description of Certain Indebtedness".
The ability of the Company to meet its debt service obligations will depend
on the future operating performance and financial results of the Company, which
will be subject in part to factors beyond the control of the Company. There can
be no assurance that the Company will continue to generate earnings in the
future sufficient to cover its fixed charges. If the Company is unable to
generate earnings in the future sufficient to cover its fixed charges and is
unable to borrow sufficient funds under either the New Credit Facility or from
other sources, it may be required to refinance all or a portion of its existing
debt (including the Notes) or to sell all or a portion of its assets. There can
be no assurance that a refinancing would be possible, nor can there be any
assurance as to the timing of any asset sales or the proceeds which the Company
could realize therefrom. In addition, the terms of the New Credit Facility and
the Indenture restrict the Company's ability to sell assets and the use of the
proceeds therefrom. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- The Company -- Liquidity and Capital
Resources".
If for any reason, including a shortfall in anticipated operating results
or proceeds from asset sales, the Company were unable to meet its debt service
obligations, it would be in default under the terms of its indebtedness. In the
event of such a default, the holders of such indebtedness could elect to declare
all of such indebtedness immediately due and payable, including accrued and
unpaid interest, and to terminate their commitments (if any) with respect to
funding obligations under such indebtedness. In addition, such holders could
proceed against their collateral (if any) which, in the case of certain
indebtedness, consists of substantially all of the assets of the Company. Any
default with respect to any of the Company's indebtedness could result in a
default under other indebtedness or result in a bankruptcy of the Company. Such
defaults or any bankruptcy of the Company could result in a default under the
Indenture and could delay or preclude payment of principal of, or interest on,
the Notes. See "Description of the Notes -- Ranking".
UNPREDICTABILITY OF COST AND AVAILABILITY OF RAW MATERIALS
The primary raw material used in the Company's manufacturing processes is
cotton, and the cost of cotton is one of the most significant factors affecting
the Company's cost of sales. Prior to 1991, from time to time, domestic cotton
prices exceeded world prices, which created a competitive disadvantage for the
Company and other domestic textile manufacturers. To the extent that U.S. cotton
prices exceed world cotton prices, the Company's competitiveness may be
materially, adversely affected. Cotton prices are also affected by general
economic conditions as well as the demand for U.S. cotton in world markets and
may increase or decrease depending on other market variables at the time.
Prevailing cotton prices significantly impact the Company's results of
operations, and price increases could have a material adverse effect on the
Company's results of operations and financial condition. In connection with its
purchase of cotton, Avondale substantially covers open order requirements
through direct purchases and hedging transactions. There can be no assurance
that such transactions will not result in higher costs to the Company or will
protect the Company from fluctuations in cotton prices. Further, since cotton is
an agricultural product, its supply and quality are subject to forces of nature.
Any material shortage or interruption in the supply, or variations in the
quality of cotton by reason of weather, disease or other factors could have a
material adverse effect on the Company's results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- The Company" and "Business -- The Company -- Raw
Materials".
POSSIBLE ADVERSE IMPACT OF GOVERNMENT POLICY AND REGULATIONS
The domestic textile market is subject to various U.S. governmental
policies affecting raw material costs and product supply. In addition, the
policies of foreign governments may, directly or indirectly, affect the domestic
market. Because U.S. textile companies are generally prohibited from importing
cotton, Avondale must purchase its cotton in the domestic market. Prior to 1991,
from time to time, price imbalances between world and domestic cotton prices
existed. A series of U.S. legislative initiatives has resulted in the reduction
of
13
<PAGE> 18
the Company's effective cotton costs to near world levels. Because the
availability and cost of cotton are affected by U.S. agricultural policies,
Avondale may experience increased cotton costs that cannot be entirely passed on
to its customers.
The extent of import protection afforded by the U.S. government to domestic
textile producers has been, and is likely to remain, subject to considerable
domestic political deliberation. In view of the labor cost advantages and the
number of foreign producers of textile products that compete with certain of the
Company's products, substantial elimination of import protection for domestic
textile manufacturers could have a material adverse effect on the Company's
business. In January 1995, a new multilateral trade organization, the World
Trade Organization ("WTO"), was formed by the members of the General Agreement
on Tariffs and Trade ("GATT") to replace GATT. This new body has set forth the
mechanisms by which world trade in textiles and clothing will be progressively
liberalized with the elimination of quotas and the reduction of duties. The
implementation began in January 1995 with the phasing-out of quotas and the
reduction of duties to take place over a 10-year period. The selection of
products at each phase is made by each importing country and must be drawn from
each of the four main textile groups: yarns, fabrics, made-up textiles and
apparel. As it implements the WTO mechanisms, the U.S. government is negotiating
bilateral trade agreements with developing countries (which are generally
exporters of textile products) that are members of the WTO to get them to reduce
their tariffs on imports of textiles and apparel. The elimination of quotas and
the reduction of tariffs under the WTO may result in increased imports of
certain textile products and apparel into North America. These factors could
make the Company's products less competitive against low cost imports from third
world countries. See "Business -- The Company -- Description of the
Business -- Competition".
The North American Free Trade Agreement ("NAFTA") among Canada, Mexico and
the United States, which became effective on January 1, 1994, has created the
world's largest free-trade zone. The agreement contains safeguards that were
sought by the U.S. textile industry, including a rule of origin requirement that
products be processed in one of the three countries in order to benefit from
NAFTA. NAFTA will phase out all trade restrictions and tariffs on textiles and
apparel among the three countries. There can be no assurance that the removal of
these barriers to trade will not have a material adverse effect on the Company's
results of operations and financial condition. See "Business -- The
Company -- Description of the Business -- Competition".
RELIANCE ON SIGNIFICANT CUSTOMERS
VF Corporation, which has been a significant customer of the Company for
over five years, accounted for approximately 28% and 23% of the Company's net
sales in fiscal 1995 and the thirty-nine weeks ended May 24, 1996, respectively.
Pro forma for the Graniteville Acquisition, VF Corporation would have accounted
for 20.6% and 17% of the Company's net sales in fiscal 1995 and the thirty-nine
weeks ended May 24, 1996, respectively. No other single customer accounted for
more than 9% of the Company's net sales in these periods. The loss of VF
Corporation as a customer, or a significant reduction in its purchases from the
Company (substantially all of which are finished fabrics), could have a material
adverse effect on the Company's business. See "Business -- The
Company -- Description of the Business -- Sales and Marketing".
POSSIBLE INABILITY TO INTEGRATE THE GRANITEVILLE ACQUISITION
With the exception of the 1986 Acquisition, the Graniteville Acquisition
was significantly larger than the Company's previous acquisitions and has
substantially increased the scope of the Company's business. Graniteville's net
sales for fiscal 1995 were $505.7 million, and the Company's net sales for
fiscal 1995 were $538.7 million. Successful integration of Graniteville's
operations will depend primarily on the Company's ability to manage
Graniteville's manufacturing operations (which added 10 additional manufacturing
facilities to the Company's existing 14 manufacturing facilities) and to
eliminate redundancies and excess costs. There can be no assurance that the
Company can successfully integrate Graniteville and any failure or any inability
to do so may have a material adverse effect on the Company's results of
operations and financial condition. In addition, the Company expects to realize
certain cost savings and other business synergies as a result of the
14
<PAGE> 19
Graniteville Acquisition. Realization of such cost savings and other business
synergies could be affected by a number of factors beyond the Company's control,
such as general economic conditions, increased operating costs, the response of
competitors or customers and regulatory developments. There can be no assurance
that the Company will achieve the expected cost savings and other business
synergies.
SUBORDINATION OF THE NOTES AND GUARANTY
The indebtedness evidenced by the Notes constitutes senior subordinated
obligations of the Company. The payment of the principal of, premium (if any)
and interest on the Notes is subordinate in right of payment, as set forth in
the Indenture, to the prior payment in full of all Senior Indebtedness of the
Company. At August 30, 1996, the Company's Senior Indebtedness was $178.1
million. In addition, the Notes are effectively subordinated to all obligations
of any subsidiaries of the Company as may exist from time to time, including any
obligation of a Receivables Subsidiary (as defined) under the Receivables
Securitization Facility. The amount of additional indebtedness that the Company
may incur under the Indenture may, under certain circumstances, be substantial
and, in any case, such indebtedness may be Senior Indebtedness. See "Description
of the Notes -- Certain Covenants -- Limitation on Indebtedness". As of August
30, 1996, the Company had $63.9 million of borrowing availability under the New
Credit Facility. Any such amounts, when borrowed, will constitute Senior
Indebtedness of the Company.
In the event of the bankruptcy, liquidation or reorganization of the
Company, the assets of the Company will be available to pay the Notes only after
all Senior Indebtedness of the Company has been paid in full. Sufficient funds
may not exist to pay amounts due on the Notes in such event. In addition, the
subordination provisions of the Indenture provide that no cash payment may be
made with respect to the Notes during the continuance of a payment default under
any Senior Indebtedness of the Company. Furthermore, if certain non-payment
defaults exist with respect to certain Senior Indebtedness of the Company, the
holders of such Senior Indebtedness will be able to prevent payments on the
Notes for certain periods of time. See "Description of the Notes -- Ranking".
Avondale Incorporated has guaranteed the Notes on a senior subordinated
basis. Avondale Incorporated currently conducts no business and has no
significant assets other than the capital stock of the Company, all of which is
pledged to secure Avondale Incorporated's obligations under the New Credit
Facility. Thus, currently there are no resources supporting Avondale
Incorporated's guarantee of the Notes that are incremental to those to which
holders of the Notes already have access as direct creditors of the Company.
Avondale Incorporated's guarantee of the Notes is subordinate in right of
payment to the guarantee by Avondale Incorporated of the Company's obligations
under the New Credit Facility. See "Description of the Notes -- Guaranty".
CONTROL BY PRINCIPAL SHAREHOLDER
Avondale Incorporated owns 100% of the outstanding capital stock of the
Company. Consequently, Avondale Incorporated has the ability to exercise control
over the business and affairs of the Company through its ability to elect all of
the directors of the Company and control the vote on all matters requiring
shareholder approval, including mergers, the sale of substantially all of the
assets of the Company and other business combinations involving the Company. As
of the date of this Prospectus, G. Stephen Felker, the Chairman of the Board of
Directors, President and Chief Executive Officer of Avondale Incorporated,
controls approximately 71% of the outstanding combined voting power of all
classes of common stock of Avondale Incorporated. As a result, Mr. Felker is
able to elect Avondale Incorporated's directors and control (with limited
exception) the vote on all matters submitted to a vote of holders of common
stock of Avondale Incorporated. Consequently, Mr. Felker effectively controls
Avondale Incorporated and, indirectly, the Company.
15
<PAGE> 20
RELIANCE ON KEY PERSONNEL
The Company is heavily dependent upon the skills, talents and abilities of
G. Stephen Felker and Jack R. Altherr, Jr., and the loss of the services of
either Mr. Felker or Mr. Altherr could have a material adverse effect on the
business of the Company.
CONSEQUENCES OF FAILURE TO EXCHANGE AND REQUIREMENTS FOR TRANSFER OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register Old Notes under the Securities Act. Based on interpretations by
the staff of the Commission, set forth in no-action letters issued to third
parties, the Company believes the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than broker-dealers, as set forth
below, and any such holder that is an "affiliate" of the Company or Avondale
Incorporated within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holder's business and such holder is not participating in, does not
intend to participate in and has no arrangement or understanding with any person
to participate in the distribution of such New Notes. Any holder who tenders in
the Exchange Offer with the intention to participate, or for the purpose of
participating, in a distribution of the New Notes or who is an affiliate of the
Company or Avondale Incorporated may not rely upon such interpretations by the
staff of the Commission and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction. Holders of
Old Notes wishing to accept the Exchange Offer must represent to the Company in
the Letter of Transmittal that such conditions have been met. Each broker-dealer
(other than an affiliate of the Company or Avondale Incorporated) that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution". Any broker-dealer who is an affiliate of the
Company or Avondale Incorporated may not rely on such no-action letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction.
RESTRICTIONS IMPOSED BY THE NEW CREDIT FACILITY AND THE INDENTURE
The New Credit Facility and the Indenture contain a number of significant
covenants that, among other things, restrict the ability of the Company to
dispose of assets, incur additional indebtedness, repay other indebtedness, pay
dividends, enter into certain investments or acquisitions, repurchase or redeem
capital stock, engage in mergers or consolidations, or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict corporate
activities. There can be no assurance that such restrictions will not adversely
affect the Company's ability to finance its future operations or capital needs
or engage in other business activities that may be in the interest of the
Company. In addition, the New Credit Facility also requires the Company to
maintain compliance with certain financial ratios. The ability of the Company to
comply with such ratios may be affected by events beyond the Company's control.
A breach of any of these covenants or the inability of the Company to comply
with the required financial ratios could result in a default under the New
Credit Facility.
16
<PAGE> 21
In the event of any such default, the lenders under the New Credit Facility
could elect to declare all borrowings outstanding under the New Credit Facility,
together with accrued interest and other fees, to be due and payable, to require
the Company to apply all of its available cash to repay such borrowings or to
prevent the Company from making debt service payments on the Notes. If the
Company were unable to repay any such borrowings when due, the lenders could
proceed against their collateral. If the indebtedness under the New Credit
Facility or the Notes were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay such indebtedness in full.
See "Description of the Notes" and "Description of Certain Indebtedness -- The
New Credit Facility".
CHANGE OF CONTROL AND POSSIBLE INABILITY TO REPURCHASE NOTES
The Indenture requires the Company, in the event of a Change of Control, to
make an offer to purchase all outstanding Notes at a price equal to 101% of the
principal amount thereof, plus accrued interest to the date of repurchase. The
New Credit Facility will restrict such a purchase and such an offer would
require the approval of the lenders thereunder. In addition, certain events
involving a Change of Control may be an event of default under the New Credit
Facility or other indebtedness of the Company that may be incurred in the
future. Accordingly, the right of the holders of the Notes to require the
Company to repurchase the Notes may be of limited value if the Company cannot
obtain the required approval under the New Credit Facility. There can be no
assurance that the Company will have the financial resources necessary to
purchase the Notes upon a Change of Control. Failure to offer to repurchase the
Notes under such circumstances, however, would constitute an event of default
under the Indenture. See "Description of the Notes -- Change of Control".
LACK OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes will constitute a new issue of securities with no established
trading market. The Company does not intend to list the New Notes on any
national securities exchange or to seek approval for quotation through any
automated quotation system. The Company has been advised by CS First Boston
Corporation, the initial purchaser of the Old Notes in the Offering (the
"Initial Purchaser"), that following completion of the Exchange Offer, the
Initial Purchaser intends to make a market in the New Notes. However, the
Initial Purchaser is not obligated to do so and any market-making activities
with respect to the New Notes may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the New Notes or as to the liquidity of or the trading market
for the New Notes. If a trading market does not develop or is not maintained,
holders of the New Notes may experience difficultly in reselling the New Notes
or may be unable to sell them at all. If a market for the New Notes develops,
any such market may cease to continue at any time. If a public trading market
develops for the New Notes, future trading prices of the New Notes will depend
on many factors, including, among other things, prevailing interest rates, the
Company's results of operations and the market for similar securities and other
factors, including the financial condition of the Company.
ENVIRONMENTAL LIABILITIES; OTHER GOVERNMENTAL REGULATION
Avondale is subject to various federal, state and local environmental laws
and regulations limiting the discharge, storage, handling and disposal of a
variety of substances and wastes used in or resulting from its operations and
potential remediation obligations thereunder. Certain of the facilities of
Graniteville acquired in connection with the Graniteville Acquisition also are
subject to such laws and regulations. Pursuant to the Asset Purchase Agreement,
Avondale assumed all environmental liabilities of Graniteville arising with
respect to such facilities. However, Graniteville Company (and Triarc as
guarantor) is obligated to indemnify the Company with respect to these
environmental liabilities, subject to certain limitations. See "The Recent
Transactions -- Terms of the Asset Purchase Agreement -- Indemnification". The
Company's operations and the operations of Graniteville also are governed by
laws and regulations relating to workplace safety and worker health which, among
other things, establish cotton dust, formaldehyde, asbestos and noise standards,
and regulate the use of hazardous chemicals in the workplace. There can be no
assurance that compliance with the foregoing environmental or health and safety
laws and regulations will not adversely affect the Company's or Graniteville's
operations. Avondale cannot predict what environmental or health and safety
legislation or regulations will be enacted in the future or how existing or
future laws or regulations will be
17
<PAGE> 22
enforced, administered or interpreted, nor can it predict the amount of future
expenditures which may be required in order to comply with any such
environmental or health and safety laws or regulations. See "Business -- The
Company -- Description of the Business -- Governmental Regulation" and
"Business -- Graniteville -- Description of the Business -- Legal Proceedings".
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The net
proceeds from the Offering were approximately $121.3 million. The Company used
these net proceeds, together with a portion of the net proceeds of the other
Financings, to finance the purchase price of the Graniteville Acquisition. See
"The Recent Transactions". The following table sets forth the sources and uses
of funds in connection with the Transactions:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Old Notes...................................................................... $ 125.0
New Credit Facility............................................................ 173.0
Receivables Securitization Facility............................................ 104.0
Equity Private Placement(a).................................................... 40.0
------
Total sources.......................................................... $ 442.0
======
USES OF FUNDS:
Graniteville Acquisition(b).................................................... $ 260.0
Repayment of Old Credit Facility............................................... 130.0
Redemption of 5.65% Subordinated Notes......................................... 45.0
Fees and expenses(c)........................................................... 7.0
------
Total uses............................................................. $ 442.0
======
</TABLE>
- ---------------
(a) Certain of the purchasers in the Equity Private Placement are affiliates of
certain entities that participated in the 1986 Acquisition. In March 1994,
Avondale repurchased all of the Class A Common Stock of Avondale
Incorporated owned by such affiliated entities as a result of their
participation in the 1986 Acquisition. See "Management's Discussion and
Analysis of Financial Condition and Results -- The Company -- Liquidity and
Capital Resources".
(b) Includes $255.0 million, the purchase price for the Graniteville Acquisition
(unadjusted for the deficit amount, if any), and $5.0 million of
acquisition costs, which include, among other things, $2.6 million of
prepayment penalties that were incurred by Graniteville Company and
reimbursed by Avondale in connection with the repayment by Graniteville
Company of certain of its outstanding indebtedness in connection with the
Graniteville Acquisition. The Company has estimated the deficit amount to
be $15.1 million in its preliminary purchase price allocation. See "Pro
Forma Financial Information".
(c) Includes (i) the discount of $3.1 million paid by the Company to the Initial
Purchaser in connection with the Offering, (ii) closing and other fees
aggregating $0.7 million paid in connection with the Equity Private
Placement and (iii) estimated legal, accounting and other fees aggregating
$3.2 million paid or payable in connection with the Transactions.
18
<PAGE> 23
CAPITALIZATION
The following table (amounts in thousands, except per share data) sets
forth as of May 24, 1996 the consolidated short-term debt and consolidated
capitalization of the Company. This table should be read in conjunction with the
consolidated Financial Statements and Notes thereto of the Company included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MAY 24, 1996
---------------
<S> <C>
Short-term debt(a).................................................... $ 4,000
============
Long-term debt(a):
New Credit Facility................................................. $ 174,425
Old Notes........................................................... 125,000
Other long-term debt................................................ 19,000
---------------
Total long-term debt........................................ 318,425
---------------
Shareholders' equity:
Preferred Stock, $.01 par value, 10,000 shares authorized; no shares
issued or outstanding............................................ --
Class A Common Stock, $.01 par value, 100,000 authorized; 10,090
issued and outstanding........................................... 123
Class B Common Stock, $.01 par value; 5,000 authorized; 979 issued
and outstanding.................................................. 10
Capital in excess of par............................................ 41,844
Retained earnings................................................... 18,238
---------------
Total shareholders' equity.................................. 60,215
---------------
Total capitalization........................................ $ 378,640
============
</TABLE>
- ---------------
(a) See Notes 4 and 7 to Consolidated Financial Statements and Condensed
Consolidated Financial Statements, respectively, of the Company for a
discussion of the Company's outstanding debt.
19
<PAGE> 24
PRO FORMA FINANCIAL INFORMATION
The following unaudited Pro Forma Combined Statements of Income for the
year ended August 25, 1995 and the thirty-nine weeks ended May 24, 1996 give
effect to the Transactions as if they had occurred at the beginning of the
periods presented. The unaudited (i) Pro Forma Combined Statement of Income for
the year ended August 25, 1995 is based on Avondale's audited Consolidated
Statement of Income for the year ended August 25, 1995 and Graniteville's
unaudited Statement of Operations for the twelve months ended July 2, 1995, and
(ii) Pro Forma Combined Statement of Income for the thirty-nine weeks ended May
24, 1996 is based on Avondale's unaudited Consolidated Statement of Income for
the thirty-nine weeks ended May 24, 1996 and a compilation of Graniteville's
unaudited Statements of Operations for each month during the eight months ended
April 28, 1996.
The Graniteville Acquisition has been accounted for using the purchase
method of accounting. The total estimated purchase price for the Graniteville
Acquisition has been allocated to tangible assets and liabilities based upon
management's preliminary estimates of their fair values with the excess of cost
over net assets acquired allocated to goodwill. Each of such allocations is
subject to revision when additional information concerning asset and liability
valuations is obtained and when the deficit amount is determined pursuant to the
Asset Purchase Agreement. In the opinion of the Company's management, the asset
and liability valuation for the Graniteville Acquisition is not expected to be
materially different from the pro forma information presented herein. For
purposes of presenting pro forma results, no changes in revenues and expenses,
except for the elimination of management and other fees paid by Graniteville to
Triarc (as described in Note (d) of Notes to Pro Forma Combined Statements of
Income), have been made to reflect the results of any modification to operations
that might have been made had the Graniteville Acquisition been consummated on
the assumed effective dates as set forth above. The pro forma combined expenses
include the recurring costs which are attributable to these transactions, such
as interest expense, depreciation expense, amortization of debt issuance costs,
losses on sales of receivables under the Receivables Securitization Facility and
amortization of the excess of the cost over net assets acquired.
The pro forma financial information does not purport to represent what the
Company's results of operations or financial position would actually have been
had the Transactions actually occurred on the dates set forth above or to
project the Company's results of operations or financial condition for any
future period or as of any date, respectively. The pro forma financial
information set forth below should be read in conjunction with the Consolidated
Financial Statements and Notes thereto of the Company and the Financial
Statements and Notes thereto of Graniteville included elsewhere in this
Prospectus and "Management's Discussion and Results of Operations -- The
Company" and "-- Graniteville".
20
<PAGE> 25
PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED AUGUST 25, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
AVONDALE GRANITEVILLE
(YEAR (TWELVE MONTHS
ENDED ENDED
8/25/95) 7/2/95)(A) ADJUSTMENTS PRO FORMA
----------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales................................... $ 538,652 $504,097 $(2,665)(b) $1,040,084
Operating costs and expenses:
Cost of goods sold........................ 443,726 437,890 (2,665)(b) 878,951
Depreciation.............................. 23,709 13,820 (1,030)(c) 36,499
Selling and administrative expenses....... 23,606 30,159 (4,546)(d) 49,219
-------- -------- ------- ----------
Operating income............................ 47,611 22,228 5,576 75,415
Interest expense, net....................... 14,333 18,499 (4,592)(e) 28,240
Discount and expenses on sale of
receivables............................... -- -- 7,249(f) 7,249
Other income, net........................... (761) (1,683) -- (2,444)
-------- -------- ------- ----------
Income before income taxes.................. 34,039 5,412 2,919 42,370
Provision for income taxes.................. 13,100 2,564 1,124(g) 16,788
-------- -------- ------- ----------
Net income.................................. $ 20,939 $ 2,848 $ 1,795 $ 25,582
======== ======== ======= ==========
Earnings per common share................... $ 1.88 $ 1.92
======== ==========
Weighted average number of shares
outstanding............................... 11,133 2,222(h) 13,355
======== ======= ==========
OTHER DATA:
Capital expenditures...................... $ 15,823 $ 12,815 $ -- $ 28,638
Depreciation and amortization............. 23,849 13,820 (1,030) 36,639
EBITDA.................................... 75,124 39,568 4,546 119,238(i)
Pro forma ratio of EBITDA to interest
expense, net and discount and expenses
on sale of receivables.................. 3.4x
Pro forma ratio of earnings to fixed
charges................................. 2.2x(j)
</TABLE>
PRO FORMA COMBINED STATEMENT OF INCOME
THIRTY-NINE WEEKS ENDED MAY 24, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<TABLE>
<CAPTION>
AVONDALE GRANITEVILLE
(THIRTY-NINE (EIGHT
WEEKS MONTHS
ENDED ENDED
5/24/96) 4/28/95)(A) ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales........................................ $423,092 $ 335,502 $(5,516)(b) $753,078
Operating costs and expenses:
Cost of goods sold............................. 360,007 296,911 (5,516)(b) 651,402
Depreciation................................... 20,455 9,865 (1,256)(c) 29,064
Selling and administrative expenses............ 21,325 23,479 (3,259)(d) 41,545
-------- -------- ------- --------
Operating income................................. 21,305 5,247 4,515 31,067
Interest expense, net............................ 10,724 14,518 (5,695)(e) 19,547
Discount and expenses on sale of receivables..... 2,180 -- 4,990(f) 7,170
Other (income) expense, net...................... (450) 221 -- (229 )
-------- -------- ------- --------
Income (loss) before income taxes................ 8,851 (9,492) 5,220 4,579
Provision for (benefit of) income taxes.......... 3,430 (722) 2,010(g) 4,718
-------- -------- ------- --------
Net income (loss)................................ $ 5,421 $ (8,770) $ 3,210 $ (139 )
======== =======
---------- --------
----------- --------
Earnings (loss) per common share................. $ 0.48 $ (.01 )
========
--------
--------
Weighted average number of shares
outstanding.................................... 11,387 1,975(h) 13,362
======== ======= ========
OTHER DATA:
Capital expenditures........................... $ 24,197 $ 3,905 $ -- $ 28,102
Depreciation and amortization.................. 20,487 9,865 (1,256) 29,096
EBITDA......................................... 41,242 18,851 3,259 63,352 (i)
Pro forma ratio of EBITDA to interest expense,
net and discount and expenses on sale of
receivables.................................. 2.4 x
Pro forma ratio of earnings to fixed charges... 1.2 x(j)
</TABLE>
(footnotes appear on following page)
21
<PAGE> 26
NOTES TO PRO FORMA COMBINED STATEMENTS OF INCOME
(a) Graniteville's Statements of Operations for the twelve months ended July 2,
1995 and the eight months ended April 28, 1996 represent a compilation of
Graniteville's Statements of Operations for each quarterly period in the
twelve-month period ended July 2, 1995 and of each month during the eight
months ended April 28, 1996 (which was the day immediately preceding the
date on which the Graniteville Acquisition was consummated). As a result of
conforming different fiscal years, Graniteville's operating results for the
months of July and August 1995 have not been included in the pro forma
presentation for either period presented. Graniteville's Statements of
Operations include estimates inherent in preparing interim financial
statements, which estimates were based on Graniteville's actual fiscal
years. Such estimates include LIFO adjustments resulting from interim and
year-end calculations based on Graniteville's actual fiscal years. Had such
calculations been based on the annual periods ended July 2, 1995 or April
28, 1996, such calculations, and the adjustments resulting therefrom, would
have been different.
(b) Reflects elimination of intercompany sales between the Company and
Graniteville during the periods presented.
(c) Reflects a decrease in depreciation and amortization expense as a result of
the use of the straight-line method over the estimated useful lives set
forth below applied to the allocated purchase cost of property, plant and
equipment and intangible assets acquired as follows:
<TABLE>
<CAPTION>
PRO FORMA DEPRECIATION
AND AMORTIZATION
------------------------
EIGHT
ESTIMATED MONTHS
ALLOCATED USEFUL YEAR ENDED ENDED
PURCHASE LIFE AUGUST 25, APRIL 28,
COST (YEARS) 1995 1996
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Land improvements............................. $ 1,090 20 $ 55 $ 37
Buildings..................................... 24,095 20 1,205 811
Machinery and equipment (9 years)............. 51,300 9 5,699 3,836
Machinery and equipment (7 years)............. 23,295 7 3,327 2,239
Automotive equipment.......................... 1,975 3 658 443
Other......................................... 7,065 3 to 8 1,835 1,235
Goodwill...................................... 225 20 11 8
---------- ---------
Pro forma depreciation and amortization
of acquired assets..................... 12,790 8,609
Pro forma depreciation and amortization
adjustment............................. 1,030 1,256
---------- ---------
Historical depreciation and
amortization of Graniteville........ $ 13,820 $ 9,865
======== ======
</TABLE>
(d) Reflects elimination of management and other fees paid by Graniteville to
Triarc.
22
<PAGE> 27
NOTES TO PRO FORMA COMBINED STATEMENTS OF INCOME -- (CONTINUED)
(e) Reflects the pro forma adjustment to interest expense, net with respect to
the following:
<TABLE>
<CAPTION>
THIRTY-NINE
WEEKS ENDED
YEAR ENDED MAY 24,
AUGUST 25, 1995 1996
--------------- -----------
<S> <C> <C>
Interest and amortization of issuance costs on the New
Credit Facility, based upon pro forma weighted average
outstanding principal amounts of $167,739 and $158,975,
respectively, at assumed average annual interest rates of
8.3% and 7.4%, respectively, for the year ended August
25, 1995 and for the thirty-nine weeks ended May 24,
1996..................................................... $ 14,419 $ 9,215
Interest expense and amortization of deferred financing
costs incurred in connection with the Old Notes.......... 13,210 9,907
Elimination of Graniteville historical gross interest
expense.................................................. (19,144) (15,035)
Reduction in interest expense and fees on borrowings
incurred under the New Credit Facility to refinance
borrowings outstanding under the Old Credit Facility and
to repay in full the 5.65% Subordinated Notes............ (13,077) (9,782)
-------- --------
Net decrease in interest expense, net............ $ (4,592) $ (5,695)
======== ========
</TABLE>
For purposes of computing pro forma amortization of debt issuance and
facility costs in the above table, the following summarizes the estimated
amounts and amortization periods:
<TABLE>
<CAPTION>
AMORTIZATION
THIRTY-NINE
AMORTIZATION PRO FORMA WEEKS ENDED
ESTIMATED PERIOD YEAR ENDED MAY 24,
COST (YEARS) AUGUST 25, 1995 1996
--------- ------------ --------------- -----------
<S> <C> <C> <C> <C>
Cost incurred in connection with:
New Credit Facility.................. $ 2,755 5 $ 551 $ 413
Old Notes............................ 3,973 10 397 298
------ ------ ------
$ 6,728 $ 948 $ 711
====== ====== ======
</TABLE>
(f) Reflects the pro forma adjustment for discount and expenses on sale of
receivables under the Receivables Securitization Facility at estimated
effective discount rates of 7.0% in the year ended August 25, 1995 and 6.1%
in the thirty-nine weeks ended May 24, 1996 assuming a revolving balance of
$104 million.
(g) Reflects income tax effect of the pro forma adjustments to pre-tax income
at an assumed effective tax rate of 38.5%.
(h) Reflects increase in weighted average shares outstanding as a result of the
issuance of shares in connection with the Equity Private Placement.
(i) Pro forma EBITDA for Avondale is defined as pro forma net income plus, on a
pro forma basis, (i) provision for income taxes, (ii) interest expense,
net, (iii) discount and expenses on sale of receivables and (iv)
depreciation and amortization and, plus or minus, as the case may be,
adjustments to cost of goods sold of Avondale and/or Graniteville made
under the LIFO inventory valuation method. EBITDA is presented not as an
alternative measure of operating results or cash flow from operations (as
determined in accordance with generally accepted accounting principles),
but because it is a widely accepted financial indicator of a company's
ability to incur and service debt.
(j) The pro forma ratio of earnings to fixed charges is computed by dividing
pro forma earnings by pro forma fixed charges. For this purpose, "pro forma
earnings" include pro forma operating income (loss) before income taxes
plus pro forma fixed charges. Pro forma fixed charges include pro forma
interest, whether expensed or capitalized, amortization of deferred
financing costs, discount and expenses on sale of receivables and the
portion of rental expense that is representative of the interest factor in
these rentals.
(k) The Graniteville Acquisition has been accounted for using the purchase
method of accounting. The preliminary allocation of the purchase price
($255,000 less estimated deficit amount of $15,145 plus
23
<PAGE> 28
NOTES TO PRO FORMA COMBINED STATEMENTS OF INCOME -- (CONTINUED)
acquisition costs of $5,042) and the fair value of Graniteville's assets
and the liabilities assumed by Avondale in connection with the Graniteville
Acquisition is summarized below:
<TABLE>
<S> <C>
Current assets............................................................ $179,500
Property, plant and equipment............................................. 116,382
Other non-current assets.................................................. 87
Goodwill.................................................................. 225
--------
Total assets acquired........................................... 296,194
Fair value of assumed liabilities......................................... (51,296)
--------
Net purchase price and costs.................................... $244,897
========
</TABLE>
For purposes of the purchase price allocation, Graniteville's inventories
have been increased by $14,975 to eliminate Graniteville's historical LIFO
reserve and to increase the value of finished goods inventories to their
estimated selling prices less the estimated costs of disposal and a
reasonable profit allowance for the selling effort. Graniteville's raw
materials, work-in-process and certain greige fabric inventories (a
substantial portion of which are purchased from outside suppliers) have not
been adjusted because the carrying amounts approximate current replacement
costs. The cost of the inventories acquired, including the adjustment
described above, will be charged to cost of goods sold, when the current
year LIFO inventory layer is liquidated or to the extent that inventory
prices decline from the levels implicit in the purchase price allocation.
Approximately $1,600 of this charge was made to cost of goods sold in the
first month of combined operations, and is included in Avondale's
Consolidated Statement of Income and Retained Earnings for the thirty-nine
weeks ended May 24, 1996. However, such potential future charge has not
been considered in the preparation of the Pro Forma Combined Statements of
Income. Management currently expects additional charges to be made in the
fourth quarter of Avondale's fiscal year ended August 30, 1996, based upon
the expected pricing of the 1996 LIFO inventory layer.
Property, plant and equipment has been increased by $5,343 to reflect the
preliminary estimates of fair values.
In addition, the assumed liabilities of Graniteville have been increased by
$2,500 to reflect management's estimate of certain costs to be incurred as
a result of the Graniteville Acquisition, principally consisting of costs
associated with the consolidation of operations.
24
<PAGE> 29
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
AVONDALE
The following table sets forth selected consolidated statement of income
data and selected consolidated balance sheet data of Avondale for each of the
five fiscal years in the period ended August 25, 1995. Such data were derived
from the Consolidated Financial Statements of the Company, which have been
audited by Ernst & Young LLP, independent auditors. The audited Consolidated
Financial Statements and Notes thereto of the Company for each of the three
fiscal years in the period ended August 25, 1995 are included elsewhere in this
Prospectus. The following table also sets forth selected consolidated financial
data of Avondale for the thirty-nine weeks ended May 26, 1995 and May 24, 1996.
Such data were derived from the unaudited Consolidated Financial Statements of
the Company included elsewhere in this Prospectus which unaudited Consolidated
Financial Statements, in the opinion of the Company's management, include all
adjustments (consisting of only normal recurring accruals) necessary for a fair
presentation of the financial position and results of operations for such
periods. The results of operations for the thirty-nine weeks ended May 24, 1996
are not necessarily indicative of results that may be expected for fiscal 1996.
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- The Company" and the Consolidated Financial
Statements and Notes thereto of the Company included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
ENDED
FISCAL YEAR -----------------
------------------------------------------ MAY 26, MAY 24,
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales..................................... $457.3 $528.4 $495.5 $481.6 $538.7 $410.6 $423.1
Gross profit.................................. 26.5 107.2 99.5 51.0 71.2 58.1 42.6
Operating income.............................. 7.0 85.9 76.8 28.9 47.6 40.0 21.3
Interest expense, net......................... 9.8 4.5 2.1 6.5 14.3 11.2 10.7
Discount and expenses on sale of
receivables................................. -- -- -- -- -- -- 2.2
Other (income) expense, net................... 0.9 (0.1) 0.5 (0.2) (0.8) (0.3 ) (0.5 )
Income (loss) before income taxes,
extraordinary item and cumulative effect of
accounting change........................... (3.7) 81.5 74.2 22.6 34.0 29.2 8.9
Provision for (benefit of) income taxes....... (1.4) 31.1 29.0 8.5 13.1 11.3 3.5
Income (loss) before extraordinary item and
cumulative effect of accounting change...... (2.2) 50.4 45.2 14.0 20.9 17.9 5.4
Net income (loss)(a).......................... (5.7) 50.4 42.4 14.0 20.9 17.9 5.4
PER SHARE DATA:
Income (loss) before extraordinary item and
cumulative effect of accounting change...... $ (.11) $ 2.40 $ 2.20 $ .85 $ 1.88 $ 1.61 $ .48
Net income (loss)............................. (.27) 2.40 2.06 .85 1.88 1.61 .48
Dividends declared............................ .06 .32 .96 .28 .28 .21 .21
Weighted average number of shares
outstanding................................. 21.1 21.0 20.6 16.6 11.1 11.1 11.4
BALANCE SHEET DATA (AT PERIOD END):
Total assets.................................. $242.0 $267.0 $255.8 $267.6 $257.4 $278.2 $507.7
Long-term debt, including current portion..... 93.7 57.0 37.1 200.0 169.9 190.4 318.4
Shareholders' equity.......................... 90.1 132.4 154.1 0.1 18.0 15.7 60.2
OTHER DATA:
Capital expenditures.......................... $ 12.1 $ 25.2 $ 36.4 $ 17.6 $ 15.8 $ 11.4 $ 24.2
Depreciation and amortization................. 21.3 20.3 22.4 23.3 23.9 17.8 20.5
EBITDA(b)..................................... 28.1 101.8 98.3 57.8 75.1 59.2 41.2
Ratio of EBITDA to interest expense, net and
discount and expenses on sale of
receivables................................. 2.9x 22.6x 46.8x 8.9x 5.2x 5.3 x 3.2 x
Ratio of earnings to fixed charges(c)......... (d) 19.0x 37.2x 4.5x 3.4x 3.6 x 1.7 x
</TABLE>
25
<PAGE> 30
- ---------------
(a) Reflects a charge of $3.5 million (net of income taxes) ($.16 per share) for
the cumulative effect of a change in accounting for postretirement benefits
in fiscal 1991 and an extraordinary loss of $2.8 million (net of income
taxes) ($.14 per share) on retirement of debt in fiscal 1993.
(b) EBITDA for Avondale is defined as net income plus (i) extraordinary item and
cumulative effect of accounting change, (ii) provision for income taxes,
(iii) interest expense, net, (iv) discount and expenses on sale of
receivables, and (v) depreciation and amortization and, plus or minus, as
the case may be, adjustments to cost of goods sold made under the LIFO
inventory valuation method. EBITDA is presented not as an alternative
measure of operating results or cash flow from operations (as determined in
accordance with generally accepted accounting principles), but because it
is a widely accepted financial indicator of a company's ability to incur
and service debt.
(c) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include operating income (loss)
before income taxes, extraordinary item and cumulative effect of accounting
change plus fixed charges. Fixed charges include interest, whether expensed
or capitalized, amortization of deferred financing costs, the discount and
expenses on sale of receivables and the portion of rental expense that is
representative of the interest factor in these rentals.
(d) In fiscal 1991, earnings were insufficient to cover fixed charges as fixed
charges exceeded earnings by $3.6 million.
26
<PAGE> 31
GRANITEVILLE
The following table sets forth the selected statement of operations data
and selected balance sheet data for Graniteville for the two months ended
February 28, 1993, the ten months ended January 2, 1994, the twelve months ended
January 2, 1994, each of the two fiscal years in the period ended December 31,
1995 and the thirteen weeks ended April 2, 1995 and March 31, 1996. The data for
the ten months ended January 2, 1994 and each of the two fiscal years in the
period ended December 31, 1995 were derived from the Financial Statements of
Graniteville, which have been audited by Deloitte & Touche LLP, independent
auditors. The data for the two months ended February 28, 1993, the twelve months
ended January 2, 1994 and the thirteen weeks ended April 2, 1995 and March 31,
1996 were derived from the unaudited Financial Statements of Graniteville. The
selected financial data set forth below should be read in conjunction with the
Financial Statements and Notes thereto of Graniteville included elsewhere in
this Prospectus and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Graniteville".
<TABLE>
<CAPTION>
TWO MONTHS TEN MONTHS TWELVE MONTHS THIRTEEN WEEKS ENDED
ENDED ENDED ENDED FISCAL YEAR --------------------
FEBRUARY 28, JANUARY 2, JANUARY 2, --------------- APRIL 2, MARCH 31,
1993(A) 1994(A) 1994(A) 1994 1995 1995 1996
------------ ---------- ------------- ------ ------ -------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................... $ 84.9 $416.4 $ 501.3 $497.1 $505.7 $134.4 $ 121.0
Gross profit................ 14.7 53.8 68.5 53.0 44.3 14.1 11.7
Operating income(b)......... 9.1 21.5 30.6 21.0 14.2 6.1 3.2
Interest expense, net....... 1.6 12.1 13.7 16.0 21.1 4.9 5.3
Other expense (income),
net....................... -- 1.9 1.9 (0.1) (1.4) (1.9) 0.1
Income (loss) before income
taxes..................... 7.5 7.5 15.0 5.2 (5.5) 3.2 (2.2)
Provision for (benefit from)
income taxes.............. 2.8 4.8 7.6 2.1 0.9 1.7 (0.8)
Net income (loss)(b)........ 4.7 2.7 7.4 3.1 (6.4) 1.4 (1.4)
BALANCE SHEET DATA (AT PERIOD
END):
Total assets................ $233.6 $276.5 $ 276.5 $296.1 $304.6 $307.7 $ 301.6
Long-term debt, including
current portion........... 62.7 163.1 163.1 171.2 210.4 168.9 207.1
OTHER DATA:
Capital expenditures........ $ 4.3 $ 21.9 $ 26.2 $ 21.4 $ 11.7 $ 1.7 $ 0.7
Depreciation and
amortization.............. 1.8 10.4 12.2 13.2 14.4 3.8 3.8
EBITDA(c)................... 8.9 30.0 38.9 36.5 34.1 12.0 7.5
Ratio of EBITDA to interest
expense, net.............. 5.6x 2.5x 2.8x 2.3x 1.6x 2.5x 1.4x
Ratio of earnings to fixed
charges(d)................ 5.6x 1.6x 2.1x 1.3x (e) 1.6x (e)
</TABLE>
- ---------------
(a) On October 27, 1993, the board of directors of Triarc approved a change in
Graniteville's fiscal year from a 52-53 week period ending on the Sunday
nearest the last day of February to a 52-53 week fiscal year ending on the
Sunday nearest the last day of December. Therefore, Graniteville's selected
financial data for the two months ended February 28, 1993 and the twelve
months ended January 2, 1994 are being presented for comparative purposes
only. The selected financial data for the two months ended February 28,
1993 is compiled from Graniteville's monthly unaudited financial
statements, and the selected financial data for the twelve months ended
January 2, 1994 is a compilation of the unaudited financial data for the
two months ended February 28, 1993 and the audited financial data for the
ten months ended January 2, 1994. As a result, such selected financial data
include estimates inherent in preparing interim financial statements, which
estimates were based on Graniteville's actual fiscal years. Such estimates
include LIFO adjustments resulting from interim and year-end calculations
based on Graniteville's actual fiscal years. Had such calculations been
based on the twelve months ended January 2, 1994, such calculations, and
the adjustments resulting therefrom, would have been different.
(b) Reflects management and other fees paid by Graniteville to Triarc of $0.6
million, $7.7 million, $8.3 million, $4.7 million, $4.6 million, $1.1
million and $1.2 million for the two months ended February 28, 1993, the
ten months ended January 2, 1994, the twelve months ended January 2, 1994,
fiscal 1994, fiscal 1995 and the thirteen weeks ended April 2, 1995 and
March 31, 1996, respectively.
(c) EBITDA for Graniteville is defined as net income plus (i) provision for
income taxes, (ii) interest expense with affiliate, (iii) interest expense,
net and (iv) depreciation and amortization and plus or minus, as the case
may be, adjustments to cost of goods sold made under the LIFO inventory
valuation method. EBITDA is presented not as an alternative measure of
operating results or cash flow from operations (as determined in accordance
with generally accepted accounting principles), but because it is a widely
accepted financial indicator of a company's ability to incur and service
debt.
(d) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include operating income (loss)
before income taxes plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of deferred financing costs
and the portion of rental expense that is representative of the interest
factor in these rentals.
(e) In fiscal 1995 and the thirteen weeks ended March 31, 1996, earnings were
insufficient to cover fixed charges as fixed charges exceeded earnings by
$5.5 million and $2.2 million, respectively.
27
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto of the Company and the
Financial Statements and Notes thereto of Graniteville included elsewhere in
this Prospectus.
OVERVIEW
Avondale and Graniteville produce and dye cotton and cotton-blend yarns and
fabrics used in the manufacture of low cost/high intrinsic value apparel and, to
a lesser extent, home furnishings, recreational, military and industrial
products. Avondale's and Graniteville's results of operations have been
impacted, in part, by general business cycles of the U.S. economy, trends toward
more casual dress, especially high cotton content casual apparel, raw material
costs, and government legislation. See "Business -- The Company -- Description
of the Business -- Raw Materials" and "-- Competition".
THE COMPANY
GENERAL
Avondale Incorporated's predecessor was founded in 1895 by the family of G.
Stephen Felker, the Company's Chairman, President and Chief Executive Officer.
Yarn, finished fabrics and greige fabrics accounted for 54.5%, 37.9% and 7.6%,
respectively, of the Company's net sales of $538.7 million in fiscal 1995. Prior
to 1986, Avondale Incorporated's predecessor primarily manufactured and marketed
greige fabrics. In July 1986, Avondale Incorporated's predecessor, together with
Mr. Felker and certain other investors, acquired Avondale for approximately $126
million. In their respective last full fiscal years preceding the 1986
Acquisition, Avondale Incorporated's predecessor and Avondale had net sales of
$40.5 million and $238.3 million, respectively.
Since the 1986 Acquisition, the Company's management team has implemented a
strategy focused on producing high quality, value-added yarns and fabrics,
reducing incremental manufacturing unit costs, maximizing manufacturing
flexibility, optimizing raw material sourcing and utilization and providing
superior customer service. Avondale has also successfully redeployed capital by
closing certain manufacturing facilities and, in other cases, moving
manufacturing equipment among its locations. Over the past 11 years, through
acquisitions and improved performance, management has increased net sales from
the $40.5 million achieved by Avondale's predecessor in fiscal 1985 (the last
full fiscal year prior to the 1986 Acquisition) to $538.7 million in fiscal
1995.
Avondale's expansion and modernization efforts since the 1986 Acquisition
have included, among other things, the following initiatives:
- 1986 -- Expanded its greige fabrics manufacturing facility and installed
more new looms in its greige fabrics division
- 1987 -- Constructed a new dye range in its finished fabrics division
- 1988, 1989 and 1990 -- Upgraded a portion of its existing open-end
spinning technology and converted a ring-spun yarn manufacturing facility
to open-end spinning technology
- 1989 -- Acquired the property, plant and equipment of three yarn
manufacturing facilities
- 1990 -- Sold an acrylic yarn manufacturing facility (that was not
compatible with the Company's production and manufacturing strategy) and
closed a greige fabrics manufacturing facility
- 1991 -- Sold a ring-spun yarn manufacturing facility as the Company
continued to focus on open-end spinning technology
28
<PAGE> 33
- 1991, 1992 and 1993 -- Replaced earlier generation open-end spinning
equipment (which generally was less than 10 years old) in the yarns
division with the most technologically advanced equipment available
- 1992 and 1993 -- Replaced all remaining fly shuttle looms in the greige
fabrics division and replaced some earlier generation projectile looms
with technologically advanced, high speed looms and began construction of
a new state-of-the-art indigo-dye range in the finished fabrics division
- 1994 and 1995 -- Completed construction of state-of-the-art indigo-dye
range in the finished fabrics division and replaced open-end spinning
equipment with new generation, advanced spinning technology
- 1996 -- Replaced earlier generation projectile looms and rapier looms
with high speed airjet looms and rapier looms and replaced carding
equipment at two plants with modern carding and drawing systems and
replaced older winders at a third plant with fully automated winders
Avondale is currently implementing a $31 million expansion of its denim
manufacturing operations. Avondale expects this project, which should be
completed by the middle of fiscal 1997, to expand its denim manufacturing by
25%. The current expansion will allow the Company to fully utilize the
previously installed indigo-dyeing capacity, which should provide enhanced cash
flow returns on the current investment. The Company expects the program to have
a positive impact on its financial results beginning in 1997. See "-- The
Company -- Liquidity and Capital Resources".
On March 31, 1996 Avondale entered into the Asset Purchase Agreement
pursuant to which the Company acquired Graniteville on April 29, 1996. The
Graniteville Acquisition has significantly increased the size of the Company.
Pro forma for the Graniteville Acquisition, the Company's net sales and EBITDA
in fiscal 1995 would have been $1.0 billion and $119.2 million, respectively.
Avondale believes that the Graniteville Acquisition has or will (as the case may
be), among other things, (i) significantly enhance its presence in the denim
market, establishing it as one of the world's largest producers of enhanced
denim fabrics, (ii) expand substantially its denim customer base, giving rise to
various cross-selling opportunities, (iii) expand its existing product lines as
well as provide entry into new markets, (iv) enhance the vertical integration of
its operations, (v) result in substantial raw material purchasing leverage, (vi)
provide important raw material sourcing opportunities that the Company believes
should enhance capacity utilization and improve Graniteville's profit margins,
(vii) better position Avondale to take advantage of market opportunities as they
arise within the textile industry as the trend towards consolidation of textile
manufacturing operations continues and (viii) result in certain cost savings and
business synergies. However, there can be no assurance that any of these
expected savings can be achieved or that they will not be offset by unexpected,
unforeseen increases in other costs not directly related to the Graniteville
Acquisition. See "Risk Factors -- Possible Inability to Integrate the
Graniteville Acquisition".
29
<PAGE> 34
RESULTS OF OPERATIONS
The table below sets forth for the periods indicated statement of income
data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS
ENDED
FISCAL YEAR -----------------
--------------------- MAY 26, MAY 24,
1993 1994 1995 1995 1996
----- ----- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Yarn sales..................................... 55.6 53.8 54.5 55.6 45.8
Finished fabric sales.......................... 37.2 38.4 37.9 37.1 46.6
Greige fabric sales............................ 7.2 7.8 7.6 7.3 7.6
Cost of goods sold:
Raw materials.................................. 40.1 46.8 49.2 49.1 50.8
Conversion costs............................... 35.3 37.8 33.2 32.4 34.3
Total.................................. 75.4 84.6 82.4 81.5 85.1
Depreciation..................................... 4.5 4.8 4.4 4.3 4.8
Selling and administrative expenses.............. 4.6 4.6 4.4 4.5 5.1
Operating income................................. 15.5 6.0 8.8 9.7 5.0
Interest expense, net............................ 0.4 1.4 2.7 2.6 2.4
Discount and expenses on sale of receivables..... -- -- -- -- 0.5
Provision for income taxes....................... 5.9 1.8 2.4 2.7 0.8
Income before extraordinary item................. 9.1 2.9 3.9 4.4 1.3
Net income....................................... 8.6 2.9 3.9 4.4 1.3
</TABLE>
Thirty-Nine Weeks Ended May 24, 1996 Compared to Thirty-Nine Weeks Ended May
26, 1995
Net Sales. Net sales decreased 3.0% to $423.1 million in the thirty-nine
weeks ended May 24, 1996 from $410.6 million for the thirty-nine weeks ended May
26, 1995.
Yarn sales decreased 15.1% to $193.7 million for the thirty-nine weeks
ended May 24, 1996 from $228.3 million for the thirty-nine weeks ended May 26,
1995. This decrease resulted from a 14.6% decline in pounds sold due to weak
demand in the apparel market and excess production capacity within the industry.
Average selling prices remained relatively constant.
Finished fabric sales increased 29.2% to $197.1 million for the thirty-nine
weeks ended May 24, 1996 from $152.6 million for the thirty-nine weeks ended May
26, 1995. This increase was primarily attributable to the inclusion of $44.2
million in sales for the business units acquired in the Graniteville Acquisition
on April 29, 1996. This increase in sales reflected a 24.5% increase in yards
sold, which was accompanied by a 4.0% increase in average selling prices.
Greige fabric sales increased 8.5% to $32.3 million for the thirty-nine
weeks ended May 24, 1996 from $29.8 million for the thirty-nine weeks ended May
26, 1995. This increase resulted from a shift in product mix to the home
furnishings and industrial products markets, combined with a 6.8% increase in
average selling prices.
Cost of Goods Sold. Cost of goods sold increased 7.5% to $360.0 million in
the thirty-nine weeks ended May 24, 1996 from $334.8 million in the thirty-nine
weeks ended May 26, 1995. Cost of goods sold as a percentage of net sales
increased to 85.1% in the thirty-nine weeks ended May 24, 1996 from 81.5% in the
thirty-nine weeks ended May 26, 1995, primarily due to increased cotton costs
and a decrease in absorption of fixed manufacturing costs due to somewhat lower
levels of capacity utilization during the thirty-nine weeks ended May 24, 1996.
Raw material costs as a percentage of net sales increased to 50.8% in the
thirty-nine weeks ended May 24, 1996 from 49.1% in the thirty-nine weeks ended
May 26, 1995, while conversion costs increased to 34.3% from 32.4% during the
same periods.
30
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Selling and Administrative Expenses. Selling and administrative expenses
increased 17.6% to $21.3 million in the thirty-nine weeks ended May 24, 1996
from $18.1 million in the thirty-nine weeks ended May 26, 1995. This increase
was primarily the result of additional expenses associated with the Graniteville
business units.
Interest Expense, Net. Interest expense, net decreased 4.0% to $10.7
million in the thirty-nine weeks ended May 24, 1996 from $11.2 million in the
thirty-nine weeks ended May 26, 1995. This decrease reflected more favorable
interest rates during the thirty-nine weeks ended May 24, 1996.
Discount and Expenses on Sale of Receivables. Discount and expenses on
sale of receivables was $2.2 million for the thirty-nine weeks ended May 24,
1996, which related to the Receivables Securitization Facility established by
the Company in connection with the Graniteville Acquisition.
