<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1997
REGISTRATION NO. 333-35645
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STANDARD COMMERCIAL TOBACCO CO., INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NORTH CAROLINA 5150 56-0323420
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
CO-REGISTRANTS:
<TABLE>
<S> <C>
STANDARD COMMERCIAL CORPORATION NORTH CAROLINA
STANDARD WOOL, INC. DELAWARE
(Exact name of co-registrant (State or other jurisdiction
as specified in its charter) of incorporation or organization)
</TABLE>
2201 MILLER ROAD
WILSON, NORTH CAROLINA 27893
(919) 291-5507
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
ROBERT E. HARRISON
CHIEF EXECUTIVE OFFICER
STANDARD COMMERCIAL TOBACCO CO., INC.
2201 MILLER ROAD
WILSON, NORTH CAROLINA 27893
(919) 291-5507
(Name, address, including zip code, and telephone number, including
area code, of agent for service of process)
COPIES TO:
DONALD R. REYNOLDS, ESQ.
WYRICK ROBBINS YATES & PONTON LLP
4101 LAKE BOONE TRAIL, SUITE 300
RALEIGH, NORTH CAROLINA 27619
(919) 781-4000
FAX: (919) 781-4865
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED DISTRIBUTION TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
[CAPTION]
<TABLE>
<S> <C> <C> <C>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFER-
BE REGISTERED REGISTERED (1) PER NOTE ING PRICE
<S> <C> <C> <C>
8 7/8% Senior Notes
due 2005.................. $115,000,000 100% $115,000,000
Standard Commercial
Corporation Guarantees of
8 7/8% Senior Notes due
2005...................... $115,000,000 None(3) None(3)
Standard Wool, Inc. Guarantees
of 8 7/8% Senior Notes
due 2005.................. $115,000,000 None(3) None(3)
<CAPTION>
TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO REGISTRATION
BE REGISTERED FEE (2)
<S> <C>
8 7/8% Senior Notes
due 2005.................. $34,848.49
Standard Commercial
Corporation Guarantees of
8 7/8% Senior Notes due
2005...................... None
Standard Wool, Inc. Guarantees
of 8 7/8% Senior Notes
due 2005.................. None
</TABLE>
(1) Equals the aggregate principal amount of the securities being registered.
(2) Previously paid.
(3) No separate consideration will be received for these Guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
(A redherring appears on the left hand side of this page, rotated 90 degrees.
Text follows.)
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED NOVEMBER 3, 1997
PROSPECTUS
STANDARD COMMERCIAL TOBACCO CO., INC.
OFFER TO EXCHANGE ITS
8 7/8% SENIOR NOTES DUE 2005 THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("EXCHANGE NOTES")
FOR ANY AND ALL OF ITS OUTSTANDING
8 7/8% SENIOR NOTES DUE 2005 ("INITIAL NOTES")
EACH GUARANTEED ON A SENIOR BASIS BY STANDARD COMMERCIAL CORPORATION AND
STANDARD WOOL, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED
------------------------
Standard Commercial Tobacco Co., Inc. (the "Issuer" or "SCTC, Inc."), a
wholly owned subsidiary of Standard Commercial Corporation (the "Parent"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), which together with the Prospectus constitute the
"Exchange Offer", to exchange up to an aggregate principal amount of
$115,000,000 of its 8 7/8% Senior Notes Due 2005 (the "Exchange Notes") that
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this Prospectus
is a part, for an equal amount of its outstanding 8 7/8% Senior Notes Due 2005
(the "Initial Notes"). The terms of the Exchange Notes are identical in all
material respects to those of the Initial Notes, except for certain transfer
restrictions and registration rights relating to the Initial Notes. The Exchange
Notes will be issued pursuant to, and entitled to the benefits of, the Indenture
(as defined) governing the Initial Notes. The Exchange Notes and the Initial
Notes are sometimes referred to collectively as the "Notes".
The Exchange Notes will bear interest from August 1, 1997, the date of
issuance of the Initial Notes that are tendered in exchange for the Exchange
Notes (or the most recent Interest Payment Date (as defined) to which interest
on such Notes has been paid), at the rate of 8 7/8% per annum and will be
payable semi-annually in arrears on each February 1 and August 1, commencing on
February 1, 1998.
The Exchange Notes will be senior obligations of the Issuer and will rank
PARI PASSU in right of payment with all existing and future indebtedness of the
Issuer other than indebtedness that is expressly subordinate to the Notes. The
Exchange Notes will also be fully and unconditionally guaranteed on a joint and
several basis (the "Guarantees") by the Parent and Standard Wool, Inc.
("Standard Wool"), a wholly owned subsidiary of the Parent (the "Guarantors").
The Guarantee of Standard Wool will be a general unsecured obligation of
Standard Wool and will rank PARI PASSU in right of payment with all existing and
future indebtedness of Standard Wool other than indebtedness that is expressly
subordinate to such Guarantee. The Guarantee of the Parent will be a senior
obligation of the Parent and will rank PARI PASSU in right of payment with all
existing and future indebtedness of the Parent other than indebtedness that is
expressly subordinate to such Guarantee. In addition, all of the outstanding
capital stock of the Issuer and Standard Wool will be pledged to the Trustee (as
defined) for the benefit of the holders of the Exchange Notes. The Issuer and
Standard Wool are partially dependent on the earnings of their subsidiaries, and
the Parent, as a result of its holding company structure, is wholly dependent on
the earnings of its subsidiaries. The Exchange Notes and the Guarantee of
Standard Wool will be effectively subordinated to all secured indebtedness of
the Issuer and Standard Wool, as the case may be, with respect to the assets
securing such indebtedness and will be effectively subordinated in right of
payment to all liabilities, including trade payables, of all subsidiaries of the
Issuer or Standard Wool, as the case may be. The Guarantee of the Parent will be
effectively subordinated in right of payment to all liabilities, including trade
payables, of all subsidiaries of the Parent (other than the Issuer and Standard
Wool). As of June 30, 1997, on a pro forma basis, after giving effect to the
Refinancing Plan, the Issuer and the Guarantors would have had an aggregate of
approximately $176.9 million of secured and other indebtedness to which the
Notes and the Guarantees would have been effectively subordinated in right of
payment. See "Description of Notes -- Guarantees; Security" and " -- Ranking".
Upon a Change of Control (as defined), each holder of the Exchange Notes
will have the right to require the Issuer to repurchase such holder's Exchange
Notes at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Additional Interest, if any, to the date of repurchase.
There can be no assurance that the Issuer and the Guarantors will have
sufficient funds to repurchase the Exchange Notes in the event of a Change of
Control. In addition, under certain circumstances the Issuer will be obligated
to offer to repurchase the Exchange Notes at 100% of the principal amount
thereof plus accrued and unpaid interest and Additional Interest, if any, to the
date of repurchase with the net proceeds from certain Asset Sales (as defined).
See "Description of Notes".
On August 1, 1997, the Issuer entered into a three-year, $200.0 million,
credit facility (the "Global Bank Facility") among the Issuer and two of its
subsidiaries (as borrowers), the lenders thereunder, Deutsche Bank A.G. (as
agent) and Bankers Trust Company (as co-agent), replacing the Company's Master
Facilities Agreement (the "MFA") and its U.S. Revolving Credit Facility. See
"Prospectus Summary -- The Refinancing Plan".
IT IS EXPECTED THAT THE EXCHANGE NOTES WILL BE ELIGIBLE FOR TRADING IN THE
PRIVATE OFFERINGS, RESALE AND TRADING THROUGH AUTOMATED LINKAGES ("PORTAL")
MARKET OF THE NASDAQ STOCK MARKET, INC.
BT Securities Corporation and Wheat, First Securities, Inc. (the "Initial
Purchasers") have agreed that one or both of them will act as market makers for
the Exchange Notes. However, the Initial Purchasers are not obligated to so act
and they may discontinue any such market-making at any time without notice. The
Company will not receive any proceeds from this Exchange Offer. The Company has
agreed to pay the expenses of the Exchange Offer. No underwriter is being used
in connection with the Exchange Offer.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1997.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS THE CONTEXT REQUIRES OTHERWISE, "STANDARD" OR THE "COMPANY" REFERS TO
STANDARD COMMERCIAL CORPORATION (THE "PARENT") AND ITS CONSOLIDATED
SUBSIDIARIES, INCLUDING STANDARD COMMERCIAL TOBACCO CO., INC., THE ISSUER OF THE
NOTES (THE "ISSUER"), AND STANDARD WOOL, INC., A GUARANTOR OF THE NOTES
("STANDARD WOOL"). INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER THE HEADING "RISK FACTORS".
THE COMPANY
Standard is one of the three global independent leaf tobacco merchants
serving the large multinational cigarette manufacturers and is one of the
largest independent merchants of oriental leaf tobacco, a key component of
American-blend cigarettes. The Company also has a leading market presence in a
number of the emerging and low-cost flue-cured and burley tobacco growing
regions, including China, India, Malawi and Tanzania. Founded in 1910, the
Company purchases, processes, stores, sells and ships tobacco grown in over 30
countries, servicing cigarette manufacturers from 20 processing facilities
strategically located throughout the world. The Company is also engaged in
purchasing, processing and selling various types of wool and is a world leader
in the trading of scoured wool. In fiscal 1997, the Company had sales and
Adjusted EBITDA (as defined herein) of $1,354.3 million and $88.5 million,
respectively.
The Company recently achieved substantial improvement in its operating and
financial performance in part as a result of the implementation of a four-point
strategic plan and the enhancement of the Company's senior management team,
including the appointment of the Company's current Chief Executive Officer. The
key areas addressed by the strategic plan include: (i) information systems; (ii)
financial controls; (iii) risk management; and (iv) asset management. The
Company has improved sales from $1.0 billion in fiscal 1994 to $1.4 billion for
fiscal 1997, reduced SG&A expenses as a percentage of sales from 7.6% to 5.4%
and increased operating income net of interest from $12.2 million to $74.4
million. The Company's tobacco division has driven this return to profitability,
increasing sales from $671.5 million in fiscal 1994 to $997.4 million for fiscal
1997, improving operating income net of interest from a loss of $1.0 million to
income of $62.6 million and increasing average tobacco inventory turnover from
2.1 turns for fiscal 1994 to 4.0 turns for fiscal 1997.
In addition to the benefits which have resulted from the implementation of
the strategic plan, the Company's operating and financial performance has also
been enhanced by substantial improvements in the global leaf tobacco industry as
a result of strong worldwide demand for tobacco products and the decrease in
worldwide tobacco inventories. The global leaf tobacco industry is currently
recovering from a disruption in demand and a reduction in pricing during
calendar 1993 and 1994, which was primarily the result of legislation (the
"75/25 Rule") intended to limit the importation of tobacco into the United
States. This legislation, which was later repealed principally because it was
inconsistent with the General Agreement on Tariffs and Trade ("GATT"), required
that all cigarettes manufactured in the United States, including those
manufactured for export, contain at least 75.0% domestically grown tobacco.
Increased demand and strong brand growth have resulted in increased
production of American-blend cigarettes. American-blend cigarettes contain
flue-cured, burley and oriental tobacco ("American-blend tobacco"), contain less
tar and nicotine, and taste milder than locally produced cigarettes containing
dark and semioriental tobacco historically consumed in certain parts of the
world. According to the Tobacco Merchants Association (the "TMA"),
American-blend cigarette consumption (excluding China) has increased from 1.7
trillion units in calendar 1990 to 1.9 trillion units in calendar 1996, an
increase of 10.8%. The TMA estimates that worldwide American-blend cigarette
consumption (excluding China) will increase an additional 5.5% to more than 2.0
trillion units by the year 2000. The TMA also estimates that worldwide
American-blend cigarette consumption (excluding China), as a percentage of total
consumption, has also experienced substantial growth, increasing from 47.9% in
1990 to 52.5% in 1996, and is projected to reach 54.3% by the year 2000. As
American-blend cigarettes have continued to gain global market share, the demand
for export quality flue-cured, burley and oriental tobacco sourced and processed
by leaf tobacco merchants has grown accordingly. Large multinational cigarette
manufacturers, with one principal exception, rely primarily on the three global
independent leaf tobacco merchants, including the Company, to supply the
majority of their leaf tobacco needs.
The Company sells tobacco to cigarette manufacturers worldwide, including
Philip Morris Companies, Inc., B.A.T. Industries PLC ("B.A.T."), RJR Tobacco
Company, Inc., Rothmans International PLC, Japan Tobacco, Inc. and Reemstma
Cigarettenfabriken GmbH. The Company processes tobacco for these manufacturers
at facilities that are strategically located in the major sourcing areas of
American-blend tobacco, such as Argentina, China, Greece, Italy, Malawi, Spain,
Thailand, Turkey, the United States and Zimbabwe. In addition, the Company has
contracts, joint ventures and other arrangements for the purchase and/or
processing of tobacco grown in substantially all other countries that produce
export quality tobacco.
1
<PAGE>
The Company's wool division, following the termination of an agreement to
sell the division in 1995, was restructured under the leadership of a new
divisional management team which has consolidated operations, increased
operating efficiencies and returned the division to profitability. The business
strategy of the wool division includes: (i) enhancing its global sourcing and
trading network; (ii) developing unified operations; (iii) expanding its Asian
sales efforts; and (iv) integrating proprietary worldwide information systems
and financial controls.
GROWTH STRATEGY
The Company's primary business objective is to expand its position as one
of the leading global suppliers of American-blend tobacco to the major cigarette
manufacturers while increasing profitability through enhanced financial
management and controls. The key elements of the Company's growth strategy
include:
INCREASING PRESENCE IN SOUTH AMERICA AND AFRICA. The Company believes that
its presence in all the major leaf tobacco markets worldwide is critical to
capitalizing on the global expansion of the large multinational cigarette
manufacturers, the recent consolidation of the leaf tobacco merchants and the
anticipated growth in demand for tobacco sourced internationally. A key element
of the Company's growth strategy is to increase its ability to directly source
and process tobacco in South America and Africa, key growing regions for
American-blend tobacco. The MDTL Trust, a trust established by the Company,
recently acquired 74.9% of the fourth largest tobacco processor in Brazil.
INCREASING PENETRATION OF LOW-COST FILLER TOBACCO AND EMERGING
TOBACCO-GROWING REGIONS. To meet the increasing demand by cigarette
manufacturers throughout the world for low-cost American-blend tobacco, the
Company plans to expand its operations in regions particularly suited for
producing such tobacco. The Company has targeted China, India and Tanzania,
countries in which it has a leading tobacco export position, for expansion and
increased tobacco production. The Company has executed letters of intent for the
construction of new processing facilities in China and India.
STRENGTHENING PRESENCE IN ORIENTAL MARKETS. Demand for oriental tobacco,
which comprises approximately 15.0% of American-blend cigarettes, is rapidly
increasing due to the strong growth in consumption of American-blend cigarettes.
The Company intends to strengthen its position as one of the world's largest
merchants of oriental tobacco through acquisitions and continued strategic
investments in China and Thailand (emerging oriental tobacco markets), and in
Greece and Turkey (leading oriental tobacco markets based on volume).
CAPITALIZING ON ACQUISITION AND OUTSOURCING OPPORTUNITIES. Recent
consolidation within the leaf tobacco industry has been driven by the need to
cost-effectively service multinational cigarette manufacturers on a global
basis. Management believes that there will be increasing opportunities for
acquisitions of smaller independent local leaf tobacco merchants in various
strategic locations throughout the world. In addition, the Company anticipates
further outsourcing of leaf tobacco purchasing and processing by cigarette
manufacturers. This outsourcing trend is driven by the: (i) higher margins in
cigarette production; (ii) increasing sophistication required in sourcing leaf
tobacco on a global basis; and (iii) continued privatization of tobacco and
cigarette production operations in certain countries.
RECENT DEVELOPMENTS
INDUSTRY CONSOLIDATION. On April 1, 1997, the second largest leaf tobacco
dealer in the world announced that it had completed the acquisition of the
fourth largest leaf tobacco dealer in the world. As a result of this
transaction, there are only three global independent leaf tobacco merchants,
including the Company. Management believes that this industry consolidation
should lead to increased sales for the Company as the large multinational
cigarette manufacturers seek to maintain diversity of their sources of
American-blend tobacco.
COMMON STOCK OFFERING. During the first quarter of fiscal 1998, the Parent
sold 3,022,500 shares of Common Stock in an offering (the "Equity Offering")
with net proceeds to the Parent of approximately $47.0 million after deducting
the underwriting discount and estimated offering expenses. The net proceeds of
the Equity Offering were used to repay short-term indebtedness outstanding under
the Master Facilities Agreement (the "MFA") among the Parent and certain of its
subsidiaries and Deutsche Bank A.G. and a number of other banks. See " -- The
Refinancing Plan".
ACQUISITION OF BRAZILIAN LEAF TOBACCO PROCESSING FACILITY. On September 12,
1997, the MDTL Trust, a trust established by the Company, acquired 74.9% of
Meridional de Tabacos Ltda. ("Meridional"), the fourth largest leaf tobacco
processor in Brazil. This strategic acquisition complements the Company's
26-year partnership in Brazil with Souza Cruz S.A. ("Souza Cruz"), a subsidiary
of B.A.T., and will provide the Company with direct ownership of a processing
facility in the second largest leaf tobacco growing region in the world
(excluding China).
NOTES OFFERING AND GLOBAL BANK FACILITY. On August 1, 1997, the Issuer
completed a private offering, pursuant to Rule 144A promulgated under the
Securities Act, of $115,000,000 principal amount of Initial Notes (the "Notes
Offering"). Simultaneously with the closing of the Notes Offering, the Issuer
and two of its subsidiaries entered into the Global Bank Facility.
2
<PAGE>
The Company used the net proceeds of the Notes Offering, along with borrowings
under the Global Credit Facility, to repay all outstanding indebtedness under
and replace the MFA, repay all outstanding indebtedness under and terminate the
Company's U.S. Revolving Credit Facility, and to repay certain other long-term
debt.
THE REFINANCING PLAN
The Company has undertaken a series of related financing transactions (the
"Refinancing Plan") that are designed to reduce its financial leverage, decrease
its reliance on short-term indebtedness, diversify its sources of debt financing
and provide the Company with greater financial flexibility.
(Bullet) The Equity Offering, the proceeds of which were used to repay
approximately $47.0 million of short-term indebtedness outstanding
under the MFA;
(Bullet) The Notes Offering, the proceeds of which were used to retire the
Company's existing U.S. Revolving Credit Facility, to repay
certain long-term bank loans in the United States, and to reduce
indebtedness under the MFA; and
(Bullet) The establishment, concurrent with the Notes Offering, of the
Global Bank Facility replacing the MFA and repaying and
terminating the Company's $100.0 million U.S. Revolving Credit
Facility.
CORPORATE STRUCTURE
In connection with the Refinancing Plan, the Parent reorganized the
ownership of its subsidiaries such that all of its tobacco operating
subsidiaries are direct or indirect subsidiaries of the Issuer and all of its
wool operating subsidiaries (other than Standard Wool (UK) Limited, which is a
subsidiary of the Issuer) are direct or indirect subsidiaries of Standard Wool.
The following chart summarizes the Company's corporate structure after giving
effect to such restructuring.
Standard
Commercial
Corporation
(Guarantor of Notes)
Standard Commercial Standard
Tobacco Co., Inc. Wool, Inc.
(Issuer) (Guarantor of Notes)
Tobacco Wool
Operating Operating
Subsidiaries* Subsidiaries*
The Parent and Standard Wool have guaranteed, on a senior basis, the
obligations of the Issuer under the Notes. In addition, all of the issued and
outstanding capital stock of the Issuer and Standard Wool has been pledged by
the Parent to the Trustee for the benefit of the holders of the Notes as
security for the Parent's Guarantee. See "Description of Notes -- Guarantees;
Security".
- ---------------
* All of the capital stock of Standard Wool (UK) Limited is owned by the Issuer
and 19.6% of the capital stock of Standard Wool France S.A. is indirectly
owned by the Issuer.
The tobacco operating subsidiaries that are not Guarantors of the Notes,
and the percentage of the stock of each owned, directly or indirectly, by the
Issuer are: Trans-Continental Leaf Tobacco Corporation (100%); Standard
Commercial Tobacco Company (UK) Ltd. (100%); Exelka S.A. (51%); Spierer Freres &
CIE S.A. (51%); Spierer Tutun Iharacat Sanayi Ticaret AS (51%); Stancom Tobacco
(Private) Ltd. (100%); Standard Commercial Tobacco Company (Canada) (100%); Sena
Investments (Private) Ltd. (100%); Tobacco Processors (Zimbabwe) (PVT) Ltd.
(18%); Transhellenic Tobacco S.A. (51%); Transacatab Spa (100%); World Wide
Tobacco Espana S.A. (67%); Standard Commercial Services, Inc. (100%); Standard
Commercial Tobacco Services UK (100%); W.A. Adams Company (100%); Werkhof Gmbh
(100%); Tobacco Processors (Malawi) Ltd. (50%); Tobacco Processors (Lilongwe)
Ltd. (51.92%); Adams International, Ltd. (49%); Herme Tutan Ihracat AS (50%);
AOZT Transcontinental Leaf Tobacco Corporation (100%); Stancom Zambia (PVT) Ltd.
(100%); Stanfrie (PVT) Ltd. (100%); Stancom Malawi (100%); Siemssen Threshie
(100%); Siemssen Threshie (Malawi) Ltd. (100%); Bela Import-Export GmbH (100%);
CRES Tobacco Company (100%); K. Kileff Zimbabwe (PVT) Ltd. (100%);
Transcontinental Participacues E Emprecendimentos LTDA (100%); Epasa Exportadora
de Productos Agrarios S.A. (50%); Trans-Continental Farming Ltd. (100%); Eryka
Mediterranee SARL (100%); Andre Chalmers (100%); Esaltab (Zimbabwe) (PVT) Ltd.
(100%); Interrural Development Corporation (100%); Siam Tobacco Export
Corporation Ltd. (49%); Stancom Tanzania (Jersey) Ltd. (100%); Transcontinental
Tobacco India Private Limited (20%); and Standard Brazil Ltd. (Jersey) (100%).
3
<PAGE>
The wool operating subsidiaries that are not Guarantors of the Notes, and
the percentage of the stock of each owned, directly or indirectly, by Standard
Wool are: Standard Wool Australia (PTY) Ltd. (100%); Lohmann & Co. (100%);
Standard Wool France S.A. (80.4%); Standard Wool of New Zealand (100%); Tentler
& Co BV (100%); Eusebe Carpentier S.A. (100%); Hulme Wool Scouring Co. (100%);
Peignage De La Tosse (100%); Stawool Brokers PTY Ltd. (100%); Standard Wool
(Chile) S.A. (100%); S.H. Allen Pty Ltd. (100%); Independent Wool Dumpers PTY
Ltd. (16%); Standard Wool South Africa (Propriety) Ltd. (100%); Standard Wool
Argentina (100%); Mascot Wools PTY Ltd. (100%); Roca Sacif (100%); Standard Wool
Holdings S.A. (100%); Advhus Gestion (100%); and Standard Wool Farming PTY Ltd.
(100%).
4
<PAGE>
THE INITIAL NOTES OFFERING
<TABLE>
<S> <C>
The Initial Notes..................................... $115,000,000 aggregate principal amount of 8 7/8% Senior Notes due
2005. The Initial Notes were sold by the Issuer on August 1, 1997 to
the Initial Purchasers pursuant to a Purchase Agreement, dated July
25, 1997 (the "Purchase Agreement"). The Initial Purchasers
subsequently resold the Initial Notes to qualified institutional
buyers pursuant to Rule 144A under the Securities Act and to a
limited number of Accredited Investors.
Registration Rights Agreement......................... Pursuant to the Purchase Agreement, the Issuer, the Guarantors and
the Initial Purchasers entered into a Registration Rights Agreement,
dated as of August 1, 1997 (the "Registration Rights Agreement"),
which grants the holders of the Initial Notes certain exchange and
registration rights. The Exchange Offer is intended to satisfy such
exchange rights, which terminate upon the consummation of the
Exchange Offer.
</TABLE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
The Exchange Notes.................................... The forms and terms of the Exchange Notes are identical in all
material respects to the terms of the Initial Notes for which they
may be exchanged pursuant to the Exchange Offer, except for certain
transfer restrictions and registration rights relating to the Initial
Notes and except for certain penalty interest provisions relating to
the Initial Notes described below under " -- Terms of the Exchange
Notes".
The Exchange Offer.................................... The Issuer is offering to exchange $1,000 principal amount of
Exchange Notes for each $1,000 principal amount of Initial Notes. As
of the date hereof, $115,000,000 aggregate principal amount of
Initial Notes are outstanding. The Issuer will issue the Exchange
Notes to holders on or promptly after the Expiration Date.
Based on an interpretation by the staff of the Commission set forth
in no-action letters issued to third parties, the Issuer believes
that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Initial Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than any such holder which
is an "affiliate" of the Issuer within the meaning of Rule 405 under
the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act; provided that
such Exchange Notes are acquired in the ordinary course of such
holder's business and that such holder does not intend to participate
and has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. Each holder
accepting the Exchange Offer is required to represent to the Issuer
in the Letter of Transmittal that, among other things, (i) the
Exchange Notes will be acquired by the holder in the ordinary course
of business, (ii) the holder is not an "affiliate" (as defined in
Rule 405 under the Securities Act) of the Issuer, and (iii) the
holder is not participating, does not intend to participate, and has
no arrangement or understanding with any person to participate, in
the distribution of such Exchange Notes.
