<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
----------------
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-14330
POLYMER GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 57-1003983
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4838 Jenkins Avenue 29405
North Charleston, South Carolina (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (843) 566-7293
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
On May 9, 2000 there were 32,004,200 Common Shares, $.01 par value,
outstanding.
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<PAGE>
POLYMER GROUP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information............................................. 3
Item 1. Financial Statements............................................ 3
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 13
Part II. Other Information................................................ 16
Signatures................................................................ 17
Exhibit Index............................................................. 18
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
POLYMER GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
April 1, January 1,
ASSETS 2000 2000
------ ----------- ----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and equivalents................................. $ 11,527 $ 37,180
Short-term investments............................... 21,846 19,115
Accounts receivable, net............................. 138,080 133,249
Inventories.......................................... 111,642 113,229
Other................................................ 43,553 46,212
---------- ----------
Total current assets............................... 326,648 348,985
Property, plant and equipment, net..................... 835,284 823,349
Intangibles and loan acquisition costs, net............ 241,315 246,403
Other.................................................. 54,671 47,509
---------- ----------
Total assets....................................... $1,457,918 $1,466,246
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Accounts payable, accrued liabilities and other...... $ 101,175 $ 136,165
Short-term borrowings................................ 19,952 19,073
Current portion of long-term debt.................... 4,794 4,842
---------- ----------
Total current liabilities.......................... 125,921 160,080
---------- ----------
Long-term debt, less current portion................... 994,360 963,177
Deferred income taxes.................................. 82,480 83,424
Other non-current liabilities.......................... 16,928 17,281
Shareholders' equity:
Series preferred stock--$.01 par value, 10,000,000
shares authorized, 0 shares issued and outstanding.. -- --
Common stock--$.01 par value, 100,000,000 shares
authorized, 32,004,200 shares issued and
outstanding......................................... 320 320
Non-voting common stock--$.01 par value, 3,000,000
shares authorized, 0 shares issued and outstanding.. -- --
Additional paid-in capital........................... 243,722 243,688
Retained earnings.................................... 14,646 13,149
Accumulated other comprehensive (loss)............... (20,459) (14,873)
---------- ----------
238,229 242,284
---------- ----------
Total liabilities and shareholders' equity......... $1,457,918 $1,466,246
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months
Ended
------------------
April 1, April 3,
2000 1999
-------- --------
<S> <C> <C>
Net sales................................................... $231,952 $210,147
Cost of goods sold.......................................... 180,416 156,879
-------- --------
Gross profit................................................ 51,536 53,268
Selling, general and administrative expenses................ 29,277 27,068
-------- --------
Operating income............................................ 22,259 26,200
Other (income) expense:
Interest expense, net..................................... 19,130 17,550
Investment income--(gain) on marketable securities, net... -- (1,375)
Foreign currency and other................................ (158) 659
-------- --------
18,972 16,834
-------- --------
Income before income taxes.................................. 3,287 9,366
Income taxes................................................ 1,150 3,534
-------- --------
Net income.............................................. $ 2,137 $ 5,832
======== ========
Average common shares outstanding:
Basic..................................................... 32,003 32,000
Diluted................................................... 32,148 32,000
Net income per common share:
Basic..................................................... $ 0.07 $ 0.18
Diluted................................................... 0.07 0.18
Cash dividends.............................................. $ 0.02 $ --
</TABLE>
See accompanying notes.
4
<PAGE>
POLYMER GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Ended
------------------
April 1, April 3,
2000 1999
-------- --------
<S> <C> <C>
Operating activities
Net income............................................... $ 2,137 $ 5,832
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization expense.................. 18,020 16,580
Gain on marketable securities classified as trading,
net................................................... -- (1,375)
Purchases of marketable securities classified as
trading............................................... -- (8,293)
Foreign currency and other............................. (158) 659
Changes in operating assets and liabilities, net of
effects of business acquisition:
Accounts receivable.................................... (4,831) (11,341)
Inventories............................................ 1,587 (3,378)
Accounts payable and other............................. (40,791) 17,287
-------- --------
Net cash (used in) provided by operating activities.. (24,036) 15,971
-------- --------
Investing activities
Purchases of property, plant and equipment............... (35,573) (26,034)
Other, including business acquisition.................... (1,294) (16,011)
-------- --------
Net cash (used in) investing activities.............. (36,867) (42,045)
-------- --------
Financing activities
Proceeds from debt....................................... 49,600 38,608
Payment of debt.......................................... (17,041) (3,249)
Dividends to shareholders................................ (640) --
Exercise of stock options................................ 34 --
Other, net............................................... -- (305)
-------- --------
Net cash provided by financing activities............ 31,953 35,054
-------- --------
Effect of exchange rate changes on cash.................... 3,297 (7)
-------- --------
Net (decrease) increase in cash and equivalents............ (25,653) 8,973
Cash and equivalents at beginning of period................ 37,180 58,308
-------- --------
Cash and equivalents at end of period...................... $ 11,527 $ 67,281
======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited consolidated financial statements of Polymer
Group, Inc. (the "Company"), a global manufacturer and marketer of nonwoven
and oriented polyolefin products, have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The Condensed Consolidated Balance Sheet as of April 1, 2000 contains
summarized information; as a result, such data does not include the same
detail provided in the 1999 Annual Report. In the opinion of management, these
unaudited consolidated financial statements contain all adjustments of a
normal recurring nature necessary for a fair presentation. Operating results
for the three months ended April 1, 2000, are not necessarily indicative of
the results that may be expected for fiscal 2000.
Reclassifications: Certain amounts previously presented in the consolidated
financial statements for prior periods have been reclassified to conform to
current classification.
Use of estimates: The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Recently Issued Accounting Standards: In 1998, the Financial Accounting
Standards Board issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133") as amended, which is effective
for fiscal years beginning after June 15, 2000. FAS 133 establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. FAS 133 contains disclosure requirements based on
the type of hedge and the type of market risk that is being hedged. The
Company has elected to defer the adoption of FAS 133 until fiscal year 2001.
Currently, the Company does not anticipate FAS 133 to have a material
financial or operational impact on the Company. However, the Company has not
completed a detailed analysis of areas of risk at this time.
Note 2. Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out method of accounting and consist of the following (in thousands):
<TABLE>
<CAPTION>
January
April 1, 1,
2000 2000
----------- --------
(Unaudited)
<S> <C> <C>
Finished goods....................................... $ 51,853 $ 51,588
Work in process and stores and maintenance parts..... 18,163 16,753
Raw materials........................................ 41,626 44,888
-------- --------
Total.............................................. $111,642 $113,229
======== ========
</TABLE>
6
<PAGE>
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3. Net Income Per Share
The Company discloses earnings per share in accordance with SFAS No. 128,
"Earnings Per Share." Basic earnings per share excludes any dilutive effects
of options, warrants and convertible securities and is computed using the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if stock
options were exercised and is based upon the weighted average number of common
and common equivalent shares outstanding for the period. Common equivalent
shares are represented by shares under option. The numerator for both basic
and diluted earnings per share is net income applicable to common stock.
Note 4. Debt
Short-term borrowings amounted to approximately $20.0 million and $19.1
million at April 1, 2000 and January 1, 2000, respectively. These amounts are
composed of U.S. loans and local borrowings, principally by international
subsidiaries. Long-term debt as of April 1, 2000 and January 1, 2000, consists
of the following (in thousands):
<TABLE>
<CAPTION>
January
April 1, 1,
2000 2000
----------- --------
(Unaudited)
<S> <C> <C>
Senior subordinated notes, net of unamortized debt
discount, due July 2007........................... $394,804 $394,678
Senior subordinated notes, due March 2008.......... 200,000 200,000
Revolving credit facility, due June 2003........... 219,434 188,085
Term loans, including current portion, due December
2005.............................................. 172,520 172,520
Other.............................................. 12,396 12,736
-------- --------
$999,154 $968,019
======== ========
</TABLE>
The senior subordinated notes are unsecured obligations subordinated in
right of payment to all existing and future senior indebtedness of the Company
and have customary provisions regarding redemption and changes in control.
The Company's credit facility provides for secured revolving credit
borrowings with aggregate commitments of up to $325.0 million and aggregate
term loans of $175.0 million. Subject to certain terms and conditions, a
portion of the credit facility may be used for letters of credit. Commitment
fees under the credit facility are generally equal to a percentage of the
daily unused amount of such commitment. See Note 8. Subsequent Events.
Note 5. Selected Financial Data of Guarantors
Payment of the Company's senior notes are guaranteed jointly and severally
on a senior subordinated basis by certain of the Company's subsidiaries.