Provision for Income Taxes. Provision for income taxes decreased 69.5% to
$3.4 million in the thirty-nine weeks ended May 24, 1996 from $11.3 million in
the thirty-nine weeks ended May 26, 1995. The Company's effective tax rate was
38.8% in the thirty-nine weeks ended May 24, 1996 compared to 38.6% in the
thirty-nine weeks ended May 26, 1995.
Fiscal 1995 Compared to Fiscal 1994
Net Sales. Net sales increased 11.9% to $538.7 million in fiscal 1995 from
$481.6 million in fiscal 1994, primarily reflecting higher average selling
prices as a result of the Company's ability to pass on to customers higher raw
material costs and strong demand for high-end denim, other apparel products and
home furnishing fabrics.
Yarn sales increased 13.2% to $293.4 million in fiscal 1995 from $259.2
million in fiscal 1994 due to a 13.1% increase in average selling prices. This
increase resulted from strong consumer demand in the knit and woven apparel
markets and the ability of the Company to pass on higher raw material costs to
its customers during fiscal 1995.
Finished fabric sales increased 10.2% to $204.0 million in fiscal 1995 from
$185.1 million in fiscal 1994. This increase resulted primarily from a 3.0%
increase in average selling prices and a 7.0% increase in yards sold due to
increased consumer demand for denim and other apparel products during fiscal
1995.
Greige fabric sales increased 10.7% to $41.2 million in fiscal 1995 from
$37.2 million in fiscal 1994. This increase resulted primarily from a 7.1%
increase in average selling prices and a 3.4% increase in yards sold, reflecting
price increases in the apparel and home furnishings markets and a shift in the
Company's product mix to serve those markets.
Cost of Goods Sold. Cost of goods sold increased 8.9% to $443.7 million in
fiscal 1995 from $407.4 million in fiscal 1994. This increase reflected a
substantial increase in cotton costs, which were partially offset by improved
absorption of fixed manufacturing costs due to high levels of capacity
utilization during fiscal 1995. Cost of goods sold as a percentage of net sales
declined to 82.4% in fiscal 1995 from 84.6% in fiscal 1994. Raw material costs
as a percentage of net sales increased to 49.2% in fiscal 1995 from 46.8% in
fiscal 1994 as average cotton costs increased 15.7% during fiscal 1995. Total
conversion costs as a percentage of net sales decreased to 33.2% in fiscal 1995
from 37.8% in fiscal 1994.
Selling and Administrative Expenses. Selling and administrative expenses
increased 7.0% to $23.6 million in fiscal 1995 from $22.1 million in fiscal
1994, reflecting higher profit sharing and incentive payments.
Interest Expense, Net. Net interest expense increased 119.1% to $14.3
million in fiscal 1995 from $6.5 million in fiscal 1994. This increase reflected
a substantial increase in aggregate borrowings outstanding during fiscal 1995
due to the repurchase of shares of outstanding common stock in March 1994.
Provision for Income Taxes. Provision for income taxes increased to $13.1
million in fiscal 1995 from $8.5 million in fiscal 1994. The Company's effective
tax rate was 38.5% in fiscal 1995 compared to 37.8% in fiscal 1994.
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<PAGE> 36
Fiscal 1994 Compared to Fiscal 1993
Net Sales. Net sales decreased 2.8% to $481.6 million in fiscal 1994 from
$495.5 million in fiscal 1993 primarily as a result of a decline in consumer
demand within the apparel market during fiscal 1994 from high levels of demand
in fiscal 1993.
Yarn sales decreased 5.9% to $259.2 million in fiscal 1994 from $275.6
million in fiscal 1993 due to a 9.6% decrease in average selling price and a
4.1% increase in pounds sold. This decrease was attributable to weakening demand
and competitive pricing in the tee shirt, jersey and fleece markets.
Finished fabric sales increased 0.5% to $185.1 million in fiscal 1994 from
$184.1 million in fiscal 1993. This increase resulted primarily from a 2.2%
increase in yards sold, which was partially offset by a 1.6% decrease in average
selling prices. The decrease in average selling prices reflected decreased
demand for bottomweight fabrics within the apparel market during fiscal 1994.
Greige fabric sales increased 3.8% to $37.2 million in fiscal 1994 from
$35.8 million in fiscal 1993. This increase resulted primarily from a 5.1%
increase in average selling prices, which reflected increased demand in the home
furnishings and industrial products markets. This increase was partially offset
by a 1.2% decrease in yards sold as demand declined in the apparel market during
fiscal 1994.
Cost of Goods Sold. Cost of goods sold increased 9.0% to $407.4 million in
fiscal 1994 from $373.7 million in fiscal 1993. Cost of goods sold as a
percentage of net sales increased to 84.6% in fiscal 1994 from 75.4% in fiscal
1993 principally due to increased raw material costs. Raw material costs as a
percentage of net sales increased to 46.8% in fiscal 1994 from 40.1% in fiscal
1993 primarily due to a 12.5% increase in average cotton costs during fiscal
1994.
Selling and Administrative Expenses. Selling and administrative expenses
decreased 2.7% to $22.1 million in fiscal 1994 from $22.7 million in fiscal
1993, which reflected lower profit sharing and incentive payments.
Interest Expense, Net. Net interest expense increased 218.9% to $6.5
million in fiscal 1994 from $2.1 million in fiscal 1993. This increase reflected
a substantial increase in aggregate borrowings outstanding during fiscal 1994
due to the repurchase of shares of outstanding common stock in March 1994.
Provision for Income Taxes. Provision for income taxes decreased 70.6% to
$8.5 million in fiscal 1994 from $29.0 million in fiscal 1993. The Company's
effective tax rate was 37.8% in fiscal 1994 compared to 39.1% in fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
Avondale has funded its working capital requirements and capital
expenditures from net cash provided by operating activities, borrowings under
its bank credit facilities, borrowings under subordinated notes and proceeds
received in connection with the issuance of equity and debt securities and
industrial revenue bonds. See "Capitalization". At August 30, 1996, Avondale had
borrowings of $161.1 million outstanding under the New Credit Facility and $63.9
million of borrowing availability thereunder. See "Capitalization". Such
borrowings bore interest at a weighted average of 7.2% per annum.
In connection with the Graniteville Acquisition, Avondale entered into the
New Credit Facility, which consists of a five-year revolving credit facility of
up to $225 million. Borrowings under the New Credit Facility consist of
revolving loans to be provided by the lenders ("Revolver Loans") and up to $5
million of revolving swing loans to be provided by Wachovia ("Swing Revolver
Loans"). Interest accrues on Revolver Loans (i) at the Company's option at
either LIBOR (adjusted for reserves) plus a specified number of basis points or
the base rate, which is the higher of Wachovia's prime rate and the overnight
federal funds rate plus 0.5%, or (ii) if the Company and the lenders under the
New Credit Facility (the "Lenders") agree, at the "set" rate, which shall be an
interest rate agreed to by the Company and the Lenders at the time such Revolver
Loan is made. In addition, the Company is required to pay certain structuring,
administration and funding fees under the New Credit Facility. The New Credit
Facility is secured by a security interest in substantially all of the Company's
assets (including the assets acquired pursuant to the Graniteville Acquisition)
and is guaranteed
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<PAGE> 37
by Avondale Incorporated. In addition, the New Credit Facility contains
customary covenants, including requirements to maintain certain financial
ratios.
The Company has used interest rate swap agreements to effectively fix the
interest rate with respect to a portion of its outstanding borrowings, which
bear interest at floating rates. Such agreements involve the receipt of floating
rate amounts in exchange for fixed rate interest payments for the term of such
agreements without an exchange of the underlying principal amounts. The
differential to be paid or received is accrued as interest rates change and
recognized as an adjustment to interest expense related to the outstanding
Revolver Loans. The related amount payable to or receivable from counterparties
is included in other liabilities or assets. At August 30, 1996, the Company had
swap agreements with notional amounts aggregating $125.0 million, providing an
effective interest rate of 7.4% on that equivalent portion of the outstanding
Revolver Loans.
The Company's capital expenditures aggregated $24.2 million for the
thirty-nine weeks ended May 24, 1996. These expenditures were primarily for the
expansion of the Company's denim manufacturing operations. This project involves
the replacement of earlier generation projectile looms with high speed air jet
looms and the addition of two integrated finishing ranges. The Company
anticipates these improvements will increase the capacity of its denim
operations by 25%. The Company also acquired and installed new high speed rapier
looms in the greige fabrics division and completed other modernization projects
at other manufacturing facilities. Management estimates that capital
expenditures for the balance of fiscal 1996 will be approximately $9.0 million
and that such amounts will be used primarily for the finished fabrics division
expansion program and card modernization in the yarns division. Management also
estimates that capital expenditures for fiscal 1997 will be approximately $75.0
million, and that such amounts will be used primarily for the replacement of
yarn spinning equipment, upgrading of Graniteville's weaving equipment and
completion of the finished fabrics expansion program.
Net cash provided by operating activities was $12.1 million in the
thirty-nine weeks ended May 24, 1996. Principal working capital changes included
a $16.5 million increase in accounts receivable, a $7.2 million increase in
inventories and an $8.0 million increase in accounts payable. The increase in
accounts receivable was primarily attributable to the substantial increase in
net sales resulting from the Graniteville Acquisition and normal fluctuations in
the timing of sales and accounts receivable collections. The increase in
inventories and accounts payable during the thirty-nine weeks ended May 24, 1996
resulted primarily from an increase in raw material inventories. The Company's
investing activities included the capital improvements described above and a
$7.5 million subordinated loan to Oneita Industries, Inc. ("Oneita"), a yarn
customer of the Company. Net cash provided by financing activities aggregated
$281.1 million, which was used primarily to finance the Graniteville
Acquisition.
In January 1996, the Company made a $7.5 million subordinated loan to
Oneita pursuant to a promissory note (the "Oneita Note"). The Oneita Note
provided for interest on such loan at the rate of 10% per annum and was to
mature on February 26, 1999. Pursuant to an agreement with Oneita, on August 27,
1996, the Company converted the Oneita Note (principal plus accrued interest)
into 2,270,833 shares of common stock of Oneita (representing a conversion price
of $3.50 per share). On such date, such shares represented approximately 24.8%
of Oneita's outstanding common stock.
Net cash provided by operating activities was $50.4 million in fiscal 1995.
Principal working capital changes included a $6.1 million decrease in accounts
receivable, a $4.9 million increase in inventories and a $2.0 million decrease
in prepaid expenses. These changes in working capital primarily reflected normal
fluctuations in the timing of sales and accounts receivable collections and an
increase in the unit cost of raw materials. The Company's investing activities
included the investment of $15.8 million in capital improvements, as well as the
receipt of proceeds from the sale of equipment that was replaced in connection
with the ongoing modernization of the Company's manufacturing facilities and a
non-refundable deposit in connection with the possible sale of undeveloped beach
property on the Florida Gulf owned by the Company. Net cash used in financing
activities aggregated $35.5 million, including $32.4 million used to repay
long-term indebtedness and $3.1 million used to pay dividends on outstanding
capital stock.
Net cash provided by operating activities was $22.9 million in fiscal 1994.
Principal working capital changes included a $18.1 million increase in accounts
receivable and a $3.5 million reduction in inventories.
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<PAGE> 38
These changes in working capital during fiscal 1994 primarily reflected normal
fluctuations in the timing of sales and accounts receivable collections and a
general improvement in business conditions from fiscal 1993. The Company's
investing activities included the investment of $17.6 million in capital
improvements and the receipt of proceeds from the sale of property and equipment
relating to equipment being replaced in the ongoing modernization of the
Company's manufacturing facilities. Net cash used in financing activities
aggregated $5.5 million, including $124.7 million used to repurchase an
aggregate of 9,413,080 shares of Class A Common Stock of Avondale Incorporated
in March 1994 in a negotiated transaction from Metropolitan Life Insurance
Company, certain affiliates of CS First Boston Corporation, John F. Maypole and
The George and Sandra Weiksner Foundation (the "Stock Repurchase"), $2.0 million
used to repay outstanding long-term indebtedness and $3.8 million used to pay
dividends on outstanding capital stock.
Net cash provided by operating activities was $61.4 million in fiscal 1993.
Principal working capital changes included a $11.2 million decrease in accounts
payable, a $9.3 million decrease in accounts receivable and a $4.3 million
decrease in income taxes payable. These changes in working capital during fiscal
1993 reflected a decrease in net sales from fiscal 1992. The Company's investing
activities included the investment of $36.4 million in capital improvements and
the receipt of proceeds from the sale of equipment that was replaced in
connection with the ongoing modernization of the Company's manufacturing
facilities, offset by $3.8 million in restricted funds held for the purchase of
property, plant and equipment. Net cash used in financing activities aggregated
$43.7 million, including $33.8 million used to repay outstanding long-term
indebtedness, $1.6 million used to repurchase shares of outstanding capital
stock and $19.4 million used to pay dividends on outstanding capital stock,
which was offset by the issuance of $11.1 million of long-term debt.
Management believes that cash generated from operations, together with
borrowings available under the New Credit Facility and proceeds received in
connection with the issuance of industrial revenue bonds, will be sufficient to
meet the Company's working capital and capital expenditure needs in the
foreseeable future. The Company will also continue to consider other options
available to it in connection with funding future working capital and capital
expenditure needs, including the issuance of additional debt and equity
securities.
SEASONALITY
The Company's sales are broadly distributed over markets with staggered
seasonality and, therefore, generally do not exhibit significant seasonal
trends.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when circumstances indicate that the
carrying amount of an asset may not be recoverable. Avondale will adopt
Statement No. 121 in the first fiscal quarter of 1997 and, based on current
circumstances, does not believe the effect of adoption will be material.
Avondale accounts for its stock compensation arrangements described in Note
6 of Notes to Consolidated Financial Statements under the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and intends to continue to do so.
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GRANITEVILLE
GENERAL
Graniteville, founded over 150 years ago, is a leading manufacturer and
marketer of cotton and cotton-blend finished fabrics. Graniteville is a
vertically integrated manufacturer, capable of converting raw cotton and
polyester into a variety of finished fabrics. However, Graniteville's dyeing and
finishing capacity is greater than its spinning and weaving capacity, requiring
it to purchase yarn and greige fabric from outside suppliers (which currently
include the Company). The Company views dyeing and finishing as Graniteville's
core competencies and its facilities include a modern piece-dyeing and finishing
plant which the Company believes to be the largest (in terms of pounds
processed) in the United States. Graniteville's utility wear, sportswear, denim
and specialty fabrics accounted for 47.8%, 16.9%, 27.2% and 8.1%, respectively,
of Graniteville's net sales of $505.7 million in fiscal 1995.
RESULTS OF OPERATIONS
The table below sets forth for the periods indicated statement of income
data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
TWELVE
MONTHS THIRTEEN WEEKS ENDED
ENDED FISCAL YEAR --------------------
JANUARY 2, ------------- APRIL 2, MARCH 31,
1994 1994 1995 1995 1996
---------- ----- ----- -------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Utility wear fabric sales.................. 42.3 46.8 47.8 49.6 42.9
Sportswear fabric sales.................... 25.3 22.8 16.9 18.1 18.2
Denim...................................... 23.5 20.8 27.2 22.6 33.0
Specialty fabrics.......................... 8.9 9.6 8.1 9.7 5.9
Cost of goods sold:
Raw materials.............................. 42.1 44.9 46.9 45.1 44.1
Conversion costs........................... 41.8 41.8 41.5 41.6 43.1
Total.............................. 83.9 86.7 88.4 86.7 87.2
Depreciation and amortization................ 2.4 2.7 2.9 2.8 3.1
Selling and administrative expenses.......... 7.6 6.4 6.0 5.9 7.1
Operating income............................. 6.1 4.2 2.8 4.6 2.6
Interest expense, net........................ 2.7 3.1 3.8 3.6 4.4
Provision for (benefit from) income taxes.... 1.5 0.4 0.2 1.3 (0.6)
Net income (loss)............................ 1.5 0.6 (1.3) 1.1 (1.2)
</TABLE>
Thirteen Weeks Ended March 31, 1996 Compared to Thirteen Weeks Ended April 2,
1995
Net Sales. Net sales decreased 9.9% to $121.0 million in the thirteen
weeks ended March 31, 1996 from $134.4 million in the thirteen weeks ended April
2, 1995 due to reduced demand for utility wear, sportswear and specialty
fabrics, partially offset by higher average selling prices for sportswear
fabrics and increased volume and higher average selling prices for denim
fabrics.
Utility wear fabric sales decreased 22.0% to $52.0 million in the thirteen
weeks ended March 31, 1996 from $66.6 million in the thirteen weeks ended April
2, 1995 due to a 22.0% decrease in yards sold and relatively flat average
selling prices.
Sportswear fabric sales decreased 9.5% to $22.0 million in the thirteen
weeks ended March 31, 1996 from $24.3 million in the thirteen weeks ended April
2, 1995 due to a 16.9% decrease in yards sold, which was partially offset by a
9.0% increase in average selling prices.
Denim sales increased 31.4% to $39.9 million in the thirteen weeks ended
March 31, 1996 from $30.4 million in the thirteen weeks ended April 2, 1995 due
to a 23.6% increase in yards sold and a 6.5% increase in average selling prices.
The increase in yards sold and average selling prices reflected strong demand
for denim in the thirteen weeks ended March 31, 1996.
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<PAGE> 40
Specialty fabric sales decreased 45.6% to $7.1 million in the thirteen
weeks ended March 31, 1996 from $13.1 million in the thirteen weeks ended April
2, 1995 due to a 32.4% decrease in yards sold and a 19.6% decrease in average
selling prices. These decreases reflected curtailment in military procurement of
specialty fabric products.
Cost of Goods Sold. Cost of goods sold, excluding depreciation and
amortization, decreased 9.4% to $105.5 million in the thirteen weeks ended March
31, 1996 from $116.5 million in the thirteen weeks ended April 2, 1995. Cost of
goods sold as a percentage of net sales increased to 87.2% in the thirteen weeks
ended March 31, 1996 from 86.7% in the thirteen weeks ended April 2, 1995. Raw
material costs (which includes the cost of purchased greige fabrics) as a
percentage of net sales decreased to 44.1% in the thirteen weeks ended March 31,
1996 from 45.1% in the thirteen weeks ended April 2, 1995 due to improved
average selling prices relative to the cost of raw materials in the thirteen
weeks ended March 31, 1996. Conversion costs as a percentage of net sales
increased to 43.1% in the thirteen weeks ended March 31, 1996 from 41.6% in the
thirteen weeks ended April 2, 1995. This increase reflected a decrease in
absorption of fixed manufacturing costs due to lower levels of capacity
utilization during the thirteen weeks ended March 31, 1996.
Selling and Administrative Expenses. Selling and administrative expenses,
including management and other fees payable by Graniteville to Triarc, increased
6.9% to $8.5 million in the thirteen weeks ended March 31, 1996 from $8.0
million in the thirteen weeks ended April 2, 1995, primarily as a result of
increased bad debt expense and expenditures related to the sale of Graniteville,
which were partially offset by a decrease in incentive compensation expense.
Interest Expense, Net. Interest expense, net increased 8.7% to $5.3
million in the thirteen weeks ended March 31, 1996 from $4.9 million in the
thirteen weeks ended April 2, 1995. This increase reflected increased borrowings
to advance funds to Triarc and for other corporate purposes, which were
partially offset by a decrease in interest rates on outstanding borrowings.
Provision for Income Taxes. A benefit from income taxes was recorded at an
effective tax rate of 35.5% in the thirteen weeks ended March 31, 1996 as
compared to a provision for income taxes at an effective rate of 54.9% in the
thirteen weeks ended April 2, 1995. The provision for income taxes in the
thirteen weeks ended April 2, 1995 was higher than the expected rate due to the
effect of items not deductible for income tax purposes.
Fiscal 1995 Compared to Fiscal 1994
Net Sales. Net sales increased 1.7% to $505.7 million in fiscal 1995
from $497.1 million in fiscal 1994 due to improved demand for denim products and
higher average selling prices for utility wear fabrics, sportswear fabrics and
denim, which were significantly offset by decreased volume in sportswear
fabrics.
Utility wear fabric sales increased 3.8% to $241.7 million in fiscal 1995
from $232.8 million in fiscal 1994 due to a 0.6% increase in yards sold and a
3.2% increase in average selling prices, which reflected in part the ability of
Graniteville to pass on higher raw material costs to customers during fiscal
1995.
Sportswear fabric sales decreased 24.4% to $85.6 million in fiscal 1995
from $113.2 million in fiscal 1994 due to a decrease in yards sold, which
resulted from weak retail demand and Graniteville's decision to forego some
business where acceptable margins could not be achieved.
Denim sales increased 32.8% to $137.4 million in fiscal 1995 from $103.5
million in fiscal 1994. This increase reflected strong demand for indigo-dyed
denim as the number of yards sold increased 20.4% and average selling prices
increased 10.4%.
Specialty fabric sales decreased 13.7% to $41.0 million in fiscal 1995 from
$47.5 million in fiscal 1994 due to a 15.3% decrease in yards sold offset by a
2.0% increase in average selling prices, reflecting curtailment in military
procurement programs resulting in decreased sales of specialty fabrics sold to
military products manufacturers.
Cost of Goods Sold. Cost of goods sold, excluding depreciation and
amortization, increased 3.7% to $446.9 million in fiscal 1995 compared to $430.8
million in fiscal 1994. This increase reflected increases in cotton and
polyester costs and a decrease in absorption of fixed manufacturing costs due to
lower levels of capacity utilization during fiscal 1995. Cost of goods sold as a
percentage of net sales increased to 88.4% in
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<PAGE> 41
fiscal 1995 from 86.7% in fiscal 1994. Raw material costs (which includes the
cost of purchased greige fabrics) as a percentage of net sales increased to
46.9% in fiscal 1995 from 44.9% in fiscal 1994 as average cotton costs increased
16.7% during fiscal 1995. Conversion costs as a percentage of net sales
decreased to 41.5% in fiscal 1995 from 41.8% in fiscal 1994.
Selling and Administrative Expenses. Selling and administrative expenses,
including management and other fees payable by Graniteville to Triarc, decreased
5.6% to $30.2 million in fiscal 1995 from $32.0 million in fiscal 1994,
primarily as a result of lower incentive compensation expense in fiscal 1995 and
the absence of accruals for the cost of relocating Graniteville's marketing
management to headquarters in Graniteville, South Carolina, which was fully
accrued in fiscal 1994.
Interest Expense, Net. Interest expense, net increased 31.9% to $21.1
million in fiscal 1995 from $16.0 million in fiscal 1994. This increase
reflected both higher average levels of outstanding borrowings and higher
interest rates applicable to such borrowings.
Provision for Income Taxes. Provision for income taxes decreased to $0.9
million in fiscal 1995 from $2.1 million in fiscal 1994. This decrease reflected
a $10.7 million decrease in income before income taxes, which was partially
offset by deferred tax items. Graniteville's effective tax rate was (15.7%) in
fiscal 1995 and 40.7% in fiscal 1994. The rate in fiscal 1995 was impacted
significantly by the provision for income tax contingencies of $2.5 million.
Fiscal 1994 Compared to the Twelve Months Ended January 2, 1994 (the "1993
Period")
Net Sales. Net sales decreased 0.8% to $497.1 million in fiscal 1994 from
$501.3 in the 1993 Period reflecting decreased sales of sportswear fabrics and
denim, which were partially offset by increased sales of utility wear fabrics.
Utility wear fabric sales increased 9.9% to $232.8 million in fiscal 1994
from $211.9 million in the 1993 Period. This increase primarily resulted from a
10.5% increase in yards sold, which was partially offset by a 0.9% decrease in
average selling prices. The increase in yards sold reflected increased market
share due to continued high levels of employment, and the decrease in average
selling prices reflected primarily consumer resistance to price increases.
Sportswear fabric sales decreased 10.6% to $113.2 million in fiscal 1994
from $126.6 million in the 1993 Period. This decrease resulted from a 1.0%
decrease in average selling prices, coupled with a 9.7% decrease in yards sold.
Denim sales decreased 12.1% to $103.5 million in fiscal 1994 from $117.8
million in the 1993 Period. This decrease was the result of a 6.4% decrease in
average selling prices coupled with a 6.3% decrease in yards sold reflecting
excess supply in the denim markets.
Specialty product sales increased 5.6% to $47.5 million in fiscal 1994 from
$45.0 million in the 1993 Period, which reflected an increase in average selling
prices of 54.3%, which was offset in part by a 31.6% decrease in yards sold.
This increase reflects a shift in the product mix to higher priced fabrics sold
to military products manufacturers.
Cost of Goods Sold. Cost of goods sold, excluding depreciation and
amortization, increased 2.4% to $430.8 million in fiscal 1994 from $420.6
million in the 1993 Period. Cost of goods sold as a percentage of net sales
increased to 86.7% in fiscal 1994 from 83.9% in the 1993 Period. Raw material
costs (which includes the cost of purchased greige fabrics) as a percentage of
net sales increased to 44.9% in fiscal 1994 from 42.1% in the 1993 Period due in
part to a 16.4% increase in cotton prices.
Selling and Administrative Expenses. Selling and administrative expenses
decreased 15.6% to $31.9 million in fiscal 1994 from $37.9 million in the 1993
Period reflecting a restructuring charge of $1.8 million in the 1993 Period
relating to Graniteville's allocated portion of the cost to terminate the lease
on Triarc's existing corporate headquarters and the allocated cost of a
consulting agreement with the former Vice Chairman of Triarc and a $3.3 million
decrease in administrative charges from Triarc.
Interest Expense, Net. Interest expense, net increased 16.8% to $16.0
million in fiscal 1994 from $13.7 million in the 1993 Period. This increase
reflected increased borrowings to advance funds to Triarc and to finance capital
expenditures and an increase in the interest rate on outstanding borrowings.
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<PAGE> 42
Provision for Income Taxes. Graniteville's effective tax rate was 40.7% in
fiscal 1994 and 50.6% in the 1993 Period. The effective tax rate was higher in
the 1993 Period because of capital loss carryforwards for which no tax benefit
was recorded and the additional provision for deferred taxes required as a
result of the increase in the federal tax rate to 35%.
LIQUIDITY AND CAPITAL RESOURCES
Graniteville has funded its working capital requirements and capital
expenditures with cash from operations and borrowings under its credit
facilities. At March 31, 1996, Graniteville had borrowings of $195.9 million
outstanding under its credit facilities and borrowing availability of $15.6
million.
Graniteville's capital expenditures aggregated $26.5 million, $21.4
million, $11.7 million and $0.7 million in the 1993 Period, fiscal 1994, fiscal
1995 and the thirteen weeks ended March 31, 1996, respectively. These
expenditures were primarily for ongoing modernization of Graniteville's
manufacturing facilities, including the construction of a new indigo yarn dyeing
facility, which was completed in fiscal 1994.
Net cash provided by operating activities was $3.0 million for the thirteen
weeks ended March 31, 1996 compared to $4.2 million for the thirteen weeks ended
April 2, 1995. Principal working capital changes included a $7.5 million
increase in inventories, a $3.5 million decrease in accounts receivable and $2.2
million increase in accounts payable and accrued items. These changes in working
capital for the thirteen weeks ended March 31, 1996 reflected normal
fluctuations in the timing of sales and accounts receivable collections and the
collection of Graniteville's insurance receivable during such period.
Graniteville's investing activities included the investment of $0.7 million in
capital improvements. Net cash used in financing activities aggregated $4.1
million, consisting of $3.2 million used to repay outstanding long-term
indebtedness, $0.5 million of net distributions to affiliates in connection with
the carve-out of Graniteville from Graniteville Company and deferred financing
costs of $0.4 million.
Net cash provided by operating activities was $0.5 million in fiscal 1995.
Principal working capital changes included a $14.7 million increase in accounts
receivable and a $4.9 million decrease in inventories. These changes in working
capital in fiscal 1995 reflected normal fluctuations in the timing of sales,
accounts receivable collections, production and raw material purchases.
Graniteville's investing activities included the investment of $11.7 million in
capital improvements. Net cash provided by financing activities aggregated $10.1
million, consisting of $48.0 million of proceeds from long-term indebtedness,
partially offset by the repayment of $8.8 million of long-term indebtedness,
$27.2 million of net distributions to affiliates in connection with the
carve-out of Graniteville from Graniteville Company and deferred financing costs
of $1.9 million.
Net cash provided by operating activities was $17.5 million in fiscal 1994.
Principal working capital changes included an $8.5 million decrease in
inventories and an $8.6 million increase in accounts receivables. These changes
in working capital in fiscal 1994 reflected normal fluctuations in the timing of
sales, accounts receivable collections, production and raw material purchases.
Net cash used in investing activities included the investment of $21.4 million
in capital improvements, which was offset in part by proceeds received in
connection with the sale of property. Net cash provided by financing activities
aggregated $5.0 million, consisting of $12.7 million used to repay outstanding
long-term indebtedness and $2.5 million of net distributions to affiliates in
connection with the carve-out of Graniteville from Graniteville Company, which
was offset by the issuance of $20.5 million of long-term indebtedness.
Net cash used in operating activities was $10.3 million in the 1993 Period.
Principal working capital changes included a $24.7 million increase in accounts
receivable and a $14.6 million increase in inventories. A significant portion of
this increase in accounts receivable in the 1993 Period was due to Graniteville
repurchasing accounts receivables previously sold under a factoring agreement.
The increase in inventories in the 1993 Period reflected higher raw material
costs. Net cash used in investing activities included the investment of $26.2
million in capital improvements. Net cash provided by financing activities
aggregated $35.5 million, consisting of the issuance of $169.4 million of
long-term indebtedness, partially offset by $70.6 million used to repay
outstanding long-term indebtedness, $57.3 million of net distributions to
affiliates in connection with the carve-out of Graniteville from Graniteville
Company and $6.0 million in deferred financing costs.
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INDUSTRY OVERVIEW
The North American textile industry has experienced dramatic changes over
the past decade in response to trends toward more casual dress, rapid changes in
consumer preferences, a decline in retailer and distributor inventories and an
increasingly global market place. North American textile producers have reacted
by (i) investing in modern machinery resulting in flexible, cost-efficient and
high volume operations, (ii) forming partnerships with retailers to better
predict and respond to fashion trends and (iii) with the implementation of NAFTA
(and the Caribbean Basin Initiative), joining with labor intensive apparel
operations in Mexico and the Caribbean to form partnerships that can effectively
compete against companies based in the Pacific Rim.
DENIM
Total domestic demand for denim apparel increased dramatically, 10.4%
compounded annually, from 1992 to 1995. This growth was due primarily to
positive demographic changes, an increase in the variety of products and
fashions incorporating denim and a general trend towards more casual dress
throughout the United States, particularly in the workplace.
The "baby boom" generation, the first generation to include denim apparel
as part of their casual dress, continue to include denim apparel in their
wardrobe as they enter middle age. As their disposable income increases, they
demand higher quality products with more diverse styling, requiring denim
apparel manufacturers to produce higher quality denim in a full range of colors.
Demand for denim has also been impacted by changes in the size of the 15 to 24
year-old segment of the population, traditionally a significant purchaser of
denim products. In recent years, this segment has been declining in size;
however, it is now expanding and is expected to peak around the year 2000.
Internationally, the Company believes demand for denim is expected to grow
in industrialized countries as they continue to adopt U.S. casual fashion
trends. In less industrialized countries, the Company believes demand for denim
will increase as per capita income increases.
The Company believes denim demand has benefited from a trend towards more
casual dress in the workplace. In addition, market growth has been driven by a
dramatic increase in the variety of colors, fabric finishes and constructions in
which denim is available, the popularization of "relaxed-fitting" jeans and a
dramatic increase in nonjeans applications such as shorts, shirts and jackets.
As fashions continue to change and new products are developed at faster
rates, retailers have reduced inventories to decrease the risk of being left
with obsolete inventory. To accommodate this reduction of inventory, denim
manufacturers provide faster turnaround times on orders and seek to increase the
flexibility of manufacturing operations to include a greater variety of denim
products. The ability to provide a rapid turnaround on orders has provided
domestic denim producers with an advantage over foreign denim producers.
YARN
Demand for yarn products is generally dependent on economic conditions and
consumer preferences. Total North American demand for cotton yarn grew at an
annual rate of 13% from 1989 through 1994. The market in 1994 was 1.8 billion
pounds. This growth has been driven by trends to more casual wear such as
T-shirts and fleece sportswear.
Like denim apparel manufacturers, knit apparel manufacturers require yarn
delivery on short notice to enable them to reduce inventories and respond to
fashion changes. The ability to provide a rapid turnaround on orders has
provided domestic yarn producers with an advantage over foreign yarn producers.
The North American yarn industry has capitalized on this opportunity and
invested heavily in modern, low cost, low labor technologies to produce yarns
which are competitive with imports.
Management believes that apparel manufacturers are outsourcing increasing
amounts of their yarn requirements. This outsourcing is a result of the capital
intensive nature of yarn production which enables large modern yarn
manufacturers to produce and sell yarn to apparel manufacturers at a lower price
than their internal cost of production.
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UTILITY WEAR
The utility wear market consists of apparel manufacturers who supply
utility wear to industrial laundries for rental to their customers and to
manufacturers who sell directly to the retail market. The utility wear market is
comprised of the following sectors: basic industrial workwear, image or career
wear, and protective wear. All three sectors demand performance, durability
(withstanding repeated laundering) and affordability. In order to meet such
standards, fabrics for this market are generally piece-dyed. The utility wear
industry is generally dependant on economic conditions, particularly levels of
unemployment.
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BUSINESS -- THE COMPANY
GENERAL
Avondale is one of the largest domestic manufacturers of cotton and
cotton-blend yarns and is a leading domestic producer of denim. Avondale markets
its products primarily in the United States to the apparel market, and, to a
lesser extent, the home furnishings and industrial products markets. The
Company's three operating divisions -- yarns, finished fabrics and greige
(unfinished, undyed) fabrics -- operate 14 modern manufacturing facilities in
the Southeast. The Company's yarn, finished fabric and greige fabric products
accounted for 54.5%, 37.9% and 7.6%, respectively, of the Company's net sales of
$538.7 million in fiscal 1995.
Avondale Incorporated's predecessor was founded in 1895 by the family of G.
Stephen Felker, the Company's Chairman, President and Chief Executive Officer.
Prior to 1986, Avondale Incorporated's predecessor primarily manufactured and
marketed greige fabrics. In July 1986, Avondale Incorporated's predecessor,
together with Mr. Felker and certain other investors, acquired the Company (the
"1986 Acquisition"). The 1986 Acquisition expanded the Company's product line to
include yarns and finished fabrics and significantly increased the Company's
revenue base. In their respective last full fiscal years preceding the 1986
Acquisition, Avondale Incorporated's predecessor and Avondale had net sales of
$40.5 million and $238.3 million, respectively.
Since the 1986 Acquisition, the Company's management team has implemented a
strategy focused on producing high quality, value-added yarns and fabrics,
reducing incremental manufacturing unit costs, maximizing manufacturing
flexibility, optimizing raw material sourcing and utilization, and providing
superior customer service. Over the past 11 years, through acquisitions and
improved performance, management has increased net sales from the $40.5 million
achieved by Avondale Incorporated's predecessor in fiscal 1985 (the last full
fiscal year prior to the 1986 Acquisition) to $538.7 million in fiscal 1995, a
compound annual growth rate of 29.5%. Since the 1986 Acquisition, the Company's
EBITDA margin has averaged 15.0% per year from fiscal 1987 through fiscal 1995.
The Company's operations have been expanded through acquisitions, an
ongoing capital improvements program and management's ability to optimize the
productive output of the Company's manufacturing facilities. The Company's
ongoing capital improvements program focuses on modernizing and expanding the
Company's operations to maximize manufacturing flexibility, increase capacity
and reduce incremental unit costs. Avondale has invested over $100 million
during the past five fiscal years in connection with this capital improvements
program. Avondale is currently implementing a $31 million expansion of its denim
manufacturing operations. Avondale expects this project, which should be
completed by the end of fiscal 1997, will expand its denim manufacturing
capacity by 25%. This expansion follows a previous 15% denim expansion completed
in fiscal 1995 during which the Company installed indigo-dyeing capacity in
excess of its weaving and finishing capacity. The Company's current denim
expansion program will allow the Company to fully utilize the previously
installed indigo-dyeing capacity, which should enhance cash flow returns on the
current investment. Avondale has also successfully redeployed capital by closing
certain manufacturing facilities and, in other cases, moving manufacturing
equipment among its locations.
PURPOSE OF THE GRANITEVILLE ACQUISITION
Avondale believes that the Graniteville Acquisition will significantly
enhance its competitive position and business prospects. Avondale expects the
Graniteville Acquisition will provide it with the following benefits:
- Leading Position in Denim. As a result of the consummation of the
Graniteville Acquisition, Avondale believes that it is one of the world's
largest producers of enhanced denim fabrics (based on the current
manufacturing capacity of Avondale and Graniteville). Pro forma for the
Graniteville Acquisition, the Company's fiscal 1995 denim sales would have
been $308.6 million. The U.S. denim market is highly concentrated, and the
Company believes that approximately four denim manufacturers currently
supply 65% of the market. The high cost of building new manufacturing
capacity and the expertise required in indigo-dyeing operations are
generally barriers to entry. The Graniteville Acquisition approximately
doubled the Company's current denim manufacturing capacity and market
share, and Avondale believes that, pro forma for the Graniteville
Acquisition, it would have supplied
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approximately 15% of the denim market in fiscal 1995 and that it would
have been among five denim manufacturers supplying approximately 80% of
the market. In addition, Avondale is currently implementing a 25%
expansion of its denim manufacturing capacity, which should be completed
by the end of fiscal 1997. Avondale believes that its significantly
enhanced presence in the denim market will improve its competitive
position.
- Expanded Denim Customer Base. Graniteville's denim customer base is
broader and less concentrated than the Company's customer base, and
Avondale and Graniteville generally do not sell denim to the same
customers. During their respective fiscal 1995, Avondale and Graniteville
sold denim products to approximately 130 and 300 customers, respectively.
Avondale believes that it is the leading supplier of denim to VF
Corporation, the maker of Lee(R), Rider(R), Wrangler(R), Rustler(R),
Girbaud(R) and HealthTex(TM) brands. Sales to VF Corporation in fiscal
1995 accounted for approximately 28% of the Company's net sales. None of
Graniteville's denim customers accounted for more than 5% of its denim
sales in fiscal 1995. Avondale believes that this expansion of its denim
customer base will enable it to increase denim sales due to cross-selling
opportunities.
- Expanded Product Line. The Graniteville Acquisition has expanded the
Company's existing product lines as well as provided entry into new
markets. Graniteville is a leading manufacturer of piece-dyed fabrics used
primarily in the manufacture of sportswear, casual wear, outer wear and
utility wear. Avondale currently has no piece-dyeing capabilities. As a
result of the Graniteville Acquisition, Avondale now operates what it
believes is the largest (in terms of pounds processed) piece-dyeing and
finishing plant in the United States.
Avondale believes that Graniteville is the largest domestic manufacturer
and marketer of fabrics used in the manufacture of utility wear
(principally uniforms and other occupational apparel) for the U.S. rental
and retail markets in which it competes. Prior to the Graniteville
Acquisition, the Company did not participate in those markets. The utility
wear fabric segment of the textile industry is generally less cyclical
than the industry as a whole as its end-markets are not as sensitive to
changes in prevailing fashion trends or discretionary consumer spending.
Pro forma for the Graniteville Acquisition, utility wear fabric sales
would have accounted for 23.0% of the Company's net sales in fiscal 1995.
As a result, Avondale believes that the addition of utility wear fabrics
to its product line will help reduce the cyclicality of the Company's
results of operations.
The Graniteville Acquisition has expanded the Company's line of denim
products and fashion fabrics sold to manufacturers of sportswear, casual
wear and outerwear. Graniteville produces enhanced denim fabrics for the
branded and private label segments of the denim market. Although Avondale
produces some fashion fabrics for use in the manufacture of sportswear,
casual wear and outerwear, sales of such fashion fabrics accounted for
only 8.1% of the Company's finished fabric sales in fiscal 1995. Avondale
has been unable in recent years to expand its fashion fabrics business
because it does not own a piece-dyeing and finishing plant and has been
unable to access consistent and reliable dyeing and finishing capacity. As
a result of the Graniteville Acquisition, Avondale believes it will have
significant opportunities to cross-sell Graniteville's fashion fabrics to
the Company's existing denim customers.
- Enhanced Vertical Integration. Graniteville's manufacturing operations
consume substantial amounts of yarn. Although Graniteville produces a
significant portion of its yarn requirements, it purchases large
quantities from outside suppliers (which currently include the Company).
In fiscal 1995, Graniteville purchased approximately 13 million pounds of
yarn from outside suppliers. Pro forma for the Graniteville Acquisition,
during fiscal 1995, the Company would have produced approximately 431
million pounds of yarn for internal consumption and sale to outside
customers.
Avondale expects that its option to supply Graniteville's yarn needs will
enhance its ability to maintain high operating rates within its yarn
division during periods of reduced demand. The Company's focus on
maintaining high capacity utilization helps to lower unit production costs
generally and to maintain relatively constant unit production costs during
periods of weak economic conditions within the textile industry. Further,
the Company's yarn manufacturing operations are more cost-efficient than
those of Graniteville. Consequently, Avondale believes that it will be
able to improve Graniteville's profit
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margins by reducing raw material costs to the extent the Company supplies
an increased portion of Graniteville's yarn needs as well as through
productivity and cost improvements as discussed below.
- Raw Material Purchasing Leverage. As a result of the Graniteville
Acquisition, Avondale believes that it will be the largest U.S. consumer
of raw cotton as well as a substantial consumer of polyester. Avondale
believes this purchasing leverage, together with Avondale's strategic
buying practices developed through significant experience in raw material
markets, will further enhance its ability to manage cotton and polyester
costs and to obtain these raw materials at the most favorable prices
available.
- Global Raw Material Sourcing Flexibility. In fiscal 1995, Graniteville's
operations consumed approximately 199 million yards of greige fabrics,
42.3% of which was purchased from outside suppliers. Currently, the
differential between domestic and world greige fabric prices is not
significant enough to make sourcing greige fabrics in foreign markets
attractive. However, historically there have existed periods of
substantial price differentials between domestic and world greige fabric
prices. As a result of the Graniteville Acquisition, Avondale, as a
substantial consumer of greige fabrics, will be in a position to
capitalize on any such future imbalances.
- Greater Critical Mass. The Graniteville Acquisition has significantly
increased the Company's revenue base. Pro forma for the Graniteville
Acquisition, the Company's net sales for fiscal 1995 would have been over
$1.0 billion. Avondale believes that the trend towards consolidation
within the textile industry will continue. Avondale believes that its
increased size and presence in the textile industry will better position
it to take advantage of market opportunities as they arise.
- Cost Savings and other Business Synergies. As a result of the
consummation of the Graniteville Acquisition, Avondale expects to realize
cost savings from, among other things, general and administrative expense
reductions and improvements in Graniteville's cost of goods sold. Avondale
intends to implement a multi-year capital improvements program to improve
Graniteville's manufacturing operations by modernizing and reconfiguring
its manufacturing processes consistent with the Company's own
modernization strategy. Avondale expects these improvements will
significantly increase Graniteville's manufacturing flexibility and
productivity while reducing costs. Avondale also believes that the
Graniteville Acquisition will involve business synergies including, among
others, enhanced vertical integration and raw material sourcing and
substantial cross-selling opportunities, which may enable the Company to
increase its sales and improve its cost structure. However, there can be
no assurance that Avondale will achieve the foregoing cost savings or
business synergies. See "Risk Factors -- Possible Inability to Integrate
the Graniteville Acquisition".
BUSINESS STRATEGY
Avondale's business strategy is to maximize profitability over complete
business cycles. As part of this strategy, Avondale generally maintains high
levels of capacity utilization and capitalizes on its manufacturing flexibility
through all phases of the business cycle. By adjusting its product mix quickly
in response to changes in consumer demand, Avondale is able to operate its
manufacturing facilities at substantially full capacity even during weak phases
in the business cycle, thereby maintaining lower labor turnover and better
control over manufacturing costs per unit. As a result, management believes that
profit margins recover faster as strong demand returns.
The principal components of the Company's strategy include the following:
- Cost Improvement. Avondale generally uses the most advanced
manufacturing technologies, runs its facilities at substantially full
capacity and enhances operational efficiencies to maximize productivity
and minimize manufacturing costs per unit. Management believes that
running the Company's manufacturing facilities at substantially full
capacity enables management to control more effectively manufacturing
costs per unit and positions the Company to maximize profitability during
periods of strong demand. As a result, Avondale has developed a strong
record of reducing incremental unit costs and generating a high average
EBITDA margin.
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- Value-Added Products. Avondale focuses on developing, manufacturing and
marketing value-added yarns and fabrics, particularly in its finished
fabrics division, to complement its low-cost and volume-oriented yarn
manufacturing capability. Avondale has benefitted significantly from the
substantial increase in recent years in consumer demand for moderately
priced, 100% cotton or high cotton content casual apparel for both work
and leisure. The Company's finished fabrics division has a product design
staff devoted to creating new, innovative fabric styles and constructions,
independently and in collaboration with customers of both the finished and
greige fabrics divisions, which enables such customers to respond to
anticipated shifts in consumer demand for apparel products. The finished
fabrics division also devotes significant resources to quality assurance,
which is intended to ensure that fabrics fully satisfy customer
specifications and have consistent characteristics within shipments.
- Manufacturing Flexibility. Avondale designs and equips its facilities to
increase manufacturing flexibility, which enables it to adjust its product
mix quickly in response to changes in customer demand. Management believes
that the Company's ability to manufacture a wide range and significant
volume of cotton and cotton-blend yarns and fabrics on short lead times
enables the Company to improve profit margins and gives the Company a
competitive advantage. In its yarns division, the Company has aggressively
replaced earlier generation open-end spinning equipment (which was
generally less than ten years old) with the most technologically advanced
equipment available. In its greige fabrics division, the Company has
replaced all fly shuttle looms with high speed rapier looms. In its
finished fabrics division, Avondale has installed new projectile looms
with wide-width capability and constructed a large capacity,
state-of-the-art indigo-dyeing facility. Avondale expects these efforts to
enhance flexibility, increase capacity and reduce manufacturing costs.
- Raw Material Sourcing and Utilization. Avondale, which believes it will
be the largest U.S. consumer of raw cotton as a result of the Graniteville
Acquisition, employs strategic buying practices intended to manage its
cotton costs and ensure a continuous supply. As a result of the volume of
its cotton purchases, Avondale has developed significant experience and
purchasing leverage in the cotton market. Avondale also conducts
comprehensive testing of every bale of cotton it purchases, categorizes
each bale into one of over 150 inventory groupings and, based on a
computer analysis, matches cotton in inventory with customer order
specifications to help ensure cost efficient utilization of raw cotton.
The Company's testing procedures enable the Company to maximize its cotton
mixes to achieve the cost effective utilization.
- Customer Service. Avondale is committed to being an industry leader in
providing superior customer service through innovative product
development, the manufacture of high quality, value-added yarns and
fabrics, just-in-time delivery and quick response manufacturing. Avondale
targets customers who demand a high level of customer service and
structures its operations and product mix to respond to their needs.
Avondale has the manufacturing capacity and flexibility to meet the demand
for yarns and fabrics with varying characteristics and to respond quickly
to changes in customer needs. Avondale also has a dedicated transportation
fleet to ensure rapid delivery of yarn directly to customers, which
reduces their inventory requirements. Avondale also employs "quick
response" manufacturing techniques along with electronic data interchange
to improve overall customer service.
DESCRIPTION OF THE BUSINESS
Products
Yarns. Avondale is one of the largest domestic producers and marketers of
cotton and cotton-blend yarns and believes it is the largest supplier of
open-end yarns to the domestic knitting and weaving industry. The Company's
yarns business has experienced significant growth since the 1986 Acquisition,
more than doubling its production of open-end spun yarn and achieving compound
annual sales growth through fiscal 1995 of approximately 5%. The yarns division
produces a wide range of cotton and cotton-blend carded and combed yarns that
are marketed to the knitting and weaving industry. The Company's yarns are used
in the manufacture of a broad range of items, including apparel (primarily
T-shirts, underwear, hosiery, knitted outerwear, denim, and woven and fleece
sportswear) and home furnishings. The Company's yarns division has
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experienced increased demand for its products as a result of the shift in
consumer preferences in recent years to moderately priced 100% cotton or high
cotton content apparel for both work and leisure. Although the yarns division
may provide a portion of the yarn used by the finished and greige fabrics
divisions, the yarns division markets substantially all of its production to
over 450 unaffiliated customers. Yarn sales accounted for 55.6%, 53.8% and 54.5%
of the Company's net sales in fiscal 1993, 1994 and 1995, respectively.
The Company's principal strategy for its yarns division is to capitalize on
its broad customer base and manufacturing flexibility and capacity while
producing yarns at the lowest cost possible. Management believes that the
Company led the industry in moving to more efficient, cost-effective, open-end
spinning equipment, which has been further modernized since such move. Open-end
spinning eliminates several labor intensive steps from the traditional ring
spinning production process and substantially increases productivity while
reducing defects in finished yarns. Avondale has made additional capital
improvements by aggressively replacing earlier generation open-end spinning
equipment (which generally was less than 10 years old) with the most
technologically advanced equipment available. This modernization program has
enabled the Company to enhance the quality of its yarns, increase its
manufacturing flexibility and cost efficiency and improve its responsiveness to
customers. Avondale competes with other yarn manufacturers by being a low-cost
producer due to its high volume production capability and by using its
manufacturing flexibility to respond quickly and efficiently to shifts in
customer demand. Avondale also has a dedicated transportation fleet to ensure
rapid deliveries of yarn directly to customers.
Finished Fabrics. Avondale is a leading producer of woven cotton finished
fabrics, principally denim, used in the manufacture of jeans, sportswear and
activewear. The Company develops and manufacturers a broad range of high
quality, value-added denim fabrics. The principal product produced by the
finished fabrics division is "range-dyed" denim. Range-dyeing involves dyeing
the yarn in such a way that the dye only coats the outside of the yarn and does
not penetrate it. The result is a fabric that fades and has the variations in
color that give denim its distinctive appearance. The finished fabrics division
also produces twill and canvas fabrics woven from "vat-dyed" yarns, which are
also marketed to apparel manufacturers. "Vat dyeing" involves placing the yarn
in a kier in which dye is forced to penetrate the yarn under heat and pressure.
Avondale dyes and weaves fabrics pursuant to customer orders, not projected
sales, in order to control its inventory of finished fabrics and reduce the risk
of inventory obsolescence. Finished fabric sales accounted for 37.2%, 38.4% and
37.9% of the Company's net sales in fiscal 1993, 1994 and 1995, respectively.
Finished fabric customers include, among others, VF Corporation (the maker of
Lee(R), Rider(R), Wrangler(R), Rustler(R), Girbaud(R) and HealthTex(TM) brands),
OshKosh B'Gosh, Inc., Guess(TM), The Gap Stores, Inc., Liberty Trousers and
Cactus Apparel. Avondale believes that, as a result of its competitive focus, it
has become the leading supplier of denim fabrics to VF Corporation. See "Risk
Factors -- Reliance on Significant Customers".
The finished fabrics division focuses on the development and manufacture of
high quality, value-added fabrics and management believes that the Company is a
leader in the production of enhanced denim fabrics. The Company's modern and
flexible manufacturing process allows it to produce a broad range of denim
styles and finishes. Management believes that styling of denim is a key
competitive factor in the market for denim fabrics. The styling process involves
the creation of a variety of fabric colors, shades and patterns in traditional
and innovative weaves. After weaving, denim fabrics (as well as other finished
fabrics) are processed further in the division's finishing operations to enhance
fabric performance and to produce other desired physical properties. Although
the markets for denim are diverse, Avondale produces primarily heavyweight
denim, which is used primarily in jeans, the largest segment of the denim
market. The Company's denim fabrics are used principally in the manufacture of
medium priced jeans.
To remain one of the leading manufacturers of enhanced denim fabrics, the
Company's principal strategy is to provide its customers with superior product
development and service. The division's product design staff seeks to identify
new product ideas and fashion trends in the domestic apparel market by attending
apparel fashion shows throughout North America and Europe. The product design
staff then works independently and in cooperation with customers to create new,
innovative fabric styles and constructions, which enables customers to respond
to anticipated shifts in domestic consumer demand for apparel products. In these
efforts, the product design staff uses on-line, computer-aided design systems.
Management believes that the
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Company's emphasis on product development and service has resulted in the
development of strong working relationships with key customers.
The finished fabrics division also markets specialty fashion fabrics, which
are cotton and cotton-blend, dyed and printed fabrics used principally in the
manufacture of sportswear. The finished fabric division's product design staff
develops fabric designs that are presented to customers. Once approved, the
division then either uses greige fabric produced by the Company or purchases
such fabric from other manufacturers and contracts to have the fabric dyed or
printed to meet the customer's specifications. These specialty fashion fabrics
expand the finished fabrics line offered by the Company.
Greige Fabrics. Avondale produces undyed, unfinished cotton and
cotton-blend fabrics that are marketed to apparel, home furnishing and
industrial products manufacturers. The Company's modernization efforts in recent
years (which have primarily involved replacing all remaining fly shuttle looms
and early generation shuttleless looms with high speed rapier looms) have
significantly increased the greige fabrics division's manufacturing flexibility
by increasing the range of products that can be manufactured and lowering unit
manufacturing costs. Avondale capitalizes on its manufacturing flexibility
within this division by altering its overall product mix to meet changing
customer needs while maintaining high production efficiencies. The finished
fabric division's product design staff works with greige fabric customers to
create new fabric styles and constructions. Greige fabric sales accounted for
7.2%, 7.7% and 7.6% of the Company's net sales in fiscal 1993, 1994 and 1995,
respectively.
Sales and Marketing
Avondale sold yarns, finished fabrics and greige fabrics to approximately
450, 175 and 50 customers, respectively, in fiscal 1995. None of the Company's
yarn customers accounted for more than 9% of the Company's net sales in fiscal
1995. The Company believes it is the leading supplier of denim to VF Corporation
(the maker of Lee(R), Rider(R), Wrangler(R), Rustler(R), Girbaud(R) and
HealthTex(TM) brand jeans). Avondale believes that it has a strong working
relationship with VF Corporation. See "Risk Factors -- Reliance on Significant
Customers".
Avondale targets customers who demand a high level of customer service. The
Company's three yarn sales offices are located geographically to be close to
customers' manufacturing facilities, and its five fabrics sales offices are
generally located near the headquarters of key customers. Sales associates visit
their customers on a regular basis and are primarily responsible for processing
customer orders and interacting with the Company's production scheduling
personnel. Sales associates assist customers in coordinating their own
production scheduling by monitoring the status of customers' orders through the
production process. Fabric sales associates, and in some cases fabric customers
directly, have access via computer to product information and shipping
schedules. The Company's sales associates are paid a base salary plus sales
incentives to the extent certain performance targets are met. The Company's
independent sales representatives are paid on a commission basis.
