<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 29, 1998
POLYMER GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-14330 57-1003983
(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION)
4838 JENKINS AVENUE, 29405
NORTH CHARLESTON, SC (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (803) 566-7293
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENT OF BUSINESSES ACQUIRED
The financial statements required by Item 7(a) relative to the
acquisition of the Nonwovens Business of Dominion Textile Inc. described in
Item 2 of Form 8-K of Polymer Group, Inc., dated February 13, 1998, are
attached hereto as an exhibit and incorporated herein by this reference.
(b) PRO FORMA FINANCIAL INFORMATION
The pro forma unaudited financial information required by Item 7(b)
relative to the Nonwovens Business of Dominion Textile Inc. described in
Item 2 of Form 8-K of Polymer Group, Inc., dated February 13, 1998, is
attached hereto as an exhibit and incorporated herein by this reference.
(c) EXHIBITS
Exhibits required to be filed with this current report on Form 8-K/A
Amendment No. 1 are included in the following index.
2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED HEREUNTO DULY AUTHORIZED.
Polymer Group, Inc.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, President and
Chief Executive Officer
Dated: April 14, 1998
/s/ James G. Boyd
By: _________________________________
James G. Boyd
Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
Dated: April 14, 1998
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
4.1 Agreement, dated October 27, 1997, among Polymer Group, Inc.,
Galey & Lord, Inc. and DT Acquisition Inc.*
4.2 Operating Agreement, dated December 19, 1997, among Polymer
Group, Inc., Galey & Lord, Inc. and DT Acquisition Inc.*
4.3 Master Separation Agreement, dated as of January 29, 1998,
among Polymer Group, Inc., Galey & Lord, Inc., DT Acquisition
Inc., Dominion Textile Inc., and certain subsidiaries named
therein.**/***
7.1 Financial Statements Required under Item 7(a).**
7.2 Financial Statements Required under Item 7(b).**
23.1 Consent of Deloitte & Touche.**
99.1 Press Release dated January 30, 1998.*
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***Certain portions of this Exhibit have been omitted pursuant to a request
for confidential treatment filed separately with the Securities and
Exchange Commission in accordance with Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
4
<PAGE>
EXECUTION COPY
MASTER SEPARATION AGREEMENT
dated as of
January 29, 1998
among
POLYMER GROUP, INC.,
GALEY & LORD, INC.
and
DT ACQUISITION INC.,
DOMINION TEXTILE INC.
and the other parties named herein
<PAGE>
EXHIBIT 4.3
MASTER SEPARATION AGREEMENT, DATED AS OF JANUARY 29, 1998, AMONG POLYMER GROUP,
INC., GALEY & LORD, INC., DT ACQUISITION INC., DOMINION TEXTILE INC., AND
CERTAIN SUBSIDIARIES NAMED THEREIN.
<PAGE>
TABLE OF CONTENTS
________________
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
Definitions
Section 1.01. Defined Terms............................................ 2
ARTICLE 2
The Transactions
Section 2.01. Total Purchase Price..................................... 16
Section 2.02. Purchase and Sale of Businesses.......................... 16
Section 2.03. Assumption of Liabilities................................ 17
Section 2.04. Methods of Transfer and Assumption....................... 17
Section 2.05. Final Take-Up and Winding Up............................. 18
Section 2.06. Transfer of Capital Stock and Assets; Certain Other
Transactions............................................ 19
Section 2.07. Consents; Nonassignable Contracts........................ 21
Section 2.08. Other Agreements......................................... 22
Section 2.09. Intercompany Balance and Expense True-Up................. 22
ARTICLE 3
Representations and Warranties
Section 3.01. Representations and Warranties of G&L.................... 23
Section 3.02. Representations and Warranties of PGI.................... 24
Section 3.03. Assets and Capital Stock Transferred "As Is."............ 25
ARTICLE 4
Conditions
Section 4.01. Conditions to the Obligations of G&L....................... 25
Section 4.02. Conditions to the Obligations of PGI....................... 26
ARTICLE 5
Disclosure and Access to Information
Section 5.01. Restrictions on Disclosure of Information................ 27
Section 5.02. Legally Required Disclosure of Confidential Information.. 27
Section 5.03. Access to Information.................................... 28
Section 5.04. Production of Witnesses.................................. 29
Section 5.05. Reimbursement............................................ 29
</TABLE>
- i -
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 6
Insurance Matters
Section 6.01. Cooperation in Insurance Matters......................... 29
Section 6.02. Collection of Insurance Proceeds......................... 30
Section 6.03. Other Insurance Matters.................................. 30
ARTICLE 7
Employees; Intercompany Arrangements
Section 7.01. Employee Matters......................................... 30
Section 7.02. Intercompany Arrangements................................ 31
Section 7.03. Products, Supplies and Documents......................... 31
ARTICLE 8
Survival
Section 8.01. No Survival of Representatives and Warranties............ 32
Section 8.02. Survival of Agreements................................... 32
ARTICLE 9
Indemnification
Section 9.01. Indemnification by G&L................................... 32
Section 9.02. Indemnification by PGI................................... 32
Section 9.03. Indemnification Concerning Proportional Liabilities
and Split Liabilities................................... 33
Section 9.04. Indemnification Procedures............................... 33
Section 9.05. Certain Limitations...................................... 34
Section 9.06. Exclusivity of Tax Indemnification....................... 35
ARTICLE 10
Miscellaneous
Section 10.01. Entire Agreement......................................... 35
Section 10.02. Governing Law............................................ 36
Section 10.03. Descriptive Headings; Construction....................... 36
Section 10.04. Notices.................................................. 36
Section 10.05. Parties in Interest...................................... 37
Section 10.06. Counterparts............................................. 37
Section 10.07. Binding Effect; Assignment............................... 37
Section 10.08. Dispute Resolution....................................... 38
Section 10.09. Severability............................................. 38
Section 10.10. Failure or Indulgence Not Waiver; Remedies Cumulative.... 39
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C> <C>
Section 10.11. Amendment................................................ 39
Section 10.12. Employment Solicitation.................................. 39
Section 10.13. Expenses................................................. 39
</TABLE>
- iii -
<PAGE>
EXHIBITS AND ANNEXES
- --------------------
Exhibit A Acquisition Agreement
Exhibit B Operating Agreement
Exhibit C Calculation of Purchase Price
Exhibit D Consent with respect to Nordlys S.A.
Annex 2.06(a) Stock Sale Agreement by and between Polymer Group, Inc. and
DT Acquisition Inc. re: 3427790 Canada Limited
Annex 2.06(c) Stock Sale Agreement by and between Galey & Lord
Incorporated and DT Acquisition Inc. re: Dominion Textile
International (Asia) Pte. Ltd.
Annex
2.06(d)(1) and (2) (1) Stock Sale Agreement by and between Albuma S.A. and
Dominion Textile International B.V. re: Klopman
International SpA
(2) Stock Sale Agreement by and between Albuma S.A. and
Dominion Textile International B.V. re: Swift Textiles
France S.A.
Annex 2.06(e) Stock Sale Agreement by and between Albuma S.A. and Dominion
Textile International B.V. re: Dominion Textile France
S.a.r.L.
Annex
2.06(f)(1) and (2) (1) Stock Sale Agreement by and between Chicopee Holdings,
B.V. and Dominion Textile International B.V. re: Nordlys
U.K. Ltd.
(2) Stock Sale Agreement by and between Chicopee Holdings,
B.V. and Dominion Textile International B.V. re: Geca-Tapes
B.V.
Annex 2.06(j) Stock Sale Agreement by and between Galey & Lord
Incorporated and Dominion Textile (USA) Inc. re: DT (USA)
Exports Inc. and Swift Textiles Inc.
Annex 2.06(l) Stock Sale Agreement by and between Polymer Group, Inc. and
DT Acquisition Inc. re: Dominion Textile (USA) Inc.
Annex 2.06(m) Stock Sale Agreement by and between Polymer Group, Inc. and
DT Acquisition Inc. re: Dominion Textile Mauritius, Inc.
Annex 2.06(n) Stock Sale Agreement by and between Galey & Lord
Incorporated and DT Acquisition Inc. re: 3427803 Canada
Limited
- iv -
<PAGE>
MASTER SEPARATION AGREEMENT
This Master Separation Agreement (this "Agreement"), dated as of January
29, 1998, is made by and among Polymer Group, Inc., a Delaware corporation
("PGI"), Galey & Lord, Inc., a Delaware corporation ("G&L"), Dominion Textile
Inc., a corporation organized under the laws of Canada ("Dominion"), DT
Acquisition Inc., a corporation organized under the laws of Canada ("DTA"),
Dominion Textile International (Asia) Pte. Ltd, a corporation organized under
the laws of Singapore ("DomTex (Asia)"), Dominion Textile International B.V., a
corporation organized under the laws of the Netherlands ("DomTex B.V."),
Dominion Textile (USA) Inc., a Delaware corporation ("DT (USA)"), Albuma S.A., a
corporation organized under the laws of the Republic of France ("Albuma"), and
Chicopee Holdings, B.V., a corporation organized under the laws of the
Netherlands ("Chicopee Holdings"). The parties to this Agreement are each
referred to as a "Party" and collectively as the "Parties". All amounts in this
Agreement shall be in United States dollars unless otherwise indicated.
RECITALS
WHEREAS, PGI, G&L, DTA and ZB Holdings, Inc., a South Carolina corporation
("ZBH"), have entered into an agreement dated as of October 27, 1997, as amended
(the "Acquisition Agreement"), in which it is contemplated that DTA would
commence a tender offer to acquire all of the outstanding common shares and
First Preferred shares of Dominion;
WHEREAS, on December 19, 1997, and December 29, 1997, pursuant to its Offer
to Purchase dated October 29, 1997, as amended and varied, DTA acquired
approximately 98% of the outstanding common shares and approximately 96% of the
outstanding First Preferred shares of Dominion, and in connection with the
transactions contemplated herein, will acquire all of the remaining outstanding
common shares and First Preferred shares of Dominion pursuant to a merger
consummated in accordance with Section 206 of the Canada Business Corporations
Act;
WHEREAS, following DTA's purchase of the remaining outstanding common
shares and First Preferred shares of Dominion, DTA and Dominion intend to
consummate a winding up (the "Winding Up") in which DTA shall acquire all of the
assets and assume all of the liabilities of Dominion, and all of the outstanding
common shares and First Preferred shares of Dominion shall be redeemed and
eliminated;
WHEREAS, Dominion's business primarily consists of the Apparel Fabrics
Business, the Nonwovens Business and the DIFCO Business (each as defined); and
WHEREAS, pursuant to the Acquisition Agreement and subsequent agreements
among the Parties thereto, (i) PGI intends to acquire the Nonwovens Business and
the DIFCO Business, including each of their respective liabilities, from DTA and
certain of its Subsidiaries and (ii) G&L intends to acquire the Apparel Fabrics
Business, including its respective liabilities, from DTA and certain of its
Subsidiaries (collectively, the "Break-Up");
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the Parties agree as follows:
ARTICLE 1
Definitions
Section 1.01. Defined Terms. The terms set forth below, as used herein,
shall have the following meanings:
"2003 Notes" means the $150.0 million aggregate principal outstanding
8 7/8% Guaranteed Senior Notes due 2003 of DT (USA) issued pursuant to the
Indenture dated as of November 1, 1993 among DT (USA), Dominion and First Union
National Bank (as successor trustee).
"2006 Notes" means the $125.0 million aggregate principal outstanding
9 1/4% Guaranteed Senior Notes due 2006 of DT (USA) issued pursuant to the
Indenture dated as of April 1, 1996 among DT (USA), Dominion and First Union
National Bank (as successor trustee).
"2003 Tender Offer" means the offer by DT (USA) to repurchase any and all
outstanding 2003 Notes pursuant to the Offer to Purchase and Consent
Solicitation Statement dated December 23, 1997 and accompanying Consent and
Letter of Transmittal.
"2006 Tender Offer" means the offer by DT (USA) to repurchase any and all
outstanding 2006 Notes pursuant to the Offer to Purchase and Consent
Solicitation Statement dated December 23, 1997 and accompanying Consent and
Letter of Transmittal.
"Acquisition Agreement" has the meaning set forth in the preface above, a
copy of which is attached hereto as Exhibit A.
"Acquisition Relationship" means the relationship among G&L, PGI, DTA,
Dominion and Dominion's direct and indirect Subsidiaries as a result of the
Acquisition Agreement, the Operating Agreement and the undertaking of such
parties to consummate the transactions contemplated by this Agreement.
"Affiliate" of any specified Person means any other Person directly or
indirectly Controlling, Controlled by, or under common Control with, such
specified Person.
"Albuma" has the meaning set forth in the preface above.
"Ancillary Separation Agreements" means the Employee Matters Agreement, the
Intellectual Property Agreements, the Insurance Matters Agreement, the Shared
Assets and Liabilities Agreement, the Tax Matters Agreement, the Transition
Services Agreement, and any other agreements to be entered into among the
Parties hereto with respect to the relationships of the Parties after the Break-
Up Time, as referred to in Section 2.08 herein.
-2-
<PAGE>
"Apparel Fabrics Assets" means all right, title and interest (including
minority interests) of DTA (as determined immediately following the Winding Up),
Dominion (as determined immediately preceding the Winding Up) and any of their
Subsidiaries, in and to all Assets that are used primarily in or held primarily
for use in the operations of the Apparel Fabrics Business, including the Apparel
Fabrics Cash, the Apparel Fabrics Facilities, the Apparel Fabrics Intellectual
Property, the Apparel Fabrics Contracts, the Assets of the Apparel Fabrics
Employee Arrangements and the Apparel Fabrics Employee Benefit Plans as provided
in the Employee Matters Agreement, any capital stock of any of the Apparel
Fabrics Subsidiaries, and the rights of G&L and the Apparel Fabrics Subsidiaries
under the Transaction Agreements; provided, notwithstanding the foregoing, the
Apparel Fabrics Assets shall not include any (i) Nonwovens Assets, (ii) DIFCO
Assets, (iii) Split Assets, or (iv) Proportional Assets.
"Apparel Fabrics Business" means the apparel fabrics businesses
heretofore or currently engaged in by DTA, Dominion or its Subsidiaries (or
their predecessors) as reported in the apparel fabrics segment (or its
predecessor segment) in Dominion's most recent financial statements (but
excluding any former or discontinued operations and DIFCO), including as
conducted through:
(A) the Swift Denim division of Dominion;
(B) the Dominion Cotton Services business of Dominion;
(C) the Dominion Holdings Companies;
(D) nine indirect wholly-owned Subsidiaries of Dominion, being (i)
Swift Textiles Inc., a Delaware corporation, (ii) Swift Denim
Services, Inc., a Delaware corporation, (iii) DT (USA) Exports
Inc., a corporation organized under the laws of Barbados, (iv)
Swift Textiles (Far East) Ltd., a company organized under the
laws of Hong Kong, (v) Domtex Industries (Far East) Ltd., a
corporation organized under the laws of Hong Kong, (vi) Klopman
GmbH, a corporation organized under the laws of Germany, (vii)
Klopman A.G., a corporation organized under the laws of
Switzerland, (viii) Klopman Espana S.A., a corporation organized
under the laws of Spain, and (ix) Klopman International Ltd., a
corporation organized under the laws of Ireland; and
(E) seven indirect Subsidiaries or Investments of Dominion, being (i)
Klopman International S.p.A., a company organized under the laws
of Italy, (ii) Swift Textiles Europe Ltd., a company organized
under the laws of the Republic of Ireland (50%) interest, (iii)
Tismade S.A., a corporation organized under the laws of France
(50% interest), (iv) Sitex S.A., a corporation organized under
the laws of Tunisia (22% interest), (v) Swift Textiles France
S.A., a corporation organized under the laws of the Republic of
France (50% interest), (vi) Swift Textiles S.r.1., a corporation
organized under the laws of Italy (49% interest), and (vii)
Somotex International S.A., a corporation organized under the
laws of Tunisia (37% interest).
-3-
<PAGE>
"Apparel Fabrics Cash" means 57.4% of all Cash.
"Apparel Fabrics Contracts" means all Contracts pursuant to which DTA,
Dominion or any of their Subsidiaries (determined immediately prior to the
Break-Up) is a Party with respect to the Apparel Fabrics Business.
"Apparel Fabrics Debt" means all Debt of DTA or any Apparel Fabrics
Subsidiary, in each case directly related to the Apparel Fabrics Business,
outstanding as of the Break-Up Time.
"Apparel Fabrics Employee Arrangements" means Employee Arrangements
relating to Employees of the Apparel Fabrics Business.
"Apparel Fabrics Employee Benefit Plans" means any Employee Benefit Plan
which provides benefits exclusively for Apparel Fabrics Employees.
"Apparel Fabrics Employees" means employees of the Apparel Fabrics
Business.
"Apparel Fabrics Facilities" means the real property and facilities
currently owned by, or leased to, DTA, Dominion or any of their Subsidiaries in
connection with the operation of the Apparel Fabrics Business.
"Apparel Fabrics Intellectual Property" means all right, title and interest
of DTA, Dominion or any of their Subsidiaries in and to Intellectual Property
relating primarily to the Apparel Fabrics Business. In no event shall Apparel
Fabrics Intellectual Property include the ownership of Dual Use Technology or
any trademark, servicemark or trade or company name which contains the name
"Poly-Bond," "Nordlys," "Dominion," or any other trade name, trademark or logo
of the Nonwovens or DIFCO Businesses or derivatives thereof; provided, however,
that the Apparel Fabrics Intellectual Property shall include G&L's or its
Subsidiaries' rights under the Intellectual Property Agreements contemplated by
this Agreement.
"Apparel Fabrics Liabilities" means all Liabilities relating primarily to,
or arising primarily out of, the Apparel Fabrics Business as conducted at any
time prior to, on or after the Closing Date, including (i) all Liabilities
relating to or arising out of the Apparel Fabrics Assets, (ii) all Apparel
Fabrics Debt together with accrued but unpaid interest thereon at the Break-Up
Time; (iii) all Liabilities with respect to Apparel Fabrics Employees and
Retired Apparel Fabrics Employees, (iv) all Liabilities arising under the
Apparel Fabrics Employee Arrangements and the Apparel Fabrics Employee Benefit
Plans; and (v) all obligations of DTA, Dominion and the Dominion Holding
Companies (each with respect to the Apparel Fabrics Business only) and each of
the Apparel Fabrics Subsidiaries created pursuant to the Transaction Agreements;
provided, notwithstanding the foregoing, the Apparel Fabrics Liabilities shall
not include any (a) Nonwovens Liabilities, (b) DIFCO Liabilities, (c) Split
Liabilities or (d) Proportional Liabilities.
"Apparel Fabrics Subsidiaries" means those Subsidiaries and Investments of
DTA and Dominion comprising the Apparel Fabrics Business (including DomTex
(Asia), DomTex B.V. and
-4-
<PAGE>
those Persons identified in clauses (D) and (E) of the definition of Apparel
Fabrics Business), and SD MergerCo.
"Assets" means any and all assets, properties and rights, whether tangible
or intangible, whether real, personal or mixed, whether fixed, contingent or
otherwise, and wherever located, including, without limitation, the following:
(i) real property interests (including leases and subleases), land,
plants, buildings and improvements, easements, rights-of-way and other
appurtenants thereto;
(ii) machinery, equipment, vehicles, furniture and fixtures, leasehold
improvements, supplies, repair parts, tools, plant, laboratory and
office equipment and other tangible personal property, together with
any rights or claims arising out of the breach of any express or
implied warranty by the manufacturers or sellers of any of such assets
or any component part thereof;
(iii) inventories, including raw materials, work-in-process, finished
goods, parts, and accessories;
(iv) notes, loans and accounts receivable (whether current or not
current), interests as beneficiary under letters of credit, advances
and performance and surety bonds;
(v) banker's acceptances, shares of stock, bonds, debentures,
evidences of indebtedness, certificates of interest or participation
in profit-sharing agreements, collateral-trust certificates,
investment contracts, voting trust certificates, puts, calls,
straddles, options, swaps, collars, caps and other securities or
hedging arrangements of any kind;
(vi) financial, accounting and operating data and records including,
without limitation, books, records, electronic data, notes, sales and
sales promotional data, advertising materials, credit information,
cost and pricing information, customer and supplier lists, reference
catalogs, payroll and personnel records, minute books, stock ledgers,
stock transfer records and other similar property, rights and
information;
(vii) Intellectual Property;
(viii) Contracts and all rights therein;
(ix) prepaid expenses, deposits and retentions held by third parties;
(x) claims, causes of action, choses in action, rights under insurance
policies, rights under express or implied warranties, rights of
recovery, rights of setoff, and rights of subrogation;
-5-
<PAGE>
(xi) licenses, franchises, permits, authorizations and approvals; and
(xii) goodwill and going concern value.
"Break-Up" has the meaning set forth in the preface above.
"Break-Up Time" shall be 3:00 p.m., New York City time, on the Closing
Date, the effective time of the final step of the transactions set forth in
Sections 2.05 and 2.06.
"Businesses" means the Apparel Fabrics Business, the Nonwovens Business and
the DIFCO Business.
"Business Day" means a day other than a Saturday, a Sunday or a day on
which banking institutions located in the State of New York are authorized or
obligated by law or executive order to close.
"Cash" means the total of all cash and cash equivalents of the Dominion
Companies, whether held in Dominion or in any of its direct or indirect
Subsidiary or Investments, as of the Closing Date (immediately preceding the
Winding Up).