Management has determined that separate complete financial statements of the
guarantors are not material to users of the financial statements. The
following sets forth selected financial data of the guarantor and non-
guarantor subsidiaries (in thousands):
Condensed Consolidating Selected Balance Sheet Financial Data
As of April 1, 2000
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor The Reclassifications
Subsidiaries Subsidiaries Company and Eliminations Consolidated
------------ ------------- ---------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Working capital......... $ 89,644 $ 96,238 $ 14,748 $ 97 $ 200,727
Total assets............ 2,697,400 545,926 1,134,194 (2,919,602) 1,457,918
Total debt.............. 4,667 44,395 970,044 -- 1,019,106
Shareholders' equity.... 1,411,852 303,002 106,516 (1,583,141) 238,229
</TABLE>
7
<PAGE>
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Selected Balance Sheet Financial Data
As of January 1, 2000
<TABLE>
<CAPTION>
Combined Combined
Guarantor Non-Guarantor The Reclassifications
Subsidiaries Subsidiaries Company and Eliminations Consolidated
------------ ------------- ---------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Working capital......... $ 96,820 $ 99,515 $ (6,778) $ (652) $ 188,905
Total assets............ 2,683,651 604,397 1,127,754 (2,949,556) 1,466,246
Total debt.............. 4,667 47,159 935,266 -- 987,092
Shareholders' equity.... 1,383,090 229,554 118,894 (1,489,254) 242,284
</TABLE>
Condensed Consolidating Statement of Operations Selected Financial Data
For the Three Months Ended April 1, 2000
<TABLE>
<CAPTION>
Combined Combined Reclassifica-
Guarantor Non-Guarantor The tions and
Subsidiaries Subsidiaries Company Eliminations Consolidated
------------ ------------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $136,235 $105,812 $ -- $(10,095) $231,952
Operating income........ 7,692 13,570 470 527 22,259
Income (loss) before
income taxes........... 10,046 6,477 (13,763) 527 3,287
Income taxes (benefit).. (4,734) 1,196 4,820 (132) 1,150
Equity in earnings of
subsidiaries........... -- -- 20,720 (20,720) --
Net income.............. 14,780 5,281 2,137 (20,061) 2,137
</TABLE>
Condensed Consolidating Statement of Operations Selected Financial Data
For the Three Months Ended April 3, 1999
<TABLE>
<CAPTION>
Combined Combined Reclassifica-
Guarantor Non-Guarantor The tions and
Subsidiaries Subsidiaries Company Eliminations Consolidated
------------ ------------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $139,627 $80,673 $ -- $(10,153) $210,147
Operating income........ 15,817 7,202 3,844 (663) 26,200
Income (loss) before
income taxes........... 12,939 3,676 (7,310) 61 9,366
Income taxes............ 2,595 163 776 -- 3,534
Equity in earnings of
subsidiaries........... -- -- 13,857 (13,857) --
Net income.............. 10,344 3,513 5,771 (13,796) 5,832
</TABLE>
Note 6. Comprehensive Income
The Company reports comprehensive income in accordance with SFAS No. 130,
"Reporting Comprehensive Income" ("FAS 130"). FAS 130 requires unrealized
gains or losses on the Company's available-for-sale securities and foreign
currency translation adjustments to be included in other comprehensive income.
The Company's comprehensive loss approximated $3.5 million and $4.9 million
for the three months ended April 1, 2000 and April 3, 1999, respectively.
Note 7. Segment Information
The Company reports segment information in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("FAS
131"). Operating segments are defined as
8
<PAGE>
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and assessing performance. Due to a change
in the Company's internal reporting structure, continued product
diversification and end market expansion, the Company changed its reportable
segments during the first quarter of fiscal 2000, to Consumer and Industrial
and Specialty and restated prior period segment information to reflect this
change. Sales to The Proctor & Gamble Company and Johnson & Johnson, customers
who each account for more than 10% of the Company's sales, are reported
primarily in the Consumer segment. Consequently, the loss of these sales would
have a material adverse effect on this segment. Generally, the Company's
products can be manufactured on more than one type of production line.
Accordingly, certain costs and assets attributed to each segment of the
business were determined on an allocation basis. Production times have a
similar relationship to net sales, thus the Company believes a reasonable
basis for allocating certain costs is the percent of net sales method.
Financial data by segments follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
---------------------
April 1, April 3,
2000 1999
---------- ----------
(Restated)
<S> <C> <C>
Net sales to unaffiliated customers:
Consumer......................................... $ 133,977 $ 115,560
Industrial and Specialty......................... 97,975 94,587
---------- ----------
$ 231,952 $ 210,147
========== ==========
Operating income:
Consumer......................................... $ 18,621 $ 20,414
Industrial and Specialty......................... 3,638 5,786
---------- ----------
$ 22,259 $ 26,200
========== ==========
<CAPTION>
April 1, January 1,
2000 2000
---------- ----------
(Restated)
<S> <C> <C>
Identifiable assets:
Consumer......................................... $ 789,163 $ 783,893
Industrial and Specialty......................... 576,171 585,948
Corporate (1).................................... 92,584 96,405
---------- ----------
$1,457,918 $1,466,246
========== ==========
</TABLE>
- --------
(1) Consists primarily of cash and equivalents, short-term investments, loan
acquisition costs and other corporate related assets.
Note 8. Subsequent Events
On April 18, 2000, the Company amended its credit facility, effective as of
March 31, 2000, to add an additional term loan in the amount of $100.0
million. The amendment also modified certain covenants, including leverage and
fixed charge coverage. The Company borrowed the entire amount of the
additional term loan which was used to reduce amounts outstanding under the
revolving portion of the credit facility. In addition, the Board of Directors
declared a quarterly dividend of $0.02 per share, payable on June 2, 2000 to
shareholders of record on May 12, 2000.
9
<PAGE>
Item 2.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the consolidated financial statements and
notes thereto contained in Part I of this report on Form 10-Q and with the
Company's Annual Report on Form 10-K for the fiscal year ended January 1,
2000.
As a result of a change in the Company's internal reporting structure,
continued product diversification and market expansion, the Company changed
its reportable segments during the first quarter of fiscal 2000 to Consumer
and Industrial and Specialty and restated prior period segment information to
reflect this change.
Results of Operations
The following table sets forth the percentage relationships to net sales of
certain income statement items.
<TABLE>
<CAPTION>
Three Months Ended
------------------
April 1, April 3,
2000 1999
--------- ---------
<S> <C> <C>
Net sales by product category:
Consumer....................................... 57.8% 55.0%
Industrial and Specialty....................... 42.2 45.0
--------- ---------
100.0 100.0
Cost of goods sold:
Material....................................... 39.5 38.8
Labor.......................................... 9.3 8.3
Overhead....................................... 29.0 27.5
--------- ---------
77.8 74.6
--------- ---------
Gross profit................................... 22.2 25.4
Selling, general and administrative expenses..... 12.6 12.9
--------- ---------
Operating income................................. 9.6 12.5
Other (income) expense
Interest expense, net.......................... 8.2 8.4
Investment income--(gain) on marketable
securities.................................... -- (0.7)
Foreign currency and other..................... -- 0.3
--------- ---------
8.2 8.0
Income before income taxes....................... 1.4 4.5
Income taxes..................................... 0.5 1.7
--------- ---------
Net income....................................... 0.9% 2.8%
========= =========
</TABLE>
10
<PAGE>
Comparison of Three Months Ended April 1, 2000 and April 3, 1999
The following table sets forth components of the Company's net sales and
operating income by segment for the three months ended April 1, 2000 and the
corresponding increase/(decrease) over the comparable period in the prior
year:
<TABLE>
<CAPTION>
First Quarter
----------------- Increase/ % Increase/
2000 1999 (Decrease) (Decrease)
-------- -------- ---------- -----------
(In Thousands, Except Percent Data)
<S> <C> <C> <C> <C>
Net sales:
Consumer....................... $133,977 $115,560 $18,417 15.9%
Industrial and Specialty....... 97,975 94,587 3,388 3.6
-------- -------- -------
$231,952 $210,147 $21,805 10.4
======== ======== =======
Operating income:
Consumer....................... $ 18,621 $ 20,414 $(1,793) (8.8)%
Industrial and Specialty....... 3,638 5,786 (2,148) (37.1)
-------- -------- -------
$ 22,259 $ 26,200 $(3,941) (15.0)
======== ======== =======
</TABLE>
Net Sales
Consolidated net sales were approximately $232.0 million during the first
quarter of fiscal 2000, an increase of $21.8 million or 10.4% over first
quarter 1999 consolidated net sales of $210.1 million.
First quarter 2000 Consumer segment net sales increased 15.9% to
approximately $134.0 million compared to $115.6 million in the first quarter
of 1999. This increase was in part due to a broader geographic sales base as
well as higher sales of lower margin products and increased raw material costs
that were passed through to customers, offset in part by changes and delays in
orders for selected high margin products from certain customers.
Industrial and Specialty segment sales in the first quarter of fiscal 2000
increased to approximately $98.0 million, up from $94.6 million in the first
quarter of 1999. This increase was more modest than expected due primarily to
product mix issues resulting in lower than anticipated average selling prices
and unfavorable foreign currency conversion rates.
Operating Income
Consolidated operating income was $22.3 million during the first quarter of
fiscal 2000, a decrease of $3.9 million or 15.0% over first quarter 1999
consolidated operating income of $26.2 million.
Consumer segment operating income was $18.6 million during the first
quarter of 2000 compared to $20.4 million during the first quarter of 1999, a
decrease of $1.8 million or 8.8%. This decrease was due primarily to changes
and delays in orders for selected high margin products from certain customers
and timing variances between raw material price increases and the
corresponding pass-through of those increases to customers.
Industrial and Specialty segment operating income was $3.6 million during
the first quarter of 2000 compared to $5.8 million in the first quarter of
1999, a decrease of $2.1 million or 37.1%. Similar to the decline in the
Consumer segment, operating income in the Industrial and Specialty segment was
negatively affected by timing variances between raw material price increases
and the pass-through of those increases to customers. In addition, the
Industrial and Specialty segment operating income decrease was attributable to
higher period expenses associated with the Company's two new APEX(TM) lines
and unfavorable foreign currency conversion rates versus the comparable period
in 1999.
Interest Expense and Other
Interest expense increased $1.6 million, from $17.6 million in the first
quarter of 1999 to $19.1 million in the first quarter of 2000. The increase in
interest expense is principally due to a higher average amount of indebtedness
outstanding resulting from increased capital spending. Interest expense as a
percentage of sales decreased slightly quarter over quarter.