Each Participating Broker-Dealer (as defined) that receives Exchange
Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
with any resale of such Exchange Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resale of Exchange
Notes received in exchange for Initial Notes where such Initial Notes
were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Issuer has agreed that,
for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any Participating Broker-Dealer for use in
connection with any such resale; provided that the Issuer has no
obligation to amend or supplement this Prospectus unless it has
received written notice from a Participating Broker-Dealer of its
prospectus delivery requirements under the Securities Act within five
business days following consummation of the Exchange Offer. See "Plan
of Distribution".
Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a distribution
of the Exchange Notes could not rely on the position of the staff of
the Commission enunciated in no-action letters and, in the absence of
an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection
with any resale transaction. Failure to comply with such requirements
in such instance may result in such holder incurring liability under
the Securities Act for which the holder is not indemnified by the
Issuer.
Expiration Date; Withdrawal of Tender................. The Exchange Offer will expire at 12:00 midnight, New York City time,
on , 1997, or such later date and time to which it is
extended by the Issuer (the "Expiration Date"). The tender of Initial
Notes pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Initial Notes not accepted for
exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Certain Conditions to the Note Exchange Offer......... The Exchange Offer is subject to certain customary conditions, which
may be waived by the Issuer. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer".
Procedures for Tendering Initial Notes................ Each holder of Initial Notes wishing to accept the Exchange Offer
must complete, sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such Initial Notes and
any other required documentation to the Exchange Agent (as defined)
at the address set forth herein.
Special Procedures for Beneficial Owners.............. Any beneficial owner whose Initial Notes are registered in the name
of a broker, dealer, commercial bank, trust or other nominee and who
wishes to tender such Initial Notes in the Exchange Offer should
contact such registered holder and promptly instruct such registered
holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the Letter of
Transmittal and delivering his Initial Notes, either make appropriate
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
arrangements to register ownership of the Initial Notes in such
owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to the
Expiration Date.
Registration Requirements............................. The Issuer and the Guarantors have agreed to use their best efforts
to consummate, by December 29, 1997, the registered Exchange Offer
pursuant to which holders of the Initial Notes will be offered an
opportunity to exchange their Initial Notes for the Exchange Notes
that will be issued without legends restricting the transfer thereof.
In the event that applicable interpretations of the staff of the
Commission do not permit the Issuer to effect the Exchange Offer or
in certain other circumstances, the Issuer and the Guarantors have
agreed to file a Shelf Registration Statement covering resales of the
Initial Notes and to use their best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities
Act and, subject to certain exceptions, keep such Shelf Registration
Statement effective until two years after the original issuance of
the Initial Notes.
Certain Federal Income Tax Consequences............... Based upon the opinion of Wyrick Robbins Yates & Ponton LLP that the
summary under the heading "Certain U.S. Federal Income Tax
Consequences" herein "fairly describes the material United States
federal income tax consequences to holders resulting from their
exchange of the Initial notes for the Exchange notes and the
ownership and disposition of Exchange Notes under currently
applicable federal income tax law," there should be no U.S. federal
income tax consequences to holders exchanging Initial Notes for
Exchange Notes pursuant to the Exchange Offer. See "Certain U.S.
Federal Income Tax Consequences".
Use of Proceeds....................................... There will be no cash proceeds to the Issuer from the exchange of
Notes pursuant to the Exchange Offer.
Consequences of Exchanging Initial Notes.............. As a result of the making of this Exchange Offer, the Issuer and the
Guarantors will have fulfilled certain of their obligations under the
Registration Rights Agreement, and holders of Initial Notes who do
not tender their Notes will generally not have any further
registration rights under the Registration Rights Agreement or
otherwise. Such holders will continue to hold the untendered Initial
Notes and will be entitled to all the rights and subject to all the
limitations applicable thereto under the Indentures, except to the
extent such rights or limitations, by their terms, terminate or cease
to have further effectiveness as a result of the Exchange Offer. All
untendered Initial Notes will continue to be subject to certain
restrictions on transfer. Accordingly, if any Initial Notes are
tendered and accepted in the Exchange Offer, the trading market for
the untendered Initial Notes could be adversely affected.
Exchange Agent........................................ Crestar Bank is the Exchange Agent. The address and telephone number
of the Exchange Agent are set forth in "The Exchange
Offer -- Exchange Agent".
</TABLE>
TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
General............................................... The form and terms of the Exchange Notes are the same as the form and
terms of the Initial Notes (which they replace) except that (i) the
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Exchange Notes have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof,
and (ii) the holders of Exchange Notes will not be entitled to
certain rights under the Registration Rights Agreement, including the
provisions providing for an increase in the interest rate on the
Initial Notes in certain circumstances relating to the timing of the
Exchange Offer, which rights will terminate when the Exchange Offer
is consummated. See "The Exchange Offer -- Consequences of Failure to
Exchange". The Exchange Notes will evidence the same debt as the
Initial Notes and will be entitled to the benefits of the Indenture.
See "Description of the Notes".
Issuer................................................ Standard Commercial Tobacco Co., Inc., a wholly owned subsidiary of
Standard Commercial Corporation, a North Carolina corporation (the
"Parent").
Guarantors............................................ The Parent and Standard Wool (the "Guarantors").
Maturity Date......................................... August 1, 2005.
Interest.............................................. The Exchange Notes will bear interest at the rate of 8 7/8% per annum
from August 1, 1997, the date of issuance of the Initial Notes that
are tendered in exchange for the Exchange Notes (or the most recent
Interest Payment Date to which interest on such Notes has been paid).
Accordingly, holders of Initial Notes that are accepted for exchange
will not receive interest on the Initial Notes that is accrued but
unpaid at the time of tender, but such interest will be payable on
the first Interest Payment Date after the Expiration Date. Interest
on the Exchange Notes will be payable semi-annually in arrears on
each February 1 and August 1, commencing February 1, 1998.
Ranking............................................... The Exchange Notes and the Guarantees will be senior obligations of
the Issuer and the Guarantors, and will rank PARI PASSU in right of
payment with all existing and future indebtedness of the Issuer or
such Guarantor, as the case may be, other than indebtedness that is
expressly subordinate to the Exchange Notes or the Guarantee of such
Guarantor. The Exchange Notes and the Guarantee of Standard Wool will
be effectively subordinated to all secured indebtedness of the Issuer
and Standard Wool, as the case may be, with respect to the assets
securing such indebtedness and will be effectively subordinated in
right of payment to all liabilities, including trade payables, of all
subsidiaries of the Issuer or Standard Wool, as the case may be. The
Guarantee of the Parent will be effectively subordinated in right of
payment to all liabilities, including trade payables, of all
subsidiaries of the Parent (other than the Issuer and Standard Wool).
As of June 30, 1997, on a pro forma basis, after giving effect to the
Refinancing Plan, the Issuer and the Guarantors would have had an
aggregate of approximately $176.9 million of secured and other
indebtedness to which the Exchange Notes and the Guarantees would
have been effectively subordinated in right of payment. See
"Description of Notes -- Guarantees; Security".
Guarantees............................................ The Exchange Notes will be fully and unconditionally guaranteed on a
joint and several basis by each of the Guarantors. The Guarantees
will be general senior obligations of the Guarantors and will rank
PARI PASSU in right of payment with all existing and future
indebtedness of the Guarantors other than indebtedness that is
expressly subordinate to the Guarantees. Under certain circumstances,
Standard Wool may be released from liability under
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
its Guarantee in connection with certain sales or dispositions of its
capital stock or assets. See "Description of Notes -- Guarantees;
Security".
Security.............................................. All of the issued and outstanding capital stock of the Issuer and
Standard Wool has been pledged by the Parent to the Trustee for the
benefit of holders of the Notes as security for the Parent's
Guarantee. See "Description of Notes -- Guarantees; Security".
Optional Redemption................................... On or after August 1, 2001, the Issuer may redeem the Exchange Notes,
in whole or in part, at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, and Additional Interest (as
defined), if any, to the date of redemption. See "Description of
Notes -- Redemption".
Change of Control..................................... Upon the occurrence of a Change of Control (as defined), each holder
will have the right to require the Issuer to repurchase such holder's
Exchange Notes at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest and Additional
Interest, if any, to the date of repurchase. There can be no
assurance that the Issuer and the Guarantors will have sufficient
funds to repurchase the Exchange Notes in the event of a Change of
Control.
Certain Covenants..................................... The Indenture (as defined herein) contains certain covenants that,
among other things, limit the ability of the Parent and its
subsidiaries to: (i) transfer or issue shares of capital stock of
Restricted Subsidiaries to third parties; (ii) pay dividends or make
certain other payments; (iii) incur additional indebtedness; (iv)
issue preferred stock; (v) incur liens to secure indebtedness of the
Issuer and the Restricted Subsidiaries; (vi) apply net proceeds from
certain asset sales; (vii) enter into certain transactions with
affiliates; or (viii) merge with or into any other person. See
"Description of Notes -- Certain Covenants".
</TABLE>
For additional information regarding the Exchange Notes, see "Description
of Notes".
USE OF PROCEEDS
The Issuer will not receive any cash proceeds from the exchange of Notes
pursuant to the Exchange Offer.
RISK FACTORS
See "Risk Factors" beginning on page 12 for a discussion of certain factors
that should be considered by participants in the Exchange Offer.
9
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following statement of operations and balance sheet data have been
derived from the audited financial statements of the Company. The selected
financial data for the three months ended June 30, 1997 and 1996 are derived
from consolidated financial statements that have not been audited. In the
opinion of management, the unaudited consolidated financial data include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the consolidated financial position and results of
operations for that period. The results of operations for the three months ended
June 30, 1997 and 1996 are not necessarily indicative of the results of
operations for any other period. The unaudited pro forma financial data for the
year and three months ended March 31 and June 30, 1997, respectively, includes
the historical results of the Company and gives effect to the Refinancing Plan
as if it had occurred on April 1, 1996 and April 1, 1997, respectively. See
" -- The Refinancing Plan". The information contained in this table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and accompanying notes thereto, which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO
FORMA
THREE
MONTHS THREE MONTHS ENDED PRO FORMA
ENDED YEAR ENDED
JUNE 30, JUNE 30, MARCH 31, YEAR ENDED MARCH 31,
-------- ------------------- ---------- -------------------------------------------------
1997 (1) 1997 1996 1997 (2) 1997 1996 1995 1994
-------- -------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (IN THOUSANDS, EXCEPT RATIO DATA)
STATEMENT OF OPERATIONS
DATA:
Sales..................... $300,315 $300,315 $310,391 $1,354,270 $1,354,270 $1,359,450 $1,213,565 $1,042,014
Gross profit.............. 19,538 19,860 21,886 109,482 104,693 90,513 81,465 50,682
Total net interest expense
(3)..................... 8,923 8,601 8,635 33,185 37,624 46,498 40,284 30,705
Restructuring charges
(4)..................... -- -- -- -- -- 12,500 -- --
Income (loss) before
taxes................... 2,054 2,376 4,338 36,890 32,245 2,258 9,980 (24,437)
Income (loss) from
continuing operations
(5)..................... 1,641 1,853 1,508 21,428 16,937 (9,442) (20,494) (36,498)
OTHER DATA:
Gross profit, net of
interest (6)............ $ 27,126 $ 27,126 $ 29,497 $ 136,890 $ 136,890 $ 131,882 $ 116,446 $ 80,098
Gross margin, net of
interest................ 9.0% 9.0% 9.5% 10.1% 10.1% 9.7% 9.6% 7.7%
EBITDA (7)................ 15,928 15,928 17,368 90,735 90,735 82,030 66,677 22,528
Adjusted EBITDA (7)....... 15,036 15,036 16,393 88,483 88,483 80,937 59,896 52,399
Depreciation and
amortization............ 4,951 4,951 4,395 20,660 20,866 24,393 16,413 16,260
Tobacco inventory......... $255,991 $255,991 $206,675 $ 181,349 $ 181,349 $ 160,721 $ 194,344 $ 268,948
Cash provided by (used in)
operating activities.... 17,083 17,170 84,440 39,098 34,659 49,847 95,420 47,657
Cash used in investing
activities.............. (1,393) (1,393) (2,018) (4,440 ) (4,440) (16,360) (3,659) (20,224)
Cash provided by (used in)
financing activities.... (16,857) (16,857) (28,922) (67,790 ) (67,790) (11,013) (105,349) (5,183)
Ratio of earnings to fixed
charges (8)............. 1.2x 1.2x 1.4x 1.9x 1.7x 1.0x 1.2x --
Ratio of adjusted EBITDA
to total net interest
expense................. 1.7x 1.7x 1.9x 2.7x 2.4x 1.7x 1.5x 1.7x
<CAPTION>
1993
----------
<S> <C>
STATEMENT OF OPERATIONS
DATA:
Sales..................... $1,236,084
Gross profit.............. 111,896
Total net interest expense
(3)..................... 33,987
Restructuring charges
(4)..................... --
Income (loss) before
taxes................... 37,291
Income (loss) from
continuing operations
(5)..................... 22,220
OTHER DATA:
Gross profit, net of
interest (6)............ $ 143,529
Gross margin, net of
interest................ 11.6%
EBITDA (7)................ 87,802
Adjusted EBITDA (7)....... 87,392
Depreciation and
amortization............ 16,524
Tobacco inventory......... $ 305,258
Cash provided by (used in)
operating activities.... (80,966)
Cash used in investing
activities.............. (29,633)
Cash provided by (used in)
financing activities.... 96,870
Ratio of earnings to fixed
charges (8)............. 1.8x
Ratio of adjusted EBITDA
to total net interest
expense................. 2.6x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------------------
HISTORICAL (9) AS ADJUSTED (10)
-------------- ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................................. $238,910 $227,030
Total assets................................................................................ 784,336 789,549
Total debt.................................................................................. 355,696 360,909
Shareholders' equity........................................................................ 139,492 139,492
</TABLE>
- ---------------
(1) Pro forma decrease in gross profit and increase in total net interest
expense of $322,000 is primarily attributable to replacing short-term
borrowings with long-term borrowings with higher interest rates. Pro forma
decrease in income from continuing operations is primarily attributable to
increase in interest expense offset by tax savings on interest deductions of
$110,000. Pro forma decrease in cash provided by operating activities
reflects a net change in interest paid of $88,000.
(2) Pro forma increase in gross profit is primarily attributable to lower
interest costs of $4,789,000 achieved by replacing short-term borrowings
with $47.0 million of proceeds from issuance of equity securities in the
first quarter of fiscal 1998. Pro forma decrease in total net interest
expense due to savings described above offset by increase in interest
expense of $350,000 due to replacing short-term borrowings with $115.0
million in long-term borrowings with higher interest rates. Pro forma
increase in income from continuing operations due to interest savings
described above plus decrease in amortization of fees associated with
long-term debt retired with proceeds of $115.0 million in long-term
borrowings of $206,000. Pro forma increase in cash provided by operating
activities reflects a net change in interest paid of $4,439,000.
(3) Includes interest included in cost of sales and interest expense, net of
interest income.
(4) As a result of the termination of the sale of the wool operations, the
Company implemented a reorganization plan for its nontobacco business and
determined that a pretax restructuring charge of $12.5 million ($11.0
million after-tax) was appropriate. The major components of the
restructuring charges relate to the wool division and include: (i)
approximately $2.1 million associated with the closure of the wool
processing facility in Argentina; (ii) approximately $3.6 million for the
write-off of goodwill; (iii) approximately $2.8 million associated with the
write-off of export incentive allowances; and (iv) approximately $2.5
million of expenses related to the terminated sale of the wool division and
other miscellaneous restructuring costs.
10
<PAGE>
(5) Before extraordinary items in 1993 of $503,000 related to benefits of tax
loss carryforwards and cumulative effect of change in accounting principles
in 1994 of $23,000 related to adoption of Statement of Financial Accounting
Standards ("SFAS") No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT
BENEFITS OTHER THAN PENSIONS and SFAS No. 109, ACCOUNTING FOR INCOME TAXES.
(6) Excludes interest included in cost of sales.
(7) "EBITDA" represents income (loss) before income taxes, minority interests,
total net interest expense, depreciation and amortization and restructuring
charges. "Adjusted EBITDA" excludes tobacco inventory write-offs, charges
associated with terminations of certain joint ventures, gain on asset
sales, costs associated with the terminated sale of the wool division and
redundancy and debt restructuring charges. Neither EBITDA nor Adjusted
EBITDA is intended to represent cash flow from operations as defined by
generally accepted accounting principles ("GAAP") and should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity. EBITDA is
presented because the Company believes it is customarily used by certain
investors together with net income and cash flow from operations as defined
by GAAP in evaluating a company's ability to service its debt. Adjusted
EBITDA is presented because the Company believes that it may allow certain
investors to evaluate the Company's ability to service its debt on a more
consistent basis than EBITDA alone.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
------------------ ----------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA................................................ 15,928 17,368 $90,735 $82,030 $ 66,677 $22,528 $87,802
Adjustments -- Increase (Decrease):
Tobacco inventory write-offs........................ -- -- -- -- -- 23,000 --
Charges associated with terminations of certain
joint ventures.................................... -- -- -- -- 4,300 10,000 --
Gain on asset sales................................. $ 892 $ 975 (2,252) (1,093) (13,581) (4,729) (410)
Costs associated with the terminated sale of the
wool division..................................... -- -- -- -- -- 1,600 --
Redundancy and debt restructuring charges........... -- -- -- -- 2,500 -- --
------- ------- ------- ------- -------- ------- -------
Adjusted EBITDA....................................... 15,036 16,393 $88,483 $80,937 $ 59,896 $52,399 $87,392
------- ------- ------- ------- -------- ------- -------
------- ------- ------- ------- -------- ------- -------
</TABLE>
(8) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness (including
amortization of deferred debt issuance costs), and a portion of operating
lease rental expense that is estimated by the Company to be representative
of the interest factor. Earnings were inadequate to cover fixed charges by
$24.4 million for the year ended March 31, 1994.
(9) Includes the reclassification of $115.0 million of short-term borrowings to
long-term debt which results from the issuance of $115.0 million 8 7/8%
Senior Notes (the "Initial Notes"), maturing in 2005, under a private
placement pursuant to Rule 144A which closed on August 1, 1997. Because the
Company used the proceeds from the issuance of the Initial Notes to repay
short-term borrowings as opposed to satisfying these obligations with
present working capital, the Company reclassified these amounts to
long-term debt in accordance with Statement of Financial Accounting
Standards No. 6, CLASSIFICATION OF SHORT-TERM OBLIGATIONS EXPECTED TO BE
REFINANCED.
(10) The decrease in working capital reflects the repayment of long-term debt of
$6.7 million and debt issuance costs of $5.2 million incurred in connection
with the Initial Notes. Total assets and total debt increased by $5.2
million due to debt issuance costs incurred.
11
<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain "forward-looking statements" within the
meaning of Section 27A of the U.S. Securities Act which represent the Company's
expectations or beliefs, including, but not limited to, statements concerning:
industry performance; the Company's operations, performance, financial
condition, growth and acquisition strategies, margins; and growth in sales of
the Company's products. For this purpose, any statements contained in this
Prospectus that are not statements of historical fact may be deemed to be
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond the Company's control, and
actual results may differ materially depending on a variety of important
factors, including those described in "Risk Factors" below.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Notes who do not exchange their Initial Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Initial Notes as set forth in the legend
thereon as a consequence of the issuance of the Initial Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Initial Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Issuer does not currently anticipate that it will register the Initial Notes
under the Securities Act. Based on interpretations by the staff of the
Commission, as set forth in no-action letters to third parties, the Issuer
believes that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for Initial Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than any such holder that is an
"affiliate" of the issuer within the mean of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such notes are acquired in the ordinary course
of such holder's business and such holders are not engaged in, and do not intend
to engage in, a distribution of such Exchange Notes and have an arrangement or
understanding with any person to participate in a distribution of such Exchange
Notes. The staff of the Commission has not considered the Exchange Offer in the
context of a no-action letter and there can be no assurance that the staff of
the Commission would make a similar determination with respect to the Exchange
Offer. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Notes where such Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Issuer has agreed that, starting on the Expiration
Date and ending on the close of business 180 days after the Expiration Date, it
will make this Prospectus available to any broker-dealer for use in connection
with any such resale. See "Plan of Distribution". However, to comply with the
securities laws of certain jurisdictions, if applicable, the Exchange Notes may
not be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with. To the extent that Initial Notes are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted Initial Notes could be adversely affected.
SUBSTANTIAL LEVERAGE AND ABILITY TO SERVICE DEBT
The Company is leveraged. As of June 30, 1997 on a pro forma basis, after
giving effect to the Refinancing Plan, the Company's total indebtedness would
have been approximately $360.9 million and its shareholders' equity would have
been approximately $139.5 million. In addition, subject to the restrictions in
the Global Bank Facility and the Indenture, the Company may incur additional
indebtedness from time to time to finance acquisitions or capital expenditures
or for other purposes. See "Description of Global Bank Facility" and
"Description of Notes".
The level of the Company's indebtedness could have important consequences
to holders of the Notes, including: (i) a substantial portion of the Company's
cash flow from operations must be dedicated to service debt and will not be
available for other purposes; (ii) the Company's ability to obtain additional
debt financing in the future for working capital, capital
12
<PAGE>
expenditures or acquisitions may be limited; and (iii) the Company's level of
indebtedness could limit its flexibility in reacting to changes in the industry
sectors in which it competes and economic conditions in general. Certain of the
Company's competitors currently have greater operating and financing flexibility
than the Company.
The Issuer's ability to pay interest on the Notes, to repay portions of its
long-term indebtedness (including the Notes and the Global Bank Facility) and to
satisfy its other debt obligations will depend upon its future operating
performance and the availability of refinancing indebtedness, which will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control. The Issuer anticipates that
its operating cash flow, together with proceeds from divestitures and borrowings
under the Global Bank Facility, will be sufficient to meet its operating needs
and to meet its debt service requirements as they become due. However, if the
Issuer is unable to service its indebtedness it will be forced to adopt an
alternative strategy that may include reducing or delaying capital expenditures,
selling assets, restructuring or refinancing its indebtedness, or seeking
additional equity capital. There can be no assurance that any such strategy
could be effected on satisfactory terms, if at all. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture and the Global Bank Facility restrict, among other things,
the Issuer's and the Guarantors' ability to incur additional indebtedness, incur
liens, pay dividends or make certain other restricted payments, consummate
certain asset sales, enter into certain transactions with affiliates, merge or
consolidate with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of their assets. In addition, all
of the outstanding capital stock of the Issuer and Standard Wool has been
pledged to the holders of the Notes by the Parent to secure the Parent
Guarantee. The Global Bank Facility contains additional and more restrictive
covenants. The Global Bank Facility also requires the Company to maintain
specified financial ratios and satisfy certain financial tests. The Company's
ability to meet such covenants, financial ratios and tests may be affected by
events beyond its control, and there can be no assurance that the Company will
meet such ratios and tests. There can be no assurance that such covenants,
financial, ratios and tests will not adversely affect the Company's ability to
finance its future operations or capital needs or to engage in other business
activities that may be in the interest of the Company. A breach of any of these
covenants could result in a default under the Indenture and/or the Global Bank
Facility. Upon the occurrence of an event of default under the Global Bank
Facility, the lenders thereunder could elect to declare all amounts outstanding
under the Global Bank Facility, together with accrued interest, to be
immediately due and payable. If the Issuer or the Guarantors were unable to
repay those amounts, such lenders could proceed against the collateral granted
to them to secure that indebtedness. If the lenders under the Global Bank
Facility accelerate the payment of such indebtedness, there can be no assurance
that the assets of the Issuer and the Guarantors would be sufficient to repay in
full such indebtedness and the other indebtedness of the Issuer and the
Guarantors, including the Notes. See "Description of Notes -- Certain Covenants"
and "Description of Global Bank Facility".
The level of the Company's indebtedness could have important consequences
to its future prospects, including the following: (i) limiting the ability of
the Company to obtain any necessary financing in the future for working capital,
capital expenditures, debt service requirements or other purposes; (ii) limiting
the flexibility of the Company in planning for, or reacting to, changes in its
business; (iii) leveraging the Company more highly than some of its competitors,
which may place it at a competitive disadvantage; (iv) increasing its
vulnerability in the event of a downturn in its business or the economy
generally; (v) making it more difficult for the Company to make payments on the
Notes; and (vi) requiring that a substantial portion of the Company's cash flow
from operations be dedicated to the payment of principal and interest on its
indebtedness and not be available for other purposes. In addition, the Company's
indebtedness under the Global Credit Facility will bear interest at variable
rates which will cause the Company to be vulnerable to increases in interest
rates.
ADVERSE CONSEQUENCES OF HOLDING COMPANY STRUCTURE
The Issuer and Standard Wool are partially dependent on the earnings of
their subsidiaries, and the Parent, as a holding company, is wholly dependent on
the earnings of its subsidiaries. Generally, claims of creditors of a
subsidiary, including trade creditors, secured creditors and creditors holding
indebtedness and guarantees issued by such subsidiary, and claims of preferred
stockholders (if any) of such subsidiary, will have priority with respect to the
assets and earnings of such subsidiary over the claims of the creditors of its
parent company, except to the extent the claims of creditors of the parent
company are guaranteed by such subsidiary. Therefore, the Notes and the
Guarantee of Standard Wool are effectively subordinated to all secured
indebtedness of the Issuer and Standard Wool, as the case may be, with respect
to the assets securing such indebtedness and is effectively subordinate in right
of payment to all liabilities, including trade payables, of all subsidiaries of
the Issuer or Standard Wool, as the case may be. The Guarantee of the Parent is
effectively subordinated in right of payment to
13
<PAGE>
all liabilities, including trade payables, of all subsidiaries of the Parent
(other than the Issuer and Standard Wool). As of June 30, 1997, on a pro forma
basis, after giving effect to the Refinancing Plan, the Issuer and the
Guarantors would have had an aggregate of approximately $176.9 million of
secured and other indebtedness to which the Notes and the Guarantees would have
been effectively subordinate in right of payment.