"Closing Date" means January 29, 1998.
"Code" has the meaning set forth in the preface above.
"Confidential Information" means with respect to any Party hereto, (a) any
Information concerning such Party, its business or any of its Affiliates that
was obtained by another Party hereto prior to the Break-Up Time, (b) any
Information concerning such Party that is obtained by another Party under
Section 5.03, or (c) any other Information obtained by, or furnished to, another
Party hereto that (i) is marked "Confidential," "Proprietary," "Company Private"
or words of similar import by the Party owning such Information, or any
Affiliate of such Party, or (ii) the Party owning such Information has notified
such other Party in writing that such Information is confidential or secret;
provided, however, that any Information provided by DTA, Dominion (including
DIFCO) or any of the Apparel Fabrics Subsidiaries or Nonwovens Subsidiaries to
G&L or PGI regarding the Apparel Fabrics Business (in the case of G&L) or the
Nonwovens Business or the DIFCO Business (in the case of PGI), shall not be
deemed Confidential Information with respect to the use of such Information in
their respective Business(es) by G&L and PGI, as the case may be.
"Contracts" means any contract, agreement, lease, license, sales order,
purchase order, instrument or other commitment that is binding on any Person or
any part of its property under applicable law.
"Control" means the possession, direct or indirect, of the power to direct
or cause the direction of the management of the policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"Controlling" and "Controlled" have the corollary meanings ascribed thereto.
-6-
<PAGE>
"Corporate Debt" means the 2003 Notes and the 2006 Notes and any other Debt
that is not Apparel Business Debt, Nonwovens Debt, DIFCO Debt or Debt with
respect to discontinued operations or otherwise characterized as a Split
Liability.
"Debt" means all indebtedness of DTA, Dominion and its Subsidiaries,
including, without limitation (i) all obligations for borrowed money or
evidenced by bonds, debentures, notes, letters of credit or other similar
interests, and (ii) any interest, principal, prepayment premiums or penalties,
defeasance costs, tender payments, breakage costs or other fees or expenses in
respect of those items listed in clause (i) above.
"DIFCO" means the Dominion Industrial Fabrics Company division of Dominion,
as operated immediately prior to the Winding Up and the Break-Up.
"DIFCO Adjustment" means the adjustment to the purchase price (as set forth
in Section 2.01 and reflected in Exhibit C) paid by G&L and PGI based on DIFCO's
earnings before interest, tax, depreciation and amortization, as described in
Section 3(f) of the Acquisition Agreement, equal to an increase to PGI of 2.6%
(of the total cost to acquire Dominion) and a corresponding decrease of 2.6% to
G&L.
"DIFCO Assets" means all right, title and interest (including minority
interests) of DTA (as determined immediately following the Winding Up), Dominion
(as determined immediately preceding the Winding Up) and any of their
Subsidiaries, in and to all Assets that are used primarily in or held primarily
for use in the operations of the DIFCO Business, including the DIFCO Facilities,
the DIFCO Intellectual Property, the DIFCO Contracts, the Assets of the DIFCO
Employee Arrangements and the DIFCO Employee Benefit Plans as provided in the
Employee Matters Agreement, the capital stock of DIFCO MergerCo, and the rights
of PGI and DIFCO MergerCo under the Transaction Agreements; provided,
notwithstanding the foregoing, the DIFCO Assets shall not include any (i)
Apparel Fabrics Assets, (ii) Nonwovens Assets, (iii) Split Assets, or (iv)
Proportional Assets.
"DIFCO Business" means the businesses heretofore and immediately prior to
the Winding Up and the Break-Up engaged in by Dominion through DIFCO, including
the design and production of custom fabrics for industrial flame resistant
protective clothing, coating fabrics for abrasives, upholstery flocking and
other coating end-uses, and specialty fabrics for industrial cut and sew and
other applications.
"DIFCO Contracts" means all Contracts pursuant to which Dominion is a Party
with respect to the DIFCO Business.
"DIFCO Debt" means all Debt of DTA directly related to the DIFCO Business
and outstanding as of the Break-Up Time.
"DIFCO Employee Arrangements" means Employee Arrangements relating to DIFCO
Employees.
-7-
<PAGE>
"DIFCO Employee Benefit Plans" means any Employee Benefit Plan which
provides benefits exclusively for DIFCO Employees.
"DIFCO Employees" means any employee of the DIFCO Business.
"DIFCO Facilities" means the real property and facilities currently owned
by, or leased to, DTA or Dominion for the benefit of DIFCO.
"DIFCO Intellectual Property" means all right, title and interest of DTA or
Dominion in and to the Intellectual Property relating primarily to the DIFCO
Business. In no event shall DIFCO Intellectual Property include the ownership
of Dual Use Technology or any trademark, servicemark or trade or company name
which contains the name "Poly-Bond," "Nordlys," "Swift," "Swift Textiles,"
"Swift Denim," "Klopman" or any other trade name, trademark or logo of the
Apparel Fabrics or Nonwovens Businesses or derivatives thereof; provided,
however, that the DIFCO Intellectual Property shall include the rights of PGI,
DTA and DIFCO MergerCo under the Intellectual Property Agreements contemplated
by this Agreement.
"DIFCO Liabilities" means all Liabilities relating primarily to, or arising
primarily out of, the DIFCO Business as conducted at any time prior to, on or
after the Closing Date, including (i) all Liabilities relating to or arising out
of the DIFCO Assets, (ii) the DIFCO Debt, together with accrued and unpaid
interest thereon at the Break-Up Time, (iii) all Liabilities with respect to
DIFCO Employees and Retired DIFCO Employees (iv) all Liabilities arising under
the DIFCO Employee Arrangements and DIFCO Employee Benefit Plans, and (v) the
obligations of DTA and Dominion (with respect to the DIFCO Business) and DIFCO
MergerCo created pursuant to the Transaction Agreements; provided,
notwithstanding the foregoing, the DIFCO Liabilities shall not include any (a)
Apparel Fabrics Liabilities, (b) Nonwovens Liabilities, (c) Split Liabilities,
or (d) Proportional Liabilities.
"DIFCO MergerCo" means 3427790 Canada Limited Inc., a Canadian corporation
to which all of the DIFCO Assets and DIFCO Liabilities are being contributed in
connection with the transactions contemplated herein.
"Dominion" has the meaning set forth in the preface above.
"Dominion Companies" means Dominion and all direct or indirect wholly owned
Subsidiaries and the portion of all other Subsidiaries and Investments owned
directly or indirectly by Dominion.
"Dominion Holding Companies" means DT (USA), Domtex Industries, Inc.,
Dominion Textile Mauritius Inc., DomTex B.V., DomTex (Asia) and Albuma.
"Dominion Terminated Benefit Plan" means the Employee Benefit Plan of
Dominion Executive Retirement Income Plan presently being wound up in connection
with the transactions contemplated herein.
-8-
<PAGE>
"DomTex (Asia)" has the meaning set forth in the preface above.
"DomTex B.V." has the meaning set forth in the preface above.
"DTA" has the meaning set forth in the preface above.
"DT (USA)" has the meaning set forth in the preface above.
"Dual Use Technology" shall mean all Intellectual Property: (i) (A)
developed by Dominion or any of its Subsidiaries for the Apparel Fabrics
Business that is useful in the Nonwovens Business or the DIFCO Business as
conducted immediately prior to the Closing Date and (B) which covers components
manufactured or processes that are to be utilized by the Nonwovens Business or
the DIFCO Business, or (ii) (A) developed by Dominion or any of its Subsidiaries
for the Nonwovens Business or the DIFCO Business that is useful in the Apparel
Fabrics Business as conducted immediately prior to the Closing Date and (B)
which covers components manufactured or processes that are to be utilized by the
Apparel Fabrics Business. For purposes of this Agreement, Dual Use Technology
shall include (w) the rights to the name "Dominion", (x) all management
information systems maintained by Dominion for joint use of or which manage
information for the Apparel Fabrics Business, the Nonwovens Business and/or the
DIFCO Business, (y) with respect to patents, patent applications and invention
disclosures, shall consist of the patents, patent applications and invention
disclosures to be identified in the Intellectual Property Agreements, and (z)
the computer internet access numbers, and G&L and PGI agree to negotiate the
terms and conditions of such Dual Use Technology in the Intellectual Property
Agreements consistent with the principles set forth herein and the allocation of
Proportional Assets.
"Employee Arrangements" means all employment or consulting agreements,
collective bargaining agreements and all bonus and other incentive compensation,
deferred compensation, disability, severance, stock award, stock option or stock
purchase agreements, policies or arrangements with respect to the employment and
termination of employment of any employee, officer, director or other Person
employed at any time by DTA, Dominion or any of its Subsidiaries.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan, or (d) Employee Welfare
Benefit Plan, which DTA (as determined immediately following the Winding Up),
Dominion (as determined immediately preceding the Winding Up) or any of their
Subsidiaries maintains has maintained or to which DTA, Dominion or any of its
Subsidiaries has an obligation or had an obligation to make contributions.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Sec. 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Sec. 3(1).
-9-
<PAGE>
"Employee Matters Agreement" means the agreement to be entered into
pursuant to Section 2.08 among G&L, PGI and DTA (or their respective Affiliates)
with respect to, among other things, certain employee benefit and liability
issues.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Final Determination"means (i) with respect to federal income Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870AD and, with respect to Taxes other than
federal income Taxes, any final determination of liability in respect of a Tax
that, under applicable law, is not subject to further appeal, review or
modification through proceedings or otherwise (including the expiration of a
statute of limitations or a period for the filing of claims for refunds, amended
returns or appeals from adverse determinations) or (ii) the payment of Tax by
G&L, PGI or any of their Affiliates, whichever is responsible for payment of
such Tax liability under applicable law, with respect to any item disallowed or
adjusted by a taxing authority, provided that such responsible party determines
that no action should be taken to recoup such payment and G&L (if the
responsible party is PGI or any of its Affiliates) or PGI (if the responsible
party is G&L or any of its Affiliates) agrees.
"G&L" has the meaning set forth in the preface above.
"G&L Contribution Note" means the $141.0 million subordinated promissory
note issued by DTA to G&L on December 19, 1997 in connection with the take up of
Dominion common shares and First Preferred shares by DTA.
"Indemnifying Party" means a Person that is obligated to provide
indemnification pursuant to Article 9 of this Agreement.
"Indemnitee" means a Person that is entitled to seek indemnification
pursuant to Article 9 of this Agreement.
"Information" means all records, books, contracts, instruments, computer
data and other data and information of any kind whatsoever.
"Insurance Matters Agreement" means the agreement to be entered into
pursuant to Section 2.08 among G&L, PGI and DTA (or their respective Affiliates)
with respect to, among other things, certain insurance matters and issues.
"Intellectual Property" means any and all domestic and foreign patents and
patent applications, together with any continuations, continuations-in-part or
divisional applications thereof, and all patents issuing thereon (including
reissues, renewals and re-examinations of the foregoing); invention disclosures;
mask works; net lists; copyrights, and copyright applications and registrations;
trademarks, servicemarks, service names, trade names, and trade dress, in each
case together with any applications and registrations therefor and all
appurtenant goodwill relating thereto; trade secrets, commercial and technical
information, know-how, proprietary or confidential information, including
engineering, production and other designs, notebooks, processes, drawings,
-10-
<PAGE>
specifications, formulae, and technology; computer and electronic data
processing programs and software (object and source code), data bases and
documentation thereof; inventions (whether patented or not); and all other
intellectual property under the laws of any country throughout the world.
"Intellectual Property Agreements" means the agreements to be entered into
pursuant to Section 2.08 among G&L, PGI and DTA (or their respective Affiliates)
with respect to the treatment after the Break-Up Time of Intellectual Property,
including Dual Use Technology.
"InterTech" means The InterTech Group, Inc., a South Carolina corporation.
"InterTech Contribution Note" means the $14,984,000 subordinated promissory
note issued by DTA to InterTech on December 19, 1997 in connection with the take
up of Dominion common shares and First Preferred shares by DTA.
"Investment" means with respect to any specified Person, any corporation or
other legal entity of which such Person owns, whether directly or indirectly,
any stock or other equity interest of more than 20% which is not a Subsidiary.
"Liabilities" means any and all debts, liabilities, commitments and
obligations, whether fixed, contingent or absolute, matured or unmatured,
asserted or unasserted, liquidated or unliquidated, accrued or not accrued,
known or unknown, whenever or however arising (including, without limitation,
whether arising out of any Contract or tort based on negligence or strict
liability and any liability for Taxes) and whether or not the same would be
required by generally accepted accounting principles to be reflected in
financial statements or disclosed in the notes thereto.
"Nonwovens Assets" means all right, title and interest (including minority
interests) of DTA (as determined immediately following the Winding Up), Dominion
(as determined immediately preceding the Winding Up) and any of their
Subsidiaries in and to all Assets that are used primarily in or held primarily
for use in the operations of the Nonwovens Business, including the Nonwovens
Cash, the Nonwovens Facilities, the Nonwovens Intellectual Property, the
Nonwovens Contracts, the Assets of the Nonwovens Employee Arrangements and the
Nonwovens Employee Benefit Plans as provided in the Employee Matters Agreement,
the capital stock of any of the Nonwovens Subsidiaries and the rights of DTA, DT
(USA), PGI and the Nonwovens Subsidiaries under the Transaction Agreements;
provided, notwithstanding the foregoing, the Nonwovens Assets shall not include
any (i) Apparel Fabrics Assets, (ii) DIFCO Assets, (iii) Split Assets, or (iv)
Proportional Assets.
"Nonwovens Business" means the nonwovens fabrics businesses heretofore or
currently engaged in by DTA, Dominion or its Subsidiaries (or their
predecessors) as reported in the nonwovens fabrics segment (or its predecessor
segment) in Dominion's most recent financial statements (but excluding any
former or discontinued operations), including as conducted through:
(A) the Dominion Holding Companies;
-11-
<PAGE>
(B) five indirect wholly-owned Subsidiaries of Dominion, being (i)
Poly-Bond Inc., a Delaware corporation, (ii) Dominion Textile
France S.a.r.L., a corporation organized under the laws of the
Republic of France, (iii) Nordlys S.A., a company organized under
the laws of the Republic of France, (iv) Nordlys UK Ltd., a
corporation organized under the laws of the United Kingdom, and
(v) Geca-Tapes B.V., a corporation organized under the laws of
the Netherlands; and
(C) Dominion Nonwovens Sudamerica, S.A., a corporation organized
under the laws of Argentina in which Dominion holds a 50%
interest.
"Nonwovens Cash" means 42.6% of all Cash.
"Nonwovens Contracts" means all Contracts pursuant to which DTA, Dominion
or any of their Subsidiaries (determined immediately prior to the Break-Up) is a
Party with respect to the Nonwovens Business.
"Nonwovens Debt" means all Debt of DTA or any Nonwovens Subsidiary, in
each case, directly related to the Nonwovens Business, outstanding as of the
Break-Up Time.
"Nonwovens Employee Arrangements" means Employee Arrangements for Nonwovens
Employees.
"Nonwovens Employee Benefit Plans" means any Employee Benefit Plan which
provides benefits exclusively for Employees of the Nonwovens Business.
"Nonwovens Employees" means employees of the Nonwovens Business.
"Nonwovens Facilities" means the real property and facilities that
currently are owned by, or leased to, DTA, Dominion or any of their Subsidiaries
in connection with the operation of the Nonwovens Business.
"Nonwovens Intellectual Property" means all right, title and interest of
DTA, Dominion or any of their Subsidiaries in and to the Intellectual Property
relating primarily to the Nonwovens Business. In no event shall Nonwovens
Intellectual Property include the ownership of Dual Use Technology or any
trademark, servicemark or trade or company name which contains the name "Swift,"
"Swift Textiles," "Swift Denim," "Klopman," "Dominion") or any other trade name,
trademark or logo of the Apparel Fabrics or DIFCO Businesses or derivatives
thereof; provided, however, that the Nonwovens Intellectual Property shall
include PGI or its Subsidiaries' rights under the Intellectual Property
Agreements contemplated by this Agreement.
"Nonwovens Liabilities" means all Liabilities relating primarily to, or
arising primarily out of, the Nonwovens Business as conducted at any time prior
to, on or after the Closing Date, including (i) all Liabilities relating to or
arising out of the Nonwovens Assets, (ii) all Nonwovens Debt, together with
accrued but unpaid interest thereon at the Break-Up Time, (iii) all Liabilities
-12-
<PAGE>
with respect to Nonwovens Employees and Retired Nonwovens Employees, (iv) all
Liabilities under the Nonwovens Employee Arrangements and Nonwovens Employee
Benefit Plans, and (v) the obligations of DTA, Dominion and the Dominion Holding
Companies (each with respect to the Nonwovens Business only), and of each of the
Nonwovens Subsidiaries created pursuant to the Transaction Agreements; provided,
notwithstanding the foregoing, the Nonwovens Liabilities shall not include any
(a) Apparel Fabrics Liabilities, (b) DIFCO Liabilities, (c) Split Liabilities,
or (d) Proportional Liabilities.
"Nonwovens Subsidiaries" means those Subsidiaries of DTA and Dominion
comprising the Nonwovens Business, as identified in the definition thereof
(including DT (USA), DomTex Industries, Inc., Dominion Textile Mauritius Inc.
and Albuma).
"Operating Agreement" means the Operating Agreement by and among DTA, PGI
and G&L regarding Dominion, dated as of December 19, 1997, a copy of which is
attached hereto as Exhibit B.
"Other Employee Arrangements" has the meaning ascribed to such term in the
Employee Matters Agreement.
"Other Employee Benefit Plans" means any Employee Benefit Plan which
provides benefits for individuals who are Employees of Dominion or any of its
Subsidiaries, but who do not work primarily for any one of the Businesses.
"Party" or "Parties" has the meaning set forth in the preface above.
"Person" means an individual, partnership, limited liability company, joint
venture, corporation, trust, unincorporated association, any other entity, or a
government or any department or agency or other unit thereof.
"PGI" has the meaning set forth in the preface above.
"PGI Contribution Note" means the $25.0 million subordinated promissory
note issued by DTA to PGI on December 19, 1997 in connection with the take-up of
Dominion common shares and First Preferred shares by DTA.
"Prior Relationship" means the business and ownership relationships among
DTA, Dominion and Dominion's direct and indirect Subsidiaries at any time prior
to giving effect to the Winding Up, the Break-Up, and the other transactions
described or contemplated herein.
"Proportional Assets" means Assets that are part of, or resulted from, the
Businesses as a whole on a shared basis, and Assets arising from or associated
with the transactions contemplated by this Agreement and the other Transaction
Agreements, including transaction-related Tax Assets (including any Tax benefits
arising from the deductibility of bond redemption premiums, fees, expenses or
similar payments arising out of the Break-Up), Cash and corporate Assets.
Proportional
-13-
<PAGE>
Assets are to be shared 57.4% by G&L (as purchaser of the Apparel Fabrics
Business) and 42.6% by PGI (as purchaser of the Nonwovens Business).
"Proportional Liabilities" means Liabilities that are part of, or resulted
from, the Businesses taken as a whole on a shared basis, and Liabilities arising
from or associated with the transactions contemplated by this Agreement and the
other Transaction Agreements, including (i) the Tax Liabilities associated with
the transactions contemplated hereby, including Taxes imposed in connection with
separating the Apparel Fabrics Business and the Nonwovens Business and
transferring such businesses to G&L and PGI, respectively, (ii) Tax Liabilities
of DomTex (Asia) related to the loss of Overseas Headquarters status and the
loss of the exemption under Section 13(10) of the Singapore Income Tax Act on
dividends from DomTex B.V. to DomTex (Asia), (iii) any litigation costs and
expenses related to the Acquisition (but not including any litigation which is
solely among the parties hereto), (iv) any Corporate Debt, (v) any corporate
overhead Liabilities, (vi) any transaction costs incurred by or on behalf of DTA
or PGI solely in connection with the proposed Acquisition, including an amount
necessary to compensate PGI and DTA for obtaining commitments for, and
utilizing, the financing provided directly to DTA by the Chase Manhattan Bank
and First Union National Bank pursuant to the commitment letter dated October
27, 1997 (including the interest expense incurred for the amount necessary to
complete the Acquisition and related transactions), (vii) the principal amount
of outstanding corporate indebtedness assumed by PGI, G&L, the Nonwovens
Business, the DIFCO Business or the Apparel Fabrics Business or the amount paid
to retire, repay or acquire outstanding corporate indebtedness (whether in the
nature of payments of principal, interest, premiums, defeasance costs, tender
payments, overdrafts, penalties, breakage costs, fees, litigation expenses,
other expenses or indemnitees relating thereto) and Preferred Shares of
Dominion, and (viii) similar Liabilities, but not including (x) the investment
banking and merger and acquisition advisory fees specified in the definition of
"Split Liabilities" or (y) any transaction costs, commitment fees or financing
fees, payable by either PGI or G&L in connection with providing any other
financing required to complete the Acquisition or the subsequent purchase and
sale of the Apparel Fabrics Business and the Nonwovens Business. Proportional
Liabilities are to be shared 57.4% by G&L (as purchaser of the Apparel Fabrics
Business) and 42.6% by PGI (as purchaser of the Nonwovens Business).
"Representatives" means directors, officers, employees, agents,
consultants, advisors, accountants, attorneys and representatives.
"Retired Apparel Employees" has the meaning ascribed to such term in the
Employee Matters Agreement.