11
<PAGE>
Net foreign currency and other losses were approximately $0.7 million
during the first quarter of 1999 compared to gains of approximately $0.2
million during the first quarter of 2000. In addition, during the first
quarter of 1999 the Company recognized a gain on marketable securities of
$1.4 million.
Income Taxes
The Company provided for income taxes of approximately $1.2 million for the
first quarter of 2000, representing an effective tax rate of 35.0%. During the
first quarter of 1999, the Company provided for income taxes of $3.5 million,
representing an effective tax rate of 37.7%. The provision for income taxes at
the Company's effective rate in 1999 differed from the provision for income
taxes at the statutory rate due primarily to higher rates in foreign
jurisdictions. During the third quarter of 1999 the Company completed the tax-
efficient realignment of its European operations which resulted in a lower
effective tax rate in the first quarter of 2000 versus the comparable quarter
in 1999.
Net Income
Net income decreased $3.7 million from $5.8 million, or $.18 per diluted
share, during the first quarter of 1999 to $2.1 million, or $.07 per diluted
share, during the first quarter of 2000.
First quarter 2000 net income was lower than first quarter 1999 due to
changes and delays in orders for selected high margin products from certain
customers and timing variances between raw material price increases and the
pass-through of those costs to customers. In addition, net income in the first
quarter of 2000 was negatively affected by higher period expenses associated
with the Company's two new APEXTM lines, unfavorable foreign currency
conversion rates and increased interest expense resulting from a higher
average amount of indebtedness outstanding during the first three months of
2000 compared to the same period in 1999.
Liquidity and Capital Resources
<TABLE>
<CAPTION>
April 1, January 1,
2000 2000
---------- ----------
(In Thousands)
<S> <C> <C>
Balance sheet data:
Cash and equivalents and short-term
investments................................... $ 33,373 $ 56,295
Working capital................................ 200,727 188,905
Total assets................................... 1,457,918 1,466,246
Total debt..................................... 1,019,106 987,092
Shareholders' equity........................... 238,229 242,284
<CAPTION>
Three Months Ended
----------------------
April 1, April 3,
2000 1999
---------- ----------
(In Thousands)
<S> <C> <C>
Cash flow data:
Net cash (used in) provided by operating
activities.................................... $ (24,036) $ 15,971
Net cash (used in) investing activities........ (36,867) (42,045)
Net cash provided by financing activities...... 31,953 35,054
</TABLE>
Operating Activities
During the first three months of fiscal 2000, the Company's cash used in
operating activities was approximately $24.0 million compared to cash
generated by operating activities of approximately $16.0
12
<PAGE>
million during the first three months of 1999, a decrease of approximately
$40.0 million. This was largely attributable to a decrease in operating income
and higher working capital needs in the first three months of fiscal 2000.
Investing and Financing Activities
Capital expenditures for the three months ended April 1, 2000 totaled $35.6
million, relating primarily to margin-enhancing projects. The Company
anticipates capital expenditures in fiscal 2000 to be in the range of $80.0
million to $85.0 million. However, the Company continues to review additional
opportunities and will make determinations on these projects on a case by case
basis.
The Company believes that based on current levels of operations and
anticipated growth, its cash from operations, together with other available
sources of liquidity (including but not limited to borrowings under the
amended credit facility) will be adequate over the next several years to make
required debt payments, including interest thereon, to permit anticipated
capital expenditures and to fund the Company's working capital requirements.
As of April 1, 2000, the Company's availability under its credit facility,
including cash and equivalents and short-term investments, approximated
$125.3 million.
On April 18, 2000, the Company amended its credit facility to add an
additional term loan in the amount of $100.0 million at which time the
availability under the credit facility increased to approximately $225.3
million. The amendment also modified certain covenants, including leverage and
fixed charge coverage. The Company borrowed the entire amount of the
additional term loan, which was used to reduce amounts outstanding under the
revolving portion of the credit facility. In addition, the Board of Directors
declared a quarterly dividend of $0.02 per share, payable on June 2, 2000 to
shareholders of record on May 12, 2000.
Effect of Inflation
Inflation generally affects the Company by increasing the cost of labor,
equipment and raw materials. For a discussion of certain raw material price
increases during the quarter ended April 1, 2000, see "Quantitative and
Qualitative Disclosures About Market Risk--Raw Material and Commodity Risks."
Foreign Currency
The Company's substantial foreign operations expose it to the risk of
exchange rate fluctuations. If foreign currency denominated revenues are
greater than costs, the translation of foreign currency denominated costs and
revenues into U.S. dollars will improve profitability when the foreign
currency strengthens against the U.S. dollar and will reduce profitability
when the foreign currency weakens.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Long-Term Debt and Interest Rate Market Risk
Variable Rate Debt
After giving affect to the April 2000 refinancing discussed above, the
amended credit facility currently permits the Company to borrow up to $600.0
million, a portion of which may be denominated in Dutch guilders and in
Canadian dollars. The variable interest rate applicable to borrowings under
the amended credit facility is based on, in the case of U.S. dollar
denominated loans, the Base Rate referred to therein or the Eurocurrency rate
referred to therein for U.S. dollars, at the Company's option, plus a
specified margin. In the event that a portion of the amended credit facility
is denominated in Dutch guilders, the applicable interest rate is based on the
applicable Eurocurrency Base Rate
13
<PAGE>
referred to therein for Dutch Guilders, plus a specified margin. In the event
that a portion of the amended credit facility is denominated in Canadian
dollars, the applicable interest rate is based on the Canadian Base Rate
referred to therein, plus a specified margin, of the Bankers' Acceptance
discount Rate referred to therein, at the Company's option. At April 1, 2000,
the Company had borrowings under the Credit Facility of $392.0 million that
were subject to interest rate risk. Each hypothetical 1.0% increase in
interest rates would impact pretax earnings by $3.9 million. The Company has
an interest rate cap agreement which limits the amount of interest expense on
$100 million of this debt to a rate of 9%. The Company does not use these
products for trading purposes.
Fixed Rate Debt
The fair market value of the Company's long-term fixed interest rate debt
is also subject to interest rate risk. Generally, the fair market value of
fixed interest rate debt will increase as interest rates fall and decrease as
interest rates rise. The estimated fair value of the Company's long-term
fixed-rate debt at April 1, 2000 was approximately $529.0 million, which was
less than its carrying value by approximately $71.0 million. A 100 basis
points decrease in the prevailing interest rates at April 1, 2000 would result
in an increase in the fair value of fixed rate debt by approximately $28.2
million. A 100 basis points increase in the prevailing interest rates at April
1, 2000 would result in a decrease in fair value of total fixed rate debt by
approximately $26.4 million. Fair market values were determined from quoted
market prices or based on estimates made by investment bankers.
Foreign Currency Exchange Rate Risk
The Company manufactures, markets and distributes certain of its products
in Europe, Canada, Latin America and the Far East. As a result, the Company's
financial results could be significantly affected by factors such as changes
in foreign currency rates or weak economic conditions in the foreign markets
in which the Company maintains a manufacturing or distribution presence. If
foreign currency denominated revenues are greater than costs, the translation
of foreign currency denominated costs and revenues into U.S. dollars will
improve profitability when the foreign currency strengthens against the U.S.
dollar and will reduce profitability when the foreign currency weakens. For
the quarter ending April 1, 2000, the result of a uniform 10% strengthening in
the value of the dollar relative to the currencies in which the Company's
sales are denominated would have decreased operating income by approximately
$1.4 million. This calculation assumes that each exchange rate would change in
the same direction relative to the U.S. dollar. In addition to the direct
effects of changes in exchange rates, which are a changed dollar value of the
resulting sales, changes in exchange rates also affect the volume of sales or
the foreign currency sales price as competitors' products become more or less
attractive. The Company's sensitivity analysis of the effects of changes in
foreign currency exchange rates does not factor in a potential change in sales
levels or local currency prices.
The Company may enter into financial instruments which are limited in
duration and scope to manage its exposure to fluctuations of foreign currency
rates. These instruments are used for hedging purposes and are used in
connection with an underlying asset, liability, firm commitment or anticipated
transaction. Charges to expense during the first quarter 2000 and 1999 related
to these instruments, which are not used for trading purposes, were not
significant.
Raw Material and Commodity Risks
The primary raw materials used in the manufacture of most of the Company's
products are polypropylene and polyester fiber, polyethylene and polypropylene
resin, and, to a lesser extent, rayon, tissue paper and cotton. The prices of
polyethylene and polypropylene are a function of, among other things,
manufacturing capacity, demand and the price of crude oil and natural gas
liquids. Historically,
14
<PAGE>
the prices of polyethylene and polypropylene resin have fluctuated, such as in
late 1994 and early 1995 when resin prices increased by approximately 60%. The
sharp increase was primarily due to short-term interruptions in production
capacity and increased demand as a result of an expanding economy. By mid-
1995, supply had increased, thereby reducing prices. In general, prices
declined between 1996 and 1999. During the first quarter of 2000, raw material
prices increased due to higher resin and fiber costs resulting from a
combination of higher crude oil prices, shortages of the chemical monomers
used to produce certain resins and strong demand for resins under these
conditions. The Company currently anticipates this trend to continue for
several months into the second quarter of 2000. A significant increase in the
prices of polyolefin resins that cannot be passed on to customers could have a
material adverse effect on the Company's results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Safe Harbor Statement under the Private Securities Litigation Act of 1995
Except for historical information contained herein, certain matters set
forth within Management's Discussion and Analysis of Financial Condition and
Results of Operations of this Form 10-Q are forward looking statements.