Manufacturing
Avondale is a vertically integrated manufacturer of yarns and fabrics.
Through modernizing its manufacturing facilities, the Company has sought to
reduce lead times, minimize inventory levels and maximize flexibility to respond
to changes in customer demand.
Yarn Facilities. Avondale operates 10 yarn manufacturing plants. At these
facilities, raw cotton and synthetic fibers are spun into cotton and
cotton-blend yarns. Avondale has aggressively modernized its yarn manufacturing
facilities, installing advanced carding, drawing, combing and open-end spinning
equipment. The Company has aggressively replaced earlier generation open-end
spinning equipment (which was generally less than 10 years old) with the most
technologically advanced equipment available. Open-end spinning produces high
quality yarns at higher speeds with fewer imperfections and eliminates several
labor-intensive steps in the production process, requiring fewer operators than
ring spinning. The Company nevertheless maintains some ring spinning capability
to offer a full line of yarns and to respond to customer demand for
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both types of yarn. The Company believes that it is a leader in the textile
industry in the use of modern spinning technology.
Fabric Facilities. Avondale operates three fabric manufacturing plants and
one finishing plant. At these facilities raw fibers are spun into yarn, which
may be supplemented with yarn supplied by the Company's yarns division. Yarn to
be used in the manufacture of finished fabrics is then dyed utilizing either
"range" or "vat" dyeing techniques. The finished fabrics and greige fabrics
divisions weave dyed or undyed yarn into fabric according to customer
specifications. Avondale generally employs only modern, high-speed looms for
weaving. These looms enhance the Company's manufacturing flexibility as they can
manufacture fabrics that have a variety of widths and weaves. After weaving,
fabrics produced in the finished fabrics division are transported to the
Company's finishing plant, where they are treated and subjected to several
processes which "set" the fabric to ensure that its characteristics (including
shrinkage, color and shade variation) are consistent within shipments. Within
its greige fabrics division, Avondale has replaced all remaining fly shuttle
looms and earlier generation shuttleless looms with high speed rapier looms and,
in its finished fabrics division, Avondale has installed new projectile looms
with wide-width capability and constructed a large capacity, state-of-the-art
indigo-dyeing facility.
Expansion and Modernization. Over the past 11 years, management has
increased net sales from the $40.5 million achieved by Avondale Incorporated's
predecessor in fiscal 1985 (the last full fiscal year prior to the 1986
Acquisition) to $538.7 million in fiscal 1995. During that period, Avondale has
expanded its operations through acquisitions, an ongoing capital improvements
program and management's ability to optimize the productive output of the
Company's manufacturing facilities. As part of its expansion and modernization
efforts, the Company has also successfully redeployed capital by closing certain
manufacturing facilities and, in other cases, moving manufacturing equipment
among its locations. The Company's expansion and modernization efforts over the
past 11 fiscal years have included, among others, the following principal
initiatives:
- 1986 -- Avondale Incorporated acquired a controlling interest in the
Company, which consisted of 10 yarn manufacturing facilities, two fabric
manufacturing facilities and one finishing plant, expanded its greige
fabrics manufacturing facility and installed more new looms in its greige
fabrics division
- 1987 -- Constructed a new dye range in its finished fabrics division
- 1988, 1989 and 1990 -- Upgraded a portion of its existing open-end
spinning technology and converted a ring-spun yarn manufacturing facility
to open-end spinning technology
- 1989 -- Acquired the property, plant and equipment of three yarn
manufacturing facilities
- 1990 -- Sold an acrylic yarn manufacturing facility (that was not
compatible with the Company's production and manufacturing strategy) and
closed a greige fabrics manufacturing facility
- 1991 -- Sold a ring-spun yarn manufacturing facility as the Company
continued to focus on open-end spinning technology
- 1991, 1992 and 1993 -- Replaced earlier generation open-end spinning
equipment (which generally was less than 10 years old) in the yarns
division with the most technologically advanced equipment available
- 1992 and 1993 -- Replaced all remaining fly shuttle looms in the greige
fabrics division and replaced some earlier generation projectile looms
with technologically advanced, high speed looms and began construction of
a new state-of-the-art indigo-dye range in the finished fabrics division
- 1994 and 1995 -- Completed construction of state-of-the-art indigo-dye
range in the finished fabrics division and replaced open-end spinning
equipment with new generation, advanced spinning technology
- 1996 -- Replaced earlier generation projectile looms and rapier looms
with high speed airjet looms and rapier looms and replaced carding
equipment at two plants with modern carding and drawing systems and
replaced older winders at a third plant with fully automated winders
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<PAGE> 52
Avondale has invested over $100 million over the past five fiscal years in
connection with this capital improvements program. Avondale is currently
implementing a $31 million expansion of its denim manufacturing operations.
Avondale expects this project, which should be completed by the end of fiscal
1997, will expand its denim manufacturing capacity by 25%. This expansion
follows a previous 15% denim expansion completed in fiscal 1995 during which the
Company installed indigo-dyeing capacity in excess of its weaving and finishing
capacity. This current denim expansion program will allow the Company to fully
utilize the previously installed indigo-dyeing capacity, which should enhance
cash flow returns on the current investment.
Customer Service and Quality Assurance. Avondale is committed to being an
industry leader in providing superior customer service. In addition to ensuring
the manufacturing capacity and flexibility to enable the Company to respond
quickly to changes in customer needs, Avondale has structured its manufacturing
processes to meet the increasingly demanding "just-in-time" and "quick response"
delivery requirements of its customers. These techniques reduce in-process
inventories and the time required to process a particular order. In addition,
Avondale has instituted electronic data interchange programs with certain key
customers to facilitate a more efficient, targeted scheduling of their
manufacturing processes. These programs assist the Company in working
effectively with apparel manufacturers to coordinate their operations with the
demands of retailers and, as such, are an important part of the domestic textile
industry's "quick response" program designed to improve its competitive position
compared to imports.
Avondale devotes significant resources to quality assurance, which is
intended to ensure that its yarns and fabrics satisfy fully customer
specifications. The Company's manufacturing plants employ computer-aided control
systems to monitor the manufacturing process and computer-aided product testing
equipment to measure the quality of its yarns and finished fabrics. Avondale
also strives to increase its customers' competitiveness by developing finished
fabrics that reduce the amount of further treatment or finishing required by
such customers. These efforts reduce customers' manufacturing costs and improve
production efficiencies.
Raw Materials
Avondale is one of the largest U.S. consumers of raw cotton, the principle
raw material used in its manufacturing processes. Consequently, the Company's
results of operations may be impacted significantly due to fluctuations in the
supply, quality and price of cotton. Since cotton is an agricultural product,
its supply and quality are subject to forces of nature. Although the Company has
always obtained sufficient supplies of cotton, any material shortage or
interruption in the supply or variations in the quality of cotton by reason of
weather, disease or other factors could have a material adverse effect on the
Company's results of operations. See "Risk Factors -- Unpredictability of Cost
and Availability of Raw Materials". Avondale believes that it will be able to
obtain adequate supplies of cotton in the future.
Because the importation of cotton is generally prohibited, imbalances
between the domestic and world price of cotton can occur. Beginning in 1985,
Congress passed a series of legislative initiatives to ensure that U.S. cotton
was priced competitively with world markets. The Food Security Act of 1985 (the
"1985 Food Act") modified the Commodity Credit Corporation marketing loan
program for cotton producers by linking the amount of non-recourse loans
available under the program and their required repayment levels to world cotton
prices, allowing U.S. cotton producers to meet world cotton prices. The 1985
Food Act also included a one-time payment in kind in August 1986 to domestic
textile mills with respect to certain cotton in inventory to offset in part the
disparity between world and domestic prices. The Food, Agriculture, Conservation
and Trade Act of 1990 (the "1990 Trade Act") and the regulations promulgated
thereunder established a three-step competitiveness plan designed to make
domestic cotton prices approximate world cotton prices through further
modifications to Commodity Credit Corporation loans, payments to users of
domestic cotton and a trigger mechanism to modify the prohibition on cotton
imports if U.S. prices exceed world prices for an extended period of time. The
1985 Food Act and the 1990 Trade Act have resulted in increased domestic cotton
production and a decline in domestic cotton prices, which, together with certain
price equalization payments authorized under both pieces of legislation, have
reduced the Company's effective cotton costs to near world levels. This
legislation and the increased availability of cotton worldwide has improved the
imbalance between world and domestic cotton prices, but there can be no
assurance that this will continue to
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<PAGE> 53
be the case. President Clinton recently signed into law the Farm Agricultural
Improvements and Reform Act of 1996, which establishes certain support programs
that, among other things, continue the three-step competitiveness plan
established under the 1990 Trade Act through 2002. See "Risk Factors -- Possible
Adverse Impact of Government Policy and Regulation".
Avondale closely monitors the cotton market and manages its cotton-buying
practices. The Company's Chief Executive Officer is a member of the board of
directors of the National Cotton Council, a trade organization that spearheads
legislative initiatives to implement U.S. cotton industry policy, which helps
the Company stay abreast of developments in the cotton market. As a result of
the volume of its cotton purchases, Avondale has developed significant
experience and purchasing leverage in the cotton market. Avondale employs
strategic buying practices intended to manage its cotton costs and ensure a
continuous supply. Avondale attempts to purchase cotton as necessary to produce
customer orders, although the Company's purchases may be short of or in excess
of the quantity needed to produce customer orders depending on its market
outlook. Avondale generally enters into cotton purchase contracts several months
in advance of the scheduled date of delivery. Prices for such purchases are
fixed either on the date of the contract or thereafter on a date prior to
delivery and, as a result, Avondale may be favorably or adversely affected if
cotton prices fluctuate during the contract period.
Avondale employs systems and controls designed to ensure cost-efficient
utilization of raw cotton that the Company believes differentiate it from its
competitors. Raw cotton is graded according to U.S. government standards and is
priced based upon its grade. The wide variety of yarns and fabrics produced by
the Company use a broad range of cotton grades, which enhances the Company's
ability to optimize its use of cotton. After purchase by the Company, a sample
from each bale of cotton is sent to the Company's testing facility, which tests
the sample and then categorizes it according to its characteristics into one of
over 150 inventory groupings. Cotton bales are then selected to produce customer
orders based on a computer analysis that matches cotton in inventory with
customer order specifications (e.g., tear strength and dye characteristics) to
ensure the most cost effective raw material mix. The Company's testing
procedures also enable the Company to identify bales that do not meet
contractual quality specifications and thus can be returned to the supplier or
purchased at a lower price.
The principal man-made fiber purchased by the Company is polyester.
Avondale currently purchases man-made fibers for its products from several
suppliers, and such fibers are readily available from other suppliers. Avondale
maintains a limited supply of such fibers in inventory. Avondale has never
experienced difficulty in obtaining sufficient quantities of man-made fibers.
Avondale also purchases dyes and chemicals used in its manufacturing and
finishing processes, and these raw materials have normally been available in
adequate supplies through a number of suppliers. See "The Recent
Transactions -- Terms of the Asset Purchase Agreement -- Supply Agreement".
Competition
The textile industry is highly competitive, and no single company is
dominant. Management believes that the Company is one of the largest domestic
yarns supplier and one of nine principal domestic denim manufacturers. The
Company's competitors include large, vertically integrated textile companies and
numerous smaller companies. In recent years there has been a trend toward
consolidation and deleveraging within certain markets within the textile
industry, and, within the Company's markets, increases in manufacturing
capacity. The primary competitive factors in the textile industry are price,
product styling and differentiation, quality, manufacturing flexibility,
delivery time and customer service. The importance of these factors is
determined by the needs of particular customers and the characteristics of
particular products. The failure of the Company to compete effectively with
respect to any of these key factors or to keep pace with rapidly changing
markets could have a material adverse effect on the Company's results of
operations and financial condition.
Increases in domestic capacity and imports of foreign-made textile and
apparel products are a significant source of competition for many domestic
textile manufacturers. The U.S. government attempts to regulate the growth of
certain textile and apparel imports by establishing quotas on imports from
countries that historically
49
<PAGE> 54
account for significant shares of U.S. imports. Despite these efforts, imported
apparel represent a significant portion of the U.S. apparel market, although the
rate of import growth has slowed considerably in recent years.
The extent of import protection afforded by the U.S. government to domestic
textile producers has been, and is likely to remain, subject to considerable
domestic political deliberation and foreign considerations. In January 1995, a
new multilateral trade organization, the WTO, was formed by the members of GATT
to replace GATT. This new body has set forth the mechanisms by which world trade
in textiles and clothing will be progressively liberalized with the elimination
of quotas and the reduction of duties. The implementation began in January 1995
with the phasing-out of quotas and the reduction of duties to take place over a
10-year period. The selection of products at each phase is made by each
importing country and must be drawn from each of the four main textile groups:
yarns, fabrics, made-up textiles and apparel. As it implements the WTO
mechanisms, the U.S. government is negotiating bilateral trade agreements with
developing countries (which generally are exporters of textile products) that
are members of the WTO for purposes of reducing their tariffs on imports of
textiles and apparel. The elimination of quotas and the reduction of tariffs
under the WTO may result in increased imports of certain textile products and
apparel into North America. These factors could make the Company's products less
competitive against low cost imports from third world countries. See "Risk
Factors -- Possible Adverse Impact of Government Policy and Regulations".
The North American Free Trade Agreement among the United States, Canada and
Mexico, which became effective on January 1, 1994, has created the world's
largest free-trade zone. The agreement contains safeguards sought by the U.S.
textile industry, including a rule of origin requirement that products be
processed in one of the three countries in order to benefit from NAFTA. NAFTA
will phase out all trade restrictions and tariffs on textiles and apparel among
the three countries. In addition, NAFTA requires merchandise to be made from
yarns and fabrics originating in North America in order to avoid trade
restrictions. Thus, not only must apparel be made from North American fabric but
the fabric must be woven from North American spun yarn. Although management
believes that the Company may benefit from NAFTA, there can be no assurance that
the removal of these barriers to trade will not have a material adverse effect
on the Company's business. See "Risk Factors -- "Possible Adverse Impact of
Government Policy and Regulations".
Avondale has attempted to offset the negative impact of increased imports
by focusing on the manufacture of yarns, finished fabrics and greige fabrics for
use in garments that are less vulnerable to import penetration. The relatively
low labor content of these yarns, fabrics and resulting garments, coupled with
demand for high levels of quality, styling and service, present barriers to
foreign competition. Capital expenditures and systems improvements have centered
on strengthening product and market differentiation and on increasing
productivity, lowering costs and improving quality. In addition, the Company's
U.S. manufacturing presence and its emphasis on shortening production and lead
times allows the Company to respond more quickly than foreign producers to
changing fashion trends and to its domestic customers' requirement that
suppliers meet tight production schedules and provide rapid delivery. In
addition to being affected by the level of imports, the Company's continued
success will be affected by the ability of certain of the Company's customers to
remain competitive, the Company's ability to maintain its manufacturing
flexibility and capacity and, most importantly, the Company's ability to
continue to produce innovative, quality products to satisfy specific customer
needs.
Backlog
The Company's order backlog was approximately $249.8 million at May 24,
1996, as compared to approximately $280.8 million at May 26, 1995, and the
Company's order backlog was approximately $378.6 million at August 25, 1995, as
compared to approximately $194.5 million at August 26, 1994. Orders on hand are
not necessarily indicative of total future sales. Substantially all of the
orders outstanding at May 24, 1996 are expected to have been filled by the end
of fiscal 1996.
Properties
Avondale currently operates 14 modern manufacturing facilities in the
United States, of which eight are located in Alabama, three are located in North
Carolina, two are located in Georgia and one is located in South Carolina.
Avondale owns 12 of these facilities and leases two facilities in connection
with its prior
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issuance of industrial revenue bonds. Of the Company's manufacturing facilities,
ten are used for the production of yarns, three are integrated yarn and fabric
manufacturing facilities, and one is a fabric finishing plant. The Company's
plants generally operate 24 hours a day, seven days a week throughout the year.
The Company considers its plants and equipment to be in good condition and
adequate for its current operations. The Company's principal executive offices
are located in Monroe, Georgia, in a building owned by the Company. The Company
also has executive offices in Sylacauga, Alabama, which are located in a
building owned by the Company. All of the Company's sales offices are leased
from unrelated third parties.
The following table sets forth certain information relating to the
Company's manufacturing facilities.
<TABLE>
<CAPTION>
PLANT NAME LOCATION PRODUCTS PRODUCED
-------------------------- ------------------- ---------------------
<S> <C> <C>
Alice Plant Sylacauga, AL Plyed yarn
Bevelle Plant Alexander City, AL Open-end spun yarn;
indigo-dyed fabric
Bon Air Plant Childersburg, AL Open-end spun yarn
Burnsville Plant Burnsville, NC Open-end spun yarn
Catherine Plant Sylacauga, AL Open-end spun yarn
Coosa Plant Rockford, AL Ring spun yarn
Eva Jane Plant Sylacauga, AL Open-end spun yarn;
indigo-dyed fabric
Lee Plant Sanford, NC Open-end spun yarn
Pell City Plant Pell City, AL Ring spun yarn
Sanford Plant Sanford, NC Open-end spun yarn
Sylacauga Finishing Plant Sylacauga, AL Finished denim
Tifton Plant Tifton, GA Open-end spun yarn
Walhalla Plant Walhalla, SC Open-end spun yarn
Walton Plant Monroe, GA Open-end spun yarn;
greige fabric
</TABLE>
Governmental Regulation
Avondale is subject to various federal, state and local environmental laws
and regulations limiting the discharge, storage, handling and disposal of a
variety of substances and wastes used in or resulting from its operations and
potential remediation obligations thereunder, particularly the Federal Water
Pollution Control Act, the Clean Air Act, the Resource Conservation and Recovery
Act (including amendments relating to underground tanks) and the Comprehensive
Environmental Response, Compensation and Liability Act, commonly referred to as
"Superfund" or "CERCLA". Avondale has obtained, and is in compliance in all
material respects with, all material permits required to be issued by federal,
state or local law in connection with the operation of the Company's business as
described herein.
The Company's operations also are governed by laws and regulations relating
to workplace safety and worker health, principally the Occupational Safety and
Health Act and regulations thereunder which, among other things, establish
cotton dust, formaldehyde, asbestos and noise standards, and regulate the use of
hazardous chemicals in the workplace. The Company uses resins containing
formaldehyde in processing some of its products. Although the Company does not
use asbestos in the manufacture of its products, some of its facilities contain
some structural asbestos that management believes is all properly contained.
Many of the Company's manufacturing facilities have been in operation for
several decades. Historical waste disposal and hazardous substance releases and
storage practices may have resulted in on-site and off-site remediation
liability for which the Company would be responsible. In addition, certain
wastewater treatment facilities and air emission sources may have to be upgraded
to meet more stringent environmental requirements in the future. Although the
Company cannot with certainty assess at this time the impact of future emission
standards or enforcement practices under the foregoing environmental laws and
regulations and, in particular, under the 1990 Clean Air Act, upon its
operations or capital expenditure requirements, Avondale believes that it
currently is in compliance in all material respects with the foregoing
environmental or health and safety laws and regulations.
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Associates
At May 24, 1996, Avondale had approximately 3,900 associates. None of the
Company's associates is covered by a collective bargaining agreement, and
management believes that the Company's relations with its associates are good.
Legal Proceedings
On March 3, 1993, a case was filed in the Circuit Court of Jefferson
County, Alabama by Joe and Darnell Sullivan and Tommy and Stella Fay Gould
against the Alabama Power Company, the Company and certain other parties. The
complaint alleges that the Company negligently or willfully discharged
industrial waste water containing hazardous materials, which allegedly damaged
the plaintiffs' riparian rights. The complaint seeks an award of unspecified
damages. The Company is vigorously defending this case and believes that it has
a number of defenses available to it. The Company cannot currently predict
whether the plaintiffs will prevail on their claims or the magnitude of their
potential recovery, if any. Based on currently available information, although
there can be no assurance, the Company does not believe that this case will have
a material adverse effect on its results of operations or financial condition.
Avondale is also a party to litigation incidental to its business from time
to time. Avondale is not currently a party to any litigation that management
believes, if determined adversely to the Company, would have a material adverse
effect on the Company.
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<PAGE> 57
BUSINESS -- GRANITEVILLE
GENERAL
Graniteville, founded over 150 years ago, is a leading manufacturer and
marketer of cotton and cotton-blend finished fabrics. Graniteville markets its
products, which include utility wear fabrics, sportswear fabrics, denim and
specialty fabrics, primarily in the United States to the apparel and industrial
products markets. Graniteville operates 10 manufacturing facilities, including a
modern piece-dyeing and finishing plant believed by the Company to be the
largest in the United States (in terms of pounds processed), all within a
20-mile radius of Graniteville, South Carolina. Graniteville's utility wear
fabrics, sportswear fabrics, denim and specialty fabrics accounted for 47.8%,
16.9%, 27.2% and 8.1%, respectively, of Graniteville's net sales of $505.7 in
fiscal 1995.
DESCRIPTION OF THE BUSINESS
Products
Utility Wear Fabrics. Avondale believes Graniteville is the largest
domestic manufacturer and marketer of fabrics used in the manufacture of utility
wear (principally uniforms and other occupational apparel) for the U.S. rental
and retail markets in which it competes. Graniteville's utility wear fabric
customers require durable fabrics characterized by long wear and easy care.
Graniteville works closely with customers to develop fabrics with these and
other enhanced performance characteristics. Utility wear fabric sales accounted
for 42.3%, 46.9% and 47.8% of Graniteville's net sales in the 1993 Period,
fiscal 1994 and 1995, respectively. Graniteville's utility wear fabric customers
include, among others, Red Kap Industries, Inc., Williamson-Dickie Mfg. Co.,
Inc., Carhartt, Inc., Cintas Corporation and American Uniform Company, Inc.
Sportswear Fabrics. Graniteville is a leading manufacturer and marketer of
woven cotton piece-dyed fabrics that are used primarily in the manufacture of
men's, women's and children's sportswear, casual wear and outerwear. Fabrics are
produced for customers in a wide variety of styles, colors, textures and weights
according to individual customer specifications. Sportswear fabric sales
accounted for 25.3%, 22.8% and 16.9% of Graniteville's net sales in the 1993
Period, fiscal 1994 and 1995, respectively. Graniteville's sportswear fabric
customers include, among others, Liz Claiborne Inc., Farah Incorporated, Disenos
De Alta Moda, S.A. (a Mexican Guess(TM) licensee), Levi Strauss & Co. Inc.
(Dockers(TM)and Brittania(TM)) and Wrangler, Inc.
Denim. Graniteville is a leading manufacturer of indigo-dyed denim fabric
used in the production of branded and private label men's, women's and
children's fashion apparel as well as casual jeans, sportswear and outerwear.
Graniteville develops and manufactures new and innovative colors, textures,
weaves and finishes for its customers, which has helped make Graniteville's
denim fabrics leaders in the branded and private label, fashion-oriented segment
of the apparel market. Denim fabric sales accounted for 23.5%, 20.8% and 27.2%
of Graniteville's net sales in the 1993 Period, fiscal 1994 and 1995,
respectively. Graniteville's denim customers include, among others, Stuffed
Shirt Inc., Michael Caruso & Company Inc. (Bongo(R)), The Gap Stores Inc. and
Levi Strauss & Co. Inc.
Specialty Fabrics. Graniteville produces a variety of fabrics that are
marketed to recreational, industrial and military products manufacturers.
Graniteville's specialty fabrics include coated fabrics for awnings, tents, boat
covers and camper tops. Graniteville also dyes customers' finished apparel
products, which enables customers to meet short delivery schedules while
minimizing inventories. Specialty fabric sales accounted for 9.0%, 9.5% and 8.1%
of Graniteville's net sales in the 1993 Period, fiscal 1994 and 1995,
respectively.
Sales and Marketing
Graniteville sold utility wear fabrics, sportswear fabrics, denim and
specialty fabrics to approximately 275, 250, 300 and 150 customers,
respectively, in fiscal 1995. VF Corporation accounted for approximately 11% of
Graniteville's net sales in fiscal 1995. Other than VF Corporation, none of
Graniteville's customers accounted for more than 10% of Graniteville's net sales
in fiscal 1995.
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Graniteville's fabrics, including utility wear fabrics, sportswear fabrics
and denim, are marketed and sold by its apparel marketing group. The apparel
marketing group recently moved its headquarters from New York City to
Graniteville's headquarters in South Carolina, which has enabled Graniteville to
reduce its marketing expenses. In addition to its South Carolina headquarters,
the apparel marketing group maintains regional offices in New York City, Boston,
Greensboro, NC, Greenville, SC, Dallas, TX, and San Francisco, CA. Independent
sales agents in Los Angeles, California and Canada also market certain of
Graniteville's fabrics. Graniteville's specialty products are sold directly by
its speciality products group located in Graniteville, South Carolina.
Manufacturing
Graniteville is a vertically integrated manufacturer. Graniteville
purchases raw cotton and polyester which it spins into yarn that is either dyed
and then woven into fabrics or woven into fabrics and then dyed according to
customer specifications (as in the case of piece-dyed fabrics). Graniteville
also purchases yarn that it weaves into greige fabrics and that it dyes and
finishes.
Manufacturing Facilities. Graniteville operates four weaving plants, two
indigo-dyeing facilities, one indigo-finishing facility, one piece-dyeing and
finishing facility, one coating facility and one garment-dyeing facility.
Graniteville has recently installed state-of-the-art open-end spinning equipment
and high speed air-jet and rapier looms in its weaving plants, which have
improved quality and increased the capacity and efficiency of Graniteville's
spinning and weaving production processes. Graniteville's dyeing and finishing
facilities use a wide range of technologies, including sophisticated
computer-based monitoring and control systems. These systems allow Graniteville
to continuously monitor and control each phase of the dyeing and finishing
process, which helps to improve productivity, efficiency, consistency and
quality.
Expansion and Modernization. Graniteville has invested over $75 million to
modernize its manufacturing operations during its past five fiscal years.
Graniteville's modernization efforts have focused on updating its yarn spinning
and weaving operations by replacing older generation spinning equipment and
looms with advanced, computer-controlled spinning machinery and high speed
air-jet and rapier looms, which have significantly increased productivity while
allowing Graniteville to maintain its high quality manufacturing standards. In
addition, in fiscal 1994, Graniteville completed construction of a new
indigo-dyeing facility.
Raw Materials
The principal raw materials used by Graniteville in its manufacturing
processes are cotton and man-made fibers (primarily polyester). Graniteville
purchases cotton from a number of domestic suppliers at the time it receives
orders from customers and generally maintains orders for a four to six month
supply of cotton. Polyester is generally purchased from one principal supplier,
although there are numerous alternative domestic sources for polyester.
Polyester is purchased pursuant to periodic negotiations whereby Graniteville
seeks to assure itself of a consistent, cost-effective supply. In addition,
Graniteville purchases yarn and greige fabrics from other manufacturers to
supplement its internal production. These fabrics have normally been available
in adequate supplies from a number of domestic sources. Graniteville also
purchases bulk dyes and specialty chemicals manufactured by various domestic
producers, including C. H. Patrick & Company, Inc. ("Patrick"), which was, prior
to the Graniteville Acquisition, a wholly owned subsidiary of Graniteville that
sells chemicals and dyes to the textile industry. See "The Recent
Transactions -- Terms of the Asset Purchase Agreement -- Supply Agreement".
Competition
Graniteville competes in many of the same markets within the textile
industry as the Company and, as a result, is generally subject to the same
competitive environment. See "Business -- The Company -- Description of the
Business -- Competition".
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<PAGE> 59
Backlog
Graniteville's order backlog was approximately $244.3 million at December
31, 1995, as compared to approximately $276.7 million at January 1, 1995. Orders
on hand are not necessarily indicative of total future sales. Substantially all
of the orders outstanding at December 31, 1995 are expected to have been filled
by the end of fiscal 1996.
Properties
The following table sets forth certain information relating to
Graniteville's manufacturing facilities.
<TABLE>
<CAPTION>
PLANT NAME LOCATION PRODUCTS PRODUCED
----------------------------- ----------------- --------------------------------
<S> <C> <C>
Gregg Dyeing and Finishing Graniteville, SC Piece-dyeing and finishing of
100% cotton and blended
bottom-weight fabrics
Hickman Graniteville, SC Open-end spun yarn; greige
fabrics for piece-dyed
sportswear; Indigo-dyed
fabrics
Kingsmore Indigo Dyeing Graniteville, SC Indigo-dyed yarn
Sibley Augusta, GA Open-end and ring spun yarn;
indigo dyed fabrics
Sibley Dyeing and Finishing Augusta, GA Stock-dyed cotton; finished
denim
Swint Graniteville, SC Open-end and ring spun yarn;
greige fabrics for piece-dyed
sportswear
Townsend Graniteville, SC Open-end and ring spun yarn;
greige fabrics for piece-dyed
sportswear; indigo-dyed
fabrics
Warren Dyeing Graniteville, SC Indigo-dyed yarn
Warren Garment Processing Graniteville, SC Garment dyed apparel
Woodhead Graniteville, SC Finished coated fabrics
</TABLE>
Governmental Regulation
Graniteville is subject to various federal, state and local environmental
laws and regulations limiting the discharge, storage, handling and disposal of a
variety of substances and wastes used in or resulting from its operations and
potential remediation obligations thereunder, particularly the Federal Water
Pollution Control Act, the Clean Air Act, the Resource Conservation and Recovery
Act (including amendments relating to underground tanks) and CERCLA.
Graniteville has obtained and is in compliance in all material respects with all
material permits required to be issued by federal, state or local law in
connection with the operation of the business of Graniteville as described
herein.
Many of Graniteville's manufacturing facilities have been in operation for
several decades. Historical waste disposal and hazardous substance releases and
storage practices may have resulted in on-site and off-site remediation
liability for which Graniteville would be responsible. From time to time, the
Graniteville facilities have been subject to enforcement actions from
governmental authorities regarding alleged noncompliance with environmental
requirements. In the past, such enforcement actions typically have resulted in
the institution of compliance programs and may have resulted in minor penalty
assessments.
In 1987, Graniteville was notified by the South Carolina Department of
Health and Environmental Control (the "DHEC") that it had discovered certain
contamination of a pond near Graniteville, South Carolina and that Graniteville
may be one of the responsible parties. In 1990 and 1991, Graniteville provided
reports to the DHEC summarizing its required study and investigation of the
alleged pollution and its sources which concluded that pond sediments should be
left undisturbed and that other remediation alternatives either provided no
significant benefit or themselves involved adverse effects. In 1995 Graniteville
submitted a proposal regarding periodic monitoring of the site, to which the
DHEC responded with a request for additional
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information. Graniteville provided such information to the DHEC in February
1996. In April 1996, DHEC accepted the proposed protocol for monitoring pond
sediment which is expected to occur over the next two years. The cost of such
monitoring is currently expected to range from $25,000 to $35,000 annually. The
Company is unable to predict at this time whether any further actions will be
required with respect to the site or what the cost thereof may be.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on April 23, 1996 to the Initial
Purchaser in reliance on Section 4(2) of the Securities Act. The Initial
Purchaser offered and sold the Old Notes only to "qualified institutional
buyers" (as defined in Rule 144A) in compliance with Rule 144A and to a limited
number of other institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) that, prior to their
purchase of Old Notes, delivered to the Initial Purchaser a letter containing
certain representations and agreements.
In connection with the sale of the Old Notes, the Company, Avondale
Incorporated and the Initial Purchaser entered into a Registration Rights
Agreement dated April 23, 1996 (the "Registration Rights Agreement"), which
generally requires the Company (i) to cause the Old Notes to be registered under
the Securities Act pursuant to the Shelf Registration Statement (as defined) or
(ii) to file with the Commission the Exchange Offer Registration Statement with
respect to the Exchange Offer. The Exchange Offer is being made pursuant to the
Registration Rights Agreement to satisfy the Company's obligations thereunder
with regard to the Notes. The term "holder" with respect to the Exchange Offer
means any person in whose name Old Notes are registered on the registrar's books
or any other person who has obtained a properly completed bond power from the
registered holder, or any person whose Old Notes are held of record by The
Depository Trust Company ("DTC") who desires to deliver such Old Notes, by
book-entry transfer at DTC.
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes the New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by any holder thereof (other than
broker-dealers, as set forth below, and any such holder that is an "affiliate"
of the Company or Avondale Incorporated within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and that such holder is not
participating in, does not intend to participate in and has no arrangement or
understanding with any person to participate in the distribution of such New
Notes. Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution of the New
Notes or who is an affiliate of the Company may not rely upon such
interpretations by the staff of the Commission and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Failure to comply with such requirements in such instance may
result in such holder incurring liabilities under the Securities Act for which
the holder is not indemnified by the Company. Each broker-dealer (other than an
affiliate of the Company) that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make the Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution." Any
broker-dealer who is an affiliate of the Company or Avondale Incorporated may
not rely on such no-action letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction.
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The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in which
this Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction.
By tendering in the Exchange Offer, each holder of Old Notes will represent
to the Company that, among other things, (i) the New Notes acquired pursuant to
the Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, (ii)
neither the holder of Old Notes nor any such other person is participating in,
intends to participate in or has an arrangement or understanding with any person
to participate in the distribution of such New Notes, (iii) neither the holder
nor any such other person is an "affiliate" of the Company as defined in Rule
405 under the Securities Act or, if such holder is an "affiliate," that such
holder will comply with the registration and prospectus delivery requirements of
the Securities Act to the extent applicable, (iv) if the holder is not a
broker-dealer, that neither the holder nor any such other person is engaged in
or intends to engage in the distribution of such New Notes, or (v) if such
holder is a broker-dealer, that it will receive New Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities and that it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to participate. Holders of the Old Notes are urged to
consult their financial and tax advisors in making their own decisions on
whether to participate in the Exchange Offer.
TERMS OF THE EXCHANGE OFFER
General. Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company hereby offers to
exchange any and all Old Notes validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. Subject to the minimum
denomination requirements of the New Notes, the Company will issue $1,000
principal amount of New Notes in exchange for each $1,000 principal amount of
outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be
tendered only in amounts that are integral multiples of $1,000 principal amount.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New Notes
will be registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof and (ii) holders of the New Notes will
not be entitled to certain rights of holders of Old Notes under the Registration
Rights Agreement, which will terminate upon consummation of the Exchange Offer.
The New Notes will evidence the same debt as the Old Notes, will be entitled to
the benefits of the Indenture and will be treated as a single class thereunder
with any Old Notes that remain outstanding. The Exchange Offer is not
conditioned upon any minimum aggregate principal amount of Old Notes being
tendered for exchange.
As of the date of this Prospectus, $125,000,000 aggregate principal amount
of the Old Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about September , 1996 to all holders
known to the Company.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Alabama Business Corporation Act or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which are not tendered for exchange in the
Exchange Offer will remain outstanding and interest thereon will continue to
accrue.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
for the purposes of receiving the New Notes from the Company. If any tendered
Old Notes are not accepted for exchange because of an invalid tender, the
occurrence of certain
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other events set forth herein or otherwise, certificates for any such unaccepted
Old Notes will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes described below, in connection with the
Exchange Offer. See "-- Fees and Expenses".
Expiration Date; Extensions; Amendments. The term "Expiration Date" shall
mean 5:00 p.m., New York City time, on October , 1996, unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which the Exchange
Offer is extended. Although the Company has no current intention to extend the
Exchange Offer, the Company reserves the right to extend the Exchange Offer at
any time and from time to time by giving oral or written notice to the Exchange
Agent and by timely public announcement communicated, unless otherwise required
by applicable law or regulation, by making a release to the Dow Jones News
Service. During any extension of the Exchange Offer, all Old Notes previously
tendered pursuant to the Exchange Offer and not withdrawn will remain subject to
the Exchange Offer. The date of the exchange of the New Notes for Old Notes will
be the first New York Stock Exchange trading day following the Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth under "-- Conditions of the
Exchange Offer" below shall not have been satisfied, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent or (ii) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the holders of Old Notes. If
the Exchange Offer is amended in any manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendment
by means of a prospectus supplement that will be distributed to the holders of
Old Notes, and the Company will extend the Exchange Offer for a period of time,
depending upon the significance of the amendment and the manner of disclosure to
such holders, if the Exchange Offer otherwise would expire during such period.
In all cases, issuance of the New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of a properly completed and duly executed Letter of
Transmittal and all other required documents; provided, however, that the
Company reserves the absolute right to waive any conditions of the Exchange
Offer or defects or irregularities in the tender of Old Notes. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer or if Old Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged Old
Notes or substitute Old Notes evidencing the unaccepted portion, as appropriate,
will be returned without expense to the tendering holder (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry procedures described below, such non-exchanged Old
Notes will be credited to an account maintained with DTC), unless otherwise
provided in the Letter of Transmittal, as promptly as practicable after the
expiration or termination of the Exchange Offer.
Interest on the New Notes. Holders of Old Notes that are accepted for
exchange will not receive accrued interest thereon at the time of exchange.
However, each New Note will bear interest from the most recent date to which
interest has been paid on the Old Notes or New Notes, or if no interest has been
paid on the Old Notes or New Notes, from April 29, 1996.
Procedures for Tendering Old Notes. The tender to the Company of Old Notes
by a holder thereof pursuant to one of the procedures set forth below will
constitute an agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal. A holder of the Old Notes may tender such Old Notes by (i) properly
completing and signing a Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to a Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with any
corresponding certificate or certificates representing Old Notes being tendered
(or confirmation of a book-entry-transfer of such Old
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Notes into the Exchange Agent's account at DTC pursuant to the book-entry
procedures described below) and any required signature guarantees, to the
Exchange Agent at its address set forth in the Letter of Transmittal on or prior
to the Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in DTC (also referred to as a book-entry facility) whose name
appears on a security listing as the owner of Old Notes), the signature of such
signer need not be guaranteed. In any other case, the tendered Old Notes must be
endorsed or accompanied by written instruments of transfer in form satisfactory
to the Company and duly executed by the registered holder and the signature on
the endorsement or instrument of transfer must be guaranteed by a member firm of
a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" as
defined by rule 17Ad-15 under the Exchange Act (any of the foregoing hereinafter
referred to as an "Eligible Institution"). If the New Notes or Old Notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the Old Notes, the signature in the
Letter of Transmittal must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC) is received by the Exchange
Agent or (ii) a Notice of Guaranteed Delivery or letter, telegram or facsimile
transmission to similar effect (as provided below) from an Eligible Institution
is received by the Exchange Agent. Issuances of New Notes in exchange for Old
Notes tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram
or facsimile transmission to similar effect (as provided below) by an Eligible
Institution will be made only against submission of a duly signed Letter of
Transmittal (and any other required documents) and deposit of the tendered Old
Notes (or confirmation of a book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC pursuant to the book-entry procedures described
below).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company, which determination will be final and binding. The Company reserves
the absolute right to reject any and all tenders not in proper form or the
acceptance for exchange of which may, in the opinion of the Company's counsel,
be unlawful. The Company also reserves the absolute right to waive any of the
conditions of the Exchange Offer or any defect or irregularity in the tender of
any Old Notes. None of the Company, the Exchange Agent or any other person will
be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification. Any
Old Notes received by the Exchange Agent that are not validly tendered and as to
which the defects or irregularities have not been cured or waived, or if Old
Notes are submitted in principal amount greater than the principal amount of Old
Notes being tendered by such tendering holder, such unaccepted or non-exchanged
Old Notes will be returned by the Exchange Agent to the tendering holder, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion (i) to
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date and (ii) to the extent permitted by
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applicable law, to purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
will differ from the terms of the Exchange Offer.
Book-Entry Transfer. The Company understands that the Exchange Agent will
make a request promptly after the date of this Prospectus to establish an
account with respect to the Old Notes at DTC for the purpose of facilitating the
Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in DTC's system may make book-entry delivery
of Old Notes by causing DTC to transfer such Old Notes into the Exchange Agent's
account with respect to the Old Notes in accordance with DTC's procedure for
such transfer. Although delivery of the Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, an appropriate
Letter of Transmittal with any required signature guarantee and all other
required documents must in each case be transmitted to and received or confirmed
by the Exchange Agent at the address set forth in the Letter of Transmittal on
or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures.
Guaranteed Delivery Procedures. If a holder desires to participate in the
Exchange Offer and such holder's Old Notes are not immediately available, or
time will not permit such holder's Old Notes or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) on or
prior to the Expiration Date, the Exchange Agent has received from an Eligible
Institution a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the tendering holder, the
name(s) in which the Old Notes are registered, the certificate number(s) of the
Old Notes to be tendered and the amount tendered, and stating that the tender is
being made thereby and guaranteeing that, within three New York Stock Exchange
trading days after the date of execution of the Notice of Guaranteed Delivery,
such Old Notes, in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at DTC), will be
delivered by such Eligible Institution together with any other documents
required by the Letter of Transmittal and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a confirmation of
book-entry transfer such Old Notes into the Exchange Agent's account at DTC, as
the case may be, and all other documents required by the Letter of Transmittal
are received by the Exchange Agent within three New Stock Exchange Trading Days
after the date of execution of the Notice of Guaranteed Delivery. Unless Old
Notes being tendered by the above-described method are deposited with the
Exchange Agent within the time period set forth above (accompanied or preceded
by a properly completed Letter of Transmittal and any other required documents),
the Company may, at its option, reject the tender. Copies of a Notice of
Guaranteed Delivery which may be used by Eligible Institutions for the purposes
described in this paragraph are available from the Exchange Agent.
Terms and Conditions of the Letter of Transmittal. The Letter of
Transmittal contains, among other things, the following terms and conditions,
which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's true and lawful agent and
attorney-in-fact with respect to such tendered Old Notes, with full power of
substitution, among other things, to cause the Old Notes to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Old Notes
and to acquire New Notes issuable upon the exchange of such tendered Old Notes,
and that, when the same are accepted for exchange, the Company will acquire good
and unencumbered title to the tendered Old Notes, free and clear of all liens,
restrictions, charges, encumbrances and adverse claims. The Transferor also
warrants that it will, upon request, execute and deliver any additional
documents reasonably requested by the Company or the Exchange Agent as necessary
or desirable to complete and give effect to the transactions contemplated by the
Letter of Transmittal. All authority conferred by the Transferor will survive
the death, bankruptcy or incapacity of the Transferor and every obligation of
the Transferor shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of such Transferor.
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By executing a Letter of Transmittal, each holder will make to the Company
the representations set forth above under the heading "-- Purpose and Effect of
the Exchange Offer".
Withdrawal of Tenders of Old Notes. Tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) contain a statement that
such holder is withdrawing his election to have such Old Notes exchanged, (iv)
be signed by the holder in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Old Notes register the
transfer of such Old Notes in the name of the person withdrawing the tender and
(v) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. If Old Notes have been tendered pursuant
to the procedure for book-entry transfer, any notice of withdrawal must specify
the name and number of the account at DTC. All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by the Company, which determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly retendered. Any
Old Notes which have been tendered but which are not accepted for exchange will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at DTC pursuant to the book-entry transfer procedures described above, such Old
Notes will be credited to an account maintained with DTC for the Old Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Old Notes may be retendered by following one
of the procedures described above under "-- Procedures for Tendering Old Notes"
at any time on or prior to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, or any extension of
the Exchange Offer, the Company shall not be required to accept for exchange, or
exchange New Notes for, any Old Notes, and may terminate the Exchange Offer as
provided herein before the acceptance of such Old Notes, if:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority which,
in the reasonable judgment of the Company, seeks to or would prohibit,
restrict, materially delay or otherwise render illegal consummation of the
Exchange Offer; or
(b) any change, or any development involving a prospective change, in
the business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the sole judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company, or
(c) there shall occur a change in the current interpretations by the
staff of the Commission which, in the Company's reasonable judgment, might
materially impair the Company's ability to proceed with the Exchange Offer.
If the Company determines in its reasonable judgment that any of the above
conditions is not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration Date,
subject, however, to the right of holders to withdraw such Old Notes (see
"-- Terms of the Exchange Offer -- Withdrawal of Tenders of Old Notes") or (iii)
waive such unsatisfied conditions with respect to the Exchange Offer and accept
all validly tendered Old Notes which have not been withdrawn. If such waiver
constitutes a
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material change to the Exchange Offer, the Company will promptly disclose such
waiver by means of a prospectus supplement that will be distributed to the
holders of Old Notes, and the Company will extend the Exchange Offer for a
period of time, depending upon the significance of the waiver and the manner of
disclosure to the such holders, if the Exchange Offer otherwise would expire
during such period.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. All executed Letters of Transmittal should be directed to the Exchange
Agent at one of the addresses set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Hand or Overnight Courier: By Registered or Certified Mail:
The Bank of New York The Bank of New York
Corporate Trust Services 101 Barclay Street-7E
Window, Ground Level New York, New York 10286
101 Barclay Street-7E Attn: Ms. Jodi Smith
New York, New York 10286
Attn: Ms. Jodi Smith
</TABLE>
By Facsimile Transmission (for Eligible Institutions only):
(212) 815-6339
Attn: Ms. Jodi Smith
Confirm by Telephone:
(212) 815-2791
For information with respect to the Exchange Offer, call
Ms. Jodi Smith of the Exchange Agent:
(212) 815-2791
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopy, telephone or in person by officers and regular
employees of the Company and its affiliates. No additional compensation will be
paid to any such officers and employees who engage in soliciting tenders.
The Company has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptance of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. The Company also may pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus, the Letter of
Transmittal and related documents to the beneficial owners of the Old Notes and
in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include, among others, fees and expenses of
the Exchange Agent, accounting and legal fees and printing costs.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Old Notes pursuant to the Exchange Offer. If, however, New Notes, or Old
Notes for principal amounts not tendered or accepted for
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exchange, are to be delivered to, or are to be issued in the name of, any person
other than the registered holder of the Old Notes tendered or if a transfer tax
is imposed for any reason other than the exchange of the Old Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities within the meaning of Rule 144 of the
Securities Act. Accordingly, such Old Notes may be resold only (i) to the
Company or any subsidiary thereof, (ii) inside the United States to a qualified
institutional buyer in compliance with Rule 144A, (iii) inside the United States
to an institutional accredited investor that, prior to such transfer, furnishes
to the Trustee a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Old Notes (the form of which
letter can be obtained from the Trustee) and, if such transfer is in respect of
an aggregate principal amount of Old Notes at the time of transfer of less than
$100,000, an opinion of counsel acceptable to the Company that such transfer is
in compliance with the Securities Act, (iv) outside the United States in
compliance with Rule 904 under the Securities Act, (v) pursuant to the exemption
from registration provided by Rule 144 under the Securities Act (if available)
or (vi) pursuant to an effective registration statement under the Securities
Act. The liquidity of the Old Notes could be adversely affected by the Exchange
Offer.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company. The costs of the Exchange Offer and the unamortized expenses related to
the issuance of the Old Notes will be amortized over the term of the New Notes.
THE RECENT TRANSACTIONS
TERMS OF THE ASSET PURCHASE AGREEMENT
General. Pursuant to the Asset Purchase Agreement, the Company purchased
substantially all of the assets and certain of the liabilities of the textile
business of Graniteville Company on April 29, 1996.
Purchase Price. Pursuant to the Asset Purchase Agreement, the aggregate
consideration paid by the Company was $255 million in cash less the "deficit
amount". The deficit amount, if any, will be equal to the excess of $242 million
over the net book value, as of April 29, 1996, of assets acquired and
liabilities assumed in connection with the Graniteville Acquisition. The parties
are in the process of determining the deficit amount, if any. If there is a
"deficit amount", Graniteville Company (or Triarc as guarantor) will be required
to repay to the Company an amount equal to the deficit amount, plus interest
thereon from April 29, 1996. On May 21, 1996, Triarc, on behalf of Graniteville
Company, paid to the Company $5.0 million, which amount will be applied to the
deficit amount, if any. Interest will not accrue on such $5.0 million after the
date of such payment. The Company has estimated the deficit amount to be $15.1
million in its preliminary purchase price allocation. See "Pro Forma Financial
Information". In addition, Avondale paid (or will pay) $5.0 million in
acquisition costs, which include, among other things, $2.6 million in prepayment
penalties that were incurred by Graniteville Company and reimbursed by Avondale
in connection with the repayment by Graniteville Company of certain of its
outstanding indebtedness.
Indemnification. Graniteville Company (and Triarc as guarantor) is
required to indemnify the Company and its subsidiaries and affiliates and each
of their respective officers, directors, employees, agents and representatives
with respect to all claims, liabilities, obligations, losses, costs, expenses,
penalties, fines and other judgements and damages ("Losses") arising out of or
relating to (i) certain liabilities of Graniteville not assumed by the Company;
(ii) certain liabilities of Graniteville assumed by the Company which are not
63
<PAGE> 68
included as liabilities on the statement of the net book values of the assets
and liabilities of Graniteville Company that is agreed upon by the Company and
Graniteville Company after the closing; (iii) all or any portion of any such
liability that is in excess of the amount thereof included as a liability on
such statement; (iv) any breach or inaccuracy of any representation or warranty
of Graniteville Company or any of its affiliates in the Asset Purchase
Agreement; (v) any breach of any covenant, agreement or undertaking made by
Graniteville Company or any of its affiliates in the Asset Purchase Agreement;
(vi) any liability or obligation relating to certain environmental conditions
that existed or occurred at or prior to the closing in connection with the
operation of Graniteville's business; (vii) any fraud by Graniteville Company or
any of its affiliates in connection with the Graniteville Acquisition; or (viii)
any knowing and intentional breach of certain representations and warranties
made by Graniteville Company or any of its affiliates in the Asset Purchase
Agreement. The right of the Company to indemnification with respect to a Loss
will be limited to the extent that reserves have been established by
Graniteville Company for such Loss.
The Company (and Avondale Incorporated as guarantor) is required to
indemnify Graniteville Company, Triarc, their respective subsidiaries and
affiliates and each of their respective officers, directors, employees, agents
and representatives with respect to all Losses arising out of or relating to (i)
any liability of Graniteville assumed by the Company, except to the extent the
Company is entitled to be indemnified against such liability; (ii) any breach or
inaccuracy of any representation or warranty of the Company in the Asset
Purchase Agreement or in certain related documents; (iii) any breach of certain
covenants, agreements or undertakings made by the Company in the Asset Purchase
Agreement or in certain related documents; or (iv) subject to certain
exceptions, the conduct of Graniteville's business after the closing date.
Claims for indemnification by the Company with respect to Losses resulting
from the breach or inaccuracy of certain specified representation and warranties
may be made at any time, except as limited by law. Claims for indemnification
with respect to environmental matters must be made on or prior to the third
anniversary of the closing date. All other claims must be made on or prior to
the date which is eighteen months after the closing date.
Under the Asset Purchase Agreement, Graniteville will only be liable for
Losses arising from breaches of representations and warranties and certain other
matters, if and to the extent such Losses (other than those with respect to
claims which may be made at any time after the closing date) exceed $5 million.
In addition, the obligation of Graniteville Company to indemnify the Company is
capped at $100 million, except that Losses with respect to claims which may be
made at any time after the closing date shall not be included in the calculation
of such $100 million cap and there is no limit on the indemnification
obligations of Graniteville with respect to such claims.
Triarc Guarantee. Triarc has guaranteed, among other things, the
obligations of Graniteville Company under the indemnification provisions of the
Asset Purchase Agreement.
Supply Agreement. The Company and Patrick have entered into a 10-year
Supply Agreement (the "Supply Agreement") in connection with the Graniteville
Acquisition. The Supply Agreement generally provides that Patrick will have the
opportunity to provide certain dyes and chemicals utilized by the Company
(including Graniteville) if Patrick meets certain conditions, including the
ability to provide the applicable dyes and chemicals in accordance with the
Company's specifications and delivery requirements. The Supply Agreement is
terminable by the Company prior to the end of the ten-year term in the event of
a pattern of repeated, material failures of Patrick to satisfy its obligations
with respect to Product specifications, delivery schedules or other material
terms.
EQUITY PRIVATE PLACEMENT
General. In connection with the Graniteville Acquisition, Avondale
Incorporated consummated the Equity Private Placement to finance a portion of
the purchase price for the Graniteville Acquisition. In connection with the
Equity Private Placement, Avondale Incorporated issued and sold 2,222,223 shares
of Class A Common Stock to The Clipper Group and certain of its affiliates
(collectively, the "investors") for an aggregate purchase price of $40 million.
In connection with the Equity Private Placement, Avondale Incorporated paid a
closing fee of $600,000 to Clipper.
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<PAGE> 69
Shareholders Agreement. In connection with the Equity Private Placement,
Avondale Incorporated entered into a Shareholders Agreement (the "Shareholders
Agreement") with the investors, G. Stephen Felker ("Felker") and an affiliate of
Felker. The Shareholders Agreement grants the investors the right to appoint a
member of the Board of Directors of Avondale Incorporated so long as the
investors own (in the aggregate) at least one million shares of Class A Common
Stock (as adjusted for stock splits, etc.). The Shareholders Agreement also (i)
grants the investors preemptive rights with respect to future issuances of
Common Stock by Avondale Incorporated (subject to certain exceptions), (ii)
allows the investors to participate in any sale of Common Stock by Felker or his
affiliates and (iii) permits Felker to require the investors to sell their
shares of Class A Common Stock in connection with certain sales by the other
shareholders of Avondale Incorporated. The Shareholders Agreement terminates
upon the earlier of the twentieth anniversary of its execution or the
consummation of a "Qualified Public Offering" (as defined in the Shareholders
Agreement).
Registration Rights Agreement. In connection with the Equity Private
Placement, Avondale Incorporated entered into a Registration Rights Agreement
(the "Registration Agreement") with the investors. Under the Registration
Agreement, after the earlier to occur of three years after the execution thereof
and completion of an initial public offering by Avondale Incorporated, the
investors have the right to require Avondale Incorporated to register their
shares of Class A Common Stock under the Securities Act for sale to the public,
subject to certain limitations. Avondale is required to pay all expenses (other
than discounts and commissions) in connection with two such demand
registrations. In addition, if the Company elects to register securities under
the Securities Act for its own account or the account of other shareholders, the
investors have the right to register their shares of Class A Common Stock under
any such registration statement, subject to certain limitations.
OTHER FINANCINGS
For a description of the New Credit Facility and Receivables Securitization
Facility, see "Description of Certain Indebtedness".