"Retired DIFCO Employees" has the meaning ascribed to such term in the
Employee Matters Agreement.
"Retired Nonwovens Employees" has the meaning ascribed to such term in the
Employee Matters Agreement.
"SD MergerCo" means 3427803 Canada Limited, a corporation organized under
the laws of Canada, to which all of the Apparel Fabrics Assets and Apparel
Fabrics Liabilities that previously
-14-
<PAGE>
constituted the Swift Denim division of Dominion are being contributed in
connection with the transactions contemplated herein.
"Split Assets" shall mean (i) Assets of former or discontinued operations
(of any nature) including any Assets related to C.S. Brooks Corp., Dominion
Textile Foundation, Dominion Yarn Corp., 159422 Canada Inc. and Pemtech Builders
Inc. and any Assets related to the Dominion Terminated Benefit Plan and (ii)
Assets not otherwise related to any of the Businesses, either individually or as
a whole on a shared basis; provided, in no event shall Split Assets include
Proportional Assets. Split Assets are to be shared 50.0% by G&L (as purchaser
of the Apparel Fabrics Business) and 50.0% by PGI (as purchaser of the Nonwovens
Business).
"Split Assets and Liabilities Agreement" means the agreement to be entered
into between G&L and PGI regarding the procedures of (a) disposition or division
of Split Assets (b) disposition or division of Proportional Assets, (c)
satisfaction or allocation of Split Liabilities and (d) satisfaction or
allocation of Proportional Liabilities, in each case pursuant to the terms and
conditions of this Agreement.
"Split Liabilities" shall mean (i) all Liabilities associated with former
or discontinued operations (of any nature) including any Liabilities related to
C.S. Brooks Corp., Dominion Textile Foundation, Dominion Yarn Corp., 159422
Canada Inc. and Pemtech Builders Inc. and any Liabilities related to the
Dominion Terminated Benefit Plan, (ii) the Liabilities not otherwise arising
from or attributable to any of the Businesses, either individually or as a whole
on a shared basis, (iii) environmental, retiree medical, or similar Liabilities
related to former or discontinued operations, (iv) Liabilities related to
investment banking and merger and acquisition advisory fees incurred by or on
behalf of PGI or DTA in connection with the Acquisition; provided, in no event
shall Split Liabilities include Proportional Liabilities. Proportional
Liabilities are to be shared 50.0% by G&L (as purchaser of the Apparel Fabrics
Business) and 50.0% by PGI (as purchaser of the Nonwovens Business).
"Subsidiary" means with respect to any specified Person, any corporation or
other legal entity of which such Person or any of its Subsidiaries Controls or
owns, directly or indirectly, more than 50% of the stock of other equity
interest entitled to vote on the election of the members to the board of
directors or similar governing body.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code (S)59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Matters Agreement" means the agreement to be entered into pursuant to
Section 2.08 among G&L, PGI and DTA (or their respective Affiliates) with
respect to certain Tax matters.
-15-
<PAGE>
"Third-Party Claim" means any claim, suit, arbitration, inquiry, proceeding
or investigation by or before any court, governmental or other regulatory or
administrative agency or commission or any arbitration tribunal asserted by a
Person other than any Party hereto or their respective Affiliates which gives
rise to a right of indemnification hereunder.
"Transaction Agreements" means this Agreement, the Stock Sale Agreements
attached hereto, the Acquisition Agreement, the Operating Agreement and the
Ancillary Separation Agreements.
"Transferee" means any Person that will receive a transfer of Assets
(including capital stock) pursuant to Article 2.
"Transferor" means any Person that will make a transfer of Assets
(including capital stock) pursuant to Article 2.
"Winding Up" means the winding up of Dominion with and into DTA, as
contemplated in Section 2.05.
"ZBH" has the meaning set forth in the preface above.
"ZBH Contribution Note" means the $54.0 million subordinated promissory
note issued by DTA to ZBH on December 19, 1997 in connection with the take up of
Dominion common shares and First Preferred shares by DTA.
ARTICLE 2
The Transactions
Section 2.01. Total Purchase Price. On and subject to the terms and
conditions of this Agreement, (a) G&L shall purchase the Apparel Fabrics
Business for a total of $464,524,157.34 (b) PGI shall purchase the Nonwovens
Business and the DIFCO Business for a total of $351,695,749.27. Such amounts,
which are calculated in accordance with the terms described in the Acquisition
Agreement, including the DIFCO Adjustment, are set forth in detail on Exhibit C
hereto.
Section 2.02. Purchase and Sale of Businesses. On the terms and conditions
set forth in this Agreement (including the manner in which each of the
transactions shall be consummated as described in Section 2.06) and in the Stock
Purchase Agreements attached hereto, the Parties agree that, on the Closing
Date, immediately following the Winding Up and related transactions described in
Section 2.05, the following shall occur:
(a) G&L (or any of its Subsidiaries) shall purchase from DTA, and DTA shall
sell, transfer, convey and deliver to G&L (or such Subsidiaries), free and clear
of all known liens or encumbrances in favor of G&L, all capital stock and Assets
which collectively comprise the Apparel Fabrics Business, including (i) all
outstanding shares of capital stock of the Apparel Fabrics Subsidiaries held
directly or indirectly by DTA, (ii) all Apparel Fabrics Assets held directly by
-16-
<PAGE>
DTA, (iii) any Apparel Fabrics Assets not held by DTA or one of the Apparel
Fabrics Subsidiaries or otherwise not transferred pursuant to clauses (a)(i) and
(a)(ii) hereof, (iv) 50% of the Split Assets, and (vi) 57.4% of the Proportional
Assets.
(b) PGI (or any of its Subsidiaries) shall purchase from DTA, and DTA shall
sell, transfer, convey and deliver to PGI (or such Subsidiary), free and clear
of all known liens or encumbrances in favor of PGI: (1) all capital stock and
Assets which collectively comprise the Nonwovens Business, including (i) all
outstanding shares of capital stock of the Nonwovens Subsidiaries held directly
or indirectly by DTA, (ii) all Nonwovens Assets held directly by DTA, (iii) any
Nonwovens Assets not held by DTA or one of the Nonwovens Subsidiaries or
otherwise not transferred pursuant to the preceding clauses (i) and (ii), (iv)
50% of the Split Assets, and (v) 42.6% of the Proportional Assets; and (2) all
outstanding shares of capital stock of DIFCO MergerCo (which collectively
represent the DIFCO Business).
Section 2.03. Assumption of Liabilities.
(a) Simultaneously with the actions referred to in Section 2.02(a), G&L (or
its chosen Subsidiaries), in partial consideration for the transfer of the
Apparel Fabrics Business, shall assume and on a timely basis pay, satisfy and
discharge (or cause its Subsidiaries to pay, satisfy and discharge) in
accordance with their terms, (i) any and all Apparel Fabrics Liabilities, (ii)
50% of all Split Liabilities, and (iii) 57.4% of all Proportional Liabilities.
(b) Simultaneously with the actions referred to in Section 2.02(b), PGI (or
its chosen Subsidiaries), in partial consideration for the transfer of the
Nonwovens and DIFCO Businesses, shall assume and on a timely basis pay, satisfy
and discharge (or cause its Subsidiaries to pay, satisfy and discharge) in
accordance with their terms, (i) any and all Nonwovens Liabilities, (ii) any and
all DIFCO Liabilities, (iii) 50% of all Split Liabilities, and (iv) 42.6% of all
Proportional Liabilities.
Section 2.04. Methods of Transfer and Assumption.
(a) The Parties hereto agree that (i) any Transfer shall be effected by
delivery by the Transferor to the Transferee of (A) with respect to those Assets
which are evidenced by capital stock certificates or similar instruments,
certificates duly endorsed in blank or accompanied by stock powers or other
instruments of assignment executed in blank, (B) with respect to any real
property interest and/or any improvements thereon, a grant deed or the
equivalent thereof in accordance with local practice, and (C) with respect to
all other Assets, such good and sufficient instruments of contribution,
assignment, conveyance, transfer and delivery, in form and substance reasonably
satisfactory to the appropriate Transferor and Transferee, as shall be necessary
to vest in such Transferee, all of the Transferor's right, title and interest in
and to any such Assets, (ii) the assumption of the Liabilities contemplated
pursuant to Section 2.03 hereof shall be effected by delivery by the Party
assuming such Liability to the Party which is the obligor under such Liability,
of such good and sufficient instruments of assumption, in form and substance
reasonably satisfactory to such two Parties, as shall be necessary for the
assumption of such Liabilities. Each Party hereto also agrees to deliver to
each other Party hereto such other documents, instruments, certificates and
agreements as may be reasonably requested by any such other Party hereto in
connection with the
-17-
<PAGE>
transactions contemplated hereby and to take such further action as may be
reasonably necessary to carry out the provisions hereof, including appropriate
transfer instruments if an Apparel Fabrics Asset, Nonwovens Asset or DIFCO Asset
is inadvertently transferred to the incorrect Transferee. Notwithstanding any
provision to the contrary contained in this Agreement, in the event and to the
extent that there is any conflict between the provisions of this Agreement and
the provisions of any of the instruments of transfer or assumption referred to
in this Section 2.04, the provisions of this Agreement shall prevail and govern.
(b) To the extent that any transfers contemplated hereby are not
consummated prior to or at the Break-Up Time, the Parties hereto covenant and
agree to take all actions reasonably necessary or appropriate to complete such
transfers as promptly thereafter as shall be practicable, it nonetheless being
understood and agreed to by each of the Parties that, subject to Section 2.07,
no Party shall be liable in any manner to any Person who is not a Party to this
Agreement for any failure of any Party of the transfers contemplated by this
Article 2 to be consummated on or subsequent to the Closing Date, whether or not
all of the Assets (including capital stock) to be transferred or the Liabilities
to be assumed pursuant to this Agreement shall have been legally transferred to
or assumed by the relevant Transferee. The Parties agree that as of the Break-
Up Time (a) G&L and PGI shall have, and shall be deemed to have acquired,
complete and sole beneficial ownership over all of the Apparel Fabrics Business
(in the case of G&L) and the Nonwovens and DIFCO Businesses (in the case of
PGI), respectively (including the Apparel Fabrics Assets, the Nonwovens Assets,
the DIFCO Assets, and their respective allocations of the Split Assets and the
Proportional Assets, as applicable), together with all of the rights, powers and
privileges incident thereto, and shall be deemed to have assumed in accordance
with the terms of this Agreement and the other Transaction Agreements all of the
Apparel Fabrics Liabilities (in the case of G&L), the Nonwovens and DIFCO
Liabilities (in the case of PGI), and their respective allocations of Split
Liabilities and the Proportional Liabilities, as applicable, and all of duties,
obligations and responsibilities incident thereto.
Section 2.05. Final Take-Up and Winding Up. On and subject to the terms and
conditions of this Agreement, the Parties will consummate the following
transactions on the Closing Date, in the immediate order of succession as
listed:
(a) DTA shall have acquired or acquire the remaining outstanding 566,199
common shares and 16 First Preferred shares of Dominion not owned by DTA
pursuant to a transaction in accordance with Section 206 of the Canadian
Business Corporation Act.
(b) DTA shall have made or make an election under Section 338 of the Code
with respect to the acquisition of the Dominion shares. DTA shall have caused
or cause each Subsidiary of Dominion, other than DT (USA) and each Subsidiary
directly held by DT (USA), to make a similar election under Section 338 of the
Code.
(c) Pursuant to the terms of the 2003 Tender Offer and 2006 Tender Offer,
DT (USA) shall accept for purchase all 2003 Notes and 2006 Notes validly
tendered and not revoked as of the expiration date of each offer, and the
supplemental indentures (as described in the consent
-18-
<PAGE>
solicitations forming a part of the 2003 Tender Offer and 2006 Tender Offer)
shall become effective on the terms set forth therein.
(d) PGI shall loan DTA [REDACTED] in exchange for a note from DTA;
immediately thereafter, DTA shall redeem the outstanding Second Preferred shares
for [REDACTED].
(e) DTA shall repay [REDACTED] plus accrued and unpaid interest, to The
Chase Manhattan Bank with respect to the DTA senior credit facility.
(f) DTA shall cause Dominion to, and Dominion shall, undergo a "winding up"
pursuant to which all Assets of Dominion shall be transferred to DTA and all
Liabilities of Dominion shall be assumed by DTA, and all of the outstanding
common shares and First Preferred shares of Dominion held by DTA shall be
redeemed.
(g) DTA shall contribute the DIFCO Assets as a capital contribution to
DIFCO MergerCo in exchange for 100 common shares and 100 preferred shares of
DIFCO MergerCo and the assumption by DIFCO MergerCo of the DIFCO Liabilities and
a note issued to DTA for [REDACTED].
(h) DTA shall contribute all Apparel Fabrics Assets directly owned by DTA
and immediately prior thereto used in the operation of the Swift Denim division
of Dominion as a capital contribution to SD MergerCo in exchange for 1000 common
shares of SD MergerCo and the assumption by SD MergerCo of all Apparel Fabrics
Liabilities attributable to, arising out of or otherwise related to the
operation of the Swift Denim division or the Assets contributed to SD MergerCo.
Section 2.06. Transfer of Capital Stock and Assets; Certain Other
Transactions. On and subject to the terms and conditions of this Agreement,
following the actions to be taken in Section 2.05, the Parties will consummate
the following transactions, in the immediate order of succession as listed:
(a) Pursuant to the Stock Sale Agreement between such Parties attached
hereto as Annex 2.06(a), PGI shall purchase all of the outstanding shares of
capital stock of DIFCO MergerCo from DTA for total consideration of [REDACTED]
cash and the note issued by DIFCO MergerCo to DTA for an additional [REDACTED].
(b) DTA shall repay intercompany debt of [REDACTED] to DomTex (Asia) and
[REDACTED] to DomTex B.V.
(c) Pursuant to the Stock Sale Agreement between such Parties attached
hereto as Annex 2.06(c), DTA shall transfer to G&L all of the outstanding shares
of capital stock of DomTex (Asia), valued at [REDACTED], in partial satisfaction
of the G&L Contribution Note.
-19-
<PAGE>
(d) Pursuant to the Stock Sale Agreements between such Parties attached
hereto as Annexes 2.06(d)(1) and 2.06(d)(2), Albuma shall transfer to DomTex
B.V. all of its shares of capital stock of Klopman International SpA
(representing a 26% interest) for total consideration of [REDACTED], and Albuma
shall transfer to DomTex B.V. all of its shares of capital stock of Swift
Textiles France S.A. (representing a 50% interest) for total consideration of
[REDACTED].
(e) PGI shall loan Albuma [REDACTED] in exchange for a note; immediately
thereafter, pursuant to the Stock Sale Agreement between such Parties attached
hereto as Annex 2.06(e), DomTex B.V. shall transfer to Albuma S.A. all of its
shares of capital stock of Dominion Textile France S.a.r.L. for [REDACTED].
(f) PGI shall lend Chicopee Holdings, B.V. [REDACTED] in exchange for a
note; immediately thereafter, pursuant to the Stock Sale Agreements between such
Parties attached hereto as Annexes 2.06(f)(1) and 2.06(f)(2), Chicopee Holdings,
B.V. shall acquire all of the outstanding shares of Nordlys UK Ltd. from DomTex
B.V. for [REDACTED], and Chicopee Holdings, B.V. shall acquire all of the
outstanding shares of Geca-Tapes B.V. from DomTex B.V. for [REDACTED].
(g) PGI shall purchase from DomTex B.V. [REDACTED] of outstanding
indebtedness owed by Nordlys S.A. and Geca-Tapes B.V. to DomTex B.V. Pursuant
to the Consent attached hereto as Exhibit D, this indebtedness is being
transferred in the presence of an authorized representative of Nordlys S.A.
(h) DomTex B.V. shall lend [REDACTED] to DomTex (Asia) in exchange for a
note; immediately thereafter, DomTex (Asia) shall repay to DT (USA) a total of
[REDACTED] (representing principal and accrued interest), including [REDACTED]
withholding taxes to be forwarded to Singapore taxing authorities, with respect
to the outstanding intercompany convertible debt instruments (original aggregate
principal amount of [REDACTED]).
(i) DT (USA) shall make a capital contribution of all intercompany debts
owed to it by its wholly-owned Subsidiary, Swift Textiles Inc., to the capital
of Swift Textiles Inc.
(j) Pursuant to the Stock Sale Agreement between such Parties attached
hereto as Annex 2.06(j), G&L shall purchase all of the outstanding shares of
capital stock of DT (USA) Exports Inc. and all of the outstanding shares of
capital stock of Swift Textiles Inc. from DT (USA) for total consideration of
[REDACTED].
(k) Pursuant to the terms of the 2003 Tender Offer and 2006 Tender Offer,
DT (USA) shall forward [REDACTED] to the Depositary of the 2003 and 2006
Tender Offers in respect of payment for all of the 2003 Notes and 2006 Notes
previously accepted for purchase; immediately thereafter, DT (USA) shall loan
PGI [REDACTED] (in exchange for an intercompany note).
(l) Pursuant to the Stock Sale Agreement between such Parties attached
hereto as Annex 2.06(l), DTA shall transfer to PGI all of the outstanding shares
of capital stock of DT (USA), valued at [REDACTED], in full satisfaction of
its note owed to PGI issued pursuant to Section 2.05(d).
-20-
<PAGE>
(m) Pursuant to the Stock Sale Agreement between such Parties attached
hereto as Annex 2.06(m), DTA shall transfer to PGI all of the outstanding shares
of capital stock of Dominion Textile Mauritius, Inc. for total consideration of
[REDACTED].
(n) Pursuant to the Stock Sale Agreement between such Parties attached
hereto as Annex 2.06(n), DTA shall transfer to G&L all of the outstanding shares
of common stock of SD MergerCo for total consideration of [REDACTED] comprised
of [REDACTED] in cash and full satisfaction of the [REDACTED] outstanding
balance of the G&L Contribution Note.
(o) G&L shall purchase from DT (USA) the remainder of the outstanding
convertible note issued by DomTex (Asia) to DT (USA) (original aggregate
principal amount of [REDACTED]) for [REDACTED].
(p) DT (USA) shall repay [REDACTED] in indebtedness to DTA.
(q) DTA shall repay the PGI Contribution Note, the ZBH Contribution Note
and the InterTech Contribution Note, each with accrued but unpaid interest.
(r) DTA shall pay transaction related and other expenses.
(s) DTA shall redeem the 28 common shares of DTA held by InterTech for
total consideration of [REDACTED].
Section 2.07. Consents; Nonassignable Contracts. Notwithstanding anything
herein to the contrary, this Agreement shall not constitute an agreement to
assign any Contract or Asset if an assignment or attempted assignment of the
same without the consent or approval of another Person would constitute a breach
thereof or in any way impair the rights of a Party thereunder. Each Party hereby
agrees to use commercially reasonable efforts to obtain (or cause its
Subsidiaries to obtain) any consent or approval required to assign any Contract
or Asset pursuant to this Agreement; provided, however, that the transferring
Party shall not be obligated to pay any consideration therefor (except for
filing fees and other administrative charges) to the third party from whom such
consent or approval is requested. If any such consent is not obtained or if an
attempted assignment would be ineffective or would impair such Party's rights
under any such Contract or Asset so that the Party entitled to the benefits of
such purported transfer (the "Intended Transferee") would not receive all such
rights, then (x) the Party purporting to make such transfer (the "Intended
Transferor") shall use commercially reasonable efforts to provide or cause to be
provided to the Intended Transferee, to the extent permitted by law, the
benefits of any such Contract or Asset and the Intended Transferor shall
promptly pay or cause to be paid to the Intended Transferee when received all
moneys received by the Intended Transferor with respect to any such Contract or
Asset and (y) in consideration thereof the Intended Transferee shall pay,
perform and discharge on behalf of the Intended Transferor all of the Intended
Transferor's Liabilities thereunder in a timely manner and in accordance with
the terms thereof. In addition, the Intended Transferor shall take such other
actions as may reasonably be requested by the Intended Transferee in order to
place the Intended Transferee, insofar as reasonably possible, in the same
position as if such Contract or Asset had been transferred as contemplated
hereby and so all the benefits and burdens relating thereto, including
-21-
<PAGE>
possession, use, risk of loss, potential for gain and dominion, control and
command, shall inure to the Intended Transferee. If and when such consents and
approvals are obtained, the transfer of the applicable Contract or Asset shall
be effected in accordance with the terms of this Agreement.
Section 2.08. Other Agreements.
(a) Within 90 days after the execution of this Agreement (and the related
Stock Sale Agreements attached hereto), the Parties hereto shall enter into
agreements, effective as of the Break-Up Time, embodying certain relationships
among such Parties after the Closing Date with respect to the Apparel Fabrics
Business, the Nonwovens Business and the DIFCO Business, including the Tax
Matters Agreement, the Employee Matters Agreement, the Intellectual Property
Agreements, the Insurance Matters Agreement, the Transition Services Agreement
and the Split Assets and Liabilities Agreement (such agreements collectively
referred to as the "Ancillary Separation Agreements"). Each Party agrees to
work in good faith to negotiate and execute the Ancillary Separation Agreements,
as soon as practicable following the Closing Date, on terms consistent with
those set forth and contemplated by this Agreement and the Acquisition
Agreement.