Certain risks and uncertainties could cause actual results to differ
materially from those set forth in the forward looking statements. The
following factors could cause actual results to differ materially from
historical results or those anticipated: adverse economic conditions,
competition in the Company's markets, fluctuation in raw material costs, and
other risks detailed in documents filed by the Company with the Securities and
Exchange Commission.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibits required to be filed with this report on Form 10-Q are listed in
the following Exhibit Index.
Reports on Form 8-K
On March 14, 2000, the Company issued a press release, which was filed on
Form 8-K, announcing that, based upon preliminary estimates, the Company
expects first quarter 2000 and full year 2000 earnings to be lower than
expectations.
16
<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 thereunto duly authorized.
Polymer Group, Inc.
/s/ Jerry Zucker
By: _________________________________
Jerry Zucker
Chairman, President, Chief
Executive Officer and Director
(Principal Executive Officer)
/s/ James G. Boyd
By: _________________________________
James G. Boyd
Executive Vice President,
Treasurer and Director (Principal
Financial Officer and Principal
Accounting Officer)
May 15, 2000
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document Description
------- --------------------
<C> <S>
10.1 Form of change of control severance agreement.
11 Statement of Computation of Per Share Earnings.
27 Financial data schedule.
99.1 Press release dated March 14, 2000. (1)
</TABLE>
- --------
(1) Incorporated by reference to the respective exhibit to the Company's Form
8-K, dated March 14, 2000.
18
<PAGE>
Exhibit 10.1
[LETTERHEAD OF PGI]
May 22, 1998
Personal and Confidential
- -------------------------
Mr. Jerry Zucker
Chairman, President and CEO
Polymer Group, Inc.
4838 Jenkins Avenue
North Charleston, S. C. 29405
Dear Jerry:
Polymer Group, Inc. ("PGI") considers the establishment and continuance of a
strong and vital management to be essential to protecting and enhancing the best
interests of PGI and its shareholders. In this connection, PGI recognizes that
when events which could lead to a change of control of PGI occur, they give rise
to material uncertainties and questions as to the ownership and future direction
of PGI which would persist for some time. The Board recognizes that such
uncertainties could result in the departure or possible distraction of key
management personnel to the detriment of PGI and its shareholders. Accordingly,
the Board wishes to clarify arrangements relating to your employment by PGI or
its affiliates, particularly in circumstances relating to change of control to
reinforce and encourage you to continue employment with PGI. In particular, the
Board believes it important, should PGI or its shareholders receive a proposal
in respect of a change in ownership of PGI, that your employment with PGI or its
affiliates be continued during the pendency of such proposals and you be able to
assess and advise PGI and its shareholders and to take such other action
regarding such proposals as the Board might determine to be appropriate, without
being influenced by the uncertainties of your own situation.
In order to induce you to remain in the employ of PGI, this letter agreement
("Agreement"), which was approved by the Board at its May 5, 1998 Board meeting,
sets forth the severance and termination benefits which PGI agrees will be
provided to you in the event your employment with PGI is terminated or
significantly affected subsequent to a Fundamental Change (as defined) in the
ownership or the direction of PGI under the circumstances described below. Also
note that this Agreement revokes and shall supersede all other prior agreements
between you and PGI dealing with the specific benefits to be given to you under
any Benefit Plan (as hereinafter defined) in the event your employment with PGI
is terminated or significantly affected within twenty-four (24) months
subsequent to a Fundamental Change. The obligations of PGI to provide the
benefits under this Agreement are applicable only in the event of a Fundamental
Change in the ownership or direction of PGI in the circumstances described below
and do not otherwise affect your present terms and conditions of employment.
This Agreement does not in any way establish a precedent or guideline for PGI's
obligation to provide such benefits in circumstances other than those described
herein. Accordingly, the definitions contained herein, including the definition
of "Cause" and "Good Reason," are applicable only for the purpose of this
Agreement.
<PAGE>
I. Definitions
-----------
1.1 In this Agreement, the term:
(a) "Base Salary" shall mean your annual salary in effect prior to the
-----------
date of delivery of a Notice of Termination (without regard to any
reduction in that salary in the sixty (60) days prior to the date of
delivery of such Notice).
(b) "Beneficial Owner of Voting Securities" means a Person who has any
-------------------------------------
beneficial interest in or control or direction over the Voting
Securities or has a right to control or direct voting or disposition
of Voting Securities held in a trust or has the right to acquire any
beneficial interest in Voting Securities, whether issued or unissued
conditionally or unconditionally, within sixty (60) days whether by
exercise of an option, warrant, right, subscription privilege,
agreement, revocation of a trust or otherwise.
(c) "Benefit Plan" shall mean any compensation plan such as an incentive,
------------
stock option plan or any employee benefit plan such as a saving,
pension, profit sharing, medical, dental, disability, accident, life
insurance plan or a relocation plan or policy or any other material
plan, program, perquisite or policy of PGI intended to benefit
employees.
(d) "Board" means the Board of Directors of PGI.
-----
(e) "Cause" shall mean (i) the willful and continued failure by you to
-----
perform substantially your duties with PGI (other than any such
failure resulting from your incapacity due to physical or mental
illness) after a written demand for substantial performance is
delivered to you by the Board which specifically identifies the manner
in which the Board of Directors believes that you have not
substantially performed your duties, or (ii) the willful engaging by
you in illegal conduct which is materially and demonstrably injurious
to PGI. For the purposes of this definition, no act, or failure to
act, on your part, shall be considered "willful" unless done or
omitted to be done by you in bad faith and without reasonable belief
that such action or omission was in, or not opposed to, the best
interests of PGI.
(f) "Date of Termination" means the date specified in Section VII of
-------------------
this Agreement.
(g) "Fundamental Change" shall mean any one of the following events:
------------------
(i) any Person or group of Persons acting jointly and in concert,
becomes the beneficial Owner, directly or indirectly, of thirty-
five percent (35%) or more of the combined voting power of PGI's
Voting Securities, but not including any Person whose ownership
of such a percentage of Voting Securities results solely from a
share repurchase by PGI or a subsidiary thereof (unless such
Person or Persons subsequently purchases any additional Voting
Securities).
(ii) a Person or group of Persons acting jointly and in concert, who
is the registered owner or beneficial Owner of five percent (5%)
or greater of the combined voting power of PGI's Voting
Securities (A) indicates in an information circular sent to
shareholders of PGI or otherwise indicates in writing, that such
Person or Persons intends to nominate, or (B) at a meeting of
PGI's shareholders nominates, individuals for election to the
Board who have not been approved by the Incumbent Board (either
by a specific vote or by
<PAGE>
approval of the proxy statement of PGI in which such person is
named as a nominee for director, without objection to such
nomination) and who, if elected, would constitute a majority of
the members on the Board who are not full-time employees of PGI
or its subsidiaries and a majority of such nominees are so
elected.
(iii) PGI ceases to control in fact, directly or indirectly, all or
substantially all of the assets employed in carrying on the
business of PGI.
Notwithstanding anything in the foregoing to the contrary, no
Fundamental Change shall be deemed to have occurred for purposes of
this Agreement by virtue of any transaction which results in any
Person or Persons approved by the Incumbent Board becoming the
beneficial Owner of Voting Securities, directly or indirectly, of more
than thirty-five percent (35%) but less than fifty per cent (50%) of
the combined voting power of PGI's voting securities.
(h) "Good Reason" shall mean:
-----------
(i) a reduction by PGI in your Base Salary or the opportunity for
cash and non-cash incentive and other compensation as in effect
immediately prior to the Fundamental Change;
(ii) at any time after the happening of a Fundamental Change, an
adverse change in your status, position(s) or salary group or
scope of responsibility as an executive in effect immediately
prior to the Fundamental Change, including, without limitation,
a diminution of your scope of duties or responsibilities, the
addition of new executive positions with equal or greater title,
status or responsibility, any change in reporting responsibility
or the assignment to you of any duties or areas of
responsibilities which, in your reasonable judgment, are
inconsistent with such status or position(s), co-
responsibilities undertaken prior to a Fundamental Change or any
removal of you from or any failure to reappoint or reelect you
to such position(s) (except in connection with the termination
of your employment for Cause or disability);
(iii) the failure by PGI to continue in effect any Benefit Plan in
which you are participating at the time of the Fundamental
Change or the taking of any action, or the failure to act, by
PGI which would adversely affect your continued participation in
any of such Benefit Plans on at least as favorable a basis to
you as is the case at the time of the Fundamental Change or
which would materially reduce your benefits in the future under
any of such Benefit Plans or deprive you of any material
employment related benefit enjoyed by you at the time of the
Fundamental Change; provided, any modification required by the
Employee Retirement Income Security Act of 1974, as amended
("ERISA") or the Internal Revenue Code of 1986, as amended (the
"Code") shall not constiute Good Reason;
(iv) PGI requiring you to regularly report for employment to an
office located anywhere in excess of fifty (50) miles from where
your office is located immediately prior to the Fundamental
Change, except for required travel on PGI's business to an
extent substantially consistent with the business travel
obligations which you undertook on behalf of PGI prior to the
Fundamental Change,
<PAGE>
(v) any purported termination by PGI of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of paragraph 6.1 below (and, if applicable,
paragraphs 1.1(e) and 5.2 of this Agreement);
(vi) failure by PGI to pay or cause to be paid to you any amounts due
to you under the terms of any of PGI's Benefit Plan after a
decision of the Board that it is in PGI's best interests to do
so in accordance with paragraph 4.1 of this Agreement;
(vii) the failure by PGI to obtain from any Successor the assent to
this Agreement contemplated by paragraph 10.1 hereof.