SMOKING AND HEALTH ISSUES; LITIGATION AND GOVERNMENTAL REGULATION
In recent years, governmental entities in the United States at all levels
have taken or have proposed actions that may have the effect of reducing
consumption of cigarettes. These activities have included: (i) the U.S.
Environmental Protection Agency's classification of tobacco environmental smoke
as a "Group A" (known human) carcinogen; (ii) restrictions on the use of tobacco
products in public places and places of employment including a proposal by the
U.S. Occupational Safety and Health Administration to ban smoking in the work
place; (iii) proposals by the U.S. Food and Drug Administration ("FDA") to
sharply restrict cigarette advertising and promotion and to regulate nicotine as
a drug; (iv) increases in tariffs on imported tobacco; (v) proposals to increase
sales and excise taxes on cigarettes; (vi) the recently announced policy of the
U.S. government to link certain federal grants to the enforcement of state laws
banning the sale of tobacco products to minors; (vii) lawsuits against cigarette
manufacturers by several U.S. states seeking reimbursement of Medicaid and other
expenditures claimed to have been made by such states to treat diseases
allegedly caused by cigarette smoking; (viii) the recent enactment of stricter
regulations designed to prohibit sales of cigarettes to minors; and (ix) the
ruling by a Federal District Court in North Carolina, which is currently under
appeal, that the FDA has the authority to regulate nicotine as a drug and
cigarettes as a drug delivery device, but lacks the authority to control
cigarette advertising directed at children. It is not possible to predict the
outcome of such actions or litigation or the effect adverse determinations
against the manufacturers might have on leaf merchants, like the Company, or the
extent to which governmental activities and litigation might adversely affect
the Company's business directly.
In addition, civil litigation on behalf of individuals and purported
classes is pending against the leading U.S. manufacturers of consumer tobacco
products alleging damages for health problems resulting from the use of tobacco
in various forms. It is not possible to predict the outcome of such litigation
or what effect adverse developments in pending or future litigation might have
on the business of the Company, either directly or indirectly.
The Attorneys General of 40 states recently reached a proposed settlement
with certain U.S. cigarette manufacturers regarding claims for reimbursement of
health care costs associated with smoking-related illnesses. The settlement
would, among other things, give the FDA the authority to regulate tobacco
products, curtail the advertising of tobacco products and mandate new and larger
warning labels on cigarette packages. It is not possible to predict whether the
settlement will be approved by Congress or what the effect of such a settlement
will be on pending and future actions brought by private litigants or the impact
the settlement will have on sales of tobacco products and the Company's
business.
In calendar 1993, Congress enacted the 75/25 Rule, intended to limit the
importation of tobacco into the United States by requiring that all cigarettes
manufactured in the United States, including those manufactured for export,
contain at least 75.0% domestically grown tobacco. Although the 75/25 Rule was
repealed in 1995, principally because it was inconsistent with GATT, and was
replaced with import quotas designed to assist domestic tobacco growers, it had
the effect in calendar 1993 and 1994 of drastically decreasing demand for
imports of foreign tobacco for use in the domestic production of cigarettes. It
is not possible to predict the extent to which future governmental or
third-party actions might adversely affect the Company's business.
A number of foreign countries have also taken steps to restrict or prohibit
cigarette advertising and promotion, to increase taxes on cigarettes and to
discourage cigarette smoking. In some cases, such restrictions are more onerous
than those in the United States. For example, advertising and promotion of
cigarettes has been banned or severely restricted for a number of years in
Australia, Canada, Finland, France, Italy, Singapore and a number of other
countries. It is impossible to predict the extent to which these actions might
adversely affect the Company's business. See "Business -- Governmental
Regulation and Environmental Compliance".
VARIABILITY OF ANNUAL AND QUARTERLY FINANCIAL RESULTS
The purchasing and processing of tobacco and wool are dependent on
agricultural cycles and are seasonal in nature. These cycles and this
seasonality, together with the timing of shipments and variations in the mix of
sales, cause quarterly fluctuations in financial results. Sales and revenue
recognition by the Company is based upon the passage of title, which typically
occurs on the date of shipment. The nature of the Company's businesses is such
that it is not possible to predict the timing of shipments or orders with a high
degree of precision, and advances or delays in either are not unusual.
Therefore, the
14
<PAGE>
comparability of the Company's financial results, particularly
quarter-to-quarter comparisons, which may be significantly affected by these
factors, should be considered when evaluating the Company's performance. In
addition, the Company's business may be adversely affected by poor weather or
other agricultural factors, many of which are beyond the control of the Company.
For example, the tobacco leaf industry in the United States was disrupted in
calendar 1993 by below average quality tobacco crops.
Total tobacco inventories normally peak in the Company's third fiscal
quarter as large volumes of tobacco grown in the northern hemisphere are
purchased and held in various conditions of processing prior to shipment to
customers. Receivables typically peak in the fourth quarter as those tobaccos
are shipped and invoiced. Revolving credit borrowings and trade payables
normally peak with inventories.
Wool is generally purchased over a greater portion of the year than
tobacco, and wool growing seasons occur at different times of the year in
different countries. Wool trading is generally lower during the first and second
fiscal quarters as a result of reduced demand for wool products during the
summer in the northern hemisphere, when processors and users close down for
holidays and vacations in Europe. Generally, wool revenues reach high levels in
the third fiscal quarter and peak in the fourth fiscal quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality and Quarterly Results".
GLOBAL FINANCIAL AND MANAGEMENT CONTROL RISKS
The broad scope of the Company's worldwide business units has placed
considerable demands on management's ability to oversee the Company's financial
accounting controls, risk management and asset management. While the Company has
implemented and continues to refine a strategic plan specifically addressing
these areas, there can be no assurance that the Company will be successful in
establishing and maintaining the centralized management oversight necessary to
ensure adequate controls of its global operations.
Part of the Company's strategic plan is to focus on tobacco inventory
management. In certain markets where there is no auction system in place, the
Company prefinances and/or buys tobacco directly from growers prior to receipt
of firm orders or indications of interest from customers in amounts based
largely upon past purchasing trends of such customers ("uncommitted inventory").
Because of the strategic importance of these markets to the Company's customers,
the Company desires to maintain a presence in these locations. In addition, the
Company has, from time to time, purchased uncommitted inventory at auction when,
in its opinion, there was a reasonable opportunity to resell the tobacco at a
profit or when it anticipated its customer's needs before receiving firm
indications or orders of interest. As a result, in periods of unexpectedly low
demand, the Company's uncommitted inventory has exceeded desired levels.
Purchases of uncommitted inventory expose the Company to potential losses if the
price of the tobacco it purchases falls prior to receiving a firm order from a
buyer. There is no tobacco futures market to hedge this risk. See
"Business -- Tobacco -- Business Strategy" and " -- Operations -- Purchasing".
RELIANCE ON SIGNIFICANT TOBACCO CUSTOMERS
The Company's tobacco customers are manufacturers of cigarette and tobacco
products located in approximately 85 countries around the world. Several of
these customers individually account for a significant portion of the Company's
sales in a normal year, and the loss of any one or more of such customers could
have a material adverse effect on the Company's results of operations.
Approximately 67.3% of the Company's tobacco sales (49.6% of total sales) for
fiscal 1997 were made to the Company's five largest customers, with its largest
customer representing 32.7% of tobacco sales (24.1% of total sales). See
"Business -- Tobacco -- Operations -- Selling".
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the continued services of certain members of
senior management, in particular those of its current Chief Executive Officer.
Currently, the Company does not have any long-term employment agreements with
its executive officers, with the exception of its Chief Executive Officer. The
Company believes the loss of the services of key members of senior management
could have a material adverse effect on the Company. In addition, the Company
believes that its future success will depend in large part upon its continued
ability to attract, retain and motivate additional employees. There can be no
assurance that the Company will be able to attract and retain sufficient
qualified personnel to meet its business needs. See "Business -- Employees" and
"Management".
15
<PAGE>
INTERNATIONAL BUSINESS RISKS
The Company's international operations are subject to a number of political
and economic risks, including unsettled social and political conditions,
nationalization, expropriation, import and export restrictions, confiscatory
taxation, exchange controls, renegotiation or nullification of existing
contracts, inflationary economies and currency risks, strikes and risks related
to the restrictions of repatriation of earnings or proceeds from liquidated
assets of foreign subsidiaries. In certain countries, the Company has advanced
funds or guaranteed local loans or lines of credit for the purchase of tobacco
from growers, and expects to continue such practices in the future. Risk of
repayment is normally limited to the tobacco season, and the maximum exposure
occurs within a shorter period.
The Company's tobacco business is generally conducted in U.S. dollars, as
is the business of the industry as a whole. However, local country operating
costs, including the purchasing and processing costs for tobaccos, are subject
to the effects of exchange fluctuations of the local currency against the U.S.
dollar. The Company attempts to minimize such currency risks by matching the
timing of its working capital borrowing needs against the tobacco purchasing and
processing funds requirements in the currency of the country of tobacco origin.
Fluctuations in the value of foreign currencies can significantly affect the
Company's operating results.
Wool purchases and sales are typically denominated in the currency of the
source country and destination country, respectively. The Company typically pays
for its wool purchases in the currency of the country of origin, and generally
hedges the currencies of its purchase and sale commitments with forward
transactions.
The Company regularly monitors its foreign exchange position and has not
experienced material gains or losses on foreign exchange fluctuations. The
Company enters into forward contracts solely for the purpose of limiting its
exposure to short-term changes in foreign exchange rates. The Company does not
engage in currency transactions for the purpose of speculation.
COMPETITION
The leaf tobacco industry is highly competitive. Competition among leaf
tobacco dealers is based primarily on the price charged for products and
services; the ability to meet customer demands and specifications in sourcing,
purchasing, blending, processing and financing tobacco; and the ability to
develop and maintain long-standing customer relationships by demonstrating a
knowledge of customer preferences and requirements. Most of the Company's
principal tobacco customers also purchase tobacco from the Company's major
tobacco competitors, Universal Corporation ("Universal") and Dimon, Incorporated
("Dimon"). On April 1, 1997, Dimon announced that it had completed the
acquisition of Intabex Holdings Worldwide S.A. As a result of this transaction,
there are only three global independent leaf tobacco merchants, including the
Company. There can be no assurance that the Company will be able to successfully
compete against Universal or Dimon, which have greater financial resources than
the Company. Industry consolidation may also have an adverse impact on the
Company's efforts to establish and maintain itself as a reliable and preferred
supplier of leaf tobacco to the major multinational cigarette manufacturers. See
"Business -- Tobacco -- Competition".
The wool industry is highly fragmented, with substantially more competitors
than the leaf tobacco industry. The Company's major wool competitors, some of
which have greater financial resources than the Company, include Chargeurs S.A.,
a publicly traded French company; Anselme Dewavrin et Fils S.A., a private
French company ("ADF"); Bremer Woll-Kaemmerei, A.G., a publicly traded German
company ("BWK"); and a number of Japanese trading firms. There can be no
assurance that the Company will be able to successfully compete in the wool
industry. See "Business -- Wool -- Competition".
POOR MARKET CONDITIONS IN THE WOOL INDUSTRY
The wool industry has suffered from poor market conditions in recent years.
Following record high prices for wool in 1988, the demand for wool decreased
dramatically beginning in 1989 as a result of a number of factors, including the
withdrawal of China from international wool markets, economic and political
turmoil in Eastern Europe and the states of the Former Soviet Union, and
recessionary conditions in Western Europe. The resulting oversupply of wool led
to a decision by the Australian government in 1991 to abandon its price support
program. Consequently, under these free market conditions, wool prices fell
immediately and substantially, creating difficult trading conditions for the
wool industry, and establishing the market conditions necessary for a correction
in what had become a major imbalance between supply and demand. Prior to
abandonment of the price support program in 1991, the Australian government
accumulated a large stockpile of wool, equivalent to approximately one year's
Australian production. Wool International, an organization established by the
Australian government to manage and market the stockpile, disposed of 23,625
metric tons of wool per quarter until June 30, 1997, at which time the disposal
rate was to be adjusted to a minimum of 15,750 metric tons per quarter. Although
the demand for
16
<PAGE>
wool has strengthened since the late 1980s and the stockpile maintained by Wool
International has been significantly reduced since 1991, there can be no
assurance that the supply/demand imbalance of wool characterizing such periods
will not return. If they do, or if the rate of liquidation of the stockpile were
increased, the Company's wool business could be materially adversely affected.
See "Business -- Wool -- The Wool Industry".
FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence by the Issuer and the Guarantors of indebtedness such as the
Notes and the Guarantees may be subject to review under relevant state and
federal fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced
by or on behalf of unpaid creditors of the Issuer or the Guarantors. Under these
laws, if a court were to find that, after giving effect to the sale of the Notes
and the application of the net proceeds therefrom, either (a) the Issuer or the
Guarantors incurred such indebtedness with the intent of hindering, delaying or
defrauding creditors or (b) the Issuer or the Guarantors received less than
reasonably equivalent value or consideration for incurring such indebtedness and
(i) was insolvent or was rendered insolvent by reason of such transactions, (ii)
was engaged in a business or transaction for which the assets remaining with the
Issuer or the Guarantors constituted unreasonably small capital or (iii)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured, such court may subordinate such indebtedness to
existing and future indebtedness of the Issuer or such Guarantor, as the case
may be, avoid the issuance of such indebtedness and direct the repayment of any
amounts paid thereunder to the Issuer's or the Guarantors' creditors, as the
case may be, or take other action detrimental to the holders of such
indebtedness.
The measure of insolvency for purposes of determining whether a transfer is
avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all its liabilities, including contingent
liabilities, were greater than the value of all its property at a fair
valuation, or if the present fair saleable value of the debtor's assets were
less than the amount required to repay its probable liabilities on its debts,
including contingent liabilities, as they become absolute and matured.
LACK OF PUBLIC MARKET FOR THE NOTES
Although the Initial Purchasers have received approval for trading of the
Notes on the PORTAL Market of the Nasdaq Stock Market, Inc. and intend to make a
market in the Notes, and if issued, the Exchange Notes, they are not obligated
to do so, and any such market making may be discontinued at any time without
notice. The Initial Notes have not been registered under the Securities Act and
are subject to restrictions on transferability. The Exchange Notes will
constitute a new issue of securities with no established trading market. The
Issuer does not intend to list the Exchange Notes on any national securities
exchange or seek approval for quotation on the National Association of
Securities Dealers Automated Quotation System. No assurance can be given that an
active public or other market will develop for the Exchange Notes or as to the
liquidity of the trading market for the Exchange Notes. If a trading market does
not develop or is not maintained, holders of the Exchange Notes may experience
difficulty in reselling the Exchange Notes or may be unable to sell them at all.
If a market for the Exchange Notes develops, any such market may be discontinued
at any time. If a public trading market develops for the Exchange Notes, future
trading prices of such securities will depend on many factors including, among
other things, prevailing interest rates, the Issuer's results of operations and
the market for similar securities. Depending on prevailing interest rates, the
market for similar securities and other factors, including the financial
condition of the Issuer, the Exchange Notes may trade at a discount from their
principal amount. Historically, the market for securities similar to the
Exchange Notes, including non-investment grade debt, has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that any market for the Exchange Notes, if
such market develops, will not be subject to similar disruptions.
17
<PAGE>
USE OF PROCEEDS OF THE EXCHANGE NOTES
This Exchange Offer is intended to satisfy certain obligations of the
Issuer and the Guarantors under the Registration Rights Agreement. The Issuer
will not receive any cash proceeds from the issuance of the Exchange Notes
offered hereby. In consideration for issuing the Exchange Notes as contemplated
in this Prospectus, the Issuer will receive, in exchange, Initial Notes in like
principal amount. The form and terms of the Exchange Notes are identical in all
material respects to the form and terms of the Initial Notes, except as
otherwise described herein under "The Exchange Offer -- Terms of the Exchange
Offer". The Initial Notes surrendered in exchange for the Exchange Notes will be
retired and cancelled and cannot be reissued. Accordingly, issuance of the
Exchange Notes will not result in any increase in the outstanding debt of the
Issuer or the Guarantors.
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated cash, short-term debt and
capitalization of the Company as of June 30, 1997 on an actual basis and as
adjusted to give effect to the Refinancing Plan. The information in the table
below is qualified in its entirety by, and should be read in conjunction with,
the Consolidated Financial Statements (including the Notes thereto) of the
Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------
ACTUAL
(1) AS ADJUSTED (2)
-------- ---------------
<S> <C> <C>
(IN THOUSANDS)
Cash............................................................................................. $ 40,037 $ 40,037
-------- ---------------
-------- ---------------
Short-term debt:
Short-term borrowings............................................................................ $144,306 $ 158,186
Current portion of long-term debt................................................................ 7,831 5,831
-------- ---------------
Total short-term debt....................................................................... 152,137 164,017
-------- ---------------
Long-term debt:
Senior Notes..................................................................................... -- 115,000
Long-term debt................................................................................... 134,559 12,892
Convertible subordinated debentures.............................................................. 69,000 69,000
-------- ---------------
Total long-term debt........................................................................ 203,559 196,892
-------- ---------------
Minority interests............................................................................... 30,110 30,110
Total shareholders' equity....................................................................... 139,492 139,492
-------- ---------------
Total capitalization and short-term debt.................................................... $525,298 $ 530,511
-------- ---------------
-------- ---------------
</TABLE>
- ---------------
(1) Includes the reclassification of $115.0 million of short-term borrowings to
long-term debt which results from the issuance of $115.0 million 8 7/8%
Senior Notes (the "Initial Notes"), maturing in 2005, under a private
placement pursuant to Rule 144A which closed on August 1, 1997. Because the
Company used the proceeds from the issuance of the Initial Notes to repay
short-term borrowings as opposed to satisfying these obligations with
present working capital, the Company reclassified these amounts to long-term
debt in accordance with SFAS No. 6, CLASSIFICATION OF SHORT-TERM OBLIGATIONS
EXPECTED TO BE REFINANCED.
(2) The decrease in working capital reflects the repayment of long-term debt of
$6.7 million and debt issuance costs of $5.2 million incurred in connection
with the Initial Notes. Long-term debt decreased by $121.7 million due to
reclassification of $115.0 million from long-term debt to the Initial Notes
and repayment of $6.7 million of long-term debt. Total use of proceeds were
as follows (in thousands):
<TABLE>
<S> <C>
Repayment of short-term borrowings $101,120
Repayment of current portion of long-term debt 2,000
Repayment of long-term debt 6,667
Debt issuance costs capitalized 5,213
--------
Total proceeds $115,000
--------
--------
</TABLE>
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<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected statement of operations and balance sheet data have
been derived from, and is qualified by reference to, the Consolidated Financial
Statements of the Company. The selected financial data for the three months
ended June 30, 1997 and 1996 are derived from consolidated financial statements
that have not been audited. In the opinion of management, the unaudited
consolidated financial data include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the consolidated
financial position and results of operations for that period. The results of
operations for the three months ended June 30, 1997 and 1996 are not necessarily
indicative of the results of operations for any other period. The table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Consolidated Financial
Statements (including the Notes thereto) appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
------------------- --------------------------------------------------------------
1997 (1) 1996 1997 1996 1995 1994 1993
-------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (IN THOUSANDS, EXCEPT RATIO DATA)
STATEMENT OF OPERATIONS DATA:
Sales............................. $300,315 $310,391 $1,354,270 $1,359,450 $1,213,565 $1,042,014 $1,236,084
Cost
-- Materials, services and
supplies...................... 273,189 280,894 1,217,380 1,227,568 1,097,119 961,916 1,092,555
-- Interest.................... 7,266 7,611 32,197 41,369 34,981 29,416 31,633
-------- -------- ---------- ---------- ---------- ---------- ----------
Gross profit...................... 19,860 21,886 104,693 90,513 81,465 50,682 111,896
Selling, general and
administrative expenses......... 17,659 17,996 72,782 77,608 80,509 78,731 73,925
Restructuring charges (2)......... -- -- -- 12,500 -- -- --
Interest expense.................. 2,216 2,387 9,920 9,559 9,947 7,173 8,183
Interest income................... 881 1,363 4,493 4,430 4,644 5,884 5,829
Other income (expenses) - net..... 1,510 1,472 5,761 6,982 14,372 4,901 1,674
-------- -------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes........ 2,376 4,338 32,245 2,258 9,980 (24,437) 37,291
Income taxes...................... 358 1,112 12,782 6,836 16,370 5,070 12,546
-------- -------- ---------- ---------- ---------- ---------- ----------
Income (loss) after taxes......... 2,018 3,226 19,463 (4,578) (6,390) (29,507) 24,745
Minority interests................ (291) (1,936) (3,938) (4,795) (9,634) (3,765) (2,421)
Equity in earnings (losses) of
affiliates...................... 126 218 1,412 (69) (4,470) (3,226) (104)
-------- -------- ---------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations (3).................. 1,853 1,508 16,937 (9,442) (20,494) (36,498) 22,220
Income (loss) from discontinued
operations...................... -- -- -- 10,050 (10,050) 689 (1,547)
Extraordinary items............... -- -- -- -- -- -- 503
Cumulative effect of accounting
changes......................... -- -- -- -- -- 23 --
ESOP preferred stock dividends,
net of tax...................... -- (115) (347) (474) (485) (486) (364)
-------- -------- ---------- ---------- ---------- ---------- ----------
Net income (loss) applicable to
common stock.................... $ 1,853 $ 1,393 $ 16,590 $ 134 $ (31,029) $ (36,272) $ 20,812
-------- -------- ---------- ---------- ---------- ---------- ----------
-------- -------- ---------- ---------- ---------- ---------- ----------
OTHER DATA:
Gross profit, net of interest
(4)............................. $ 27,126 $ 29,497 $ 136,890 $ 131,882 $ 116,446 $ 80,098 $ 143,529
Gross margin, net of interest..... 9.0% 9.5% 10.1% 9.7% 9.6% 7.7% 11.6%
Operating income, net of interest
(5)............................. 11,858 14,336 74,362 53,186 54,908 12,152 77,107
EBITDA (6)........................ 15,928 17,368 90,735 82,030 66,677 22,528 87,802
Adjusted EBITDA (6)............... 15,036 16,393 88,483 80,937 59,896 52,399 87,392
Cash provided by (used in)
operating activities............ 17,170 84,440 34,659 49,847 95,420 47,657 (80,966)
Cash used in investing
activities...................... (1,393) (2,018) (4,440) (16,360) (3,659) (20,224) (29,633)
Cash provided by (used in)
financing activities............ (16,857) (28,922) (67,790) (11,013) (105,349) (5,183) 96,870
Depreciation and amortization..... 4,951 4,395 20,866 24,393 16,413 16,260 16,524
Tobacco inventory................. 255,991 206,675 181,349 160,721 194,344 268,948 305,256
Capital expenditures.............. 2,909 2,265 12,816 12,211 17,328 27,257 24,096
Ratio of earnings to fixed
charges -- the Company (7)...... 1.2x 1.4x 1.9x 1.0x 1.2x -- 1.8x
Ratio of earnings to fixed
charges -- the Issuer (7)....... -- -- 1.8x 2.0x 2.0x 3.5x 3.7x
BALANCE SHEET DATA:
Working capital................... $238,910 $ 55,782 $ 120,105 $ 55,798 $ 53,187 $ 70,484 $ 167,295
Total assets...................... 784,336 814,378 735,685 782,824 813,489 890,771 926,367
Total debt........................ 355,696 457,369 420,562 486,108 492,257 597,232 598,609
Shareholders' equity.............. 139,492 81,186 89,962 80,172 84,950 102,649 151,110
</TABLE>
- ---------------
(1) Includes the reclassification of $115.0 million of short-term borrowings to
long-term debt.
(2) As a result of the termination of the sale of the wool operations, the
Company implemented a reorganization plan for its nontobacco business and
determined that a pretax restructuring charge of $12.5 million ($11.0
million after-tax) was appropriate. The major components of the
restructuring charges relate to the wool division and include: (i)
approximately
20
<PAGE>
$2.1 million associated with the closure of the wool processing facility in
Argentina; (ii) approximately $3.6 million for the write-off of goodwill;
(iii) approximately $2.8 million associated with the write-off of export
incentive allowances; and (iv) approximately $2.5 million of expenses
related to the terminated sale of the wool division and other miscellaneous
restructuring costs.
(3) Before extraordinary items in 1993 of $503,000 related to benefits of tax
loss carryforwards and cumulative effect of change in accounting principles
in 1994 of $23,000 related to adoption of Statement of Financial Accounting
Standards ("SFAS") No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT
BENEFITS OTHER THAN PENSIONS and SFAS No. 109, ACCOUNTING FOR INCOME TAXES.
(4) Excludes interest included in cost of sales.
(5) Defined as income (loss) before taxes, net of interest included in cost of
sales and other interest expense.