(b) Prior to the time at which the pertinent agreement described in
subsection (a) of this Section 2.08 has been executed, neither G&L nor PGI shall
take any material action (including the disposition of any such Assets or the
resolution, defense or settlement of any such Liabilities) with respect to any
Split Assets or Split Liabilities, Proportional Assets or Proportional
Liabilities, any Tax matters, Employee Benefit Plan matters, Intellectual
Property matters or intercompany transitional services without the express
written consent of G&L (in the case of PGI) or PGI (in the case of G&L). With
respect to any third party claims arising out of or relating to any Split
Assets, Split Liabilities, Proportional Assets, or Proportional Liabilities, PGI
and G&L agree to cooperate in good faith with respect to the resolution, defense
and/or settlement of such claims, on terms and conditions consistent with
Section 9.03 hereof.
Section 2.09. Intercompany Balance and Expense True-Up.
(a) PGI and G&L each acknowledge that certain intercompany account balances
incorporated into the calculations of certain dollar amounts in this Agreement
(including the calculation of the Purchase Price herein) are based on estimated
balances as of December 31, 1997. Within 90 days from the Closing Date, each of
PGI and G&L shall ascertain the actual intercompany account balances as of the
Closing Date for each of their respective Subsidiaries as they relate to the
acquired Businesses, and shall work in good faith to settle amounts owed between
such Parties as a result of any differences in such accounts. For the avoidance
of doubt, no settlement of such balances shall affect the agreement of the
parties that after giving effect to Section 2.09(b), 57.4% of the Cash shall be
the Assets of G&L (or its Subsidiaries and Investments) and 42.6% of the Cash
shall be the Assets of PGI (or its Subsidiaries).
(b) Within 45 days of the Closing Date, (i) PGI and G&L shall calculate and
submit to each other final determinations of all fees and expenses associated
with the transactions contemplated herein and (ii) PGI and G&L shall make a
joint determination of Cash. To the extent that either (x) G&L (together with
its Subsidiaries and Investments) shall have received in excess
-22-
<PAGE>
of 57.4% of Cash or (y) PGI (together with its Subsidiaries and Investments)
shall have received in excess of 42.6% of Cash, the party receiving such excess
amount shall make a cash payment to the other party so that following such
payment G&L (together with its Subsidiaries and Investments) shall have received
57.4% of Cash and PGI (together with its Subsidiaries and Investments) shall
have received 42.6% of Cash. To the extent that such expenses constitute Split
Liabilities or Proportional Liabilities or otherwise affect the relative
purchase price to be paid by each Party (as contemplated herein and in the
Acquisition Agreement), PGI and G&L shall work in good faith to settle the net
difference resulting between the parties by virtue of such expenses pursuant to
the terms and conditions of this Agreement.
(c) In the event that any dispute arises with respect to payments to be
made pursuant to Section 2.09(a) or (b), the Parties shall resolve such dispute
in accordance with Section 10.08.
ARTICLE 3
Representations and Warranties
Section 3.01. Representations and Warranties of G&L. G&L represents and
warrants to PGI that the statements contained in this Section 3.01 are true and
correct as of the date hereof.
(a) Organization. G&L is a corporation organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation.
(b) Authorization of Transaction. G&L and its Subsidiaries have full power
and authority pursuant to their corporate charters to execute and deliver this
Agreement and the other Transaction Agreements, as applicable, and to perform
their obligations thereunder. Each of this Agreement and the other Transaction
Agreements constitutes or will constitute the valid and legally binding
obligation of G&L (or any Subsidiary a party thereto), enforceable in accordance
with its respective terms and conditions. G&L need not give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by the Transaction Agreements, except such as have been given, made
or obtained.
(c) Sufficient Funds. G&L and its Subsidiaries have cash available, and/or
has obtained binding commitments from one or more financial institutions, in
amounts sufficient to pay on the Closing Date the purchase price for the Apparel
Fabrics Business as provided in Article 2.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which G&L (or any of its Subsidiaries) is subject or any provision of
their charter or bylaws or (B) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any Party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement
-23-
<PAGE>
to which G&L (or any of its Subsidiaries) is a Party or by which it is bound or
to which any of its assets is subject, in each case except as would not have a
material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
(e) Investment. Neither G&L nor its Subsidiaries are acquiring the shares
of capital stock of any of the Apparel Fabrics Subsidiaries with a view to or
for sale in connection with any distribution thereof within the meaning of the
Securities Act.
Section 3.02. Representations and Warranties of PGI. PGI represents and
warrants to G&L that the statements contained in this Section 3.02 are true and
correct as of the date hereof.
(a) Organization. PGI and DTA are corporations organized, validly existing
and in good standing under the laws of the jurisdiction of their incorporation.
(b) Authorization of Transaction. PGI and its Subsidiaries have full power
and authority pursuant to their corporate charters to execute and deliver this
Agreement and the other Agreements and to perform their obligations thereunder.
Each of this Agreement and the other Transaction Agreements constitutes or will
constitute the valid and legally binding obligation of PGI and DTA (and any
other Subsidiaries a party thereto), enforceable in accordance with its
respective terms and conditions. Neither PGI nor DTA need give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by the Transaction Agreements, except such as have been given, made
or obtained.
(c) Sufficient Funds. PGI and its Subsidiaries have cash available, and/or
have obtained binding commitments from one or more financial institutions, in
amounts sufficient to pay on the Closing Date the purchase price for the
Nonwovens Business as provided in Article 2.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which PGI (or any of its Subsidiaries) is subject or any provision of
their charter or bylaws or (B) conflict with, result in a breach of, constitute
a default under, result in the acceleration of, create in any Party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
PGI (or any of its Subsidiaries) is a Party or by which it is bound or to which
any of its assets is subject, in each case except as would not have a material
adverse effect on the ability of the Parties to consummate the transactions
contemplated by this Agreement.
(e) Investment. Neither PGI nor any of its Subsidiaries are acquiring the
shares of capital stock of any of the Nonwovens Subsidiaries with a view to or
for sale in connection with any distribution thereof within the meaning of the
Securities Act.
-24-
<PAGE>
Section 3.03. Assets and Capital Stock Transferred "As Is."
(a) The Parties understand and agree that the Parties are not in this
Agreement or in any other agreement or document contemplated by this Agreement
(including the other Transaction Agreements) representing or warranting in any
way (a) as to the value or freedom from encumbrance of, or any other matter
concerning, any Assets or (b) as to the legal sufficiency to convey title to any
of the Assets by the execution and delivery of this Agreement and the Stock Sale
Agreements attached hereto, IT BEING AGREED AND UNDERSTOOD THAT ALL SUCH ASSETS
ARE BEING TRANSFERRED "AS IS," "WHERE IS," and "WITH ALL FAULTS" and that each
Party shall bear the economic and legal risk that any conveyances of such assets
shall prove to be insufficient or that a Party's title to any such assets shall
be other than good and marketable and free from encumbrances. Similarly, the
Parties understand and agree that the Parties are not in this Agreement or in
any other agreement or document contemplated by this Agreement, representing or
warranting in any way that the obtaining of the consents or approvals, the
execution and delivery of any amendatory agreements and the making of the
filings and applications contemplated by this Agreement shall satisfy the
provisions of all applicable agreements or the requirements of all applicable
laws or judgments, it being understood and agree that, subject to Section 2.07
hereof, each Party shall bear the economic and legal risk that any necessary
consents or approvals are not obtained or that any requirements of law or
judgments are not complied with.
(b) Each Party acknowledges that it has had sufficient opportunity to make
whatever investigation it has deemed necessary and advisable for purposes of
determining whether or not to enter into the Transaction Agreements and
acknowledges and agrees that, EXCEPT TO THE EXTENT OF THE EXPRESS
REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS CONTAINED IN THIS
AGREEMENT, SUCH PARTY IS ACQUIRING THE APPAREL FABRICS BUSINESS OR THE NONWOVENS
AND DIFCO BUSINESSES, AS APPLICABLE, IN RELIANCE UPON ITS OWN INVESTIGATION AND
WITHOUT ANY REPRESENTATION OR WARRANTY OF MERCHANTABILITY, FITNESS FOR ANY
PARTICULAR PURPOSE OR ANY OTHER IMPLIED WARRANTIES WHATSOEVER BY ANY OTHER PARTY
TO THIS AGREEMENT.
ARTICLE 4
Conditions
Section 4.01. Conditions to the Obligations of G&L. The obligations of G&L
(and its Subsidiaries) to consummate the transactions contemplated hereby shall
be subject to the condition that each of the conditions set forth below shall
have been satisfied or waived by the Parties for whose benefit such condition
exists.
(a) the representations and warranties set forth in Section 3.02 shall be
true and correct in all material respects at and as of the Closing Date;
-25-
<PAGE>
(b) provisions shall have been made for the G&L Contribution Note to be
repaid in full by DTA on the Closing Date;
(c) there shall not be any injunction, judgment, order, decree, ruling, or
charge in effect preventing consummation of any of the transactions contemplated
by this Agreement or the other Transaction Agreements;
(d) all applicable waiting periods (and any extensions thereof) under the
HSR Act and any applicable European or national merger regulations shall have
expired or otherwise been terminated;
(e) provisions shall have been made for the purchase by DT (USA) on the
Closing Date of all 2003 Notes and 2006 Notes validly tendered in the 2003
Tender Offer and the 2006 Tender Offer; and
(f) provisions shall have been made for the full repayment of all senior
indebtedness of Dominion and its Subsidiaries, and for the redemption of all
Second Preferred shares of Dominion by DTA on the Closing Date.
Section 4.02. Conditions to the Obligations of PGI. The obligations of PGI
(and its Subsidiaries) to consummate the transactions contemplated hereby shall
be subject to the condition that each of the conditions set forth below shall
have been satisfied or waived by the Party for whose benefit such condition
exists.
(a) the representations and warranties set forth in Section 3.01 shall be
true and correct in all material respects at and as of the Closing Date;
(b) provisions shall have been made for the PGI Contribution Note, the ZBH
Contribution Note and the InterTech Contribution Note to be repaid in full by
DTA on the Closing Date;
(c) there shall not be any injunction, judgment, order, decree, ruling, or
charge in effect preventing consummation of any of the transactions contemplated
by this Agreement or the other Transaction Agreements;
(d) all applicable waiting periods (and any extensions thereof) under the
HSR Act and any applicable European or national merger regulations shall have
expired or otherwise been terminated;
(e) provisions shall have been made for the purchase by DT (USA) on the
Closing Date of all 2003 Notes and 2006 Notes validly tendered in the 2003
Tender Offer and the 2006 Tender Offer; and
-26-
<PAGE>
(f) provisions shall have been made for the full repayment of all senior
indebtedness of Dominion and its Subsidiaries, and for the redemption of all
Second Preferred shares of Dominion by DTA on the Closing Date.
ARTICLE 5
Disclosure and Access to Information
Section 5.01. Restrictions on Disclosure of Information.
(a) Without limiting its obligations under any other agreement between or
among the Parties hereto and/or any of their respective Affiliates relating to
confidentiality, subject to Section 5.02, each of the Parties hereto agrees that
it shall not, and shall not permit any of its Affiliates or Representatives to,
disclose any Confidential Information to any Person, other than to such
Affiliates, Representatives or lenders and other financing parties on a need-to-
know basis in connection with the purpose for which the Confidential Information
was originally disclosed. Notwithstanding the foregoing, each of the Parties
hereto and its respective Affiliates and Representatives may disclose such
Confidential Information, and such Information shall no longer be deemed
Confidential Information, to the extent that such Party can demonstrate that
such Confidential Information is or was (i) available to such Party (A) not as a
result of the Acquisition Relationship, and (B) outside the context of the Prior
Relationship, on a nonconfidential basis prior to its disclosure by the other
Party, (ii) in the public domain other than by the breach of this Agreement or
by breach of any other agreement between or among the Parties hereto and/or any
of their respective Affiliates relating to confidentiality, or (iii) lawfully
acquired outside the context of the Acquisition Relationship and the Prior
Relationship on a nonconfidential basis or independently developed by, or on
behalf of, such Party by Persons who do not have access to, or descriptions of,
any such Confidential Information.
(b) Each of the Parties hereto shall maintain, and shall cause their
respective Affiliates to maintain, policies and procedures, and develop such
further policies and procedures as shall from time to time become necessary or
appropriate, to ensure compliance with this Section 5.01.
(c) Notwithstanding any provision in this Agreement to the contrary, this
Section 5.01 shall not preclude the parties hereto from including any
Confidential Information in (i) any filings to be made pursuant to the
Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934,
as amended, or (ii) any filings, correspondence or other information to be
provided to any Tax authority; provided, that (i) only such portion as is
reasonably necessary to be disclosed shall be disclosed, and (ii) the disclosing
party shall give the other Party five business days prior notice of any
disclosure, providing the Owning Party with a copy of the Confidential
Information to be disclosed at such time.
Section 5.02. Legally Required Disclosure of Confidential Information. If
any of the Parties to this Agreement or any of their respective Affiliates or
Representatives becomes legally required to disclose any Confidential
Information, such disclosing Party shall promptly notify the Party
-27-
<PAGE>
owning the Confidential Information (the "Owning Party") and shall use all
commercially reasonable efforts to cooperate with the Owning Party so that the
Owning Party may seek a protective order or other appropriate remedy and/or
waive compliance with this Section 5.02. All expenses incurred by the disclosing
Party in seeking a protective order or other remedy shall reasonably be borne by
the Owning Party. If such protective order or other remedy is not obtained, or
if the Owning Party waives compliance with this Section 5.02, the disclosing
Party or its Affiliate or Representative, as applicable, shall (a) disclose only
that portion of the Confidential Information which its legal counsel advises it
is compelled to disclose or else stand liable for contempt or suffer other
similar significant corporate censure or penalty, (b) use all commercially
reasonable efforts to obtain reliable assurance requested by the Owning Party
that confidential treatment will be accorded such Confidential Information, and
(c) promptly provide the Owning Party with a copy of the Confidential
Information so disclosed, in the same form and format so disclosed, together
with a description of all Persons to whom such Confidential Information was
disclosed.
Section 5.03. Access to Information.
(a) Until the ten-year anniversary of the Closing Date, each of the Parties
hereto shall cooperate with and afford, and shall cause their respective
Affiliates and Representatives to cooperate with and afford, to the other Party
reasonable access upon reasonable advance written request to all Information
(other than Information protected from disclosure by the attorney client
privilege or work product doctrine) created prior to the Break-Up within such
Party's (or its Affiliates' or Representatives') possession. Access to the
requested information shall be provided so long as it relates to the requesting
Party's (the "Requestor") business, assets or liabilities, and access is
reasonably required by the Requestor as a result of the Parties' Prior
Relationship for purposes of auditing, accounting, claims or litigation (except
for claims or litigation between the Parties hereto), employee benefits,
regulatory or tax purposes or fulfilling disclosure or reporting obligations
including, without limitation, Information reasonably necessary for the
preparation of reports required by or filed under the Securities Exchange Act of
1934, as amended, with respect to any period entirely or partially prior to the
Closing Date.
(b) Access as used in this Section 5.03 shall mean the obligation of a
Party in possession of Information (the "Possessor") requested by the Requestor
to exert its reasonable best efforts to locate all requested Information that is
owned and possessed by Possessor, its Affiliates or Representatives. The
Possessor, at its own expense, shall conduct a diligent search designed to
identify all requested Information and shall collect all such Information for
inspection by the Requestor during normal business hours at the Possessor's
place of business. Subject to confidentiality and/or security provisions as the
Possessor may reasonably deem necessary, the Requestor may have all requested
Information duplicated at Requestor's expense. Alternatively, the Possessor may
choose to deliver, at its own expense, all requested Information to the
Requestor in its original form. If so, the Possessor shall notify the Requestor
in writing at the time of delivery if such Information is to be returned to the
Possessor. In such case, the Requestor shall return such Information when no
longer needed to the Possessor at the Possessor's expense.
(c) In connection with providing Information pursuant to this Section 5.03,
each of the Parties hereto shall upon the request of the other Party make
available its respective employees (and
-28-
<PAGE>
those of their respective Affiliates and Representatives) to the extent that
they are reasonably necessary to discuss and explain all requested Information
with and to the requesting Party.
(d) During the ten-year period described herein, the Parties shall maintain
Information in their possession at the Closing Date in accordance with their
respective corporate records retention policies; provided, however, that prior
to disposing of any Information in accordance with such policies, the Parties
hereto shall provide written notice to the other Party of its intent to dispose
of such Information and shall provide such other Party the opportunity to take
ownership and possession of such Information (at such other Party's sole
expense) within 90 days after such notice is delivered. If such other Party
does not confirm its intention in writing to take ownership and possession of
such Information within such 90-day period, the Party who possesses the
Information may proceed with the disposition of such Information. Written
notice of intent to dispose of Information shall include a description of the
Information in detail sufficient to allow the other Party to reasonably assess
its potential need to retain such Information.
Section 5.04. Production of Witnesses. Until the six-year anniversary of
the Closing Date, each of the Parties hereto shall use all commercially
reasonable efforts, and shall cause each of their respective Affiliates to use
all commercially reasonable efforts, to make available to each other, upon
written request, its directors, officers, employees and other Representatives as
witnesses to the extent that any such Person may reasonably be required (giving
consideration to the business demands upon such Persons) in connection with any
legal, administrative or other proceedings in which the requesting Party may
from time to time be involved; provided, however, that with respect to any legal
or administrative proceedings relating to the tax liability of any of the
Parties hereto or any of their respective Affiliates, each of the Parties hereto
shall, and shall cause each of their respective Affiliates to, make their
directors, officers, employees and other Representatives available as witnesses
until such time as the statute of limitations for all tax years prior to and
including the year in which the Break-Up is consummated have expired.
Section 5.05. Reimbursement. Each Party to this Agreement providing access,
information or witnesses to another Party pursuant to Sections 5.03 or 5.04
shall be entitled to receive from the recipient, upon the presentation of
invoices therefor, payment for all reasonable out-of-pocket costs and expenses
(excluding allocated compensation, salary and overhead expense) as may be
reasonably incurred in providing such information or witnesses.
ARTICLE 6
Insurance Matters
Section 6.01. Cooperation in Insurance Matters. Prior to the Break-Up,
Dominion has maintained insurance programs which provide certain coverages for a
number of entities, including Dominion and certain or all of the Apparel Fabrics
Subsidiaries and Nonwovens Subsidiaries, their respective Affiliates, their
officers and directors, and other insured Parties. From and after the Break-Up
Time, except as provided herein, G&L and PGI shall be responsible for obtaining
and maintaining their own insurance programs with respect to the Businesses
acquired pursuant to this
-29-
<PAGE>
Agreement. Notwithstanding the foregoing, (1) each Party, upon the request of
any other Party, shall use commercially reasonable efforts to assist such Party
in the transition to its own separate insurance coverage from and after the
Break-Up Time, and shall provide such Party with any information that is in its
possession and is reasonably available and necessary to either obtain such
insurance coverage or to assist such Party in preventing gaps in its insurance
coverages, (2) each Party on the request of any other Party shall cooperate with
and use commercially reasonable efforts to assist such Party in the collection
of proceeds from insurance claims made under any insurance policy for the
benefit of any insured Party, and (3) neither G&L nor PGI, nor any of their
Affiliates, shall take any action that would jeopardize or otherwise interfere
with any Party's ability to collect any proceeds payable pursuant to any
insurance policy.
Section 6.02. Collection of Insurance Proceeds. In the event that either
G&L or PGI (or any of their respective Subsidiaries) collects insurance proceeds
with respect to a claim relating to Assets other than those acquired with such
Party's purchase of its respective Business or Businesses pursuant to this
Agreement, such Party shall promptly forward the portion of the proceeds of the
claim that relate to such nonacquired assets to the other Party. If the claim
results in proceeds with respect to any Proportional Assets or any Proportional
Liability, the proceeds shall be allocated 57.4% in favor of G&L and 42.6% in
favor of PGI. If the claim results in proceeds with respect to any Split Assets
or Split Liability, the proceeds shall be split 50/50 between G&L and PGI.
Section 6.03. Other Insurance Matters. In addition to the provisions set
forth in this Agreement, the rights and obligations of each of the Parties with
respect to insurance matters, and the procedures for submitting claims with
respect to events, acts or omissions first occurring prior to the Break-Up Time,
shall be governed by the Insurance Matters Agreement.
ARTICLE 7
Employees; Intercompany Arrangements
Section 7.01. Employee Matters.
(a) Effective as of the Break-Up Time, (i) those Apparel Fabrics Employees
who are employed by DTA or any of its Subsidiaries in the Apparel Fabrics
Business immediately after the Winding Up and prior to the Break-Up Time, shall
become employed by G&L or any of its Subsidiaries and (ii) those Nonwovens
Employees and DIFCO Employees who are employed by DTA or any of its Subsidiaries
in the Nonwovens and DIFCO Businesses immediately after the Winding Up and prior
to the Break-Up Time shall become employed by PGI or its Subsidiaries.
(b) In addition to the provisions set forth in this Agreement, the rights
and obligations of the Parties with respect to (i) Employee Benefit Plans for
the benefit of employees and former employees (and their beneficiaries) of
Dominion and its Subsidiaries (including the Apparel Fabric Subsidiaries, the
Nonwovens Subsidiaries and DIFCO), (ii) all Contracts relating to medical,
dental and other services entered into by Dominion or any of such Subsidiaries
existing for the benefit of
-30-
<PAGE>
their employees, and (iii) any other employee matters, shall be set forth in the
Employee Matters Agreement.