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<PAGE> 70
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and Avondale
Incorporated are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
- ----------------------------- --- -------------------------------------------------
<S> <C> <C>
G. Stephen Felker............ 44 Chairman of the Board, President and Chief
Executive Officer of the Company and Avondale
Incorporated
Jack R. Altherr, Jr. ........ 47 Vice Chairman, Chief Financial Officer, Secretary
and director of the Company and Avondale
Incorporated
T. Wayne Spraggins........... 59 Vice President of the Company and President -
Manufacturing Operations
Keith M. Hull................ 43 Vice President of the Company and
President - Apparel Fabrics*
Robert G. Nelson............. 47 Vice President of the Company and President -
Avondale Yarns*
Craig S. Crockard............ 54 Vice President, Planning and Development of the
Company
Bill W. Henry................ 62 Vice President, Raw Material Purchasing of the
Company
M. Delen Boyd................ 40 Vice President and Controller of the Company and
Assistant Secretary of the Company and Avondale
Incorporated
J. Elliott Woodward.......... 44 Vice President and Treasurer of the Company and
Assistant Secretary of the Company and Avondale
Incorporated
Sharon L. Rodgers............ 40 Vice President, Human Resources of the Company
Kenneth H. Callaway(a)....... 41 Director of the Company and Avondale Incorporated
Robert B. Calhoun(b)......... 53 Director of the Company and Avondale Incorporated
Harry C. Howard(b)........... 67 Director of the Company and Avondale Incorporated
C. Linden Longino, Jr.(b).... 60 Director of the Company and Avondale Incorporated
Dale J. Boden(a)............. 39 Director of the Company and Avondale Incorporated
John P. Stevens(a)........... 67 Director of the Company and Avondale Incorporated
</TABLE>
- ---------------
* Avondale Yarns and Apparel Fabrics refer to the yarns division and finished
fabrics division, respectively.
(a) Member of Compensation Committee.
(b) Member of Audit Committee.
G. Stephen Felker has served as Chairman of the Board of Avondale
Incorporated since 1992 and President and Chief Executive Officer of Avondale
Incorporated since 1980. Mr. Felker also served as Treasurer of Avondale
Incorporated from 1977 until August 1993 and has served Avondale Incorporated in
various capacities since 1974. Mr. Felker has served as Chairman of the Board
and Chief Executive Officer of the Company since 1986, when Avondale
Incorporated acquired the Company, and President of the Company since 1995. Mr.
Felker is a member of the board of directors of Wachovia Bank of Georgia, N.A.
Jack R. Altherr, Jr. has served as Vice Chairman of Avondale Incorporated
and the Company since May 1996, Chief Financial Officer and a director of
Avondale Incorporated since December 1989, Chief Financial Officer and Secretary
of the Company since October 1988 and a director of the Company since 1993. Mr.
Altherr served as Vice President of Avondale Incorporated and the Company from
December 1989 and October 1988, respectively, to May 1996. With the exception of
fiscal 1995, he has served as Secretary of the Company and Avondale Incorporated
since August 1993. Mr. Altherr has served the Company in various other
capacities since July 1982. Mr. Altherr began serving as a director of Oneita in
February 1996 in
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<PAGE> 71
connection with the Company's subordinated loan to Oneita. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- The
Company -- Liquidity and Capital Resources".
T. Wayne Spraggins has served as Vice President of the Company and
President - Manufacturing Operations since May 1996. Mr. Spraggins served as
Vice President, Manufacturing of the Company from November 1984 until May 1996.
Mr. Spraggins joined the Company as a standards engineer in August 1961 and has
served the Company in various other capacities, including Plant Manager, since
that time.
Keith M. Hull has served as President - Apparel Fabrics, the finished
fabrics division of the Company following the Graniteville Acquisition, since
May 1996. He has served as Vice President of the Company since April 1989. Mr.
Hull served as President of Avondale Fabrics, the finished fabrics division of
the Company prior to the Graniteville Acquisition, from April 1989 until May
1986. Mr. Hull served as Vice President, Merchandising of Avondale Yarns, from
February 1989 to April 1989. Prior to joining the Company, Mr. Hull served as
Vice President, Marketing of Avondale Incorporated from November 1984 to
February 1989 and served Avondale Incorporated in various other capacities since
1977. Mr. Hull has served as a director of Cherokee, Inc. since July 1995.
Robert G. Nelson has served as President - Avondale Yarns since March 1996
and Vice President of the Company since August 1993. He served as
President - Walton Fabrics, the greige fabrics division, from August 1993
through March 1996. Mr. Nelson served as Executive Vice President and Chief
Operating Officer of Avondale Incorporated from December 1988 until August 1993
and as Vice President, Marketing of Avondale Incorporated from November 1988 to
December 1989. Prior to joining Avondale Incorporated, Mr. Nelson had served in
various capacities with Springs Industries, Inc., a textile manufacturer, since
January 1972.
Craig S. Crockard has served as Vice President, Planning and Development of
the Company since September 1983. Mr. Crockard has served the Company in various
other capacities, including Vice President, Corporate Services, since September
1966.
Bill W. Henry has served as Vice President, Raw Material Purchasing of the
Company since July 1987. Mr. Henry has served the Company in various other
capacities, including Manager of the Cotton Department, since January 1969.
M. Delen Boyd has served as Vice President and Controller of the Company
and Assistant Secretary of the Company and Avondale Incorporated since May 1996.
Mr. Boyd has served as controller of the Company since 1987. Mr. Boyd joined the
Company in 1982 and has served in various capacities, including Assistant
Controller and Corporate Director of Accounting and Taxes.
J. Elliott Woodward has served as Vice President and Treasurer of the
Company since May 1996. Mr. Woodward served as Vice President and Controller of
Graniteville Company from 1993 to May 1996. Mr. Woodward joined Graniteville
Company in 1984 and served in various capacities from 1984 to May 1996,
including Manager of General Accounting and Controller.
Sharon L. Rodgers has served as Vice President, Human Resources since May
1996. Ms. Rodgers served as Vice President, legal and Assistant Secretary of
Graniteville Company from 1993 to May 1996. Prior to 1993, Ms. Rodgers served in
various other capacities at Graniteville Company during the fifteen years ending
in 1993.
Kenneth H. Callaway has served as a director of Avondale Incorporated since
November 1987 and of the Company since August 1993. Mr. Callaway has been
President of Calgati Chemical Company, a specialty chemical exporter, since
December 1991. From 1987 through 1991, Mr. Callaway served as president of three
privately-owned retail computer businesses.
Robert B. Calhoun has served as a director of Avondale Incorporated since
August 1993 and of the Company since November 1991. Mr. Calhoun has been
President of Clipper Asset Management Corporation,
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<PAGE> 72
the sole general partner of The Clipper Group, L.P., a private investment firm,
since 1991, and of Clipper Capital Corporation, the sole general partner of
Clipper, an affiliated private investment firm, since 1993. From 1975 to 1991,
Mr. Calhoun was a Managing Director of CS First Boston Corporation, an
investment banking firm and the Initial Purchaser in the Offering. Mr. Calhoun
is also a director of HighwayMaster Communications, Inc. and Interstate Bakeries
Corporation.
Harry C. Howard has served as a director of Avondale Incorporated since
August 1993 and of the Company since July 1986. Mr. Howard retired from the law
firm of King & Spalding, where he had practiced law since 1956, as of December
31, 1992. Mr. Howard serves as a director of Cresent Banking Company, a bank
holding company.
C. Linden Longino, Jr. has served as a director of Avondale Incorporated
since November 1975 and of the Company since August 1993. Mr. Longino has been
Senior Vice President of SunTrust Bank, Atlanta (formerly, Trust Company Bank)
since December 1978. During his 31-year career with SunTrust Bank, Atlanta, Mr.
Longino has served in various management capacities and is currently on special
assignment as advisor to the Carter Presidential Center in Atlanta, Georgia.
Dale J. Boden has served as a director of Avondale Incorporated and the
Company since November 1994. Mr. Boden has served as President and Chief
Executive Officer of BF Capital, Inc., a private investment company, since
January 1993.
John P. Stevens has served as a director of Avondale Incorporated since
January 1970 and of the Company since July 1986. Mr. Stevens served as Executive
Vice President of Wachovia Bank of Georgia, N.A. from April 1981 until his
retirement in January 1994 and was responsible for managing the Government
Banking and Public Finance department. Mr. Stevens served as a consultant to
Wachovia Bank of Georgia, N.A. from February 1994 to February 1996. In addition,
from February 1994 until the present time, Mr. Stevens has been a partner in The
Stevens Group, a consulting firm specializing in providing assistance in a wide
range of business and governmental affairs.
The Company is a wholly owned subsidiary of Avondale Incorporated, which
therefore controls the election of the Board of Directors of the Company. During
fiscal 1995, the Company paid its non-employee directors an annual fee of
$12,000 plus $1,500 for each board meeting attended (plus out-of-pocket
expenses) and $500 for each committee meeting attended.
All executive officers of the Company are elected annually by and serve at
the discretion of the Board of Directors.
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<PAGE> 73
EXECUTIVE COMPENSATION
Summary Compensation Table. The table below sets forth certain information
concerning the compensation earned during fiscal 1995 by the Company's Chief
Executive Officer and its four other most highly compensated executive officers
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(A)
----------------------------- ALL OTHER
FISCAL COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(B)
- ------------------------------------------------------- ------ --------- -------- ------------
<S> <C> <C> <C> <C>
G. Stephen Felker...................................... 1995 $ 773,016 $993,182 $ 12,763
Chairman of the Board, President and Chief Executive
Officer
Jack R. Altherr, Jr.................................... 1995 234,508 159,424 7,376
Vice Chairman, Chief Financial Officer and Secretary
Richard H. Monk, Jr.(c)................................ 1995 209,848 132,946 10,978
President and Chief Administrative Officer
T. Wayne Spraggins..................................... 1995 188,840 122,720 10,517
Vice President and President - Manufacturing
Operations
C. Michael Billingsley(d).............................. 1995 187,508 115,041 6,810
Vice President and President - Avondale Yarns
</TABLE>
- ---------------
(a) The aggregate amount of perquisites and other personal benefits, if any, did
not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for each Named Executive Officer and has therefore been
omitted.
(b) Amounts shown reflect (i) matching 401(k) contributions made by the Company
to the Company's Associate Profit Sharing and Savings Plan of $1,125 on
behalf of each Named Executive Officer, (ii) profit sharing contributions
made by the Company to the Company's Associate Profit Sharing and Savings
Plan of $4,776 on behalf of each Named Executive Officer, and (iii) life
insurance premiums of $6,862, $1,475, $5,077, $4,616 and $909 paid by the
Company, on behalf of Messrs. Felker, Altherr, Monk, Spraggins and
Billingsley, respectively.
(c) Mr. Monk resigned as an executive officer of the Company effective as of
November 2, 1995.
(d) Mr. Billingsley resigned as an executive officer of the Company effective
March 1996. Upon his resignation from the Company, Mr. Billingsley became
President of Oneita Industries, Inc., a customer of Avondale's yarns
division. Mr. Billingsley's stock options and phantom unit awards will
continue to vest through November 1999.
Option Grants Table. The table below sets forth certain information
relating to options granted during fiscal 1995 to each Named Executive Officer.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(A)
----------------------------------------------
% OF POTENTIAL REALIZABLE
NUMBER TOTAL VALUE AT ASSUMED
OF OPTIONS ANNUAL RATES OF
SECURITIES GRANTED STOCK PRICE
UNDERLYING TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES PRICE FOR OPTION TERM
GRANTED IN FISCAL PER EXPIRATION -----------------------
(#) YEAR SHARE DATE 5% 10%
---------- --------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
G. Stephen Felker............... 240,000 37.5 $12.50 11/1/04 $1,886,400 $4,780,800
Jack R. Altherr, Jr............. 100,000 15.6 12.50 11/1/04 786,000 1,992,000
Richard H. Monk, Jr.(b)......... -- -- -- -- -- --
T. Wayne Spraggins.............. 50,000 7.8 12.50 11/1/04 393,000 996,000
C. Michael Billingsley.......... 50,000 7.8 12.50 11/1/04 393,000 996,000
</TABLE>
- ---------------
(a) All of the options shown (i) are options to purchase Class A Common Stock of
Avondale Incorporated and (ii) vest in 20% increments commencing one year
after the date of issue.
(b) Excludes 50,000 options granted to Mr. Monk during fiscal 1995, which
terminated in accordance with their terms following his resignation.
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<PAGE> 74
Aggregated Option Table. The table below sets forth certain information
with respect to options held at the end of fiscal 1995 by each Named Executive
Officer. None of the options held at the end of fiscal 1995 were exercisable and
consequently no options were exercised during fiscal 1995.
AGGREGATED OPTIONS TABLE
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SHARES SUBJECT UNEXERCISED
TO UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
AUGUST 25, 1995 AUGUST 25, 1995(A)
--------------- ------------------
<S> <C> <C>
G. Stephen Felker.............................................. 240,000 $331,200
Jack R. Altherr, Jr............................................ 100,000 138,000
Richard H. Monk, Jr............................................ -- --
T. Wayne Spraggins............................................. 50,000 69,000
C. Michael Billingsley......................................... 50,000 69,000
</TABLE>
- ---------------
(a) All options are options to purchase Class A Common Stock of Avondale
Incorporated. There is no existing public market for the Class A Common
Stock. The values shown are based on management's estimate of the fair
market value of the Class A Common Stock at August 25, 1995.
Long-Term Incentive Plans. The table below sets forth certain information
with respect to phantom units held at the end of fiscal 1995 by each Named
Executive Officer. No phantom units were awarded during fiscal 1995.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE PERFORMANCE
AGGREGATE OR OTHER PERIOD ESTIMATED FUTURE
PHANTOM UNTIL MATURATION PAYOUTS FOR ALL
NAME UNITS HELD(A) OR PAYOUT (YEARS) PHANTOM UNITS HELD(B)
- ---------------------------------------------- ------------- ----------------- ---------------------
<S> <C> <C> <C>
G. Stephen Felker............................. 150 20 $ 932,700
Jack R. Altherr, Jr. ......................... 90 18 559,620
Richard H. Monk, Jr. ......................... 110 8 273,729
T. Wayne Spraggins............................ 50 6 310,900
C. Michael Billingsley........................ 90 20 559,620
</TABLE>
- ---------------
(a) Each phantom unit equals 398.606 phantom shares. The value of each phantom
share is equal to the result obtained by dividing (i) five times the
Company's earnings before depreciation, amortization, LIFO inventory
adjustments, interest and income taxes for the 10 fiscal quarters
immediately preceding such date divided by 2.5, plus (ii) certain "balance
sheet adjustments" by the sum of (i) the aggregate number of outstanding
phantom shares plus (ii) the aggregate number of outstanding Class A Common
Stock and Class B Common Stock of Avondale Incorporated. Phantom units vest
at the rate of 5.0% per year for each full and uninterrupted year that the
Named Executive Officer remains employed by the Company after August 31,
1989, and vest fully if the Named Executive Officer dies before his
employment is terminated. The value of vested phantom units is payable
beginning on the later of the date on which the Named Executive Officer
reaches the age of 65 or the date on which the employment of such Named
Executive Officer terminates (the "Normal Payment Date"), in 10 equal
annual installments, with interest equal to the one-year U.S. Treasury Bill
rate in effect on the Normal Payment Date. If the Named Executive Officer
dies before his employment with the Company is terminated, the value of his
phantom units, calculated as of the date of death, is payable to his
beneficiary as described above. If the Named Executive Officer dies after
his Normal Payment Date, the present value of the balance of the annual
installments is payable in a lump sum to his beneficiary. A Named Executive
Officer will forfeit all interest in his Phantom Stock Units (whether or
not vested) if he violates certain non-compete covenants, applicable during
such Named Executive Officer's employment and for a period of five years
after termination of such employment.
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<PAGE> 75
(b) There are no threshold, target or maximum amounts payable with respect to
phantom unit awards made by the Company. The amounts shown reflect the
future value, excluding interest payable during the installment payment
period, as of September 1, 1995 of vested and non-vested phantom units held
at the end of fiscal 1995 based on the results of the Company for the 10
fiscal quarters ended August 25, 1995.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1995, the Compensation Committee consisted of Messrs.
Stevens, Boden and Callaway. The Compensation Committee is responsible for
recommending to the Board of Directors the compensation for the Company's
executive officers, which compensation is then approved by the full Board of
Directors.
C. Linden Longino, Jr., a director of the Company, is an officer of
SunTrust Bank, Atlanta. Avondale and SunTrust Bank, Atlanta are parties to five
letter of credit agreements relating to industrial revenue bonds issued in
connection with certain of the Company's manufacturing facilities. In addition,
SunTrust Bank, Atlanta has performed other banking services for the Company over
the past three fiscal years. Aggregate payments by the Company to SunTrust Bank,
Atlanta for such services did not exceed 5% of the Company's net sales or
SunTrust Bank, Atlanta's gross revenues in any of such fiscal years.
Harry C. Howard, a director of the Company, is a former partner of the law
firm of King & Spalding. Mr. Howard retired from King & Spalding as of January
1, 1993. King & Spalding has for many years provided legal services to the
Company and is providing certain legal services to the Company in connection
with the Offering. See "Legal Matters".
G. Stephen Felker is a director of Wachovia, a former executive officer of
which, John P. Stevens, is a director of the Company. Avondale maintains the New
Credit Facility, under which it has aggregate borrowing availability of $225
million, with a syndicate of banks, including Wachovia, for which Wachovia
serves as an agent, pursuant to a loan agreement dated April 29, 1996. The
greatest amount owed by the Company under the New Credit Facility (and its
predecessor agreements) during fiscal 1993, 1994 and 1995 was $43.5 million,
$145.1 million and $137.0 million, respectively, and aggregate interest paid by
the Company under such agreements during fiscal 1993, 1994 and 1995 was $1.1
million, $3.0 million and $11.0 million, respectively. In addition, Wachovia has
performed other banking services for the Company over the past three fiscal
years. Aggregate payments by the Company to Wachovia for such services did not
exceed 5% of the Company's net sales or Wachovia's gross revenues in any of such
fiscal years.
Robert B. Calhoun, a director of the Company, is an affiliate of certain of
the investors in the Equity Private Placement. As a result, Mr. Calhoun is
deemed to beneficially own the 2,222,223 shares of Class A Common Stock of
Avondale Incorporated that were purchased by the investors. In addition, Mr.
Calhoun is an affiliate of Clipper, to which the Company paid a $600,000 closing
fee in connection with the Equity Private Placement.
Avondale believes that its bank credit facilities, including the New Credit
Facility, have been on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable facilities with
other borrowers. See "Management's Discussion and Analysis of Financial Position
and Results of Operations -- The Company -- Liquidity and Capital Resources".
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<PAGE> 76
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
All of the capital stock of the Company is owned by Avondale Incorporated.
The table below sets forth certain information regarding the beneficial
ownership of the Common Stock of Avondale Incorporated as of August 30, 1996 by
(i) each person who is known to the Company to be the beneficial owner of more
than 5% of the outstanding Class A Common Stock or Class B Common Stock, (ii)
each of the Named Executive Officers, (iii) each of the directors of the Company
and (iv) all directors and executive officers of the Company as a group. Except
as set forth below, the shareholders named below have sole voting and investment
power with respect to all shares of Common Stock shown as being beneficially
owned by them.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF CLASS A OF CLASS B
COMMON STOCK COMMON STOCK
---------------------- --------------------- PERCENTAGE OF
NUMBER PERCENT NUMBER PERCENT COMBINED
NAME OF BENEFICIAL OWNER(A) OF SHARES OF CLASS OF SHARES OF CLASS VOTING POWER
- ------------------------------------------------ --------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
G. Stephen Felker............................... 4,120,689(b) 30.9% 978,939 100% 71.1%
Jack R. Altherr, Jr............................. 127,199(c) 1.0% -- -- *
Richard H. Monk, Jr............................. 20,750(d) * -- -- *
T. Wayne Spraggins.............................. 92,628(e) * -- -- *
C. Michael Billingsley.......................... 11,750(f) * -- -- *
Dale J. Boden................................... 113,500(g) * -- -- *
Kenneth H. Callaway............................. 37,500 * -- -- *
Robert B. Calhoun(h)(i)(j)...................... 2,245,523 18.2% -- -- 7.0%
Harry C. Howard................................. 45,000 * -- -- *
C. Linden Longino, Jr........................... 34,500(k) * -- -- *
John P. Stevens................................. 98,500(l) * -- -- *
The Clipper Group(i)(j)(m)...................... 2,222,223 18.1% -- -- 7.0%
Grayward Company(n)............................. 3,754,500 30.5% -- -- 11.8%
Felker Investments, Ltd.(o)..................... 2,093,750 17.0% -- -- 6.6%
Avondale Mills, Inc.
Associate Profit Sharing and Savings
Plan(p)....................................... 600,000 4.9% -- -- 1.9%
All directors and executive officers as a group
(16 persons).................................. 7,034,066 52.5% 978,939 100% 80.1%
</TABLE>
- ---------------
* Less than 1%
(a) Except as otherwise noted, the address of each person who is an officer or
a director of the Company is c/o Avondale Mills, Inc., 506 South Broad
Street, Monroe, Georgia 30655.
(b) Reflects (i) 2,093,750 shares of Class A Common Stock held of record by
Felker Investments, Ltd., a partnership of which Mr. Felker is the general
partner (as the general partner, Mr. Felker is deemed to beneficially own
such shares under Rule 13d-3 under the Securities Exchange Act of 1934 (the
"Exchange Act")), (ii) 978,939 shares of Class A Common Stock issuable upon
conversion of the 978,939 shares of Class B Common Stock beneficially owned
by Mr. Felker and (iii) 48,000 shares of Class A Common Stock issuable upon
exercise of stock options beneficially owned by Mr. Felker, which shares
are deemed beneficially owned by Mr. Felker under Rule 13d-3 under the
Exchange Act.
(c) Reflects 20,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Altherr, which shares are deemed
beneficially owned by Mr. Altherr under Rule 13d-3 under the Exchange Act.
(d) Reflects 2,000 shares of Class A Common Stock beneficially owned by Mr.
Monk's spouse.
(e) Reflects 10,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Spraggins, which shares are deemed
beneficially owned by Mr. Spraggins under Rule 13d-3 under the Exchange
Act.
(f) Reflects 10,000 shares of Class A Common Stock issuable upon exercise of
stock options beneficially owned by Mr. Billingsley, which shares are
deemed beneficially owned by Mr. Billingsley under Rule 13d-3 under the
Exchange Act.
(g) Includes (i) 2,500 shares beneficially owned by BF Capital, Inc. and (ii)
111,000 shares beneficially owned by Hilliard Lyons Trust Co. Trustee Dale
Boden and Charles Boden Irrevocable T/U/A dated July 21, 1993, with respect
to which Mr. Boden is a beneficiary. Mr. Boden is the majority shareholder
of BF Capital, Inc. and, consequently, is deemed to beneficially own under
Rule 13d-3 under the Exchange Act all of the shares beneficially owned by
the Trust.
(h) The address of Mr. Calhoun is c/o Clipper Capital Partners, L.P., 12 East
49th Street, New York, New York 10017.
(i) Reflects shares beneficially owned by Clipper Capital Associates, L.P.
("CCA"), Clipper/Merchant Partners, L.P. and Clipper Equity Partners I,
L.P. (whose address is 12 East 49th Street, New York, New York 10017),
Clipper/Merban, L.P. ("Merban") and Clipper/European Re, L.P. (whose
address is c/o CITCO, De Ruyterkade,
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<PAGE> 77
62, P.O. Box 812, Curacao, Netherlands Antilles) and CS First Boston
Merchant Investments 1995/96, L.P. ("Merchant") (whose address is 55 East
52nd Street, New York, New York 10055).
(j) CCA is the general partner of all of the Clipper Group partnerships other
than Merchant. The general partner of CCA is Clipper Capital Associates,
Inc. ("CCI"), and Mr. Calhoun is the sole stockholder and a director of
CCI. Clipper, an affiliate of Mr. Calhoun, has sole voting and investment
power with respect to the shares of Class A Common Stock beneficially owned
by Merchant. As a result, each of Mr. Calhoun, CCA and CCI is deemed to
beneficially own all shares of Class A Common Stock beneficially owned by
the Clipper Group (other than Merchant), and Mr. Calhoun is deemed to
beneficially own the shares of Class A Common Stock beneficially owned by
Merchant. It is anticipated that Merban will beneficially own shares of
Class A Common Stock representing approximately 5.5% of the outstanding
Class A Common Stock and that none of the other members of the Clipper
Group will beneficially own more than 5% of the outstanding Class A Common
Stock.
(k) Reflects 14,500 shares beneficially owned by Mr. Longino's spouse.
(l) Reflects 9,500 shares beneficially owned by Mr. Steven's spouse.
(m) Merchant Capital, Inc. ("Merchant Capital"), an affiliate of CS First
Boston Corporation, is the general partner of Merchant and the 99% limited
partner of Clipper/Merchant Partners, L.P. CS Holding, an affiliate of CS
First Boston Corporation, is the indirect 99% limited partner of Merban. CS
First Boston Corporation acted as the Initial Purchaser in the Offering.
None of Merchant, Merchant Capital, CS First Boston Corporation and CS
Holding is an affiliate of Clipper or CCA.
(n) Grayward Company's address is c/o Third National Bank, P.O. Box 305110,
Nashville, Tennessee 37230. Grayward Company is a trust of which Third
National Bank serves as trustee. As trustee, Third National Bank is deemed
to beneficially own under Rule 13d-3 under the Exchange Act all of the
shares beneficially owned by Grayward Company.
(o) The address of Felker Investments, Ltd. is c/o G. Stephen Felker, 506 South
Broad Street, Monroe, Georgia 30655.
(p) The address of the Avondale Mills, Inc. Associate Profit Sharing and
Savings Plan (the "Plan") is c/o Wachovia Bank of North Carolina, N.A.,
P.O. Box 3099, Winston-Salem, N.C. 27150. Wachovia Bank of North Carolina,
N.A., serves as trustee for the Plan and, as such, is deemed to
beneficially own under Rule 13d-3 under the Exchange Act all of the shares
beneficially owned by the Plan.
CERTAIN TRANSACTIONS
C. Linden Longino, Jr., a director of the Company, is an officer of
SunTrust Bank, Atlanta. The Company and SunTrust Bank, Atlanta are parties to
five letter of credit agreements relating to industrial revenue bonds issued in
connection with certain of the Company's facilities. See
"Management -- Compensation Committee Interlocks and Insider Participation".
Harry C. Howard, a director of the Company, is a former partner of the law
firm of King & Spalding. Mr. Howard retired from King & Spalding as of January
1, 1993. King & Spalding has for many years provided legal services to the
Company and is providing certain legal services to the Company in connection
with the Offering. See "Legal Matters".
John P. Stevens, a director of the Company, is a former executive officer
of Wachovia. The Company maintains the New Credit Facility, under which the
Company has aggregate borrowing availability of $225 million with a syndicate of
banks, including Wachovia, for which Wachovia served as an agent, pursuant to a
loan agreement dated April 29, 1996. See "Management -- Compensation Committee
Interlocks and Insider Participation". The Company believes that its bank credit
facilities, including the New Credit Facility, have been on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable facilities with other borrowers. See "Management's
Discussion and Analysis of Financial Position and Results of Operations -- The
Company -- Liquidity and Capital Resources".
Robert B. Calhoun, a director of the Company, is an affiliate of certain of
the investors in the Equity Private Placement. As a result, Mr. Calhoun is
deemed to beneficially own the 2,222,223 shares of Class A Common Stock of
Avondale Incorporated that were purchased by the investors. In addition, Mr.
Calhoun is an affiliate of Clipper, to which the Company paid a $600,000 closing
fee in connection with the Equity Private Placement.
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<PAGE> 78
DESCRIPTION OF CERTAIN INDEBTEDNESS
THE NEW CREDIT FACILITY
The following is a summary of the material terms and conditions of the New
Credit Facility. This summary does not purport to be a complete description of
the New Credit Facility and is subject to its detailed provisions and various
documents entered into in connection with the New Credit Facility.
The New Credit Facility consists of a five-year revolving credit facility
of up to $225 million. Borrowings under the New Credit Facility consist of
revolving loans to be provided by the Lenders ("Revolver Loans") and up to $5
million of revolving swing loans to be provided by Wachovia ("Swing Revolver
Loans").
Interest accrues on Revolver Loans (i) at the Company's option at either
LIBOR (adjusted for any reserves) plus a specified margin ranging from 0.75% to
1.75% or the base rate, which is the higher of Wachovia's prime rate and the
overnight federal funds rate plus 0.50% (the "Base Rate"), or (ii) if the
Company and the Lenders agree, at the "set" rate, which shall be an interest
rate agreed to by the Company and the Lenders at the time such Revolver Loan is
made. Swing Revolver Loans bear interest at the Base Rate.
The aggregate commitment under the New Credit Facility will be reduced by
an amount equal to the net proceeds from certain specified asset sales
(including accounts receivable sold pursuant to the Receivables Securitization
Facility). The Company may terminate or reduce the amount available under the
New Credit Facility to the extent such amounts are unused in certain minimum
amounts.
Under the New Credit Facility, the Company paid certain structuring fees to
Wachovia and First Chicago upon the closing. In addition, the Company paid
certain arrangement and funding fees on the closing date and will pay certain
annual administration fees.
The New Credit Facility is secured by a security interest in substantially
all of the Company's assets (including the assets acquired pursuant to the
Graniteville Acquisition) and is guaranteed by Avondale Incorporated.
The New Credit Facility contains a number of significant covenants that,
among other things, will restrict the ability of the Company to dispose of
assets, incur additional indebtedness, repay other indebtedness, pay dividends,
enter into certain investments or acquisitions, repurchase or redeem capital
stock, engage in mergers or consolidations, create liens, or engage in certain
transactions with subsidiaries and affiliates and otherwise restrict corporate
activities. In addition, under the New Credit Facility, the Company is required
to comply with specified financial ratios and tests, including a fixed charge
coverage ratio, a leverage ratio and ratios relating to cash flow.
THE RECEIVABLES SECURITIZATION FACILITY
The following is a summary of certain terms and conditions of the
Receivables Securitization Facility. This summary does not purport to be a
complete description of the Receivables Securitization Facility and is subject
to its detailed provisions and various documents entered into in connection with
the Receivables Securitization Facility, which have been filed as exhibits to
the Registration Statement of which this Prospectus forms a part.
The Company and First Chicago have entered into an agreement whereby First
Chicago has provided to the Company, through a special purpose vehicle
administered by it, the Receivables Securitization Facility of up to $120
million for the securitization of certain trade receivables (the "Receivables")
originated by the Company. The Company acts as the initial servicer for the
Receivables. The Company received $104.0 million in proceeds under the
Receivables Securitization Facility concurrently with the consummation of the
Offering.
The Company transferred the Receivables to a newly-established,
wholly-owned, limited-purpose subsidiary of the Company (the "Receivables
Company"), which sold the Receivables to a trust (the "Trust"). The Trust issued
variable funding certificates to lending or financial institutions or other
investors evidencing undivided interests in the assets of the Trust (the
"Certificates") in an aggregate principal amount
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<PAGE> 79
of $104.0 million. The Receivables Securitization Facility permits draws and
repayments on a revolving basis prior to May 1, 2001 or such earlier time as
certain events occur (the "Amortization Commencement Date"). The Certificates,
which represent beneficial interests in the Trust, entitle the holders thereof
to (i) receipt of collections from the Receivables, (ii) all rights of the
Company or the Receivables Company in goods the sale of which gave rise to the
Receivables, (iii) all collateral and other arrangements supporting the
Receivables, (iv) all rights to proceeds of any of the foregoing held in
lock-boxes and bank accounts of the Company or the Receivables Company, (v)
rights and interests of the Receivables Company under the documents for the
Receivables Securitization Facility and (vi) all collections and other proceeds
of the assets described above. The Certificates represent beneficial interests
in the Trust only, and do not represent obligations or interests in, and are not
guaranteed or insured by, the Receivables Company, the Company or Avondale
Incorporated.
The rate of interest on the Receivables Securitization Facility is the
Eurodollar rate (adjusted for any reserves) plus 0.625% or First Chicago's
alternate base rate. A commitment fee calculated on the unused portion of the
Receivables Securitization Facility is payable quarterly by the Company,
accruing from the closing date. The final maturity of the Certificates is
expected to occur six months after the Amortization Commencement Date. All
collections attributable to the Certificates will be set aside commencing on the
Amortization Commencement Date to repay the Certificates in full. Amounts set
aside will be applied on a monthly basis to repay the Certificates in full.
In connection with the Receivables Securitization Facility, the Company
paid (or will pay, as the case may be) to First Chicago Capital Markets, Inc.
("FCCM"), an affiliate of First Chicago, certain commitment fees relating to the
Receivables Securitization Facility on the closing date and, subject to certain
conditions, on the sixth month anniversary of the closing date.
The Receivables Securitization Facility contains covenants, representations
and warranties customary for such facilities and consistent with those that
First Chicago reasonably believes are required to obtain an "A" rating from the
rating agencies. Financial covenants are not included in the documentation
relating to the Receivables Securitization Facility nor are any provisions
relating to cross defaults to any other obligations of the Company.
The Company has engaged FCCM as its exclusive financial advisor to assist
in structuring and documenting a receivables securitization facility (the
"Replacement Receivables Facility") which will, if entered into, replace the
Receivables Securitization Facility. It is contemplated that the financing
and/or sale of receivables for the Replacement Receivables Facility would be
obtained through (i) the issuance of rated medium-term certificates of
beneficial interest or rated medium-term notes backed by the Receivables (the
"Replacement Certificates"), (ii) the sale of rated participation interests in
the Receivables (the "Participations"), and/or (iii) any other form of
securitization backed by the Receivables (the "Alternative Receivables Backed
Instruments" and, together with the Replacement Certificates and the
Participations, the "Receivables Backed Instruments"). The Receivables Backed
Instruments may be issued either by the Receivables Company, the Trust or by
another newly-formed, special purpose entity or entities (a "Special Purpose
Entity") established for the sole purpose of issuing the Receivables Backed
Instruments and purchasing or being made a transferee of the Receivables, or
interests in the Receivables, from the Receivables Company and/or making loans
to the Receivables Company secured by the Receivables.
The size of the Replacement Receivables Facility will be up to
approximately $125 million, or such other amount as FCCM and the Company deem to
be reasonably practicable (the "Program Amount").
FCCM has been engaged, subject to certain conditions, to serve as the
exclusive placement agent or sole manager to place any securities and/or
Alternative Receivables Backed Instruments issued in connection with the
Replacement Receivables Facility. FCCM is not committed to act as an underwriter
or placement agent in connection with any offering or sale of securities of the
Company. The Company will pay to FCCM certain fees, upon the execution of
definitive documentation in connection with the Replacement Receivables
Facility.
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<PAGE> 80
DESCRIPTION OF THE NOTES
GENERAL
The New Notes are to be issued under the Indenture, dated as of April 23,
1996 (the "Indenture"), among the Company, Avondale Incorporated and The Bank of
New York, as Trustee (the "Trustee"). The form and terms of the New Notes are
identical in all material respects to the form and terms of the Old Notes,
except that the New Notes will be registered under the Securities Act and,
therefore, will not bear legends restricting transfer thereof. The New Notes
will evidence the same debt as the Old Notes and will be treated as a single
class under the Indenture with any Old Notes that remain outstanding. The Old
Notes and New Notes are herein collectively referred to as the "Notes".
The following is a summary of certain provisions of the Indenture and the
Notes, a copy of which Indenture and the form of Notes have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
The following summary of certain provisions of the Indenture does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially shall
be the corporate trust office of the Trustee, at The Bank of New York, 101
Barclay Street, Floor 21W, New York, New York 10286), except that, at the option
of the Company, payment of interest may be made by check mailed to the address
of the Holders as such address appears in the Note register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
shall be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes will be unsecured senior subordinated obligations of the Company,
limited to $125 million aggregate principal amount, and will mature on May 1,
2006. The Notes will bear interest at the rate per annum shown on the cover page
hereof from the Issue Date, or from the most recent date to which interest has
been paid or provided for, payable semiannually to Holders of record at the
close of business on the April 15 or October 15 immediately preceding the
interest payment date on May 1 and November 1 of each year, commencing November
1, 1996. The Company will pay interest on overdue principal at 1% per annum in
excess of such rate, and it will pay interest on overdue installments of
interest at such higher rate to the extent lawful. Interest on the Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
The interest rate on the Notes is subject to increase in certain
circumstances if the Company does not file a registration statement relating to
the Registered Exchange Offer or if the registration statement is not declared
effective on a timely basis or if certain other conditions are not satisfied,
all as further described under "-- Registered Exchange Offer; Registration
Rights".
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to May 1, 2001. Thereafter, the
Notes will be redeemable, at the Company's option, in whole or in part, at any
time or from time to time, upon not less than 30 nor more than 60 days' prior
notice mailed by first-class mail to each Holder's registered address, at the
following redemption prices (expressed in percentages of principal amount), plus
accrued interest to the redemption date (subject to the right of Holders
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<PAGE> 81
of record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on May
1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------------------------------------------------------------------ ----------
<S> <C>
2001.............................................................. 105.125%
2002.............................................................. 103.417
2003.............................................................. 101.709
2004 and thereafter............................................... 100.000
</TABLE>
In addition, at any time and from time to time prior to May 1, 1999, the
Company may redeem in the aggregate up to $25 million principal amount of the
Notes with the proceeds of one or more Public Equity Offerings following which
there is a Public Market (provided that if the Public Equity Offering is a
public offering of any class of common stock of Parent, a portion of the net
cash proceeds thereof equal to the amount required to redeem any such Notes is
contributed to the equity capital of the Company), at a redemption price
(expressed as a percentage of principal amount) of 110% plus accrued interest to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided, however, that at least $100 million aggregate principal amount of the
Notes must remain outstanding after each such redemption.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
RANKING
The indebtedness evidenced by the Notes will be senior subordinated,
unsecured obligations of the Company. The payment of the principal of, premium
(if any) and interest on the Notes is subordinate in right of payment, as set
forth in the Indenture, to the prior payment in full of all Senior Indebtedness,
whether outstanding on the Issue Date or thereafter incurred, including the
Company's obligations under the New Credit Facility.
As of August 30, 1996, the Company's Senior Indebtedness was $178.1. In
addition, the Notes will be effectively subordinated to all obligations of any
subsidiaries of the Company as may exist from time to time, including any
obligation of a Receivables Subsidiary under the Receivables Securitization
Facility. Although the Indenture contains limitations on the amount of
additional Indebtedness that the Company may incur, under certain circumstances
the amount of such Indebtedness could be substantial and, in any case, such
Indebtedness may be Senior Indebtedness. See "-- Certain Covenants -- Limitation
on Indebtedness".
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes in accordance with the provisions of the Indenture. The
Notes will in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company. The Company has agreed in the Indenture that it
will not Incur, directly or indirectly, any Indebtedness that is subordinate or
junior in ranking in right of payment to its Senior Indebtedness unless such
Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in
right of payment to Senior Subordinated Indebtedness. Unsecured Indebtedness is
not deemed to be subordinated or junior to Secured Indebtedness merely because
it is unsecured.
Notwithstanding anything herein to the contrary, the Company may not pay
principal of, premium (if any) or interest on the Notes or make any deposit
pursuant to the provisions described under "-- Defeasance" below and may not
repurchase, redeem or otherwise retire any Notes (collectively, "pay the Notes")
if (i) any Designated Senior Indebtedness is not paid when due or (ii) any other
default on Designated Senior Indebtedness occurs and the maturity of such
Designated Senior Indebtedness is accelerated in accordance
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<PAGE> 82
with its terms unless, in either case, the default has been cured or waived and
any such acceleration has been rescinded or such Designated Senior Indebtedness
has been paid in full. However, the Company may pay the Notes without regard to
the foregoing if the Company and the Trustee receive written notice approving
such payment from the Representative of the Designated Senior Indebtedness with
respect to which either of the events set forth in clause (i) or (ii) of the
immediately preceding sentence has occurred and is continuing. During the
continuance of any default (other than a default described in clause (i) or (ii)
of the second preceding sentence) with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, the
Company may not pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the Trustee (with a copy to the Company) of
written notice (a "Blockage Notice") of such default from the Representative of
the holders of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated (i) by written notice to the Trustee
and the Company from the Person or Persons who gave such Blockage Notice, (ii)
because a Representative of the holders of such Designated Senior Indebtedness
has notified the Trustee that the default giving rise to such Blockage Notice is
no longer continuing or (iii) because such Designated Senior Indebtedness has
been repaid in full). Notwithstanding the provisions described in the
immediately preceding sentence (but subject to the first sentence of this
paragraph), unless the holders of such Designated Senior Indebtedness or the
Representative of such holders have accelerated the maturity of such Designated
Senior Indebtedness, the Company may resume payments on the Notes after the end
of such Payment Blockage Period. The Notes shall not be subject to more than one
Payment Blockage Period in any consecutive 360-day period, irrespective of the
number of defaults with respect to Designated Senior Indebtedness during such
period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar proceeding
relating to the Company or its property, the holders of Senior Indebtedness will
be entitled to receive payment in full of such Senior Indebtedness before the
Noteholders are entitled to receive any payment, and until the Senior
Indebtedness is paid in full, any payment or distribution to which Noteholders
would be entitled but for the subordination provisions of the Indenture will be
made to holders of such Senior Indebtedness as their interests may appear. If a
distribution is made to Noteholders that, due to the subordination provisions,
should not have been made to them, such Noteholders are required to hold it in
trust for the holders of Senior Indebtedness and pay it over to them as their
interests may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of Designated Senior
Indebtedness or the Representative of such holders of the acceleration.
By reason of the subordination provisions contained in the Indenture, in
the event of insolvency, creditors of the Company who are holders of Senior
Indebtedness may recover more, ratably, than the Noteholders, and creditors of
the Company who are not holders of Senior Indebtedness may recover less,
ratably, than holders of Senior Indebtedness and may recover more, ratably, than
the Noteholders.
The terms of the subordination provisions described above will not apply to
payment from money or the proceeds of U.S. Government Obligations held in trust
by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "-- Defeasance".
GUARANTY
Parent, as primary obligor and not merely as surety, will irrevocably and
unconditionally guarantee (the "Guaranty") on a senior subordinated basis the
performance and punctual payment when due, whether at Stated Maturity, by
acceleration or otherwise, of all obligations of the Company under the Indenture
and the Notes, whether for principal of or interest on the Notes, expenses,
indemnification or otherwise (all such obligations guaranteed by Parent being
herein called the "Guaranteed Obligations"). Parent will agree to pay, on a
senior subordinated basis and in addition to the amount stated above, any and
all expenses (including
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<PAGE> 83
reasonable counsel fees and expenses) incurred by the Trustee or the Holders in
enforcing any rights under the Guaranty with respect to Parent. Parent has no
material assets other than the common stock of the Company.
The obligations of Parent under the Guaranty are senior subordinated
obligations. As such, the rights of Holders to receive payment by Parent
pursuant to the Guaranty will be subordinate in right of payment to the rights
of holders of Senior Indebtedness of Parent. As of August 30, 1996, Parent had
outstanding $178.1 million of Senior Indebtedness, including its obligations
under the New Credit Facility. The Indenture does not limit the incurrence of
Indebtedness by Parent.
The Guaranty is a continuing guarantee and shall (a) remain in full force
and effect until payment in full of all the Guaranteed Obligations, (b) be
binding upon Parent and (c) enure to the benefit of and be enforceable by the
Trustee, the Holders and their successors, transferees and assigns.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes sold will be issued in the form of
a Global Note. The Global Note will be deposited with, or on behalf of, the
Depository and registered in the name of the Depository or its nominee. Except
as set forth below, the Global Note may be transferred, in whole and not in
part, only to the Depository or another nominee of the Depository. Investors may
hold their beneficial interests in the Global Note directly through the
Depository if they have an account with the Depository or indirectly through
organizations which have accounts with the Depository.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934 (the "Exchange Act"). The Depository was created to hold securities
of institutions that have accounts with the Depository ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical movement
of securities certificates. The Depository's participants include securities
brokers and dealers (which may include the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to the
Depository's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Upon the issuance of the Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the Notes
represented by such Global Note to the accounts of participants. Ownership of
beneficial interests in the Global Note will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the Global Note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depository (with respect to participants' interest) and such participants (with
respect to the owners of beneficial interests in the Global Note other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and laws may impair the ability to transfer or pledge
beneficial interests in the Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of the Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related New Notes for
all purposes of such New Notes and the Indenture. Except as set forth below,
owners of beneficial interests in the Global Note will not be entitled to have
the New Notes represented by the Global Note registered in their names, will not
receive or be entitled to receive physical delivery of certificated Notes in
definitive form and will not be considered to be the owners or holders of any
New Notes under the Global Note. The Company understands that under existing
industry practice, in the event an owner of a beneficial interest in the Global
Note desires to take any action that the Depository, as the holder of the Global
Note, is entitled to take, the Depository would authorize the participants to
take such action, and that the participants would authorize beneficial owners
owning through such participants to take such action or would otherwise act upon
the instructions of beneficial owners owning through them.
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Payment of principal of and interest on New Notes represented by the Global
Note registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on the Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Note as
shown on the records of the Depository or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in the Global
Note held through such participants will be governed by standing instructions
and customary practices and will be the responsibility of such participants. The
Company will not have any responsibility or liability for any aspect of the
records relating to, or payments made on account of, beneficial ownership
interests in the Global Note for any Note or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests or for any
other aspect of the relationship between the Depository and its participants or
the relationship between such participants and the owners of beneficial
interests in the Global Note owning through such participants.
Unless and until it is exchanged in whole or in part for certificated New
Notes in definitive form, the Global Note may not be transferred except as a
whole by the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
The New Notes represented by the Global Note are exchangeable for
certificated New Notes in definitive form of like tenor as such Notes in
denominations of U.S. $1,000 and integral multiples thereof if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for the Global Note or if at any time the Depository ceases to be a
clearing agency registered under the Exchange Act, (ii) the Company in its
discretion at any time determines not to have all of the Notes represented by
the Global Note or (iii) a default entitling the holders of the Notes to
accelerate the maturity thereof has occurred and is continuing. Any New Note
that is exchangeable pursuant to the preceding sentence is exchangeable for
certificated New Notes issuable in authorized denominations and registered in
such names as the Depository shall direct. Subject to the foregoing, the Global
Note is not exchangeable, except for a Global Note of the same aggregate
denomination to be registered in the name of the Depository or its nominee.
REGISTERED EXCHANGE OFFER; REGISTRATION RIGHTS
In connection with the original issuance and sale of the Old Notes, the
Initial Purchaser and its assignees became entitled to the benefits of the
Registration Rights Agreement. Pursuant to the Registration Rights Agreement,
the Company agreed that it would at its cost, (i) within 45 days after the date
of original issue of the Notes (or, if such 45th day is not a Business Day, the
first business day thereafter), file the Registration Statement of which this
Prospectus forms a part (the "Exchange Offer Registration Statement") with the
SEC with respect to a registered offer to exchange the Old Notes for the New
Notes and (ii) use its reasonable efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act within
150 days after the date of original issue of the Old Notes (or, if such 150th
day is not a Business Day, the first business day thereafter). Upon the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer the New Notes in exchange for surrender of the Old Notes. The Company will
keep the Exchange Offer open for not less than 20 business days (or longer if
required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Notes. For each Old Note surrendered to the Company
pursuant to the Exchange Offer, the holder of such Old Note will receive a New
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Note having a principal amount equal to that of the surrendered Note. Interest
on each New Note will accrue from the last interest payment date on which
interest was paid on the Old Note surrendered in exchange thereof or, if no
interest has been paid on such Old Note, from the date of its original issue.
Under existing SEC interpretations, the New Notes would be freely transferable
by holders other than affiliates of the Company after the Exchange Offer without
further registration under the Securities Act if the holder of the New Notes
represents that it is acquiring the New Notes in the ordinary course of its
business, that it is not participating in, does not intend to participate in and
has no arrangement or understanding with any person to participate in the
distribution of the New Notes and that it is not an affiliate of the Company, as
such terms are interpreted by the SEC; provided, however, that broker-dealers
("Participating Broker-Dealers") receiving New Notes in the Exchange Offer will
have a prospectus delivery requirement with respect to resales of such New
Notes. The SEC has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to New Notes (other
than a resale of an unsold allotment from the original sale of the Notes) with
the prospectus contained in the Exchange Offer Registration Statement. Under the
Registration Rights Agreement, the Company is required to allow Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such Exchange Notes.
A Holder of Old Notes (other than certain specified holders) who wishes to
exchange such Old Notes for New Notes in the Registered Exchange Offer will be
required to represent that any New Notes to be received by it will be acquired
in the ordinary course of its business and that at the time of the commencement
of the Registered Exchange Offer it has no arrangement or understanding with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Notes and that it is not an "affiliate" of the Company, as
defined in Rule 405 of the Securities Act, or if it is an affiliate, that it
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
In the event that applicable interpretations of the staff of the SEC do not
permit the Company to effect the Exchange Offer, or if for any other reason the
Exchange Offer is not consummated within 180 days of the date of the
Registration Rights Agreement, or if the Initial Purchaser so requests with
respect to Notes not eligible to be exchanged for New Notes in the Exchange
Offer, or if any holder of Old Notes is not eligible to participate in the
Exchange Offer or does not receive freely tradeable New Notes in the Exchange
Offer, the Company will, at its cost, (a) as promptly as practicable, file a
registration statement (a "Shelf Registration Statement") covering resales of
the Old Notes or the New Notes, as the case may be, (b) use its reasonable
efforts to cause the Shelf Registration Statement to be declared effective under
the Securities Act and (c) keep the Shelf Registration Statement effective until
the earlier of (i) the time when the Notes covered by the Shelf Registration
Statement can be sold pursuant to Rule 144 without any limitations under clauses
(c), (e), (f) and (h) of Rule 144 and (ii) three years from the Issue Date. The
Company will, in the event a Shelf Registration Statement is filed, among other
things, provide to each holder for whom such Shelf Registration Statement was
filed copies of the prospectus which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Notes or the Exchange Notes, as the case may be. A
holder selling such Old Notes or New Notes pursuant to the Shelf Registration
Statement generally would be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such holder (including
certain indemnification obligations).
If (i) by June 13, 1996, neither the Exchange Offer Registration Statement
nor the Shelf Registration Statement has been filed with the SEC; (ii) by
October 28, 1996, neither the Registered Exchange Offer is consummated nor the
Shelf Registration Statement is declared effective; or (iii) after either the
Exchange Offer Registration Statement or the Shelf Registration Statement is
declared effective, such Registration Statement thereafter ceases to be
effective or usable (subject to certain exceptions) in connection with resales
of Notes or Exchange Notes in accordance with and during the periods specified
in the Registration Rights Agreement (each such event referred to in clauses (i)
through (iii) a "Registration Default"), additional interest will accrue on the
Notes and the Exchange Notes at the rate of 0.50% per annum from and including
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the date on which any such Registration Default shall occur to but excluding the
date on which all Registration Defaults have been cured. Such interest is
payable in addition to any other interest payable from time to time with respect
to the Notes and the Exchange Notes. At all other times, the Notes will bear
interest at the rate set forth on the cover page hereof.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest due on the relevant interest payment date):
(i) prior to the earlier to occur of (A) the first public offering of
any class of common stock of Parent or (B) the first public offering of any
class of common stock of the Company, the Permitted Holders cease to be the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act), directly or indirectly, of a majority of the total voting power of
the Voting Stock of the Company (for purposes of this clause (i) and clause
(ii) below, the Permitted Holders shall be deemed to beneficially own any
Voting Stock of the Company or any other corporation (in any such case, the
"specified corporation") held by Parent or any other corporation (in any
such case, the "parent corporation") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the aggregate
a majority of the total voting power of the Voting Stock of the parent
corporation);
(ii) on or after any such first public offering of common stock
referred to in clause (i) above, any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than one or more
Permitted Holders, is or becomes the beneficial owner (as defined in clause
(i) above, except that for purposes of this clause (ii) such person shall
be deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 40%
of the total voting power of the Voting Stock of the Company; provided,
however, that the Permitted Holders beneficially own (as defined in clause
(i) above), directly or indirectly, in the aggregate a lesser percentage of
the total voting power of the Voting Stock of the Company than such other
person and do not have the right or ability by voting power, contract or
otherwise to elect or designate for election a majority of the Board of
Directors (for the purposes of this clause (ii), such other person shall be
deemed to beneficially own any Voting Stock of a specified corporation held
by a parent corporation, if such other person is the beneficial owner (as
defined in this clause (ii)), directly or indirectly, of more than 40% of
the total voting power of the Voting Stock of such parent corporation and
the Permitted Holders beneficially own (as defined in clause (i) above),
directly or indirectly, in the aggregate a lesser percentage of the voting
power of the Voting Stock of such parent corporation and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the board of directors of such parent
corporation); or
(iii) (A) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of Directors
or whose nomination for election by the shareholders of the Company was
approved by a vote of 66 2/3% of the directors of the Company then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors then in
office and (B) the Permitted Holders cease to be the beneficial owners (as
defined in clause (ii) above), directly or indirectly, of a majority of the
total outstanding Voting Stock of Parent or the Company or cease to have
the ability, by voting power, contract or otherwise, to elect or designate
for election a majority of the Board of Directors of Parent or the Company.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of the
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principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of holders of record on the relevant record
date to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by the
Company, consistent with the covenant described hereunder, that a Holder must
follow in order to have its Notes purchased.
The Company shall comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this covenant
described hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenant described under "-- Certain Covenants -- Limitation on Indebtedness".
Such restrictions can be waived only with the consent of the holders of a
majority in principal amount of the Notes then outstanding. Except for the
limitations contained in such covenants, however, the Indenture will not contain
any covenants or provisions that may afford holders of the Notes protection in
the event of a highly leveraged transaction.
So long as any obligations of the Company remain outstanding under the New
Credit Facility and the commitments under the New Credit Facility have not been
terminated, the New Credit Facility prohibits (unless permitted by the requisite
percentage of lenders thereunder) the Company from purchasing any Notes, or
making any deposit with the Trustee pursuant to the provisions described under
"-- Defeasance". As of August 30, 1996, borrowings of $161.1 million were
outstanding under the New Credit Facility. The New Credit Facility also provides
that the occurrence of certain change of control events with respect to the
Company will constitute a default thereunder. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing Notes, the
Company could seek the consent of the lenders under the New Credit Facility to
the purchase of Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute a default under
the Credit Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of Notes.
Future Senior Indebtedness of the Company may contain prohibitions on the
occurrence of certain events that would constitute a Change of Control or
require such Senior Indebtedness to be repurchased upon a Change of Control.