(6) "EBITDA" represents income (loss) before income taxes, minority interests,
total net interest expense, depreciation and amortization and restructuring
charges. "Adjusted EBITDA" excludes tobacco inventory write-offs, charges
associated with terminations of certain joint ventures, gain on asset sales,
costs associated with the terminated sale of the wool division and
redundancy and debt restructuring charges. Neither EBITDA nor Adjusted
EBITDA is intended to represent cash flow from operations as defined by GAAP
and should not be considered as an alternative to net income as an indicator
of the Company's operating performance or to cash flows as a measure of
liquidity. EBITDA is presented because the Company believes it is
customarily used by certain investors together with net income and cash flow
from operations as defined by GAAP in evaluating a company's ability to
service its debt. Adjusted EBITDA is presented because the Company believes
that it may allow certain investors to evaluate the Company's ability to
service its debt on a more consistent basis than EBITDA alone.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
-------------------- -------------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
EBITDA......................... $15,928 $17,368 $ 90,735 $ 82,030 $ 66,677 $ 22,528 $ 87,802
Adjustments -- Increase
(Decrease):
Tobacco inventory write-
offs...................... -- -- -- -- -- 23,000 --
Changes associated with
terminations of certain
joint ventures............ -- -- -- -- 4,300 10,000 --
Gains on asset sales......... 892 975 (2,252) (1,093) (13,581) (4,729) (410)
Costs associated with the
terminated sale of
the wool division......... -- -- -- -- -- 1,600 --
Redundancy and debt
restructuring charges..... -- -- -- -- 2,500 -- --
------- ------- --------- --------- --------- --------- ---------
Adjusted EBITDA................ $15,036 $16,393 $ 88,483 $ 80,937 $ 59,896 $ 52,399 $ 87,392
------- ------- --------- --------- --------- --------- ---------
------- ------- --------- --------- --------- --------- ---------
</TABLE>
(7) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes, plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (including amortization of
deferred debt issuance costs), and a portion of operating lease rental
expense that is estimated by the Company to be representative of the
interest factor. For the issuer, earnings were inadequate to cover fixed
charges by $1.2 million and $0.7 million for the three months ended June 30,
1997 and 1996, respectively. For the Company, earnings were inadequate to
cover fixed charges by $24.4 million for the year ended March 31, 1994.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is principally engaged in purchasing, processing, storing,
selling and shipping leaf tobacco. The Company also purchases, processes and
sells various types of wool. For both the tobacco and wool business, the ability
to obtain raw materials at favorable prices is an important element of
profitability although it is generally more important for wool than for tobacco
because some customers pay the Company to purchase and process tobacco on a
cost-plus basis. Obtaining raw materials at favorable prices must be coupled
with a thorough knowledge of the types and grades of raw materials to assure the
profitability of processing and blending to a customer's specifications.
Processing is capital intensive and profit therefrom depends upon the volume of
material processed and the efficiency of the factory operations. Due to the much
larger number of dealers and customers for wool and the far more numerous trades
involved, wool revenue tends to be more susceptible to market price fluctuations
than tobacco.
Historically, the cost of the Company's materials, services and supplies
has exceeded 85.0% of revenues. The cost of raw materials, interest expense and
certain processing and freight costs are variable and thus are related to the
level of sales. Short-term borrowings are used to finance raw material inventory
purchases and accordingly the interest expense associated with these purchases
is included in cost of sales. In the wool business, freight charges are also a
significant element of cost of sales. Most procurement costs (other than raw
materials), certain processing costs, and most selling, general and
administrative expenses ("SG&A") are fixed. The major elements of SG&A are
employee costs, including salaries and marketing expenses.
Tobacco sales are generally denominated in U.S. dollars whereas wool
purchases and sales are typically denominated in the currency of the source
country and destination country, respectively. The Company regularly monitors
its foreign exchange position and has not experienced material gains or losses
on foreign exchange fluctuations. The Company enters into forward contracts
solely for the purpose of limiting its exposure to short-term changes in foreign
exchange rates.
Assets and liabilities of foreign subsidiaries are translated at period-end
exchange rates. The effects of these translation adjustments are reported as a
separate component of shareholders' equity. Exchange gains and losses arising
from transactions denominated in a currency other than the functional currency
of the entity involved and translation adjustments in countries with highly
inflationary economies are included in net income. See "Risk
Factors -- International Business Risks".
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's Consolidated
Statements of Income as a percentage of sales for the three most recent fiscal
years and for the three months ended June 30, 1996 and 1997. Any reference in
the table and the following discussion to any given year is a reference to the
Company's fiscal year ended March 31.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30, YEAR ENDED MARCH 31,
----------------- -----------------------------
1997 1996 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales........................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales
-- Materials, services and supplies....................... 91.0 90.5 89.9 90.3 90.4
-- Interest............................................... 2.4 2.5 2.4 3.0 2.9
----- ----- ----- ----- -----
Gross profit............................................ 6.6 7.1 7.7 6.7 6.7
Selling, general and administrative expenses................. 5.9 5.8 5.4 5.7 6.6
Restructuring charges........................................ -- -- -- 0.9 --
Interest expense............................................. 0.7 0.8 0.7 0.7 0.8
Interest income.............................................. 0.3 0.4 0.4 0.3 0.4
Other income (expense), net.................................. 0.5 0.5 0.4 0.5 1.2
----- ----- ----- ----- -----
Income (loss) before taxes.............................. 0.8 1.4 2.4 0.2 0.8
Income taxes................................................. 0.1 0.4 0.9 0.5 1.3
Minority interests........................................... 0.1 0.6 0.3 0.4 0.8
Equity in earnings (losses) of affiliates.................... -- 0.1 0.1 0.0 (0.4)
----- ----- ----- ----- -----
Income (loss) from continuing operations................ 0.6% 0.5% 1.3% (0.7)% (1.7)%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1997 TO THE THREE MONTHS ENDED
JUNE 30, 1996
SALES. Sales for the quarter ended June 30, 1997 were $300.3 million, a
decrease of 3.2% from a year earlier. Sales of $212.8 million for the tobacco
division were down 1.1% from the corresponding period in 1996. Tobacco sales
from the U.S. and South America increased while sales from Turkey were down due
to the timing of shipments in the June 1996 quarter. Overall, tobacco volume was
down 5.6% and average prices were higher as a result of market conditions and
the change in mix.
Nontobacco sales of $87.5 million were down 8.1% primarily as the result of
a 10.9% decrease in the volume of wool sold which was attributable to focusing
on the more profitable processing elements of the business.
GROSS PROFIT AND COST OF SALES. Gross profit for the quarter of $19.9
million was down 9.3% from the 1996 quarter due primarily to the reduced level
of sales and a change in the tobacco business mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses decreased by
1.9% to $17.7 million as the Company continued to focus on operating
efficiencies. Reductions in personnel-related costs and lower legal and
professional fees contributed to the favorable variance.
INTEREST EXPENSE, INTEREST INCOME AND OTHER INCOME (EXPENSE), NET. A
decrease in other interest expense and in the interest income element of other
income (net) were both attributed to improved application of cash to reduce
borrowings.
INCOME TAXES, MINORITY INTERESTS AND EQUITY IN EARNINGS (LOSSES) OF
AFFILIATES. The effect on net income of changes in sales mix and other factors
contributing to a reduction in income before taxes was offset by a lower
effective tax rate and reduced earnings applicable to minority interests. The
variation in income tax charges or credits as a percentage of pretax income due
to differences in tax rates and relief available in areas where profits are
earned or losses are incurred resulted in an effective rate tax rate of 15.1% in
the current quarter compared to 25.6% a year earlier.
Earnings attributed to minority interests were $1.6 million lower than a
year ago because of a change in business mix. Equity in earnings of affiliates
were down slightly from a year earlier.
INCOME (LOSS) FROM CONTINUING OPERATIONS. Income from continuing operations
was $1.9 million, or $0.17 per share on 11.1 million average shares outstanding,
versus $1.5 million, or $0.15 per share on 9.5 million shares outstanding for
the June 1996 quarter adjusted for subsequent stock dividends. The
quarter-to-quarter increase in shares outstanding was primarily attributable to
the issuance of 3.0 million shares of Common Stock in the Equity Offering during
the June 1997 quarter.
COMPARISON OF THE YEAR ENDED MARCH 31, 1997 TO THE YEAR ENDED MARCH 31, 1996
SALES. Sales for 1997 were $1,354.3 million, a decrease of 0.4% from the
prior year. Sales for the tobacco division were $997.4 million, an increase of
7.8% from 1996. The increase in tobacco division sales was due to higher average
prices and improved sales mix. Tobacco volumes sold decreased by 4.8% from the
prior year, which included sales of old crop tobacco. Volume increases in the
United States partially offset declines in other areas.
23
<PAGE>
Nontobacco sales for 1997 were $356.8 million, a decrease of 17.8% from the
prior year. The decrease in nontobacco sales was primarily due to lower average
wool prices. Wool volumes were lower than the prior year as volume increases in
Argentina, South Africa and the United Kingdom were offset by declines in other
markets as the Company focused its efforts on its scouring and topmaking
operations.
GROSS PROFIT AND COST OF SALES. Gross profit for 1997 increased by $14.2
million from $90.5 million in the prior year to $104.7 million and increased as
a percentage of sales. Gross profit for the tobacco division increased by $4.8
million from $80.5 million, or 8.7% of tobacco division sales, in the prior year
to $85.3 million, or 8.6% of tobacco division sales. The increase in tobacco
division gross profit was due primarily to the 7.8% increase in tobacco division
sales and a 22.2% decrease in interest due to lower average interest rates
during 1997.
Nontobacco gross profit for 1997 increased by $9.4 million from $10.0
million, or 2.3% of nontobacco sales, in the prior year to $19.4 million, or
5.4% of nontobacco sales. The increase in gross profit was due to a 24.7%
decrease in interest for the wool division.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1997 decreased by $4.8 million, primarily as a
result of lower personnel and travel expenses related to the lower headcount and
were lower as a percentage of sales. Selling, general and administrative
expenses for the tobacco division decreased by $1.9 million from $53.5 million,
or 5.8% of tobacco division sales, in the prior year to $51.6 million, or 5.2%
of tobacco division sales.
Nontobacco selling, general and administrative expenses for 1997 decreased
by $2.9 million from $24.1 million, or 5.6% of nontobacco sales, in the prior
year to $21.2 million, or 5.9% of nontobacco sales. The increase in nontobacco
selling, general and administrative expenses as a percentage of sales was due to
the 17.8% reduction in nontobacco sales.
RESTRUCTURING CHARGES. Restructuring charges for 1996 of $12.5 million
($11.0 million after tax) reflect a provision made for the restructuring of the
nontobacco operations. The major components of the restructuring charges relate
to the wool division and include: (i) approximately $2.1 million associated with
the closure of the wool processing facility in Argentina; (ii) approximately
$3.6 million for the write-off of goodwill; (iii) approximately $2.8 million
associated with the write-off of export incentive allowances; and (iv)
approximately $2.5 million of expenses related to the terminated sale of the
wool division and other miscellaneous restructuring costs. To date in Argentina,
the wool processing operations have been discontinued, the factory has been
leased to a third party, 181 employees have been terminated and certain impaired
assets have been written down. Identifiable expenses connected with the closure
of the processing facility included in the fiscal 1996 results of operations
totaled $603,000, including personnel costs of approximately $300,000 and plant
overhead. The Company continues to maintain a sales function in Argentina. In
Australia, operations have been consolidated under one management team to better
and more efficiently serve this market. The wool tops departments in the German
and French companies have been reorganized to streamline their marketing
efforts. The Company has undertaken a feasibility study to improve operational
efficiencies in the French topmaking factory. For 1997, the restructuring
resulted in lower overhead costs of approximately $1.1 million. With the
exception of the export incentive issue, which is expected to be resolved in
fiscal 1998, substantially all incurred amounts relating to the restructuring
had been expended at March 31, 1997. The charge for the export incentive
allowance relates to a subsequently discontinued South African export incentive
program under which a Company claim was initially approved and then subsequently
disallowed. The issue is currently before the Supreme Court of South Africa. The
Company believes that an unfavorable settlement would not have a material impact
on liquidity.
INTEREST EXPENSE, INTEREST INCOME AND OTHER INCOME (EXPENSE), NET. Interest
expense and interest income for 1997 remained essentially constant with the
prior year. Other income (expense), net for 1997 decreased by $1.2 million.
INCOME TAXES, MINORITY INTERESTS AND EQUITY IN EARNINGS (LOSSES) OF
AFFILIATES. Income taxes increased $6.0 million for 1997 compared to the prior
year. Prior year income tax provisions were required for certain jurisdictions
where profits were earned despite overall pretax losses. Income tax charges or
credits vary as a percentage of pretax income or loss due to differences in tax
rates and relief available in areas where profits are earned or losses are
incurred.
Minority interests for 1997 decreased by $0.9 million due to sales and
earning decreases in the Company's 51.0% owned oriental tobacco businesses in
Greece and Turkey.
Equity in earnings (losses) of affiliates for 1997 increased $1.5 million
from the prior year both in absolute dollars and as a percentage of sales,
primarily due to improved earnings of Far East affiliates.
INCOME (LOSS) FROM CONTINUING OPERATIONS. Income from continuing operations
for 1997 increased by $26.3 million from a loss of $9.4 million in the prior
year to $16.9 million. Income (loss) from discontinued operations in 1996
reflects the reversal of a $10.1 million provision for the loss on the disposal
of the wool division. An agreement to sell this division expired by its terms in
December 1995. Net income for 1997 was $16.9 million, or $1.78 per share,
compared to net income of $0.6 million, or $0.01 per share, for the prior year.
COMPARISON OF THE YEAR ENDED MARCH 31, 1996 TO THE YEAR ENDED MARCH 31, 1995
SALES. Sales for 1996 were $1,359.5 million, an increase of 12.5% from the
prior year. Sales for the tobacco division were $925.5 million, an increase of
22.4% from 1995. The increase in tobacco division sales was due to a 10.4%
increase in
24
<PAGE>
volumes, higher average prices and a change in sales mix. Tobacco sales in the
United States achieved record volumes despite lower processing for stabilization
pools. Gains in Turkey resulted largely from sales of old crop tobacco purchased
from the local monopoly. Increased demand in Greece combined with the timing of
shipments led to substantial increases in sales. Volume growth continued in
Malawi and Zimbabwe and the Company is continuing to expand in certain secondary
markets in Africa.
Nontobacco sales for 1996 were $434.0 million, a decrease of 5.2% from the
prior year. The decrease in nontobacco sales was primarily due to lower wool
volumes, which decreased 13.6% from the prior year. Various factors resulted in
difficult trading conditions in the wool industry. The lowering of worldwide
inventory levels, a drop in European apparel sales, and tighter controls on
imports in China were major factors in the 33.3% year-to-year drop in the
Australian market price indicator. Sales of merino wool for the apparel industry
were affected most drastically. The Company believes that wool prices will
slowly rise over the next few years as the Australian stockpile is further
reduced.
GROSS PROFIT AND COST OF SALES. Gross profit for 1996 increased by $9.0
million from $81.5 million in the prior year to $90.5 million and remained
constant as a percentage of sales. Gross profit for the tobacco division
increased by $31.3 million from $49.2 million, or 6.5% of tobacco division
sales, in the prior year to $80.5 million, or 8.7% of tobacco division sales.
The increase in tobacco division gross profit was primarily due to the 22.4%
increase in the tobacco division sales.
Nontobacco gross profit for 1996 decreased by $22.2 million from $32.2
million, or 7.0% of nontobacco sales, in the prior year to $10.0 million, or
2.3% of nontobacco sales. The decrease in nontobacco gross profit was due to the
5.2% decrease in sales and a 21.3% increase in interest.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1996 decreased by $2.9 million and decreased as a
percentage of sales. Selling, general and administrative expenses for the
tobacco division decreased by $3.8 million from $57.3 million, or 7.6% of
tobacco division sales, in the prior year to $53.5 million, or 5.8% of tobacco
division sales. The decrease in tobacco division selling, general and
administrative expenses as a percentage of sales in 1996 was due to significant
provisions for receivables, debt restructuring and redundancy costs of $6.5
million, $2.0 million and $0.5 million, respectively, that were taken in 1995.
Nontobacco selling, general and administrative expenses for 1996 increased
by $0.8 million from $23.3 million, or 5.1% of nontobacco sales, in the prior
year to $24.1 million, or 5.6% of nontobacco sales. The increase in nontobacco
selling, general and administrative expenses as a percentage of sales was
primarily due to the effect of lower prices on sales.
RESTRUCTURING CHARGES. Restructuring charges for 1996 of $12.5 million
($11.0 million after tax) reflect a provision made for the restructuring of the
nontobacco operations. The major components of the restructuring charges relate
to the wool division and include: (i) approximately $2.1 million for closure of
a wool processing facility in Argentina; (ii) approximately $3.6 million for the
write-off of goodwill; (iii) approximately $2.8 million associated with the
write-off of export incentive allowances; and (iv) approximately $2.5 million
for expenses related to the terminated sale of the wool division and other
miscellaneous restructuring costs.
INTEREST EXPENSE, INTEREST INCOME AND OTHER INCOME (EXPENSE), NET. Interest
expense and interest income for 1996 remained essentially constant with the
prior year. Other income (expense), net for 1996 decreased by $7.3 million from
1995, as a $13.5 million pretax gain on the disposal of assets in Korea in 1995
more than offset a 1996 gain on the sale of marketable securities in Turkey and
$0.5 million in proceeds from staff training subsidies in Greece provided by the
European Economic Commission (EEC) as part of a standards and practices
harmonization to facilitate membership in the EEC program.
INCOME TAXES, MINORITY INTERESTS AND EQUITY IN EARNINGS (LOSSES) OF
AFFILIATES. Income taxes for 1996 totaled $6.8 million compared to $16.4 million
the prior year. Income taxes in 1995 included a provision of $1.8 million for an
income tax assessment under appeal and a nonrecurring charge of $1.6 million on
dividends remitted by a foreign subsidiary that could not be offset by foreign
tax credits. In both years, income tax provisions were required for certain
jurisdictions where profits were earned despite overall pretax losses. Tax
charges or credits vary as a percentage of pretax income or loss due to
differences in tax rates and relief available in areas where profits are earned
or losses are incurred.
Minority interests for 1996 decreased by $4.8 million from the prior year.
The portion of income attributable to minority interest of $9.6 million in 1995
included the gain on the sale of property in Korea discussed above.
Equity in earnings (losses) of affiliates for 1996 decreased by $4.4
million from the prior year. The Company's share of losses in affiliates
decreased to $69,000 in 1996 from $4.5 million in 1995 primarily because the
prior year included losses by an Italian affiliate which became a consolidated
subsidiary in December 1996.
INCOME (LOSS) FROM CONTINUING OPERATIONS. The loss from continuing
operations for 1996 decreased by $11.1 million from the prior year. Income
(loss) from discontinued operations reflects the $10.1 million provision made in
1995 for a loss on the disposal of the wool division. When the sales agreement
lapsed in December 1995 due principally to difficulty in obtaining certain
regulatory approvals and declining market conditions, the provision was reversed
in 1996 and overall net income in 1996 was $608,000, or $0.01 per share,
compared to a net loss of $30.5 million, or $3.34 per share, in 1995.
25
<PAGE>
SEASONALITY AND QUARTERLY RESULTS
The purchasing and processing of tobacco and wool are dependent on
agricultural cycles and are seasonal in nature. These cycles and this
seasonality, together with the timing of shipments and variations in the mix of
sales, causes quarterly fluctuations in financial results. See "Risk
Factors -- Variability of Annual and Quarterly Results". The following table
sets forth items from the Company's interim Consolidated Statements of Income
for the quarterly periods indicated and does not take account of certain
reconciliations and adjustments made at year end.
<TABLE>
<CAPTION>
1998 1997 1996 1995
-------- -------------------------------------- -------------------------------------- ------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Sales.............. $300,315 $420,744 $374,130 $249,005 $310,391 $402,735 $377,555 $282,196 $296,964 $433,387 $301,880
Cost of sales
-- Materials,
services and
supplies....... 273,189 379,451 338,154 218,881 280,894 354,758 341,799 258,311 272,700 394,400 269,159
-- Interest....... 7,266 8,402 8,032 8,152 7,611 13,011 9,445 9,123 9,790 11,837 9,471
Gross profit, net
of interest...... 19,860 41,293 35,976 30,124 29,497 47,977 35,756 23,885 24,264 38,987 32,721
Operating income,
net of
interest (1)..... 11,858 26,164 19,282 14,580 14,336 32,222 5,898 7,587 7,479 17,607 16,445
Income (loss) from
continuing
operations....... 1,853 8,038 4,480 2,911 1,508 9,028 (9,040) (3,175) (6,225) (15,542) 296
<CAPTION>
Q2 Q1
-------- --------
<S> <C> <C>
Sales.............. $225,049 $253,249
Cost of sales
-- Materials,
services and
supplies....... 202,599 230,961
-- Interest....... 7,460 6,213
Gross profit, net
of interest...... 22,450 22,288
Operating income,
net of
interest (1)..... 14,221 6,635
Income (loss) from
continuing
operations....... (4,077) (1,171)
</TABLE>
- ---------------
(1) Defined as income (loss) before taxes, net of interest included in cost of
sales and other interest expense.
LIQUIDITY AND CAPITAL EXPENDITURES
Excluding the $115.0 million reclassification of short-term borrowings to
long-term debt as a result of the Notes Offering in August 1997, working capital
at June 30, 1997 was $123.9 million, up from $55.8 million at March 31, 1996 and
$120.1 million at March 31, 1997. Most of the increase was due to the
application of the $47.0 million of net proceeds of the Equity Offering to
reduce short-term borrowings. The remaining increase was due to contributions
from operating activities, which further reduced short-term borrowings.
Subsequent to June 30, 1997, working capital improved as a result of the Notes
Offering.
Capital expenditures were $17.3 million, $12.2 million and $12.8 million
for the fiscal years ended March 31, 1995, 1996, and 1997, and $2.9 million for
the three months ended June 30, 1997. The Company expects capital expenditures
to total approximately $17.4 million for the fiscal year ending March 31, 1998.
Capital expenditures for 1997 related mostly to expansion of warehouse
facilities in Greece and routine expenditures in the U.S. tobacco division.
Capital expenditures for the three months ended June 30, 1997 consisted
primarily of routine expenditures in the tobacco and wool divisions, expansion
of warehouse facilities in Greece and Turkey, and new machinery for the French
topmaking facility. The Company continues to closely monitor its inventories
which fluctuate depending on seasonal factors and business conditions.
For 1997, cash provided by operating activities totaled $34.7 million
primarily due to improved operating earnings and a $22.7 million increase in
payables, which more than offset a $22.8 million increase of receivables related
to higher sales. Cash employed in investing activities of $4.4 million for 1997
included capital expenditures of $12.8 million mostly for tobacco activities of
$11.0 million, including $4.4 million in Greece, $3.0 million in the United
States, $1.8 million for the nontobacco segment and $0.5 million in Turkey, net
of asset dispositions of $8.4 million.
FINANCING ARRANGEMENTS. On August 1, 1997, the Issuer consummated the sale
and issuance of the Initial Notes in aggregate principal amount of $115.0
million. See "Description of the Notes". Simultaneously, the Issuer and two of
its subsidiaries (collectively, the "Borrowing Subsidiaries") entered into the
Global Bank Facility. The Global Bank Facility provides for borrowings of $200.0
million for working capital and other general corporate purposes, and bears
interest initially at LIBOR plus 1.0%. The borrowings under the Global Bank
Facility are guaranteed by the Parent and certain of its tobacco subsidiaries
and secured by substantially all of the assets of the Issuer and the Borrowing
Subsidiaries and a pledge of all of the capital stock of the Parent's
subsidiaries not otherwise pledged to secure other obligations. The Issuer has
guaranteed the obligations of each of the Borrowing Subsidiaries and each of the
Borrowing Subsidiaries will guarantee the obligations of one another under this
facility. The Global Bank Facility will mature on the third anniversary of the
Refinancing Plan. See "Description of Global Bank Facility".
The Company incurs short-term debt to finance its seasonally adjusted
working capital needs, which typically peak in the third quarter, under
unsecured lines of credit with several banks. At June 30, 1997, under agreements
with various banks, total short-term credit facilties for continuing operations
was $703.9 million, of which $357.9 million was unused.
Based on the improving outlook for the business, management anticipates
that it will be able to service the interest and principal on its indebtedness,
maintain adequate working capital and provide for capital expenditures out of
operating cash flow and available borrowings under its credit facilities. The
Company's future operating performance will be subject to
26
<PAGE>
economic conditions and to financial, political, agricultural and other factors,
many of which are beyond the Company's control. See "Risk Factors -- Significant
Leverage and Ability to Service Debt".
On November 13, 1991, the Parent issued $69.0 million of its 7 1/4%
Convertible Subordinated Debentures due March 31, 2007 (the "Debentures"). The
Debentures are currently convertible into shares of the Parent's Common Stock at
a conversion prices (as adjusted for subsequent stock dividends) of $29.38. The
Debentures are subordinated in right of payment to all senior indebtedness, as
defined, of the Parent. As of March 31, 1995, the Debentures became redeemable
in whole or in part at the option of the Parent at any time. Beginning March 31,
2003, the Parent will be obligated to make annual sinking fund payments
sufficient to retire at least 5% of the principal amount of issued Debentures
reduced by earlier conversions, redemptions, and repurchases. Holders of the
Debentures have the right to demand redemption under certain conditions,
including a change in control of the Parent, certain mergers and consolidations
and certain distributions with respect to the Parent's capital stock. The Parent
may elect to redeem Debentures under these circumstances in Common Stock in lieu
of cash.
As a result of the recent Equity Offering, which appreciably broadened the
Parent's shareholder base, the Board of Directors has voted to discontinue
issuing quarterly stock dividends. Certain debt agreements to which the Parent
and its subsidiaries are parties contain financial covenants which could
restrict the payment of cash dividends. Under its most restrictive covenant, the
Parent had approximately $57.9 million ($27.3 million under new covenants) of
retained earnings available for distribution as dividends at June 30, 1997. At
this time, it is uncertain when the Board will resume the payment of cash
dividends, if ever.
On January 31, 1997, the Company terminated the Employee Stock Ownership
Plan (the "ESOP") established by W A Adams Company prior to that company's
acquisition by the Company. This termination involved the redemption by the
Company of 24,602 shares of ESOP Preferred Stock for an aggregate price of
approximately $2.5 million in cash and the issuance of 14,075 shares of Common
Stock. The remaining 62,875 shares of unallocated ESOP Preferred Stock were
cancelled.