(c) The parties hereby acknowledge that on January 27, 1998, G&L made a
payment of $3 million to the Pension Benefit Guaranty Corporation in connection
with Liabilities of certain Employee Benefits Plans that are specifically
identifiable with the Apparel Fabrics Business. In the event that any portion
of the Liability in respect of which such $3 million payment was made to the
PBGC is hereafter determined to be a Split Liability or Proportional Liability,
then such payment shall be taken into account in the calculation of Split
Liabilities and/or Proportional Liabilities, as the case may be.
Section 7.02. Intercompany Arrangements.
(a) Except as specifically provided by this Agreement or the other
Transaction Agreements, to the extent that DTA, Dominion, any Apparel Fabric
Subsidiary, any Nonwovens Subsidiary or DIFCO are providing or selling, as of
the Closing Date, to each other, or charging each other for, any services or
products pursuant to any written agreement or arrangement, then such agreement
or arrangement shall not be deemed altered, amended or terminated as a result of
this Agreement or the consummation of the transactions contemplated hereby;
provided; however, that following the Closing Date, any services and products to
be provided which were not subject to a written agreement or arrangement shall
be provided only on an arm's length basis. Nothing in this Section 7.02 shall
require or authorize any Party to provide and charge each other for any services
other than on the terms and conditions specified herein or in the Ancillary
Separation Agreements.
(b) If not fully settled pursuant to the actions set forth in this Article
2, the Parties hereto agree to take all action as may be necessary in order to
eliminate (whether through repayment, forgiveness or otherwise) all intercompany
balances outstanding as of the Break-Up Time between any of the Parties within
60 days of the Closing Date.
Section 7.03. Products, Supplies and Documents. Each Party shall have the
right to use, for a period not to exceed six months following the Closing Date,
existing products, supplies and documents (including purchase orders, forms,
labels, shipping materials, catalogues, sales brochures, operating manuals,
instructional documents and similar materials, and advertising material) being
transferred to it pursuant to this Agreement which have imprinted thereon any
Intellectual Property not transferred to such Party as part of such Party's
respective acquired Business; provided, that each Party agrees (i) to use only
those such supplies and documents existing in inventory as of the Closing Date,
(ii) to conspicuously state on such supplies and documents when used that they
are no longer documents of the Party to whom such Intellectual Property refers
(or otherwise identifies), and (iii) to not order or utilize in any manner any
additional supplies or documents containing any such Intellectual Property owned
by another Party to this Agreement.
-31-
<PAGE>
ARTICLE 8
Survival
Section 8.01. No Survival of Representatives and Warranties. None of the
representations and warranties of this Agreement shall survive the Closing Date.
Section 8.02. Survival of Agreements.
(a) Except as otherwise contemplated by this Agreement, all covenants and
agreements of the Parties contained in this Agreement shall survive the Closing
Date.
(b) The obligations of the Parties under this Agreement shall survive the
sale or other transfer by any of them of any Assets or businesses or the
assignment by any of them of any Liabilities. To the extent any Party transfers
to another Party other than a Subsidiary of such Party any of Apparel Fabric
Liabilities (in the case of G&L) or the Nonwovens or DIFCO Liabilities (in the
case of PGI), except for amounts of such Liabilities which are not material
individually or in the aggregate, such Party will cause the transferee of such
Liabilities to assume specifically its obligations with respect thereto under
this Agreement and will cause such transferee to fulfill its obligations related
to such Liabilities. In the event the transferee of the such Liabilities does
not fulfill its obligations with respect thereto, the relevant Party previously
transferring such Liabilities shall fulfill their obligations with respect
thereto.
ARTICLE 9
Indemnification
Section 9.01. Indemnification by G&L. G&L shall indemnify, defend and hold
harmless PGI and its Subsidiaries, their respective successors-in-interest, and
each of their respective past and present Representatives (collectively, the
"PGI Indemnitees") against any losses, claims, damages, liabilities or actions,
arising, whether prior to or following the Break-Up, out of or in connection
with the Apparel Fabrics Liabilities (including in connection with any breach by
G&L or any of its Subsidiaries (including the Apparel Fabrics Subsidiaries) of
any terms of the Transaction Agreements), the Apparel Fabrics Assets or the
Apparel Fabrics Business, and G&L shall reimburse the PGI Indemnitees for any
legal or any other expenses reasonably incurred by any of them in connection
with investigating or defending any such loss, claim, damage, liability or
action.
Section 9.02. Indemnification by PGI. PGI shall indemnify, defend and hold
harmless G&L and its Subsidiaries, their respective successors-in-interest, and
each of their respective past and present Representatives (collectively, the
"G&L Indemnitees") against any losses, claims, damages, liabilities or actions,
arising, whether prior to or following the Break-Up, out of or in connection
-32-
<PAGE>
with the Nonwovens Liabilities or the DIFCO Liabilities (including in connection
with any breach by PGI or any of its Subsidiaries (including the Nonwovens
Subsidiaries and DIFCO MergerCo) of any terms of the Transaction Agreements),
the Nonwovens or DIFCO Assets, or the Nonwovens or DIFCO Businesses, and PGI
shall reimburse the G&L Indemnitees for any legal or any other expenses
reasonably incurred by any of them in connection with investigating or defending
any such loss, claim, damage, liability or action.
Section 9.03. Indemnification Concerning Proportional Liabilities and Split
Liabilities.
(a) PGI shall indemnify, defend and hold harmless the G&L Indemnitees
against any losses (including reasonable legal fees and expenses), claims,
damages, liabilities or actions which may be incurred by the G&L Indemnitees,
whether prior to or following the Break-Up, which would be characterized as
Split Liabilities or Proportional Liabilities, in excess of (i) 50% of the
Aggregate Net Split Liabilities or (ii) 57.4% of the Aggregate Net Proportional
Liabilities, as the case may be.
(b) G&L shall indemnify, defend and hold harmless the PGI Indemnitees
against any losses, claims, damages, liabilities or actions which may be
incurred by the PGI Indemnitees, whether prior to or following the Break-Up,
which would be characterized as Split Liabilities or Proportional Liabilities,
in excess of (i) 50% of the Aggregate Net Split Liabilities or (ii) 42.6% of the
Aggregate Net Proportional Liabilities, as the case may be.
(c) For purposes of this Section 9.03 "Aggregate Net Split Liabilities"
means the aggregate net Split Liabilities after reducing such amount by the
aggregate amount of all Split Assets, and "Aggregate Net Proportional
Liabilities" means the aggregate net Proportional Liabilities after reducing
such amount by the aggregate amount of all Proportional Assets.
Section 9.04. Indemnification Procedures.
(a) If any Indemnitee receives notice of the assertion of any Third-Party
Claim with respect to which an Indemnifying Party is obligated under this
Agreement to provide indemnification, such Indemnitee shall give such
Indemnifying Party notice thereof (together with a copy of such Third-Party
Claim, process or other legal pleading) promptly after becoming aware of such
Third-Party Claim; provided, however, that the failure of any Indemnitee to give
notice as provided in this Section 9.04 shall not relieve any Indemnifying Party
of its obligations under this Section 9.04, except to the extent that such
Indemnifying Party is actually prejudiced by such failure to give notice. Such
notice shall describe such Third-Party Claim in reasonable detail.
(b) An Indemnifying Party, at such Indemnifying Party's own expense and
through counsel chosen by such Indemnifying Party (which counsel shall be
reasonably acceptable to the Indemnitee), may elect to defend any Third-Party
Claim. If an Indemnifying Party elects to defend a Third-Party Claim, then,
within ten Business Days after receiving notice of such Third-Party Claim (or
sooner, if the nature of such Third Party claim so requires), such Indemnifying
Party shall notify the Indemnitee of its intent to do so, and such Indemnitee
shall cooperate in the defense of such Third-Party Claim. Such Indemnifying
Party shall pay such Indemnitee's reasonable out-of-pocket expenses incurred in
connection with such cooperation. Such Indemnifying Party shall keep the
-33-
<PAGE>
Indemnitee reasonably informed as to the status of the defense of such Third
Party Claim, and shall provide copies of documentation reasonably requested with
respect to such proceedings. After notice from an Indemnifying Party to an
Indemnitee of its election to assume the defense of a Third-Party Claim, such
Indemnifying Party shall not be liable to such Indemnitee under this Section
9.04 for any legal or other expenses subsequently incurred by such Indemnitee in
connection with the defense thereof other than those expenses referred to in the
preceding sentence; provided, however, that such Indemnitee shall have the right
to employ one law firm as counsel, together with a separate local law firm in
each applicable jurisdiction ("Separate Counsel"), to represent such Indemnitee
in any action or group of related actions (which firm or firms shall be
reasonably acceptable to the Indemnifying Party) if, in such Indemnitee's
reasonable judgment at any time, either a conflict of interest between such
Indemnitee and such Indemnifying Party exists in respect of such claim, or there
may be defenses available to such Indemnitee which are different from or in
addition to those available to such Indemnifying Party and the representation of
both Parties by the same counsel would be inappropriate, and in that event (i)
the reasonable fees and expenses of such Separate Counsel shall be paid by such
Indemnifying Party (it being understood, however, that the Indemnifying Party
shall not be liable for the expenses of more than one Separate Counsel
(excluding local counsel) with respect to any Third-Party Claim and (ii) each of
such Indemnifying Party and such Indemnitee shall have the right to conduct its
own defense in respect of such claim. If an Indemnifying Party elects not to
defend against a Third-Party Claim, or fails to notify an Indemnitee of its
election as provided in this Section 9.04 within the period of ten Business Days
described above, the Indemnitee may defend, compromise, and settle such Third-
Party Claim and shall be entitled to indemnification hereunder (to the extent
permitted hereunder); provided, however, that no such Indemnitee may compromise
or settle any such Third-Party Claim without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, the Indemnifying Party shall not, without the
prior written consent of the Indemnitee, (i) settle or compromise any Third-
Party Claim or consent to the entry of any judgment which does not include as an
unconditional term thereof the delivery by the claimant or plaintiff to the
Indemnitee of a written release from all liability in respect of such Third-
Party Claim or (ii) settle or compromise any Third-Party Claim in any manner
that would be reasonably likely to have a material adverse effect on the
Indemnitee.
Section 9.05. Certain Limitations.
(a) The amount of any indemnifiable losses or other liability for which
indemnification is provided under this Agreement shall be net of any amounts
actually recovered by the Indemnitee from third parties (including amounts
actually recovered under insurance policies) with respect to such indemnifiable
losses or other liability. Any Indemnifying Party hereunder shall be subrogated
to the rights of the Indemnitee upon payment in full of the amount of the
relevant indemnifiable loss. An insurer who would otherwise be obligated to pay
any claim shall not be relieved of the responsibility with respect thereto or,
solely by virtue of the indemnification provision hereof, have any subrogation
rights with respect thereto. If any Indemnitee recovers an amount from a third
party in respect of an indemnifiable loss for which indemnification is provided
in this Agreement after the full amount of such indemnifiable loss has been paid
by an Indemnifying Party or after an Indemnifying Party has made a partial
payment of such indemnifiable loss and the amount received from the third party
exceeds the remaining unpaid balance of such indemnifiable loss, then the
-34-
<PAGE>
Indemnitee shall promptly remit to the Indemnifying Party the excess (if any) of
(A) the sum of the amount theretofore paid by such Indemnifying Party in respect
of such indemnifiable loss plus the amount received from the third party in
respect thereof, less (B) the full amount of such indemnifiable loss or other
liability.
(b) The amount of any loss or other liability for which indemnification is
provided under this Agreement shall be (i) increased to take account of any net
Tax cost incurred by the Indemnitee arising from the receipt or accrual of an
indemnification payment hereunder (i.e., grossed up for such increase) and (ii)
reduced to take account of any net Tax benefit realized by the Indemnitee
arising from incurring or paying such loss or other liability. In computing the
amount of any such Tax cost or Tax benefit, the Indemnitee shall be deemed to
recognize all other items of income, gain, loss, deduction or credit before
recognizing any item arising from the receipt or accrual of any indemnification
payment hereunder or incurring or paying any indemnified loss. Any
indemnification payment hereunder shall initially be made without regard to this
Section 9.05(b) and shall be increased or reduced to reflect any such net Tax
cost (including gross-up) or net Tax benefit only after the Indemnitee has
actually realized such cost or benefit. For purposes of this Agreement, an
Indemnitee shall be deemed to have "actually realized" a net Tax cost or a net
Tax benefit to the extent that, and at such time as, the amount of Taxes payable
by such Indemnitee is increased above or reduced below, as the case may be, the
amount of Taxes that such Indemnitee would be required to pay but for the
receipt or accrual of the indemnification payment or the incurrence or payment
of such loss, as the case may be. The amount of any increase or reduction
hereunder shall be adjusted to reflect any Final Determination with respect to
the Indemnitee's liability for Taxes, and payments between such indemnified
Parties to reflect such adjustment shall be made if necessary.
(c) Any indemnification payment made under this Agreement shall be
characterized for Tax purposes as if such payment were made immediately prior to
the Break-Up.
Section 9.06. Exclusivity of Tax Indemnification. Notwithstanding anything
in this Agreement to the contrary, the terms of the Tax Matters Agreement shall
govern the rights and obligations among the Parties with respect to
indemnification relating to Taxes.
ARTICLE 10
Miscellaneous
Section 10.01. Entire Agreement. This Agreement, the Acquisition Agreement,
and the other Transaction Agreements collectively constitute the entire
agreement among the Parties with respect to the subject matter hereof and
supersede all prior written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter hereof. For the avoidance of
doubt, any references in the Acquisition Agreement to any proportional split of
Assets or Liabilities that was to be made 60% to the Apparel Fabrics Business
and 40% to the Nonwovens Business is hereby agreed to be 57.4% to the Apparel
Fabrics Business and 42.6% to the Nonwovens Business as a result of the DIFCO
Adjustment.
-35-
<PAGE>
Section 10.02. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to any choice of law provision or rule (whether of the State of New York
or any other jurisdiction) that would cause the application of any jurisdiction
other than the State of New York.
Section 10.03. Descriptive Headings; Construction. The descriptive headings
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement. The
Parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the Parties
and no presumption or burden of proof shall arise favoring or disfavoring any
Party by virtue of the authorship of any of the provisions of this Agreement.
Any reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word "including" shall mean including
without limitation.
Section 10.04. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in person, by telecopy with telephonic confirmation to the receiving party
followed by delivery by overnight courier, by express or overnight mail
delivered by a nationally recognized air courier (delivery charges prepaid), or
by registered or certified mail (postage prepaid, return receipt requested) to
the respective Parties as follows:
if to PGI:
c/o Polymer Group, Inc.
4838 Jenkins Avenue
N. Charleston, SC 29405
Attention: Jerry Zucker
Telecopy: (803) 747-4092
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: H. Kurt von Moltke
Telecopy: (312) 861-2200
-36-
<PAGE>
if to G&L:
c/o Galey & Lord, Inc.
980 Avenue of the Americas
4th Floor
New York, New York 10018
Attention: Arthur C. Wiener
Telecopy: (212) 465-3080
with a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke
Telecopy: (212) 446-4900
or to such other address as the Party to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
Any notice or communication delivered in person shall be deemed effective on
delivery. Any notice or communication sent by telecopy or by air courier shall
be deemed effective on the first Business Day at the place at which such notice
or communication is received following the day on which such notice or
communication was sent. Any notice or communication sent by registered or
certified mail shall be deemed effective on the fifth Business Day at the place
from which such notice or communication was mailed following the day on which
such notice or communication was mailed.
Section 10.05. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each Party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other Person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement, except for Article 9 (which is intended to be for the benefit of the
Persons provided for therein and may be enforced by such Persons).
Section 10.06. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
Section 10.07. Binding Effect; Assignment. This Agreement shall inure to
the benefit of and be binding upon the Parties hereto and their respective legal
representatives and successors. This Agreement may not be assigned by any Party
hereto; provided, PGI and G&L may each assign their rights under this Agreement
for collateral security purposes to the lenders providing financing for the
transactions contemplated hereby and all extensions, renewals, replacements,
refinancings and refundings thereof in whole or in part. The Exhibits and
Annexes attached hereto are an integral part of this Agreement and are
incorporated into this Agreement and made a part hereof.
-37-
<PAGE>
Section 10.08. Dispute Resolution. Except as otherwise set forth in the
Related Agreements, resolution of any and all disputes arising from or in
connection with this Agreement, whether based on contract, tort, or otherwise
(collectively, "Disputes"), shall be exclusively governed by and settled in
accordance with the provisions of this Section 10.08. The Parties hereto shall
use all commercially reasonable efforts to settle all Disputes without resorting
to mediation, arbitration or otherwise. If any Dispute remains unsettled, a
Party hereto may commence proceedings hereunder by delivering a written notice
from a Senior Vice President or comparable executive officer of such Party (the
"Demand") to the other Parties providing reasonable description of the Dispute
to the others and expressly requesting mediation hereunder. The Parties hereby
agree to submit all Disputes to non-binding mediation before a mediator
reasonably acceptable to all Parties involved in such Dispute. If, after such
mediation, the Parties subject to such mediation disagree regarding the
mediator's recommendation, such Dispute shall be submitted to arbitration under
the terms hereof, which arbitration shall be final, conclusive and binding upon
the Parties, their successors and assigns. The arbitration shall be conducted in
Chicago, Illinois or New York, New York by three arbitrators, each of whom has
at least eight years of transactional and mergers and acquisitions experience,
acting by majority vote (the "Panel") selected by agreement of the Parties not
later than ten (10) days after delivery of the Demand or, failing such
agreement, appointed pursuant to the commercial arbitration rules of the
American Arbitration Association, as amended from time to time (the "AAA
Rules"). If an arbitrator so selected becomes unable to serve, his or her
successors shall be similarly selected or appointed. The arbitration shall be
conducted pursuant to the Federal Arbitration Act and such procedures as the
Parties subject to such arbitration (each, a "Party") may agree, or, in the
absence of or failing such agreement, pursuant to the AAA Rules. The arbitrators
shall be instructed to make their determination pursuant to the terms and
conditions of this Agreement and the other Transactions Agreements.
Notwithstanding the foregoing: (i) each Party shall have the right to audit the
books and records of the other Party that are reasonably related to the Dispute;
(ii) each Party shall provide to the other, reasonably in advance of any
hearing, copies of all documents which a Party intends to present in such
hearing; and (iii) each Party shall be allowed to conduct reasonable discovery
through written requests for information, document requests, requests for
stipulation of fact and depositions, the nature and extent of which discovery
shall be determined by the Parties; provided that if the Parties cannot agree on
the terms of such discovery, the nature and extent thereof shall be determined
by the Panel which shall take into account the needs of the Parties and the
desirability of making discovery expeditious and cost effective. The award shall
be in writing and shall specify the factual and legal basis for the award. The
Panel shall apportion all costs and expenses of arbitration, including the
Panel's fees and expenses and fees and expenses of experts, between the
prevailing and nonprevailing Party as the Panel deems fair and reasonable. The
Parties hereto agree that monetary damages may be inadequate and that any Party
by whom this Agreement is enforceable shall be entitled to seek specific
performance of the arbitrators' decision from a court of competent jurisdiction,
in addition to any other appropriate relief or remedy. Notwithstanding the
foregoing, in no event may the Panel award consequential, special, exemplary or
punitive damages. Any arbitration award shall be binding and enforceable against
the Parties hereto and judgment may be entered thereon in any court of competent
jurisdiction.
Section 10.09. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and
-38-
<PAGE>
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any Party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the Parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the Parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the fullest extent possible.
Section 10.10. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any Party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
Section 10.11. Amendment. No change or amendment will be made to this
Agreement or the other Transaction Agreements except by an instrument in writing
signed on behalf of each of the Parties hereto.
Section 10.12. Employment Solicitation. For a period of 24 months following
the Closing Date no Party may, and will not permit any of its Subsidiaries or
agents to, directly or indirectly, solicit or recruit for its employment any
then-current employee of the other Parties, or their Subsidiaries, without the
prior written consent of the relevant other Party; provided, however that
nothing in this Section 10.12 shall (i) prohibit the employment by any Party or
its Subsidiaries of any employee of the other who seeks employment on his or her
own initiative without prior contact with him or her initiated by any employee
or agent of such Party, (ii) restrict the operation of the Employee Matters
Agreement, or (iii) prohibit the employment of any person who applied for
employment with any Party solely in response to any public medium advertising.
Section 10.13. Expenses. Except as otherwise provided in this Agreement or
the other Transaction Agreements, all costs and expenses of G&L, PGI and their
respective Subsidiaries, incurred in connection with this Agreement (whether or
not payable as of the Closing Date) and with the consummation of the
transactions contemplated by this Agreement shall be paid by the Party incurring
such cost and expenses. Such costs and expenses shall include, without
limitation, investment banking, legal, accounting and printing costs and
expenses and transfer taxes; provided that any of such costs and expenses which
constitute Split Liabilities or Proportional Liabilities shall be paid in
accordance with Section 2.09.
* * *
-39-
<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
GALEY & LORD, INC.
By:
-------------------------------------
Name:
Title:
POLYMER GROUP, INC.
By:
-------------------------------------
Name: Jerry Zucker
Title: Chairman, President & CEO
DT ACQUISITION INC.
By:
-------------------------------------
Name: Jerry Zucker
Title: Authorized Signatory
DOMINION TEXTILE INC.
By:
-------------------------------------
Name: Jerry Zucker
Title: Authorized Signatory
S-1
<PAGE>
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
DOMINION TEXTILE INTERNATIONAL
(ASIA) PTE. LTD
By:
-------------------------------------
Name: Jerry Zucker
Title: Authorized Signatory
DOMINION TEXTILE INTERNATIONAL B.V.