Moreover, the exercise by the holders of their right to require the Company to
repurchase the Notes could cause a default under such Senior Indebtedness, even
if the Change of Control itself does not, due to the financial effect of such
repurchase on the Company. Finally, the Company's ability to pay cash to the
holders of Notes following the occurrence of a Change of Control may be limited
by the Company's then existing financial resources. There can be no assurance
that sufficient funds will be available when necessary to make any required
repurchases. The Company does not, as of the date of this Prospectus, have any
indebtedness outstanding that is pari passu with the Notes that contains
repurchase provisions in the event of a Change of Control. The provisions under
the Indenture relative to the Company's obligation to make an offer to
repurchase the Notes as a result of a Change of Control may be waived or
modified with the written consent of the holders of a majority in principal
amount of the Notes then outstanding.
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CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not
permit any Restricted Subsidiary to, Incur, directly or indirectly, any
Indebtedness unless, on the date of such Incurrence, the Consolidated Coverage
Ratio exceeds 2.0 to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1)
Indebtedness Incurred by the Company pursuant to the New Credit Facility or any
other revolving credit arrangement; provided, however, that, after giving effect
to any such Incurrence, the aggregate principal amount of such Indebtedness then
outstanding does not exceed the greater of $325 million (less the then
outstanding principal amount of Indebtedness arising under any Receivables
Program of the Company or any Restricted Subsidiary, other than Indebtedness
described in clause (2) below) and the sum of (i) 50% of the book value of the
inventory of the Company and its Restricted Subsidiaries and (ii) 85% of the
book value of the accounts receivable of the Company and its Restricted
Subsidiaries (other than accounts receivable subject to any Receivables Program
of the Company or any Restricted Subsidiary), in each case determined in
accordance with GAAP; (2) Indebtedness of the Company owed to and held by a
Wholly Owned Subsidiary and Indebtedness of a Wholly Owned Subsidiary owed to
and held by the Company or a Wholly Owned Subsidiary; provided, however, that
any subsequent issuance or transfer of any Capital Stock which results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or a Wholly
Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of
such Indebtedness by the issuer thereof; (3) the Notes; (4) Indebtedness
outstanding on the Issue Date (other than Indebtedness described in clause (1),
(2) or (3) of this paragraph (b)); (5) Refinancing Indebtedness in respect of
Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (3) or (4)
or this clause (5); (6) Hedging Obligations consisting of Interest Rate or
Currency Protection Agreements directly related to Indebtedness permitted to be
Incurred by the Company pursuant to the Indenture; (7) Indebtedness Incurred by
a Receivables Subsidiary, other than Indebtedness described in clause (2) above,
in an amount not exceeding 95% of the aggregate unpaid balance of the
Receivables and Related Assets of such Receivables Subsidiary at the time of
such Incurrence pursuant to a Receivables Program; and (8) Indebtedness Incurred
by the Company in an aggregate principal amount which, together with all other
Indebtedness of the Company outstanding on the date of such Incurrence (other
than Indebtedness permitted by clauses (1) through (7) above or paragraph (a))
does not exceed $70 million.
(c) Notwithstanding the foregoing, the Company shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof are
used, directly or indirectly, to Refinance any Subordinated Obligations unless
such Indebtedness shall be subordinated to the Notes to at least the same extent
as such Subordinated Obligations.
(d) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred under the
New Credit Facility on or prior to the date of the Indenture shall be treated as
Incurred pursuant to clause (1) of paragraph (b) above and (2) Guarantees, Liens
or obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall not be
included. For purposes of determining compliance with the foregoing covenant,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(ii) an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not
Incur (i) any Indebtedness if such Indebtedness is subordinate or junior in
ranking in any respect to any Senior Indebtedness, unless such Indebtedness is
Senior Subordinated Indebtedness or is expressly subordinated in right of
payment to Senior
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Subordinated Indebtedness or (ii) any Secured Indebtedness that is not Senior
Indebtedness unless contemporaneously therewith effective provision is made to
secure the Notes equally and ratably with such Secured Indebtedness for so long
as such Secured Indebtedness is secured by a Lien.
Limitation on Restricted Payments. (a) The Company shall not, and shall
not permit any Restricted Subsidiary, directly or indirectly, to make a
Restricted Payment if at the time the Company or such Restricted Subsidiary
makes such Restricted Payment: (1) a Default shall have occurred and be
continuing (or would result therefrom); (2) the Company or such Restricted
Subsidiary is not able to Incur an additional $1.00 of Indebtedness pursuant to
paragraph (a) of the covenant described under " -- Limitation on Indebtedness";
or (3) the aggregate amount of such Restricted Payment and all other Restricted
Payments since the Issue Date would exceed the sum of: (A) 50% of the
Consolidated Net Income accrued on a cumulative basis during the period (treated
as one accounting period) beginning on the first day of the fiscal quarter
beginning immediately following the Issue Date to the end of the most recent
fiscal quarter ending at least 45 days prior to the date of such Restricted
Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100%
of such deficit); (B) the aggregate Net Cash Proceeds received by the Company
from the issuance or sale of, or as a capital contribution in respect of, its
Capital Stock (other than Disqualified Stock) subsequent to the Issue Date
(other than an issuance or sale to a Subsidiary of the Company and other than an
issuance or sale to an employee stock ownership plan or to a trust established
by the Company or any of its Subsidiaries for the benefit of their employees);
(C) the aggregate Net Cash Proceeds received by the Company from the issuance or
sale of its Capital Stock (other than Disqualified Stock) subsequent to the
Issue Date to any employee stock ownership plan or to a trust established by the
Company or any of its Restricted Subsidiaries for the benefit of their employees
to the extent that any such Net Cash Proceeds are equal to an increase in the
Consolidated Net Worth of the Company resulting from principal repayments made
by such employee stock ownership plan or trust with respect to Indebtedness
Incurred by it to finance the purchase of such Capital Stock; (D) the amount by
which Indebtedness of the Company is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date of any Indebtedness of the Company convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash, or the fair value of any other property,
distributed by the Company upon such conversion or exchange); (E) an amount
equal to the sum of (i) the net reduction in Investments in any Person resulting
from dividends, repayments of loans or advances or other transfers of assets, in
each case to the Company or any Restricted Subsidiary from such Person, and (ii)
the portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of an Unrestricted Subsidiary at the
time such Unrestricted Subsidiary is designated a Restricted Subsidiary;
provided, however, that the foregoing sum shall not exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made (and treated
as a Restricted Payment) by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary; and (F) $10 million.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, or capital contribution in respect of, Capital Stock of the
Company (other than Disqualified Stock and other than Capital Stock issued or
sold to a Subsidiary of the Company or an employee stock ownership plan or to a
trust established by the Company or any of its Subsidiaries for the benefit of
their employees); provided, however, that (A) such purchase or redemption shall
be excluded in the calculation of the amount of Restricted Payments and (B) the
Net Cash Proceeds from such sale or capital contribution shall be excluded from
the calculation of amounts under clause (3)(B) of paragraph (a) above; (ii) any
purchase, repurchase, redemption, defeasance or other acquisition or retirement
for value of Subordinated Obligations made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Indebtedness of the Company
which is permitted to be Incurred pursuant to the covenant described under
"--Limitation on Indebtedness"; provided, however, that such purchase,
repurchase, redemption, defeasance or other acquisition or retirement for value
shall be excluded in the calculation of the amount of Restricted Payments; (iii)
dividends paid within 60 days after the date of declaration thereof if at such
date of declaration such dividend would have complied with this covenant;
provided, however, that at the time of payment of such dividend, no other
Default shall have occurred and be continuing (or result therefrom); provided
further, however, that such dividend shall be included in the calculation of the
amount of Restricted Payments;
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(iv) the repurchase of shares of, or options to purchase shares of, Capital
Stock (other than Preferred Stock) of Parent, the Company or any of its
Subsidiaries from employees, former employees, directors or former directors of
Parent, the Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors or their respective
estates), pursuant to the terms of the agreements (including employment
agreements) or plans (or amendments thereto) approved by the Board of Directors
of Parent or the Company, as the case may be, under which such individuals
purchase or sell or are granted the option or right to purchase or sell such
Capital Stock (other than Preferred Stock); provided, however, that the
aggregate amount of such repurchases shall not exceed $2 million in any calendar
year (excluding any such repurchases funded with the proceeds of any life
insurance policy or policies maintained by the Company or under which the
Company is the beneficiary); provided further, however, that such repurchases
shall be excluded in the calculation of the amount of Restricted Payments; (v)
dividends paid by the Company to Parent to be used by Parent to pay Federal,
state and local taxes payable by Parent and directly attributable to (or arise
as a result of) the operations of the Company and its Restricted Subsidiaries;
provided, however, that (A) the amount of such dividends shall not exceed the
amount that the Company and its Restricted Subsidiaries would be required to pay
in respect of such Federal, state and local taxes were the Company to pay such
taxes as a stand-alone taxpayer and (B) such dividends pursuant to this clause
(v) are used by Parent for such purposes within 20 days of the receipt of such
dividends by Parent; provided further, however, that such dividends shall be
excluded in the calculation of the amount of Restricted Payments; (vi) payments
or distributions to shareholders pursuant to appraisal rights in respect of up
to 10% of the Capital Stock of Parent or the Company required by law in
connection with a consolidation, merger or transfer of assets that complies with
the covenant described under "-- Merger and Consolidation" below; provided,
however, that any such payments or distributions shall be included in the
calculation of the amount of Restricted Payments; (vii) so long as no Default
has occurred and is continuing or would result therefrom, any purchase of any
fractional share of Capital Stock of Parent or the Company resulting from (A)
any dividend or other distribution on outstanding shares of Capital Stock that
is payable in shares of such Capital Stock (including any stock split or
subdivision of the outstanding Capital Stock of Parent or the Company), (B) any
combination of all of the outstanding shares of Capital Stock of Parent or the
Company, (C) any reorganization or consolidation of Parent or the Company in any
merger of Parent or the Company with or into any other Person or (D) the
conversion of any securities of Parent or the Company into shares of Capital
Stock of Parent or the Company; provided, however, that such purchases shall be
included in the calculation of the amount of Restricted Payments; and (viii)
Investments in an aggregate amount not to exceed $15 million in any Person
engaged primarily in a Related Business on the date of any such Investment;
provided, however, that such Investments shall be included in the calculation of
the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to
the Company, (b) to make any loans or advances to the Company or (c) to transfer
any of its property or assets to the Company, except: (i) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the Issue
Date, including without limitation, under the New Credit Facility; (ii) any
encumbrance or restriction with respect to a Receivables Subsidiary pursuant to
a Receivables Program of such Receivables Subsidiary; provided that such
encumbrances and restrictions are customarily required by the institutional
sponsor or arranger at the time of entering into such Receivables Program in
similar types of documents relating to the purchase of similar receivables in
connection with the financing thereof; (iii) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary on or prior to the date on
which such Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or series of
related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on such
date; (iv) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred to in
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clause (i), (ii) or (iii) of this covenant or this clause (iv) or contained in
any amendment to an agreement referred to in clause (i), (ii) or (iii) of this
covenant or this clause (iv); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any such
refinancing agreement or amendment are no less favorable to the Noteholders than
encumbrances and restrictions with respect to such Restricted Subsidiary
contained in such agreements; (iv) any such encumbrance or restriction
consisting of customary nonassignment provisions in leases governing leasehold
interests to the extent such provisions restrict the transfer of the lease or
the property leased thereunder; (v) in the case of clause (c) above,
restrictions contained in security agreements or mortgages securing Indebtedness
of a Restricted Subsidiary to the extent such restrictions restrict the transfer
of the property subject to such security agreements or mortgages; and (vi) any
restriction with respect to a Restricted Subsidiary imposed pursuant to an
agreement entered into for the sale or disposition of all or substantially all
the Capital Stock or assets of such Restricted Subsidiary pending the closing of
such sale or disposition.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all non-cash
consideration) of the shares and assets subject to such Asset Disposition (which
fair market value shall be determined in good faith by the Board of Directors
for any transaction (or series of transactions) involving in excess of $500,000
and not involving solely a sale of equipment or other assets specifically
contemplated by the Company's capital expenditure budget previously approved by
the Board of Directors) and at least 75% of the consideration thereof received
by the Company or such Restricted Subsidiary is in the form of cash or cash
equivalents and (ii) an amount equal to 100% of the Net Available Cash from such
Asset Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be) (A) first, to the extent the Company elects (or is required by
the terms of any Senior Indebtedness), to prepay, repay, redeem or purchase
Senior Indebtedness or Indebtedness (other than any Disqualified Stock) of a
Wholly Owned Subsidiary (in each case other than Indebtedness owed to the
Company or an Affiliate of the Company) within one year from the later of the
date of such Asset Disposition or the receipt of such Net Available Cash; (B)
second, to the extent of the balance of such Net Available Cash after
application in accordance with clause (A), to the extent the Company elects, to
acquire Additional Assets within one year from the later of the date of such
Asset Disposition or the receipt of such Net Available Cash; (C) third, subject
to paragraph (b) below, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to make an offer to
the holders of the Notes (and to holders of other Senior Subordinated
Indebtedness designated by the Company) to purchase Notes (and such other Senior
Subordinated Indebtedness) pursuant to and subject to the conditions contained
in the Indenture; and (D) fourth, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A), (B) and (C) to
(x) the acquisition by the Company or any Wholly Owned Subsidiary of Additional
Assets or (y) the prepayment, repayment or purchase of Indebtedness (other than
any Disqualified Stock) of the Company (other than Indebtedness owed to an
Affiliate of the Company) or Indebtedness of any Subsidiary (other than
Indebtedness owed to the Company or an Affiliate of the Company), in each case
within one year from the later of the receipt of such Net Available Cash and the
date the offer described in clause (b) below is consummated; provided, however,
that in connection with any prepayment, repayment or purchase of Indebtedness
pursuant to clause (A), (C) or (D) above (other than such repayment or
prepayment of Indebtedness Incurred pursuant to clause (1) of paragraph (b) of
the covenant described under "-- Limitation on Indebtedness"), the Company or
such Restricted Subsidiary shall retire such Indebtedness and shall cause the
related loan commitment (if any) to be permanently reduced in an amount equal to
the principal amount so prepaid, repaid or purchased. Notwithstanding the
foregoing provisions of this paragraph, the Company and the Restricted
Subsidiaries shall not be required to apply any Net Available Cash in accordance
with this paragraph except to the extent that the aggregate Net Available Cash
from all Asset Dispositions in any period of twelve consecutive months which is
not applied in accordance with this paragraph exceeds $10 million. Pending
application of Net Available Cash pursuant to this covenant, such Net Available
Cash shall be invested in Permitted Investments.
For the purposes of this covenant, the following are deemed to be cash or
cash equivalents: (x) the assumption of Indebtedness of the Company or any
Restricted Subsidiary and the release of the Company or
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such Restricted Subsidiary from all liability on such Indebtedness in connection
with such Asset Disposition and (y) securities received by the Company or any
Restricted Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of the
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(ii)(C)
above, the Company will be required to purchase Notes tendered pursuant to an
offer by the Company for the Notes (and other Senior Subordinated Indebtedness)
at a purchase price of 100% of their principal amount (without premium) plus
accrued but unpaid interest (or, in respect of such other Senior Subordinated
Indebtedness, such lesser price, if any, as may be provided for by the terms of
such Senior Subordinated Indebtedness) in accordance with the procedures
(including prorating in the event of oversubscription) set forth in the
Indenture. If the aggregate purchase price of Notes (and any other Senior
Subordinated Indebtedness) tendered pursuant to such offer is less than the Net
Available Cash allotted to the purchase thereof, the Company will be required to
apply the remaining Net Available Cash in accordance with clause (a)(ii)(D)
above. Notwithstanding anything to the contrary contained herein, the Company
shall not be required to make such an offer to purchase Notes (and other Senior
Subordinated Indebtedness) pursuant to this covenant if the Net Available Cash
available therefor is less than $15 million (which lesser amount shall be
carried forward for purposes of determining whether such an offer is required
with respect to any subsequent Asset Disposition).
(c) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations under this clause by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any property,
employee compensation arrangements or the rendering of any service) with any
Affiliate of the Company (an "Affiliate Transaction") unless the terms thereof
(1) are no less favorable to the Company or such Restricted Subsidiary than
those that could be obtained at the time of such transaction in arm's-length
dealings with a Person who is not such an Affiliate, (2) if such Affiliate
Transaction involves an amount in excess of $500,000, (i) are set forth in
writing and (ii) have been approved by a majority of the disinterested members
of the Board of Directors and (3) if such Affiliate Transaction involves an
amount in excess of $10 million, have been determined by nationally recognized
investment banking or accounting firm having experience in such matters to be
fair, from a financial point of view, to the Company and its Restricted
Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under "-- Limitation on Restricted Payments"; (ii) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans or similar employee benefit plans or arrangements approved by
the Board of Directors; (iii) the grant of stock options or similar rights to
employees and directors of the Parent or the Company pursuant to plans approved
by the Board of Directors, (iv) loans or advances to employees in the ordinary
course of business in accordance with the past practices of the Company or its
Restricted Subsidiaries, but in any event not to exceed $2.0 million in the
aggregate outstanding at any one time; (v) the payment of reasonable fees to
directors of the Parent or the Company and its Restricted Subsidiaries who are
not employees of the Company or its Restricted Subsidiaries; (vi) any Affiliate
Transaction between the Company and a Wholly Owned Subsidiary or between Wholly
Owned Subsidiaries; and (vii) any Receivables Program of the Company or a
Restricted Subsidiary.
Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Company shall not sell or otherwise dispose of any shares of
Capital Stock of a Restricted Subsidiary, and shall not permit any Restricted
Subsidiary, directly or indirectly, to issue or sell or otherwise dispose of any
shares of its Capital Stock except (i) to the Company or a Wholly Owned
Subsidiary or (ii) if, immediately after giving effect to
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such issuance, sale or other disposition, the Company and its Restricted
Subsidiaries would own less than 20% of the Voting Stock of such Restricted
Subsidiary and have no greater economic interest in such Restricted Subsidiary.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the Company shall be the resulting, surviving or transferee Person or the
resulting, surviving or transferee Person (in either case, the "Successor
Company") shall be a Person organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by an indenture
supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the Notes
and the Indenture; (ii) immediately after giving effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor Company
or any Restricted Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Restricted Subsidiary at the time of
such transaction), no Default shall have occurred and be continuing, (iii)
immediately after giving effect to such transaction, the Successor Company would
be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
of the covenant described under "-- Limitation on Indebtedness"; (iv)
immediately after giving effect to such transaction, the Successor Company shall
have Consolidated Net Worth in an amount that is not less than the Consolidated
Net Worth of the Company prior to such transaction; and (v) the Company shall
have delivered to the Trustee an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or transfer and such
supplemental indenture (if any) comply with the Indenture; provided, however,
that notwithstanding clauses (iii) and (iv) above, a Wholly Owned Subsidiary may
merge with or into the Company.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
SEC Reports. Notwithstanding that the Company may not be required to
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the SEC and provide the Trustee and
Noteholders with such annual reports and such information, documents and other
reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filing of such information, documents and reports under such Sections;
provided, however, that so long as Parent is the Guarantor of the Notes (or the
Exchange Notes), the reports, information and other documents required to be
filed and provided as described hereunder may, at the Company's option, be filed
by and be those of Parent rather than the Company; provided further, however,
that in the event Parent conducts any business or holds any significant assets
other than the capital stock of the Company at the time of filing and providing
any such report, information or other document containing financial statements
of Parent, Parent shall include in such report, information or other document
summarized financial information (as defined in Rule 1-02(bb) of Regulation S-X
promulgated by the SEC) with respect to the Company.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a default
in the payment of principal of any Note when due at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or otherwise,
(iii) the failure by the Company to comply with its obligations under
" -- Certain Covenants -- Merger and Consolidation" above, (iv) the failure by
the Company to comply for 30 days after notice with any of its obligations in
the covenants described above under "Change of Control" (other than a failure to
purchase the Notes) or under "-- Certain Covenants" under "-- Limitation on
Indebtedness", "-- Limitation on Restricted Payments", "-- Limitation on
Restrictions on Distributions from Restricted Subsidiaries", "-- Limitation on
Sales of Assets and Subsidiary Stock" (other than a failure to purchase Notes),
"-- Limitation on Affiliate
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Transactions", "-- Limitation on the Sale or Issuance of Capital Stock of
Restricted Subsidiaries" or "-- SEC Reports", (v) the failure by Parent or the
Company to comply for 60 days after notice with its other agreements contained
in the Indenture, (vi) Indebtedness of Parent, the Company or any Significant
Subsidiary is not paid within any applicable grace period after final maturity
or is accelerated by the holders thereof because of a default and the total
amount of such Indebtedness unpaid or accelerated exceeds $10 million (the
"cross acceleration provision"), (vii) certain events of bankruptcy, insolvency
or reorganization of Parent, the Company or a Significant Subsidiary (the
"bankruptcy provisions"), (viii) any judgment or decree for the payment of money
in excess of $10 million is rendered against Parent, the Company or a
Significant Subsidiary, remains outstanding for a period of 60 days following
such judgment and is not discharged, waived or stayed within 10 days after
notice (the "judgment default provision") or (ix) the Guaranty ceases to be in
full force and effect (other than in accordance with the terms of such Guaranty)
or Parent denies or disaffirms its obligations under the Guaranty. However, a
default under clauses (iv), (v) and (viii) will not constitute an Event of
Default until the Trustee or the holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified after receipt of such notice.
If an Event of Default occurs and is continuing (other than an Event of
Default described in clause (vii) of the preceding paragraph with respect to the
Company), the Trustee or the holders of at least 25% in principal amount of the
outstanding Notes may declare the principal of and accrued but unpaid interest
on all the Notes to be due and payable. Upon such a declaration, such principal
and interest shall be due and payable immediately. If an Event of Default
described in clause (vii) of the preceding paragraph occurs and is continuing
with respect to the Company, the principal of and interest on all the Notes will
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a Note
may pursue any remedy with respect to the Indenture or the Notes unless (i) such
holder has previously given the Trustee notice that an Event of Default is
continuing, (ii) holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee to pursue the remedy, (iii) such holders have
offered the Trustee reasonable security or indemnity against any loss, liability
or expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity and (v) the
holders of a majority in principal amount of the outstanding Notes have not
given the Trustee a direction inconsistent with such request within such 60-day
period. Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the holders of the Notes.
In addition, the Company is required to deliver to the Trustee, within 120 days
after the end of each fiscal year, a certificate indicating whether the signers
thereof know of any Default that occurred during the previous year. The Company
also is required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
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AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the
consent of the holders of a majority in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the holders of a majority in principal
amount of the Notes then outstanding. However, without the consent of each
holder of an outstanding Note affected thereby, no amendment may, among other
things, (i) reduce the amount of Notes whose holders must consent to an
amendment, (ii) reduce the rate of or extend the time for payment of interest on
any Note, (iii) reduce the principal of or extend the Stated Maturity of any
Note, (iv) reduce the premium payable upon the redemption of any Note or change
the time at which any Note may be redeemed as described under "-- Optional
Redemption", (v) make any Note payable in money other than that stated in the
Note, (vi) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes, (vii) make any change in the amendment
provisions which require each holder's consent or in the waiver provisions,
(viii) make any change to the subordination provisions of the Indenture that
would adversely affect the Noteholders or (ix) make any change in the Guaranty
that would adversely affect the Noteholders.
Without the consent of any holder of the Notes, Parent, the Company and the
Trustee may amend the Indenture to cure any ambiguity, omission, defect or
inconsistency, to provide for the assumption by a successor corporation of the
obligations of the Company under the Indenture, to provide for uncertificated
Notes in addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to add guarantees with respect
to the Notes, to secure the Notes, to add to the covenants of the Company for
the benefit of the holders of the Notes or to surrender any right or power
conferred upon the Company, to make any change that does not adversely affect
the rights of any holder of the Notes or to comply with any requirement of the
SEC in connection with the qualification of the Indenture under the Trust
Indenture Act. However, no amendment may be made to the subordination provisions
of the Indenture that adversely affects the rights of any holder of Senior
Indebtedness then outstanding unless the holders of such Senior Indebtedness (or
their Representative) consents to such change.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the Notes,
or any defect therein, will not impair or affect the validity of the amendment.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "Change of
Control" and under the covenants described under "-- Certain Covenants" (other
than the covenant described under "-- Merger and Consolidation"), the operation
of the cross acceleration provision, the bankruptcy provisions with respect to
Significant Subsidiaries and the judgment default provision described under
"-- Defaults" above and the limitations contained in clauses (iii) and (iv)
under "-- Certain Covenants -- Merger and Consolidation" (and clause (iii) of
the first paragraph under "-- Defaults" as it relates to clauses (iii) and (iv)
under "-- Certain Covenants -- Merger and Consolidation") above ("covenant
defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
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defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iv), (vi), (vii) (with respect only to
Significant Subsidiaries) or (viii) under "-- Defaults" above or because of the
failure of the Company to comply with clause (iii) or (iv) under "-- Certain
Covenants -- Merger and Consolidation" above. If the Company exercises its legal
defeasance option or its covenant defeasance option, Parent will be released
from all its obligations with respect to the Guaranty.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
Federal income tax purposes as a result of such deposit and defeasance and will
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is to be the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain
exceptions. The Indenture provides that if an Event of Default occurs (and is
not cured), the Trustee will be required, in the exercise of its power, to use
the degree of care of a prudent man in the conduct of his own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any Holder of Notes,
unless such Holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense and then only to the
extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock), including, without limitation, land, machinery,
equipment, leasehold interests and improvements, in a Related Business; (ii) the
Capital Stock of a Person that becomes a Restricted Subsidiary as a result of
the acquisition of such Capital Stock by the Company or another Restricted
Subsidiary or (iii) Capital Stock constituting a minority interest in any Person
that at such time is a Restricted Subsidiary; provided, however, that any such
Restricted Subsidiary described in clauses (ii) or (iii) above is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" 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. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Restricted Payments", "-- Certain Covenants -- Limitation on Affiliate
Transactions" and "-- Certain Covenants -- Limitations on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
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"Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (ii) all or substantially all the assets of any division
or line of business of the Company or any Restricted Subsidiary or (iii) any
other assets of the Company or any Restricted Subsidiary outside of the ordinary
course of business of the Company or such Restricted Subsidiary. Notwithstanding
the foregoing, the following shall not be deemed an "Asset Disposition" for
purposes of the Indenture: (a) the sale or other transfer or disposition of
Receivables and Related Assets pursuant to a Receivables Program, (b) a
disposition by a Restricted Subsidiary to the Company or by the Company or a
Restricted Subsidiary to a Wholly Owned Subsidiary and (c) for purposes of the
covenant described under "-- Certain Covenants -- Limitation on Sales of Assets
and Subsidiary Stock" only, a disposition that constitutes a Restricted Payment
permitted by the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments").
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of (x) the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied by
(y) the amount of such payment by (ii) the sum of all such principal or
redemption payments.
"Banks" has the meaning specified in the New Credit Facility.
"Board of Directors" means, as the context requires, the Board of Directors
of Parent or the Company or any committee thereof duly authorized to act on
behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Expenditure Indebtedness" means Indebtedness Incurred to finance
the purchase or construction of any property acquired or constructed by such
Person so long as (i) the purchase or construction price for such property is or
should be capitalized in accordance with GAAP, (ii) the acquisition or
construction of such property is not part of an acquisition of a Person or
business unit and (iii) such Indebtedness is Incurred within 360 days of the
acquisition or completion of construction of such property.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days prior to the date of
such determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period that
remains outstanding or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period (other than
Indebtedness Incurred or repaid under a revolving credit or similar arrangement
to the extent of the commitment thereunder (or under the predecessor revolving
credit or similar arrangement) in effect on the
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last day of such period unless any portion of such Indebtedness is projected, in
the reasonable judgment of the senior management of the Company, to remain
outstanding for a period in excess of twelve months from the date of Incurrence
thereof) and the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Indebtedness as
if such discharge had occurred on the first day of such period, (2) if since the
beginning of such period the Company or any Restricted Subsidiary shall have
made any Asset Disposition, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased by
an amount equal to the EBITDA (if negative), directly attributable thereto for
such period and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its continuing Restricted Subsidiaries in connection with such Asset Disposition
for such period (or, if the Capital Stock of any Restricted Subsidiary is sold,
the Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (3) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any person which becomes a Restricted Subsidiary)
or an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction requiring a calculation to be made hereunder,
which constitutes all or substantially all of an operating unit of a business,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto (including the Incurrence of any
Indebtedness) as if such Investment or acquisition occurred on the first day of
such period and (4) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (2) or (3) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
of assets occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting Officer of the Company. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest of such Indebtedness shall be calculated as if the rate in
effect on the date of determination had been the applicable rate for the entire
period (taking into account any Interest Rate Agreement applicable to such
Indebtedness if such Interest Rate Agreement has a remaining term in excess of
12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount and debt
issuance cost, (iii) capitalized interest, (iv) non-cash interest expenses, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) net costs associated with
Hedging Obligations (including amortization of fees), (vii) Preferred Stock
dividends in respect of all Preferred Stock held by Persons other than the
Company or a Wholly Owned Subsidiary, (viii) interest incurred in connection
with Investments in discontinued operations, (ix) interest accruing on any
Indebtedness of any other Person to the extent such Indebtedness is Guaranteed
by the Company or any Restricted Subsidiary, (x) the cash contributions to any
employee stock ownership plan or similar trust to the extent such contributions
are used by such plan or trust to pay interest or fees to any Person (other than
the Company) in connection with Indebtedness Incurred by such plan or trust and
(xi) any premiums, fees, discounts, expenses and losses on the sale of
Receivables and Related Assets (and any amortization thereof) payable in
connection with the New Credit Facility, the Receivables Program or the offering
of the Notes, all as determined on a consolidated basis in conformity with GAAP.
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"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
be excluded from such Consolidated Net Income, without duplication: (i) any net
income of any Person if such Person is not a Restricted Subsidiary, except that
(A) subject to the exclusion contained in clause (iv) below, the Company's
equity in the net income of any such Person for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person for such period shall be included in determining
such Consolidated Net Income; (ii) any net income (or loss) of any Person
acquired by the Company or a Subsidiary in a pooling of interests transaction
for any period prior to the date of such acquisition; (iii) any net income of
any Restricted Subsidiary if such Restricted Subsidiary is subject to
restrictions, directly or indirectly, on the payment of dividends or the making
of distributions by such Restricted Subsidiary, directly or indirectly, to the
Company, except that (A) subject to the exclusion contained in clause (iv)
below, the Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Restricted Subsidiary
during such period to the Company or another Restricted Subsidiary as a dividend
or other distribution (subject, in the case of a dividend or other distribution
paid to another Restricted Subsidiary, to the limitation contained in this
clause) and (B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain (but not loss) realized upon the sale or other
disposition of any assets of the Company or its consolidated Subsidiaries
(including pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (but not
loss) realized upon the sale or other disposition of any Capital Stock of any
Person; (v) extraordinary gains or losses; and (vi) the cumulative effect of a
change in accounting principles. Notwithstanding the foregoing, for the purposes
of the covenant described under "Certain Covenants -- Limitation on Restricted
Payments" only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of Restricted
Payments permitted under such covenant pursuant to clause (a)(3)(E) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of any
action for the purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Indebtedness and all other
monetary obligations (including Post-Petition Interest, expenses and fees) under
the New Credit Facility and any other obligation, including hedging obligations,
secured by the security agreements referred to in the New Credit Facility and
(ii) any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $25 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise,
(ii) is convertible or exchangeable for Indebtedness or Disqualified Stock or
(iii) is redeemable at the option of the holder thereof, in whole or in part, in
each case on or prior to the first anniversary of the Stated Maturity of the
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Notes; provided, however, that any Capital Stock that would not constitute
Disqualified Stock but for provisions thereof giving holders thereof the right
to require such Person to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
first anniversary of the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are not more favorable to the holders of such
Capital Stock than the provisions described under "Change of Control" and under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock".
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus, without duplication, the following to the
extent deducted in calculating such Consolidated Net Income: (a) all income tax
expense of the Company, (b) depreciation expense, (c) amortization expense, (d)
non-cash inventory charges recorded as a result of the utilization of the
last-in, first-out (LIFO) inventory valuation method and (e) all other non-cash
items reducing Consolidated Net Income (other than items that will require cash
payments and for which an accrual or reserve is, or is required by GAAP to be,
made), less all non-cash items increasing Consolidated Net Income, in each case
for such period. Notwithstanding the foregoing, the provision for taxes based on
the income or profits of, and the depreciation and amortization of, a Subsidiary
of the Company shall be added to Consolidated Net Income to compute EBITDA only
to the extent (and in the same proportion) that the net income of such
Subsidiary was included in calculating Consolidated Net Income and only if a
corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to such Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth (i) in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants (ii) in statements and
pronouncements of the Financial Accounting Standards Board (iii) in such other
statements by such other entity as approved by a significant segment of the
accounting profession, and (iv) in the published rules and regulations of the
SEC governing the inclusion of financial statements (including pro forma
financial statements) in periodic reports required to be filed pursuant to
Section 13 of the Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the accounting staff of
the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate or Currency Protection Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Restricted Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Subsidiary at the time it becomes a Restricted Subsidiary. The term
"Incurrence" when used as a noun
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shall have a correlative meaning. The accretion of principal of a non-interest
bearing or other discount security shall be deemed the Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable (other than, in
the case of the Company and its Restricted Subsidiaries, any non-negotiable
notes of the Company or its Subsidiaries issued to its insurance carriers in
lieu of maintenance of policy reserves in connection with its workers
compensation and liability insurance programs); (ii) all Capital Lease
Obligations of such Person; (iii) all obligations of such Person issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of such Person and all obligations of such Person under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the tenth Business Day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit and time drafts relating to any such letters of credit
payable within 180 days after the date of Issuance to the extent such time
drafts are issued in the ordinary course of business for the payment of goods or
services); (v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or, with
respect to any Subsidiary of such Person, any Preferred Stock (but excluding, in
each case, any accrued dividends); (vi) all obligations of the type referred to
in clauses (i) through (v) of other Persons and all dividends of other Persons
for the payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including by means
of any Guarantee; (vii) all obligations of the type referred to in clauses (i)
through (vi) of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the fair market value
of such property or assets at such date of determination or the amount of the
obligation so secured and (viii) to the extent not otherwise included in this
definition, Hedging Obligations of such Person. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and, with respect to contingent
obligations, the amount of liability required by GAAP to be accrued or reflected
on the most recently published balance sheet of such Person; provided, however,
that (A) the amount outstanding at any time of any Indebtedness issued with
original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP and (B)
Indebtedness shall not include any liability for federal, state, local or other
taxes.
"Insolvency or Liquidation Proceeding" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company or its assets, or (ii) any liquidation, dissolution or other winding up
of the Company, whether voluntary or involuntary or whether or not involving
insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors
or any other marshalling of assets or liabilities of the Company.
"Interest Rate or Currency Protection Agreement" of any Person means any
interest rate protection agreement (including, without limitation, interest rate
swaps, caps, floors, collars, derivative instruments and similar agreements),
and/or other types of interest hedging agreements and any currency protection
agreement (including foreign exchange contracts, currency swap agreements or
other currency hedging arrangements) in support of the Company's business and
not of a speculative nature.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are,
in conformity with GAAP, recorded as accounts receivable on the balance sheet of
such Person) or other extensions of credit (including by way of Guarantee or
similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of
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Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of the definition of "Unrestricted Subsidiary", the definition of
"Restricted Payment" and the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments", (i) "Investment" shall include
the portion (proportionate to the Company's equity interest in such Subsidiary)
of the fair market value of the net assets of any Subsidiary of the Company at
the time that such Subsidiary is designated an Unrestricted Subsidiary;
provided, however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary equal to an amount (if positive)
equal to (x) the Company's "Investment" in such Unrestricted Subsidiary at the
time of such redesignation as a Restricted Subsidiary less (y) the portion
(proportionate to the Company's equity interest in such Unrestricted Subsidiary)
of the fair market value of the net assets of such Unrestricted Subsidiary at
the time of such redesignation as a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means payments in cash or
cash equivalents received therefrom (including any cash payments received by way
of deferred payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received, but excluding any other consideration
received in the form of assumption by the acquiring Person of Indebtedness or
other obligations relating to such properties or assets or received in any other
noncash form) in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred (including fees and
expenses of investment bankers), and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, incurred in
connection with such Asset Disposition, (ii) all payments made on any
Indebtedness which is secured by a Lien on any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a necessary consent to such Asset Disposition, or by
applicable law be, repaid out of the proceeds from such Asset Disposition, (iii)
all distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Disposition
and (iv) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with the
property or other assets disposed in such Asset Disposition, 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 Dispositions, all as determined in
conformity with GAAP, and retained by the Company or any Restricted Subsidiary
after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the proceeds of such issuance or sale in the form of cash or cash
equivalents net of attorneys' fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees actually incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
"New Credit Facility" means credit facilities provided to the Company
pursuant to the Amended and Restated Credit Agreement dated April 29, 1996,
among the Company, the lenders thereunder and Wachovia Bank of Georgia, N.A. and
The First National Bank of Chicago, as agents, as the same may from time to time
be amended, renewed, supplemented or otherwise modified.
"Parent" means Avondale Incorporated, a Georgia corporation, or any
successor corporation.
"Permitted Holders" means G. Stephen Felker and/or any "Permitted
Transferee" (as defined in the Restated and Amended Articles of Incorporation of
Parent as of the Issue Date) of G. Stephen Felker.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) a Receivables Subsidiary or a Restricted Subsidiary or a
Person that will, upon the making of such Investment, become a Restricted
Subsidiary; provided, however, that the primary business of such Restricted
Subsidiary is
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a Related Business; (ii) another Person if as a result of such Investment such
other Person is merged or consolidated with or into, or transfers or conveys all
or substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Company or any
Restricted Subsidiary if created or acquired in the ordinary course of business
and payable or dischargeable in accordance with customary trade terms; provided,
however, that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances; (v) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
for accounting purposes and that are made in the ordinary course of business;
(vi) loans or advances to employees made in the ordinary course of business
consistent with past practices of the Company or such Restricted Subsidiary;
(vii) stock, obligations or securities received in settlement of debts created
in the ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments; (viii) any Person to the extent such
Investment represents the non-cash portion of the consideration received for an
Asset Disposition as permitted pursuant to the covenant described under
"-- Certain Covenants -- Limitation on Sales of Assets and Subsidiary Stock";
and (ix) a trust, limited liability company, special purpose entity or other
similar entity in connection with a Receivables Program; provided, however, that
(A) such Investment is made by a Receivables Subsidiary and (B) the only assets
transferred to such trust, limited liability company, special purpose or other
similar entity consist of Receivables and Related Assets of such Receivables
Subsidiary.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Post-Petition Interest" means all interest accrued or accruing after the
commencement of any Insolvency or Liquidation Proceeding (and interest that
would accrue but for the commencement of any Insolvency or Liquidation
Proceeding) in accordance with and at the contract rate (including, without
limitation, any rate applicable upon default) specified in the agreement or
instrument creating, evidencing or governing any Indebtedness, whether or not,
pursuant to applicable law or otherwise, the claim for such interest is allowed
as a claim in such Insolvency or Liquidation Proceeding.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
any class of common stock of the Company or Parent pursuant to an effective
registration statement under the Securities Act.
"Public Market" means any time after (x) an underwritten public equity
offering of Parent or the Company has been consummated and (y) at least 10% of
the total issued and outstanding common stock of Parent or the Company has been
distributed by means of an effective registration statement under the Securities
Act or sales pursuant to Rule 144 under the Securities Act.
"Receivables and Related Assets" means accounts receivable, instruments,
chattel paper, obligations, general intangibles and other similar assets,
including interest in merchandise or goods, the sale or lease of which give rise
to the foregoing, related contractual rights, guarantees, insurance proceeds,
collections, other related assets and proceeds of all the foregoing.
"Receivables Program" means, with respect to any Person, any accounts
receivable securitization program pursuant to which such Person pledges, sells
or otherwise transfers or encumbers its accounts receivable, including to a
trust, limited liability company, special purpose entity or other similar
entity.
99
<PAGE> 104
"Receivables Subsidiary" means a Wholly Owned Subsidiary (i) created for
the purpose of financing receivables created in the ordinary course of business
of the Company and its Subsidiaries and (ii) the sole assets of which consist of
Receivables and Related Assets of the Company and its Subsidiaries and related
Permitted Investments.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that (i) such
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) such Refinancing
Indebtedness has an Average Life at the time such Refinancing Indebtedness is
Incurred that is equal to or greater than the Average Life of the Indebtedness
being Refinanced and (iii) such Refinancing Indebtedness has an aggregate
principal amount (or if Incurred with original issue discount, an aggregate
issue price) that is equal to or less than the aggregate principal amount (or if
Incurred with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Company, (y) Indebtedness of the
Company or a Restricted Subsidiary that Refinances Indebtedness of an
Unrestricted Subsidiary or (z) Indebtedness that Refinances Indebtedness of a
Subsidiary that was Incurred and outstanding on or prior to the date such
Subsidiary was acquired by the Company unless such proposed Refinancing
Indebtedness is Incurred by such Subsidiary.
"Related Business" means the businesses of the Company and the Restricted
Subsidiaries on the Issue Date and any business related, ancillary or
complementary to the businesses of the Company and the Restricted Subsidiaries
on the Issue Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions in respect of its Capital
Stock (including any payment in connection with any merger or consolidation
involving such Person) or similar payment to the direct or indirect holders of
its Capital Stock (other than dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock)) and dividends or distributions
payable solely to the Company or a Restricted Subsidiary, and other than pro
rata dividends or other distributions made by a Restricted Subsidiary that is
not a Wholly Owned Subsidiary to minority stockholders (or owners of an
equivalent interest in the case of a Subsidiary that is an entity other than a
corporation)), (ii) the purchase, redemption or other acquisition or retirement
for value of any Capital Stock of the Company held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company
(other than a Restricted Subsidiary), including the exercise of any option to
exchange any Capital Stock (other than into Capital Stock of the Company that is
not Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance
or other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition) or (iv) the making of any Investment in any
Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means with respect to any Person, (i) Indebtedness
referred to in clause (i) of the definition of "Designated Senior Indebtedness",
(ii) Indebtedness of such Person, whether outstanding on the Issue Date or
thereafter Incurred and (iii) accrued and unpaid interest (including
Post-Petition Interest) in
100
<PAGE> 105
respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinate in right of
payment to the Notes; provided, however, that Senior Indebtedness shall not
include (1) any obligation of such Person to any Subsidiary, (2) any liability
for Federal, state, local or other taxes owed or owing by such Person, (3) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of such Person (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect to
any other Indebtedness or other obligation of such Person or (5) that portion of
any Indebtedness which at the time of Incurrence is Incurred in violation of the
Indenture.
"Senior Subordinated Indebtedness" means the Notes and any other
Indebtedness of the Company that specifically provides that such Indebtedness is
to rank pari passu with the Notes in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of the
Company which is not Senior Indebtedness.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total voting
power of outstanding shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign currency
equivalent thereof) and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized statistical
rating organization (as defined in Rule 436 under the Securities Act) or any
money-market fund sponsored by an registered broker dealer or mutual fund
distributor, (iii) repurchase obligations with a term of not more than 30 days
for underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii) above, (iv)
investments in commercial paper, maturing not more than 90 days after the date
of acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
foreign country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or higher) according
to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard
and Poor's Ratings Group, and (v) investments in securities with maturities of
six months or less from the date of acquisition issued or fully guaranteed by
any state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
101
<PAGE> 106
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments". The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"-- Certain Covenants -- Limitation on Indebtedness" and (y) no Default shall
have occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced by the Company to the Trustee by promptly filing with the
Trustee a copy of the board resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by other
Persons to the extent such shares are required by applicable law to be held by a
Person other than the Company or a Restricted Subsidiary) is owned by the
Company or one or more Wholly Owned Subsidiaries.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, proposed
Treasury regulations, judicial authority and administrative rulings and
practice. There can be no assurance that the Internal Revenue Service (the
"Service") will not take a contrary view, and no ruling from the Service has
been or will be sought. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could alter or modify the statements and
conditions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to holders. Certain holders
(including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. The Company recommends that each holder consult such holder's
own tax advisor as to the particular tax consequences of exchanging such
holder's Old Notes for New Notes, including the applicability and effect of any
state, local or foreign tax laws.
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not be treated as an "exchange" for federal income tax purposes because the
Exchange Notes should not be considered to differ materially in kind or extent
from the Old Notes. Rather, the New Notes received by a holder will be treated
as a continuation of the Old Notes in the hands of such holder. As a result,
there will be no federal income tax consequences to holders exchanging Old Notes
for New Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This
102
<PAGE> 107
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer (other than an "affiliate" of the Company or Avondale
Incorporated) in connection with resales of such New Notes. The Company has
agreed that for a period of 180 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any such broker-dealer
for use in connection with any such resale. In addition, until October , 1996,
all dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
Neither the Company nor Avondale Incorporated will receive any proceeds
from any sale of New Notes by broker-dealers. New Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes that were received by it for its
own account pursuant to the Exchange Offer may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
the New Notes and any commissions or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company promptly
will send additional copies of this Prospectus and any amendment or supplement
to this Prospectus to any broker-dealer that requests such documents in a Letter
of Transmittal. The Company has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of one counsel for all of the holders of
Old Notes) other than commissions or concessions of any brokers or dealers and
transfer taxes and will indemnify the Holders of the Old Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The legality of the New Notes offered hereby will be passed upon for the
Company by King & Spalding, Atlanta, Georgia.
EXPERTS
The Consolidated Financial Statements of the Company at August 26, 1994 and
August 25, 1995 and for each of the three years in the period ended August 25,
1995 appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, and the information under the
caption "Selected Historical Consolidated Financial Data" pertaining to Avondale
Incorporated for each of the five years in the period ended August 25, 1995,
appearing in this Prospectus and Registration Statement have been derived from
consolidated financial statements audited by Ernst & Young LLP, as set forth in
their report thereon appearing elsewhere herein. Such consolidated financial
statements have been included herein in reliance upon such report, given upon
the authority of such firm as experts in auditing and accounting.
With respect to the unaudited condensed consolidated interim financial
information of the Company as of and for the thirty-nine week periods ended May
26, 1995 and May 24, 1996, included in this Prospectus and Registration
Statement, Ernst & Young LLP reported that they have applied limited procedures
in accordance with professional standards for review of such information.
However, their separate report dated August 27, 1996, included herein, states
that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their report on
such financial information should be restricted considering the limited nature
of the review procedures applied. The independent auditors are not subject to
the liability provisions of Section 11 of the Securities Act for their report on
the unaudited interim financial information because that report is not a
"report" or a "part" of the Registration Statement prepared or certified by the
auditors within the meaning of Sections 7 and 11 of the Act.
103
<PAGE> 108
The Financial Statements of Graniteville at January 2, 1994, January 1,
1995 and December 31, 1995 and for the ten months ended January 2, 1994 and for
each of the two years in the period ended December 31, 1995 included elsewhere
in this Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing elsewhere herein, and have been
included in reliance upon the report of such firm, given upon their authority as
experts in auditing and accounting.
104
<PAGE> 109
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVONDALE INCORPORATED
UNAUDITED FINANCIAL STATEMENTS:
Independent Accountants' Review Report................................................ F-2
Condensed Consolidated Balance Sheets (Unaudited) as of May 26, 1995 and May 24,
1996................................................................................ F-3
Condensed Consolidated Statements of Income and Retained Earnings
(Unaudited) -- Thirty-Nine Weeks Ended May 26, 1995 and May 24, 1996................ F-4
Condensed Consolidated Statements of Cash Flows (Unaudited) -- Thirty-Nine Weeks Ended
May 26, 1995 and May 24, 1996....................................................... F-5
Notes to Condensed Consolidated Financial Statements (Unaudited)...................... F-6
AUDITED FINANCIAL STATEMENTS:
Report of Independent Auditors........................................................ F-11
Consolidated Balance Sheets as of August 26, 1994 and August 25, 1995................. F-12
Consolidated Statements of Income -- Fiscal Years Ended August 27, 1993, August 26,
1994 and August 25, 1995............................................................ F-13
Consolidated Statements of Shareholders' Equity -- Years Ended August 27, 1993, August
26, 1994 and August 25, 1995........................................................ F-14
Consolidated Statements of Cash Flows -- Fiscal Years Ended August 27, 1993, August
26, 1994 and August 25, 1995........................................................ F-15
Notes to Consolidated Financial Statements............................................ F-16
GRANITEVILLE
UNAUDITED FINANCIAL STATEMENTS:
Condensed Statements of Assets and Liabilities as of April 2, 1995 and March 31,
1996................................................................................ F-22
Condensed Statements of Operations for the Thirteen Weeks ended April 2, 1995 and
March 31, 1996...................................................................... F-23
Condensed Statements of Equity for the Thirteen Weeks ended April 2, 1995 and
March 31, 1996...................................................................... F-24
Condensed Statements of Cash Flows for the Thirteen Weeks ended April 2, 1995 and
March 31, 1996...................................................................... F-25
Notes to Condensed Financial Statements............................................... F-26
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report.......................................................... F-28
Statements of Assets and Liabilities as of January 2, 1994, January 1, 1995 and
December 31, 1995................................................................... F-29
Statements of Operations -- Ten Months Ended January 2, 1994, Years Ended January 1,
1995 and December 31, 1995.......................................................... F-30
Statements of Equity -- Ten Months Ended January 2, 1994, Years Ended January 1, 1995
and December 31, 1995............................................................... F-31
Statements of Cash Flows -- Ten Months Ended January 2, 1994, Years Ended January 1,
1995 and December 31, 1995.......................................................... F-32
Notes to Financial Statements......................................................... F-33
</TABLE>
F-1
<PAGE> 110
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Shareholders
Avondale Incorporated
We have reviewed the accompanying condensed consolidated balance sheets of
Avondale Incorporated as of May 24, 1996 and May 26, 1995, and the related
condensed consolidated statements of income and retained earnings, and cash
flows for the thirty-nine week periods then ended. These financial statements
are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, which will be performed
for the full year with the objective of expressing an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Birmingham, Alabama
August 27, 1996
F-2
<PAGE> 111
AVONDALE INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MAY 26, MAY 24,
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash................................................................... $ 501 $ 8,558
Accounts receivable, less allowance for doubtful accounts of $2,239 in
1995 and $4,360 in 1996............................................. 92,254 78,914
Due from Triarc........................................................ -- 10,145
Inventories............................................................ 47,072 137,101
Prepaid expenses....................................................... 680 1,140
-------- --------
Total current assets........................................... 140,507 235,858
Real estate held for sale................................................ 11,486 11,482
Property, plant and equipment
Land................................................................... 970 8,532
Buildings.............................................................. 36,813 64,314
Machinery and equipment................................................ 240,114 348,820
-------- --------
277,897 421,666
Less accumulated depreciation.......................................... (155,756) (180,980)
-------- --------
122,141 240,686
Other assets............................................................. 4,047 19,686
-------- --------
$278,181 $507,712
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable....................................................... $ 22,418 $ 47,572
Accrued compensation, benefits and related expenses.................... 10,674 20,015
Other accrued expenses................................................. 7,377 28,018
Long-term debt due in one year......................................... 3,000 4,000
Income taxes payable................................................... 473 160
Deferred income taxes.................................................. 2,203 1,823
-------- --------
Total current liabilities...................................... 46,145 101,588
Long-term debt........................................................... 187,443 314,425
Deferred income taxes and other long-term liabilities.................... 28,876 31,484
Commitments and contingencies (Note 10)
Shareholders' equity
Preferred Stock
$.01 par value; 10,000 shares authorized............................ -- --
Common Stock
Class A, $.01 par value; 100,000 shares authorized; issued and
outstanding -- 10,090 shares in 1995 and 12,312 shares in 1996..... 101 123
Class B, $.01 par value; 5,000 shares authorized; issued and
outstanding -- 979 shares in 1995 and 1996......................... 10 10
Capital in excess of par value......................................... 2,566 41,844
Retained earnings...................................................... 13,040 18,238
-------- --------
Total shareholders' equity..................................... 15,717 60,215
-------- --------
$278,181 $507,712
======== ========
</TABLE>
See independent accountants' review report and notes to condensed consolidated
financial statements.
F-3
<PAGE> 112
AVONDALE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
39 WEEKS ENDED
---------------------
MAY 26, MAY 24,
1995 1996
-------- --------
<S> <C> <C>
Net sales.............................................................. $410,615 $423,092
Operating costs and expenses
Cost of goods sold................................................... 334,758 360,007
Depreciation......................................................... 17,744 20,455
Selling and administrative expenses.................................. 18,134 21,325
-------- --------
Operating income............................................. 39,979 21,305
Interest expense....................................................... 11,166 10,724
Discount and expenses on sale of receivables........................... -- 2,180
Other income, net...................................................... (344) (450)
-------- --------
Income before income taxes........................................... 29,157 8,851
Provision for income taxes............................................. 11,250 3,430
-------- --------
Net income................................................... 17,907 5,421
Retained earnings, beginning of period................................. (2,543) 15,297
-------- --------
15,364 20,718
Cash dividends declared on common stock................................ (2,324) (2,480)
-------- --------
Retained earnings, end of period....................................... $ 13,040 $ 18,238
======== ========
Per share data:
Net income........................................................... $ 1.61 $ .48
======== ========
Dividends declared................................................... $ 0.21 $ 0.21
======== ========
Weighted average shares outstanding.................................... 11,133 11,387
======== ========
</TABLE>
See independent accountant's review report and notes to condensed consolidated
financial statements.
F-4
<PAGE> 113
AVONDALE INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MAY 26, MAY 24,
1995 1996
-------- ---------
<S> <C> <C>
Operating activities
Net income.......................................................... $ 17,907 $ 5,421
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................... 17,778 20,532
Provision for deferred income taxes.............................. 153 (522)
Interest expense on payment-in-kind notes........................ 2,337 2,671
Gain on sale of equipment........................................ (405) (655)
Changes in operating assets and liabilities...................... (12,998) (15,354)
-------- ---------
Net cash provided by operating activities................... 24,772 12,093
Investing activities
Purchase of Graniteville............................................ -- (244,897)
Due from Triarc..................................................... -- (10,145)
Purchase of debt securities......................................... -- (7,500)
Purchase of property, plant and equipment........................... (11,411) (24,197)
Proceeds from sale of property, plant and equipment................. 428 605
-------- ---------
Net cash used in investing activities....................... (10,983) (286,134)
Financing activities
Principal payments on revolving line of credit and long-term debt... (11,850) (2,000)
Additions to revolving line of credit and long-term debt............ -- 67,850
Issuance of long-term debt.......................................... -- 125,000
Deferred financing costs............................................ -- (6,728)
Sale of accounts receivable......................................... -- 105,178
Issuance of common stock............................................ -- 39,300
Retirement of subordinated debt..................................... -- (45,014)
Dividends paid...................................................... (2,324) (2,480)
-------- ---------
Net cash (used in) provided by financing activities......... (14,174) 281,106
-------- ---------
Increase (decrease) in cash and cash equivalents...................... (385) 7,065
Cash and cash equivalents at beginning of period...................... 886 1,493
-------- ---------
Cash and cash equivalents at end of period.................. $ 501 $ 8,558
======== =========
</TABLE>
See independent accountants' review report and notes to condensed consolidated
financial statements.