TAX AND REPATRIATION MATTERS
The Parent and its subsidiaries are subject to income tax laws in each of
the countries in which they do business through wholly-owned subsidiaries and
through affiliates. The Company makes a comprehensive review of the income tax
requirements of each of its operations, files appropriate returns and makes
appropriate income tax planning analyses directed toward the minimization of its
income tax obligations in these countries. Appropriate income tax provisions are
determined on an individual subsidiary level and at the corporate level on both
an interim and annual basis. The Parent provides valuation allowances on
deferred tax assets for its subsidiaries that have a history of losses.
Management cannot assert that there will likely be sufficient profits generated
by these subsidiaries in the near future to offset these losses. The change
during 1997 is due to the utilization of tax loss carryforwards for which no
benefit had been recognized in prior years. The loss carryforwards which give
rise to the valuation allowances will expire in 2001 and thereafter. These
processes are followed using an appropriate combination of internal staff at
both the subsidiary and corporate levels as well as independent outside advisors
in review of the various tax laws and in compliance reporting for the various
operations.
The undistributed earnings of certain foreign subsidiaries are not subject
to additional foreign income taxes nor considered to be subject to U.S. income
taxes unless remitted as dividends. The Company intends to reinvest such
undistributed earnings indefinitely; accordingly, no provision has been made for
U.S. taxes on those earnings. The Parent regularly reviews the status of the
accumulated earnings of each of its U.S. and foreign subsidiaries as part of its
overall financing plans.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Pursuant to the Registration Rights Agreement by and among the Issuer, the
Guarantors and the Initial Purchasers, the Issuer and the Guarantors have agreed
(i) to file a registration statement with respect to an offer to exchange the
Initial Notes for senior debt securities of the Issuer with terms substantially
identical to the Initial Notes (except that the Exchange Notes will not contain
terms with respect to transfer restrictions) within 45 days after the date of
original issuance of the Initial Notes and (ii) to use best efforts to cause
such registration statement to become effective under the Securities Act within
120 days after such issue date. In the event that applicable law or
interpretations of the staff of the Commission do not permit the Issuer and the
Guarantors to file the registration statement containing this Prospectus or to
effect the Exchange Offer, or if certain holders of the Initial Notes notify the
Issuer and the Guarantors that they are not permitted to participate in, or
would not receive freely tradeable Exchange Notes pursuant to, the Exchange
Offer, the Issuer will use its best efforts to cause to become effective the
Shelf Registration Statement with respect to the resale of the Initial Notes and
to keep the Shelf Registration Statement effective until two years after the
original issuance of the Initial Notes. The interest rate on the Initial Notes
is subject to increase under certain circumstances if the Issuer is not in
compliance with its obligations under the Registration Rights Agreement.
Each holder of the Initial Notes who wishes to exchange such Initial Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations in the Letter of Transmittal, including representations that (i)
any Exchange Notes to be received by it will be acquired in the ordinary course
of its business, (ii) it is not participating, does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, and (iii) it is not an "affiliate" as
defined in Rule 405 of the Securities Act, of the Issuer or the Guarantors or,
if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable. See
"Initial Notes Registration Rights".
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Issuer believes that, except as
described below, Exchange Notes issued pursuant to the Exchange Offer in
exchange for Initial Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a holder which is an "affiliate"
of the Issuer within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act; provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and such holder does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
Offer with the intention or for the purpose of participating in a distribution
of the Exchange Notes cannot rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Unless an exemption from registration is otherwise available, any
such resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K under the Securities Act. This Prospectus may be used for an
offer to resell, resale or other retransfer of Exchange Notes only as
specifically set forth herein. Each broker-dealer that receives Exchange Notes
for its own account in exchange for Initial Notes, where such Initial Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution".
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuer will accept for exchange any and
all Initial Notes properly tendered and not withdrawn prior to 12:00 midnight,
New York City time, on the Expiration Date. The Issuer will issue $1,000
principal amount of Exchange Notes in exchange for each $1,000 principal amount
of outstanding Initial Notes surrendered pursuant to the Exchange Offer. Initial
Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Initial Notes except the Exchange Notes will be registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof. The Exchange Notes will evidence the same debt as the Initial Notes.
The Exchange Notes will be issued under and entitled to the benefits of the
Indenture, which also authorized the issuance of the Initial Notes, such that
both series will be treated as a single class of debt securities under the
Indenture.
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The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Notes being tendered for exchange.
As of the date of this Prospectus, $115.0 million aggregate principal
amount of the Initial Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Initial Notes.
There will be no fixed record date for determining registered holders of Initial
Notes entitled to participate in the Exchange Offer.
The Issuer and the Guarantors intend to conduct the Exchange Offer in
accordance with the provisions of the Registration Rights Agreement and the
applicable requirements of the Exchange Act, and the rules and regulations of
the Commission thereunder. Initial Notes which are not tendered for exchange in
the Exchange Offer will remain outstanding and continue to accrue interest and
will be entitled to the rights and benefits such holders have under the
Indenture.
The Issuer shall be deemed to have accepted for exchange properly tendered
Notes when, as and if the Issuer shall have given oral or written notice thereof
to the Exchange Agent and complied with the relevant provisions of the
Registration Rights Agreement. The Exchange Agent will act as agent for the
tendering holders for the purposes of receiving the Exchange Notes from the
Issuer. The Issuer expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Initial Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions specified
below under " -- Certain Conditions to the Exchange Offer".
Holders who tender Initial Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Initial
Notes pursuant to the Exchange Offer. The Issuer will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See " -- Fees and Expenses".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 12:00 midnight, New York City time on
, 1997, unless the Issuer, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Issuer will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Initial Notes an announcement thereof, each prior to 9:00 a.m., New
York City time, on the next business day after the then effective Expiration
Date.
The Issuer reserves the right, in its sole discretion, to (i) delay
accepting for exchange any Initial Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth below under
" -- Certain Conditions of the Exchange Offer" shall not have been satisfied, by
giving oral or written notice of such delay, extension or termination to the
Exchange Agent or (ii) amend the terms of the Exchange Offer in any manner. Any
such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by oral or written notice thereof to the registered
holders of Initial Notes. If the Exchange Offer is amended in a manner
determined by the Issuer to constitute a material change, the Issuer will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders, and the Issuer will extend the
Exchange Offer, depending upon the significance of the amendment and the manner
of disclosure to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at the rate of 8 7/8% per annum from
August 1, 1997, the date of issuance of the Initial Notes that are tendered in
exchange for the Exchange Notes (or the most recent Interest Payment Date (as
defined) to which interest on such Notes has been paid). Accordingly, Holders of
Initial Notes that are accepted for exchange will not receive interest on the
Initial Notes that is accrued but unpaid at the time of tender, but such
interest will be payable on the first Interest Payment Date after the Expiration
Date. Interest on the Exchange Notes will be payable semi-annually in arrears on
each February 1 and August 1, commencing February 1, 1998.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Issuer will not
be required to accept for exchange, or exchange any Exchange Notes for, any
Initial Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of any Initial Notes for exchange, if:
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<PAGE>
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the Issuer's sole judgment, might materially impair the ability
of the Issuer to proceed with the Exchange Offer;
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Issuer's sole judgment, might
materially impair the ability of the Issuer to proceed with the Exchange
Offer; or
(c) any governmental approval has not been obtained, which approval
the Issuer shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The Issuer expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Initial Notes, by giving oral or
written notice of such extension to the holders thereof. During any such
extensions, all Initial Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Issuer. Any Initial Notes
not accepted for exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Initial Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified above. The Issuer will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the Initial Notes as
promptly as practicable, such notice in the case of any extension to be issued
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in its reasonable judgment. The failure by the Issuer at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Issuer will not accept for exchange any Initial Notes
tendered, and no Exchange Notes will be issued in exchange for any such Initial
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of 1939
(the "TIA").
PROCEDURES FOR TENDERING
Only a holder of Initial Notes may tender such Initial Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the Exchange
Agent prior to 12:00 midnight, New York City time, on the Expiration Date. In
addition, either (i) Initial Notes must be received by the Exchange Agent along
with the Letter of Transmittal, or (ii) a timely confirmation of book-entry
transfer (a "Book-Entry Confirmation") of such Initial Notes, if such procedure
is available, into the Exchange Agent's account at The Depository Trust Issuer
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth below under " -- Exchange Agent" prior to 12:00
midnight, New York City time, on the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Issuer in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
Any beneficial owner whose Initial Notes are registered in the name of a
broker, dealer, commercial bank, trust or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder of Initial Notes to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Initial Notes, either
30
<PAGE>
make appropriate arrangements to register ownership of the Initial Notes in such
owner's name or obtain a properly completed bond power from the registered
holder of Initial Notes. The transfer of registered ownership may take
considerable time and may not be able to be completed prior to the Expiration
Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case be, must be guaranteed by an Eligible Institution (as defined
below) unless the Initial Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantor must be a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust Issuer having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Initial Notes listed therein, such Initial Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Initial Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Initial Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Issuer,
evidence satisfactory to the Issuer of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Initial Notes and withdrawal of tendered
Initial Notes will be determined by the Issuer in its sole discretion, which
determination will be final and binding. The Issuer reserves the absolute right
to reject any and all Initial Notes not properly tendered or any Initial Notes
the Issuer's acceptance of which would, in the opinion of counsel for the
Issuer, be unlawful. The Issuer also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Initial Notes. The
Issuer's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Initial Notes must be cured within such time as the
Issuer shall determine. Although the Issuer intends to notify holders of defects
or irregularities with respect to tenders of Initial Notes, neither the Issuer,
the Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Initial Notes will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any Initial
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holder, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In all cases, issuance of Exchange Notes for Initial Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of the Initial Notes or a timely Book-Entry
Confirmation of such Initial Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Initial Notes are
not accepted for exchange for any reason set forth in the terms and conditions
of the Exchange Offer or if Initial Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
Initial Notes will be returned without expense to the tendering holder thereof
(or, in the case of Initial Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Initial Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Initial Notes by causing the
Book-Entry Transfer Facility to transfer such Initial Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address set
forth below under " -- Exchange Agent" on or prior
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to the Expiration Date or, if the guaranteed delivery procedures described below
are to be complied with, within the time period provided under such procedures.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Initial Notes and (i) whose Initial Notes
are not immediately available or (ii) who cannot deliver their Initial Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Dates, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Initial Notes and the principal amount of Initial Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
three New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the Initial
Notes or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Initial Notes in proper form
for transfer or a Book-Entry Confirmation, as the case may be, and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Initial Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Initial Notes may be
withdrawn at any time prior to 12:00 midnight, New York City time, on the
Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
" -- Exchange Agent". Any such notice of withdrawal must specify the name of the
person having tendered the Initial Notes to be withdrawn, identify the Initial
Notes to be withdrawn (including the principal amount of such Initial Notes) and
(where certificates for Initial Notes have been transmitted) specify the name in
which such Initial Notes were registered, if different from that of the
withdrawing holder. If certificates for Initial Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Initial Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Initial Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Issuer, whose determination shall be final and binding on all parties. Any
Initial Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Initial Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Initial Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Initial Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Initial Notes) as soon
as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Initial Notes may be retendered by following
one of the procedures described under " -- Procedures for Tendering" above at
any time on or prior to the Expiration Date.
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EXCHANGE AGENT
Crestar Bank has been appointed as Exchange Agent of the Exchange Offer.
Questions and request for assistance, request for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed
Delivery should be directed to the Exchange Agent addressed as follows:
FOR INFORMATION BY TELEPHONE:
(804) 782-7323
<TABLE>
<S> <C>
BY FACSIMILE TRANSMISSION BY HAND OR OVERNIGHT
(FOR ELIGIBLE INSTITUTIONS ONLY): DELIVERY SERVICE OR BY MAIL:
(804) 782-7855 919 East Main Street
Richmond, Virginia 23219
Attention: Kelly Pickerel
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuer. The
principal solicitation is being made by mail; however, additional solicitation
may be made by facsimile, telephone, in person or otherwise by officers and
regular employees of the Issuer and its affiliates.
The Issuer has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Issuer, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuer. Such expenses include registration fees, fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees and
printing costs, and related fees and expenses.
TRANSFER TAXES
The Issuer will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates representing
Initial Notes for principal amounts not tendered or accepted for exchange are to
be delivered to, or are to be issued in the name of, any person other than the
registered holder of Initial Notes tendered, or if tendered Initial Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Notes who do not exchange their Initial Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Initial Notes, as set forth (i) in the legend
thereon as a consequence of the issuance of the Initial Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws and (ii)
otherwise set forth under "Transfer Restrictions" in the Offering Memorandum
dated July 25, 1997 distributed in connection with the Initial Offering. In
general, the Initial Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Issuer does not currently anticipate that it will register the Initial Notes
under the Securities Act. Based on interpretations by the staff of the
Commission set forth in no-action letters issued to third parties, Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than any such holder which is an
"affiliate" of the Issuer within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act; provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such holders have no arrangement
or understanding with respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer. Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
(i) could not rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the Exchange Notes may not be offered or sold
unless they have been registered or such securities laws have been complied
with. The Issuer has agreed, pursuant to the Registration Rights Agreement and
subject to certain specified limitations therein, to register or qualify the
Exchange Notes for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of the Exchange Notes reasonably requests in
writing.
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BUSINESS
Standard is principally engaged in purchasing, processing, storing, selling
and shipping leaf tobacco. The Company also purchases, processes and sells
various types of wool. For fiscal 1997, the Company derived approximately 75.0%
of its revenue from its tobacco division.
TOBACCO
The Company is one of the three global independent leaf tobacco merchants
serving the large multinational cigarette manufacturers and is one of the
largest independent merchants of oriental leaf tobacco, a key component of
Amercan-blend cigarettes. The Company also has a leading market presence in a
number of the emerging and low-cost flue-cured and burley tobacco growing
regions, including China, India, Malawi and Tanzania. Founded in 1910, the
Company purchases, processes, stores, sells and ships tobacco grown in over 30
countries, servicing cigarette manufacturers from 20 processing facilities
strategically located throughout the world.
THE LEAF TOBACCO INDUSTRY
Multinational cigarette manufacturers, with one principal exception, rely
primarily on global independent leaf tobacco merchants, such as the Company, to
process and supply leaf tobacco used in the manufacturing process. Leaf tobacco
merchants select, purchase, process, store, pack, ship and, in a growing number
of emerging markets, provide agronomy expertise and financing for growing leaf
tobacco. Presently, there are three global independent leaf tobacco merchants,
including the Company. Important trends in the leaf tobacco industry include:
GROWTH OF AMERICAN-BLEND CIGARETTES. American-blend cigarettes have gained
market share in several major foreign markets, including Asia (particularly
Pacific Rim countries), Europe and the Middle East in recent years.
American-blend cigarettes contain approximately 50.0% flue-cured, 35.0% burley
and 15.0% oriental tobacco, contain less tar and nicotine, and taste milder than
locally produced cigarettes containing dark and semioriental tobacco
historically consumed in certain parts of the world. According to the TMA,
American-blend cigarette consumption (excluding China) has increased from 1.7
trillion units in calendar 1990 to 1.9 trillion units in calendar 1996, an
increase of 10.8%. The TMA estimates that worldwide American-blend tobacco
consumption (excluding China) will increase an additional 5.5% to more than 2.0
trillion units by the year 2000. The TMA also estimates that worldwide
American-blend cigarette consumption (excluding China), as a percentage of total
consumption, has also experienced substantial growth, increasing from 47.9% in
1990 to 52.5% in 1996, and is projected to reach 54.3% by the year 2000. As
American-blend cigarettes have continued to gain global market share, the demand
for export quality flue-cured, burley and oriental tobacco sourced and processed
by leaf tobacco merchants has grown accordingly. Several multinational cigarette
manufacturers have made significant investments in the Former Soviet Union,
which the Company believes may lead to increased demand for and sale of
American-blend tobacco. As American-blend cigarettes have gained market share,
the demand for export quality American-blend tobacco sourced and processed by
the three global independent leaf tobacco merchants, including the Company, has
grown accordingly.
GROWTH IN FOREIGN OPERATIONS OF MULTINATIONAL CIGARETTE MANUFACTURERS.
Several multinational cigarette manufacturers have expanded their operations
throughout the world, including in Africa, Asia, Central and Eastern Europe and
the Former Soviet Union, in order to increase their access to and penetration of
these markets. As cigarette manufacturers expand their global operations, the
Company believes there will be increased demand for local sources of leaf
tobacco and local tobacco processing facilities, primarily due to the
semiperishable nature of unprocessed leaf tobacco and the existence of domestic
tobacco content laws in certain countries. The Company also believes that the
international expansion of cigarette manufacturers will cause these
manufacturers to place greater reliance on the services of financially strong
leaf tobacco merchants with the ability to source and process tobacco on a
global basis and to help develop higher quality local tobacco sources.
GROWTH IN FOREIGN SOURCED TOBACCO. In an effort to respond to cigarette
manufacturers' increasing demand for lower cost American-blend tobacco, the
major leaf tobacco merchants have made significant investments in Africa, Asia,
Europe and South America, the principal sources of flue-cured, burley and
oriental tobacco outside the United States. The Company expects this trend to
continue in the foreseeable future as the quality of foreign grown tobacco
continues to improve.
IMPROVED MARKET CONDITIONS. The global leaf tobacco industry is currently
recovering after experiencing a disruption in demand and reduction in pricing
during calendar 1993 and 1994. The disruption of the industry in the United
States during these years arose from a convergence of adverse factors,
including: (i) enactment of the 75/25 Rule, which was later repealed; (ii) a
below average quality 1993 tobacco crop in the United States; and (iii) the
proposal of legislation in the summer of 1993 to increase significantly the
federal excise tax on cigarettes (although such legislation was never enacted),
that resulted
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in reluctance by manufacturers to build inventories. Concurrent with the
reduction in demand for imported tobacco related to the 75/25 Rule and lower
than expected initial demand for tobacco in Africa, Asia, Central and Eastern
Europe and the Former Soviet Union, the worldwide price of tobacco declined due
to oversupply attributable to record foreign tobacco crops. This combination of
reduced demand and lower prices had a negative impact on the financial
performance of the leaf tobacco merchants and resulted in significant increases
in uncommitted tobacco inventories held by merchants.
In calendar 1994 and 1995, the demand and supply imbalance in the worldwide
tobacco market began to improve. Leaf tobacco production outside the United
States was curtailed in response to the lower prices and high levels of
uncommited inventories. The 75/25 Rule was repealed principally because it was
inconsistent with GATT, and was replaced by a series of less stringent import
quotas. This resulted in cigarette manufacturers in the United States resuming
traditional purchases of foreign sourced tobacco. The combination of lower
levels of tobacco production and increased demand had a positive impact on
worldwide tobacco prices and a corresponding positive impact on the
profitability of the industry, and resulted in significant reductions in
uncommitted tobacco inventories.
CONSOLIDATION OF TOBACCO MERCHANTS. Leaf tobacco merchants continue to
consolidate through worldwide acquisitions and mergers. As recently as 1989,
there were eight major international merchants. Presently, there are three
global independent leaf tobacco merchants, including the Company, which
purchase, process, store, sell and ship leaf tobacco worldwide. The Company
believes that it has experienced growth in tobacco revenue as a result of this
industry consolidation as the multinational cigarette manufacturers diversify
their sourcing partners of quality leaf tobacco.
BUSINESS STRATEGY
The Company recently achieved substantial improvement in its operating and
financial performance in part as a result of the implementation of a four-point
strategic plan and the enhancement of the Company's senior management team,
including the appointment of the Company's current Chief Executive Officer. The
key areas addressed by the strategic plan include: (i) information systems; (ii)
financial controls; (iii) risk management; and (iv) asset management. The
Company has improved sales from $1.0 billion in fiscal 1994 to $1.4 billion for
fiscal 1997, reduced SG&A expenses as a percentage of sales from 7.6% to 5.4%
and increased operating income net of interest from $12.2 million to $74.4
million. The Company's tobacco division has driven this return to profitability,
increasing sales from $671.5 million in fiscal 1994 to $997.4 million for fiscal
1997, improving operating income net of interest from a loss of $1.0 million to
income of $62.6 million and increasing average tobacco inventory turnover from
2.1 turns for fiscal 1994 to 4.0 turns for fiscal 1997.
INFORMATION SYSTEMS
In order to manage financial performance more effectively, the Company has
designed and developed, and is implementing worldwide, proprietary information
systems. These systems provide rapid access to critical operational, financial
and risk management information.
WORLDWIDE AVAILABLE FOR SALE ("WAFS"). WAFS provides management with daily
updates of tobacco inventories and allows management to more closely align
customer demand with the supply of tobacco on a global basis. The Company
believes it has significantly improved its ability to control and manage its
tobacco inventory risks and increase profitability through the implementation of
WAFS.
INTEGRATED ACCOUNTING. The Company has developed a fully integrated
proprietary system to monitor the flow of leaf tobacco from the date of purchase
through factory processing and shipment. The system has been implemented in the
United States, and management believes it will be installed for use in
approximately 80.0% of the tobacco division by early fiscal 1998 and will be
installed worldwide by fiscal 2000. The integrated accounting system provides
divisional, regional and area managers better methods to track and measure their
performance under corporate accountability programs.
WORLDWIDE STRATEGIC PLANNING. In fiscal 1996, the Company initiated a major
project focused on matching anticipated leaf tobacco supply with customer's
projected needs over a rolling three-year period. The Company's strategic
planning now involves review and analysis of the various grades of leaf tobacco
that will be required by customers and the Company's ability to supply them. The
strategic planning initiatives assist management in planning capital expenditure
and investment projects and in controlling inventory levels by evaluating supply
and demand on a country-by-country, customer-by-customer basis.
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FINANCIAL CONTROLS
The Company's worldwide operations include subsidiaries and affiliates
organized under local laws and structured to minimize, to the extent possible,
the adverse impact of international taxation of its global earnings. In certain
instances, the Company elected foreign organizational structures focused on
local issues rather than a centralized approach to financial and corporate
governance. Recent initiatives taken by the Company focus on shifting control
over critical decision-making from the area level to the corporate level.
ORGANIZATIONAL STRUCTURE. For operational and financial control purposes,
the tobacco division is divided into five regions (North America, South America,
Africa, Asia and Europe) and each region is subdivided into areas (usually by
country). In each division, region and area, the Company has controllers
dedicated to monitoring operational and financial performance in relation to the
Company's core corporate objectives. To ensure compliance with these objectives,
the Company has also created a five-member tobacco division executive committee,
comprised of the Company's Chief Executive Officer, and the tobacco division's
Chairman, Operations Director, Financial Director and Sales Director. Decisions
made at each level are now reviewed by the executive committee to ensure
consistency and compliance with the Company's corporate operational and
financial parameters.
CASH FLOW MANAGEMENT. The Company believes that rapid access to information
regarding divisional, regional and area level cash flow results in better
corporate decision-making. Awareness of the Company's cash flow is important to
improving risk and asset management.
BUSINESS UNIT ACCOUNTABILITY. As the Company refines its divisional,
regional and area level controls and information systems, its managers at each
level are given more specific performance objectives to achieve. These managers
have ready access to financial information in order to measure their performance
against budget. The Company believes that improved access to information will
permit the Company to make adjustments more quickly in response to performance
that may not be consistent with corporate financial objectives or budgets.
PERFORMANCE MEASUREMENT SYSTEMS. In order to more closely align divisional,
regional and area level decision-making with the corporate level objective of
significantly improving the Company's profitability, the Company's
performance-based incentive compensation plan has been restructured. Because the
leaf tobacco business requires short-term financing of relatively large
inventory positions, the Company has instituted a plan based on return on assets
designed to focus divisional, regional and area managers on optimizing working
capital utilization through the reduction of uncommitted inventory levels and
the short-term financing required to make tobacco purchases.
RISK MANAGEMENT
Historically, the Company's operating units have been given responsibility
for managing risks and making certain financial decisions. Recently, the Company
has instituted a centralized risk management system to manage uncommitted
inventory levels, customer exposure limits, capital expenditures and investment
projects to maximize profitability while maintaining an acceptable level of
corporate risk.
UNCOMMITTED INVENTORY. The Company continues to centralize its inventory
monitoring functions and believes that it is achieving levels of inventory which
are more closely aligned with current customer demand and market conditions. The
Company distinguishes between "committed" inventories, which consist of packed
tobacco for which customer orders or indications of interest have been received,
and "uncommitted" inventories, which are not designated by the Company to fill a
specific customer order or indication of interest. While the Company believes it
must purchase a certain amount of uncommitted inventory to maintain its presence
in certain strategic tobacco growing regions or to capitalize on favorable
prices, the Company's business strategy has emphasized the need to reduce risks
associated with tobacco price fluctuations by generally reducing its uncommitted
inventory levels. The tobacco division executive committee has set a limit on
the amount of uncommitted tobacco inventory, which may not be exceeded without
its prior approval.
CUSTOMER EXPOSURE LIMITS. In response to the cancellation of tobacco
contracts totaling approximately $23.0 million by customers in the Former Soviet
Union and financial problems of certain cigarette manufacturers in fiscal 1994,
the Company instituted credit risk procedures which are monitored by the tobacco
division executive committee. Pursuant to these procedures, the total exposure
to, and payment history of, each customer is reviewed monthly. Since instituting
these procedures, the Company has not experienced any material losses due to
contract cancellations or over-extended credit.
CAPITAL EXPENDITURES AND INVESTMENTS. The tobacco division executive
committee now evaluates all significant capital expenditures and investments
pursuant to strict criteria. These criteria include projected cash flows,
required capital expenditures, sources of financing, internal rates of return
and the impact on profitability. In centralizing the analysis underlying
36
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capital expenditure and investment proposals, the Company believes that a more
rational approach will be achieved and that a sharper focus on return on assets
will permit the Company to continue its trend of improved profitability, growth
and cash flow management.