By:
-------------------------------------
Name: Jerry Zucker
Title: Authorized Signatory
DOMINION TEXTILE (USA) INC.
By:
-------------------------------------
Name: Jerry Zucker
Title: Authorized Signatory
ALBUMA S.A.
By:
-------------------------------------
Name: Jerry Zucker
Title: Authorized Signatory
CHICOPEE HOLDINGS, B.V.
By:
-------------------------------------
Name: Jerry Zucker
Title: Chairman, President & CEO
S-2
<PAGE>
EXHIBIT 7.1:
FINANCIAL STATEMENTS REQUIRED
UNDER ITEM 7(A).
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Boards of Directors and stockholders of:
Galey & Lord, Inc. and
Polymer Group, Inc.
We have audited the accompanying combined balance sheets of the Nonwovens
Business of Dominion Textile Inc. (the "Business") as of June 30, 1996 and
1997, and the related combined statements of income and deficit and cash flows
for the years ended June 30, 1995, 1996 and 1997. These financial statements
are the responsibility of the Business' management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, based on our audits, such combined financial statements
present fairly, in all material respects, the combined financial position of
the Business as of June 30, 1996 and 1997, and the combined results of its
operations and its cash flows for the years ended June 30, 1995, 1996 and
1997, in conformity with accounting principles generally accepted in the
United States of America.
The accompanying combined financial statements have been prepared from the
separate records maintained by the Business and may not necessarily be
indicative of the conditions that would have existed or of the results of
operations if the Business had been operated as a separate entity for all
periods presented. Portions of certain income, expenses, assets and
liabilities represent allocations made from Dominion Textile Inc.'s
headquarters, as explained in the basis of presentation.
Deloitte & Touche
Chartered Accountants
January 29, 1998
1
<PAGE>
NONWOVENS BUSINESS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
-------- --------
ASSETS
------
<S> <C> <C>
Current assets
Cash and cash equivalents................................ $ 11,690 $ 2,644
Accounts receivable, net of allowance for doubtful
accounts of $471 (1996--$593)........................... 33,484 35,366
Other receivables........................................ 6,043 3,335
Inventories (Note 4)..................................... 25,753 25,507
Other current assets..................................... 1,448 3,918
-------- --------
78,418 70,770
Investment in Dominion Nonwovens Sudamericana S.A. (Note
5)........................................................ 9,481 --
Property, plant and equipment, net (Note 6)................ 121,737 117,689
Intangible assets, net (Note 7)............................ 19,042 20,116
Other assets (Note 8)...................................... 3,903 4,609
-------- --------
Total assets........................................... $232,581 $213,184
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities
Short-term borrowings.................................... $ -- $ 6,277
Accounts payable......................................... 14,054 15,090
Interest payable......................................... 1,844 1,712
Income taxes payable..................................... 363 78
Payroll, related taxes and other employee related liabil-
ities................................................... 4,571 4,445
Other accrued liabilities................................ 10,061 2,136
Long-term debt due within one year (Note 9).............. 923 986
-------- --------
31,816 30,724
Long-term debt (Note 9).................................... 83,227 94,479
Deferred income taxes (Note 3)............................. 18,209 17,660
Other non-current liabilities.............................. 7,489 5,555
-------- --------
Total liabilities...................................... 140,741 148,418
-------- --------
Stockholders' equity
Additional paid-in capital............................... 99,141 79,362
Deficit.................................................. (3,789) (16,164)
Cumulative translation adjustment (Note 11).............. (3,512) 1,568
-------- --------
Total stockholders' equity............................. 91,840 64,766
-------- --------
Total liabilities and stockholders' equity............. $232,581 $213,184
======== ========
</TABLE>
See notes to the combined financial statements
2
<PAGE>
NONWOVENS BUSINESS
COMBINED STATEMENTS OF INCOME AND DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
JUNE 30,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Sales............................................ $202,133 $188,890 $168,394
Cost of goods sold............................... 150,099 152,126 138,937
Restructuring charge (Note 1).................... 894 -- --
-------- -------- --------
Gross profit..................................... 51,140 36,764 29,457
-------- -------- --------
Selling expenses................................. 9,030 9,744 8,903
Administrative expenses.......................... 14,692 12,917 13,615
Goodwill amortization............................ 736 745 678
-------- -------- --------
24,458 23,406 23,196
-------- -------- --------
Operating income................................. 26,682 13,358 6,261
Interest expense, net............................ (7,549) (7,207) (9,914)
Other income, net (Note 2)....................... 102 130 777
-------- -------- --------
Income (loss) before provision for (recovery of)
income taxes.................................... 19,235 6,281 (2,876)
Provision for (recovery of) income taxes (Note
3).............................................. 6,860 1,099 (1,230)
-------- -------- --------
Net income (loss) before extraordinary loss...... 12,375 5,182 (1,646)
Extraordinary loss on early extinguishment of
debt............................................ -- (1,017) --
-------- -------- --------
Net income (loss)................................ 12,375 4,165 (1,646)
-------- -------- --------
Deficit, at beginning............................ (16,164) (20,329) (18,683)
-------- -------- --------
Deficit, at end.................................. $ (3,789) $(16,164) $(20,329)
======== ======== ========
</TABLE>
See notes to the combined financial statements
3
<PAGE>
NONWOVENS BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED
JUNE 30,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income (loss).............................. $ 12,375 $ 4,165 $ (1,646)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary loss on early extinguishment of
debt........................................ -- 1,017 --
Depreciation and amortization................ 14,717 13,080 12,550
Deferred income taxes........................ 550 4,506 (137)
Loss (gain) on disposal of property, plant
and equipment............................... 307 (61) (188)
Changes in assets and liabilities
Receivables, net............................. (903) (2,462) (5,439)
Inventories.................................. (435) 4,513 (4,795)
Other current assets......................... 2,356 (1,167) (257)
Other assets................................. 697 1,891 (203)
Current liabilities.......................... 7,431 (10,308) 5,822
Other liabilities............................ 1,933 574 915
Other, net..................................... (2,179) (3,263) 1,865
-------- -------- --------
Net cash provided by operating activities.. 36,849 12,485 8,487
Investing activities
Capital expenditures........................... (21,856) (21,819) (22,273)
Proceeds from sale of property, plant and
equipment..................................... (64) 471 1,940
Investment in Dominion Nonwovens Sudamericana
S.A........................................... (9,481) -- --
Other, net..................................... 2,001 2,070 (5,598)
-------- -------- --------
Net cash used in investing activities...... (29,400) (19,278) (25,931)
Financing activities
Repayment of short-term borrowings............. (12,159) (3,503) (7,312)
Repayment of long-term debt.................... (11,314) (82,396) (48,417)
Issue of short-term borrowings................. 5,882 637 1,551
Issue of long-term debt........................ -- 88,572 35,656
Changes in additional paid-in capital.......... 19,779 (910) 34,477
-------- -------- --------
Net cash provided by financing activities.. 2,188 2,400 15,955
Effect of changes in exchange rates on cash and
cash equivalents................................ (592) (54) 1,825
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................... 9,045 (4,447) 336
Cash and cash equivalents, beginning of
year...................................... 2,644 7,091 6,755
-------- -------- --------
Cash and cash equivalents, end of year..... $ 11,689 $ 2,644 $ 7,091
======== ======== ========
Supplemental disclosure of cash flow information
Net cash paid (received) during the year for:
Interest....................................... $ 6,771 $ 6,784 $ 10,012
Income taxes................................... 6,025 (128) (923)
</TABLE>
See notes to the combined financial statements
4
<PAGE>
NONWOVENS BUSINESS
BASIS OF PRESENTATION
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
GENERAL
The consolidated financial statements of Dominion Textile Inc. (the
"Corporation"), a Canadian company, have been issued to stockholders.
All dollar amounts in the combined financial statements are stated in US
dollars.
The combined financial statements of the Nonwovens Business of Dominion
Textile Inc. (the "Business") include the operations of Poly-Bond Inc.,
Nordlys S.A., Dominion Nonwovens Sudamericana S.A. and of Dominion Industrial
Fabrics Company, which were operated as subsidiaries or divisions of Dominion
Textile Inc. On December 19, 1997, pursuant to a takeover offer, DT
Acquisition Inc., an affiliate of Polymer Group, Inc. ("PGI") acquired all
shares tendered which approximated 98% of the outstanding common stock of the
Corporation. In connection with the change of control, PGI entered into a
preliminary agreement with Galey & Lord, Inc., to sell it certain operations.
In contemplation of the change in control and the subsequent sale of certain
operations, the operations and the net assets of the Corporation have been
essentially divided into two groups: the Apparel Fabrics Business and the
Nonwovens Business.
The combined financial statements have been prepared using the Corporation's
historical basis in the assets and liabilities and historical results of
operations related to the Business. Changes in additional paid-in capital
represent the Corporation's contribution of its net operating investment plus
net cash transfers to or from the Corporation. The combined financial
statements reflect the results of operations, financial position and cash
flows of the Business as if it had operated as a separate entity for all
periods presented and may not be indicative of actual results of operations
and financial position of the Business under different ownership.
Additionally, the combined financial statements include allocations of
certain corporate headquarters assets, liabilities (excluding deferred income
taxes), and net expenses. All significant intergroup transactions and balances
have been eliminated.
ALLOCATIONS
The liabilities of the Business include outstanding direct third-party
indebtedness and the amount of debt based on the ratio of the Business'
average net operating investment to the aggregate net operating investment of
the two groups. Interest expense shown in the combined financial statements
reflects the interest expense associated with the aggregate borrowings for
each period presented principally based on a blend of the Corporation's long-
term weighted average interest rates for the applicable period.
General corporate overhead related to the Corporation's headquarters has
been allocated to the Business based on the ratio of the Business' sales to
the aggregate sales of the Corporation. The costs of these services charged to
the Business are not necessarily indicative of the costs that would have been
incurred if the Business had performed these functions as a stand-alone
entity. Additionally, income taxes on allocated general corporate overhead are
calculated using the Corporation's statutory rate.
Management believes that the basis of allocation is reasonable.
5
<PAGE>
NONWOVENS BUSINESS
BASIS OF PRESENTATION--(CONTINUED)
The following table illustrates the results of applying the allocation
method described above on various financial statement items:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
JUNE 30,
-------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net impact on gross profit.................... $(1,143) $ (305) $ (166)
General corporate overhead, net............... (1,923) (2,421) (6,170)
Recovery of income taxes...................... 805 1,087 2,039
Extraordinary loss on early extinguishment of
debt......................................... -- (1,017) --
------- ------- -------
$(2,261) $(2,656) $(4,297)
======= ======= =======
<CAPTION>
AS OF JUNE 30,
----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net assets excluding long-term debt........... $ 4,732 $ 118
Long-term debt................................ 77,950 87,424
Cumulative translation adjustment............. (1,408) (167)
</TABLE>
6
<PAGE>
NONWOVENS BUSINESS
SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
The combined financial statements have been prepared in accordance with U.S.
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. The most significant accounting policies are as follows:
The combined financial statements include the accounts of Poly-Bond Inc.,
Nordlys S.A., Dominion Nonwovens Sudamericana S.A. and of Dominion Industrial
Fabrics Company, plus certain allocations from the corporate headquarters as
explained in the basis of presentation. All significant intercompany
transactions are eliminated.
The business acquisitions are accounted for using the purchase method. The
assets and liabilities of the acquired entities are adjusted to appropriate
carrying values.
NATURE OF OPERATIONS
The Business produces nonwoven fabrics used in hygiene, medical and
industrial markets. The Business also supplies custom designed technical
fabrics for inherently flame resistant protective wear, cloth coated abrasives
and a variety of other industrial applications.
FISCAL YEAR
The Business' fiscal year is the 52- or 53-week ending on the last Saturday
in June. Fiscal 1995 includes operations for a 52-week period, whereas fiscal
1996 includes operations for a 53-week period and fiscal 1997 includes
operations for a 52-week period.
TRANSLATION OF FOREIGN CURRENCIES
Unrealized translation gains and losses on assets and liabilities
denominated in foreign currencies are reflected in income of the period.
Unrealized translation gains or losses on debt designated as a hedge of
foreign self-sustaining operations are included in the cumulative translation
adjustment in stockholders' equity.
The assets and liabilities of foreign operations, all of which are self-
sustaining, are translated at exchange rates in effect at the balance sheet
dates. Revenue and expense items are translated at average exchange rates
prevailing during the period. The resulting gains and losses are accumulated
in the cumulative translation adjustment in stockholders' equity.
FINANCIAL INSTRUMENTS
The Business enters into a variety of financial instruments to manage its
exposure to foreign currency rates. These instruments are used for hedging
purposes and are employed in connection with an underlying asset, liability,
firm commitment or anticipated transaction.
Gains and losses on hedges of existing assets and liabilities are included
in the carrying amounts of those assets and liabilities and are ultimately
recognized in income as part of those carrying amounts. Gains and losses
related to qualifying hedges of firm commitments or anticipated transactions
are also deferred and recognized in income or as adjustments of carrying
amounts when the hedged transaction occurs. Gains and losses on financial
instruments that do not qualify as hedges for accounting purposes are
recognized in income.
7
<PAGE>
NONWOVENS BUSINESS
SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
CASH EQUIVALENTS
Cash equivalents include all highly liquid short-term instruments purchased
with a maturity of three months or less.
INVENTORY VALUATION
Inventories are valued at the lower of cost (determined substantially on the
first-in, first-out method) and net realizable value or replacement value for
certain supplies. The cost of work in process and finished goods includes raw
materials, direct labor and certain manufacturing overhead expenses. Adequate
provision is made for slow moving and obsolete inventories.
DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at historical cost. Depreciation is
provided on a straight-line basis at varying rates which allocate the cost of
the assets over their estimated economic lives. Buildings are amortized
primarily over 25 years and machinery and equipment over 3 to 15 years.
Goodwill which represents, at the acquisition date, the excess of cost over
the fair value of companies acquired, is amortized on a straight-line basis
over a maximum of 40 years. The Business evaluates the carrying value of
goodwill for potential permanent impairment on an ongoing basis. In order to
determine if such a permanent impairment exists, the Business' management
considers each business unit's financial condition and expected future cash
flows, using projected financial performance. A permanent impairment in the
value of goodwill is written off against income in the year such impairment is
recognized.
Other intangible assets are amortized over their respective estimated useful
lives for periods ranging from 4 to 25 years. Deferred refinancing costs are
amortized over the term of the related debt.
ADOPTION OF NEW ACCOUNTING STANDARD
During 1997, the Business adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of." SFAS 121 establishes
accounting standards for recording the impairment of long-lived assets,
certain identifiable intangibles, goodwill and assets to be disposed of. The
management determined that no impairment loss was needed to be recognized for
applicable assets of its operations. Such determination does not envisage the
change of control described in the basis of presentation.
8
<PAGE>
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
1. RESTRUCTURING CHARGE
In the fourth quarter of 1997, the Business recorded a $0.9 million
provision for its share in a company-wide cost reduction program. This charge
provided for severance payments and rationalization costs in the general and
administrative areas to be implemented in 1998.
2. OTHER INCOME, NET
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED JUNE 30,
------------------
1997 1996 1995
----- ----- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Gain (loss) on disposal of property, plant and
equipment............................................ $(307) $ 61 $188
Business' share in gain realized upon termination of
pension plan......................................... 926 739 --
Other items, net...................................... (517) (670) 589
----- ----- ----
$ 102 $ 130 $777
===== ===== ====
</TABLE>
3. INCOME TAXES
The Business follows Statement of Financial Accounting Standards No. 109 in
accounting for income taxes.
Dominion Textile Inc., as a Canadian company, is subject to Canadian tax
legislation. The combined income taxes differ from the income taxes calculated
using the Canadian statutory rates for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income taxes.............. $19,235 $6,281 $(2,876)
Statutory income tax rates in Canada........... 38.83% 38.95% 38.80%
Income taxes based on combined basic Canadian
federal and provincial rates.................. $ 7,469 $2,446 $(1,116)
Increase (decrease) in income taxes resulting
from:
Nondeductible items.......................... 200 172 --
Revenue not currently taxable................ (476) (1,100) (277)
Utilization of tax benefits carried forward.. (140) (1,103) (327)
Other........................................ (193) 684 490
------- ------ -------
$ 6,860 $1,099 $(1,230)
======= ====== =======
Income taxes (recovery)
Current...................................... $ 6,676 $ 474 $ (778)
Deferred..................................... 184 625 (452)
------- ------ -------
Total income taxes......................... $ 6,860 $1,099 $(1,230)
======= ====== =======
</TABLE>
9
<PAGE>
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
At June 30, 1997 and 1996, the deferred tax assets (included in other
current assets) and the deferred tax liability are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets
Accounts receivable................................... $ (7) $ 28
Non-deductible items.................................. 890 441
------- -------
$ 883 $ 469
======= =======
Deferred tax liability
Property, plant and equipment......................... $18,209 $17,660
</TABLE>
The Internal Revenue Service is examining the income tax returns of Dominion
Textile (USA) Inc., a company under common control, for the years 1987 through
1989. Management is of the opinion that it has adequately provided for any
additional income taxes that may be assessed as a result of this examination.
Foreign tax credits would offset the amount of undistributed income of
international subsidiaries which would be subject to additional income taxes
if distributed.
4. INVENTORIES
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Finished goods................................................. $10,557 $12,722
Work in process, including greige fabric for further
processing.................................................... 5,499 5,932
Raw materials and supplies..................................... 9,697 6,853
------- -------
$25,753 $25,507
======= =======
</TABLE>
5. INVESTMENT IN DOMINION NONWOVENS SUDAMERICANA S.A.
During the year, the Business invested $9.5 million, including related
costs, for a 50% interest in a newly formed company located in Argentina,
Dominion Nonwovens Sudamericana S.A. (DNS). DNS will manufacture and market
nonwovens to hygiene markets in South America. Commercial operations have
started in November 1997.
6. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 264 $ 329
Buildings and leasehold improvements........................ 28,881 30,519
Less: Accumulated depreciation.............................. (9,037) (9,200)
-------- --------
20,108 21,648
-------- --------
Machinery and equipment..................................... 174,986 161,608
Less: Accumulated depreciation.............................. (73,357) (65,567)
-------- --------
101,629 96,041
-------- --------
$121,737 $117,689
======== ========
</TABLE>
10
<PAGE>
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation and amortization of property, plant and equipment amounts to
$13,982, $12,336 and $11,871 in 1997, 1996 and 1995, respectively.
7. INTANGIBLE ASSETS, NET
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Goodwill...................................................... $24,410 $24,743
Other......................................................... 2,987 3,033
------- -------
27,397 27,776
Less: Accumulated amortization................................ (8,355) (7,660)
------- -------
$19,042 $20,116
======= =======
</TABLE>
Total intangible asset amortization charged to income amounts to $735, $744
and $679, in 1997, 1996 and 1995, respectively.
8. OTHER ASSETS
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Deferred refinancing and other costs............................. $3,903 $2,363
Note receivable (a).............................................. -- 2,246
------ ------
$3,903 $4,609
====== ======
</TABLE>
- --------
(a) The $10.0 million note received on the sale of Wayn-Tex Inc., a former
subsidiary of the Corporation, and due in August 1999, was prepaid
subsequent to year-end and accordingly has been reclassified in other
current receivables at June 30, 1997. The Business was allocated a portion
of the note based on the allocation method explained in the basis of
presentation. The interest rate on the note was 11.75%.
9. LONG-TERM DEBT
The Business' long-term debt is as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Secured
Capital lease (a).................................... $ 5,433 $ 6,760
Unsecured
Business' share in general corporate long-term debt
(b)................................................. 77,950 87,424
Other................................................ 767 1,281
------- -------
84,150 95,465
Long-term debt due within one year..................... (923) (986)
------- -------
$83,227 $94,479
======= =======
</TABLE>
- --------
(a) The capital lease is payable in French francs and is due through July 15,
2004 and bears interest based on governmental debt average rates.
11
<PAGE>
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(b) As of June 30, 1997 and 1996, the general corporate long-term debt is as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Unsecured and Guaranteed Senior Notes, Due November 2003
(i).................................................... $150,000 $150,000
Unsecured and Guaranteed Senior Notes, Due April 2006
(ii)................................................... 125,000 125,000
Unsecured Revolving Credit Facility..................... -- 57,000
Other................................................... -- 686
-------- --------
275,000 332,686
Long-term debt due within one year...................... -- (56)
-------- --------
$275,000 $332,630
======== ========
</TABLE>
- --------
(i) These notes were issued by Dominion Textile (USA) Inc. and are
unconditionally guaranteed by the Corporation.
(ii) In 1996, the Corporation completed a refinancing plan which included
the issue by Dominion Textile (USA) Inc. of $125 million of Guaranteed
Senior Notes and the concurrent arrangement of the Revolving Credit
Facility. Proceeds of the senior notes and from certain simultaneous
borrowings under the Revolving Credit Facility were used to prepay
secured loans outstanding (including prepayment premiums and accrued
interest).
The Revolving Credit Facility of $100 million will mature on April 1,
2001 and bears interest at a floating rate equal to, at the borrower's
option (i) the higher of the prime rate or Federal Funds Rate plus
0.5%; or (ii) Libor plus a margin which is subject to change within a
range of 0.5% and 2.0% depending on the consolidated debt to cash flow
ratio of the Corporation. Interest payment dates vary in accordance
with the maturity period selected for each borrowing made under the
facility. The facility also provides for availability of letters of
credit.