F-5
<PAGE> 114
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)
MAY 24, 1996
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Avondale Incorporated and its wholly owned subsidiaries,
Avondale Mills, Inc. and Avondale Receivables Company (collectively, the
"Company"). These statements have been prepared in accordance with generally
accepted accounting principles for interim financial statements. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The basis of
presentation and accounting policies followed by the Company are presented in
Notes 1 and 2 to the August 25, 1995 Audited Consolidated Financial Statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation. Operating results for the
thirty-nine weeks ended May 24, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ending August 30, 1996.
(2) PURCHASE OF THE TEXTILE BUSINESS OF GRANITEVILLE COMPANY
On April 29, 1996, the Company acquired substantially all of the textile
assets (the "Textile Business") of Graniteville Company ("Graniteville"),
pursuant to an Asset Purchase Agreement with Graniteville and Triarc Companies,
Inc. ("Triarc"), for cash consideration plus the assumption of certain
liabilities other than long term debt. The amount paid at the closing,
$255,000,000, is to be adjusted based on the excess ("deficit amount") of
$242,000,000 over the net book value, as of April 28, 1996, of the assets
acquired and the liabilities assumed in connection with the acquisition. The
Company's preliminary determination of the deficit amount of $15,145,000, has
been recorded as an adjustment to the aggregate purchase price. On May 21, 1996,
Graniteville paid the Company $5,000,000 plus accrued interest, in partial
settlement of the deficit amount. Final determination of the deficit amount will
be conducted in accordance with the terms of the Asset Purchase Agreement.
The funds used to acquire the Textile Business were provided by the
issuance of senior subordinated notes, the sale of accounts receivable under a
securitization facility, the sale of the Company's Class A common stock and
borrowings against the Company's amended revolving credit facility.
The acquisition was accounted for as a purchase; accordingly, the results
of operations of the Textile Business have been included in the operating
results since the date of acquisition. The excess of the aggregate purchase
price, including acquisition related expenses, over the fair market value of
tangible assets acquired and liabilities assumed of approximately $225,000, has
been recognized as goodwill and is being amortized over 20 years.
See independent accountants' review report.
F-6
<PAGE> 115
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
The following summary, prepared on a pro forma basis, combines the
consolidated results of operations of the Company and the Textile Business as if
the Textile Business had been acquired as of the beginning of the periods
presented, after including the impact of certain adjustments on depreciation,
interest expense and amortization of intangibles, and the elimination of Triarc
management fees and intercompany transactions (in thousands, except per share
data).
<TABLE>
<CAPTION>
39 WEEKS ENDED
---------------------
MAY 26, MAY 24,
1995 1996
-------- --------
<S> <C> <C>
Net sales...................................................... $783,428 $753,078
Net income (loss).............................................. $ 21,533 $ (139)
Net income (loss) per share.................................... $ 1.61 $ (.01)
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
(3) RECEIVABLES SECURITIZATION FACILITY
On April 29, 1996, the Company entered into an agreement with a bank (the
"Agreement") under which it may sell an undivided interest in a defined pool of
revolving trade accounts receivable (the "Receivables") held by Avondale
Receivables Company. Under the bank facility, the Receivables are transferred to
a trust at a discount. The trust sells variable funding certificates to lending
institutions or other investors representing undivided ownership interests in a
defined portion of the Receivables. Such certificates do not represent
obligations or interests in, and are not guaranteed or insured by, the Company.
The proceeds from the issuance of the certificates are remitted to the Company.
The Company retains a residual interest in the Receivables in an amount
equal to the excess of the Receivables over the certificates sold. Such residual
interest is included in Accounts receivable in the Condensed Consolidated
Balance Sheet. All losses, credits or other adjustments relating to the
Receivables constitute deductions applicable to the Company's residual interest
in the Receivables. Accordingly, the Company maintains an allowance for such
deductions based upon the expected collectibility of the Receivables. At May 24,
1996, an allowance of $6.3 million related to the Receivables is included in
Other accrued expenses in the Condensed Consolidated Balance Sheet.
The Agreement requires the Company to maintain sufficient levels of
Receivables to collateralize the outstanding certificates. The Agreement also
contains various covenants, representations and warranties customary to the
operation of such securitization programs, but does not include financial
covenants or cross defaults to any other obligations of the Company. The
Company, as agent for the trust, is responsible for the collection and
administrative processing of the Receivables.
Under the Agreement, the trust may issue certificates of up to $120
million. Certificates of $104 million were outstanding at May 24, 1996. Accounts
receivable in the Condensed Consolidated Balance Sheet have been reduced by
$105.2 million, representing the face amount of the receivables sold.
For the period ended May 24, 1996, the discount on the initial sale of
Receivables of $1,178,000, fees and expenses of $555,000 to establish the
facility, and subsequent discounts of $447,000 on additional sales of
Receivables have been included in Discount and expenses on sale of receivables
in the Condensed Consolidated Statement of Income and Retained Earnings. The
Company considers selling the Receivables in this manner as an alternative to
incurring additional debt. Viewed on this basis, the Company's ongoing cost of
See independent accountants' review report.
F-7
<PAGE> 116
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
the facility is equal to the Eurodollar rate (adjusted for any reserves) plus
.625% or the bank's base rate. A commitment fee of .375% per annum is payable
quarterly on the unused portion of the facility.
(4) INVENTORIES
Components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
MAY 26, MAY 24,
1995 1996
------- --------
<S> <C> <C>
Finished goods.................................................... $ 8,177 $ 36,686
Work in process................................................... 10,814 58,849
Raw materials..................................................... 29,936 35,537
Dyes and chemicals................................................ 999 6,837
------- --------
Inventories at FIFO............................................... 49,926 137,909
Less allowance to reduce carrying value to LIFO basis............. (8,540) (8,693)
------- --------
41,386 129,216
Supplies at average cost.......................................... 5,686 7,885
------- --------
$47,072 $137,101
======= ========
</TABLE>
Valuation of the Company's inventories under the last-in, first-out
("LIFO") method at May 26, 1995 and May 24, 1996, and the related impact on the
Condensed Consolidated Statement of Income and Retained Earnings for the
thirty-nine weeks then ended, has been determined using estimated quantities and
costs as of the respective fiscal year-ends. Because these estimates are subject
to many forces beyond management's control, including the cost of cotton,
interim results are subject to the final year-end LIFO calculation.
(5) REAL ESTATE HELD FOR SALE
On June 7, 1996, the Company sold its real estate held for sale for
approximately $12 million in cash, resulting in a pretax book gain of $557,000.
Proceeds from the sale, net of the payment of related income taxes of $4.8
million, calculated based on the tax basis of the assets, were used to reduce
amounts borrowed under the revolving credit facility.
(6) INVESTMENT IN DEBT SECURITIES
In January 1996, the Company purchased a $7.5 million subordinated note due
February 26, 1999 from Oneita Industries, Inc. ("Oneita"). The investment in the
subordinated note having convertible features is included in Other assets in the
Condensed Consolidated Balance Sheet. Interest on the subordinated note was
payable semi-annually at the rate of 10% per annum. On August 27, 1996, the
Company converted the subordinated note plus accrued interest into 2,270,833
shares of common stock of Oneita, representing ownership of 24.8% of Oneita's
outstanding shares.
See independent accountants' review report.
F-8
<PAGE> 117
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(7) LONG TERM DEBT
Long term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MAY 26, MAY 24,
1995 1996
-------- --------
<S> <C> <C>
Revolving credit facility, interest tied to banks' base rate or
at alternative rates, 6.35% - 8.75% in 1996, due April 28,
2001........................................................... $125,100 $174,425
Industrial revenue bonds, floating rate, 3.20% - 5.35% in 1996,
due in various installments through 2002....................... 23,000 19,000
Subordinated payment-in-kind notes, 5.65%, due March 1998........ 42,343 --
Senior subordinated notes, 10.25%, due May 1, 2006............... -- 125,000
-------- --------
190,443 318,425
Less current portion............................................. (3,000) (4,000)
-------- --------
$187,443 $314,425
======== ========
</TABLE>
On April 29, 1996, the Company amended its revolving credit facility with a
group of banks to provide aggregate borrowing availability of a maximum of $225
million through April 28, 2001.
At May 24, 1996, the Company had interest rate swap agreements with
notional amounts aggregating $100 million providing an effective interest rate
of 7.6% on that equivalent portion of the revolving credit facility. The fair
value of these swap agreements at May 24, 1996 is estimated to represent a net
liability of approximately $600,000 based on current market rates.
In conjunction with the acquisition discussed in note 2, the Company issued
$125 million of 10.25% senior subordinated notes which mature on May 1, 2006.
The notes are unsecured and subordinate to all existing and future senior
indebtedness of the Company. Interest on the notes is due on May 1 and November
1 of each year, commencing November 1, 1996.
The senior subordinated notes contain a redemption feature allowing the
Company, at any time prior to May 1, 1999, to redeem up to an aggregate of $25
million of the principal amount of the notes with the proceeds of one or more
public equity offerings, at a redemption price of 110% plus accrued interest to
the redemption date, provided that at least $100 million aggregate principal
amount of the notes remain outstanding after such redemption. On or after May 1,
2001, the notes will be redeemable at the Company's option, in whole or in part,
at a scheduled redemption price of 105.125% in 2001 declining to 100% in 2004
and thereafter.
The indenture, under which the senior subordinated notes were issued,
contains certain restrictive covenants on issuance of additional debt, payment
of dividends, retirement of capital stock or indebtedness, purchase of
investments, sales or transfers of assets, certain consolidations or mergers and
certain transactions with affiliates.
(8) COMMON STOCK
To finance a portion of the purchase price of the Graniteville acquisition,
the Company sold 2.2 million shares of Class A Common Stock to investors for $40
million, less fees and expenses of $700,000. In connection with the sale, the
Company entered into shareholders and registration rights agreements which,
among other matters, grants the investors certain preemptive rights with respect
to future sales of common stock and certain registration rights with respect to
the investors' shares.
See independent accountants' review report.
F-9
<PAGE> 118
AVONDALE INCORPORATED
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(9) RELATED PARTY TRANSACTIONS
A director of the Company is a former partner with a law firm that performs
various legal services for the Company. The Company incurred fees of
approximately $148,000 and $1.1 million during 1995 and 1996, respectively, for
these legal services.
The Chairman of the Company is a director of Wachovia Bank of Georgia, N.A.
("Wachovia"). The Company maintains a revolving credit facility with a group of
banks, including Wachovia. During 1996, the Company paid Wachovia aggregate fees
of approximately $1.9 million related to an amendment of the revolving credit
facility.
Another director of the Company is affiliated with certain purchasers of
the 2.2 million shares of the Company's Class A Common Stock sold to finance a
portion of the purchase price for the Textile Business. The Company paid a
$600,000 closing fee to an affiliate of such purchasers in connection with the
sale of stock described in Note 8. This director is also an affiliate of an
investment bank to which the Company paid an investment advisory fee and
expenses of $1.6 million and placement fees of $3.1 million related to the
Company's issuance of the senior subordinated notes during the thirty-nine weeks
ended May 24, 1996.
(10) CONTINGENCIES
The Company is involved in certain legal matters described in Note 12 of
the Textile Business of Graniteville Company December 31, 1995 Financial
Statements. The Company has provided reserves to cover management's estimates of
the cost of monitoring and remediating these and other environmental conditions.
If more costly remediation measures are necessary than those believed to be
probable based on current facts and circumstances, actual costs may exceed the
reserves provided. However, based on the information currently available,
management does not believe that the outcome of these matters will have a
material adverse effect on its future results of operations or financial
position.
The Company is also a party to litigation incidental to its business from
time to time. The Company is not currently a party to any litigation that
management believes, if determined adversely to the Company, would have a
material adverse effect on the Company.
See independent accountants' review report.
F-10
<PAGE> 119
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Avondale Incorporated
We have audited the accompanying consolidated balance sheets of Avondale
Incorporated as of August 26, 1994 and August 25, 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three fiscal years in the period ended August 25, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Avondale
Incorporated at August 26, 1994 and August 25, 1995, and the consolidated
results of its operations and its cash flows for each of the three fiscal years
in the period ended August 25, 1995 in conformity with generally accepted
accounting principles.
We also previously have audited, in accordance with generally accepted
auditing standards, the consolidated balance sheets of Avondale Incorporated as
of August 30, 1991, August 28, 1992 and August 27, 1993, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
fiscal years ended August 30, 1991 and August 28, 1992 (none of which are
presented separately herein); and we expressed unqualified opinions on those
consolidated financial statements. The information set forth as Statement of
Income Data and Balance Sheet Data in the Selected Historical Consolidated
Financial Data for each of the five fiscal years in the period ended August 25,
1995, appearing on page 25 was derived from the consolidated financial
statements which we audited. In our opinion, the aforementioned information
derived from the consolidated financial statements is fairly stated in all
material respects in relation to those consolidated financial statements.
Ernst & Young LLP
Birmingham, Alabama
September 22, 1995
F-11
<PAGE> 120
AVONDALE INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AUGUST 26, AUGUST 25,
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets
Cash................................................................ $ 886 $ 1,335
Accounts receivable, less allowance for doubtful accounts of $2,153
in 1994 and $2,239 in 1995....................................... 88,271 82,129
Inventories......................................................... 31,467 36,391
Prepaid expenses.................................................... 2,444 412
---------- ----------
Total current assets........................................ 123,068 120,267
Real estate held for sale............................................. 11,490 11,485
Property, plant and equipment
Land................................................................ 971 971
Buildings........................................................... 36,608 36,827
Machinery and equipment............................................. 229,390 244,287
---------- ----------
266,969 282,085
Less accumulated depreciation....................................... (138,547) (161,592)
---------- ----------
128,422 120,493
Other assets.......................................................... 4,669 5,177
---------- ----------
$ 267,649 $ 257,422
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable.................................................... $ 20,530 $ 19,352
Accrued compensation, benefits and related expenses................. 7,507 11,274
Other accrued expenses.............................................. 9,183 6,570
Long-term debt due in one year...................................... 3,000 4,000
Income taxes payable................................................ -- 352
Deferred income taxes............................................... 3,007 2,352
---------- ----------
Total current liabilities................................... 43,227 43,900
Long-term debt........................................................ 196,956 165,918
Deferred income taxes and other long-term liabilities................. 27,332 29,630
Commitments and contingencies (Notes 4, 6 and 7)
Shareholders' equity
Preferred Stock
$.01 par value; 10,000 shares authorized......................... -- --
Common Stock
Class A, $.01 par value; 100,000 shares authorized, 10,090 issued
and outstanding................................................. 101 101
Class B, $.01 par value; 5,000 shares authorized, 979 issued and
outstanding.................................................... 10 10
Capital in excess of par value...................................... 2,566 2,566
Retained earnings................................................... (2,543) 15,297
---------- ----------
Total shareholders' equity.................................. 134 17,974
---------- ----------
$ 267,649 $ 257,422
========= =========
</TABLE>
See notes to consolidated financial statements.
F-12
<PAGE> 121
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
AUGUST 27, AUGUST 26, AUGUST 25,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales...................................................... $ 495,542 $ 481,580 $ 538,652
Operating costs and expenses
Cost of goods sold........................................... 373,708 407,352 443,726
Depreciation................................................. 22,375 23,269 23,709
Selling and administrative expenses.......................... 22,693 22,069 23,606
---------- ---------- ----------
Operating income.......................................... 76,766 28,890 47,611
Interest expense............................................... 2,051 6,541 14,333
Other, net..................................................... 529 (227) (761)
---------- ---------- ----------
Income before income taxes and extraordinary item.............. 74,186 22,576 34,039
Provision for income taxes..................................... 29,011 8,535 13,100
---------- ---------- ----------
Income before extraordinary item............................... 45,175 14,041 20,939
Loss on retirement of debt, net of income taxes of $1,570...... (2,766) -- --
---------- ---------- ----------
Net income..................................................... $ 42,409 $ 14,041 $ 20,939
======== ======== ========
Earnings per common share:
Income before extraordinary item............................. $ 2.20 $ 0.85 $ 1.88
Extraordinary item........................................... (0.14) -- --
---------- ---------- ----------
Net income................................................... $ 2.06 $ 0.85 $ 1.88
======== ======== ========
Weighted average shares outstanding............................ 20,561 16,609 11,133
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE> 122
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN
ISSUED EXCESS OF
--------------- PAR RETAINED
SHARES AMOUNT VALUE EARNINGS
------ ------ ---------- ---------
<S> <C> <C> <C> <C>
Balance at August 28, 1992............................... 20,811 $208 $ 4,812 $ 127,416
Net income............................................... -- -- -- 42,409
Cash dividends ($0.96 per share)......................... -- -- -- (19,372)
Purchase and retirement of treasury stock................ (267) (3) (42) (1,365)
------ ------ ---------- ---------
Balance at August 27, 1993............................... 20,544 205 4,770 149,088
Net income............................................... -- -- -- 14,041
Cash dividends ($0.28 per share)......................... -- -- -- (3,758)
Purchase and retirement of treasury stock................ (9,475) (94) (2,204) (161,914)
------ ------ ---------- ---------
Balance at August 26, 1994............................... 11,069 111 2,566 (2,543)
Net income............................................... -- -- -- 20,939
Cash dividends ($0.28 per share)......................... -- -- -- (3,099)
------ ------ ---------- ---------
Balance at August 25, 1995............................... 11,069 $111 $ 2,566 $ 15,297
====== ====== ======= =========
</TABLE>
See notes to consolidated financial statements.
F-14
<PAGE> 123
AVONDALE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
AUGUST 27, AUGUST 26, AUGUST 25,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities
Net income.................................................. $ 42,409 $ 14,041 $ 20,939
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of goodwill................ 22,435 23,318 23,849
Provision for (benefit of) deferred income taxes......... 1,471 1,639 (85)
Interest expense on payment-in-kind notes................ -- -- 2,337
Gain on sale of equipment................................ (407) (207) (738)
Loss on retirement of debt, net of income taxes.......... 2,766 -- --
Changes in operating assets and liabilities:
Accounts receivable.................................... 9,325 (18,107) 6,142
Inventories............................................ (927) 3,531 (4,924)
Prepaid expenses....................................... (222) (1,716) 2,032
Other assets........................................... (1,172) (1,342) (643)
Accounts payable and accrued expenses.................. (11,228) 1,635 (24)
Income taxes payable................................... (4,306) (334) 352
Other liabilities...................................... 1,286 447 1,211
---------- ---------- ----------
Net cash provided by operating activities........... 61,430 22,905 50,448
Investing activities
Purchase of property, plant and equipment................... (36,434) (17,605) (15,823)
Restricted funds held for the purchase of property, plant
and equipment............................................ 3,807 -- --
Payments received on real estate purchase option............ -- -- 517
Proceeds from sale of property, plant and equipment......... 479 433 781
---------- ---------- ----------
Net cash used in investing activities............... (32,148) (17,172) (14,525)
Financing activities
Principal payments on long-term debt........................ (33,778) (2,000) (32,375)
Issuance of long-term debt.................................. 11,075 124,875 --
Purchase and retirement of treasury stock................... (1,599) (124,656) --
Dividends paid.............................................. (19,372) (3,758) (3,099)
---------- ---------- ----------
Net cash used in financing activities............... (43,674) (5,539) (35,474)
---------- ---------- ----------
Increase (decrease) in cash and cash equivalents.............. (14,392) 194 449
Cash and cash equivalents at beginning of year................ 15,084 692 886
---------- ---------- ----------
Cash and cash equivalents at end of year............ $ 692 $ 886 $ 1,335
======== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE> 124
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 25, 1995
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The Consolidated Financial Statements include the
accounts of Avondale Incorporated and its wholly owned subsidiary, Avondale
Mills, Inc. and its subsidiaries (collectively, the "Company"). All significant
intercompany accounts and transactions have been eliminated. Unless otherwise
stated, all references to years relate to the Company's fiscal year, which ends
on the last Friday in August, rather than calendar years.
Avondale Incorporated is a holding company and has no operations or assets
other than its investment in Avondale Mills, Inc. and has no obligations after
making adjustments for inter-company loans. Summarized financial information for
Avondale Mills, Inc. and its subsidiaries is as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 26, AUGUST 26,
1994 1995
---------- ----------
<S> <C> <C>
Current assets..................................................... $ 123,068 $ 120,267
Noncurrent assets.................................................. 144,581 137,155
---------- ----------
$ 267,649 $ 257,422
======== ========
Current liabilities................................................ $ 43,227 $ 43,900
Noncurrent liabilities............................................. 215,979 187,135
Shareholder's equity............................................... 8,443 26,387
---------- ----------
$ 267,649 $ 257,422
======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------
AUGUST 27, AUGUST 26, AUGUST 26,
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.............................................. $ 459,702 $ 481,580 $ 538,652
Gross profit........................................... 91,520 50,994 71,242
Income before extraordinary item....................... 42,941 13,937 20,830
Net income............................................. 40,175 13,937 20,830
</TABLE>
The Company operates in a single business segment, manufacturing cotton and
cotton-blend yarns and fabrics, which are marketed primarily to the apparel
market and, to a lesser extent, the home furnishings and industrial products
markets. Sales generally are recorded by the Company when products are shipped
to customers. The credit status of each customer is approved and monitored by
the Company. Sales to V.F. Corporation and its affiliates represented 28% of net
sales for fiscal 1993, 1994 and 1995. Accounts receivable from this customer
represented 34% and 38% of the Company's net accounts receivable at August 26,
1994 and August 25, 1995, respectively.
Cash and Cash Equivalents: The Company considers all highly liquid
investments purchased with a maturity of three months or less to be cash
equivalents.
Inventories: Inventories are stated at the lower of cost or market value.
Except for certain supply inventories valued on an average cost basis, cost is
determined on a last-in, first-out (LIFO) basis.
Periodically, the Company purchases cotton futures and options contracts to
hedge exposure to price fluctuations in the cotton acquired from various
suppliers. Gains and losses on these hedging contracts are deferred as an
adjustment to the carrying value of inventories and recognized when these
inventories are sold. At August 25, 1995, the Company had no such contracts
outstanding.
Property, Plant and Equipment: Property, plant and equipment is stated at
cost and depreciated over the estimated useful lives of the related assets.
Depreciation is calculated primarily using the straight-line method.
F-16
<PAGE> 125
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Associate Benefit Plans: The Company has a discretionary non-contributory
profit sharing plan covering substantially all associates. Annual contributions
by the Company are made to the plan in amounts determined by the board of
directors. In addition, the plan has 401(k) savings options that are available
to all associates. The Company matches 25% of the first 3% of compensation
contributed by each associate. The Company also has a deferred compensation plan
for certain key personnel. The related expense for these plans is charged to
operations currently and totaled $6,205,000, $2,840,000 and $4,310,000 for 1993,
1994 and 1995, respectively.
Other Assets and Other Long-Term Liabilities: Other assets consist
primarily of unamortized loan fees, cash surrender value of life insurance and
deposits on machinery and equipment purchases. Other long-term liabilities
consist of accrued postretirement and workers' compensation benefits, deferred
compensation for certain key management personnel and payments received on an
option to purchase real estate held for sale.
Earnings Per Share: Earnings per share are based on the weighted average
shares of common stock and dilutive common stock equivalents (for stock options
using the treasury stock method) outstanding during each year.
Recent Accounting Pronouncements: In March 1995, the Financial Accounting
Standards Board issued Statement No. 121, Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company will adopt Statement 121 in the first fiscal quarter of
1997 and, based on current circumstances, does not believe the effect of
adoption will be material.
The Company accounts for its stock compensation arrangements described in
Note 6 under the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and intends to continue to do so.
Revenue Recognition
The Company records revenues principally when products are shipped to
customers. Consistent with recognized practice in the textile industry, the
Company also records revenues to a lesser extent (10%, 13% and 8% of total
revenues in 1993, 1994 and 1995, respectively), on a bill and hold basis under
which the goods are complete, packaged and ready for shipment. These goods are
effectively segregated from inventory which is available for sale, the risks of
ownership of the goods have passed to the customer, and the underlying customer
orders are supported by contracts or written confirmations.
NOTE 2 -- INVENTORIES
Components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Finished goods................................................. $ 6,604 $ 7,101
Work in process................................................ 9,966 9,769
Raw materials.................................................. 15,877 22,949
Dyes and chemicals............................................. 1,544 1,905
------- -------
Inventories at FIFO............................................ 33,991 41,724
Less allowance to reduce carrying value to LIFO basis.......... (6,790) (9,693)
------- -------
27,201 32,031
Supplies at average cost....................................... 4,266 4,360
------- -------
$31,467 $36,391
======= =======
</TABLE>
F-17
<PAGE> 126
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INCOME TAXES
Provision for income taxes is composed of the following (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------ -------
<S> <C> <C> <C>
Current:
Federal.............................................. $24,139 $5,924 $11,376
State................................................ 3,401 972 1,809
------- ------ -------
27,540 6,896 13,185
Deferred:
Federal.............................................. 1,285 1,565 (86)
State................................................ 186 74 1
------- ------ -------
1,471 1,639 (85)
------- ------ -------
$29,011 $8,535 $13,100
======= ====== =======
</TABLE>
The following table shows the reconciliation of federal income tax expense
at the statutory rate on income before income taxes to reported income tax
expense (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------ -------
<S> <C> <C> <C>
Taxes on earnings at 34.7% in 1993, 35% in 1994 and
1995................................................. $25,743 $7,901 $11,914
State income taxes, net of federal tax benefit......... 2,342 680 1,177
Other.................................................. 926 (46) 9
------- ------ -------
$29,011 $8,535 $13,100
======= ====== =======
</TABLE>
The Company made income tax payments of $24,974,000, $6,923,000 and
$12,620,000 during fiscal 1993, 1994 and 1995, respectively.
Deferred income taxes are provided for temporary differences in financial
and income tax reporting. Significant components of the Company's year-end
deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Deferred tax liabilities:
Depreciation..................................................... $18,826 $19,499
Inventory valuation.............................................. 6,428 6,295
Other............................................................ 3,142 3,030
------- -------
Deferred tax liabilities...................................... 28,396 28,824
Deferred tax assets:
Employee benefit programs........................................ 4,392 4,859
Bad debt expense................................................. 800 832
Other............................................................ 602 616
------- -------
Deferred tax assets........................................... 5,794 6,307
------- -------
Net deferred tax liabilities.................................. $22,602 $22,517
======= =======
</TABLE>
F-18
<PAGE> 127
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Revolving credit facility, interest tied to banks' base rate or
at alternative rates, 6.5%-9.2% in 1995, due September 1997.... $135,950 106,575
Industrial Revenue Bonds, floating rate, 2.7%-5.8% in 1995, due
in various installments through 2002........................... 24,000 21,000
Subordinated payment-in-kind notes, 5.65%, due March 1998........ 40,006 42,343
-------- --------
199,956 169,918
Less current portion............................................. (3,000) (4,000)
-------- --------
$196,956 $165,918
======== ========
</TABLE>
The Company maintains a secured revolving credit facility with a group of
banks which provides aggregate borrowing availability of a maximum of $164
million through September 1997. Under the terms of this agreement, the Company
can designate an interest rate tied to the banks' base rate or alternative rates
negotiated with the banks, for specified time periods. A commitment fee of 3/8
of 1% per annum is payable quarterly on the average daily unused portion of the
revolving credit commitment. The revolving credit facility is secured by
accounts receivable and inventories. Covenants of the credit agreement require
the Company to maintain certain cash flow ratios and debt to equity ratios, and
contain restrictions on capital spending and payment of dividends.
The Company uses interest rate swap agreements to effectively convert a
portion of its outstanding revolving credit facility to a fixed rate basis, thus
reducing the impact of interest rate changes on future income. These agreements
involve the receipt of floating rate amounts in exchange for fixed rate interest
payments over the lives of the agreements without an exchange of the underlying
principal amounts. The differential to be paid or received is accrued as
interest rates change and recognized as an adjustment to interest expense
related to the debt. The related amount payable to or received from
counterparties is included in other liabilities or assets. At August 25, 1995,
the Company had interest rate swap agreements with notional amounts aggregating
$40 million covered by interest rate swap agreements providing an effective
interest rate of 7.3% on that equivalent portion of the revolving credit
facility. The fair value of these swap agreements at August 25, 1995 is
estimated to represent a net liability of approximately $600,000 based on
current market rates.
Concurrent with the repurchase of Common Stock of the Company discussed in
Note 6, the Company issued $40 million of unsecured 5.65% payment-in-kind notes,
subordinate to the revolving credit facility. Under the terms of these notes,
additional 5.65% payment-in-kind notes ($2,337,000 in 1995) are issued
semiannually in an amount equal to, and in payment of, interest accrued on notes
outstanding. The notes substantially adopt the restrictive covenant provisions
of the revolving credit facility.
Two of the industrial revenue bonds which were issued to acquire property,
plant and equipment represent capital lease obligations. These lease obligations
plus the other industrial revenue bonds are secured by letter of credit
agreements with a bank. The letter of credit agreements are, in turn, secured by
the property, plant and equipment at three plant locations, which had a carrying
value of approximately $36 million at August 25, 1995. Covenants of the letter
of credit agreements substantially adopt the restrictive covenant provisions of
the revolving credit facility.
At August 25, 1995, the Company was in compliance with the debt and letter
of credit covenants.
As a result of the favorable rate and terms of the Company's subordinated
payment-in-kind notes, the fair value of these notes, estimated using discounted
cash flow analysis and current market rates for similar
F-19
<PAGE> 128
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
borrowing arrangements, is approximately $3.5 million less than their carrying
value. The carrying value of the Company's remaining long-term debt approximates
fair value.
Aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1996...................................................................... $ 4,000
1997...................................................................... 3,250
1998...................................................................... 152,168
1999...................................................................... 2,250
2000...................................................................... 3,250
Thereafter through 2002................................................... 5,000
--------
$169,918
========
</TABLE>
In connection with the Company's borrowings, no interest has been
capitalized. The Company paid interest on revolving credit and long-term debt of
approximately $4,140,000, $4,005,000 and $12,235,000 in 1993, 1994 and 1995,
respectively.
Commitments for future additions to plant and equipment were approximately
$19 million at August 25, 1995.
NOTE 5 -- POSTRETIREMENT BENEFITS
The Company accrues postretirement benefits over the service lives of the
associates expected to receive such benefits. These benefits, provided by the
Company from its general assets, include life and medical insurance coverage
after retirement to associates who were in designated positions of management
with Avondale Mills, Inc. on August 12, 1964, and life insurance coverage for
all associates of Avondale Mills, Inc. who attained age 55 on or before
September 1, 1981, at which time the program was terminated. At August 25, 1995,
the accumulated postretirement benefit obligation was $5,458,000, calculated
using an assumed discount rate of 8%. Pretax postretirement benefits expense,
including interest costs, was $422,000, $541,000 and $941,000 for 1993, 1994 and
1995, respectively.
The rate of increase in the per capita costs of covered health care
benefits is assumed to be 11% in 1996, decreasing gradually to 6% by the year
2011. Increasing the assumed health care cost trend rate by 1% would not have a
significant impact on the accumulated postretirement benefit obligation or the
net periodic postretirement benefit cost.
NOTE 6 -- CAPITAL STOCK
Each share of Class A Common Stock is entitled to one vote and each share
of Class B Common Stock is entitled to 20 votes with respect to matters
submitted to a vote of shareholders. Each share of the Class B Common Stock is
convertible at any time, at the option of its holder, into one share of Class A
Common Stock. The Class B Common Stock will convert automatically into Class A
Common Stock, and thereby lose its special voting rights, if such Class B Common
Stock is sold or otherwise transferred to any person or entity other than
certain designated transferees.
In September 1993, the Company purchased and retired 62,000 shares of Class
A Common Stock of the Company from an officer of the Company. This transaction
was recorded net of related income tax benefits.
In March 1994, the Company purchased and retired a total of 9,413,000
shares of Class A Common Stock of the Company from five former shareholders for
an aggregate purchase price of $163,317,000. Payment of the purchase price
consisted of cash in an amount equal to $13.10 per share, with the balance paid
through the issuance of subordinated payment-in-kind notes (see Note 4).
F-20
<PAGE> 129
AVONDALE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under an agreement with an officer, the Company may be required to purchase
a portion of the shares of Common Stock of the Company held by that officer
(representing approximately 9% of the Company's outstanding Common Stock) upon
the death of the officer. The purchase price, as defined, will approximate
market value. The Company has purchased term life insurance on the officer to
assist in funding the acquisition of such Common Stock.
During August 1993, the Company adopted a Stock Option Plan that allows for
the grant of non-qualified and incentive stock options. Under the Stock Option
Plan, options to purchase up to 1,081,250 shares of Class A common stock may be
granted to full-time associates, including executive officers of the Company.
During 1995, 640,000 shares of nonqualified options were granted at an option
price per share of $12.50, the approximate fair market value on the date of
grant. All options granted vest ratably over 5 years and may be exercised for a
period of 10 years. At August 25, 1995, no stock options were exercisable.
NOTE 7 -- CONTINGENCIES
In the normal course of business, the Company is involved in various
lawsuits. Management, in consultation with legal counsel, does not believe the
outcome of these lawsuits will have a materially adverse impact on the financial
position of the Company or the results of its operations.
NOTE 8 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for 1994 is summarized below (amounts in
thousands, except per share data):
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------
NOVEMBER 26, FEBRUARY 25, MAY 27, AUGUST 26,
------------ ------------ -------- ----------
<S> <C> <C> <C> <C>
Net sales................................ $116,030 $109,000 $122,722 $ 133,828
========== ========= ======== ========
Gross profit............................. $ 16,581 $ 12,460 $ 10,858 $ 11,060
========== ========= ======== ========
Net income............................... $ 6,197 $ 4,054 $ 2,134 $ 1,656
========== ========= ======== ========
Earnings per common share................ $ 0.30 $ 0.20 $ 0.15 $ 0.15
========== ========= ======== ========
Weighted average shares outstanding...... 20,506 20,482 14,379 11,069
========== ========= ======== ========
</TABLE>
Quarterly financial information for 1995 is summarized below (amounts in
thousands, except per share data):
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------
NOVEMBER 25 FEBRUARY 24 MAY 26 AUGUST 25
----------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Net sales................................. $ 132,637 $ 132,958 $145,021 $ 128,036
========= ========= ======== ========
Gross profit.............................. $ 17,123 $ 19,244 $ 21,746 $ 13,104
========= ========= ======== ========
Net income................................ $ 4,644 $ 5,905 $ 7,358 $ 3,032
========= ========= ======== ========
Earnings per common share................. $ 0.42 $ 0.53 $ 0.66 $ 0.27
========= ========= ======== ========
Weighted average shares outstanding....... 11,133 11,133 11,133 11,133
========= ========= ======== ========
</TABLE>
F-21
<PAGE> 130
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
CONDENSED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
APRIL 2, MARCH 31,
1995 1996
-------- ---------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................... $ 3,618 $ 1,628
Receivables, net....................................................... 104,087 99,834
Inventories............................................................ 71,385 72,496
Other current assets................................................... 589 3,015
-------- ---------
Total current assets........................................... 179,679 176,973
-------- ---------
Properties, at cost...................................................... 186,621 187,787
Less accumulated depreciation and amortization........................... 70,797 76,084
-------- ---------
115,824 111,703
-------- ---------
Cost in excess of net assets acquired.................................... 7,743 8,190
Other assets............................................................. 4,484 4,780
-------- ---------
$307,730 $ 301,646
======== ========
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt...................................... $ 13,339 $ 14,473
Accounts payable....................................................... 33,547 23,298
Accrued salaries and wages............................................. 3,957 3,114
Deferred income taxes.................................................. 8,288 7,747
Other current liabilities.............................................. 7,191 8,981
-------- ---------
Total current liabilities...................................... 66,322 57,613
Long-term debt........................................................... 155,528 192,637
Deferred income taxes.................................................... 22,756 24,130
Payable to C.H. Patrick & Company, Inc................................... 6,308 7,226
Other liabilities........................................................ 1,113 1,020
-------- ---------
252,027 282,626
-------- ---------
Commitments and contingencies
Equity................................................................... 55,703 19,020
-------- ---------
$307,730 $ 301,646
======== ========
</TABLE>
See notes to condensed financial statements.
F-22
<PAGE> 131
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------
APRIL 2, MARCH 31,
1995 1996
-------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Net sales.............................................................. $134,377 $ 121,018
-------- ---------
Operating costs and expenses:
Cost of goods sold................................................... 116,495 105,498
Depreciation and amortization........................................ 3,753 3,793
Selling and administrative expenses.................................. 6,855 7,377
Management fees and other administrative expenses allocated from
parent............................................................ 1,140 1,168
-------- ---------
128,243 117,836
-------- ---------
Operating profit.................................................. 6,134 3,182
-------- ---------
Other expenses (income):
Interest expense..................................................... 4,913 5,276
Interest expense with affiliate...................................... 151 168
Interest income...................................................... (209) (167)
Gain on insurance recovery........................................... (1,875) --
Other, net........................................................... (24) 103
-------- ---------
2,956 5,380
-------- ---------
Income (loss) before income taxes................................. 3,178 (2,198)
Provision for (benefit from) income taxes.............................. 1,745 (781)
-------- ---------
Net income (loss)................................................. $ 1,433 $ (1,417)
======== ========
</TABLE>
See notes to condensed financial statements.
F-23
<PAGE> 132
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
CONDENSED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
------------------------
APRIL 2, MARCH 31,
1995 1996
-------- ---------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Balance at beginning of period........................................ $ 54,844 $21,434
Net income (loss)..................................................... 1,433 (1,417)
Effect of carve-out accounting........................................ (574) (997)
-------- ---------
Balance at end of period.............................................. $ 55,703 $19,020
======= =======
</TABLE>
See notes to condensed financial statements.
F-24
<PAGE> 133
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED
----------------------
APRIL 2, MARCH 31,
1995 1996
-------- ---------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................... $ 1,433 $(1,417)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities
Depreciation and amortization of properties....................... 3,753 3,793
Amortization of deferred financing costs.......................... 346 443
Provision for deferred income taxes............................... 2,956 85
Provision for doubtful accounts................................... 349 1,027
Other, net........................................................ (2) 33
Decrease (increase) in:
Receivables..................................................... (13,754) 3,514
Inventories..................................................... (1,406) (7,456)
Other current assets............................................ 618 778
Increase (decrease) in:
Accounts payable................................................ 9,388 1,268
Other current liabilities....................................... 535 929
Other liabilities............................................... -- (1)
-------- ---------
Net cash provided by operating activities.................... 4,216 2,996
-------- ---------
Cash flows from investing activities:
Capital expenditures................................................. (1,665) (749)
Proceeds from sale of properties..................................... 2 64
Other, net........................................................... 4 28
-------- ---------
Net cash used in investing activities........................ (1,659) (657)
-------- ---------
Cash flows from financing activities:
Increase in payable to C.H. Patrick & Company, Inc................... 150 514
Repayment of long-term debt.......................................... (2,305) (3,261)
Effect of carve-out accounting....................................... (574) (997)
Increase in deferred financing costs................................. (151) (368)
-------- ---------
Net cash used in financing activities........................ (2,880) (4,112)
-------- ---------
Net decrease in cash................................................... (323) (1,773)
Cash at beginning of period............................................ 3,941 3,401
-------- ---------
Cash at end of period.................................................. $ 3,618 $ 1,628
======== =======
</TABLE>
See notes to condensed financial statements.
F-25
<PAGE> 134
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
(1) BASIS OF PRESENTATION
Graniteville Company ("the Company"), is an indirect wholly-owned
subsidiary of Triarc Companies, Inc. (referred to herein as "Triarc" and,
collectively with its subsidiaries, "Triarc Companies"). On January 25, 1996,
Triarc signed a letter of intent to sell substantially all of the textile assets
of the Company (the "Textile Business") to Avondale Incorporated ("Avondale")
for cash consideration of $225,000,000 plus the assumption of certain
liabilities other than long-term debt. The sale closed on April 29, 1996.
The Textile Business has no separate legal status and is a part of the
operations of the Company. The accompanying financial statements have been
prepared from the books and records of the Company and present the assets,
liabilities, equity and operations of the Textile Business and exclude the
assets of the Company's wholly-owned subsidiary, C. H. Patrick & Company, Inc.
("C. H. Patrick"), and certain other assets, principally real estate and notes
receivable from Triarc, not directly related to the Textile Business.
Accordingly, these financial statements do not purport to represent the
financial position or results of operations of the Company.
The accompanying unaudited interim financial statements contain all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Textile Business as of April 2,
1995 and March 31, 1996 and its results of operations and cash flows for the
thirteen-week periods then ended. Results of operations for interim periods
should not be regarded as necessarily indicative of the results to be expected
for the full year.
These unaudited interim financial statements should be read in conjunction
with the financial statements of the Textile Business and related notes for the
ten months ended January 2, 1994 and the years ended January 1, 1995 and
December 31, 1995.
The effect of carving out the balances and transactions not related to the
Textile Business is reflected as "Effect of carve-out accounting" in the
accompanying statements of equity and cash flows.
(2) INVENTORIES
The following is a summary of the major classification of inventories:
<TABLE>
<CAPTION>
APRIL 2, MARCH 31,
1995 1996
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials................................................. $ 13,218 $12,184
Work in process............................................... 6,675 6,543
Finished goods................................................ 48,789 51,157
Supplies...................................................... 2,703 2,612
-------- ---------
$ 71,385 $72,496
======= =======
</TABLE>
Had the first-in, first-out method been used, inventories would have been
$4,580,000 and $9,042,000 higher at April 2, 1995 and March 31, 1996,
respectively.
(3) LEGAL MATTERS
The Textile Business participates in regional wastewater treatment
facilities and considers that it is in substantial compliance with water
pollution regulations. In 1987, the Textile Business was, however, notified by
the South Carolina Department of Health and Environmental Control ("DHEC") that
DHEC discovered certain contamination of Langley Pond near Graniteville, South
Carolina and asserted that the Textile
F-26
<PAGE> 135
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
Business may be one of the parties responsible for such contamination. In 1990
and 1991, the Textile Business provided reports to DHEC summarizing its required
study and investigation of the alleged pollution and its sources which concluded
that pond sediments should be left undisturbed and in place and that other less
passive remediation alternatives either provided no significant additional
benefits or themselves involved adverse effects (i) on human health, (ii) to
existing recreational uses or (iii) to the existing biological communities. In
March 1994, DHEC appeared to conclude that while environmental monitoring at
Langley Pond should be continued, based on currently available information, the
most reasonable alternative is to leave the pond sediments undisturbed and in
place. DHEC requested the Textile Business to submit a proposal by mid-April
1995 concerning periodic monitoring of sediment deposition in the pond. The
Textile Business submitted a proposed protocol for monitoring sediment
deposition in Langley Pond on April 26, 1995. DHEC responded to the proposal on
October 30, 1995 requesting some additional information. This information was
provided to DHEC in February 1996. In April 1996, DHEC accepted the proposed
protocol for monitoring pond sediment which is expected to occur over the next
two years. The cost of monitoring pond sediment is currently expected to range
from $25,000 to $35,000 annually. Management is unable to predict at this time
what further actions, if any, may be required in connection with Langley Pond or
what the cost thereof may be. However, given DHEC's apparent conclusion in March
1994 and the absence of reasonable remediation alternatives, the Textile
Business believes the ultimate outcome of this matter will not have a material
adverse effect on its future results of operations or financial position.
The Textile Business owns a nine acre property in Aiken County, South
Carolina (the "Vaucluse Landfill"), which was used as a landfill from
approximately 1950 to 1973. The Vaucluse Landfill was operated jointly by the
Textile Business and Aiken County and may have received municipal waste and
possibly industrial waste from the Textile Business and sources other than the
Textile Business. In March 1990, a "Site Screening Investigation" was conducted
by DHEC. The Textile Business conducted an initial investigation in June 1992
which included the installation and testing of two ground water monitoring
wells. The United States Environmental Protection Agency conducted an Expanded
Site Inspection (an "ESI") in January 1994 and the Textile Business conducted a
supplemental investigation in February 1994. In response to the ESI, DHEC has
indicated its desire to have an investigation of the Vaucluse Landfill. On April
7, 1995, the Textile Business submitted a conceptual investigation approach to
DHEC. On August 22, 1995 DHEC requested that the Textile Business enter into a
consent agreement to conduct an investigation. The Textile Business has
responded to DHEC that a consent agreement is inappropriate considering the
Textile Business' demonstrated willingness to cooperate with DHEC's requests and
asked DHEC to approve the Textile Business' April 7, 1995 conceptual
investigation approach. The cost of the study proposed by the Textile Business
is estimated to be between $125,000 and $150,000. Since an investigation has not
yet commenced, the Textile Business is currently unable to estimate the cost, if
any, to remediate the landfill. Such cost could vary based on the actual
parameters of the study. Based on currently available information, the Textile
Business does not believe that the outcome of this matter will have a material
adverse effect on its future results of operations or financial position.
The Textile Business is a defendant in certain other legal proceedings
arising out of the ordinary conduct of its business. In the opinion of
management, the ultimate outcome of these legal proceedings will not have a
material adverse effect on the Textile Business' future results of operations or
financial position.
F-27
<PAGE> 136
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Graniteville Company
Graniteville, South Carolina:
We have audited the accompanying statements of assets and liabilities of
the Textile Business of Graniteville Company (a South Carolina corporation and
an indirect wholly-owned subsidiary of Triarc Companies, Inc.) as of January 2,
1994, January 1, 1995 and December 31, 1995, and the related statements of
operations, equity, and cash flows for the ten months ended January 2, 1994 and
the years ended January 1, 1995 and December 31, 1995. 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 the Textile Business of
Graniteville Company as of January 2, 1994, January 1, 1995 and December 31,
1995, and the results of its operations, and its cash flows for the ten months
ended January 2, 1994 and the years ended January 1, 1995 and December 31, 1995
in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, Triarc Companies, Inc.
has entered into a letter of intent with Avondale Incorporated to sell
substantially all of the textile assets of the Textile Business of Graniteville
Company.
Deloitte & Touche LLP
Greenville, South Carolina
March 22, 1996
F-28
<PAGE> 137
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
STATEMENTS OF ASSETS AND LIABILITIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash....................................................... $ 2,163 $ 3,941 $ 3,401
Receivables, net (Notes 1, 4 and 8)........................ 81,955 90,682 104,374
Inventories (Notes 1, 5 and 8)............................. 78,484 69,979 65,040
Other current assets....................................... 736 1,207 3,783
---------- ---------- ------------
Total current assets............................... 163,338 165,809 176,598
---------- ---------- ------------
Properties, at cost (Notes 3, 6 and 8)....................... 163,178 184,931 188,256
Less accumulated depreciation and amortization............... 56,179 67,135 73,480
---------- ---------- ------------
106,999 117,796 114,776
---------- ---------- ------------
Cost in excess of net assets acquired (Notes 1 and 3)........ -- 7,835 8,309
Other assets................................................. 6,115 4,707 4,885
---------- ---------- ------------
$ 276,452 $ 296,147 $304,568
======== ======== ==========
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt (Note 8)................. $ 12,174 $ 16,541 $ 13,701
Accounts payable........................................... 22,601 24,159 22,031
Accrued salaries and wages (Note 13)....................... 5,008 3,052 1,404
Deferred income taxes (Notes 1 and 7)...................... 6,563 7,359 7,746
Other current liabilities.................................. 7,334 7,561 9,698
---------- ---------- ------------
Total current liabilities.......................... 53,680 58,672 54,580
Long-term debt (Note 8)...................................... 150,949 154,632 196,670
Deferred income taxes (Notes 1, 3 and 7)..................... 19,760 20,728 24,061
Payable to C. H. Patrick & Company, Inc. (Note 11)........... 8,301 6,158 6,801
Other liabilities (Note 10).................................. 1,231 1,113 1,022
---------- ---------- ------------
233,921 241,303 283,134
---------- ---------- ------------
Commitments and contingencies (Notes 2, 7, 8, 9 and 12)
Equity....................................................... 42,531 54,844 21,434
---------- ---------- ------------
$ 276,452 $ 296,147 $304,568
======== ======== ==========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE> 138
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED
ENDED -------------------------
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
---------- ---------- ------------
<S> <C> <C> <C>
Net sales (Note 1).......................................... $416,418 $ 497,068 $505,687
---------- ---------- ------------
Operating costs and expenses:
Cost of goods sold (Notes 5 and 11)....................... 352,308 430,840 446,921
Depreciation and amortization............................. 10,362 13,204 14,430
Selling and administrative expenses (Note 13)............. 22,659 27,233 25,623
Management fees and other administrative expenses
allocated from parent (Notes 11 and 14)................ 7,696 4,721 4,556
Facilities relocation and corporate restructuring charges
(Note 14).............................................. 1,843 -- --
---------- ---------- ------------
394,868 475,998 491,530
---------- ---------- ------------
Operating profit.................................. 21,550 21,070 14,157
---------- ---------- ------------
Other expenses (income):
Interest expense.......................................... 11,998 15,974 21,152
Interest expense with affiliate (Note 11)................. 492 607 643
Interest income........................................... (385) (582) (738)
Loss on investment in Chesapeake Insurance Company Limited
(Note 11).............................................. 2,500 -- --
Gain on insurance recovery (Note 16)...................... -- -- (1,875)
Other, net................................................ (554) (97) 465
---------- ---------- ------------
14,051 15,902 19,647
---------- ---------- ------------
Income (loss) before income taxes................. 7,499 5,168 (5,490)
Provision for income taxes (Note 7)......................... 4,826 2,105 859
---------- ---------- ------------
Net income (loss)................................. $ 2,673 $ 3,063 $ (6,349)
========= ======== ============
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE> 139
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
STATEMENTS OF EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED
ENDED -------------------------
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
---------- ---------- ------------
<S> <C> <C> <C>
Balance at beginning of period............................... $100,050 $ 42,531 $ 54,844
Net income (loss)............................................ 2,673 3,063 (6,349)
Additional paid-in capital resulting from SEPSCO merger (Note
3)......................................................... -- 9,700 845
Effect of carve-out accounting (Note 1)...................... (60,192) (450) (27,906)
---------- ---------- ------------
Balance at end of period..................................... $ 42,531 $ 54,844 $ 21,434
========= ======= ==========
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE> 140
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED
ENDED -------------------------
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
------------ ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................. $ 2,673 $ 3,063 $ (6,349)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities
Depreciation and amortization of properties...................... 10,362 13,204 14,430
Amortization of deferred financing costs......................... 893 1,465 1,579
Provision for deferred income taxes.............................. 1,338 737 3,720
Provision for doubtful accounts.................................. 838 (175) 971
Loss on investment in Chesapeake Insurance Company Limited....... 2,500 -- --
Other, net....................................................... (466) 24 135
Decrease (increase) in:
Receivables.................................................... (20,541) (8,551) (14,664)
Inventories.................................................... (7,338) 8,505 4,939
Other current assets........................................... (97) (471) (549)
Increase (decrease) in:
Accounts payable............................................... (3,265) 1,558 (2,128)
Other current liabilities...................................... (1,126) (1,729) (1,535)
Other liabilities.............................................. 80 (118) (93)
------------ ---------- ------------
Net cash provided by (used in) operating activities......... (14,149) 17,512 456
------------ ---------- ------------
Cash flows from investing activities:
Capital expenditures............................................... (21,923) (21,385) (11,699)
Proceeds from sale of properties................................... 534 613 549
Other, net......................................................... 112 84 86
------------ ---------- ------------
Net cash used in investing activities....................... (21,277) (20,688) (11,064)
------------ ---------- ------------
Cash flows from financing activities:
Increase (decrease) in payable to C. H. Patrick & Company, Inc..... 2,972 (2,143) 643
Repayment of long-term debt........................................ (69,810) (12,740) (8,822)
Additions to long-term debt........................................ 169,384 20,470 48,020
Effect of carve-out accounting..................................... (60,192) (450) (27,906)
Increase in deferred financing costs............................... (6,000) (183) (1,867)
------------ ---------- ------------
Net cash provided by financing activities................... 36,354 4,954 10,068
------------ ---------- ------------
Net increase (decrease) in cash...................................... 928 1,778 (540)
Cash at beginning of period.......................................... 1,235 2,163 3,941
------------ ---------- ------------
Cash at end of period................................................ $ 2,163 $ 3,941 $ 3,401
============ ========= ===========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest......................................................... $ 10,796 $ 13,980 $ 18,937
============ ========= ===========
Income taxes..................................................... $ 4,278 $ (2,019) $ (1,061)
============ ========= ===========
Supplemental schedule of non-cash investing and financing activities:
Total capital expenditures......................................... $ 22,767 $ 21,705 $ 11,699
Capital expenditures financed by capital leases.................... (844) (320) --
------------ ---------- ------------
$ 21,923 $ 21,385 $ 11,699
============ ========= ===========
</TABLE>
In April 1994 the Company's ultimate parent, Triarc Companies, Inc.
("Triarc"), acquired the 28.9% minority interest in its subsidiary and the 50%
owner of the Company, Southeastern Public Service Company ("SEPSCO"), that it
did not already own through the issuance of its common stock. As discussed
further in Note 3 to the accompanying financial statements, $13,768,000 of
Triarc's excess of cost over the carrying value of the minority interest
acquired was pushed down to the Company in the year ended January 1, 1995 and an
additional sum of $1,159,000 was pushed down in the year ended December 31,
1995. Due to its noncash nature, such pushdown has not been reflected in the
statement of cash flows for the years ended January 1, 1995 or December 31,
1995.
See accompanying notes to financial statements.
F-32
<PAGE> 141
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Graniteville Company ("the Company"), is a 50% owned subsidiary of
Southeastern Public Service Company ("SEPSCO") and an indirect wholly-owned
subsidiary of Triarc Companies, Inc. (referred to herein as "Triarc" and,
collectively with its subsidiaries, "Triarc Companies"). On January 25, 1996,
Triarc signed a letter of intent to sell substantially all of the textile assets
of the Company (the "Textile Business") to Avondale Incorporated ("Avondale")
for cash consideration of $255,000,000 plus the assumption of certain
liabilities other than long-term debt. The letter of intent specifies that
Avondale and the Company's wholly-owned subsidiary, C. H. Patrick & Company,
Inc. ("C. H. Patrick")will enter into a ten year supply agreement at the closing
of the sale. The sale is expected to close in the second quarter of calendar
year 1996.