(i) "Incumbent Board" means the members of the Board on the date hereof
---------------
and any person becoming a director of PGI subsequent to that date
whose election, or nomination for election by PGI's shareholders, was
approved by a vote of at least three-quarters (3/4) of the directors
comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of PGI in which such person is named
as a nominee for director, without objection to such nomination).
(j) "Notice of Termination" means a notice given in accordance with
---------------------
paragraph 6.1 of this Agreement.
(k) "Person" or "Persons" shall mean and include any individual,
-------------------
corporation, partnership, unincorporated organization or syndicate or
association, trust, trustee, executor, administrator or other legal
representative other than PGI, a subsidiary of PGI or any employee
benefit plan(s) sponsored by PGI or a subsidiary of PGI.
(l) "PGI" means Polymer Group, Inc. and includes any corporation or other
---
entity which is the surviving or continuing entity in respect of any
amalgamation, merger, consolidation, combination, recapitalization,
dissolution or form of business combination.
(m) "Retirement" shall mean termination by you of your employment with PGI
----------
on or after your normal retirement date, including early retirement
with your written consent, under and in accordance with the terms of
the registered pension plan of PGI in which you participate or the
retirement date declared by you in writing.
(n) "Successor" shall mean any Person that concurrently with or subsequent
---------
to a Fundamental Change succeeds to, or has the practical ability to
control (either immediately or with the passage of time), PGI's
business directly, by merger or consolidation, or indirectly, by
purchase of PGI's Voting Securities, all or substantially all of its
assets or otherwise.
(o) "Voting Securities" shall mean any share or other security that
-----------------
carries a voting right either under all circumstances or under some
circumstances that have occurred and are continuing and also includes
any share or security that is ultimately exercisable or convertible
into a Voting Security, whether conditionally or unconditionally.
<PAGE>
II. Agreement to Provide Services: Right to Terminate
-------------------------------------------------
2.1 Except as otherwise provided in paragraph 2.2 below, after the first
occurrence of a Fundamental Change, PGI or you may terminate your
employment at any time subject to PGI providing to you the benefits
hereinafter specified in respect of termination of your employment all in
accordance with the terms hereof.
2.2 In the event a take-over is made by a Person or Persons acting jointly and
in concert in respect of any securities of PGI prior to the first
occurrence of a Fundamental Change, you agree that you will not leave the
employ of PGI (other than as a result of disability or upon Retirement)
until the earliest of (a) one hundred and twenty (120) days after the
commencement of such take-over bid, (b) such take-over bid has been
abandoned or terminated, or (c) the first occurrence of a Fundamental
Change.
III. Term of the Agreement
---------------------
3.1 This Agreement shall commence on the date hereof and shall continue to be
in effect for a minimum period of five years commencing May 5, 1998 and
shall, automatically be extended for additional periods of one year unless
at least ninety (90) days prior to the expiration of the current one year
period, PGI or you shall have given written notice that this Agreement
shall not be extended.
3.2 It is further provided that this Agreement shall continue to be in effect
for a period of twenty four (24) months beyond the term provided in
paragraph 3.1 above if a Fundamental Change in PGI shall have occurred
during such term. Notwithstanding anything in this Section III to the
contrary, your employment may be terminated by PGI prior to the happening
of a Fundamental Change, without giving rise to the obligations of PGI
hereunder provided, however, any such termination will be subject to
applicable laws and any other agreements you may have with PGI. This
Agreement may be terminated by you prior to the happening of a Fundamental
Change, except after the commencement of a take-over bid wherein you may
terminate this Agreement only in the circumstances indicated in paragraph
2.2. above.
IV. Stock Option Plan
-----------------
4.1 The Board shall continue to have any power to accelerate the vesting of
options and stock appreciation rights that is currently available to it
under the Stock Option Plan. In addition, providing that the Board of
Directors judges that it is in the best interests of the shareholders not
---
to have the options vested automatically, all options and stock
appreciation rights granted to you under the Stock Option Plan, whether
vested or not, shall become vested and immediately exercisable:
(a) If at any time, any person, other than yourself or an Affiliate
thereof, beneficially owns, directly or indirectly, voting securities
of the Corporation carrying more than 35% of the votes for the
election of directors or any person makes a successful take-over bid
for 50% or more of the voting securities of the Corporation (including
the voting securities of the Corporation then held by such offeror).
<PAGE>
(b) less than 20% of PGI's Voting Securities are listed on The New York
Stock Exchange, or a similar recognized stock exchange and are widely
held by persons other than the Person (or group of Persons acting
jointly or in concert) whose actions have given rise to the
Fundamental Change; or
(c) you are terminated other than for Cause, in accordance with the terms
of this Agreement.
V. Termination Following Fundamental Change
----------------------------------------
5.1 Following the first occurrence of any Fundamental Change in PGI, you shall
be entitled to the benefits provided in paragraph 8.2 hereof upon:
(a) the termination of your employment by PGI at any time within twenty-
four (24) months after the happening of such Fundamental Change unless
such termination is (A) because of your death or Retirement, or (B) by
PGI for Cause or disability;
(b) the termination of your employment by you with Good Reason providing
that such termination occurs within twenty-four (24) months after the
happening of such Fundamental Change; or
(c) termination of your employment within the mutual consent of you and
PGI within twenty-four (24) months of the happening of such
Fundamental Change.
5.2 If PGI intends to terminate your employment for Cause following a
Fundamental Change then any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board or based upon the
advice of counsel for PGI shall be conclusively presumed to be done, or
omitted to be done, by you in good faith and in the best interests of PGI.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters (3/4) of the
directors who are not full-time employees of PGI or any of its subsidiaries
at a meeting of the Board called and held for the purpose (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board has been given), finding that in the good faith
opinion of the Board you were guilty of the conduct set forth above in sub-
clauses (i) or (ii) of paragraph 1.1(e) and specifying the particulars
thereof in detail is delivered to you.
VI. Notice of Termination
---------------------
6.1 Any purported termination by PGI or by you following a Fundamental Change
shall be communicated by written Notice of Termination to the other party
hereto and shall indicate with reasonable particularity the specific
termination provision in this Agreement relied upon.
VII. Date of Termination
-------------------
7.1 "Date of Termination" following a Fundamental Change shall mean:
-------------------
(a) if your employment is to be terminated by PGI for Cause, the date
specified in the Notice of Termination which shall be on or after the
date upon which the Notice of Termination is delivered;
<PAGE>
(b) if you terminate employment with Good Reason, a date no earlier than
thirty (30) days from the date on which the Notice of Termination is
given; or
(c) if your employment is to be terminated by PGI for any reason other
than Cause, the date specified in the Notice of Termination, which in
no event shall be a date earlier than sixty (60) days after the date
on which a Notice of Termination is given unless an earlier date has
been expressly agreed to by you in writing either in advance of, or
after, receiving such Notice of Termination.
7.2 In the case of termination by PGI of your employment for Cause, if you
have not previously expressly agreed in writing to the termination, then
within thirty (30) days after receipt by you of the Notice of Termination
with respect thereto, you may notify PGI that a dispute exists concerning
the termination, in which event the Date of Termination shall be the date
set either by mutual written agreement of the parties or by the
arbitrators in a proceeding as provided in paragraph 12.7 hereof.
VIII. Compensation Upon Termination
-----------------------------
8.1 If your employment shall be terminated for Cause following a Fundamental
Change, PGI shall pay you your Base Salary and prorated bonus through the
Date of Termination plus any other benefits or awards (including the cash
value of any Benefit Plan) which have been earned or become payable, but
which have not yet been paid to you. Thereupon PGI shall have no further
obligations to you under this Agreement.
8.2 If your employment is terminated after the first occurrence of any
Fundamental Change in accordance with the manner described in paragraph
5.1 then, on the fifth (5th) day following the Date of Termination (except
as otherwise provided), you shall be entitled without regard to any
contrary provisions of any Benefit Plan, to the benefits as provided below
(a) PGI shall pay your base Salary plus any annual benefits or awards
(including both the cash and non-cash value of any Benefit Plan
including bonus or incentives) pro-rated to the Date of Termination
on the basis that any targets necessary to obtain such awards have
been achieved, in a manner acceptable to you. Notwithstanding
anything in this Section VIII to the contrary, the amount payable to
you in respect of bonus or incentive plans shall be paid to you
within five days of receipt by PGI of the audited financial results
for the year in which the Date of Termination occurs.
(b) PGI shall pay you as severance pay and in lieu of any further salary
for periods subsequent to the Date of Termination, an amount in cash
equal to 2.99 times the aggregate of your (i) Base Salary plus (ii)
the cash value of the non-cash Benefit Plans plus (iii) the average
of annual bonus you received in the two (2) years immediately
preceding the Date of Termination.
8.3 The amount of any payment provided for in this Section VIII shall not be
reduced, offset or subject to recovery by PGI by reason of any
compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
8.4 In the event that your employment is terminated in the circumstances
described in paragraph 5.1, in the Notice of Termination or otherwise,
within four (4) days of the Date of Termination, you may, in writing,
direct PGI that any amounts which should become payable to you pursuant to
paragraph 8.2 hereof shall be paid to you in three (3) equal annual
installments, with the first such installment payable five (5) business
days after the Date of Termination and each
<PAGE>
successive installment paid on the anniversary of the Date of Termination
or the next following business day if such date is not a business day;
provided, any amounts to be paid from the trust(s) of qualified plans
shall only be payable at the time and in the manner prescribed under such
plans.
IX. Additional Rights
-----------------
9.1 You agree that the provisions of this Agreement include any statutory
entitlements to notice of termination or termination pay in lieu of notice
and severance pay and is in lieu of and replaces any common law
entitlements to notice of termination or pay in lieu thereof and you waive
your right at common law to reasonable notice. (The notice period for
termination of employment as provided herein shall comply with the notice
of termination provisions of applicable employment standards legislation,
as amended from time to time).