ASSET MANAGEMENT
The Company believes that it is positioned to continue to improve its
financial performance as a result of several asset management initiatives. These
initiatives include a comprehensive analysis of inventory levels, noncore assets
and accounts receivable.
INVENTORY. The Company has increased average tobacco inventory turnover
from a low of approximately 2.1 turns for fiscal 1994 to approximately 4.0 turns
for fiscal 1997. Increased inventory turnover, which is in part attributable to
management more closely aligning customer demand with the supply of tobacco, has
resulted in savings due to reduced interest, insurance and warehousing costs
associated with holding tobacco inventory.
RECEIVABLES COLLECTION. The Company has instituted revised policies
relating to the collection of receivables, including centralized review of
credit extended to each customer. Although individual subsidiaries have
historically monitored collections, in certain cases current information was not
available to managers, and in certain circumstances local relationships
precluded the institution of strict adherence to corporate collection policies.
NONCORE AND NONSTRATEGIC ASSETS. The Company has sold substantially all of
its noncore and nonstrategic assets. Management believes that these assets have
historically required a disproportionate amount of administrative services.
Selling these assets and the consequent reduction in associated costs has been
fundamental to focusing management's attention on maximizing the profitability
of core assets. See "Risk Factors -- Global Financial and Management Control
Risks".
GROWTH STRATEGY
The Company's primary business objective is to expand its position as one
of the leading global suppliers of American-blend tobacco to the major cigarette
manufacturers while increasing profitability through enhanced financial
management and control. The key elements of the Company's growth strategy
include:
INCREASING PRESENCE IN SOUTH AMERICA AND AFRICA. The Company believes that
its presence in all the major leaf tobacco markets worldwide is critical to
capitalizing on the global expansion of the large multinational cigarette
manufacturers, the recent consolidation of the leaf tobacco merchants and the
anticipated growth in demand for tobacco sourced internationally. A key element
of the Company's growth strategy is to increase its ability to directly source
and process tobacco in South America and Africa, key growing regions for
American-blend tobacco. The MDTL Trust, a trust established by the Company,
recently acquired 74.9% of the fourth largest tobacco processor in Brazil. See
"Business -- Tobacco -- Worldwide Tobacco Presence -- Brazil".
INCREASING PENETRATION OF LOW-COST FILLER TOBACCO AND EMERGING
TOBACCO-GROWING REGIONS. To meet the increasing demand by cigarette
manufacturers throughout the world for low-cost American-blend tobacco, the
Company plans to expand its operations in regions particularly suited for
producing such tobacco. The Company has targeted China, India and Tanzania,
countries in which it has a leading tobacco export position, for expansion and
increased tobacco production. The Company has executed letters of intent for the
construction of new processing facilities in China and India.
STRENGTHENING PRESENCE IN ORIENTAL MARKETS. Demand for oriental tobacco,
which comprises approximately 15.0% of American-blend cigarettes, is rapidly
increasing due to the strong growth in consumption of American-blend cigarettes.
The Company intends to strengthen its position as one of the world's largest
merchants of oriental tobacco through acquisitions and continued strategic
investments in China and Thailand (emerging oriental tobacco markets), and in
Greece and Turkey (leading oriental tobacco markets based on volume).
CAPITALIZING ON ACQUISITION AND OUTSOURCING OPPORTUNITIES. Recent
consolidation within the leaf tobacco industry has been driven by the need to
cost-effectively service multinational cigarette manufacturers on a global
basis. Management believes that there will be increasing opportunities for
acquisitions of smaller independent local leaf tobacco merchants in various
strategic locations throughout the world. In addition, the Company anticipates
further outsourcing of leaf tobacco purchasing and processing by cigarette
manufacturers. This outsourcing trend is driven by the: (i) higher margins in
cigarette production; (ii) increasing sophistication required in sourcing leaf
tobacco on a global basis; and (iii) continued privatization of tobacco and
cigarette production operations in certain countries.
37
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OPERATIONS
The Company has developed an extensive international network through which
it purchases, processes and sells tobacco. In addition to processing facilities
in North Carolina and Kentucky, the Company owns or has an interest in
processing facilities in Zimbabwe, a significant exporter of flue-cured tobacco;
Malawi, a leading exporter of burley tobacco; and Greece and Turkey, the leading
exporters of oriental tobacco. The Company also has processing facilities in
Italy, Spain and Thailand. In addition, the Company has entered into contracts,
joint ventures and other arrangements for the purchase and processing of tobacco
grown in substantially all countries that produce export-quality flue-cured,
burley and oriental tobacco, including Argentina, Brazil, Canada, China, India,
Kenya, Kyrgyzstan, Tanzania and Ukraine.
PURCHASING. The tobacco in which the Company deals is grown in over 30
countries. Management believes that its diversity in sources of supply, combined
with a broad customer base, helps shield the Company from seasonal fluctuations
in quality, yield or price of tobacco crops grown in any one region. The Company
relies primarily on revolving lines of bank credit and internal resources to
finance its purchases. Quite often the tobacco serves as collateral for the
credit. The period of exposure, with some exceptions, generally is limited to a
tobacco season and the maximum exposure is limited to a shorter period.
Tobacco is generally purchased at auction or directly from growers. Tobacco
grown in the United States, Canada, India, Malawi and Zimbabwe is purchased at
auction. The Company generally employs its own buyers to purchase tobacco on
auction markets, directly from growers and pursuant to marketing agreements with
government monopolies. At present, the largest amounts of tobacco purchased by
the Company outside the United States come from Argentina, Brazil, China,
Greece, India, Italy, Malawi, Spain, Thailand, Turkey and Zimbabwe.
FISCAL 1997 PURCHASES AND SALES IN DOLLARS
[Pie chart appears below with the following data:]
Purchases by Origin Sales by Destination
United States............ 39% Europe..................... 44%
Central & South America.. 19% United States.............. 35%
Africa................... 19% Far East................... 16%
Europe................... 12% South America.............. 3%
Far East................. 11% Africa & Others............ 2%
Although Argentina, Brazil, China, Greece, Italy, Spain, Turkey and
Thailand are major tobacco producers, there are no tobacco auctions in these
markets. In these markets, the Company buys (or, in Brazil, intends to buy
through Meridional) tobacco directly from farmers, agricultural cooperatives or
government agencies in advance of firm orders or indications of interest
although such purchases are usually made with some knowledge of its customers'
requirements. In certain of these markets the Company advances or finances the
purchase of fertilizer and other supplies to assist farmers in growing the crop.
These advances generally are repaid with deliveries of tobacco by the farmers.
During fiscal 1997, the maximum aggregate amount of such advances by the Company
was $43.6 million. See "Risks Factors -- Global Financial and Management Control
Risks".
PROCESSING. Tobacco purchased by the Company generally is perishable and
must be processed within a relatively short period of time to prevent
deterioration in quality. Consequently, the Company has located its processing
facilities near the areas where it purchases tobacco. Prior to and during
processing, the Company takes a number of steps to ensure consistent quality of
the tobacco. These steps include regrading and removing undesirable leaves, dirt
and other foreign matter. Most of the tobacco is then blended to meet customer
specifications and threshed; however, some of it is processed in whole-leaf form
and sold to certain customers of the Company. Threshing involves mechanically
separating the stem from the tissue portions of the leaf, which are called
strips, and sieving out small scrap. Considerable expertise is required to
produce strips of large particle size and to minimize scrap.
Strips and stems are redried and packed separately. Redrying involves
further reducing the natural moisture left in the tobacco after it has been
cured by the growers. The objective is to pack tobacco at safe moisture levels
so that it can be held by the customer in storage for long periods of time.
Quality control checks are continually performed during processing to
38
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ensure that the product meets customer specifications as to yield, particle
size, moisture content and chemistry. Customers are frequently present at the
factory to monitor results while their tobacco is being processed.
Redried tobacco is packed in hogsheads, cartons, cases or bales for storage
and shipment. Packed tobacco generally is transported in the country of origin
by truck or rail, and exports are moved by ship.
The Company processes its tobacco in four wholly-owned plants in the United
States and 12 other facilities around the world owned or leased by subsidiaries
and affiliates. In addition, the Company has access to four other processing
plants in which it has no ownership interest. In all cases, tobacco processing
is under the direct supervision of Company personnel. Modern laboratory
facilities are maintained by the Company to assist in selecting tobacco for
purchase and to test tobacco during and after processing.
The Company believes that its plants are highly efficient and are adequate
for its purposes. The Company also believes that tobacco throughput at its
existing facilities could be increased without major capital expenditures.
SELLING. The Company's customers include all of the world's leading
manufacturers of cigarettes and other consumer tobacco products. These customers
are located in approximately 85 countries throughout the world. The Company
employs its own salesmen, who travel extensively to visit customers and to
attend tobacco markets worldwide with these customers, and it also uses agents
for sales to customers in certain countries. Sales are made on open account to
customers who qualify based on experience or are made against letters of credit
opened by the customer prior to shipment. Virtually all sales are made in U.S.
dollars. Payment for most tobacco sold by the Company is received after the
tobacco has been processed and shipped.
The consumer tobacco business in most markets is dominated by a small
number of large multinational cigarette manufacturers and by government
controlled entities. In fiscal 1997, the Company's five largest customers
accounted for approximately 49.6% of total sales (67.3% of tobacco sales). In
fiscal years 1997, 1996 and 1995, one customer accounted for 24.1%, 17.4% and
14.2% of total sales, respectively. The Company believes that formal purchase
contracts are not customary in the global leaf tobacco industry and agreements
to purchase tobacco generally result from the supplier's course of dealings with
its customers. The Company has done business with most of its customers for many
years. The Company believes that it has good relationships with its large
customers. See "Risk Factors -- Reliance on Significant Tobacco Customers".
As of June 30, 1997, the Company had tobacco inventory of $256.0 million
compared to $206.7 million at June 30, 1996. The level of tobacco fluctuates
from period to period and is significant only to the extent it reflects
short-term changes in demand for leaf tobacco.
COMPETITION
The leaf tobacco industry is highly competitive. Competition among
independent leaf tobacco dealers is based primarily on the price charged for
products and services; the ability to meet customer demands and specifications
in sourcing, purchasing, blending, processing and financing tobacco; and the
ability to develop and maintain long-standing customer relationships by
demonstrating a knowledge of customer preferences and requirements. Although
most of the Company's principal tobacco customers also purchase tobacco from the
Company's major tobacco competitors, Universal and Dimon, the Company's
relationships with its largest tobacco customers span many years and the Company
believes that it has the personnel, expertise, facilities and technology to
remain successful in the industry. In addition, the Company believes that the
consolidation of the leaf tobacco industry may provide opportunities for it to
enhance its relationship with and increase sales to certain cigarette
manufacturers. See "Risk Factors -- Competition".
WORLDWIDE TOBACCO PRESENCE
UNITED STATES. The Company owns and operates a total of four processing
facilities located in North Carolina and Kentucky and purchases tobacco at all
major markets in the United States, including flue-cured tobacco markets in
North Carolina, South Carolina, Virginia, Georgia and Florida; burley tobacco
markets in Kentucky, Tennessee, Virginia and North Carolina; and light air-cured
tobacco markets in Maryland and Pennsylvania. In the United States, flue-cured
and burley tobacco are generally sold at public auction to the highest bidder.
The price of such tobacco is supported under an industry-funded federal program
that also restricts tobacco production through a quota system. U.S. grown
tobacco is more expensive than most non-U.S. tobacco, resulting in a declining
trend in exports, which management believes should be offset by increased demand
for foreign tobacco.
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BRAZIL. The Company currently purchases leaf tobacco in Brazil as the agent
for Souza Cruz, a subsidiary of B.A.T. which has approximately 80.0% of the
domestic cigarette market in Brazil. The Company fills orders and earns a
commission from Souza Cruz based upon the sales price of the tobacco. On
September 12, 1997, The MDTL Trust, a trust established by the Company, acquired
74.9% of Meridional, the fourth largest leaf tobacco processor in Brazil. This
strategic acquisition complements the Company's continuing 26-year partnership
in Brazil with Souza Cruz, and will provide the Company with direct ownership of
a processing facility in the second largest leaf tobacco growing region in the
world (excluding China).
TURKEY AND GREECE. The Company is one of the largest merchants of
flue-cured, burley and oriental tobacco in Turkey. In both Turkey and Greece,
the oriental tobacco markets are more fragmented than the major flue-cured and
burley tobacco markets in other parts of the world. The Company believes that
the fragmented nature of the oriental tobacco markets and its leading presence
in these markets provides it with an excellent opportunity to expand revenues
through acquisitions and continued strategic investments. The Company also
purchases and processes flue-cured and burley tobacco in Greece. The Company
processes tobacco in Turkey and Greece in two 51.0% owned facilities.
MALAWI, ZIMBABWE AND TANZANIA. In Malawi, the largest exporter of low-cost
burley tobacco in the world, the Company has a leading market position and
services the large multinational cigarette manufacturers from its 51.9% owned
facility in Lilongwe and its 50.0% owned facility in Limbe. The Company also is
a leader in the purchase and processing of flue-cured and dark-fired tobacco,
which are also processed in the Company's facilities. In Zimbabwe, the Company
purchases flue-cured tobacco and to a lesser extent burley tobacco, which it
processes in its minority-owned facility. In Tanzania, one of the key emerging
growing regions of low-cost filler tobacco, the Company has historically been
one of the largest exporters of flue-cured tobacco. The Company supervised the
processing of this tobacco in a government-owned facility, which was privatized
in calendar 1995. The Company recently purchased a minority interest in a
privately-owned and -operated processing facility in Morogoro, Tanzania.
CHINA, THAILAND AND INDIA. The Company has provided agronomy services and
funded a variety of projects in China since 1981 and believes that it is the
largest independent exporter of Chinese leaf tobacco. The Company currently
operates two government-owned tobacco processing facilities in China. The
Company is expanding its presence in China and expects to increase its
production in the area through strategic alliances with the Chinese government.
The Company has an executed letter of intent (subject to certain conditions) to
build its third processing facility in China, which will process low-cost filler
tobacco in the Guizhou province. The Company is also one of the leading
exporters of flue-cured, burley and oriental leaf tobacco from Thailand, which
it purchases directly from farmers or in some cases from a middlemen or curers.
Flue-cured tobacco is grown mainly in Northern Thailand, burley tobacco is grown
in Central Thailand and oriental leaf tobacco is grown in Northeast Thailand.
The Company currently processes tobacco in Thailand in two facilities in which
the Company owns a minority interest. In India, an emerging source of low-cost
filler tobacco, the Company purchases primarily flue-cured tobacco. The Company
has executed a definitive agreement for a joint venture (which remains subject
to Indian government approvals) with a local partner, who has started
construction of a new processing facility in Guntur.
OTHER FOREIGN OPERATIONS. The Company also has foreign subsidiaries, joint
ventures and affiliates that purchase, process and sell tobacco grown in other
countries throughout the world, including Italy, Kenya, Spain and Zaire.
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PROPERTIES
The Company generally conducts its tobacco processing operations in
facilities near the area of production. In certain places, long-standing
arrangements exist with local companies to process tobacco in their plants under
the supervision of Company personnel. A current summary showing the principal
tobacco operating properties of the Company or its affiliates is shown below:
<TABLE>
<CAPTION>
AREA
LOCATION PRINCIPAL USE (SQUARE FEET)
- ---------------------- ---------------------- -------------------
<S> <C> <C>
UNITED STATES
Wilson, NC Factory/storage 1,008,000
Oxford, NC Factory/storage 624,700
King, NC Factory 134,600
Springfield, KY Factory/storage 292,000
TURKEY
Izmir Factories (2)/storage 431,300
Izmir Storage 204,500*
GREECE
Alexandria Factory/storage 402,000
Salonica Factory/storage 772,700
Salonica Factory/storage 236,300*
MALAWI
Limbe Factory/storage 414,000
Lilongwe Factory/storage 776,000
ZIMBABWE
Harare Factory/storage 565,800*
Harare Storage 233,500
THAILAND
Chiengmai Factory/storage 872,000
Banphai Factory/storage 377,000
ITALY
Caserta Factory/storage 800,000*
SPAIN
Benavente Factory/storage 206,000
Benavente Storage 132,400*
Coria Buying center 18,300*
Talayuela Buying center 21,500
</TABLE>
- ---------------
* Leased facility.
The Company believes its tobacco properties are generally well-maintained,
in good operating condition and are suitable and adequate for the normal growth
of its business.
WOOL
The Company is a world leader in the trading of scoured wool and a major
trader and processor of wool tops. As a result of a series of acquisitions
commencing in 1985, the Company owns and operates an integrated group of wool
companies which purchase, process and sell wool to other wool processors,
felting companies, knitters and spinners of yarn, and manufacturers of worsted
and woolen products. The Company does not raise sheep or produce textile
products. For fiscal 1997, the Company derived approximately 25.0% of its
revenue from its wool division.
THE WOOL INDUSTRY
The wool industry is highly fragmented, with a large number of small
dealers handling wool, often from limited origins. There are two broad
categories of wool fibers: fine wool from merino sheep and coarse wool from
crossbred sheep. Merino wool is used to make products for the apparel trade such
as fine sweaters and worsted fabrics for high quality suits. Crossbred wool is
used to make carpets, coarser worsted fabrics such as upholstery and draperies,
and woolens used in knitwear and hand-knitting yarns. Most merino wool for
export is produced in Australia followed by South Africa and South America. The
main sources of crossbred wool for export are New Zealand, the United Kingdom
and South America.
Following record high prices in 1988, the wool industry experienced a
severe downturn beginning in 1989 that was triggered by the withdrawal of China
from international wool markets, economic turmoil in Eastern Europe and the
states of the Former Soviet Union and recessionary conditions in Western Europe.
These events led to a decrease in demand for wool
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on the world market. At the same time a worldwide oversupply of wool had
developed, largely due to artificially high prices caused by the Australian
support program.
Prior to 1991, Australian wool growers operated under a government price
support program. Under this program, the Australian government accumulated a
stockpile of 827,000 metric tons (raw weight) of wool. In 1991 the Australian
government abandoned its price support program, effectively creating a free
market for wool. Under free market conditions, prices fell substantially and
immediately, creating difficult trading conditions for the wool industry, and
leading to the development of market conditions necessary for a correction in
what had become a major imbalance between supply and demand. At present, Wool
International, an organization created by the Australian government, is
responsible for the reduction of the stockpile, which on March 31, 1997 totaled
319,000 metric tons (the equivalent of approximately 50% of one year's current
Australian production). At the present rate of reduction, it is forecast that
the stockpile will be liquidated by the year 2000.
Worldwide wool production during the Company's 1997 fiscal year was below
current demand for the third consecutive year, and production by the five major
wool exporting countries has declined by 15.0% over the past five years. As a
result, since 1992, all surplus stocks around the world have been sold with the
exception of the remaining stockpile in Australia. See "Risk Factors -- Poor
Market Conditions in the Wool Industry".
BUSINESS STRATEGY
In January 1995, the Company made the strategic decision to focus on the
tobacco division due to existing conditions in the wool industry and the
Company's desire to reduce its financial leverage. In September 1995, the
Company signed an agreement to sell its wool division to Chargeurs of France.
Due to difficulty in obtaining certain regulatory approvals and declining market
conditions, the parties agreed in December 1995 to allow the agreement to lapse.
Following the lapse of the Company's agreement to sell the wool division in
December 1995, the Company instituted, and continues to refine, measures
designed to streamline its wool division. Since December 1995, the Company has:
(i) installed a new wool division management team, including appointment of a
new Managing Director reporting directly to the Company's Chief Executive
Officer, and a Financial Director solely responsible for the wool division; (ii)
closed an unprofitable scouring mill in Argentina; (iii) reorganized the
management teams for Eastern and Western Australia into one unit; (iv)
consolidated two European topmaking units, which had been competing against one
another, under a unified management team with a jointly staffed office in Italy,
the Company's single largest market for wool tops; (v) installed new management
to run operations in France; (vi) restructured the majority of the wool division
under a single holding company; and (vii) begun implementing a proprietary
management information system designed to significantly improve its control over
its wool trading position. Primarily as a result of these initiatives, the
Company believes that the wool division is positioned to return to
profitability, although no assurance can be given to this effect.
The Company believes that it will be able to implement in the wool division
its information systems, financial controls and risk and asset management
strategies similar to those implemented by the tobacco division in order to
continue to improve its operating and financial performance. As part of the wool
division restructuring, many wool units were recently recapitalized, thereby
solidifying their banking facilities. The Company's primary business objectives
for the wool division are to increase profitability and to strengthen the
Company's competitive position.
EXPANDING SALES EFFORTS IN THE ASIAN MARKET. The Company plans to
capitalize on the increasing demand for wool in the Asian market, primarily
through an increased and focused selling effort in China and the Pacific Rim.
The Company believes that by opening a new sales office in China's Shanghai
province and by improving coordination of the efforts of its local
representatives in the Company's two existing Chinese offices with those of its
experienced wool traders from various origin countries, the Company will be able
to increase its market share in China. The Company believes that its expansion
efforts in China will increase wool sales from its Australian and New Zealand
sourcing bases to meet the anticipated growth in demand.
IMPLEMENTING WOOL TRADING SYSTEM. The Company plans for the wool division
to implement many information system initiatives similar to those employed in
the tobacco division. The Company has developed a proprietary software system
known as the Wool Trading System that enables users to: (i) determine the most
cost-efficient means of processing particular blends of wool to meet customer
specifications; and (ii) monitor the Company's trading position on a daily
basis. Because this system is integrated into the units' accounting systems, the
Company expects it to improve administrative and reporting efficiencies. This
system is currently used by the Company in the United Kingdom and the Company
intends to deploy it throughout its worldwide operations as rapidly as
practicable.
ENHANCING CUSTOMER RELATIONSHIPS. The Company intends to improve its
relationship with major customers by improving the coordination of sales
efforts, logistics and intergroup communications. This approach is designed to
eliminate customer confusion from arising when a particular customer is served
by or has relationships with multiple units within the
42
<PAGE>
Company's wool division. The Company believes this approach will allow it to
present itself to its customers in a more unified and global manner than it has
in the past.
OBTAINING ISO 9002 CERTIFICATIONS. The Company intends to obtain ISO 9002
certification for each of its wool operating facilities in an effort to enhance
its image as an international supplier of quality wool. ISO 9002 certification
is available to wool operators that comply with high consistency and quality
standards. The Company's wool processing operations in the United Kingdom have
already obtained certification, and its French and South African operations are
in the process of obtaining certification. The Company believes that the
measures implemented to qualify for ISO 9002 certification will increase
operating efficiencies, reduce costs and strengthen marketing efforts while
enhancing the division's reputation as a preferred and reliable supplier of
quality wool.
OPERATIONS
From the outset, the Company's strategy has been to build a large
international wool network, primarily through the acquisition of
well-established traders and processors. The Company believes that as a result
of its acquisitions and the continuing consolidation of the wool industry, it
has become one of the world's largest traders and processors of wool. The
Company owns and operates processing facilities in five countries, including
scouring mills in New Zealand, South Africa and the United Kingdom and combing
mills in Chile and France. The Company is participating in negotiations with the
Western Australian government to set up a joint venture scouring facility. The
Company also uses the services of commission processors in Argentina, Australia,
Belgium, Germany and Italy.
PURCHASING. The Company deals in wool from all of the major producing
areas, the most significant of which are Argentina, Australia, Chile, New
Zealand, South Africa and the United Kingdom. The Company has buying offices in
all of these areas. The Company's employees buy wool at auctions and through
negotiations with wool growers. Although most wool is shorn before it is
purchased, some wool is purchased "on the back" before shearing. As in its
tobacco business, most of the Company's purchases are made against specific
customer orders. Australia is by far the largest producer of wool in the world
and its wool prices generally influence world prices. The Company typically pays
for its wool purchases in the currency of the country of origin, and usually
hedges the currencies of its purchase and sale commitments with forward
transactions. The Company does not engage in currency transactions for the
purpose of speculation.
FISCAL 1997 PURCHASES AND SALES IN DOLLARS
[Pie chart appears below with the following data:]
Purchases by Origin Sales by Destination
Australia................ 49% Europe..................... 66%
South America............ 15% Far East................... 24%
New Zealand.............. 14% United States.............. 7%
Europe................... 11% Africa & Others............ 3%
South Africa............. 6%
Far East & Others........ 5%
PROCESSING. Wool is purchased in its raw or naturally greasy state, and
must be scoured (washed) before it can be further processed. The Company sells
some greasy wool to topmakers, but most of the wool is blended and scoured
and/or further processed into tops, to meet customer specifications. The
scouring is done at the Company's plants in New Zealand, South Africa and the
United Kingdom or by commission scourers in Argentina, Australia and Belgium.
Similarly, tops are produced in the Company's plants in Chile and France and by
commission combers in Argentina, Australia, Italy and Germany. The Company's
French plant also refines wool grease removed during the scouring process into a
variety of types of lanolin, a marketable byproduct.
A top is a continuous strand of straightened and combed, longer wool fibers
that have been separated from the short fibers. Topmaking involves seven
processes: blending, scouring, carding, gilling, combing, finishing and packing
to quality standards specified by the customer. Carding machines align the
fibers to produce a "sliver" of parallel fibers while removing foreign matter.
Slivers are combined to produce a stronger, more parallel sliver which is combed
to make a top suitable for spinning. Tops are wound into bobbins weighing
approximately 22.0 pounds which are packed and shipped to customers in the
apparel industry for further manufacturing. The Company maintains laboratory
facilities for analyzing and testing wool and lanolin.