The Textile Business has no separate legal status and is a part of the
operations of the Company. The accompanying financial statements have been
prepared from the books and records of the Company and present the assets,
liabilities, equity and operations of the Textile Business and exclude the
assets of C. H. Patrick and certain other assets, principally real estate and
notes receivable from Triarc, not directly related to the Textile Business.
Accordingly, these financial statements do not purport to represent the
financial position or results of operations of the Company.
The effect of carving out the balances and transactions not related to the
Textile Business is reflected as "Effect of carve-out accounting" in the
accompanying statements of equity and cash flows.
The Textile Business manufactures, dyes and finishes cotton, synthetic and
blended (cotton and polyester) apparel fabrics for utility wear including
uniforms and other occupational apparel, piece-dyed fabrics for sportswear,
casual wear and outerwear, indigo-dyed fabrics for jeans, sportswear and
outerwear and specialty fabrics for recreational, industrial and military
end-uses.
Fiscal Year/Change in Fiscal Year
On October 27, 1993, the Board of Directors of Triarc approved a change in
Triarc's fiscal year from a fiscal year ending April 30 to a calendar year
ending December 31 effective for the transition period ended December 31, 1993.
The fiscal years of all of Triarc's subsidiaries which did not end on December
31 were also changed. Accordingly, the Company has adopted a 52-53 week period
ending on the Sunday nearest the last day of December. As used herein,
"Transition 1993" refers to the ten month period (44 weeks) ended January 2,
1994, "Calendar 1994" refers to the year (52 weeks) ended January 1, 1995 and
"Calendar 1995" refers to the year (52 weeks) ended December 31, 1995.
Inventories
The Textile Business' inventories, consisting of materials, labor and
overhead, are valued at the lower of cost or market. Cost for approximately 92%,
89% and 89% of all inventories is determined on the last-in, first-out ("LIFO")
basis as of January 2, 1994, January 1, 1995 and December 31, 1995,
respectively. Cost for the remaining portion of the inventories is determined
using the first-in, first-out ("FIFO") method.
Depreciation
Depreciation is computed principally on the straight-line basis using the
estimated useful lives of the related major classes of properties: 3 to 6 years
for automotive and transportation equipment; 12 to 14 years for machinery and
equipment; and 15 to 60 years for buildings and improvements. Gains and losses
arising from disposals are included in current operations.
F-33
<PAGE> 142
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Amortization of Deferred Financing Costs
Deferred financing costs are being amortized as interest expense over the
life of the respective debt using the interest method. Unamortized deferred
financing costs are included in "Other assets" in the accompanying statements of
assets and liabilities.
Amortization of Cost in Excess of Net Assets Acquired
Cost in excess of net assets acquired ("Goodwill") is being amortized on
the straight-line basis over 30 years. Amortization expense was $208,000 and
$371,000 in Calendar 1994 and Calendar 1995, respectively (none in Transition
1993). Accumulated amortization was $208,000 at January 1, 1995 and $579,000 at
December 31, 1995.
The Company periodically evaluates the value of the carrying amount of
Goodwill using estimates of future cash flows and operating earnings of the
business. Adjustments to the carrying amount or amortization period of Goodwill
will be made if the earnings and cash flow outlook do not support the current
carrying value.
Impairment of Long-Lived Assets
In Calendar 1995 the Textile Business adopted Statement of Financial
Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of." This standard requires that
long-lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
adoption of this standard had no effect on the results of operations or
financial position of the Textile Business.
Derivative Financial Instruments
The Textile Business is a party to an interest rate swap agreement under
which it receives or pays an amount each month which effectively fixes the
interest rate of certain of its floating rate debt (See Note 8). The Textile
Business recognizes such amount currently as a component of interest expense.
The recognition of gain or loss from the interest rate swap agreement is
effectively correlated with the stated interest on the underlying debt.
Research and Development
Research and development costs are expensed during the period in which the
costs are incurred and amounted to $640,000 in Transition 1993, $866,000 in
Calendar 1994 and $811,000 in Calendar 1995.
Income Taxes
The Company files a consolidated Federal income tax return with Triarc
effective April 14, 1994.
Deferred tax liabilities and assets are recognized for the expected future
tax consequences of temporary differences between the carrying amounts and the
tax basis of assets and liabilities.
Revenue Recognition
The Textile Business records revenues principally when inventory is
shipped. The Textile Business also records revenues to a lesser extent (18%, 16%
and 15% of total Textile Business revenues in Transition 1993, Calendar 1994,
and Calendar 1995, respectively) on a bill and hold basis under which the goods
are complete, packaged and ready for shipment; such goods are effectively
segregated from inventory which is available for
F-34
<PAGE> 143
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
sale; the risks of ownership of the goods have passed to the customer; and such
underlying customer orders are supported by written confirmation.
Concentration of Credit Risk
Financial instruments which potentially subject the Textile Business to
concentration of credit risk consist primarily of trade accounts receivable. The
Textile Business' customers consist of domestic and foreign apparel producers
and other users of textile products. The Textile Business 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. In addition, the
Textile Business factors, on a non-recourse basis, a significant volume of
accounts receivable, thereby reducing its exposure to credit risk. Historically,
the Textile Business has not incurred material credit-related losses.
Major Customer
Sales to a group of customers under common control totaled approximately
12%, 12% and 11% of the Textile Business' sales in Transition 1993, Calendar
1994 and Calendar 1995, respectively. No other customer or similar group
accounted for more than 10% of sales in such periods.
(2) SIGNIFICANT RISKS AND UNCERTAINTIES
Nature of Operations
The Textile Business manufactures, dyes and finishes cotton, synthetic and
blended (cotton and polyester) apparel fabrics.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain Risk Concentrations
The Textile Business' significant concentration arises from apparel fabrics
being its principal product. The Textile Business' profitability, in part,
depends upon the cost of the Textile Business' principal raw materials, cotton
and polyester, and the demand for the Textile Business' products which can
significantly affect the Textile Business' ability to pass on cost increases in
the form of higher selling prices. To the extent cost increases cannot be passed
on to customers, the Textile Business' margins can be adversely affected. The
Textile Business is also impacted by competition from domestic textile producers
and foreign textile producers that have access to less expensive labor, and in
certain cases, raw materials. U.S. Government trade policy has changed in recent
years with passage of The North American Free Trade Agreement ("NAFTA") and a
new agreement under the General Agreement on Tariffs and Trade ("GATT"). These
agreements provide for either the elimination of tariffs or quantitative
restrictions on imports and could increase competitive pressures on the Textile
Business and, accordingly, have an adverse affect on the Textile Business.
(3) SEPSCO MERGER
On April 14, 1994, SEPSCO's shareholders other than Triarc approved an
agreement and plan of merger between Triarc and SEPSCO (the "SEPSCO Merger")
pursuant to which on that date a subsidiary of Triarc
F-35
<PAGE> 144
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
was merged into SEPSCO, whereby each holder of shares of SEPSCO's common stock
(the "SEPSCO Common Stock") other than Triarc, aggregating a 28.9% minority
interest in SEPSCO, received in exchange for each share of SEPSCO Common Stock,
0.8 shares of Triarc's Class A Common Stock or an aggregate of 2,691,824 shares.
Following the SEPSCO Merger, the Company became an indirect wholly-owned
subsidiary of Triarc.
The fair value as of April 14, 1994 of the 2,691,824 shares of Triarc's
Class A Common Stock issued in the SEPSCO Merger, net of certain related costs,
aggregated $52,105,000 (the "Merger Consideration"). The SEPSCO Merger has been
accounted for by Triarc in accordance with the "pushdown" method of accounting.
In accordance with the pushdown method of accounting, the excess of $23,888,000
of the Merger Consideration over Triarc's minority interest ($28,217,000) in
SEPSCO was "pushed-down" to SEPSCO ($17,004,000) and to the Company ($6,884,000)
as increases in Triarc's bases in SEPSCO and the Company, respectively, and
SEPSCO, in turn, "pushed-down" $6,884,000 to the Company in Calendar 1994 and an
aggregate additional sum of $1,159,000 was "pushed down" to the Company by
Triarc and SEPSCO in Calendar 1995 as increases in Triarc's and SEPSCO's bases
in the Company. The aggregate $14,927,000 increased "Additional paid-in capital"
reflecting Triarc and SEPSCO's increased bases in the Company and was assigned
as follows:
<TABLE>
<CAPTION>
AMOUNTS RELATED
TOTAL TO TEXTILE BUSINESS
------- -------------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill................................................ $12,192 $ 8,888
Properties.............................................. 4,429 2,684
Deferred income taxes................................... (1,694) (1,027)
------- ----------
Additional paid-in capital.............................. $14,927 $10,545
======= ==============
</TABLE>
(4) RECEIVABLES, NET
The following is a summary of the components of receivables:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Receivables:
Trade............................................... $ 84,644 $ 92,145 $104,771
Other............................................... 1,595 1,728 2,971
---------- ---------- ------------
86,239 93,873 107,742
Less allowance for doubtful accounts (trade).......... 4,284 3,191 3,368
---------- ---------- ------------
$ 81,955 $ 90,682 $104,374
======= ======= ==========
</TABLE>
The following is an analysis of the allowance for doubtful accounts:
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED
ENDED -------------------------
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period....................... $3,454 $4,284 $3,191
Provision for doubtful accounts...................... 949 (173) 971
Recoveries of doubtful accounts...................... 85 -- 16
Uncollectible accounts written off................... (204) (920) (810)
---------- ---------- ------------
Balance at end of period............................. $4,284 $3,191 $3,368
========= ======= ==========
</TABLE>
F-36
<PAGE> 145
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) INVENTORIES
The following is a summary of the major classifications of inventories:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials......................................... $ 10,145 $ 7,632 $ 8,138
Work in process....................................... 6,190 6,753 5,676
Finished goods........................................ 59,589 52,830 48,433
Supplies.............................................. 2,560 2,764 2,793
---------- ---------- ------------
$ 78,484 $ 69,979 $ 65,040
======= ======= ==========
</TABLE>
The current cost of LIFO inventories exceeded the carrying value thereof by
approximately $2,245,000, $4,332,000 and $8,400,000 at January 2, 1994, January
1, 1995 and December 31, 1995, respectively. In Calendar 1994 and Calendar 1995
certain inventory quantities were reduced resulting in liquidations of LIFO
inventory quantities carried at lower costs from prior years. The effect of such
liquidations was to decrease cost of goods sold by $2,462,000 and $1,206,000,
respectively. Liquidations of LIFO inventory quantities in Transition 1993 were
not significant.
(6) PROPERTIES
The following is a summary of the major classifications of properties:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land................................................. $ 1,090 $ 1,741 $ 1,737
Buildings and improvements........................... 31,574 43,150 45,756
Machinery and equipment.............................. 126,501 135,825 136,453
Automotive and transportation equipment.............. 4,013 4,215 4,310
---------- ---------- ------------
163,178 184,931 188,256
Less accumulated depreciation and amortization....... 56,179 67,135 73,480
---------- ---------- ------------
$ 106,999 $ 117,796 $114,776
======== ======== ==========
</TABLE>
F-37
<PAGE> 146
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(7) INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED
ENDED -------------------------
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ $2,904 $1,207 $ (2,489)
State.............................................. 584 161 (372)
---------- ---------- ------------
3,488 1,368 (2,861)
---------- ---------- ------------
Deferred:
Federal............................................ 1,204 611 3,576
State.............................................. 134 126 144
---------- ---------- ------------
1,338 737 3,720
---------- ---------- ------------
$4,826 $2,105 $ 859
========= ======= ==========
</TABLE>
Deferred tax liabilities consist of the following components:
<TABLE>
<CAPTION>
JANUARY 2, 1994 JANUARY 1, 1995 DECEMBER 31, 1995
----------------------- ----------------------- -----------------------
CURRENT NON-CURRENT CURRENT NON-CURRENT CURRENT NON-CURRENT
LIABILITY LIABILITY LIABILITY LIABILITY LIABILITY LIABILITY
--------- ----------- --------- ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Receivables............. $ 1,639 $ -- $ 1,220 $ -- $ 1,228 $ --
Inventories............. (10,583) -- (10,545) -- (10,839) --
Accrued salaries
and wages............. 1,361 -- 547 252 122 406
Other accrued
liabilities........... 1,009 -- 1,404 -- 1,732 --
Properties.............. -- (18,014) -- (19,339) -- (20,324)
Other, net.............. 11 (1,746) 15 (1,641) 11 (4,143)
--------- ----------- --------- ----------- --------- -----------
$ (6,563) $ (19,760) $ (7,359) $ (20,728) $ (7,746) $ (24,061)
========= ========== ========= ========== ========= ==========
</TABLE>
The increase in the aggregate net deferred tax liability from $26,323,000
at January 2, 1994 to $28,087,000 at January 1, 1995 of $1,764,000 is $1,027,000
greater than the deferred tax provision of $737,000 included in the provision
for income taxes for Calendar 1994. Such difference results from the deferred
taxes of $1,027,000 provided in connection with the pushdown of a portion of
Triarc's and SEPSCO's increased basis in the Company relating to its acquisition
of the minority interest of SEPSCO in the SEPSCO Merger as discussed in Note 3.
F-38
<PAGE> 147
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The difference between the reported provision for income taxes and a
computed tax based on income (loss) before income taxes at the statutory rate of
35% is reconciled as follows:
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED
ENDED -------------------------
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes.................... $7,499 $5,168 $ (5,490)
========= ======= ==========
Computed expected tax provision (benefit)............ $2,625 $1,809 $ (1,922)
Increases in Federal Taxes resulting from:
State income taxes net of federal benefit.......... 467 186 (148)
Provision for income tax contingencies............. -- -- 2,500
Amortization of non-deductible goodwill............ -- 73 130
Capital loss carryforward.......................... 875 -- --
Change in deferred taxes for rate increase to
35%............................................. 615 -- --
Other, net......................................... 244 37 299
---------- ---------- ------------
$4,826 $2,105 $ 859
========= ======= ==========
</TABLE>
The Internal Revenue Service ("IRS") is currently examining the Company's
Federal income tax returns for the tax years from 1989 through 1992 and has
issued to date notices of proposed adjustments increasing the Company's taxable
income by approximately $41,000,000, the majority of which will be contested by
the Company, the tax effect of which has not yet been determined. During
Calendar 1995, the Company provided $2,500,000 in the provision for income taxes
relating to such examination. The amount and timing of any payments required as
a result of such proposed adjustments cannot presently be determined. However,
the Company believes that it has adequate reserves for any tax liabilities,
including interest, that may result from the resolution of such proposed
adjustments.
As a result of SEPSCO's merger with Triarc on April 14, 1994 (see Note 3),
the Company and its subsidiaries became eligible to join in Triarc's
consolidated Federal tax return. Under the tax sharing agreement with Triarc,
the Company pays to Triarc an amount equal to the Federal income tax liability
that the Company and its subsidiaries would have paid if they had filed a
separate consolidated Federal income tax return. The Company has continued to
file separate state income tax returns.
(8) LONG-TERM DEBT
The following information relates to the Company's long-term debt, all of
which is attributable to the Textile Business. Avondale is not expected to
assume any of this indebtedness.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY JANUARY DECEMBER
2, 1, 31,
1994 1995 1995
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Term loan......................................... $ 72,500 $ 61,000 $ 85,200
Revolving loan.................................... 89,324 103,038 113,435
Capitalized lease obligations (Note 9)............ 793 853 574
Notes collateralized by machinery and equipment... 506 6,282 11,162
--------- --------- -----------
163,123 171,173 210,371
Less current portion of long-term debt....... 12,174 16,541 13,701
--------- --------- -----------
$150,949 $154,632 $ 196,670
========= ========= ============
</TABLE>
F-39
<PAGE> 148
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate annual maturities of the long-term debt as of December 31, 1995
are as follows (in thousands):
<TABLE>
<S> <C>
1996........................................................... $ 13,701
1997........................................................... 14,453
1998........................................................... 14,405
1999........................................................... 14,304
2000........................................................... 151,707
Thereafter..................................................... 1,801
--------
$210,371
========
</TABLE>
On April 23, 1993 the Company and C. H. Patrick entered into an
$180,000,000 senior secured credit facility (the "Graniteville Credit Facility")
with the Company's commercial lender as agent for itself and various lenders,
repaid its prior term loan and repurchased all receivables that had been sold to
such commercial lender under the Company's non-notification factoring
arrangement. On August 3, 1995 the Company amended the Graniteville Credit
Facility (the "Amended Credit Facility"). The Amended Credit Facility consists
of a senior secured revolving credit facility of up to $130,000,000 (the
"Revolving Loan") with a $5,000,000 sublimit for letters of credit and an
$86,000,000 senior secured term loan (the "Term Loan"), of which $800,000 was
repaid in Calendar 1995, and expires in 2000. As part of the Amended Credit
Facility, Graniteville's commercial lender continues to factor the Company's and
C. H. Patrick's receivables through April 23, 1999, with credit balances
assigned to secure the Amended Credit Facility (the "Factoring Arrangement").
The Revolving Loan does not require any amortization of principal prior to
its expiration in 2000. Borrowings under the Revolving Loan bear interest, at
the Company's option, at either the prime rate plus 1.00% per annum or the
90-day London Interbank Offered Rate (the "LIBOR rate") plus 2.75% per annum
(weighted average interest rate of 8.95% at December 31, 1995). All LIBOR rate
loans have a 90-day interest period and are limited to 75% of the outstanding
balance in multiples of $10,000,000 under the Amended Credit Facility. The
borrowing base for the Revolving Loan is the sum of 95% of accounts receivable
(90% effective August 3, 1996) which are credit-approved by the factor ("Credit
Approved Receivables"), plus 90% of all other eligible accounts receivable (85%
effective August 3, 1996) not to exceed $18,000,000, plus 65% of eligible
inventory, provided that advances against eligible inventory shall not exceed
$42,000,000 at any one time. The Company, in addition to the aforementioned
interest, pays a commission of 0.35% on all Credit-Approved Receivables,
including a 0.20% bad debt reserve which is shared equally by Graniteville's
commercial lender and the Company after deducting customer credit losses.
Minimum annual factoring commissions of $1,200,000 are payable under the
Factoring Arrangement through April 23, 1999.
At December 31, 1995, the Company had approximately $15,000,000 available
under the Revolving Loan.
The Term Loan is repayable $11,600,000 in 1996, $12,400,000 in 1997 through
1999 and $36,400,000 in 2000. Until the unpaid principal of the Term Loan is
equal to or less than $60,000,000 at the end of any year, the Company must make
mandatory prepayments in an amount equal to 50% of Excess Cash Flow, as defined,
for such years. In accordance therewith, no prepayments were required in
Transition 1993, Calendar 1994 or Calendar 1995. The Term Loan bears interest,
at the Company's option, at the prime rate plus 1.50% per annum or the 90-day
LIBOR plus 3.25% per annum (weighted average interest rate of 9.20% at December
31, 1995). When the unpaid principal balance of the Term Loan is less than or
equal to $72,000,000, the interest rate thereon will be reduced to the prime
rate plus 1.50% or the 90-day LIBOR rate plus 3.00%. When the unpaid principal
balance of the Term Loan is less than or equal to $57,000,000, the LIBOR rate
option will be reduced to the 90-day LIBOR plus 2.75%. In each case, the LIBOR
rate is limited to the unpaid principal balance less the principal amount of the
next two (2) quarterly payments. In the event that the Company
F-40
<PAGE> 149
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
prepays the Term Loan, in whole or in part, in the three year period commencing
August 1995, then a prepayment fee shall be payable as follows: 2.0% of the
amount prepaid if the prepayment occurs in the first year, 1.0% of the
prepayment during the second year and 1/2 of 1.0% in the third year.
On August 4, 1995, the Company borrowed $36,000,000 under the Amended
Credit Facility which it loaned to Triarc.
The Amended Credit Facility is secured by all of the assets of the Company
and C. H. Patrick, including all accounts receivable, notes receivable,
inventory, machinery and equipment, trademarks, patents and other intangible
assets, and all real estate. The Company has also pledged as collateral the
stock of C. H. Patrick. Additionally, Triarc and Graniteville International
Sales, Inc. ("Graniteville International") have unconditionally guaranteed all
obligations under the Amended Credit Facility. As collateral for such guarantee,
Triarc Companies pledged all of the issued and outstanding stock of the Company
(including the 50% owned by SEPSCO and subject to a pre-existing pledge of the
50% owned by Triarc in connection with Triarc's intercompany note payable to
SEPSCO in the principal amount of $26,538,000), and the issued and outstanding
common stock of SEPSCO owned by Triarc.
The Amended Credit Facility contains various covenants which (a) require
meeting certain financial amount and ratio tests; (b) limit, among other items
(i) the incurrence of indebtedness, (ii) investments, (iii) asset dispositions,
(iv) capital expenditures and (v) affiliate transactions other than in the
normal course of business; and (c) restrict the payment of dividends (see
below).
At December 31, 1995, the Company was not in compliance with certain of the
covenants under the Amended Credit Facility. On March 22, 1996, the Company
received waivers and negotiated amended covenants through December 31, 1996. As
a result, the related debt under the Amended Credit Facility is classified as
long-term in the accompanying statement of assets and liabilities.
The Company will be permitted to pay dividends or make loans or advances to
its affiliates in an amount equal to 50% of the net income of the Company
accumulated from the beginning of the first year commencing on or after December
20, 1994, provided that the outstanding principal balance of the Term Loan is
less than $50,000,000 at the time of the payments and certain other conditions
are met. Accordingly, based upon scheduled repayments of the Term Loan, the
Company is unable to pay any dividends or make any loans or advances to its
stockholders, including Triarc, prior to December 31, 1998.
On August 25, 1995 the Company entered into a two-year interest rate cap
agreement required by the Amended Credit Facility which effectively caps the
Company's interest rate on $108,000,000 of its borrowings by providing for the
Company to receive payment of the excess, if any, of the 90-day LIBOR rate
(5.88% at December 31, 1995) over 9.00% on the $108,000,000 contract amount.
In April 1994 and June 1995, the Company entered into seven year loan
agreements to finance the acquisition of certain machinery and equipment. The
loans, in the original amount of $6,500,000 and $6,600,000, respectively, are
repayable in equal monthly installments of principal plus accrued interest. In
connection with the April 1994 loan, the Company entered into an interest rate
swap agreement (the "Swap Agreement") that effectively fixed the interest rate
on such borrowings at 6.9% per annum for the seven year term of the loan. The
June 1995 loan bears interest at a fixed rate of 8.19% per annum.
(9) LEASE COMMITMENTS
The Textile Business leases certain machinery and equipment under long-term
lease obligations which are accounted for as capital leases and are included in
"Properties, at cost" in the accompanying statement of assets and liabilities in
the amount of $1,006,000 at January 2, 1994 and $1,299,000 at both January 1,
1995 and December 31, 1995.
F-41
<PAGE> 150
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease payments (net of sublease rentals which are not
significant) under capital leases and operating leases with an initial
noncancellable term in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1996.......................................................... $ 257 $ 1,397
1997.......................................................... 199 712
1998.......................................................... 140 641
1999.......................................................... 33 416
2000.......................................................... -- 389
Thereafter.................................................... -- 1,910
------- ---------
Total minimum lease payments.................................... 629 $ 5,465
=======
Less amounts representing interest.............................. 55
-------
Present value of minimum lease payments (Note 8)................ $ 574
=====
</TABLE>
Rental expense under operating leases which is primarily for the rental of
real estate and equipment, was $1,911,000 in Transition 1993, $2,261,000 in
Calendar 1994 and $1,498,000 in Calendar 1995.
(10) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Postretirement benefits other than pensions consist of health care and life
insurance benefits provided to a group of former employees who retired prior to
January 1, 1990, and a limited health care benefit program provided to early
retirees who have attained age 55 and have ten years of service with the Textile
Business. With the exception of a group of retirees who retired prior to January
1, 1982, a portion of the cost of these benefits is paid by the retiree.
Net periodic postretirement benefit cost consists of the following:
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED
ENDED ---------------------------
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
---------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period... $ 6 $ 5 $ 7
Interest cost on accumulated postretirement
benefit obligation............................. 74 65 61
Net amortization of unrecognized gain............ -- (10) (20)
--- ---------- ------
$ 80 $ 60 $ 48
========= ======= ==========
</TABLE>
F-42
<PAGE> 151
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The accumulated postretirement benefit obligation is included in "Other
liabilities" in the accompanying statements of assets and liabilities and
consists of the following:
<TABLE>
<CAPTION>
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
----------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Retirees and dependents............................. $ 1,013 $ 751 $ 631
Active employees eligible to retire................. 96 50 93
Active employees not eligible to retire............. 131 61 117
----------- ---------- ------------
Accumulated postretirement benefit
obligation.............................. 1,240 862 841
Unrecognized net gain (loss)........................ (97) 224 179
----------- ---------- ------------
Accrued postretirement benefit obligation recognized
in the statements of assets and liabilities....... $ 1,143 $1,086 $1,020
========= ======= ==========
</TABLE>
The determination of net periodic postretirement benefit cost and
accumulated postretirement benefit obligation is based upon the Plan's benefit
provisions and the following assumptions:
<TABLE>
<CAPTION>
TEN MONTHS YEAR ENDED
ENDED -------------------------
JANUARY 2, JANUARY 1, DECEMBER 31,
1994 1995 1995
---------- ---------- ------------
<S> <C> <C> <C>
Assumed health care cost trend rate used to measure
expected costs..................................... 12.0% 11.0% 10.0%
Ultimate health care cost trend rate (to be achieved
in 1999)........................................... 6.0% 6.0% 6.0%
Discount rate for accumulated benefits............... -- 8.0% 7.0%
Discount rate for net periodic costs................. 7.0% 7.0% 8.0%
</TABLE>
If the health care cost trend rate were increased by 1%, the accumulated
postretirement benefit obligation as of December 31, 1995 would have been
increased by approximately $63,000. The effect of this change on the aggregate
of the service cost and interest cost components of the net periodic
postretirement benefit cost for Calendar 1995 would be an increase of
approximately $10,000.
(11) TRANSACTIONS WITH AFFILIATES
By agreement, Triarc provides certain management services including, among
others, legal, insurance and financial services and incurs certain costs on
behalf of the Textile Business. In Transition 1993, Calendar 1994 and Calendar
1995, such costs aggregated $5,424,000, $4,721,000 and $4,556,000, respectively
and is included in "Selling and administrative expenses allocated from parent"
in the accompanying statements of operations. The Textile Business, through
Triarc, also leased space from an affiliate for approximately $612,000 in
Transition 1993. In July 1993, Triarc Companies gave notice to terminate the
lease effective January 31, 1994 and the Textile Business recorded a charge of
$1,614,000 in Transition 1993 representing the allocated cost of such lease
termination (see Note 14).
Prior to December 1993, the Textile Business maintained certain property
insurance coverage with Chesapeake Insurance Company Limited ("Chesapeake
Insurance"), an affiliated company registered in Bermuda. Premiums attributable
to such insurance coverage amounted to $84,000 in Transition 1993. The Textile
Business also maintained certain insurance coverage with an unaffiliated
insurance company for which Chesapeake Insurance reinsured a portion of the
risk. Net premiums attributable to such reinsurance were approximately
$1,643,000 in Transition 1993. In addition, prior to July 1, 1993, Insurance and
Risk Management Inc., an affiliate until April 23, 1993, acted as agent or
broker in connection with insurance coverage obtained by the Textile Business
and provided claims processing services for the Textile Business.
F-43
<PAGE> 152
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The commissions and payments for such services paid to such company were $77,000
in the applicable period of Transition 1993.
In prior years, the Textile Business had a $2,500,000 investment in the
convertible preferred stock of Chesapeake Insurance. During its quarter ended
September 30, 1993, Chesapeake Insurance increased its reserve for insurance and
reinsurance losses by $10,000,000 and as a result reduced the stockholders'
equity of Chesapeake Insurance to $308,000. In December 1993, Triarc decided to
cease writing insurance and reinsurance of any kind through Chesapeake
Insurance. As a result, Chesapeake Insurance will not have any future operating
cash flows and its remaining liabilities, including payment of claims on
insurance previously written, will be liquidated with assets on hand.
Accordingly, the preferred stock investment is not recoverable and the Textile
Business wrote off its investment in such stock in Transition 1993 since the
decline in value was deemed to be other than temporary.
The Textile Business purchases dyes and chemicals from C. H. Patrick. Such
purchases aggregated $24,859,000, $27,930,000 and $28,981,000 in Transition
1993, Calendar 1994 and Calendar 1995, respectively.
The Textile Business has certain intercompany obligations with C. H.
Patrick which bear interest at prime plus 1.25%. Interest expense on these
obligations aggregated $492,000, $607,000 and $643,000 in Transition 1993,
Calendar 1994 and Calendar 1995, respectively, and is reported as "Interest
expense with affiliate" in the accompanying statements of operations.
(12) LEGAL MATTERS
The Textile Business participates in regional wastewater treatment
facilities and considers that it is in substantial compliance with water
pollution regulations. In 1987, the Textile Business was, however, notified by
the South Carolina Department of Health and Environmental Control ("DHEC") that
DHEC discovered certain contamination of Langley Pond near Graniteville, South
Carolina and asserted that the Textile Business may be one of the parties
responsible for such contamination. In 1990 and 1991, the Textile Business
provided reports to DHEC summarizing its required study and investigation of the
alleged pollution and its sources which concluded that pond sediments should be
left undisturbed and in place and that other less passive remediation
alternatives either provided no significant additional benefits or themselves
involved adverse effects on (i) human health, (ii) to existing recreational uses
or (iii) to the existing biological communities. In March 1994, DHEC appeared to
conclude that while environmental monitoring at Langley Pond should be
continued, based on currently available information, the most reasonable
alternative is to leave the pond sediments undisturbed and in place. DHEC
requested the Textile Business to submit a proposal by mid-April 1995 concerning
periodic monitoring of sediment deposition in the pond. The Textile Business
submitted a proposed protocol for monitoring sediment deposition in Langley Pond
on April 26, 1995. DHEC responded to this proposal on October 30, 1995
requesting some additional information. This information was provided to DHEC in
February 1996. Management is unable to predict at this time what further
actions, if any, may be required in connection with Langley Pond or what the
cost thereof may be. However, given DHEC's recent conclusion and the absence of
reasonable remediation alternatives, the Textile Business believes the ultimate
outcome of this matter will not have a material adverse effect on its future
results of operations or financial position.
The Textile Business owns a nine acre property in Aiken County, South
Carolina (the "Vaucluse Landfill"), which was used as a landfill from
approximately 1950 to 1973. The Vaucluse Landfill was operated jointly by the
Textile Business and Aiken County and may have received municipal waste and
possibly industrial waste from the Textile Business and sources other than the
Textile Business. In March 1990, a "Site Screening Investigation" was conducted
by DHEC. The Textile Business conducted an initial investigation in June 1992
which included the installation and testing of two ground water monitoring
wells. The United States Environmental Protection Agency conducted an Expanded
Site Inspection (an "ESI") in January 1994 and the Textile Business conducted a
supplemental investigation in February 1994. In response to the ESI, DHEC
F-44
<PAGE> 153
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
has indicated its desire to have an investigation of the Vaucluse Landfill. On
April 7, 1995, the Textile Business submitted a conceptual investigation
approach to DHEC. On August 22, 1995 DHEC requested that the Textile Business
enter into a consent agreement to conduct an investigation. The Textile Business
has responded to DHEC that a consent agreement is inappropriate considering the
Textile Business' demonstrated willingness to cooperate with DHEC's requests and
asked DHEC to approve the Textile Business' April 7, 1995 conceptual
investigation approach. The cost of the study proposed by the Textile Business
is estimated to be between $125,000 and $150,000. Since an investigation has not
yet commenced, the Textile Business is currently unable to estimate the cost to
remediate the landfill. Such cost could vary based on the actual parameters of
the study. Based on currently available information, the Textile Business does
not believe that the outcome of this matter will have a material adverse effect
on its future results of operations or financial position.
The Textile Business is a defendant in certain other legal proceedings
arising out of the ordinary conduct of its business. In the opinion of
management, the ultimate outcome of these legal proceedings will not have a
material adverse effect on the Textile Business' future results of operations or
financial position.
(13) RETIREMENT AND INCENTIVE COMPENSATION PLANS
The Textile Business maintains a 401(k) defined contribution plan which
covers substantially all employees. Prior to March 1994 employees could
contribute from 1% to 8% of their total earnings, subject to certain
limitations. In addition, the Textile Business may make discretionary
contributions to the plan. Discretionary retirement contribution expense was
$1,000,000 in Transition 1993 and is included in "General and administrative
expenses" in the accompanying statement of operations.
Effective March 1994, the Textile Business made various changes to the
retirement plan including an increase in allowable employee contributions.
Employees may now contribute up to 15% of earnings and the Textile Business will
match up to 75% of employee contributions based on years of service but limited
to the first 4% of employee compensation. Employer matching contributions
aggregated $1,198,000 in Calendar 1994 and $1,356,000 in Calendar 1995 and are
included in "Selling and administrative expenses" in the accompanying statements
of operations.
Prior to Transition 1993, the Textile Business maintained management
incentive plans (the "Incentive Plans") which provided for incentive
compensation of up to 10% of operating earnings and up to 10% of earnings from
sales or other dispositions of assets. The plans were administered by the
Compensation Committee of the Board of Directors of Triarc and awards for
elected corporate officers were approved by the Board. In Transition 1993, the
Textile Business reversed prior year accruals of $968,000 due to the termination
of the plans.
During Transition 1993, the Textile Business replaced the previous
Incentive Plans with annual and mid-term cash incentive plans (the "New
Incentive Plans") for certain officers and key employees. The New Incentive
Plans provide for discretionary cash awards depending upon the Textile Business'
financial performance as compared to target performance. The New Incentive Plans
are designed to yield a target award in cash if the Textile Business achieves an
agreed-upon profit over a one-year and three-year performance cycle. An amount
is accrued each year based upon the amount by which the Textile Business' profit
for such year exceeds the target performance. A new three-year performance cycle
begins each year, such that after the third year the annual amount paid to
participants will equal the target award if the Textile Business' profit goals
have been achieved. Amounts provided under the New Incentive Plans aggregated
$1,998,000 in Transition 1993 and $1,018,000 in Calendar 1994. In Calendar 1995,
the Textile Business reversed prior year accruals of $381,000.
F-45
<PAGE> 154
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net incentive compensation expense under the Incentive Plans and the New
Incentive Plans was $1,030,000, $1,018,000 and ($381,000) in Transition 1993,
Calendar 1994, and Calendar 1995, respectively, and is included in "Selling and
administrative expenses" in the accompanying statements of operations.
During Transition 1993, Triarc granted 50,000 restricted shares of Triarc
Class A common stock to the Textile Business' chief executive officer under
Triarc's Amended and Restated 1993 Equity Participation Plan (the "Triarc Equity
Plan"). The value of the award at date of grant of $900,000 was being accrued by
the Textile Business as compensation expense over the applicable vesting period
through December 31, 1996. In December 1995, the Board of Directors of Triarc
authorized the termination of the "restriction period" related to the restricted
stock award. Accordingly, in Calendar 1995 the Textile Business accrued the
remaining balance of the compensation expense related to this award. In
addition, during Transition 1993 and Calendar 1994 Triarc granted stock options
to certain key employees of the Textile Business under the Triarc Equity Plan.
Of the Transition 1993 options, 65,000 were granted at an option price of $20.00
that was lower than the fair market value of Triarc's Class A common stock at
the date of grant of $31.75. The aggregate difference of $764,000 between the
option price and the fair market value at the date of grant is being recognized
in compensation expense over the applicable vesting period through September 28,
1998. Compensation expense resulting from the grant of restricted shares and
below market stock options, including the additional amortization resulting from
the termination of the "restriction period", aggregated $455,000 in Calendar
1994 and $690,000 in Calendar 1995 and is included in "Selling and
administrative expenses" in the accompanying statements of operations.
(14) SIGNIFICANT CHARGES IN TRANSITION 1993
The accompanying Transition 1993 statement of operations includes the
following significant charges (in thousands):
<TABLE>
<S> <C>
Estimated cost allocated to the Textile Business by Triarc to
terminate the lease on Triarc's existing corporate
headquarters.................................................. $ 1,614
Costs allocated to the Textile Business by Triarc related to a
five-year consulting agreement extending through April 1998
between Triarc and the former Vice Chairman of Triarc......... 229
-------
Total facilities relocation and corporate restructuring costs
(A)........................................................... 1,843
Estimated cost allocated to the Textile Business by Triarc for
compensation paid to the Special Committee of the Board of
Directors of Triarc (B)....................................... 1,660
Income tax benefit relating to the above charges................ (1,179)
-------
$ 2,324
=======
</TABLE>
(A) In Transition 1993, results of operations were significantly impacted by
facilities relocation and corporate restructuring charges allocated to the
Textile Business by Triarc aggregating $1,843,000 consisting of: (i)
estimated allocated costs of $1,614,000 to relocate Triarc's existing
corporate headquarters and to terminate the lease on its existing corporate
facilities, and (ii) total allocated costs of $229,000 relating to a
five-year consulting agreement (the "Consulting Agreement") extending
through April 1998 between Triarc and Steven Posner, the former Vice
Chairman of Triarc. All of such charges are related to a series of
transactions by which DWG Acquisition Group, L.P. ("DWG Acquisition")
acquired control of Triarc in April 1993 (the "Change in Control"). In
connection with the Change in Control, Victor Posner and Steven Posner
resigned as officers and directors of Triarc. In order to induce Steven
Posner to resign, Triarc entered into the Consulting Agreement with him.
The allocated cost related to the Consulting Agreement was recorded as a
charge in Transition 1993 because the Consulting Agreement does not require
any substantial services and Triarc does not expect to receive
F-46
<PAGE> 155
TEXTILE BUSINESS OF GRANITEVILLE COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
any services that will have substantial value. As a part of the Change in
Control, Triarc's Board of Directors was reconstituted. The first meeting
of Triarc's reconstituted Board of Directors was held on April 24, 1993. At
that meeting, based on a report and recommendations from a management
consulting firm that had conducted an extensive review of Triarc and
subsidiaries operations and management structure, Triarc's Board of
Directors approved a plan of decentralization and restructuring which
entailed, among other things, the following features: (i) the strategic
decision to manage Triarc in the future on a decentralized rather than on a
centralized basis; (ii) the hiring of new executive officers for Triarc;
(iii) the termination of a significant number of employees as a result of
both the new management philosophy and the hiring of an almost entirely new
management team; and (iv) the relocation of the Triarc and certain
affiliates corporate headquarters. The Textile Business' allocated costs to
relocate the corporate headquarters of Triarc and terminate the lease on
Triarc's existing corporate facilities ($1,614,000) stemmed from the
decentralization and restructuring plan formally adopted at the April 24,
1993 meeting of Triarc's reconstituted Board of Directors and accordingly,
were recorded in Transition 1993.
(B) In accordance with certain court proceedings and related settlements, five
directors, including three court-appointed directors, were appointed in
1991 to serve on a special committee (the "Triarc Special Committee") of
Triarc's Board of Directors. Such committee was empowered to review and
pass on transactions between Triarc and Victor Posner, the then largest
shareholder of Triarc, and his affiliates.
The Textile Business has been charged $1,660,000 as an allocation of the
cash portion of a success fee paid to the Triarc Special Committee
attributable to the Change in Control. Such amount has been provided in
"Management fees and other administrative expenses allocated from parent"
in the accompanying statement of operations for Transition 1993.
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of applicable financial instruments and related
underlying assumptions are as follows as of January 2, 1994, January 1, 1995 and
December 31, 1995:
Long-term debt -- The Textile Business estimates that the carrying value of
$163,123,000, $171,173,000 and $210,371,000 at January 2, 1994, January 1, 1995
and December 31, 1995, respectively, approximates the fair value of debt based
upon the floating rate of interest applicable to the Graniteville Credit
Facility or the Amended Credit Facility and the recent origination of other
debt.
Interest rate swap -- As of January 1, 1995, the fair value of the Swap
Agreement was an asset of approximately $338,000 and at December 31, 1995 such
fair value was a liability of approximately $53,000. Such amounts represent the
estimated amount the Textile Business would pay or receive to terminate the Swap
Agreement, as quoted by the financial institution. The Swap Agreement has been
entered into with a major financial institution which, therefore, is expected to
be able to fully perform under the terms of the agreement, thereby mitigating
any credit risk of the transaction.
(16) FIRE AND INSURANCE SETTLEMENT
On February 3, 1995, the Textile Business suffered fire damage to equipment
in the weaving department at one of its manufacturing facilities. The Textile
Business negotiated a property settlement with its insurance company for the
fire damaged equipment. A gain of $1,875,000 has been recognized based upon the
excess of the insurance proceeds over the book value of the damaged equipment
and certain related costs.
F-47
<PAGE> 156
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. i
Prospectus Summary..................... 1
Risk Factors........................... 12
Use of Proceeds........................ 18
Capitalization......................... 19
Pro Forma Financial Information........ 20
Selected Historical Consolidated
Financial Data....................... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 28
Industry Overview...................... 39
Business -- The Company................ 41
Business -- Graniteville............... 53
The Exchange Offer..................... 56
The Recent Transactions................ 63
Management............................. 66
Security Ownership of Certain
Beneficial Owners and
Management........................... 72
Certain Transactions................... 73
Description of Certain Indebtedness.... 74
Description of the Notes............... 76
Certain Federal Income Tax
Consequences......................... 102
Plan of Distribution................... 102
Legal Matters.......................... 103
Experts................................ 103
Index to Financial Statements.......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
[AVONDALE LOGO]
Avondale Mills, Inc.
$125,000,000
Offer to Exchange
Its
10 1/4% Senior Subordinated
Notes Due 2006
For
10 1/4% Senior Subordinated
Notes Due 2006
That Have Been Registered
Under the
Securities Act of 1933
Prospectus
- ------------------------------------------------------
<PAGE> 157
SCHEDULE II
AVONDALE INCORPORATED
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND (A) END OF
DESCRIPTION OF PERIOD EARNINGS DEDUCTIONS PERIOD
-------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended August 27, 1993...... Allowance for doubtful accounts $1,797 $ 277 $ (178) $1,896
Year Ended August 28, 1994...... Allowance for doubtful accounts 1,896 926 (669) 2,153
Year Ended August 25, 1995...... Allowance for doubtful accounts 2,153 1,206 (1,120) 2,239
</TABLE>
- ---------------
(A) Deductions represent customer account balances written off during the
period.
S-1
<PAGE> 158
PART II
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Avondale Incorporated's rights and obligations with respect to
indemnification of its controlling persons, directors and officers are governed
by the following provisions from its charter, bylaws and applicable state law:
Avondale Incorporated's Restated and Amended Articles of Incorporation
eliminate, to the fullest extent permitted by applicable law, the personal
liability of directors to Avondale Incorporated or its shareholders for
monetary damages for breach of duty of care or any other duty owed to
Avondale Incorporated as a director. The Georgia Business Corporation Code
currently provides that such provision shall not eliminate or limit the
liability of a director (a) for any appropriation, in violation of his
duties, of any business opportunity of Avondale Incorporated, (b) for acts
or omissions that involve intentional misconduct or a knowing violation of
law, (c) for unlawful corporate distributions or (d) for any transaction
from which the director received an improper personal benefit.
Under Article VI of Avondale Incorporated's Bylaws, Avondale
Incorporated is required to indemnify its directors, officers, employees
and agents or pay any judgment, settlement, penalty or fine, and against
expenses (including attorney's fees and expenses), incurred in connection
with any action, suit or proceedings brought against such person because he
was a director, officer, employee or agent of Avondale Incorporated,
without regard to any limitations in the Georgia Business Corporation Code;
provided, however, that Avondale Incorporated shall have no obligation to
indemnify any such person in connection with any such proceeding if such
person is adjudged liable to Avondale Incorporated or is subjected to
injunctive relief in favor of Avondale Incorporated (a) for any
appropriation, in violation of such person's duties, of any business
opportunity of Avondale Incorporated, (b) for acts or omissions that
involve intentional misconduct or a knowing violation of law, (c) for
unlawful corporate distributions or (d) for any transaction from which such
person received an improper personal benefit. Avondale Incorporated's
directors and officers are insured against losses arising from any claim
against them as such for wrongful acts or omissions, subject to certain
limitations.
The Company's rights and obligations with respect to indemnification of its
controlling persons, directors and officers are governed by the following
provisions from its bylaws and applicable state law:
Sections 10-2B-8.51 and 10-2B-8.56, Code of Alabama 1975 (the "Code"),
allow indemnification by a corporation, under certain circumstances, of any
person who was or is a party (or is threatened to be made a party) to any
threatened, pending or completed claims, suit or proceeding, whether civil,
criminal, administrative or investigative, 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,
trustee, employee benefit plan or other enterprise; provided, that such
person acted in good faith and in a manner he reasonably believed to be, in
the case of conduct in his or her official capacity with the corporation,
in its best interests, and, in all other cases, in or not opposed to its
best interests and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. A corporation also
has the power under Section 10-2B-8.57 of the Code to purchase and maintain
indemnity insurance against such threatened, pending or completed claim,
action suit or proceeding on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or who is or was serving at
the request of the corporation as a director, officer, partner, trustee,
employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise.
Article IV of the Bylaws of the Company provides that the Company
shall indemnify any current or former director or officer of the Company
and may, at the discretion of the Board of Directors, indemnify any current
or former employee or agent of the Company against expenses reasonably
incurred by him in connection with any action, suit or proceeding to which
he is a party by reason of his being or having been a director, officer or
employee of the Company or his serving, at the Company's request, as a
director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
Articles of Incorporation of the Company are silent as to indemnification.
II-1
<PAGE> 159
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
2.1* -- Asset Purchase Agreement, dated March 31, 1996 among the Company, Avondale
Incorporated, Graniteville Company and Triarc Companies, Inc.
3.1* -- Restated and Amended Articles of Incorporation of Avondale Incorporated.
3.2* -- Bylaws of Avondale Incorporated.
3.3++ -- Articles of Incorporation of the Company, as amended.
3.4* -- Bylaws of the Company.
4.1* -- Indenture for the Notes between the Company, Avondale Incorporated and The Bank of
New York, as Trustee.
4.2* -- Registration Rights Agreement, dated April 23, 1996 among the Company, Avondale
Incorporated and the CS First Boston Corporation.
4.3* -- Amended and Restated Credit Agreement, dated as of April 29, 1996, among the
Company, the Banks listed therein and Wachovia Bank of Georgia, N.A., as Agent.
4.4* -- Amended and Restated Security Agreement, dated April 29, 1996, between the Company
and Wachovia Bank of Georgia, N.A., as agent for the Banks which are parties to the
Amended and Restated Credit Agreement.
4.5* -- Amended and Restated Parent Guaranty, dated April 29, 1996, executed by Avondale
Incorporated in favor of Wachovia Bank of Georgia, N.A., as agent for the Banks
which are parties to the Amended and Restated Credit Agreement.
4.6* -- Amended and Restated Stock Pledge Agreement, dated April 29, 1996, between Wachovia
Bank of Georgia, N.A., as agent for the Banks which are parties to the Amended and
Restated Credit Agreement, and Avondale Incorporated.
4.7* -- Agreement to Provide Certain Debt Instruments to the Commission upon Request.
5.1++ -- Opinion of King & Spalding.
10.1* -- Receivables Purchase Agreement, dated April 29, 1996, among the Company, the
Company, as Servicer, and Avondale Receivables Company.
10.2* -- Pooling and Servicing Agreement, dated April 29, 1996, among Avondale Receivables
Company, the Company and Manufacturers and Traders Trust Company.
10.3* -- Series 1996-1 Supplement to the Pooling and Servicing Agreement, dated April 29,
1996, among Avondale Receivables Company, the Company and Manufacturers and Traders
Trust Company.
10.4* -- The Certificate Purchase Agreement, dated April 29, 1996, among Avondale
Receivables Company, the Company, the purchasers described therein and First
National Bank of Chicago, as agent.
10.5* -- Note Purchase Agreement, dated December 28, 1995, among Oneita, Robert M. Gintel
and the Company.
10.6* -- Registration Rights Agreement, dated January 25, 1996, among Oneita and the Holders
as listed therein.
10.7* -- 10% Subordinated Promissory Note, dated January 25, 1996, executed by Oneita in
favor of the Company.
10.8* -- Registration Rights Agreement, dated April 29, 1996 between Avondale Incorporated
and the Persons listed therein.
10.9* -- Shareholders Agreement, dated April 29, 1996 among Avondale Incorporated, the
Investors listed therein, the Shareholders listed therein and Clipper Capital
Partners, L.P., in its capacity as Purchaser Representative under the Agreement.
10.10* -- Post-Merger Stock Transfer and Repurchase Agreement, dated August 27, 1993 by and
among Walton Monroe Mills, Inc., Metropolitan Life Insurance Company, 1985 Merchant
Investment Partnership, Merchant LBO, Inc., G. Stephen Felker, John F. Maypole and
Jack R. Altherr, Jr.
</TABLE>
II-2
<PAGE> 160
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ -----------------------------------------------------------------------------------
<C> <C> <S>
10.11* -- Post-Merger Stock Transfer and Repurchase Agreement, dated August 27, 1993 by and
among Walton Monroe Mills, Inc., Metropolitan Life Insurance Company, 1985 Merchant
Investment Partnership, Merchant LBO, Inc., G. Stephen Felker, John F. Maypole and
T. Wayne Spraggins.
10.12* -- Avondale Incorporated Stock Option Plan.
10.13* -- Avondale Mills, Inc. Associate Profit Sharing and Savings Plan.
10.14* -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for G. Stephen Felker.
10.15* -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for Jack R. Altherr, Jr.
10.16* -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for Richard H. Monk, Jr.
10.17* -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for T. Wayne Spraggins.
10.18* -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for C. Michael
Billingsley.
10.19* -- Phantom Unit Awards to G. Stephen Felker.
10.20* -- Phantom Unit Awards to Richard H. Monk, Jr.
10.21* -- Phantom Unit Awards to Jack R. Altherr, Jr.
10.22* -- Phantom Unit Awards to C. Michael Billingsley.
10.23* -- Phantom Unit Awards to T. Wayne Spraggins.
10.24 -- Supply Agreement dated March 31, 1996 between the Company and C. H. Patrick & Co.,
Inc.
12.1* -- Computation of Ratio of Earnings to Fixed Charges.
23.1++ -- Consent of King & Spalding (included as part of its opinion filed as Exhibit 5.1).
23.2 -- Consent of Ernst & Young LLP, independent public accountants.
23.3 -- Consent of Deloitte & Touche LLP, independent public accountants.
25.1* -- Statement of Eligibility of Trustee on Form T-1 (bound separately).
99.1 -- Form of Letter of Transmittal for 10 1/4% Senior Subordinated Notes Due 2006.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Acknowledgement of Ernst & Young LLP
</TABLE>
- ---------------
* Previously filed.
++ To be filed by Amendment.
(b) Financial Statement Schedule.
Schedule II -- Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1993 may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, the registrants
have 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 registrants of expenses incurred
or paid by a director, officer or controlling person of the registrants 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 registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 161
The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 162
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
each of the registrants has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Monroe, State of Georgia, on the 13th day of
September, 1996.
AVONDALE INCORPORATED
By: /s/ G. STEPHEN FELKER
----------------------------------
G. Stephen Felker
Chairman of the Board, President
and Chief Executive Officer
AVONDALE MILLS, INC.
By: /s/ G. STEPHEN FELKER
------------------------------------
G. Stephen Felker
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed by the following
persons in the capacities indicated on the 13th day of September, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ G. STEPHEN FELKER Chairman of the Board, President and Chief
- --------------------------------------------- Executive Officer of the Company and
G. Stephen Felker Avondale Incorporated
/s/ JACK R. ALTHERR, JR. Vice Chairman, Chief Financial Officer,
- --------------------------------------------- Secretary and Director of the Company and
Jack R. Altherr, Jr. Avondale Incorporated (Principal Financial
and Accounting Officer)
* Director of the Company and Avondale
- --------------------------------------------- Incorporated
Kenneth H. Callaway
* Director of the Company and Avondale
- --------------------------------------------- Incorporated
Robert B. Calhoun
* Director of the Company and Avondale
- --------------------------------------------- Incorporated
Harry C. Howard
* Director of the Company and Avondale
- --------------------------------------------- Incorporated
C. Linden Longino, Jr.
* Director of the Company and Avondale
- --------------------------------------------- Incorporated
Dale J. Boden
* Director of the Company and Avondale
- --------------------------------------------- Incorporated
John P. Stevens
*By: /s/ JACK R. ALTHERR, JR.
- ---------------------------------------------
Jack R. Altherr, Jr.
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 163
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
2.1* -- Asset Purchase Agreement, dated March 31, 1996 among the Company,
Avondale Incorporated, Graniteville Company and Triarc Companies, Inc.
3.1* -- Restated and Amended Articles of Incorporation of Avondale Incorporated.
3.2* -- Bylaws of Avondale Incorporated.
3.3++ -- Articles of Incorporation of the Company, as amended.
3.4* -- Bylaws of the Company.
4.1* -- Indenture for the Notes between the Company, Avondale Incorporated and
The Bank of New York, as Trustee.
4.2* -- Registration Rights Agreement, dated April 23, 1996 among the Company,
Avondale Incorporated and the CS First Boston Corporation.
4.3* -- Amended and Restated Credit Agreement, dated as of April 29, 1996, among
the Company, the Banks listed therein and Wachovia Bank of Georgia,
N.A., as Agent.
4.4* -- Amended and Restated Security Agreement, dated April 29, 1996, between
the Company and Wachovia Bank of Georgia, N.A., as agent for the Banks
which are parties to the Amended and Restated Credit Agreement.
4.5* -- Amended and Restated Parent Guaranty, dated April 29, 1996, executed by
Avondale Incorporated in favor of Wachovia Bank of Georgia, N.A., as
agent for the Banks which are parties to the Amended and Restated Credit
Agreement.
4.6* -- Amended and Restated Stock Pledge Agreement, dated April 29, 1996,
between Wachovia Bank of Georgia, N.A., as agent for the Banks which are
parties to the Amended and Restated Credit Agreement, and Avondale
Incorporated.
4.7* -- Agreement to Provide Certain Debt Instruments to the Commission upon
Request.