X. Successors: Binding Agreement
------------------------------
10.1 Any Successor to PGI shall be bound by this Agreement. PGI will seek to
have any Successor assent to the fulfillment by PGI of its obligations
under this Agreement at your request. Failure of PGI to obtain such assent
within thirty (30) days after such request shall constitute Good Reason
for termination by you of your employment and shall entitle you to the
benefits provided in paragraph 8.2 hereof upon delivery by you of a Notice
of Termination.
10.2 This Agreement shall inure to the benefit of and be enforceable by your
personal or legal representatives, executors, administrators, successors
or heirs. If you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to a beneficiary designated by you in writing or barring such
designation to your estate; provided, with respect to all employee Benefit
Plans subject to ERISA, any beneficiary designation will be governed by
the terms of such plans.
XI. Fees and Expenses: Mitigation
------------------------------
11.1 PGI shall pay all reasonable legal and accounting fees and related
expenses incurred by you in connection with the Agreement following a
Fundamental Change including, without limitation, (a) all such fees and
expenses, if any, incurred in contesting or disputing any termination of
your employment by PGI after a Fundamental Change or incurred by you in
seeking advice with respect to general taxation and financial advice with
respect to the receipt of payments hereunder or (b) your seeking to obtain
or enforce any right or benefit provided by this Agreement provided,
however, you shall be required to repay any such amounts to PGI to the
extent that a court issues a final and non-appealable order setting forth
the determination that the position taken by you was frivolous or advanced
by you in bad faith.
11.2 You shall not be required to mitigate the amount of any payment PGI
becomes obligated to make to you in connection with this Agreement, by
seeking other employment or otherwise.
XII. General
-------
12.1 Confidentiality. Notwithstanding any provision of this Agreement, any
---------------
provision governing an obligation of confidentiality on your part to PGI
that is contained in any other agreement that you may have with PGI shall
continue to be of full force and effect.
<PAGE>
12.2 Taxes and Other Amounts. All payments to be made to you under this
-----------------------
Agreement will be subject to required withholding of income tax and other
amounts under federal, and state tax laws.
12.3 Survival. The respective obligations of, and benefits afforded to PGI and
--------
you as provided in Sections VIII, X and XI and paragraphs 12.2 and 12.7 of
this Agreement that have accrued upon the first occurrence of a
Fundamental Change shall survive termination of this Agreement.
12.4 Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered postage prepaid and
addressed, in the case of PGI, to the address set forth on the first page
of this Agreement or, in the case of the undersigned employed, to the
address set forth below his signature provided that all notices to PGI
shall be directed to the attention of the Secretary of the Board or
Chairman of the Compensation Committee, or to such other address as either
party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon
receipt.
12.5 Miscellaneous. No provision of this Agreement may be modified, waived or
-------------
discharged unless such modification, waiver or discharge is agreed to in
writing signed by you and the Board of PGI. No waiver by either party
hereto at any time of any breach by the other party hereto of, or in
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been
made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of South Carolina.
12.6 Validity. The invalidity or unenforceability of any provision of this
--------
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12.7 Arbitration. Any dispute or controversy arising under or in connection
-----------
with this Agreement shall be settled, exclusively by arbitration by three
arbitrators in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrators'
award in any court having jurisdiction; provided, however, that you shall
be entitled to seek specific performance of your right to be paid until
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement. PGI shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this paragraph 12.7.
12.8 Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original but all of which together
will constitute one and the same instrument.
12.9 Amendments. Notwithstanding anything in the foregoing to the contrary,
----------
the Incumbent Board may by resolution or otherwise prior to the occurrence
of a Fundamental Change effect any amendments to this Agreement as it
deems appropriate provided that such amendments are not adverse to your
right to receive any benefits to which you may become entitled in the
event of a Fundamental Change as described in this Agreement.
<PAGE>
If this letter correctly sets forth our agreement on the subject matter hereof,
kindly sign and retime to PGI the enclosed copy of this letter which will then
constitute our agreement on this subject.
Sincerely,
POLYMER GROUP, INC.
By: /s/ Bruce V. Rauner
-----------------------
Bruce V. Rauner
Chairman
Compensation Committee
Agreed as of the 5th day of May 1998
/s/ Jerry Zucker
- --------------------------
Jerry Zucker
<PAGE>
[LETTERHEAD OF PGI]
May 22, 1998
Personal and Confidential
- -------------------------
Mr. James G. Boyd
Executive Vice President, Treasurer & CFO
Polymer Group, Inc.
4838 Jenkins Avenue
North Charleston, S. C. 29405
Dear Jim:
Polymer Group, Inc. ("PGI") considers the establishment and continuance of a
strong and vital management to be essential to protecting and enhancing the best
interests of PGI and its shareholders. In this connection, PGI recognizes that
when events which could lead to a change of control of PGI occur, they give rise
to material uncertainties and questions as to the ownership and future direction
of PGI which would persist for some time. The Board recognizes that such
uncertainties could result in the departure or possible distraction of key
management personnel to the detriment of PGI and its shareholders. Accordingly,
the Board wishes to clarify arrangements relating to your employment by PGI or
its affiliates, particularly in circumstances relating to change of control to
reinforce and encourage you to continue employment with PGI. In particular, the
Board believes it important, should PGI or its shareholders receive a proposal
in respect of a change in ownership of PGI, that your employment with PGI or its
affiliates be continued during the pendency of such proposals and you be able to
assess and advise PGI and its shareholders and to take such other action
regarding such proposals as the Board might determine to be appropriate, without
being influenced by the uncertainties of your own situation.
In order to induce you to remain in the employ of PGI, this letter agreement
("Agreement"), which was approved by the Board at its May 5, 1998 Board meeting,
sets forth the severance and termination benefits which PGI agrees will be
provided to you in the event your employment with PGI is terminated or
significantly affected subsequent to a Fundamental Change (as defined) in the
ownership or the direction of PGI under the circumstances described below. Also
note that this Agreement revokes and shall supersede all other prior agreements
between you and PGI dealing with the specific benefits to be given to you under
any Benefit Plan (as hereinafter defined) in the event your employment with PGI
is terminated or significantly affected within twenty-four (24) months
subsequent to a Fundamental Change. The obligations of PGI to provide the
benefits under this Agreement are applicable only in the event of a Fundamental
Change in the ownership or direction of PGI in the circumstances described below
and do not otherwise affect your present terms and conditions of employment.
This Agreement does not in any way establish a precedent or guideline for PGI's
obligation to provide such benefits in circumstances other than those described
herein. Accordingly, the definitions contained herein, including the definition
of "Cause" and "Good Reason," are applicable only for the purpose of this
Agreement.
<PAGE>
I. Definitions
-----------
1.1 In this Agreement, the term:
(a) "Base Salary" shall mean your annual salary in effect prior to the
-----------
date of delivery of a Notice of Termination (without regard to any
reduction in that salary in the sixty (60) days prior to the date of
delivery of such Notice).
(b) "Beneficial Owner of Voting Securities" means a Person who has any
-------------------------------------
beneficial interest in or control or direction over the Voting
Securities or has a right to control or direct voting or disposition
of Voting Securities held in a trust or has the right to acquire any
beneficial interest in Voting Securities, whether issued or unissued
conditionally or unconditionally, within sixty (60) days whether by
exercise of an option, warrant, right, subscription privilege,
agreement, revocation of a trust or otherwise.
(c) "Benefit Plan" shall mean any compensation plan such as an incentive,
------------
stock option plan or any employee benefit plan such as a saving,
pension, profit sharing, medical, dental, disability, accident, life
insurance plan or a relocation plan or policy or any other material
plan, program, perquisite or policy of PGI intended to benefit
employees.
(d) "Board" means the Board of Directors of PGI.
-----
(e) "Cause" shall mean (i) the willful and continued failure by you to
-----
perform substantially your duties with PGI (other than any such
failure resulting from your incapacity due to physical or mental
illness) after a written demand for substantial performance is
delivered to you by the Board which specifically identifies the manner
in which the Board of Directors believes that you have not
substantially performed your duties, or (ii) the willful engaging by
you in illegal conduct which is materially and demonstrably injurious
to PGI. For the purposes of this definition, no act, or failure to
act, on your part, shall be considered "willful" unless done or
omitted to be done by you in bad faith and without reasonable belief
that such action or omission was in, or not opposed to, the best
interests of PGI.
(f) "Date of Termination" means the date specified in Section VII of
-------------------
this Agreement.
(g) "Fundamental Change" shall mean any one of the following events:
------------------
(i) any Person or group of Persons acting jointly and in concert,
becomes the beneficial Owner, directly or indirectly, of thirty-
five percent (35%) or more of the combined voting power of PGI's
Voting Securities, but not including any Person whose ownership
of such a percentage of Voting Securities results solely from a
share repurchase by PGI or a subsidiary thereof (unless such
Person or Persons subsequently purchases any additional Voting
Securities).
(ii) a Person or group of Persons acting jointly and in concert, who
is the registered owner or beneficial Owner of five percent (5%)
or greater of the combined voting power of PGI's Voting
Securities (A) indicates in an information circular sent to
shareholders of PGI or otherwise indicates in writing, that such
Person or Persons intends to nominate, or (B) at a meeting of
PGI's shareholders nominates, individuals for election to the
Board who have not been approved by the Incumbent Board (either
by a specific vote or by
<PAGE>
approval of the proxy statement of PGI in which such person is
named as a nominee for director, without objection to such
nomination) and who, if elected, would constitute a majority of
the members on the Board who are not full-time employees of PGI
or its subsidiaries and a majority of such nominees are so
elected.