43
<PAGE>
SELLING. The Company currently derives approximately 66.0% of its wool
revenues from sales to customers in Europe, with sales to the Far East, North
America and other areas making up the balance. In fiscal 1997, processed wool
(i.e., scoured and tops) accounted for approximately 67.0% of the Company's wool
revenues, followed by greasy wool (25.0%), specialty fibers (6.0%) and lanolin
(2.0%). Greasy wool is sold primarily to customers in Western Europe, the Far
East and the United States. Scoured wool is shipped to carpet, woolen, felting,
quilt and mattress manufacturers located in Europe, the Far East and the United
States. Tops are sold primarily to Western European yarn spinners for processing
and sale to manufactures of worsted fabrics. Lanolin is sold primarily to
manufacturers of cosmetics and pharmaceutical products. The Company's largest
wool customer accounted for less than 2.0% of total sales and 5.0% of total wool
sales for fiscal 1997. Sales are typically made in local currencies of the
customers.
The Company relies primarily on short-term bank credit and internal
resources to finance its wool purchases. The period of exposure generally is
limited to only a few months. At March 31, 1997 and 1996, the Company had
outstanding orders for wool of approximately $109.0 million and $136.0 million,
respectively.
COMPETITION
The wool industry is more fragmented than the leaf tobacco industry. Major
competitors include Chargeurs, ADF, BWK, and a number of Japanese trading firms,
the largest of which is Itochu. Key factors for success in the wool business are
broad market coverage, a full range of wool types, technical expertise in buying
and processing and high quality customer service. The Company believes that its
processing and marketing capabilities and buying and trading expertise enable it
to compete effectively, and that its broad geographical trading base enables it
to react quickly to price changes and to supply wool of similar types and
blending quality from different countries or areas while keeping the highest
quality standards. See "Risk Factors -- Competition".
PROPERTIES
The Company generally conducts its scoured wool operations in the country
of origin, and processes wool tops in France and Chile. A current summary
showing the principal wool operating properties of the Company or its affiliates
is shown below:
<TABLE>
<CAPTION>
AREA
LOCATION PRINCIPAL USE (SQUARE FEET)
- ------------------------------ ---------------- -------------
<S> <C> <C>
Australia (FREMANTLE) Storage 200,000
Chile (PUNTA ARENAS) Factory/storage 57,000
France (TOURCOING) Factory/storage 964,900
Netherlands (DONGEN) Storage 23,700
New Zealand (CHRISTCHURCH) Factory/storage 100,300
South Africa (PORT ELIZABETH) Factory/storage 70,000 *
United Kingdom (BRADFORD) Factory/storage 165,000
</TABLE>
- ---------------
* Leased facility.
The Company believes its wool properties are generally well-maintained, in
good operating condition and are suitable and adequate for the normal growth of
its business.
EMPLOYEES
At March 31, 1997, the Company had a total of approximately 2,200 full-time
employees (including approximately 530 in the United States). As of that date,
of the Company's full-time employees, approximately 1,560 were in the tobacco
business, approximately 610 were in the wool business and approximately 30 had
duties relating to other operations. The tobacco business typically employs an
additional 6,700 to 6,800 part-time employees during peak production periods.
The Company's principal subsidiary in the United States has a collective
bargaining agreement with a union covering the majority of its hourly employees,
many of whom are seasonal. The agreement expires on May 31, 1999. The Company
believes its relations with employees covered by this agreement are good.
Employees at the French wool plant are also represented by labor unions under an
agreement subject to renewal every December 31. The Company believes that its
relations with its employees in France are good. See "Risk Factors -- Dependence
on Key Personnel".
44
<PAGE>
GOVERNMENT REGULATION AND ENVIRONMENTAL COMPLIANCE
In recent years, governmental entities in the United States at all levels
have taken or have proposed actions that may have the effect of reducing
consumption of cigarettes. These activities have included: (i) the U.S.
Environmental Protection Agency's classification of tobacco environmental smoke
as a "Group A" (known human) carcinogen; (ii) restrictions on the use of tobacco
products in public places and places of employment including a proposal by the
U.S. Occupational Safety and Health Administration to ban smoking in the work
place; (iii) proposals by the U.S. Food and Drug Administration to sharply
restrict cigarette advertising and promotion and to regulate nicotine as a drug;
(iv) increases in tariffs on imported tobacco; (v) proposals to increase sales
and excise taxes on cigarettes; (vi) the recently announced policy of the U.S.
government to link certain federal grants to the enforcement of state laws
banning the sale of tobacco products to minors; (vii) lawsuits against cigarette
manufacturers by several U.S. states seeking reimbursement of Medicaid and other
expenditures by such states claimed to have been made to treat diseases
allegedly caused by cigarette smoking; and (viii) the recent enactment of
stricter regulations designed to prohibit sales of cigarettes to minors. It is
not possible to predict the outcome of such actions or litigation or the effect
adverse determinations against the manufacturers might have on leaf merchants,
like the Company, or the extent to which governmental activities and litigation
might adversely affect the Company's business directly.
The Attorneys General of 40 states recently reached a proposed settlement
with certain U.S. cigarette manufacturers regarding claims for reimbursement of
health care costs associated with smoking-related illnesses. The settlement
would, among other things, give the FDA the authority to regulate tobacco
products, curtail the advertising of tobacco products and mandate new and larger
warning labels on cigarette packages. It is not possible to predict whether the
settlement will be approved by Congress or what the effect of such a settlement
will be on pending and future actions brought by private litigants or the impact
the settlement will have on sales of tobacco products and the Company's
business.
In calendar 1993, Congress enacted the 75/25 Rule, intended to limit the
importation of tobacco into the United States by requiring that all cigarettes
manufactured in the United States, including those manufactured for export,
contain at least 75.0% domestically grown tobacco. Although the 75/25 Rule was
repealed in 1995, principally because it was inconsistent with GATT, and was
replaced with import quotas designed to assist domestic tobacco growers, it had
the effect in calendar 1993 and 1994 of drastically decreasing demand for
imports of foreign tobacco for use in the domestic production of cigarettes. It
is not possible to predict the extent to which future governmental or third
party actions might adversly affect the Company's business.
A number of foreign countries have also taken steps to restrict or prohibit
cigarette advertising and promotion, to increase taxes on cigarettes and to
discourage cigarette smoking. In some cases, such restrictions are more onerous
than those in the U.S. For example, advertising and promotion of cigarettes has
been banned or severely restricted for a number of years in Australia, Canada,
Finland, France, Italy, Singapore and a number of other countries. It is not
possible to predict the extent to which these actions might adversely affect the
Company's business.
Although the Company's wool scouring and top making operations involve
discharges of significant amounts of effluent waste, the Company believes that
it is currently in compliance with applicable foreign laws which have been
enacted or adopted regulating the discharge of such materials into the
environment or otherwise relating to the protection of the environment. Such
compliance has not had, and is not anticipated to have, any material effect upon
the competitive position of the Company. See "Risk Factors -- Smoking and Health
Issues and Governmental Regulation".
LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is currently involved in
any litigation that the Company believes would, individually or in the
aggregate, have a material adverse effect on the Company's consolidated
financial position, consolidated results of operation or liquidity nor, to the
Company's knowledge, is any such litigation currently threatened against the
Company.
45
<PAGE>
MANAGEMENT
The executive officers, certain key employees and directors of the Company
as of August 31, 1997 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- --------------------------------------------
<S> <C> <C>
CORPORATE
Robert E. Harrison (1)(4) 43 President, Chief Executive Officer,
Chief Financial Officer and Director
Mark W. Kehaya 29 Vice President-Planning and
Financial Director-Tobacco Division
Michael K. McDaniel 47 Vice President-Human Resources
Keith H. Merrick 43 Vice President and Treasurer
Hampton R. Poole, Jr. 45 Vice President and Controller
Krishnamurthy Rangarajan 54 Vice President and Assistant Secretary
Guy M. Ross 64 Vice President and Secretary
TOBACCO DIVISION
Marvin W. Coghill (1) 63 Chairman and Director
Thomas M. Evins, Jr. 57 Regional Manager-North and
Central America, and Director
Ery W. Kehaya II 45 Vice President-Operations and
Corporate Vice President
Alfred F. Rehm 49 Vice President-Sales
John H. Saunders 46 Senior Vice President and Regional
Manager-Africa
WOOL DIVISION
Paul H. Bicque 53 Managing Director
Timothy S. Price 38 Financial Director
OTHER DIRECTORS
Ery W. Kehaya 73 Chairman Emeritus
J. Alec G. Murray (1) 60 Chairman of the Board
William S. Barrack, Jr. (2)(3)(4) 67 Director
Henry R. Grunzke 66 Director
Charles H. Mullen (2)(3)(4) 69 Director
Daniel M. Sullivan (2)(3)(4) 73 Director
William A. Ziegler (2)(3)(4) 73 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
(4) Member of the Finance Committee
ROBERT E. HARRISON has served as the President and Chief Executive Officer
of the Company since August 1996 and as Chief Financial Officer since July 1995.
Prior to joining the Company, Mr. Harrison was employed by RJR Nabisco for 17
years in various financial and management positions, including responsibilities
as General Manager for the tobacco business in the Philippines and Indochina,
Vice President for the food business in the Asia Pacific region, and Vice
President of Finance in Southeast Asia. Mr. Harrison has been a director of the
Company since November 1995.
MARK W. KEHAYA was appointed Financial Director of the tobacco division in
August 1996 after being named Vice President-Planning in August 1994. Prior to
joining the Company in 1993, he was employed as an associate of Fieldstone
Private Capital Group from 1990 to 1992 and as an analyst at Bankers Trust
Company from 1989 to 1990. He is the son of Ery W. Kehaya, Chairman Emeritus.
MICHAEL K. MCDANIEL joined the Company as Director-Human Resources in
November 1996 and was elected Vice President-Human Resources in June 1997. From
1995 to November 1996 he was a partner in a human resources consulting firm, and
from 1978 to 1995 he was Director of Human Resources and Organizational
Development for the City of Wilson, North Carolina.
46
<PAGE>
KEITH H. MERRICK has served as Treasurer of the Company since 1993 and was
elected a Vice President in 1996. Prior to joining the Company, he was employed
as a Vice President of First Union National Bank of North Carolina.
HAMPTON R. POOLE, JR. was appointed Vice President in 1996 and has served
as Controller and Assistant Treasurer of the Company since 1993. He joined the
Company in 1984 and has been an officer of Standard Commercial Tobacco Co.,
Inc., a subsidiary, for more than five years. Mr. Poole is a Certified Public
Accountant.
KRISHNAMURTHY RANGARAJAN was employed by the Company in 1978 after
qualifying as a Chartered Accountant. He was elected a Vice President in 1988
after being named Assistant Vice President in 1986 and Chief Accountant in 1981.
GUY M. ROSS was Treasurer from 1980 to 1993 and became Secretary in 1981
following the Company's purchase of the American leaf business of Imperial
Tobacco Ltd. (UK). He was employed by Imperial for 14 years including 10 years
as Vice President of Finance and Administration. He became a Vice President of
the Company in 1992.
MARVIN W. COGHILL has served as the Chairman of the Company's tobacco
division since April 1994. From 1981 to April 1994, he served as President and
Chief Operating Officer of the Company with responsibility for tobacco
operations. Mr. Coghill has been a director since 1974.
THOMAS M. EVINS, JR., a director since December 1992, served as President
of W.A. Adams Company prior to its acquisition by the Company in June 1992. He
has served as Regional Manager -- North and Central America Tobacco Operations
since 1993.
ERY W. KEHAYA II was appointed Vice President-Operations of the tobacco
division in 1995 after being named Sales Director in 1993 and a Corporate Vice
President in 1992. He has been an officer of Standard Commercial Tobacco Co.,
Inc., a subsidiary, for more than five years, serving as Executive Vice
President since 1992. He is the son of Ery W. Kehaya, Chairman Emeritus.
ALFRED F. REHM was appointed Vice President-Sales of the tobacco division
in February 1995. He joined the Company in 1978 and his 29-year career in the
tobacco industry includes experience in leaf buying, leaf supervision and sales.
JOHN H. SAUNDERS was appointed Senior Vice President of the tobacco
division in August 1995. He has served as Regional Manager-Africa since 1994 and
was Area Manager-Malawi from 1984 to 1994. Mr. Saunders has been employed by the
Company since 1974.
PAUL H. BICQUE has served as Managing Director of the wool division since
December 1995. From 1992 to December 1995, he served as a Commercial Director of
the wool division. From 1990 until he joined the Company, Mr. Bicque worked as
an international senior management consultant.
TIMOTHY S. PRICE was appointed Financial Director of the wool division in
December 1995. Previously, he served as Vice President and Controller of W A
Adams Company from the time it was acquired by the Company in June 1992. Mr.
Price is a Certified Public Accountant.
ERY W. KEHAYA joined the Company in 1945, and served as President from 1955
until 1981 and as Chief Executive Officer from 1955 until 1990. He served as
Chairman of the Board of Directors from 1955 until he was appointed Chairman
Emeritus in August 1996.
J. ALEC G. MURRAY has served as Chairman of the Board since August 1996.
Prior thereto he served as Vice Chairman and Chief Executive Officer of the
Company from January 1991 to August 1996 and as President from April 1994 to
August 1996. Mr. Murray joined the Company in 1969 and has been a director since
1977.
WILLIAM S. BARRACK, JR. has been a director of the Company since his
retirement in 1992 from his position as Senior Vice President of Texaco, Inc. He
is a director of Consolidated Natural Gas Company, a public company.
HENRY R. GRUNZKE served as the Chairman of the wool division from January
1996 to August 1996. Prior thereto he served as Commercial Director of the wool
division since the Company's acquisition of Lohmann and Co. GmbH in 1985. He has
been in the wool industry for over 40 years and is currently President of the
International Wool and Textile Organization. He has been a director since 1987.
CHARLES H. MULLEN, a director of the Company since June 1995, is the
retired Chairman and Chief Executive Officer of The American Tobacco Company and
formerly served as a Vice President and director of American Brands, Inc. He is
a director of Swisher International Group Inc., a public company.
47
<PAGE>
DANIEL M. SULLIVAN has been a director of the Company since June 1995. He
founded and served as the Chief Executive Officer of Frost & Sullivan, Inc. from
1961 to 1989. He is Chairman of Jim Hjelms Private Collections, Ltd. and serves
as a director of four private companies.
WILLIAM A. ZIEGLER is a retired partner of the law firm of Sullivan &
Cromwell and has been a director of the Company since 1985. He is currently a
consultant and also serves as a director and chairman of the executive committee
of a private company and a director of another private company.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Six meetings of the Company's Board of Directors were held during the
fiscal year ended March 31, 1997. No Director attended less than 75.0% of the
total number of meetings held by (i) the Board of Directors and (ii) all
committees of the Board on which the Director served.
The business of the Company is under the general management of a Board of
Directors as provided by the laws of North Carolina, the Company's state of
incorporation. The Company's Articles of Incorporation divide the Board of
Directors into three classes as nearly equal in number as possible, each of
which class of directors serves for three years. The term of office of one class
of directors expires each year in rotation so that one class is elected at each
annual meeting of shareholders for a full three-year term. The Proxy Statement
for the Annual Meeting of Shareholders to be held on August 12, 1997 includes
three of the present directors (Henry R. Grunzke, Ery W. Kehaya and Daniel M.
Sullivan), whose terms expire this year, as nominees for three-year terms
expiring in 2000. The Company's seven other directors are: William S. Barrack,
Jr., Charles H. Mullen and J. Alec G. Murray, whose terms expire in 1998; and
Marvin W. Coghill, Thomas M. Evins, Jr., Robert E. Harrison and William A.
Ziegler, whose terms expire in 1999.
The Committees established by the Board of Directors to assist it in the
discharge of its responsibilities are an Executive Committee, an Audit
Committee, a Compensation Committee, a Nominating Committee and a Finance
Committee.
The Executive Committee consists of Mr. Murray, Mr. Coghill and Mr.
Harrison. This committee meets on call and has authority to act on most matters
during the intervals between Board meetings. During the last fiscal year, the
committee acted on various matters by unanimous written consent.
The Audit Committee consists of Mr. Barrack, Mr. Mullen, Mr. Sullivan and
Mr. Ziegler, none of whom have been employees of the Company. This committee is
primarily concerned with assisting the Board in fulfilling its fiduciary
responsibilities relating to accounting policies and auditing and reporting
practices, and assuring the independence of the Company's public accountants,
the integrity of management and the adequacy of disclosure to shareholders. Its
duties include recommending the selection of independent accountants, reviewing
the scope of the audits and the results thereof, and reviewing the organization
and scope of the Company's internal systems of financial control and accounting
policies followed by the Company.
The Compensation Committee consists of Mr. Ziegler, Mr. Barrack, Mr. Mullen
and Mr. Sullivan. No current officer of the Company serves on the Committee and
there are no interlocking relationships. This committee is primarily concerned
with administering the Performance Improvement Compensation Plan, determining
compensation of officers and oversight of the Company's pension plans.
The Nominating Committee consists of Mr. Ziegler, Mr. Harrison, Mr. Mullen
and Mr. Murray. This committee is primarily concerned with recommending to the
full Board of Directors candidates for election as directors.
In April 1997, the Board established a Finance Committee, comprising Mr.
Sullivan, Mr. Barrack, Mr. Harrison, Mr. Mullen and Mr. Ziegler. This committee
is primarily concerned with the financial condition of the Company and
recommendations with respect to financial planning and policies.
EXECUTIVE COMPENSATION
In March 1997, the Company entered into a three-year Employment Agreement
with Robert E. Harrison, its President, Chief Executive Officer and Chief
Financial Officer. The agreement provides for an initial base salary, which is
$350,000 per year as of April 1, 1997, annual cash bonuses upon achievement of
performance goals, as determined by the Compensation Committee of the Board of
Directors of the Company, and other employee benefits. In addition, the
agreement provides for the grant to Mr. Harrison of nonqualified options to
purchase 100,000 shares of Common Stock of the Company at an exercise price
equal to fair market value as of the date of the grant. These options will
become exercisable, based on Mr. Harrison's continued employment with the
Company, in equal annual installments over a three-year period.
48
<PAGE>
Mr. Harrison's employment agreement is renewable for successive two-year periods
after its initial three-year term. The agreement also contains a covenant by Mr.
Harrison not to compete with the Company until one year after his termination,
except if he is terminated by the Company without cause. The agreement also
provides that in the event Mr. Harrison's employment is terminated by the
Company without cause he shall receive termination pay in a lump sum equal to
two years' base salary and one year's bonus. See "Risk Factors -- Dependence on
Key Personnel".
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of shares of the Common Stock as of June 11, 1997 by: (i) each person
(including any "group" as that term is used in Section 13(d) of the Exchange
Act) who is known by the Company to own beneficially more than five percent of
the outstanding shares of the Common Stock; (ii) each of the Company's
directors; and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
NAME SHARES PERCENT
- -------------------------------------------------------------------------------------------------- --------- -------
<S> <C> <C>
Ery W. Kehaya (1)................................................................................. 2,847,024 22.7%
810 Saturn Street
Jupiter, Florida 33477-4456
Marvin W. Coghill (2)............................................................................. 260,857 2.1%
J. Alec G. Murray (3)............................................................................. 202,006 1.6%
Thomas M. Evins, Jr. (4).......................................................................... 107,989 *
William A. Ziegler................................................................................ 5,746 *
Henry R. Grunzke.................................................................................. 2,318 *
William S. Barrack, Jr. (5)....................................................................... 2,148 *
Charles H. Mullen................................................................................. 1,782 *
Robert E. Harrison (6)............................................................................ 1,210 *
Daniel M. Sullivan................................................................................ 1,148 *
All directors and executive officers
as a group (7).................................................................................. 3,971,011 31.6%
</TABLE>
- ---------------
* Less than one percent
(1) Includes (i) 609,075 shares held by Mr. Kehaya as trustee for the benefit of
his children; (ii) 3,404 shares underlying $100,000 principal amount of the
Company's 7 1/4% Convertible Subordinated Debentures held by his wife
assuming conversion thereof at the current conversion price of $29.38 per
share; and (iii) 42,917 shares held by his wife. Excludes 110,459 shares
held by a charitable remainder trust established by Mr. Kehaya as to which
shares he disclaims beneficial ownership.
(2) Includes 3,208 shares held for Mr. Coghill's account by the trustee of the
Company's 401(k) Savings Plan.
(3) Includes 11,452 shares owned by Mr. Murray's wife.
(4) Includes 1,055 shares held for Mr. Evins' account by the trustee of the
Company's 401(k) Savings Plan.
(5) Includes 550 shares owned by Mr. Barrack's wife.
(6) Includes 166 shares held for Mr. Harrison's account by the trustee of the
Company's 401(k) Savings Plan.
(7) Includes the shares discussed in footnotes (1)-(6). Also includes 542,034
outstanding shares held beneficially by other executive officers.
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DESCRIPTION OF GLOBAL BANK FACILITY
GENERAL
The Issuer and two of its subsidiaries (the "Borrowing Subsidiaries") have
entered into a new revolving global bank facility (the "Global Bank Facility")
on August 1, 1997 with Deutsche Bank A.G., as lead bank, Bankers Trust Company,
as co-lead bank, documentation agent and U.S. security agent, Mees Pierson, N.V.
as international security agent and the lenders named therein (together the
"Lenders"). The Global Bank Facility provides a commitment of $200.0 million and
amends the Company's MFA and replaces the U.S. Revolving Credit Facility. The
Global Bank Facility is unconditionally guaranteed by the Company and certain of
its tobacco subsidiaries (the "Guarantor Subsidiaries"). The Issuer guarantees
the obligations of each of the Borrowing Subsidiaries and each of the Borrowing
Subsidiaries guarantees the obligations of one another under this facility. The
proceeds of the loans will be used for general corporate purposes.
Total commitments under the Global Bank Facility (subject to the borrowing
base limitations set forth below) are $200.0 million. The amount from time to
time available under the Global Bank Facility (for revolving loans and letters
of credit) will not be permitted to exceed an amount equal to the sum of (x) up
to 80% of the sum of "eligible inventory," "eligible accounts receivable" and
"eligible advances" less "trade payables" (all as defined in the Global Bank
Facility) and (y) up to 50% of the book value of certain fixed assets. The
Global Bank Facility expires August 1, 2000; however, mandatory prepayments of
revolving credit facilities are required in certain events (which include
certain sales of assets which exceed a threshold limit).
Interest will accrue on amounts borrowed under the Global Bank Facility at
an annual rate of LIBOR plus a margin (ranging from 0.625% to 2.0% over the
lenders' cost of funds). The interest margin, initially set at 1.0%, will be
reviewed on March 31, 1998 and every six months thereafter and adjusted
depending upon the EBITDA/Interest Coverage Ratio of the Company's tobacco
division as defined in the Global Bank Facility.
The obligations of the Issuer and the Borrowing Subsidiaries under the
Global Bank Facility rank PARI PASSU in right of payment with the Notes, except
that the obligations under the Global Bank Facility are secured by a first
priority lien on, among other things, all of the assets of the Issuer and the
Borrowing Subsidiaries. The Notes and the Guarantees are effectively
subordinated to the obligations under the Global Bank Facility and to any other
secured debt of the Parent's subsidiaries, to the extent of the assets serving
as security therefor. See "Risk Factors -- Adverse Consequences of Holding
Company Structure".
CERTAIN COVENANTS
The Global Bank Facility contains various covenants that restrict the
Company and its subsidiaries from taking various actions and that require that
the Company and its tobacco division achieve and maintain certain financial
covenants. The Global Bank Facility contains covenants relating to minimum net
worth, minimum interest coverage ratio, limitations on capital expenditures,
investments, uncommitted tobacco inventory, indebtedness, advances, liens,
dividends, acquisitions and sales of assets. The Global Bank Facility also
restricts the ability of the Issuer to prepay the Notes and also prohibits
certain changes in control of the Parent and its subsidiaries.
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DESCRIPTION OF NOTES
The Exchange Notes will be issued, and the Initial Notes were issued under
an indenture (the "Indenture"), dated as of August 1, 1997 by and among the
Issuer, as issuer, and the Guarantors and Crestar Bank, as Trustee (the
"Trustee"). For purposes of the following summary, the Initial Notes and the
Exchange Notes are collectively referred to as the "Notes". The following
summary of certain provisions of the Indenture does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of
the Indenture, including the definitions of certain terms therein and those
terms made a part of the Indenture by reference to the TIA as in effect on the
date of the Indenture. A copy of the Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The definitions of
certain capitalized terms used in the following summary are set forth below
under " -- Certain Definitions".
The Notes are eligible for trading in the PORTAL Market of the Nasdaq Stock
Market, Inc. The Notes will be payable both as to principal and interest either
(A) if Global Notes are issued, then (i) to DTC as the holder of the Global
Notes at an office of an agent of the Issuer (the "Paying Agent") or (B) in the
event Certificated Securities are issued at an office of the Paying Agent
maintained for such purpose. Upon and after the issuance of Certificated
Securities, Holders will be able to receive principal and interest on the Notes
and will be able to transfer Certificated Securities at the office of such
paying and transfer agent, subject to the right of the Issuer to mail payments
in accordance with the terms of the Indenture. Any Initial Notes that remain
outstanding after the completion of the Exchange Offer, together with the
Exchange Notes issued in connection with the Exchange Offer, will be treated as
a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $115.0 million and
will mature at par on August 1, 2005. Interest on the Notes will accrue at the
rate of 8 7/8% per annum and will be payable semiannually in cash in arrears on
each February 1 and August 1 commencing on February 1, 1998, to the persons who
are Holders at the close of business on the January 15 and July 15 immediately
preceding the applicable interest payment date. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from and including the date of issuance. Interest will
be computed on the basis of a 360-day year of twelve 30-day months.
The Notes are not entitled to the benefit of any mandatory redemptions or
any sinking fund payments prior to the maturity of the Notes.