5.1++ -- Opinion of King & Spalding.
10.1* -- Receivables Purchase Agreement, dated April 29, 1996, among the Company,
the Company, as Servicer, and Avondale Receivables Company.
10.2* -- Pooling and Servicing Agreement, dated April 29, 1996, among Avondale
Receivables Company, the Company and Manufacturers and Traders Trust
Company.
10.3* -- Series 1996-1 Supplement to the Pooling and Servicing Agreement, dated
April 29, 1996, among Avondale Receivables Company, the Company and
Manufacturers and Traders Trust Company.
10.4* -- The Certificate Purchase Agreement, dated April 29, 1996, among Avondale
Receivables Company, the Company, the purchasers described therein and
First National Bank of Chicago, as agent.
10.5* -- Note Purchase Agreement, dated December 28, 1995, among Oneita, Robert
M. Gintel and the Company.
10.6* -- Registration Rights Agreement, dated January 25, 1996, among Oneita and
the Holders as listed therein.
10.7* -- 10% Subordinated Promissory Note, dated January 25, 1996, executed by
Oneita in favor of the Company.
10.8* -- Registration Rights Agreement, dated April 29, 1996 between Avondale
Incorporated and the Persons listed therein.
10.9* -- Shareholders Agreement, dated April 29, 1996 among Avondale
Incorporated, the Investors listed therein, the Shareholders listed
therein and Clipper Capital Partners, L.P., in its capacity as Purchaser
Representative under the Agreement.
10.10* -- Post-Merger Stock Transfer and Repurchase Agreement, dated August 27,
1993 by and among Walton Monroe Mills, Inc., Metropolitan Life Insurance
Company, 1985 Merchant Investment Partnership, Merchant LBO, Inc., G.
Stephen Felker, John F. Maypole and Jack R. Altherr, Jr.
</TABLE>
<PAGE> 164
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ ------------------------------------------------------------------------ ------------
<C> <C> <S> <C>
10.11* -- Post-Merger Stock Transfer and Repurchase Agreement, dated August 27,
1993 by and among Walton Monroe Mills, Inc., Metropolitan Life Insurance
Company, 1985 Merchant Investment Partnership, Merchant LBO, Inc., G.
Stephen Felker, John F. Maypole and T. Wayne Spraggins.
10.12* -- Avondale Incorporated Stock Option Plan.
10.13* -- Avondale Mills, Inc. Associate Profit Sharing and Savings Plan.
10.14* -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for G.
Stephen Felker.
10.15* -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for Jack R.
Altherr, Jr.
10.16* -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for Richard
H. Monk, Jr.
10.17* -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for T. Wayne
Spraggins.
10.18* -- Avondale Mills, Inc. Fiscal 1995 Management Incentive Plan for C.
Michael Billingsley.
10.19* -- Phantom Unit Awards to G. Stephen Felker.
10.20* -- Phantom Unit Awards to Richard H. Monk, Jr.
10.21* -- Phantom Unit Awards to Jack R. Altherr, Jr.
10.22* -- Phantom Unit Awards to C. Michael Billingsley.
10.23* -- Phantom Unit Awards to T. Wayne Spraggins.
10.24 -- Supply Agreement dated March 31, 1996 between the Company and C. H.
Patrick & Co., Inc.
12.1* -- Computation of Ratio of Earnings to Fixed Charges.
23.1++ -- Consent of King & Spalding (included as part of its opinion filed as
Exhibit 5.1).
23.2 -- Consent of Ernst & Young LLP, independent public accountants.
23.3 -- Consent of Deloitte & Touche LLP, independent public accountants.
25.1* -- Statement of Eligibility of Trustee on Form T-1 (bound separately).
99.1 -- Form of Letter of Transmittal for 10 1/4% Senior Subordinated Notes Due
2006.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Acknowledgement of Ernst & Young LLP
</TABLE>
- ---------------
* Previously filed.
++ To be filed by Amendment.
<PAGE> 1
EXHIBIT 10.24
CONFIDENTIAL TREATMENT
REQUESTED BY REGISTRANTS
EXCEPT TO THE EXTENT THAT THE UNITED STATES ARBITRATION ACT
APPLIES, THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO
CHAPTER 48 OF TITLE 15 OF THE CODE OF THE LAWS OF SOUTH CAROLINA
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT ("Agreement") is made and entered into this
31st day of March, 1996, by and between AVONDALE MILLS, INC., an Alabama
corporation ("Mills"), and C.H. PATRICK & CO., INC., a South Carolina
corporation ("Seller").
W I T N E S S E T H:
WHEREAS, Mills, Avondale Incorporated, of which Mills is a wholly owned
subsidiary ("Avondale"), Triarc Companies, Inc. and Graniteville Company
("Graniteville") intend to enter into an Asset Purchase Agreement (the
"Purchase Agreement"), pursuant to which Graniteville will agree to sell to
Mills substantially all of Graniteville's textile assets and business;
WHEREAS, the execution of this Agreement is a condition to the
consummation of the transactions contemplated by the Purchase Agreement (the
"Closing"); and
WHEREAS, the parties have executed this Agreement as of the date
hereof, but recognize that this Agreement shall not be effective until the
Closing;
WHEREAS, Mills wishes to grant to Seller the opportunity to sell to
Mills and its Affiliates (as defined below) (collectively, "Buyer") the textile
dyes and chemicals purchased by Buyer during the term of this Agreement, all in
accordance with the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
"Affiliate(s)" shall mean, with respect to any entity, any
corporations, partnerships or other entities that, directly or indirectly, are
controlled by, control or are under common control with such entity, provided
that with respect to Mills, the term "Affiliate" shall not include any
corporation, partnership or other entity other than Avondale that (i) directly
or indirectly
<PAGE> 2
controls Mills and (ii) is not directly or indirectly controlled by Avondale or
G. Stephen Felker, members of his immediate family, his or their heirs or
representatives or any trusts established for their benefit (collectively,
"Felker"). The word "control", with respect to a person, shall mean the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of such person, whether through the owning of
voting securities, contract or otherwise.
"Business Day" shall mean any day other than a Saturday, Sunday or day
on which banks are authorized to be closed under the laws of the State of South
Carolina.
***Confidential Treatment Requested.
"Prime Rate", as of any date of determination, shall mean the "Prime
Rate" as published in the "Money Rates" table of The Wall Street Journal on the
Business Day immediately preceding such date.
***Confidential Treatment Requested.
- 2 -
<PAGE> 3
"Purchase Order" shall mean, at any time, the form of purchase order than
generally utilized by Buyer for purchases of Products, as such form is provided
to Seller from time to time. The initial form of Purchase Order is attached
hereto as Exhibit B.
"Qualified Supplier" shall mean, with respect to any particular Product
that is included in a Bid Package, any company or other entity other than Buyer
that (i) provides, or is able to provide, such Product in accordance with the
Specifications therefor, (ii) has appropriate production and/or delivery
capacity (as applicable) and resources to provide the amount of such Product to
Buyer in accordance with the requirements of the Bid Package and (iii) has
previously supplied such Product to Buyer or Graniteville or has provided a
sample of such Product to Buyer that has completed all plant trials to Buyer's
reasonable satisfaction prior to the Deadline Date (as defined below) set forth
in the Bid Package.
"Specifications" shall mean the written specifications and standards for
Products as established from time to time by Buyer and made available to its
potential suppliers.
ARTICLE 2
PURCHASE AND SALE OF PRODUCTS
*** Confidential Treatment Requested.
- 3 -
<PAGE> 4
***Confidential Treatment Requested.
- 4 -
<PAGE> 5
2.2 Purchase Order. Not later than five (5) Business Days after Seller
makes a Low Bid or a Last Bid, Buyer shall submit a Purchase Order to Seller
for the required portion of the Product(s) that were the subject of such Low
Bid or Last Bid. The Purchase Order shall be subject to any modifications set
forth in the Bid Package, the Low Bid and/or the Lowest Price Notice. All
purchases and sales of Products between Buyer and Seller shall be subject to
the terms and conditions of this Agreement, such Purchase Orders and applicable
law.
***Confidential Treatment Requested.
2.5 Current Purchases. Effective upon the Closing, all then-existing
purchase orders and other agreements (if any) between Seller and Graniteville
that are assumed by Mills pursuant to the Purchase Agreement will be terminated
without any further action by the parties. Notwithstanding the foregoing,
until such time as Buyer has completed the initial bid process set forth in
Section 2.1 with respect to a Product that has been supplied by Seller to
Graniteville during the past six months, Buyer will continue to purchase the
requirements of the former Graniteville operations for such Product from Seller
on the same terms and conditions on which such Product was most recently
supplied to Graniteville by Seller.
***Confidential Treatment Requested.
- 5 -
<PAGE> 6
*** Confidential Treatment Requested.
2.7 Periodic Reporting. On or prior to January 31 and July 31 of each year
during the term of this Agreement, Mills shall prepare and submit to Seller a
statement setting forth (i) the quantity of each Product delivered to Buyer by
Seller during the approximately six-month period ending on the last day of
Buyer's fiscal accounting period ending closest to the immediately preceding
December 31 or June 30 (as the case may be) and (ii) the quantity of each
Product delivered to Buyer by all suppliers (including Seller) during such
approximately six-month period; provided that the first such report shall be
delivered to Seller on or prior to January 31, 1997, with respect to the fiscal
accounting period ending closest to December 31, 1996. The quantities on such
statement shall be expressed in dollars and pounds/gallons with respect to those
Products which Seller has supplied to Buyer during the applicable period and in
pounds/gallons only for all other Products delivered to Buyer during such
period. Such statement shall be certified as accurate and correct by the chief
financial officer of Mills and shall be accompanied by a certificate signed by
the chief financial officer of Mills that to his knowledge and belief (except as
expressly described in such certificate) all purchases of Products during such
six-month period from Seller and any other supplier have complied in all
material respects with Section 2.3 hereof. The exceptions identified on such
statement will not operate as a waiver by Seller of any of its rights under this
Agreement.
2.8 Qualified Supplier. Buyer agrees that, as of the date hereof, Seller
is a Qualified Supplier of each of the Products listed on Exhibit C.
*** Confidential Treatment Requested.
2.10 Existing Commitments. Buyer represents to Seller that Exhibit D sets
forth a complete and correct list of all existing commitments by Buyer of longer
than one month's
- 6 -
<PAGE> 7
duration for the purchase of Products, and, at the Closing, Buyer shall deliver
a revision of Exhibit D to Seller that is true and correct as of the date of
Closing and not in violation of Section 5.15 of the Purchase Agreement.
2.11 Change in Specifications. If Buyer intends to change the
Specifications of any Product as to which Seller is a Qualified Supplier, Buyer
will use its good faith reasonable efforts to give Seller notice of such change
sufficiently in advance of Buyer's next purchase of such Product so as to
permit Seller a reasonable opportunity to complete any sampling and plant trial
procedures prior to the commencement of the bid process for such purchase;
provided that Buyer will not be required to delay any bid process if such delay
would have more than an insignificant adverse effect on Buyer's business.
ARTICLE 3
TERM AND TERMINATION; REMEDIES
3.1 Term. The term of this Agreement shall commence on the date of
the Closing and continue until the tenth anniversary of the Closing, unless
earlier terminated pursuant to Section 3.2 below.
3.2 Termination.
(a) This Agreement shall terminate on June 1, 1996, if the Closing has
not occurred prior to such date, or, if earlier, upon the termination of the
Purchase Agreement.
(b) Mills shall have the right to terminate this Agreement in the
event of a pattern (a "Pattern") of repeated, material failures by Seller to
satisfy its obligations with respect to delivery schedules, Product
Specifications or any other material terms of any of the agreements between
Buyer and Seller with respect to the supply of Products (each such material
failure being referred to herein as a "Material Breach"). Any termination of
this Agreement by Mills pursuant to this Section 3.2(a) must comply with the
following procedures:
(i) Buyer must have given written notice (the ""Initial
Notice") to Seller specifying in reasonable detail one or more Material
Breaches.
(ii) Within one year following the giving of the Initial
Notice, another Material Breach must have occurred and, promptly
thereafter, Buyer must have provided Seller with notice (the "Second
Notice") specifying in reasonable detail such Material Breach and
stating Buyer's determination that a Pattern has occurred.
(iii) If Seller does not give Buyer notice of its objection to
such determination within fifteen (15) days following the Second Notice
and another
- 7 -
<PAGE> 8
Material Breach occurs within two (2) years following the Second
Notice, Buyer will have the right to terminate this Agreement and
all then-existing purchase orders and other agreements between Buyer
and Seller relating to the Products without any further liability
(other than for payment of outstanding invoices).
(iv) If Seller gives such notice of its objection
within such 15-day period, the issue as to whether a Pattern has
occurred will be submitted to arbitration pursuant to Section 5.12. If
the arbitrators determine that a Pattern has occurred, Buyer will have
the right to terminate this Agreement and all then-existing purchase
orders and other agreements between Buyer and Seller relating to the
Products without any further liability (other than for payment of
outstanding invoices) if another Material Breach occurs at any time
during the two-year period following the Second Notice.
(c) Termination under this Section 3.2 will not be deemed a waiver of
any right or remedy either party may have for breach hereunder.
3.3 Specific Performance. In the event of a breach of this Agreement,
the aggrieved party shall be entitled to seek specific performance or other
equitable relief in addition to any other remedies that may be available to
such party.
3.4 Damages. Notwithstanding any remedy otherwise available to
Seller, if Mills willfully and in bad faith materially breaches its obligations
under or willfully and in bad faith terminates this Agreement at a time when
Mills is not controlled, directly or indirectly, by Felker, Mills shall pay to
Seller an amount equal to treble damages with respect to any damages suffered
or incurred by Seller as a result of any such breach.
ARTICLE 4
CONFIDENTIALITY
4.1 Confidential Information. In the performance of their respective
obligations under this Agreement, Buyer and Seller may disclose to each other
certain confidential and proprietary information relating to their respective
businesses ("Confidential Information"). All information exchanged by the
parties under this Agreement shall be considered Confidential Information
unless it is subject to any of the exceptions in Section 4.3.
4.2 Non-Disclosure. Each recipient of Confidential Information agrees
that it shall:
(a) make no use of any Confidential Information belonging to the
other except as necessary for the performance of its obligations
under this Agreement;
- 8 -
<PAGE> 9
(b) not disclose to third parties any of the Confidential Information
belonging to the other without the prior written consent of the other
party; and
(c) take such precautions as it normally takes with its own confidential
and proprietary information to prevent disclosure of Confidential
Information to third parties.
4.3 Exceptions. Notwithstanding any of the foregoing, the obligations
under Section 4.2 shall not apply to:
(a) any information which at the time of disclosure is publicly available
or public knowledge;
(b) any information which, after disclosure, lawfully becomes public
knowledge through publication or otherwise, but through no fault of
the party hereto who received such information;
(c) any information which the receiving party possesses at the time of
disclosure of the Confidential Information and which was not acquired,
directly or indirectly, from the other party; and
(d) any information acquired from a third party who has a right to
disclose such information.
ARTICLE 5
MISCELLANEOUS
5.1 Force Majeure. Neither Buyer nor Seller shall be responsible or liable
to the other for failure or delay in performance of this Agreement due to war,
fire, accident or other casualty, or any labor disturbance or act of God or the
public enemy, or any other contingency beyond such party's reasonable control
("Force Majeure Event"). In addition, in the event of the applicability of this
Section 5.1, the party affected by such Force Majeure Event shall use all
commercially reasonable efforts to eliminate, cure and overcome any of such
causes and resume performance of its obligations.
5.2 Governing Law. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of South Carolina.
5.3 Severability. Should any part of this Agreement or any of the
provisions hereof for any reason be declared to be invalid, such decision or
determination shall not in any way affect the validity of the remaining portions
of this Agreement, all of which shall remain in
- 9 -
<PAGE> 10
full force and effect as if the portion declared to be invalid had not been
contained herein at the time of the execution of this Agreement.
5.4 Headings; Number. The subject headings of this Agreement are
included for purposes of convenience only, and shall not affect the
construction or interpretation of any of its provisions. Whenever the context
so requires, the singular shall include the plural and the plural shall include
the singular.
5.5 Survival of Terms. Article 4 shall survive the expiration or
termination of this Agreement.
5.6 No Right of Offset. Neither Buyer nor Seller nor any of Seller's
respective Affiliates shall be entitled to offset any rights under the Purchase
Agreement against any obligations under this Agreement.
5.7 Assignment. This Agreement shall be binding on, and shall inure
to the benefit of, Mills and Seller and their respective successors and
permitted assigns. Except as provided in this Section 5.7 or by operation of
law, neither Mills nor Seller shall be permitted to assign their respective
rights or obligations under this Agreement without the express written consent
of the other party. A change in control of a party hereto shall not be deemed
an assignment and shall not in any way affect the parties' obligations
hereunder. Notwithstanding the foregoing, Seller shall be permitted (i) to
assign all of its rights and obligations under this Agreement to any acquiror
(by purchase, merger or otherwise) of all or substantially all of Seller's
assets so long as such entity delivers to Mills a written assumption agreement
signed by such entity in form reasonably satisfactory to Mills (provided that
any such assignment shall not relieve Seller of its obligations under Section
4) and (ii) to pledge its rights (but not its obligations) to a bank, bank
holding company or financial institution in connection with any financing
obtained by Seller. In the case of a sale by Mills of all or substantially all
of its assets, Mills will be (i) permitted and required to assign its rights
and obligations hereunder to the purchaser of such assets and (ii) required to
cause such purchaser to execute and deliver to Seller a written assumption
agreement in form reasonably satisfactory to Seller.
5.8 Entire Agreement. This Agreement constitutes the entire agreement
between Mills and Seller regarding the subject matter hereof, and supersedes
all prior agreements, negotiations or understandings between them concerning
the subject matter hereof.
5.9 Amendments. This Agreement may not be amended, supplemented or
modified except in a writing signed by the parties hereto.
5.10 Waiver. No waiver of any default hereunder by either party or
any failure to enforce any rights hereunder shall be deemed to constitute a
waiver of any subsequent default with respect to the same or any other
provision hereof.
- 10 -
<PAGE> 11
5.11 Notices. Any notices required or permitted to be given hereunder
shall be made in writing and shall be given to the party to receive such notice
by (i) hand delivery, (ii) first-class registered or certified mail, postage
prepaid, return receipt requested, (iii) overnight courier services, postage
prepaid or (iv) telecopy with evidence of confirmation of transmission, in each
case at the address of telecopy number set forth below:
To Seller: C.H. Patrick & Co., Inc.
200 Tanner Drive
Greenville, South Carolina 29687
Attention: Thomas J. Reardon
Telefax No. (864) 244-3090
If provided other Triarc Companies, Inc.
than under Section 2.1 900 Third Avenue
with a copy to: 31st Floor
New York, New York 10022
Attention: Brian L. Schorr
Telefax No. (212) 230-3216
To Buyer Avondale Mills, Inc.
under 900 Avondale Avenue
Section 2.1: Sylacauga, Alabama 35150
Attention: Director of Purchasing
Telefax No. (205) 249-1317
To Mills or Buyer Avondale Incorporated
under all 506 South Broad Street
other Sections: Monroe, Georgia 35150
Attention: G. Stephen Felker
Telefax No. (770) 267-2543
If provided other King & Spalding
than under Section 2.1 191 Peachtree Street
with a copy to: Atlanta, Georgia 30303-1763
Attention: Michael J. Egan III
Telefax No. (404) 572-5145
All notices shall be deemed to have been given five (5) days after the date of
mailing thereof or on receipt, whichever is earlier. Either party may change
the information specified herein for the receipt of notices by giving written
notice to the other party.
- 11 -
<PAGE> 12
5.12 Arbitration.
(a) Any controversy, claim or question of interpretation arising out of or
relating to this Agreement or the breach thereof shall be finally settled by
arbitration in the City of Charlotte, North Carolina under the then-effective
Commercial Arbitration Rules of the American Arbitration Association as modified
by this Agreement, and judgment on the award rendered by the arbitrators may be
entered in any court having jurisdiction. The award rendered by the arbitrators
shall be final and binding on the parties and not subject to further appeal.
Such arbitration can be initiated by written notice by either party to the other
party, which notice shall identify the claimant's selected arbitrator. The party
receiving such notice shall identify its arbitrator within five (5) Business
Days following its receipt of such notice. The arbitrator selected by the
claimant and the arbitrator selected by the respondent shall, within five (5)
Business Days of their appointment, select a third neutral arbitrator. In the
event that they are unable to do so, either party may request the American
Arbitration Association to appoint the third neutral arbitrator. The
Arbitrators shall have the authority to award any remedy or relief that a court
in South Carolina could order or grant, including, without limitation, specific
performance of any obligation created under this agreement, the awarding of
punitive damages, the issuance of injunctive or other provisional relief, or the
imposition of sanctions for abuse or frustration of the arbitration process. The
arbitration awards will be in writing and specify the factual and legal basis
for the award.
(b) It is the intent of the parties that any arbitration shall be concluded
as quickly as practicable (but, barring extraordinary circumstances, in any
event not more than twenty (20) days after the date the third arbitrator is
selected). Unless the parties otherwise agree, once commenced, the hearing on
the disputed matters shall be held four days a week until concluded with each
hearing date to begin at 9:00 a.m. and to conclude at 5:00 p.m. The arbitrators
shall use their best efforts to issue the final award or awards within a period
of five (5) Business Days after closure of the proceedings. Failure of the
arbitrators to meet the time limits of this Section 5.12(b) shall not be a basis
for challenging the award.
(c) The arbitrators shall instruct the non-prevailing party to pay all
costs of the proceedings, including the fees and expenses of the arbitrators and
the reasonable attorneys' fees and expenses of the prevailing party. If the
arbitrators determine that there is not a prevailing party, each party shall be
instructed to bear its own costs and to pay one-half of the fees and expenses of
the arbitrators.
- 12 -
<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first above written.
AVONDALE MILLS, INC.
By: /s/ Jack R. Altherr, Jr.
-----------------------------
Name: Jack R. Altherr, Jr.
Title: Vice President & CFO
C.H. PATRICK & CO., INC.
By: /s/ John L. Barnes, Jr.
-----------------------------
Name: John L. Barnes, Jr.
Title: Vice President
- 13 -
<PAGE> 14
EXHIBIT A
Products Utilized by Buyer
*** Confidential Treatment Requested.
i
<PAGE> 15
*** Confidential Treatment Requested.
ii
<PAGE> 16
*** Confidential Treatment Requested.
iii
<PAGE> 17
*** Confidential Treatment Requested.
iv
<PAGE> 18
*** Confidential Treatment Requested.
v
<PAGE> 19
*** Confidential Treatment Requested.
vi
<PAGE> 20
EXHIBIT B
<TABLE>
<S> <C> <C> <C> <C>
___________________________________________________________________________________________________________________________
Terms FOS DELIVERY REQUIRED SHIP VIA (See notation immediately below)
___________________________________________________________________________________________________________________________
APPLICABLE TAX RATE Notify Avondale Dispatcher when ready for
pick-up @ (800) 331-0788
/8 A.M.-5 P.M. central time
____________________________________________________________________________________________________________________________
SPECIAL INSTRUCTIONS
V # Above P O Number and Ship to location must appear on Invoices, Packing
E Slips, Packages and Bills of Lading.
N # Avondale ID No. should be shown on all documents.
D # Failure to ship this order by the date required may result in
O cancellation of this order. Please advise immediately of any
R change in delivery or price by return copy of this order. Do not
delay processing or shipment.
# All items may be shipped sooner than requested unless otherwise
______________________________________________ noted on this order.
# Avondale reserves the right to change or cancel this order at any time.
S # All invoices including labor must be broken down to show materials,
H labor and taxes.
I
P
AVONDALE MILLS, INC.
T # Mail all invoices to: ATTENTION: ACCOUNTS PAYABLE.
O SYLACAUGA AL 35150-1899
______________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
LINE UNIT OF UNIT PRICE MANUFACTURER'S PART NO. TOTAL PRICE REQ. NO.
______________________________________________________________________________
ITEM QUANTITY MEASURE AS ORDERED AVONDALE ID NO. DESCRIPTION (AS ORDERED)
______________________________________________________________________________________________________________________________
VOID
______________________________________________________________________________________________________________________________
The terms and conditions set forth
on the reverse side hereof constitutes AVONDALE
a part of this Purchase Order. MILLS INC.
Page ______________________________________________
VENDOR
</TABLE>
<PAGE> 21
C.H. PATRICK PRODUCTS SOLD TO GRANITEVILLE
*** Confidential Treatment Requested.
<PAGE> 22
***Confidential Treatment Requested.
C.H. PATRICK PRODUCTS SOLD TO AVONDALE MILLS
*** Confidential Treatment Requested.
<PAGE> 23
EXHIBIT D
CHEMICAL COMMITTMENTS
Item Plant Effective Date Term
- -------------------------------------------------------------------------------
*** Confidential Treatment Requested.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated September 22, 1995, in the Registration Statement
(Form S-4, File No. 333-5455 and 333-5455-01) and related Prospectus of Avondale
Incorporated and Avondale Mills, Inc. for the registration of $125,000,000
principal amount of senior subordinated notes and the guarantee of such notes.
Our audits also included the financial statement schedule of Avondale
Incorporated listed in Item 21(b). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Birmingham, Alabama
September 12, 1996
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use of Amendment No. 1 to Registration Statement No.
333-5455/333-5455-01 of Avondale Mills, Inc. and Avondale Incorporated on Form
S-4 of our report dated March 22, 1996 on the financial statements of the
Textile Business of Graniteville Company, appearing in the Prospectus, which is
part of this Registration Statement, and to the reference to us under the
heading "Experts" in such prospectus.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
September 13, 1996
<PAGE> 1
EXHIBIT 99.1
AVONDALE MILLS, INC.
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
FOR
10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON OCTOBER , 1996 UNLESS EXTENDED (THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed, and submitted to the Exchange Agent:
<TABLE>
<S> <C>
By Overnight Carrier or by Hand: By Registered or Certified Mail:
The Bank of New York The Bank of New York
Corporate Trust Services Window, 101 Barclay Street -- 7E
Ground Level New York, New York 10286
101 Barclay Street -- 7E Attn: Ms. Jodi Smith
New York, New York 10286
</TABLE>
By Facsimile (for Eligible Institutions only):
(212) 815-6339
Attn: Ms. Jodi Smith
Confirmation by telephone at (212) 815-2791
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT (212)
815-2791 (ATTN: MS. JODI SMITH), OR BY FACSIMILE AT (212) 815-6339.
<PAGE> 2
The undersigned hereby acknowledges receipt of the Prospectus dated
September , 1996 (the "Prospectus") of Avondale Mills, Inc., an Alabama
corporation (the "Company"), and this Letter of Transmittal (the "Letter of
Transmittal"), which together constitute the Company's offer (the "Exchange
Offer") to exchange $1,000 in principal amount of its 10 1/4% Senior
Subordinated Notes due 2006 (the "New Notes") that have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), for each $1,000
in principal amount of its outstanding 10 1/4% Senior Subordinated Notes due
2006 (the "Old Notes"), of which $125,000,000 aggregate principal amount is
outstanding. Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from April 29, 1996. Accordingly, registered holders of New Notes on
the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from April 29, 1996. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
of Old Notes whose Old Notes are accepted for exchange will not receive any
payment in respect of interest on such Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after consummation
of the Exchange Offer.
This letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company ("DTC")
pursuant to the procedures set forth in "The Exchange Offer -- Book-Entry
Transfer" section of this Prospectus. Holders of Old Notes whose certificates
are not immediately available, or who are unable to deliver their certificates
or conformation of the book-entry tender of their Old Notes into the Exchange
Agent's account at DTC (a "Book-Entry Confirmation") Expiration Date, must
tender their Old Notes according to the guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus. See Instruction 2. Delivery of documents to DTC does not constitute
delivery to the Exchange Agent.
The undersigned hereby tenders the Old Notes described in Box 1 below
pursuant to the terms and conditions described in the Prospectus and this Letter
of Transmittal. The undersigned is the registered owner of all the tendered Old
Notes and the undersigned represents that it has received from each beneficial
owner of the tendered Old Notes (collectively, the "Beneficial Owners") a duly
completed and executed form of "Instruction to Registered Hold and/or Book-Entry
Transfer Facility Participant from Beneficial Owner" accompanying this Letter of
Transmittal, instructing the undersigned to take the action described in this
Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the tendered
Old Notes, the undersigned hereby exchanges, assigns and transfers to, or upon
the order of, the Company, all right, title, and interest in, to, and under such
Old Notes.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney-in-fact of the undersigned with
respect to the tendered Old Notes, with full power of substitution (such power
of attorney being deemed to be an irrevocable power coupled with an interest),
to (i) deliver the tendered Old Notes to the Company or cause ownership of the
tendered Old Notes to be transferred to, or upon the order of, the Company, on
the books of the registrar for the Old Notes and deliver all accompanying
evidences of transfer and authenticity to, or upon the order of, the Company
upon receipt by the Exchange Agent, as the undersigned's agent, of the New Notes
to which the undersigned is entitled upon acceptance by the Company of the
tendered Old Notes pursuant to the Exchange Offer, and (i) receive all benefits
and otherwise exercise all rights of beneficial ownership of the tendered Old
Notes, all in accordance with the terms of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions" below (Box
2), please issue the New Notes exchanged for tendered Old Notes in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions" below (Box 3), please send or cause to be sent the
certificates for the New Notes (and accompanying documents, as appropriate) to
the undersigned at the address shown below in Box 1.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer" in the Prospectus
and in the instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer, subject only to withdrawal of such tenders on the terms set
forth in the Prospectus under the caption "The Exchange Offer-Withdrawal of
Tenders of Old Notes." All authority herein conferred or agreed to be conferred
shall survive the death, bankruptcy or incapacity of the undersigned and any
Beneficial Owner(s), and every obligation of the undersigned or any Beneficial
Owners hereunder shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned and such Beneficial Owner(s).
<PAGE> 3
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Old Notes
being tendered and to acquire the New Notes issuable upon the exchange of such
tendered Old Notes, and that, when the same are accepted for exchange as
contemplated herein, the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges, encumbrances and
adverse claims. The undersigned and each Beneficial Owner will, upon request,
execute and deliver any additional documents reasonably requested by the Company
or the Exchange Agent as necessary or desirable to complete and give effect to
the transactions contemplated hereby.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the New Notes to be acquired by the undersigned and any
Beneficial Owner(s) pursuant to the Exchange Offer are being acquired by the
undersigned and any Beneficial Owner(s) in the ordinary course of business of
the undersigned and any Beneficial Owner(s), (i) neither the undersigned nor any
Beneficial Owner is participating in, intends to participate in or has an
arrangement or understanding with any person to participate in the distribution
of the New Notes, (i) except as otherwise disclosed in writing herewith, neither
the undersigned nor any Beneficial Owner is an "affiliate," as defined in Rule
405 under the Securities Act, of the Company or Avondale Incorporated and, if
the undersigned or any Beneficial Owner is such an affiliate, that it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable, (i) if neither the undersigned nor any
Beneficial Owner is a broker-dealer, that neither the undersigned nor any such
Beneficial Owner is engaged in or intends to engage in the distribution of any
New Notes, or (i) if any of the undersigned or any Beneficial Owner(s) is a
broker-dealer, that it will receive New Notes for its own account in exchange
for tendered Old Notes that were acquired as a result of market-making
activities or other trading activities and that it will deliver a prospectus in
connection with any resale of such New Notes. The undersigned, by agreeing to so
deliver any such prospectus, shall not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED HEREWITH.
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE
BOX 4 BELOW.
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE
TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE BOX 5
BELOW.
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
------------------------------------------------------------------------
Address:
---------------------------------------------------------------------
---------------------------------------------------------------------
<PAGE> 4
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE
COMPLETING THE BOXES
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
BOX 1
DESCRIPTION OF OLD NOTES TENDERED
(ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
- -----------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED
HOLDER(S),
EXACTLY AS NAME(S) APPEAR(S) ON NOTE AGGREGATE PRINCIPAL
CERTIFICATE(S) CERTIFICATE NUMBER(S) AMOUNT REPRESENTED BY AGGREGATE PRINCIPAL
(PLEASE FILL IN, IF BLANK) OF OLD NOTES* CERTIFICATE(S) AMOUNT TENDERED**
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
TOTAL
- -----------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry transfer.
** The minimum permitted tender is $1,000 in principal amount of Old Notes. All other tenders must be in
integral multiples of $1,000 of principal amount. Unless otherwise indicated in this column, the
aggregate principal amount of the Old Notes represented by the certificates identified in this Box 1 or
delivered to the Exchange Agent herewith shall be deemed tendered. See Instruction 4.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 5
BOX 2
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF CERTIFICATES FOR OLD NOTES NOT EXCHANGED AND/OR NEW
NOTES ARE TO BE ISSUED IN THE NAME OF AND SENT TO SOMEONE OTHER THAN THE
UNDERSIGNED OR IF OLD NOTES DELIVERED BY BOOK-ENTRY TRANSFER WHICH ARE NOT
ACCEPTED FOR EXCHANGE ARE TO BE RETURNED BY CREDIT TO AN ACCOUNT MAINTAINED AT
DTC OTHER THAN THE ACCOUNT SET FORTH IN BOX 5.
Issue New Note(s) and/or Old Notes to:
Name(s):
------------------------------------------------------------------------
(please type or print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(include zip code)
Tax Identification
or Social Security No.:
---------------------------------------------------------
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to the DTC
account set forth below:
------------------------------------------------------------------------
(DTC account number)
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF CERTIFICATES FOR OLD NOTES NOT EXCHANGED AND/OR NEW
NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE
UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail New Note(s) and any untendered Old Notes to:
Name(s):
------------------------------------------------------------------------
(please type or print)
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(include zip code)
BOX 4
USE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 2)
TO BE COMPLETED ONLY IF OLD NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered
Holder(s):
----------------------------------------------------------------------
- --------------------------------------------------------------------------------
Date of Execution of Notice of
Guaranteed Delivery:
------------------------------------------------------------
Name of Institution which
Guaranteed Delivery:
------------------------------------------------------------
BOX 5
USE OF BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF OLD NOTES IS TO BE MADE BY BOOK-ENTRY
TRANSFER.
Name of Tendering
Institution:
--------------------------------------------------------------------
Account Number:
-----------------------------------------------------------------
Transaction Code Number:
--------------------------------------------------------
<PAGE> 6
BOX 6
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
X
------------------------------------------------------------------------------
X
-------------------------------------------------------------------------------
(Signature of Registered Holder(s)
or Authorized Signatory)
Note: The above lines must be signed by the registered holder(s) of Old Notes
as their name(s) appear(s) on the Old Notes or by person(s) authorized to
become registered holder(s) (evidence of which authorization must be
transmitted with this Letter of Transmittal). If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer, or other person
acting in a fiduciary or representative capacity, such person must set forth
his or her full title below. See Instruction 5.
Name(s):
------------------------------------------------------------------------
------------------------------------------------------------------------
Capacity:
-----------------------------------------------------------------------
Street Address:
-----------------------------------------------------------------
------------------------------------------------------------------------
(include zip code)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
Tax Identification or Social Security Number:
- --------------------------------------------------------------------------------
Signature Guarantee
(If required by Instruction 5)
Authorized Signature
X
------------------------------------------------------------------------------
Name:
---------------------------------------------------------------------------
(please print or type)
Title:
--------------------------------------------------------------------------
Name of Firm:
-------------------------------------------------------------------
(Must be an Eligible Institution as defined in Instruction 2)
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(include zip code)
Area Code and Telephone Number:
- --------------------------------------------------------------------------------
Dated:
--------------------------------------------------------------------------
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: AVONDALE MILLS, INC.
- -------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE Name (if joint names, list first and circle the Part 1--Please provide your taxpayer
name of the person or entity whose number you identification number ("TIN") and certify
FORM W-9 enter in Part 1 below. See Instructions if your by signing and dating below:
name has changed.)
TIN:
------------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY Address Part 2--
INTERNAL REVENUE SERVICE TIN applied for: / /
------------------------------------------------
City, State and ZIP Code
------------------------------------------------
List account number(s) here (optional)
------------------------------------------------------------------------------------------
Part 3--Check the box if you are NOT subject to backup withholding under the provisions of
section 3406(a)(1)(C) of the Internal Revenue Code because (i) you have not been notified
that you are subject to backup withholding as a result of failure to report all interest or
dividends or (ii) the Internal Revenue Service has notified you that you are no longer
subject to backup withholding. / /
------------------------------------------------------------------------------------------
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON
THIS FORM IS TRUE, CORRECT AND COMPLETE.
SIGNATURE DATE
----------------------------------------------- -------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE> 8
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. A properly
completed and duly executed copy of this Letter of Transmittal, including
Substitute Form W-9, and any other documents required by this Letter of
Transmittal must be received by the Exchange Agent at its address set forth
herein, and either certificates for tendered Old Notes must be received by the
Exchange Agent at its address set forth herein or such tendered Old Notes must
be transferred pursuant to the procedures for book-entry transfer described in
the Prospectus under the caption "The Exchange Offer -- Procedures for Tendering
Old Notes" (and a confirmation of such transfer received by the Exchange Agent),
in each case prior to 5:00 p.m., New York City time, on the Expiration Date. The
method of delivery of certificates for tendered Old Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the tendering holder and the delivery will be deemed made
only when actually received by the Exchange Agent. If delivery is by mail,
registered mail with return receipt requested, properly insured, is recommended.
Instead of delivery by mail, it is recommended that the holder use an overnight
or hand delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. No Letter of Transmittal or Old Notes should be sent to
the Company. Neither the Company nor the registrar is under any obligation to
notify any tendering holder of the Company's acceptance of tendered Old Notes
prior to the closing of the Exchange Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Old
Notes but whose Old Notes are not immediately available or who cannot deliver
their Old Notes, this Letter of Transmittal or any other documents required
hereby to the Exchange Agent prior to the Expiration Date must tender their Old
Notes according to the guaranteed delivery procedures set forth below, including
completion of Box 4. Pursuant to such procedures: (1) such tender must be made
through a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" as defined by Rule 17Ad-15 under the Exchange Act (in any
such case, an "Eligible Institution"), (2) prior to the Expiration Date, the
Exchange Agent must have received from an Eligible Institution a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and
Notice of Guaranteed Delivery (by telegram, telex, facsimile, transmission, mail
or hand delivery) setting forth the name and address of the tendering holder,
the certificate number(s) of the tendered Old Notes and the principal amount of
the Old Notes tendered, and stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after the
date of execution of the Notice of Guaranteed Delivery, this Letter of
Transmittal together with the certificate(s) representing the tendered Old Notes
and any other required documents will be deposited by the Eligible Institution
with the Exchange Act; and (3) the certificate(s) representing all tendered Old
Notes in proper form for transfer, or a confirmation of book-entry transfer of
such tendered Old Notes into the Exchange Agent's account at DTC, as the case
may be, and all other documents required by this Letter of Transmittal, must be
received by the Exchange Agent within three New York Stock Exchange trading days
after the date of execution of the Notice of Guaranteed Delivery. Any holder who
wishes to tender Old Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery within the time period prescribed above. Failure to complete
the guaranteed delivery procedures outlined above will not, of itself, affect
the validity or effect a revocation of any Letter of Transmittal form properly
completed and executed by a holder who attempted to use the guaranteed delivery
process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in
whose name tendered Old Notes are registered on the books of the registrar (or
the legal representative or attorney-in-fact of such registered holder) may
execute and deliver this Letter of Transmittal. Any Beneficial Owner of tendered
Old Notes who is not the registered holder must arrange promptly with the
registered holder to execute and deliver this Letter of Transmittal on his or
her behalf through the execution and delivery to the registered holder of the
Instructions of Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner form accompanying this Letter of Transmittal.
<PAGE> 9
4. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Old Notes held by the holder is tendered, the tendering holder should
fill in the principal amount tendered in the column labeled "Aggregate Principal
Amount Tendered" of Box 1 above. The entire principal amount of Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of all Old Notes held by the
holder is not tendered, then Old Notes for the principal amount of Old Notes not
tendered and New Notes issued in exchange for any Old Notes tendered and
accepted will be sent to the Holder at his or her registered address, unless a
different address is provided in the appropriate box on this Letter of
Transmittal, as soon as practicable following the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder(s) of the tendered Old Notes, the signature must correspond
with the name(s) as written on the face of the tendered Old Notes without any
change whatsoever.
If any of the tendered Old Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) of
tendered Old Notes, and New Notes issued in exchange therefor are to be issued
(and any untendered principal amount of Old Notes is to be reissued) in the name
of the registered holder(s), then such registered holder(s) need not and should
not endorse any tendered Old Notes, nor provide a separate bond power. In any
other case, such registered holder(s) must either properly endorse the tendered
Old Notes or transmit a properly completed separate bond power with this Letter
of Transmittal, with the signature(s) on the endorsement or bond power
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any tendered Old Notes, such tendered Old Notes must be
endorsed or accompanied by appropriate bond powers, in each case signed exactly
as the name(s) of the registered holder(s) appear(s) on the tendered Old Notes,
with the signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any tendered Old Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with this Letter of Transmittal.
Endorsements on tendered Old Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the tendered Old Notes are tendered (i) by a registered
holder who has not completed Box 2 set forth herein (entitled "Special Issuance
Instructions" ), (ii) by a registered holder who has not completed Box 3 forth
herein (entitled "Special Delivery Instructions") or (iii) by an Eligible
Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in the appropriate box (Box 2 or 3), the name and address to which the
New Notes and/or substitute certificates evidencing Old Notes for principal
amounts not tendered or not accepted for exchange are to be sent, if different
from the name and address of the person signing this Letter of Transmittal. In
the case of issuance in a different name, the taxpayer identification or social
security number of the person name must also be indicated. Holders of Old Notes
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at DTC as such Holder may
designate hereon. If no such instructions are given, such Old Notes not
exchanged will be returned to the name or address of the person signing this
Letter of Transmittal.
<PAGE> 10
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of tendered Old Notes pursuant to the Exchange Offer.
If, however, New Notes and/or substitute Old Notes not exchanged or to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Old Notes tendered hereby, or if tendered Old
Notes tendered hereby, or if tendered Old Notes are registered in the name of
any person other than the person signing this Letter of Transmittal, a transfer
tax is imposed for any reason other than the transfer and exchange of tendered
Old Notes pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the registered holder or on any other person) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with this Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
holder.
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the tendered Old Notes listed in this
Letter of Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the
holder(s) of any tendered Old Notes which are accepted for exchange must provide
the Company (as payor) with its correct taxpayer identification number ("TIN")
which, in the case of a holder who is an individual, is his or her social
security number. If the Company is not provided with the correct TIN, the holder
may be subject to backup withholding and a $50 penalty imposed by the Internal
Revenue Service. (If withholding results in an over-payment of taxes, a refund
may be obtained.) Certain holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for additional
instructions.
To prevent backup withholding, each holder of tendered Old Notes must
provide such holder's correct TIN by completing the Substitute Form W-9 set
forth herein, certifying that the TIN provided is correct (or that such holder
is awaiting a TIN) and that (i) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
failure to report all interest or dividends or (ii) the Internal Revenue Service
has notified the holder that such holder is no longer subject to backup
withholding. If the tendered Old Notes are registered in more than one name or
are not in the name of the actual owner, consult the "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
information on which TIN to report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of tendered
Old Notes will be determined by the Company, which determination will be final
and binding. The Company reserves the absolute right to reject any and all
tenders of Old Notes not in proper form or the acceptance of which for exchange
may, in the opinion of the Company's counsel, be unlawful. The Company also
reserves the absolute right to waive any conditions of the Exchange Offer or any
defect or irregularity in the tender of Old Notes. The interpretation of the
terms and conditions of the Exchange Offer (including this Letter of Transmittal
and the instructions hereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of defects or irregularities to holders of Old Notes
or incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such defects or irregularities
have been cured or waived. Any Old Notes received by the Exchange Agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived, or if Old Notes are submitted in principal amount greater
than the principal amount of Old Notes being tendered, such unaccepted or
non-exchanged Old Notes will be returned by the Exchange Agent to the tendering
holders, unless otherwise provided in this Letter of Transmittal, as soon as
practicable following the Expiration Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
any of the conditions in the Exchange Offer in the case of any tendered Old
Notes.
<PAGE> 11
11. NO CONDITIONAL TENDERS. No alternative, conditional, irregular, or
contingent tender of Old Notes or transmittal of this Letter of Transmittal will
be accepted.
12. MUTILATED, LOST, STOLE OR DESTROYED OLD NOTES. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated herein for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and requests for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address and
telephone number indicated herein. Holders may also contact their broker,
dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
14. ACCEPTANCE OF TENDERED OLD NOTES AND ISSUANCE OF OLD NOTES; RETURN OF
OLD NOTES. Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered Old Notes as soon as
practicable after the Expiration Date and will issue New Notes therefor as soon
as practicable thereafter. For purposes of the Exchange Offer, the Company shall
be deemed to have accepted tendered Old Notes when, as and if the Company has
given written or oral notice (immediately followed in writing) thereof to the
Exchange Agent. If any tendered Old Notes are not exchanged pursuant to the
Exchange Offer for any reason, such unexchanged Old Notes will be returned,
without expense, to the undersigned at the address shown in Box 1 or at a
different address as may be indicated herein under "Special Delivery
Instructions" (Box 3).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures
set forth in the Prospectus under the caption "The Exchange Offer Withdrawal of
Tenders of Old Notes."
<PAGE> 12
AVONDALE MILLS, INC.
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
DTC PARTICIPANT FROM BENEFICIAL OWNER
To Registered Holder and/or DTC Participant:
The undersigned hereby acknowledge receipt of the Prospectus, dated
September , 1996 (the "Prospectus) of Avondale Mills, Inc., an Alabama
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer") to exchange 10 1/4% Senior Subordinated Notes due 2006 (the
"New Notes") that have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), for its outstanding 10 1/4% Senior Subordinated
Notes due 2006 (the "Old Notes). Capitalized terms used but not defined herein
have the meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or DTC participant, as to
action to be taken by you relating to the Exchange Offer with respect to the Old
Notes held by you for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (FILL IN AMOUNT):
$ of the 10 1/4% Senior Subordinated Notes due 2006;
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
/ / TO TENDER the following aggregate principal amount of Old Notes held
by you for the account of the undersigned (INSERT PRINCIPAL AMOUNT OF
OLD NOTES TO BE TENDERED, IF ANY): $
/ / NOT TO TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instruct you to tender the Old Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to make
on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (FILL IN STATE)
, (ii) the undersigned is acquiring the New Notes in the ordinary
course of business of the undersigned, (iii) the undersigned has no arrangement
or understanding with any person to participate in the distribution of the New
Notes, (iv) except as otherwise disclosed in writing herewith, the undersigned
is not an "affiliate," as defined in Rule 405 under the Securities Act, of the
Company and, if the undersigned is such an affiliate, that it will comply with
the registration and prospectus delivery requirements of the Securities Act to
the extent applicable, (v) if the undersigned is not a broker-dealer, that the
undersigned is not engaged in and does not intend to engage in the distribution
of any New Notes, or (vi) if the undersigned is a broker-dealer, that it will
receive New Notes for its own account in exchange for tendered Old Notes that
were acquired as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such New Notes; (b) to agree, on behalf of the undersigned, as set forth in
the
<PAGE> 13
Letter of Transmittal; and (c) to take such other action as necessary under the
Prospectus or the Letter of Transmittal to effect the valid tender of such Old
Notes.
- --------------------------------------------------------------------------------
SIGN HERE
Name of beneficial owner(s):
-------------------------------------------------
Signature(s):
----------------------------------------------------------------
Name (please print):
---------------------------------------------------------
Address:
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Telephone number:
------------------------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------------
Date:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
OF
AVONDALE MILLS, INC.
PURSUANT TO THE PROSPECTUS DATED SEPTEMBER , 1996
This form must be used by a holder of 10 1/4% Senior Subordinated Notes due
2006 (the "Notes") of Avondale Mills, Inc., an Alabama corporation (the
"Company"), who wishes to tender Old Notes to the Exchange Agent pursuant to the
guaranteed delivery procedures described in "The Exchange Offer -- Guaranteed
Delivery Procedures" of the Company's Prospectus, dated September , 1996 (the
"Prospectus") and in Instruction 2 to the related Letter of Transmittal. Any
holder who wishes to tender Old Notes pursuant to such guaranteed delivery
procedures must ensure that the Exchange Agent receives this Notice of
Guaranteed Delivery prior to the Expiration Date of the Exchange Offer.
Capitalized terms used but not defined herein have the meanings ascribed to them
in the Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON OCTOBER , 1996 UNLESS EXTENDED (THE "EXPIRATION DATE").
The Bank of New York
(the "Exchange Agent")
<TABLE>
<S> <C>
By Overnight Carrier or by Hand: By Registered or Certified Mail:
The Bank of New York The Bank of New York
Corporate Trust Services Window 101 Barclay Street -- 7E
Ground Level New York, New York 10286
101 Barclay Street -- 7E Attn: Ms. Jodi Smith
New York, New York 10286
</TABLE>
By Facsimile (for Eligible Institutions only):
(212) 815-6339
Attn: Ms. Jodi Smith
Confirmation by telephone at (212) 815-2791
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and subject to the conditions set forth in the Prospectus
and the related Letter of Transmittal, the undersigned hereby tenders to the
Company, the principal amount of Old Notes set forth below pursuant to the
guaranteed delivery procedures set forth in the Prospectus and in Instruction 2
of the Letter of Transmittal.
The undersigned hereby tenders the Old Notes listed below:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL
AMOUNT REPRESENTED
CERTIFICATE NUMBER(S) (IF KNOWN) OF OLD BY OLD NOTES AGGREGATE PRINCIPAL
NOTES OR ACCOUNT NUMBER AT THE DTC CERTIFICATE(S) AMOUNT TENDERED
<S> <C> <C>
</TABLE>
<PAGE> 3
- --------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Signatures of Registered Holder(s) or
Authorized Signatory: Date: __________________ , 1996
Address:
Name(s) of Registered Holder(s): Area Code and Telephone No.
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the holder(s)
exactly as their name(s) appear on certificates for Old Notes or on a security
position listing as the owner of Old Notes, or by person(s) authorized to
become registered holder(s) by endorsements and documents transmitted with
this Notice of Guaranteed Delivery. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting in a
fiduciary or representative capacity, such person must provide the following
information.
Please print name(s) and address(es)
Name(s):
---------------------------------------------------------------------
Capacity:
--------------------------------------------------------------------
Address(es):
-----------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 4
- --------------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
- --------------------------------------------------------------------------------
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., or is a commercial bank or trust company having an office or
correspondent in the United States, or is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Securities and
Exchange Act of 1934, as amended, guarantees deposit with the Exchange Agent
of the Letter of Transmittal (or facsimile thereof), together with the Old
Notes tendered hereby in proper form for transfer (or confirmation of the
book-entry transfer of such Old Notes into the Exchange Agent's account at DTC
described in the prospectus under the caption "The Exchange Offer --
Guaranteed Delivery Procedures" and in the Letter of Transmittal) and any
other required documents, all by 5:00 p.m., New York City time, on the third
New York Stock Exchange trading day following the date of execution hereof.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Name of firm
---------------------------- ---------------------------------
(Authorized Signature)
Address Name
--------------------------------- -----------------------------
(Please Print)
----------------------------------------
(Include Zip Code) Title
----------------------------
Area Code and Tel. No. Dated , 1996
------------------ ----------------------
</TABLE>
- --------------------------------------------------------------------------------
DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. ACTUAL SURRENDER OF
CERTIFICATES FOR OLD NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN
EXECUTED LETTER OF TRANSMITTAL.
<PAGE> 5
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
AVONDALE MILLS, INC.
10 1/4% SENIOR SUBORDINATED NOTES DUE 2006
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledge receipt of the Prospectus, dated
September , 1996 (the "Prospectus) of Avondale Mills, Inc., an Alabama
corporation (the "Company"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Company's offer (the
"Exchange Offer"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 10 1/4% Senior Subordinated Notes due 2005 (the
"Notes") held by you for the account of the undersigned.
The aggregate face amount of the Old Notes held by you for the account of
the undersigned is (FILL IN AMOUNT):
$ of the 10 1/4% Senior Subordinated Notes due 2006;
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
/ / TO TENDER the following Old Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF OLD NOTES TO BE TENDERED, IF
ANY): $
/ / NOT TO TENDER any Old Notes held by you for the account of the
undersigned.
If the undersigned instruct you to tender the Old Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to make
on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representation and warranties contained in the Letter
of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations that (i) the
undersigned's principal residence is in the state of (FILL IN STATE)
, (ii) the undersigned is acquiring the New Notes in the ordinary
course of business of the undersigned, (iii) the undersigned is not
participating, does not intend to participate, and has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) the undersigned acknowledges that any person participating in the
Exchange Offer for the purpose of distributing the New Notes must comply with
the registration and prospectus delivery requirements of the Securities Act of
1933, as amended (the "Act"), in connection with a secondary resale transaction
of the New Notes, acquiring by such person and cannot rely on the position of
the Staff of the Securities and Exchange Commission set forth in no-action
letters that are discussed in the section of the Prospectus entitled "The
Exchange Offer -- Resales of the New Notes," and (v) the undersigned is not an
"affiliate," as defined in Rule 405 under the Act, of the Company or Avondale
Incorporated; (b) to agree, on behalf of the undersigned, as set forth in the
<PAGE> 6
Letter of Transmittal; and (c) to take such other action as necessary under the
Prospectus or the Letter of Transmittal to effect the valid tender of such Old
Notes.
- --------------------------------------------------------------------------------
SIGN HERE
Name of beneficial owner(s):
-------------------------------------------------
Signature(s):
----------------------------------------------------------------
Name (please print):
---------------------------------------------------------
Address:
---------------------------------------------------------------------
---------------------------------------------------------------------
---------------------------------------------------------------------
Telephone number:
-------------------------------------------------------------
Taxpayer Identification or Social Security Number:
---------------------------
Date:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 99.3
September 12, 1996
The Board of Directors and Shareholders
Avondale Incorporated
We are aware of the inclusion in the Registration Statement (Form S-4, File
No. 333-5455 and 333-5455-01) and related Prospectus of Avondale Incorporated
and Avondale Mills, Inc. for the registration of $125,000,000 principal amount
of senior subordinated notes and the guarantee of such notes of our report dated
August 27, 1996 relating to the unaudited condensed consolidated interim
financial statements of Avondale Incorporated as of and for the thirty-nine week
periods ended May 24, 1996 and May 26, 1995.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a
part of the registration statement prepared or certified by accountants within
the meaning of Section 7 or 11 of the Securities Act of 1993.
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Ernst & Young LLP