(iii) PGI ceases to control in fact, directly or indirectly, all or
substantially all of the assets employed in carrying on the
business of PGI.
Notwithstanding anything in the foregoing to the contrary, no
Fundamental Change shall be deemed to have occurred for purposes of
this Agreement by virtue of any transaction which results in any
Person or Persons approved by the Incumbent Board becoming the
beneficial Owner of Voting Securities, directly or indirectly, of more
than thirty-five percent (35%) but less than fifty per cent (50%) of
the combined voting power of PGI's voting securities.
(h) "Good Reason" shall mean:
-----------
(i) a reduction by PGI in your Base Salary or the opportunity for
cash and non-cash incentive and other compensation as in effect
immediately prior to the Fundamental Change;
(ii) at any time after the happening of a Fundamental Change, an
adverse change in your status, position(s) or salary group or
scope of responsibility as an executive in effect immediately
prior to the Fundamental Change, including, without limitation,
a diminution of your scope of duties or responsibilities, the
addition of new executive positions with equal or greater title,
status or responsibility, any change in reporting responsibility
or the assignment to you of any duties or areas of
responsibilities which, in your reasonable judgment, are
inconsistent with such status or position(s), co-
responsibilities undertaken prior to a Fundamental Change or any
removal of you from or any failure to reappoint or reelect you
to such position(s) (except in connection with the termination
of your employment for Cause or disability);
(iii) the failure by PGI to continue in effect any Benefit Plan in
which you are participating at the time of the Fundamental
Change or the taking of any action, or the failure to act, by
PGI which would adversely affect your continued participation in
any of such Benefit Plans on at least as favorable a basis to
you as is the case at the time of the Fundamental Change or
which would materially reduce your benefits in the future under
any of such Benefit Plans or deprive you of any material
employment related benefit enjoyed by you at the time of the
Fundamental Change; provied, any modification required by the
Employee Retirement Income Security Act of 1974, as amended
("ERISA") or the Internal Revenue Code of 1986, as amended (the
-----
"Code") shall not constitute Good Reason;
----
(iv) PGI requiring you to regularly report for employment to an
office located anywhere in excess of fifty (50) miles from where
your office is located immediately prior to the Fundamental
Change, except for required travel on PGI's business to an
extent substantially consistent with the business travel
obligations which you undertook on behalf of PGI prior to the
Fundamental Change,
<PAGE>
(v) any purported termination by PGI of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of paragraph 6.1 below (and, if applicable,
paragraphs 1.1(e) and 5.2 of this Agreement);
(vi) failure by PGI to pay or cause to be paid to you any amounts due
to you under the terms of any of PGI's Benefit Plan after a
decision of the Board that it is in PGI's best interests to do
so in accordance with paragraph 4.1 of this Agreement;
(vii) the failure by PGI to obtain from any Successor the assent to
this Agreement contemplated by paragraph 10.1 hereof.
(i) "lncumbent Board" means the members of the Board on the date hereof
---------------
and any person becoming a director of PGI subsequent to that date
whose election, or nomination for election by PGI's shareholders, was
approved by a vote of at least three-quarters (3/4) of the directors
comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of PGI in which such person is named
as a nominee for director, without objection to such nomination).
(j) "Notice of Termination" means a notice given in accordance with
---------------------
paragraph 6.1 of this Agreement.
(k) "Person" or "Persons" shall mean and include any individual,
-------------------
corporation, partnership, unincorporated organization or syndicate or
association, trust, trustee, executor, administrator or other legal
representative other than PGI, a subsidiary of PGI or any employee
benefit plan(s) sponsored by PGI or a subsidiary of PGI.
(l) "PGI" means Polymer Group, Inc. and includes any corporation or other
---
entity which is the surviving or continuing entity in respect of any
amalgamation, merger, consolidation, combination, recapitalization,
dissolution or form of business combination.
(m) "Retirement" shall mean termination by you of your employment with PGI
----------
on or after your normal retirement date, including early retirement
with your written consent, under and in accordance with the terms of
the qualified plans of PGI in which you participate or the retirement
date declared by you in writing.
(n) "Successor" shall mean any Person that concurrently with or subsequent
---------
to a Fundamental Change succeeds to, or has the practical ability to
control (either immediately or with the passage of time), PGI's
business directly, by merger or consolidation, or indirectly, by
purchase of PGI's Voting Securities, all or substantially all of its
assets or otherwise.
(o) "Voting Securities" shall mean any share or other security that
-----------------
carries a voting right either under all circumstances or under some
circumstances that have occurred and are continuing and also includes
any share or security that is ultimately exercisable or convertible
into a Voting Security, whether conditionally or unconditionally.
<PAGE>
II. Agreement to Provide Services: Right to Terminate
-------------------------------------------------
2.1 Except as otherwise provided in paragraph 2.2 below, after the first
occurrence of a Fundamental Change, PGI or you may terminate your
employment at any time subject to PGI providing to you the benefits
hereinafter specified in respect of termination of your employment all in
accordance with the terms hereof.
2.2 In the event a take-over is made by a Person or Persons acting jointly and
in concert in respect of any securities of PGI prior to the first
occurrence of a Fundamental Change, you agree that you will not leave the
employ of PGI (other than as a result of disability or upon Retirement)
until the earliest of (a) one hundred and twenty (120) days after the
commencement of such take-over bid, (b) such take-over bid has been
abandoned or terminated, or (c) the first occurrence of a Fundamental
Change.
III. Term of the Agreement
---------------------
3.1 This Agreement shall commence on the date hereof and shall continue to be
in effect for a minimum period of five years commencing May 5, 1998 and
shall, automatically be extended for additional periods of one year unless
at least ninety (90) days prior to the expiration of the current one year
period, PGI or you shall have given written notice that this Agreement
shall not be extended.
3.2 It is further provided that this Agreement shall continue to be in effect
for a period of twenty four (24) months beyond the term provided in
paragraph 3.1 above if a Fundamental Change in PGI shall have occurred
during such term. Notwithstanding anything in this Section III to the
contrary, your employment may be terminated by PGI prior to the happening
of a Fundamental Change, without giving rise to the obligations of PGI
hereunder provided, however, any such termination will be subject to
applicable laws and any other agreements you may have with PGI. This
Agreement may be terminated by you prior to the happening of a Fundamental
Change, except after the commencement of a take-over bid wherein you may
terminate this Agreement only in the circumstances indicated in paragraph
2.2. above.
3.3 Any amendment or termination of this Agreement in accordance with the terms
hereof shall not be construed as a termination of your employment nor shall
it constitute a change in the terms of your employment so as to amount to
your constructive dismissal and you hereby waive any rights to pursue such
a claim on the basis of such amendment or termination of this Agreement.
IV. Stock Option Plan
-----------------
4.1 The Board shall continue to have any power to accelerate the vesting of
options and stock appreciation rights that is currently available to it
under the Stock Option Plan. In addition, providing that the Board of
Directors judges that it is in the best interests of the shareholders not
---
to have the options vested automatically, all options and stock
appreciation rights granted to you under the Stock Option Plan, whether
vested or not, shall become vested and immediately exercisable:
(a) If at any time, any person, other than yourself or an Affiliate
thereof, beneficially owns, directly or indirectly, voting securities
of the Corporation carrying more than 35% of the votes for the
election of directors or any person makes a successful take-over bid
for 50% or more of the voting securities of the Corporation (including
the voting securities of the Corporation then held by such offeror).
<PAGE>
(b) less than 20% of PGI's Voting Securities are listed on The New York
Stock Exchange, or a similar recognized stock exchange and are widely
held by persons other than the Person (or group of Persons acting
jointly or in concert) whose actions have given rise to the
Fundamental Change; or
(c) you are terminated other than for Cause, in accordance with the terms
of this Agreement.
V. Termination Following Fundamental Change
----------------------------------------
5.1 Following the first occurrence of any Fundamental Change in PGI, you shall
be entitled to the benefits provided in paragraph 8.2 hereof upon:
(a) the termination of your employment by PGI at any time within twenty-
four (24) months after the happening of such Fundamental Change unless
such termination is (A) because of your death or Retirement, or (B) by
PGI for Cause or disability;
(b) the termination of your employment by you with Good Reason providing
that such termination occurs within twenty-four (24) months after the
happening of such Fundamental Change; or
(c) termination of your employment within the mutual consent of you and
PGI within twenty-four (24) months of the happening of such
Fundamental Change.
5.2 If PGI intends to terminate your employment for Cause following a
Fundamental Change then any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board or based upon the
advice of counsel for PGI shall be conclusively presumed to be done, or
omitted to be done, by you in good faith and in the best interests of PGI.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters (3/4) of the
directors who are not full-time employees of PGI or any of its subsidiaries
at a meeting of the Board called and held for the purpose (after reasonable
notice to you and an opportunity for you, together with your counsel, to be
heard before the Board has been given), finding that in the good faith
opinion of the Board you were guilty of the conduct set forth above in sub-
clauses (i) or (ii) of paragraph 1.1(e) and specifying the particulars
thereof in detail is delivered to you.
VI. Notice of Termination
---------------------
6.1 Any purported termination by PGI or by you following a Fundamental Change
shall be communicated by written Notice of Termination to the other party
hereto and shall indicate with reasonable particularity the specific
termination provision in this Agreement relied upon.