The credit facilities governing the long-term indebtedness of the
Corporation contain covenants which include, among others, covenants
restricting certain investments, capital expenditures, other
indebtedness, disposition of assets, mergers and acquisitions, liens
and encumbrances, and also set out certain financial covenants. These
financial covenants include, among others, requirements for the
Corporation to maintain various consolidated financial ratios and net
worth levels in excess of predefined levels.
In addition, the change of control, discussed in the basis of
presentation, will cause Dominion Textile (USA) Inc. to offer, within
30 days after the change of control, to repurchase all outstanding
senior notes at a predefined price.
As of June 30, 1997, letters of credit aggregating $4.3 million were
issued, representing contingent liabilities of the Corporation under
the Revolving Credit Facility and $95.7 million was unutilized and
available.
(c) The payments required on the long-term debt are as follows:
<TABLE>
<CAPTION>
BUSINESS'
CORPORATION SHARE
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998................................................... $ -- $ 923
1999................................................... -- 827
2000................................................... -- 721
2001................................................... -- 787
2002................................................... -- 860
2003 and subsequent years.............................. 275,000 80,032
-------- -------
$275,000 $84,150
======== =======
</TABLE>
12
<PAGE>
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(d) Interest expense related to long-term debt totaled $8.4 million, $6.9
million and $7.7 million, in 1997, 1996 and 1995, respectively.
(e) The following table presents the interest rates as of June 30, 1997:
<TABLE>
<S> <C>
Canadian prime rate................ 4.75%
US prime rate...................... 8.50%
Federal Funds rate................. 5.63%
Libor--3-month period.............. 5.81%
</TABLE>
(f) As of June 30, 1997, the Business maintained other available bank lines of
credit for general corporate purposes, at the bank's prime rate of
interest or equivalents, to meet normal operating requirements.
10. FINANCIAL INSTRUMENTS
Risk management
The Business operates internationally and is exposed to market risks from
changes in foreign exchange rates.
Foreign currency hedging
During the period, the Business used forward contracts to hedge certain
operating and capital cash flows. As of June 30, 1997, $20.9 million notional
amount of forward exchange contracts were outstanding.
Interest rates
Substantially all long-term debt is issued at fixed interest rates.
Fair values
Fair values approximate amounts at which financial instruments could be
exchanged between willing parties, based on current markets for instruments of
the same risk, principal and remaining maturities. Fair values are based on
estimates using present value and other valuation techniques which are
significantly affected by the assumptions used concerning the amount and
timing of future cash flows and discount rates which reflect varying degrees
of risk.
Therefore, due to the use of subjective judgment and uncertainties, the
aggregate fair value amount should not be interpreted as being realizable in
an immediate settlement of the instruments.
As of June 30, 1997 and 1996 the carrying value of all financial instruments
approximates fair value with the following exceptions:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
-------------- ---------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Long-term debt.......... $84,150 $86,380 $95,470 $92,386
Forward exchange
contract position...... -- (1,172) -- --
</TABLE>
13
<PAGE>
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Credit risk
The Business is exposed to credit-related losses in the event of non-
performance by counterparties to financial instruments, but it does not expect
any counterparties to fail to meet their obligations, given their high credit
ratings. Where appropriate, the Business obtains collateral in the form of
rights to securities or arranges master netting agreements. The credit
exposure of the financial instruments is represented by the fair value of
contracts with a positive fair value at the reporting date, reduced by the
effects of master netting agreements.
The Business is exposed to credit risk from customers. However, the Business
has a large number of diverse customers which minimizes the concentration of
this risk. Sales to one customer represented 11% in 1995 and sales to two
customers represented 18% and 33% in 1996 and 1997, respectively, of the
Business' combined sales.
Guarantees
As of June 30, 1997, the Corporation had outstanding guarantees of $4.3
million (1996 - nil) representing financial guarantees issued in the normal
course of business.
11. CUMULATIVE TRANSLATION ADJUSTMENT
The changes in the cumulative translation adjustment are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning.................................... $ 1,568 $ 3,732
Changes during the year................................. (5,080) (2,164)
------- -------
Balance at end.......................................... $(3,512) $ 1,568
======= =======
</TABLE>
12. EMPLOYEE BENEFITS
Defined benefit pension plans
The Corporation maintains defined benefit pension plans that provide for
pensions for both hourly and salaried employees based on length of service and
rate of pay. The Corporation funding policy is to make contributions to its
pension funds based on various actuarial cost methods as permitted by pension
regulatory bodies. The companies are responsible to adequately fund the plans.
Plan assets at June 30, 1997 and 1996 consisted primarily of listed stocks,
mutual funds and bonds. Contributions reflect actuarial assumptions concerning
future investment returns, salary projections and future service benefits.
The cost of pensions is accrued and charged to income over employees'
working lives. Pension expense was calculated using a value of assets adjusted
to market over periods of up to five years. The weighted average discount rate
was 7.75% in 1997, 1996 and 1995, the rate of increase in future compensation
levels used in determining the actuarial present value of the accrued pension
benefits was 5.0% in 1997 (1996 and 1995 - 5.0% to 6.5%), and the expected
long-term rate of return on plan assets was 8.0% in 1997 and 1996.
14
<PAGE>
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the Corporation's defined benefit pension plans as of
the most recent valuation dates for June 30, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -----------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligation... $(22,174) $(30,166) $(38,794) $(29,374)
-------- -------- -------- --------
Accumulated benefit
obligation.............. (22,331) (30,846) (39,116) (29,905)
-------- -------- -------- --------
Projected benefit
obligation for service
rendered to date........ (23,277) (33,828) (39,998) (31,659)
Plan assets at fair
value................... 32,742 26,339 53,957 23,115
-------- -------- -------- --------
Projected benefit
obligation less than (in
excess of) plan assets.. 9,465 (7,489) 13,959 (8,544)
Unrecognized net (gain)
loss.................... (9,210) 353 (13,200) 1,854
Additional minimum
liability recognized.... -- (1,912) (105) (2,263)
Prior service cost not
yet recognized in net
periodic pension cost... 370 2,753 413 3,088
Unrecognized net (asset)
liability at transition. (263) 1,719 (596) 425
-------- -------- -------- --------
Pension asset
(liability)............. $ 362 $ (4,576) $ 471 $ (5,440)
======== ======== ======== ========
</TABLE>
The Corporation's net pension cost for 1997, 1996 and 1995 includes the
following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the
year....................................... $ 1,726 $ 1,665 $ 2,026
Interest cost on projected benefit
obligation................................. 3,183 2,891 8,034
Actual return on plan assets................ (5,254) (7,235) (14,907)
Settlement loss............................. 466 -- --
Net amortization and deferral............... 2,752 5,492 7,560
------- ------- --------
$ 2,873 $ 2,813 $ 2,713
======= ======= ========
</TABLE>
Termination of pension plans
In 1996, Dominion Textile Inc. terminated the Staff Retirement Income Plan
for Employees at Locations in a Province Other Than Quebec (the "Ontario
Plan") and proposed to its members to share the surplus equally between the
members and the Corporation. The proposal was approved in 1997 by the members
and by the Pension Commission of Ontario. A gain of $0.9 million representing
the Business' share of the Ontario Plan surplus has been recorded and included
under the caption "Other income, net", in the combined statements of income.
15
<PAGE>
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In 1995, Dominion Textile Inc. terminated the Staff Retirement Income Plan
for Employees at Locations in the Province of Quebec (the "Quebec Plan") and
proposed to its members to share the surplus equally between the members and
the Corporation. The proposal was approved by the members in 1996 and Dominion
Textile Inc. received $17.5 million, representing its share of the Quebec Plan
surplus. A gain of $0.7 million representing the Business' share of proceeds
received in excess of the net pension asset was recorded.
Capital accumulation plans
The Business' expense with respect to capital accumulation plans amounted to
$0.6 million in 1997, $0.6 million in 1996 and $0.3 million in 1995.
Other benefits
In addition to its pension plans, the Corporation provides certain health
care and life insurance benefits for a large number of its retired employees
in North America who have met the eligibility conditions. The cost of the
other benefits is charged to income as expenditures are incurred.
The following table sets forth the status of the Corporation's plan based on
the latest actuarial valuations:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Retirees................................................. $ 7,626 $ 9,194
Fully eligible active plan participants.................. 1,772 2,125
Other active plan participants........................... 4,490 4,439
------- -------
13,888 15,758
Unrecognized gain........................................ 1,112 518
------- -------
Postretirement obligation................................ $15,000 $16,276
======= =======
</TABLE>
The Corporation's net periodic postretirement benefit cost for 1997, 1996
and 1995 consisted of the following components:
<TABLE>
<CAPTION>
1997 1996 1995
----- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the period... $ 414 $ 407 $ 537
Interest cost on accumulated postretirement
benefit obligation............................... 983 1,146 1,526
Net gain (including $0.7 million in 1997 for
settlements)..................................... (724) (112) (306)
----- ------ ------
$ 673 $1,441 $1,757
===== ====== ======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10%, 14% and 14%, gradually declining to
6% and 5% by 2003 in 1997, 1996 and 1995, respectively, after which it remains
constant. A one-percentage-point increase in the assumed health care cost
trend rate would increase the accumulated postretirement benefit obligation by
approximately 8%, 9%, and 11% and would increase the periodic service and
interest costs by approximately 9%, 16% and 17%, during fiscal 1997, 1996 and
1995, respectively. The assumed discount rate used in determining the
accumulated postretirement benefit obligation was 7.5% during fiscal 1997,
1996 and 1995.
16
<PAGE>
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Summary
The Business' share in the Corporation's employee benefit plans, based on
its proportionate number of employees, is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Net benefit costs
Pension plans........................................... $629 $616 $594
Postretirement benefit other than pensions.............. 147 316 385
</TABLE>
<TABLE>
<CAPTION>
1997 1996
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Unfunded obligation, net
Pension plans............................................. $ 923 $1,110
Postretirement benefit other than pensions................ 3,285 3,565
</TABLE>
13. COMMITMENTS AND CONTINGENT LIABILITIES
Lease commitments
As of June 30, 1997, the future minimum payments for building and equipment
leases with initial non-cancellable lease terms in excess of one year are as
follows:
<TABLE>
<S> <C>
1998.............................. $1,267
1999.............................. 1,192
2000.............................. 1,030
2001.............................. 947
2002.............................. 769
2003 and subsequent years......... 24
------
$5,229
======
</TABLE>
Other commitments
As of June 30, 1997, the Business had outstanding purchase contracts for
cotton and other fibers of approximately $8.0 million and commitments for
capital expenditures of approximately $33.0 million.
Environmental matters
The Business, primarily as a result of its manufacturing operations, is
subject to numerous environmental laws and regulations and exposed to
liabilities and compliance costs arising from its past and current generation,
management and disposition of hazardous substances and wastes. Based on
information presently available, management believes that the existing
accruals are sufficient to satisfy probable and reasonably estimable
environmental liabilities related to known environmental matters.
Litigation
In the normal course of operations, the Business becomes involved in various
claims and legal proceedings. While the final outcome with respect to claims
and legal proceedings pending at June 30, 1997 cannot be predicted with
certainty, it is the opinion of management that their resolution will not have
an adverse material effect on the Business' combined financial position or
results of operations.
17
<PAGE>
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
14. SEGMENTED INFORMATION
The nonwovens arm of the Business produces and markets nonwoven fabrics used
in hygiene, medical and industrial markets. The industrial products arm
produces woven fabrics for protective apparel and industrial applications.
<TABLE>
<CAPTION>
INDUSTRIAL
NONWOVENS PRODUCTS TOTAL
--------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
1997
Sales to customers....................... $144,501 $57,632 $202,133
Operating income......................... 24,459 2,223 26,682
Depreciation and amortization............ 13,169 1,548 14,717
Capital expenditures..................... 17,413 4,443 21,856
Identifiable assets...................... 189,136 43,445 232,581
1996
Sales to customers....................... $132,151 $56,739 $188,890
Operating income......................... 9,980 3,378 13,358
Depreciation and amortization............ 11,656 1,424 13,080
Capital expenditures..................... 19,190 2,629 21,819
Identifiable assets...................... 175,729 37,455 213,184
1995
Sales to customers....................... $113,370 $55,024 $168,394
Operating income......................... 3,842 2,419 6,261
Depreciation and amortization............ 10,964 1,586 12,550
Capital expenditures..................... 21,299 974 22,273
</TABLE>
18
<PAGE>
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
UNITED
CANADA STATES INTERNATIONAL ELIMINATIONS TOTAL
------- ------- ------------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997
Sales to customers (a). $57,736 $76,594 $67,803 $ -- $202,133
Transfers between
geographic areas (b).. 8 -- -- (8) --
------- ------- ------- ------- --------
57,744 76,594 67,803 (8) 202,133
Income from operations. 438 23,107 3,137 -- 26,682
Identifiable assets.... 33,686 133,128 65,767 -- 232,581
1996
Sales to customers (a). 56,946 55,307 76,637 -- 188,890
Transfers between
geographic areas (b).. 40 42,306 -- (42,346) --
------- ------- ------- ------- --------
56,986 97,613 76,637 (42,346) 188,890
Income from operations. 3,206 8,488 1,664 -- 13,358
Identifiable assets.... 36,357 118,556 58,271 -- 213,184
1995
Sales to customers (a). 55,170 37,990 75,234 -- 168,394
Transfers between
geographic areas (b).. 35 58,599 -- (58,634) --
------- ------- ------- ------- --------
55,205 96,589 75,234 (58,634) 168,394
Income from operations. 648 1,687 3,926 -- 6,261
</TABLE>
- --------
(a) Canadian sales include export sales of $27.9 million (1996--$27.1 million,
1995--$24.7 million) made primarily to the United States.
(b) Transfers between geographic areas are accounted for at prices comparable
to open market prices for similar products and services.
19
<PAGE>
NONWOVENS BUSINESS
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997
Sales.................................. $44,993 $48,059 $53,787 $55,294
Gross profit........................... 10,205 11,691 14,686 14,558
Operating income....................... 4,623 5,447 8,393 8,219
Net income............................. 1,431 1,137 5,504 4,303
1996
Sales.................................. 43,236 46,820 45,730 53,104
Gross profit........................... 7,962 8,306 8,546 11,950
Operating income....................... 2,250 2,353 2,867 5,888
Net income (loss)...................... 11 (122) 1,805 2,471
</TABLE>
20
<PAGE>
NONWOVENS BUSINESS
UNAUDITED CONDENSED COMBINED STATEMENTS OF INCOME AND DEFICIT
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED SEPTEMBER
30,
-----------------
1997 1996
------- --------
<S> <C> <C>
Sales....................................................... $47,510 $ 44,993
Cost of goods sold.......................................... 36,146 34,788
------- --------
Gross profit................................................ 11,364 10,205
------- --------
Selling expenses............................................ 1,775 2,067
Administrative expenses..................................... 3,542 3,321
Goodwill amortization....................................... 189 194
------- --------
5,506 5,582
------- --------
Operating income............................................ 5,858 4,623
Interest expense, net....................................... (1,556) (1,982)
Other income, net........................................... 25 9
------- --------
Income before provision for income taxes.................... 4,327 2,650
Provision for income taxes.................................. 1,686 1,219
------- --------
Net income.................................................. 2,641 1,431
Deficit, at beginning....................................... (3,789) (16,164)
------- --------
Deficit, at end............................................. $(1,148) $(14,733)
======= ========
</TABLE>
See notes to the unaudited condensed combined financial statements
21
<PAGE>
NONWOVENS BUSINESS
UNAUDITED CONDENSED COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1997
------------- --------
ASSETS
------
<S> <C> <C>
Current assets
Cash and cash equivalents............................ $ 15,862 $ 11,690
Accounts receivable, net of allowance for doubtful
accounts of $486 ($471 as of June 30, 1997)......... 31,349 33,484
Other receivables.................................... 3,479 6,043
Inventories.......................................... 29,166 25,753
Other current assets................................. 2,178 1,448
-------- --------
82,034 78,418
Investment in Dominion Nonwovens Sudamericana S.A...... 9,551 9,481
Property, plant and equipment, net..................... 127,484 121,737
Intangible assets, net................................. 18,801 19,042
Other assets........................................... 4,000 3,903
-------- --------
Total assets....................................... $241,870 $232,581
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities
Accounts payable..................................... $ 14,986 $ 14,054
Interest payable..................................... 3,316 1,844
Income taxes payable................................. 886 363
Payroll, related taxes and other employee related
liabilities......................................... 2,837 4,571
Other accrued liabilities............................ 12,307 10,061
Long-term debt due within one year................... 936 923
-------- --------
35,268 31,816
Long-term debt......................................... 87,603 83,227
Deferred income taxes.................................. 18,319 18,209
Other non current liabilities.......................... 7,302 7,489
-------- --------
Total liabilities.................................. 148,492 140,741
-------- --------
Stockholders' equity
Additional paid-in capital........................... 97,848 99,141
Deficit.............................................. (1,148) (3,789)
Cumulative translation adjustment.................... (3,322) (3,512)
-------- --------
Total stockholders' equity......................... 93,378 91,840
-------- --------
Total liabilities and stockholders' equity......... $241,870 $232,581
======== ========
</TABLE>
See notes to the unaudited condensed combined financial statements
22
<PAGE>
NONWOVENS BUSINESS
UNAUDITED CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
-----------------
1997 1996
-------- -------
<S> <C> <C>
Operating activities
Net income................................................ $ 2,641 $ 1,431
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization........................... 4,021 3,776
Deferred income taxes................................... 110 (1,686)
Loss on disposal of property, plant and equipment....... 5 --
Changes in assets and liabilities
Receivables, net........................................ 4,213 5,864
Inventories............................................. (3,550) (2,903)
Other current assets.................................... (756) 131
Other assets............................................ (176) (251)
Current liabilities..................................... 3,799 3,910
Other liabilities....................................... (11) 387
Other, net.............................................. 456 (201)
-------- -------
Net cash provided by operating activities............. 10,752 10,458
-------- -------
Investing activities
Capital expenditures...................................... (10,333) (3,441)
Proceeds from sale of property, plant and equipment....... 16 9
Investment in Dominion Nonwovens Sudamericana S.A......... (69) --
Other, net................................................ 778 284
-------- -------
Net cash used in investing activities................. (9,608) (3,148)
-------- -------
Financing activities
Repayment of short-term borrowings........................ -- (7,286)
Repayment of long-term debt............................... (253) (9,612)
Issue of short-term borrowings............................ -- 1,148
Issue of long-term debt................................... 4,642 (2,902)
Additional paid-in capital................................ (1,293) 17,111
-------- -------
Net cash (used in) provided by financing activities... 3,096 (1,541)
-------- -------
Effect of changes in exchange rates on cash and cash
equivalents................................................ (68) (83)
-------- -------
Net increase in cash and cash equivalents............. 4,172 5,686
Cash and cash equivalents, beginning of period........ 11,690 2,644
-------- -------
Cash and cash equivalents, end of period.............. $ 15,862 $ 8,330
======== =======
Supplemental disclosure of cash flow information
Net cash paid (received) during the period for:
Interest................................................ $ 326 $ (161)
Income taxes............................................ (360) (181)
</TABLE>
See notes to the unaudited condensed combined financial statements
23
<PAGE>
NONWOVENS BUSINESS
BASIS OF PRESENTATION
FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
GENERAL
The consolidated financial statements of Dominion Textile Inc. (the
"Corporation"), a Canadian company, have been issued to stockholders.
All dollar amounts in the combined financial statements are stated in US
dollars.
The combined financial statements of the Nonwovens Business of Dominion
Textile Inc. (the "Business") include the operations of Poly-Bond Inc.,
Nordlys S.A., Dominion Nonwovens Sudamericana S.A. and of Dominion Industrial
Fabrics Company, which were operated as subsidiaries or divisions of Dominion
Textile Inc. On December 19, 1997, pursuant to a takeover offer, DT
Acquisition Inc., an affiliate of Polymer Group, Inc. ("PGI") acquired all
shares tendered which approximated 98% of the outstanding common stock of the
Corporation. In connection with the change of control, PGI entered into a
preliminary agreement with Galey & Lord, Inc., to sell it certain operations.
In contemplation of the change in control and the subsequent sale of certain
operations, the operations and the net assets of the Corporation have been
essentially divided into two groups: the Apparel Fabrics Business and the
Nonwovens Business.
The combined financial statements have been prepared using the Corporation's
historical basis in the assets and liabilities and historical results of
operations related to the Business. Changes in additional paid-in capital
represent the Corporation's contribution of its net operating investment plus
net cash transfers to or from the Corporation. The combined financial
statements reflect the results of operations, financial position and cash
flows of the Business as if it had operated as a separate entity for all
periods presented and may not be indicative of actual results of operations
and financial position of the Business under different ownership.
Additionally, the combined financial statements include allocations of
certain corporate headquarters' assets, liabilities (excluding deferred income
taxes), and net expenses. All significant intergroup transactions and balances
have been eliminated.
ALLOCATIONS
The liabilities of the Business include outstanding direct third-party
indebtedness and the amount of debt based on the ratio of the Business'
average net operating investment to the aggregate net operating investment of
the two groups. Interest expense shown in the combined financial statements
reflects the interest expense associated with the aggregate borrowings for
each period presented principally based on a blend of the Corporation's long-
term weighted average interest rates for the applicable period.