VII. Date of Termination
-------------------
7.1 "Date of Termination" following a Fundamental Change shall mean:
-------------------
(a) if your employment is to be terminated by PGI for Cause, the date
specified in the Notice of Termination which shall be on or after the
date upon which the Notice of Termination is delivered;
<PAGE>
(b) if you terminate employment with Good Reason, a date no earlier than
thirty (30) days from the date on which the Notice of Termination is
given; or
(c) if your employment is to be terminated by PGI for any reason other
than Cause, the date specified in the Notice of Termination, which in
no event shall be a date earlier than sixty (60) days after the date
on which a Notice of Termination is given unless an earlier date has
been expressly agreed to by you in writing either in advance of, or
after, receiving such Notice of Termination.
7.2 In the case of termination by PGI of your employment for Cause, if you
have not previously expressly agreed in writing to the termination, then
within thirty (30) days after receipt by you of the Notice of Termination
with respect thereto, you may notify PGI that a dispute exists concerning
the termination, in which event the Date of Termination shall be the date
set either by mutual written agreement of the parties or by the
arbitrators in a proceeding as provided in paragraph 12.7 hereof.
VIII. Compensation Upon Termination
-----------------------------
8.1 If your employment shall be terminated for Cause following a Fundamental
Change, PGI shall pay you your Base Salary and prorated bonus through the
Date of Termination plus any other benefits or awards (including the cash
value of any Benefit Plan, if applicable) which have been earned or become
payable, but which have not yet been paid to you. Thereupon PGI shall have
no further obligations to you under this Agreement.
8.2 If your employment is terminated after the first occurrence of any
Fundamental Change in accordance with the manner described in paragraph
5.1 then, on the fifth (5th) day following the Date of Termination (except
as otherwise provided), you shall be entitled without regard to any
contrary provisions of any Benefit Plan, to the benefits as provided below
(a) PGI shall pay your base Salary plus any annual benefits or awards
(including both the cash and non-cash value of any Benefit Plan, if
applicable, including bonus or incentives) pro-rated to the Date of
Termination on the basis that any targets necessary to obtain such
awards have been achieved, in a manner acceptable to you.
Notwithstanding anything in this Section VIII to the contrary, the
amount payable to you in respect of bonus or incentive plans shall be
paid to you within five days of receipt by PGI of the audited
financial results for the year in which the Date of Termination
occurs.
(b) PGI shall pay you as severance pay and in lieu of any further salary
for periods subsequent to the Date of Termination, an amount in cash
equal to 2.99 times the aggregate of your (i) Base Salary plus (ii)
the cash value of the non-cash Benefit Plans plus (iii) the average
of annual bonus you received in the two (2) years immediately
preceding the Date of Termination.
8.3 The amount of any payment provided for in this Section VIII shall not be
reduced, offset or subject to recovery by PGI by reason of any
compensation earned by you as the result of employment by another employer
after the Date of Termination, or otherwise.
8.4 In the event that your employment is terminated in the circumstances
described in paragraph 5.1, in the Notice of Termination or otherwise,
within four (4) days of the Date of Termination, you may, in writing,
direct PGI that any amounts which should become payable to you pursuant to
paragraph 8.2 hereof shall be paid to you in three (3) equal annual
installments, with the first such installment payable five (5) business
days after the Date of Termination and each
<PAGE>
successive installment paid on the anniversary of the Date of Termination
or the next following business day if such date is not a business day;
provided, any amounts to be paid from the trust(s) of qualified plans shall
only be payable at the time and in the manner prescribed under such plans.
IX. Additional Rights
-----------------
9.1 You agree that the provisions of this Agreement include any statutory
entitlements to notice of termination or termination pay in lieu of notice
and severance pay and is in lieu of and replaces any common law
entitlements to notice of termination or pay in lieu thereof and you waive
your right at common law to reasonable notice. (The notice period for
termination of employment as provided herein shall comply with the notice
of termination provisions of applicable employment standards legislation,
as amended from time to time).
X. Successors: Binding Agreement
------------------------------
10.1 Any Successor to PGI shall be bound by this Agreement. PGI will seek to
have any Successor assent to the fulfillment by PGI of its obligations
under this Agreement at your request. Failure of PGI to obtain such assent
within thirty (30) days after such request shall constitute Good Reason for
termination by you of your employment and shall entitle you to the benefits
provided in paragraph 8.2 hereof upon delivery by you of a Notice of
Termination.
10.2 This Agreement shall inure to the benefit of and be enforceable by your
personal or legal representatives, executors, administrators, successors or
heirs. If you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to a beneficiary designated by you in writing or barring such
designation to your estate; provided, with respect to all employee Benefit
Plans subject to ERISA, any beneficiary designation will be governed by the
terms of such plans.
XI. Fees and Expenses: Mitigation
------------------------------
11.1 PGI shall pay all reasonable legal and accounting fees and related
expenses incurred by you in connection with the Agreement following a
Fundamental Change including, without limitation, (a) all such fees and
expenses, if any, incurred in contesting or disputing any termination of
your employment by PGI after a Fundamental Change or incurred by you in
seeking advice with respect to general taxation and financial advice with
respect to the receipt of payments hereunder or (b) your seeking to obtain
or enforce any right or benefit provided by this Agreement provided,
however, you shall be required to repay any such amounts to PGI to the
extent that a court issues a final and non-appealable order setting forth
the determination that the position taken by you was frivolous or advanced
by you in bad faith.
11.2 You shall not be required to mitigate the amount of any payment PGI
becomes obligated to make to you in connection with this Agreement, by
seeking other employment or otherwise.
XII. General
-------
12.1 Confidentiality. Notwithstanding any provision of this Agreement, any
---------------
provision governing an obligation of confidentiality on your part to PGI
that is contained in any other agreement that you may have with PGI shall
continue to be of full force and effect.
<PAGE>
12.2 Taxes and Other Amounts. All payments to be made to you under this
-----------------------
Agreement will be subject to required withholding of income tax and other
amounts under federal, and state tax laws.
12.3 Survival. The respective obligations of, and benefits afforded to PGI and
--------
you as provided in Sections VIII, X and XI and paragraphs 12.2 and 12.7 of
this Agreement that have accrued upon the first occurrence of a
Fundamental Change shall survive termination of this Agreement.
12.4 Notice. For the purposes of this Agreement, notices and all other
------
communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered postage prepaid and
addressed, in the case of PGI, to the address set forth on the first page
of this Agreement or, in the case of the undersigned employed, to the
address set forth below his signature provided that all notices to PGI
shall be directed to the attention of the Secretary of the Board or
Chairman of the Compensation Committee, or to such other address as either
party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon
receipt.
12.5 Miscellaneous. No provision of this Agreement may be modified, waived or
-------------
discharged unless such modification, waiver or discharge is agreed to in
writing signed by you and the Board of PGI. No waiver by either party
hereto at any time of any breach by the other party hereto of, or in
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been
made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of South Carolina.
12.6 Validity. The invalidity or unenforceability of any provision of this
--------
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
12.7 Arbitration. Any dispute or controversy arising under or in connection
-----------
with this Agreement shall be settled, exclusively by arbitration by three
arbitrators in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrators'
award in any court having jurisdiction; provided, however, that you shall
be entitled to seek specific performance of your right to be paid until
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement. PGI shall bear all
costs and expenses arising in connection with any arbitration proceeding
pursuant to this paragraph 12.7.
12.8 Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original but all of which together
will constitute one and the same instrument.
12.9 Amendments. Notwithstanding anything in the foregoing to the contrary,
----------
the Incumbent Board may by resolution or otherwise prior to the occurrence
of a Fundamental Change effect any amendments to this Agreement as it
deems appropriate provided that such amendments are not adverse to your
right to receive any benefits to which you may become entitled in the
event of a Fundamental Change as described in this Agreement.
<PAGE>
If this letter correctly sets forth our agreement on the subject matter hereof,
kindly sign and retime to PGI the enclosed copy of this letter which will then
constitute our agreement on this subject.
Sincerely,
POLYMER GROUP, INC.
By: /s/ Bruce V. Rauner
-------------------------------------
Bruce V. Rauner
Chairman
Compensation Committee
Agreed as of the 5th day of May, 1998
/s/ James G. Boyd
- ----------------------------------------
James G. Boyd
<PAGE>
Exhibit 11
POLYMER GROUP, INC.
COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months
Ended
---------------
April April
1, 3,
2000 1999
------- -------
<S> <C> <C>
Basic:
Net income................................................... $ 2,137 $ 5,832
Average common shares outstanding............................ 32,003 32,000
Net income per common share--basic........................... $ 0.07 $ 0.18
Diluted:
Net income................................................... $ 2,137 $ 5,832
Average common shares outstanding............................ 32,148 32,000
Net income per common share--diluted......................... $ 0.07 $ 0.18
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM POLYMER
GROUP, INC.'S FORM 10-Q FOR THE QUARTER ENDED APRIL 1, 2000 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-START> JAN-02-2000
<PERIOD-END> APR-01-2000
<CASH> 11,527
<SECURITIES> 21,846
<RECEIVABLES> 147,785
<ALLOWANCES> (9,705)
<INVENTORY> 111,642
<CURRENT-ASSETS> 326,648
<PP&E> 1,030,757
<DEPRECIATION> (195,473)
<TOTAL-ASSETS> 1,457,918
<CURRENT-LIABILITIES> 125,921
<BONDS> 594,804
0
0
<COMMON> 320
<OTHER-SE> 237,909
<TOTAL-LIABILITY-AND-EQUITY> 1,457,918
<SALES> 231,952
<TOTAL-REVENUES> 231,952
<CGS> 180,416
<TOTAL-COSTS> 180,416
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,130
<INCOME-PRETAX> 3,287
<INCOME-TAX> 1,150
<INCOME-CONTINUING> 2,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,137
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