General corporate overhead related to the Corporation's headquarters has
been allocated to the Business based on the ratio of the Business' sales to
the aggregate sales of the Corporation. The costs of these services charged to
the Business are not necessarily indicative of the costs that would have been
incurred if the Business had performed these functions as a stand-alone
entity. Additionally, income taxes on allocated general corporate overhead are
calculated using the Corporation's statutory rate.
Management believes that the basis of allocation is reasonable.
24
<PAGE>
NONWOVENS BUSINESS
BASIS OF PRESENTATION--(CONTINUED)
The following table illustrates the results of applying the allocation
method described above on various financial statement items:
<TABLE>
<CAPTION>
THREE-MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
------------- -------
(IN THOUSANDS)
<S> <C> <C>
Net impact on gross profit........................ $ (350) $ 249
General corporate overhead, net................... (891) (780)
Recovery of income taxes.......................... 353 158
------- -------
$ (888) $ (373)
======= =======
<CAPTION>
JUNE
SEPTEMBER 30, 30,
1997 1997
------------- -------
(IN THOUSANDS)
<S> <C> <C>
Net assets excluding long-term debt............... $ 2,901 $ 4,732
Long-term debt.................................... 82,593 77,951
Cumulative translation adjustment................. (891) (1,408)
</TABLE>
25
<PAGE>
EXHIBIT 7.2:
FINANCIAL STATEMENTS REQUIRED
UNDER ITEM 7(B).
<PAGE>
INTRODUCTION
THE NONWOVENS TRANSACTIONS
On January 29, 1998, DT Acquisition Inc. ("DT Acquisition"), a special
purpose subsidiary of Polymer Group, Inc. (the "Company"), consummated the
Nonwovens Acquisition and the Nonwovens Acquisition Refinancing (each as
defined below). The Nonwovens Acquisition and Nonwovens Acquisition
Refinancing are collectively referred to as the "Nonwovens Transactions."
The Nonwovens Acquisition
On December 19, 1997, pursuant to the terms of its Offer to Purchase dated
October 29, 1997, as amended (the "Dominion Tender Offer"), DT Acquisition
completed the purchase of 98% of the outstanding Common Shares of Dominion
Textile Inc. ("Dominion") for Cdn$14.50 per share and 96% of the outstanding
First Preferred Shares of Dominion for Cdn$150 per share. On December 29,
1997, DT Acquisition acquired an additional 331,207 Common Shares. The Company
had previously announced that it had entered into a Purchase Agreement, dated
October 27, 1997, with Galey & Lord, Incorporated ("Galey") to sell the denim
and career wear business of Dominion (the "Apparel Fabrics Business") to Galey
following the consummation of the Dominion Tender Offer. The Dominion Tender
Offer was financed with $215 million of borrowings under DT Acquisition's $600
million senior secured credit facilities, and subordinated advances of $141
million, $69 million and $25 million by Galey, ZB Holdings, and the Company,
respectively. ZB Holdings is a wholly-owned subsidiary of InterTech, an
affiliate of the Company wholly-owned by Jerry Zucker and James G. Boyd.
On January 29, 1998, DT Acquisition acquired the remaining Common Shares and
First Preferred Shares of Dominion in a compulsory acquisition effectuated
pursuant to section 206 of the Canada Business Corporation Act, and acquired
all outstanding Second Preferred Shares pursuant to a notice of redemption
issued December 29, 1997. Dominion then underwent a "winding up" pursuant to
which all assets of Dominion were transferred to DT Acquisition, all
liabilities of Dominion were assumed by DT Acquisition and all of the
outstanding Common Shares and First Preferred Shares held by DT Acquisition
were redeemed. Pursuant to the 2003 Tender Offer and the 2006 Tender Offer
(each as defined below), Dominion Textile (USA) Inc. ("DT USA"), a wholly-
owned subsidiary of Dominion and the issuer of the 2003 Notes and the 2006
Notes (each as defined below), accepted for purchase all 2003 Notes and 2006
Notes validly tendered and not revoked. Immediately thereafter, the Apparel
Fabrics Business was sold to Galey for approximately $464.5 million, including
related fees and expenses, and the Company acquired (the "Nonwovens
Acquisition") the assets and liabilities of Dominion that comprised the
nonwovens and industrial fabrics operations (the "Nonwovens Business"). The
Company borrowed approximately $326.6 million under the Amended Credit
Facility (as defined below) to finance the Nonwovens Acquisition, for which it
paid a gross price of approximately $351.6 million, including related fees and
expenses. In connection with the sale of the Apparel Fabrics Business and the
Nonwovens Business, DT Acquisition repaid the subordinated advances from
Galey, ZB Holdings and the Company in full.
The primary operations of the Nonwovens Business are conducted through Poly-
Bond Inc., Nordlys S.A., DIFCO Inc. (formerly a division of Dominion), Geca-
Tapes B.V. and Dominion Nonwovens Sudamerica S.A. ("DNS"). Poly-Bond, based in
Waynesboro, Virginia, is a leading manufacturer of spunbond and spunmelt
composite nonwovens used in disposable diapers, adult incontinence and
feminine hygiene products. Nordlys, based in Bailleul, France, manufactures
dry-laid nonwovens for industrial applications such as cable wrap, liquid
filtration, medical end-uses, and electrical insulation. DIFCO, based in
Magog, Quebec, produces custom designed technical fabrics. Geca-Tapes, based
in Tilburg, Netherlands, manufactures nonwovens products for industrial
applications such as cable wrap and liquid filtration media. DNS, a joint
venture with the Sauler Group, produces spunbond and spunmelt nonwovens to
serve hygiene markets in countries that are participants in the Mercosur free
trade agreement.
The Nonwovens Acquisition Refinancing
On January 29, 1998, in connection with the Nonwovens Acquisition, the
Company amended its Credit Facility (as defined below) with The Chase
Manhattan Bank ("Chase Bank") to provide for a $125.0 million secured term
loan and to modify certain terms of the revolving portion of the Credit
Facility. The Amended
1
<PAGE>
Credit Facility provides for revolving credit facilities with an aggregate
commitment of up to $325.0 million. All indebtedness under the Amended Credit
Facility is guaranteed on a joint and several basis by each of the Company's
direct and indirect domestic subsidiaries. All indebtedness and related
guarantees under the Amended Credit Facility are secured by (i) a lien on
substantially all of the assets of the Company and its domestic subsidiaries,
(ii) a pledge of all or a portion of the stock of the domestic subsidiaries of
the Company and of certain non-domestic subsidiaries of the Company, (iii) a
lien on substantially all of the assets of direct foreign borrowers (to secure
direct borrowings by such borrowers), and (iv) a pledge of secured
intercompany notes issued to the Company or one of its subsidiaries by certain
non-domestic subsidiaries.
Concurrent with the sale of the Apparel Fabrics Business, and pursuant to
the 2003 Tender Offer and 2006 Tender Offer, DT USA purchased approximately
$145.6 million of its $150.0 million outstanding 2003 Notes and approximately
$124.5 million of its $125.0 million outstanding 2006 Notes. Pursuant to both
the 2003 Tender Offer and the 2006 Tender Offer, DT USA received the requisite
consents from tendering holders to amend the indentures under which the 2003
Notes and the 2006 Notes were issued and paid a consent fee to holders who
tendered their notes and delivered consents prior to the expiration of the
consent solicitations.
The Company's amendment to the Credit Facility resulting in the Amended
Credit Facility and repurchase of the 2003 Notes and 2006 Notes pursuant to
the 2003 Tender Offer and 2006 Tender Offer (described more fully below) are
collectively referred to as the "Nonwovens Acquisition Refinancing."
2003 Tender Offer and 2006 Tender Offer
On November 1, 1993, DT USA, a subsidiary of Dominion, issued $150.0 million
of 8 7/8% Guaranteed Senior Notes due 2003 (the "2003 Notes") pursuant to an
indenture, dated as of November 1, 1993, among DT USA, Dominion, as the Parent
Guarantor, and First Union National Bank, as successor trustee (the "2003
Notes Indenture"). On April 1, 1996, DT USA issued an additional $125.0
million of 9 1/4% Guaranteed Senior Notes due 2006 (the "2006 Notes") pursuant
to an indenture, dated as of April 1, 1996, among DT USA, Dominion and First
Union National Bank, as successor trustee (the "2006 Notes Indenture"). Both
the 2003 Notes and 2006 Notes are senior indebtedness of DT USA and are
guaranteed on a joint and several basis by DT USA and Dominion.
On December 23, 1997, following the initial take-up of Dominion shares by DT
Acquisition in the Dominion Tender Offer, DT USA made tender offers to
purchase any and all outstanding 2003 Notes and 2006 Notes (the "2003 Tender
Offer" and "2006 Tender Offer," respectively), and solicited consents to
certain proposed amendments to the 2003 Notes Indenture and 2006 Notes
Indenture. The tender of notes in the 2003 Tender Offer and 2006 Tender Offer
was contingent upon such holder's consent to the proposed amendments to the
2003 Notes Indenture and the 2006 Notes Indenture, until, in each case, such
time that the requisite number of consents to approve the proposed amendments
had been obtained and a supplemental indenture relating thereto had been
executed. The proposed amendments eliminated substantially all of the
protective covenants in each of the 2003 Notes Indenture and the 2006 Notes
Indenture.
The total consideration offered for each validly tendered 2003 Note and
properly delivered consent was $1,065.32, which was equal to the present value
of $1,043.75 (the amount for which each 2003 Note could be repurchased at
November 1, 1998, its earliest call date) and any interest payments due from
the payment date to such call date, discounted using the yield rate of a
chosen reference security plus a fixed spread. The total consideration offered
for each validly tendered 2006 Note and properly delivered consent was
$1,138.50, which was equal to the present value of $1,046.25 (the amount for
which each 2003 Note could be repurchased at April 1, 2001, its earliest call
date), and any interest payments due from the payment date to such call date,
discounted using the yield rate of a chosen reference security plus a fixed
spread. Holders who tendered in the 2003 Tender Offer and the 2006 Tender
Offer prior to each respective expiration date for consents also received a
consent payment equal to 1% of the outstanding principal amount of notes
tendered (included in the total consideration described above).
2
<PAGE>
On January 16, 1998, DT USA made a separate, unconditional offer to purchase
any and all outstanding 2003 Notes at a price equal to 101% of their aggregate
principal amount (the "Change of Control Offer"). The Change of Control Offer
was made solely for the purpose of satisfying certain provisions of the 2003
Indenture, which require such an offer to be made within 30 days of a change
in control of DT USA or Dominion.
On January 28, 1998, the expiration date for the 2003 Tender Offer and the
2006 Tender Offer, DT USA accepted for repurchase $145.6 million of 2003 Notes
and $124.5 million of 2006 Notes. DT USA currently has $4.4 million aggregate
principal amount of 2003 Notes and $0.3 million aggregate principal amount of
2006 Notes outstanding. DT USA repurchased $25,000 of 2003 Notes in the Change
of Control Offer, which expired on March 17, 1998 and $0.2 million of 2006
Notes in a subsequent, privately negotiated transaction.
THE JUNE REFINANCING
In the June Refinancing (the "June Refinancing"), the Company (i) refinanced
its outstanding indebtedness under its 12 1/4% Senior Notes due 2002 (the
"Senior Notes") by consummating (a) the June Offering and subsequent September
Exchange Offer, and (b) the Senior Notes Tender Offer and Consent
Solicitation, and (ii) entered into the Credit Facility.
The Private Placement and September Exchange Offer
On July 3, 1997, the Company issued $400 million of 9% Senior Subordinated
Notes due 2007 (the "Privately Placed Notes") to Chase Securities Inc.
("Chase") in a transaction not registered under the Securities Act in reliance
upon an exemption under the Securities Act (the "Private Placement") pursuant
to an indenture dated as of July 1, 1997 among the Company, the guarantors
named therein and Harris Trust & Savings Bank, as trustee (the "9% Notes
Indenture"). Chase subsequently placed the Privately Placed Notes with
qualified institutional buyers in reliance under Rule 144A under the
Securities Act. The Privately Placed Notes accrued interest from their
original issuance date at the rate of 9% per annum, and had customary
provisions with respect to redemption (including optional redemption in the
first three years in connection with one or more public equity offerings),
changes in control, ranking, asset sales and other restrictive covenants. The
Privately Placed Notes were unsecured senior subordinated obligations of the
Company and were subordinated in right of payment to all existing and future
senior indebtedness of the Company.
Pursuant to a Registration Statement on Form S-4 (Reg. No. 333-32605) filed
with the Commission on August 1, 1997 and declared effective on September 3,
1997, the Company offered to exchange $1,000 principal amount of its 9% Senior
Subordinated Notes due 2007, Series B (the "9% Notes") for each $1,000
principal amount outstanding of the Privately Placed Notes (the "September
Exchange Offer"). The September Exchange Offer was undertaken to comply with
certain Registration Rights granted to holders of the Original Notes in
connection with the Private Placement pursuant to the Registration Rights
Agreement dated July 3, 1997. The form and terms of the 9% Notes offered in
the September Exchange Offer are the same as the form and terms of the
Privately Placed Notes (which they replaced) except that (i) the 9% Notes bear
a Series B designation, (ii) the 9% Notes have been registered under the
Securities Act and, therefore, do not bear legends restricting the transfer
thereof, and (iii) the holders of the 9% Notes are not entitled to any
registration rights. The September Exchange Offer was consummated on October
3, 1997, with all $400 million principal amount of Privately Placed Notes
being tendered for exchange. As a result, the Company currently has $400
million of 9% Notes outstanding; no Privately Placed Notes remain outstanding.
Senior Notes Tender Offer and Consent Solicitation
In connection with the Private Placement, pursuant to an independent Offer
to Purchase and Consent Solicitation Statement dated June 5, 1997, the Company
offered to repurchase all, but not less than a majority, of its outstanding
Senior Notes (the "Senior Notes Tender Offer and Consent Solicitation") at a
price equal to $1,103.64 per $1,000 aggregate principal amount of Senior
Notes. The price offered was equal to the present value on the payment date of
$1,061.25 (the amount for which each Senior Note could be repurchased on July
15, 1998, its earliest call date) and any interest payments due from the
payment date to such call date, discounted using the yield rate of a chosen
reference security plus a fixed spread.
3
<PAGE>
The Company also solicited consents from the tendering holders of Senior
Notes to certain proposed amendments to the Senior Notes indenture which
eliminated substantially all of the protective covenants contained in that
indenture. Holders who timely consented to the proposed amendments received a
consent payment equal to 1% of their principal amount of Senior Notes ($10.00
per $1,000 principal amount). In response to the Senior Notes Tender Offer and
Consent Solicitation, which was consummated on July 3, 1997, the Company
received tenders of, and consents relating to, all of its outstanding Senior
Notes.
Credit Facility
As part of the June Refinancing, the Company and certain of its subsidiaries
entered into revolving credit facilities (the "Credit Facility"), dated July
3, 1997, with a group of lenders and with Chase Bank, as administrative agent
(the "Agent"), by amending and restating its original credit facility dated
May 15, 1996. Prior to the amendment consummated in connection with the
Nonwovens Acquisition, the Credit Facility provided for aggregate borrowings
of up to $325.0 million in term and revolving commitments.
4
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
INTRODUCTION
The unaudited pro forma financial information presents the pro forma
combined statement of operations data of the Company for the year ended
January 3, 1998 as if the June Refinancing and the Nonwovens Transactions had
each occurred on December 29, 1996. The unaudited pro forma balance sheet data
as of January 3, 1998 gives effect to the Nonwovens Transactions as of January
3, 1998. The unaudited pro forma financial information for the Nonwovens
Business includes the results of an additional business acquired by the
Company in the third quarter of 1997 not independently significant for
disclosure purposes, and excludes a restructuring charge and certain other
allocated costs. The unaudited pro forma financial information has been
prepared on the basis of assumptions described in the notes thereto. The
consideration paid for the Nonwovens Business has been allocated to the assets
and liabilities of the business.
The unaudited pro forma financial information does not purport to represent
what the Company's financial position and results of operations would have
been if the June Refinancing and the Nonwovens Transactions had actually been
completed as of the date indicated and are not intended to project the
Company's financial position or results of operations for any future period.
The unaudited pro forma financial information should be read in conjunction
with the respective historical financial statements of the Company and the
Nonwovens Business and the related notes thereto included herein or separately
filed with the Commission.
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 3, 1998
<TABLE>
<CAPTION>
HISTORICAL
------------------------
NONWOVENS
COMPANY BUSINESS FROM
FOR THE OCTOBER 1,
YEAR ENDED 1996 THROUGH
JANUARY 3, SEPTEMBER 30,
1998 1997 ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS:
Net sales............... $535,267 $213,565 $ -- $748,832
Cost of goods sold...... 402,058 163,616 (5,179)(d) 560,495
-------- -------- -------- --------
Gross profit............ 133,209 49,949 5,179 188,337
Selling, general and ad-
ministrative expenses.. 74,600 17,791 5,603 (a),(b) 97,994
-------- -------- -------- --------
Operating income....... 58,609 32,158 (424) 90,343
Other expense:
Interest expense, net.. 30,499 7,684 24,290 (c) 62,473
Holding (gain) on
marketable securities. (11,880) -- -- (11,880)
Foreign currency
transaction loss, net. (452) -- -- (452)
Income taxes........... 13,009 8,042 (8,588)(e) 12,463
-------- -------- -------- --------
Income before extraordi-
nary item.............. $ 27,433 $ 16,432 $(16,126) $ 27,739
======== ======== ======== ========
Income before extraordi-
nary item per common
share.................. $ 0.86 $ 0.87
======== ========
Average common shares
outstanding............ 32,000 32,000
======== ========
</TABLE>
See Notes to Unaudited Pro Forma Financial Information.
5
<PAGE>
PRO FORMA CONDENSED BALANCE SHEET AS OF JANUARY 3, 1998
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and equivalents..................... $ 50,190 $ -- $ 50,190
Marketable securities.................... 7,754 -- 7,754
Accounts receivable, net................. 107,328 -- 107,328
Inventories.............................. 94,128 -- 94,128
Deferred income taxes.................... 4,161 -- 4,161
Assets held for disposition, net......... 464,524 (464,524) (f) --
Other.................................... 26,985 -- 26,985
---------- --------- ----------
Total current assets................... 755,070 (464,524) 290,546
Property, plant and equipment, net....... 606,260 -- 606,260
Intangibles, loan acquisition and
organization costs, net................. 229,391 31,320 (l) 260,711
Deferred income taxes.................... 9,183 941 (k) 10,124
Other.................................... 27,849 -- 27,849
---------- --------- ----------
Total assets........................... $1,627,753 $(432,263) $1,195,490
========== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable......................... $ 52,165 $ -- $ 52,165
Accrued liabilities...................... 52,133 -- 52,133
Income taxes payable..................... 1,242 -- 1,242
Deferred income taxes.................... 284 -- 284
Short-term bridge loan................... 425,945 (425,945) (g) --
Current portion of long-term debt........ 3,276 -- 3,276
---------- --------- ----------
535,045 (425,945) 109,100
Long-term debt, net of current portion... 741,860 50,160 (i) 792,020
Deferred income taxes.................... 82,213 -- 82,213
Other noncurrent liabilities............. 14,815 -- 14,815
Minority interest........................ 54,730 (54,730) (h) --
Shareholders' equity..................... 199,090 (1,748) (j) 197,342
---------- --------- ----------
Total liabilities and shareholders'
equity................................ $1,627,753 $(432,263) $1,195,490
========== ========= ==========
</TABLE>
See Notes to Unaudited Pro Forma Financial Information.
6
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<S> <C>
(a) Represents increase in amortization expense on assignment of
purchase price of Nonwovens Business to intangible assets...... $ 3,068
=========
(b) Represents net increase in amortization expense related to
additional costs incurred pursuant to the June Refinancing and
the Nonwovens Acquisition...................................... $ 2,535
=========
(c) Represents estimated net increase in interest expense as a
result of the June Refinancing and the Nonwovens Acquisition... $ 24,290
=========
(d) Represents decrease in depreciation expense on assignment of
purchase price of Nonwoven Business fair value of property,
plant and equipment. Decrease in depreciation expense results
from increase in depreciable lives of acquired business,
consistent with those of the Company........................... $ (5,179)
=========
(e) Represents estimated income tax effect of (a), (b), (c), (d),
and (e)........................................................ $ (8,588)
=========
(f) Sale of Apparel Fabrics Business to Galey...................... $(464,524)
=========
(g) Repayment of short-term bridge financing....................... $(425,945)
=========
(h) Elimination of minority interest............................... $ (54,730)
=========
(i) Represents net change in debt.................................. $ 50,160
=========
(j) Estimated write-off of loan acquisition costs.................. $ (1,748)
=========
(k) Represents estimated tax benefit from extinguishment of debt... $ 941
=========
(l) Represents estimated increase in intangibles, including related
fees and expenses.............................................. $ 31,320
=========
</TABLE>
7
<PAGE>
EXHIBIT 23.1:
CONSENT OF DELOITTE & TOUCHE
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the registration statement of
Polymer Group, Inc. on Form S-8 (File No. 333-04969) of our report dated January
29, 1998 on our audit of the Combined Financial Statements of the Nonwovens
Business of Dominion Textile Inc. as of June 30, 1997 and 1996, and for the
three years ended June 30, 1997, which report is included in this Form 8-K/A
(Amendment No. 1).
/s/ Deloitte & Touche
Chartered Accountants
Montreal, Quebec
April 14, 1998