GUARANTEES; SECURITY
The Parent and Standard Wool, jointly and severally, guarantee on a senior
basis to each Holder and the Trustee, the full and prompt performance of the
Issuer's obligations under the Indenture and the Notes, including the payment of
principal of and interest and Additional Interest, if any, on the Notes (the
Parent and Standard Wool being referred to herein as "Guarantors" and their
guarantees being referred to respectively as the "Parent Guarantee" and the
"Standard Wool Guarantee," and together, the "Guarantees"). In addition, all of
the issued and outstanding capital stock of the Issuer and Standard Wool has
been pledged by the Parent to the Trustee for the benefit of the Holders of the
Notes.
Each Guarantor that makes a payment or distribution shall be entitled to a
contribution from each other Guarantor in an amount PRO RATA, based on the net
assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Issuer, or with other Persons upon the terms and conditions set forth in the
Indenture. See "Certain Covenants -- Merger, Consolidation and Sale of Assets".
In the event (A) more than 49% of the Capital Stock of Standard Wool is sold by
the Parent or (B) more than 49% of the consolidated assets of Standard Wool are
sold in compliance with all of the terms of the Indenture, the Standard Wool
Guarantee will be released.
RANKING
The indebtedness of the Issuer and the Guarantors evidenced by the Notes
and the Guarantees ranks PARI PASSU in right of payment with all existing and
future indebtedness of the Issuer or such Guarantor, as the case may be, other
than Indebtedness that is expressly subordinate to the Notes or the Guarantee of
such Guarantor. The Notes and the Standard Wool Guarantee are effectively
subordinated to all secured indebtedness of the Issuer and Standard Wool, as the
case may be, with respect to the assets securing such indebtedness and are
effectively subordinated in right of payment to all liabilities, including trade
payables, of all subsidiaries of the Issuer or Standard Wool, as the case may
be. The Parent Guarantee is effectively
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subordinate in right of payment to all liabilities, including trade payables, of
all subsidiaries of the Parent (other than the Issuer and Standard Wool). As of
June 30, 1997, on a pro forma basis, after giving effect to the Refinancing
Plan, the Issuer and the Guarantors would have had an aggregate of approximately
$176.9 million of secured and other Indebtedness to which the Notes and the
Guarantees would have been effectively subordinate in right of payment.
REDEMPTION
OPTIONAL REDEMPTION. The Notes will be redeemable, at the option of the
Issuer, in whole at any time or in part from time to time, on and after August
1, 2001, upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof) if
redeemed during the twelve-month period commencing on August 1 of the year set
forth below, plus, in each case, accrued and unpaid interest thereon, if any, to
the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------------ ----------
<S> <C>
2001.......................................................................... 104.438%
2002.......................................................................... 102.958%
2003.......................................................................... 101.479%
2004 and thereafter........................................................... 100.000%
</TABLE>
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange
or market, if any, on which such Notes are listed or, if such Notes are not then
listed on a national securities exchange or market, on a PRO RATA basis, by lot
or by such method as the Trustee shall deem fair and appropriate; PROVIDED that
no Notes of a principal amount of $1,000 or less shall be redeemed in part.
Notice of redemption will be mailed by first-class mail at least 30 but not more
than 60 days before the redemption date to each Holder of Notes to be redeemed
at its registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued and delivered to the Book-Entry
Depositary or, in the case of Certificated Securities, issued in the name of the
Holder thereof in each case upon cancellation of the original Note. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption as long as the Issuer has deposited with the Paying Agent
funds in satisfaction of the applicable redemption price pursuant to the
Indenture.
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control,
each Holder will have the right to require that the Issuer purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price (the "Change of Control
Payment") equal to 101% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase.
Within 30 days following the date upon which a Change of Control occurs,
the Issuer will send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 45 days from the date such notice
is mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have Notes purchased pursuant to a Change of Control
Offer will be required to surrender such Notes, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying
Agent at the address specified in the notice prior to the close of business on
the third business day prior to the Change of Control Payment Date.
The Indenture provides that on the Change of Control Payment Date, the
Issuer will, to the extent permitted by law, (i) accept for payment all Notes or
portions thereof properly tendered pursuant to the Change of Control Offer, (ii)
deposit with the Paying Agent an amount equal to the aggregate Change of Control
Payment in respect of all Notes or portions thereof so tendered and (iii)
deliver, or cause to be delivered, to the Trustee for cancellation the Notes so
accepted together with an Officers' Certificate stating that such Notes or
portions thereof have been tendered to and purchased by the Issuer. The
Indenture provides that the Paying Agent will promptly either (x) pay to the
Holder against presentation and surrender (or, in the case of partial payment,
endorsement) of the Global Notes or (y) in the case of Certificated Securities,
mail to each Holder of Notes the Change of Control Payment for such Notes, and
the Trustee will promptly authenticate and deliver to the
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Holder of the Global Notes a new Global Note or Notes or, in the case of
Definitive Notes, mail to each Holder new Certificated Securities, as
applicable, equal in principal amount to any unpurchased portion of the Notes
surrendered, if any, provided that each new Certificated Security will be in a
principal amount of $1,000 or an integral multiple thereof. The Issuer will
notify the Trustee and the Holders of the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Issuer will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer, as well as any repayment of other debt
triggered by the Change in Control. In the event the Issuer is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Issuer
expects that it would seek third party financing to the extent it does not have
available funds to meet its purchase and other repayment obligations. However,
there can be no assurance that the Issuer would be able to obtain such financing
on favorable terms or at all.
Neither the Board of Directors of the Issuer nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on
their property, to make Restricted Payments and to make Asset Sales may also
make more difficult or discourage a takeover of the Parent, whether favored or
opposed by the Holders, or shareholders or management of the Parent.
Consummation of any such transaction in certain circumstances may require
redemption or repurchase of the Notes, and there can be no assurance that the
Issuer will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage any
leveraged buyout of the Parent or any of its Subsidiaries by the management of
the Parent. While such restrictions cover a wide variety of arrangements which
have traditionally been used to effect highly leveraged transactions, the
Indenture may not afford the Holders of Notes protection in all circumstances
from the adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction. The Issuer will comply with the
requirements of Rule 14e-1 promulgated under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of Notes pursuant
to a Change of Control Offer.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Parent will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); PROVIDED that if no Default or Event of Default shall have
occurred and be continuing at the time of or as a consequence of the incurrence
of any such Indebtedness, the Parent or any of its Restricted Subsidiaries may
incur Indebtedness (including, without limitation, Acquired Indebtedness), in
each case if on the date of the incurrence of such Indebtedness, after giving
effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio
of the Company is greater than 2.25 to 1.0 on or prior to the second anniversary
of the Issue Date and greater than 2.75 to 1.0 thereafter.
The Issuer will not, and will not permit any Guarantor to, directly or
indirectly, in any event incur any Indebtedness that by its terms (or by the
terms of any agreement governing such Indebtedness) is subordinated to any other
Indebtedness of the Issuer or of such Guarantor, as the case may be, unless such
Indebtedness is also by its terms (or by the terms of any agreement governing
such indebtedness) made expressly subordinate in right of payment to the Notes
or the Guarantee of such Guarantor, as the case may be, to the same extent and
in the same manner as such Indebtedness is subordinated pursuant to
subordination provisions that are most favorable to the holders of any other
Indebtedness of the Issuer or such Guarantor, as the case may be.
LIMITATION ON RESTRICTED PAYMENTS. The Parent will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable solely in Qualified Capital Stock of the Parent) on or in
respect of shares of the Capital Stock of the Parent or any of its Subsidiaries,
(b) purchase, redeem or otherwise acquire or retire for value any Capital Stock
of the Parent or any of its Subsidiaries or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock, other than (i)
the exchange of such Capital Stock or any warrants, rights or options to acquire
shares of any class of such Capital Stock for Qualified Capital Stock of the
Issuer or warrants, rights or options to acquire Qualified Capital Stock of the
Parent or (ii) in the case of any purchase, redemption or other acquisition or
retirement for value of Disqualified Capital Stock or any warrants, rights or
options to purchase or acquire shares of any class of such Disqualified Capital
Stock, for Capital Stock or
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warrants, rights or options to acquire Capital Stock of the Parent; PROVIDED
that if such Capital Stock is Disqualified Capital Stock, such Disqualified
Capital Stock does not have a liquidation preference greater than the
liquidation preference of the Disqualified Capital Stock being purchased,
redeemed or acquired or retired or contain provisions pursuant to which such
Disqualified Capital Stock matures or is mandatorily redeemable or is redeemable
at the sole option of the holder thereof, in whole or in part, prior to the
Disqualified Capital Stock being purchased, redeemed or acquired or retired, (c)
make any principal payment on, purchase, decrease, redeem, prepay or otherwise
acquire or retire or decrease for value, prior to any scheduled final maturity,
scheduled repayment or scheduled sinking fund payment, any Indebtedness that is
subordinate or junior in right of payment to the Notes or the Guarantees as the
case may be or (d) make any Investment (other than Permitted Investments) (each
of the foregoing actions set forth in clauses (a), (b), (c) and (d) being
referred to as a "Restricted Payment"), if at the time of such Restricted
Payment or immediately after giving effect thereto, (i) a Default or an Event of
Default shall have occurred and be continuing or (ii) the Company is not able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of Additional
Indebtedness" covenant or (iii) the aggregate amount of Restricted Payments
(including such proposed Restricted Payment) made subsequent to the Issue Date
(the amount expended for such purposes if other than in cash, being the Fair
Market Value of such property) shall exceed the sum of: (x) 50% of the
cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company earned subsequent to
June 30, 1997 and on or prior to the date the Restricted Payment occurs (the
"Reference Date") (treating for such purposes such period as a single accounting
period); PLUS (y) 100% of the aggregate net cash proceeds received by the Parent
(including the Fair Market Value of marketable securities) from any Person
(other than a Restricted Subsidiary of the Parent) from the Issue and sale
subsequent to the Issue Date and on or prior to the Reference Date of Qualified
Capital Stock of the Parent (including pursuant to a capital contribution and
excluding any Qualified Capital Stock issued upon conversion of the Parent's
outstanding 7 1/4% Convertible Subordinated Debentures due 2007 (the
"Debentures") and any Qualified Capital Stock issued pursuant to clause (b) of
this paragraph); PLUS (z) without duplication of any amounts included in clause
(iii) (y) above, an amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, interest payments,
repayments of loans or advances, or other transfers of cash, in each case to the
Parent or to any Wholly Owned Restricted Subsidiary of the Parent from
Unrestricted Subsidiaries (but without duplication of any such amount included
in calculating cumulative Consolidated Net Income of the Issuer), or from
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (in each
case valued as provided in the definition of "Investments"), not to exceed, in
the case of any Unrestricted Subsidiary, the amount of Investments previously
made by the Parent or any Restricted Subsidiary in such Unrestricted Subsidiary
and which was treated as a Restricted Payment under the Indenture.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph shall not prohibit: (1) the payment of any dividend within
60 days after the date of declaration of such dividend if the dividend would
have been permitted on the date of declaration; (2) if no Default or Event of
Default shall have occurred and be continuing, the payment, purchase,
defeasance, redemption, prepayment, acquisition or retirement or decrease of any
shares of Capital Stock of the Parent, either (i) solely in exchange for shares
of Qualified Capital Stock of the Parent or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a Restricted
Subsidiary of the Parent) of shares of Qualified Capital Stock of the Parent;
(3) if no Default or Event of Default shall have occurred and be continuing, the
payment, purchase, defeasance, redemption, prepayment, acquisition or retirement
or decrease of any Indebtedness of the Issuer that is subordinate or junior in
right of payment to the Notes either (i) solely in exchange for shares of
Qualified Capital Stock of the Parent or Indebtedness that is subordinated or
junior in right of payment to the Notes and has a Weighted Average Life to
Maturity and final maturity not sooner than the Weighted Average Life to
Maturity and final maturity prior to such exchange, or (ii) through the
application of net proceeds of a substantially concurrent sale for cash (other
than to a Restricted Subsidiary of the Parent) of (A) shares of Qualified
Capital Stock of the Parent or (B) Refinancing Indebtedness; (4) if no Default
or Event of Default shall have occurred and be continuing, repurchases by the
Parent of Common Stock of the Parent from employees of the Parent or any of its
Subsidiaries or their authorized representatives upon the death, disability or
termination of employment of such employees, in an aggregate amount not to
exceed the sum of (x) $2 million in any calendar year and (y) proceeds received
by the Parent or any of its Subsidiaries in connection with any "key-man" life
insurance policies which are used to make such repurchases; and PROVIDED that
the cancellation of Indebtedness owing to the Parent from members of management
of the Parent in connection with a repurchase of Common Stock of the Parent
pursuant to this clause 4 will not be deemed to constitute a Restricted Payment
under the Indenture; (5) repurchases of Capital Stock deemed to occur upon the
exercise of stock options if such Capital Stock represents a portion of the
exercise price thereof; (6) if no Default or Event of Default shall have
occurred and be continuing or would occur as a consequence thereof, other
Restricted Payments in an aggregate amount not to exceed $15 million (including,
with respect to Investments (other than Permitted Investments), amounts then
outstanding); and (7) any payments made in respect of Capital Stock of a
Restricted
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<PAGE>
Subsidiary paid to minority holders thereof in connection with pro rata
distributions on such Capital Stock to the Parent or a Wholly Owned Restricted
Subsidiary of the Parent. In determining the aggregate amount of Restricted
Payments made subsequent to the Issue Date in accordance with clause (iii) of
the immediately preceding paragraph, amounts expended pursuant to clauses (1)
(to the extent the declaration thereof has not previously been included in such
aggregate amount), (2)(ii), (4) and (6) shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations may
be based upon the Company's latest available internal quarterly financial
statements.
LIMITATION ON ASSET SALES. The Parent will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless: (i) the Parent
or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets sold or otherwise disposed of; (ii) at least 75% of the
consideration received by the Parent or the Restricted Subsidiary, as the case
may be, from such Asset Sale shall be in the form of cash or Cash Equivalents or
Replacement Assets and is received at the time of such disposition, PROVIDED
that the amount of (a) any liabilities (as shown on the Parent's or such
Restricted Subsidiary's most recent balance sheet) of the Parent or any such
Restricted Subsidiary (other than liabilities that are by their terms
subordinated in right of payment to the Notes) that are assumed by the
transferee of any such assets, and (b) any notes or other obligations received
by the Parent or any such Restricted Subsidiary from such transferee that are
immediately converted by the Parent or such Restricted Subsidiary into cash (to
the extent of the cash received), shall be deemed to be cash for the purposes of
this provision; and (iii) upon the consummation of an Asset Sale, the Parent
shall apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 270 days of receipt thereof either (A) to (x)
repay and permanently reduce the availability of credit under the Global Bank
Facility or (y) repay and elect to reduce the amount of outstanding Indebtedness
permitted to be incurred pursuant to clauses (x) and/or (xv) of the definition
of Permitted Indebtedness, (B) to make an investment in properties and assets
that replace the properties and assets that were the subject of such Asset Sale
or in properties and assets that will be used in the same or a similar line of
business as the Parent or the Restricted Subsidiary, as the case may be, as
existing on the date of the Indenture or in businesses reasonably related
thereto ("Replacement Assets"); PROVIDED that the Net Cash Proceeds from an
Asset Sale relating to the Company's tobacco business are used to make an
investment in Replacement Assets relating to the tobacco business; PROVIDED
FURTHER that the Net Cash Proceeds of an Asset Sale relating to assets owned
directly by the Issuer or a Guarantor are used to make an investment in
Replacement Assets owned directly by the Issuer or a Guarantor, (C) to
permanently reduce any outstanding Indebtedness of such Restricted Subsidiary
(and to correspondingly reduce the commitments, if any, with respect thereto),
or (D) a combination of prepayment and investment permitted by the foregoing
clauses (iii)(A), (iii)(B) and (iii)(C). On the 271st day after an Asset Sale or
such earlier date, if any, as the Board of Directors of the Parent or of such
Restricted Subsidiary determines not to apply the Net Cash Proceeds relating to
such Asset Sale as set forth in clauses (iii)(A), (iii)(B), (iii)(C) and
(iii)(D) of the next preceding sentence (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Net Proceeds Offer Trigger Date as permitted in clauses
(iii)(A), (iii)(B), (iii)(C) and (iii)(D) of the next preceding sentence (each,
a "Net Proceeds Offer Amount") shall be applied by the Parent or such Restricted
Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date
(the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders on a
pro rata basis, that amount of Notes equal to the Net Proceeds Offer Amount at a
price equal to 100% of the principal amount of the Notes to be purchased, plus
accrued and unpaid interest thereon, if any, to the date of purchase; provided
that if at any time any non-cash consideration received by the Parent or any
Restricted Subsidiary of the Parent, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any such non-cash consideration), then
such conversion or dissolution shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant. The Parent or such Restricted Subsidiary, as the case may be, may
defer the Net Proceeds Offer until there is an aggregate unutilized Net Proceeds
Offer Amount equal to or in excess of $10 million resulting from one or more
Asset Sales (at which time, the entire unutilized Net Proceeds Offer Amount, and
not just the amount in excess of $10 million shall be applied as required
pursuant to this paragraph).
Notwithstanding the foregoing, the restriction contained in clause (ii) of
the preceding paragraph shall not apply if more than 49% of the Capital Stock or
more than 49% of the consolidated assets of Standard Wool are sold in a single
transaction in compliance with all of the terms of the Indenture.
In connection with each Net Proceeds Offer, the Issuer will send, by first
class mail, a notice to each Holder, with a copy to the Trustee, notice of such,
within 25 days following the Net Proceeds Offer Trigger Date, and shall comply
with the
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procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds
Offer, Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly tender
Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of tendering
Holders will be purchased on a pro rata basis (based on amounts tendered). A Net
Proceeds Offer shall remain open for a period of 20 business days or such longer
Period as may be required by law.
Notwithstanding the foregoing, all of the outstanding Capital Stock of the
Issuer shall at all times be owned by the Parent free and clear of all Liens
other than the Liens held by the Trustee for the benefit of the Holders of the
Notes. The Parent and any such Restricted Subsidiaries will comply with the
requirements of Rule 14e-1 under the Exchange Act and the regulations thereunder
and any other securities laws to the extent such laws and regulations are
applicable in connection with the repurchase of Notes pursuant to a Net Proceeds
Offer.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Parent will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to: (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or advances
or to pay any Indebtedness or other obligation owed to the Parent or the Issuer;
(c) guarantee any Obligation arising under or in respect of the Notes or the
Indenture of the Parent or any Restricted Subsidiary; or (d) transfer any of its
property or assets to the Parent or any Restricted Subsidiary of the Parent,
except, in each case, for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture; (3) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Restricted Subsidiary of the Parent; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired or any of its subsidiaries; (5)
agreements existing on the Issue Date to the extent and in the manner such
agreements are in effect on the Issue Date; (6) any encumbrance or restriction
with respect to a Restricted Subsidiary that is not a Restricted Subsidiary on
the date of the Indenture, which encumbrance or restriction is in existence at
the time such person becomes a Restricted Subsidiary or is created on the date
it becomes a Restricted Subsidiary; (7) restrictions on the transfer of assets
subject to any Lien permitted under the Indenture imposed by the holder of such
Lien; (8) any agreement or instrument governing the payment of dividends or
other distributions on or in respect of Capital Stock of any Person that is
acquired; (9) restrictions under the Global Bank Facility; (10) other
Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to
the provisions of the covenant described under "Limitation on Incurrence of
Additional Indebtedness"; PROVIDED that any such restrictions are ordinary and
customary with respect to the type of Indebtedness being incurred (under the
relevant circumstances); (11) restrictions on cash or other deposits or net
worth imposed by the customers under contacts entered into in the ordinary
course of business; or (12) an agreement governing Indebtedness incurred to
refinance the Indebtedness issued, assumed or incurred pursuant to an agreement
referred to in clause (2), (4), (5), (9) or (10) above; PROVIDED that the
provisions relating to such encumbrance or restriction contained in any such
Indebtedness are no less favorable to the Company in any material respect as
determined by the Board of Directors of the Parent in their reasonable and good
faith judgment than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (4) or (5).
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES. The Parent will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Parent or to a Wholly Owned Restricted Subsidiary of the
Parent) or permit any Person (other than the Parent or a Wholly Owned Restricted
Subsidiary of the Parent) to own any Preferred Stock of any Restricted
Subsidiary of the Parent (other than any Preferred Stock outstanding as of the
Issue Date).
LIMITATION ON LIENS. The Parent will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly create, incur or assume any
Lien (other than Permitted Liens) that secures obligations under any
Indebtedness on any asset or property of the Parent or such Restricted
Subsidiary, or any income or profits therefrom, or assign or convey any right to
receive income therefrom, unless the Notes are equally and ratably secured with
the obligations so secured until such time as such obligations are no longer
secured by a Lien.
MERGER, CONSOLIDATION AND SALE OF ASSETS. The Parent will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary of the Parent to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Parent and its
Restricted Subsidiaries) whether as an entirety or substantially as an entirety
to any Person unless at the time of and after giving effect thereto: (i) either
(a) the Parent or the Issuer shall be the surviving or continuing corporation or
(b) the Person (if other than the Parent or the Issuer)
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formed by such consolidation or into which the Parent or the Issuer is merged or
the Person which acquires by sale, assignment, transfer, lease, conveyance or
other disposition the properties and assets of the Parent and of the Parent's
Restricted Subsidiaries substantially as an entirety (the "Surviving Entity")
(x) shall be a corporation organized and validly existing under the laws of the
United States, any state thereof or the District of Columbia and (y) shall
expressly assume, by supplemental indenture (in form and substance satisfactory
to the Trustee), executed and delivered to the Trustee, the due and punctual
payment of the principal of, and premium, if any, and interest on all of the
Notes and the performance of every covenant of the Notes, the Indenture, and the
Registration Rights Agreement on the part of the Parent or such Restricted
Subsidiary to be performed or observed; (ii) immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(b)(y) above
(including giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred in connection with or in respect of such
transaction), the Parent or such Surviving Entity, as the case may be, (1) shall
have a Consolidated Net Worth equal to or greater than the Consolidated Net
Worth of the Company immediately prior to such transaction and (2) shall be able
to incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "Limitation on Incurrence of Additional
Indebtedness" covenant; (iii) immediately before and immediately after giving
effect to such transaction and the assumption contemplated by clause (i) (b) (y)
above (including, without limitation giving effect to any Indebtedness and
Acquired Indebtedness incurred or anticipated to be incurred and any Lien
granted in connection with or in respect of the transaction), no Default or
Event of Default shall have occurred and be continuing; and (iv) the Parent or
the Surviving Entity shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or other disposition and,
if a supplemental indenture is required in connection with such transaction,
such supplemental indenture comply with the applicable provisions of the
Indenture and that all conditions precedent in the Indenture relating to such
transaction have been satisfied; PROVIDED, HOWEVER, that the foregoing
restrictions shall not apply to (i) any consolidation or merger of a Restricted
Subsidiary with or into (or sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of the properties, assets or
Capital Stock of a Restricted Subsidiary to) the Parent, the Issuer or another
Restricted Subsidiary which is a Guarantor, or (ii) a consolidation or merger of
Standard Wool with or into, or sale, assignment, transfer, lease, conveyance or
other disposition of the properties, assets or Capital Stock of Standard Wool to
any Person, PROVIDED that the Parent shall, prior to the consummation thereof,
obtain a favorable opinion as to the fairness of such transaction or series of
related transactions to Standard Wool or the Parent, as the case may be, from a
financial point of view, from an Independent Financial Advisor and shall provide
such opinion to the Trustee together with an Officer's Certificate setting forth
in reasonable detail the facts and circumstances of such transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Parent the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Parent, shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Parent.
The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree of
uncertainty in ascertaining whether a particular transaction would involve a
disposition of "all or substantially all" of the assets of the Company, and
therefore it may be unclear whether the foregoing provisions (or those relating
to a Change of Control) are applicable.
Upon any consolidation, combination or merger or any transfer of all or
substantially all of the assets of the Issuer or the Parent, as the case may be,
in accordance with the foregoing, in which the Issuer or the Parent, as the case
may be, is not the continuing corporation, the successor Person formed by such
consolidation or into which the Issuer or the Parent, as the case may be, is
merged or to which such conveyance, lease or transfer is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Issuer or
the Parent, as the case may be, under the Indenture and either the Notes or the
Parent Guarantee, as the case may be, with the same effect as if such surviving
entity had been named as such.
For all purposes of the Indenture, the Notes and the Parent Guarantee
(including the provisions of this covenant and the covenants described under
"Limitation on Incurrence of Additional Indebtedness," "Limitation on Liens" and
the definition of "Unrestricted Subsidiaries"), Subsidiaries of any Surviving
Entity will, upon such transaction or series of transactions, become Restricted
Subsidiaries and all Indebtedness, and all Liens on property or assets, of the
Company and the Restricted Subsidiaries immediately prior to such transaction or
series of transactions will be deemed to have been incurred upon such
transaction or series of transactions.
Notwithstanding the foregoing, all of the outstanding Capital Stock of the
Issuer shall at all times be owned by the Parent free and clear of all Liens
(other than the Lien held by the Trustee for the benefit of the Holders of the
Notes).
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LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. (a) The Parent will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each, an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are fair and reasonable to the Parent or such Restricted
Subsidiary and are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Parent or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property in excess of $2.5 million shall be approved by the Board of
Directors of the Parent, such approval to be evidenced by a Board Resolution
stating that such Board of Directors has determined that such transaction
complies with the foregoing provisions. If the Parent or any Restricted
Subsidiary of the Parent enters into an Affiliate Transaction (or a series of
related Affiliate Transactions related to a common plan) that involves an
aggregate payment or other property in excess of $5 million, the Parent or such
Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain a favorable opinion as to the fairness of such transaction or
series of related transactions to the Parent or the relevant Restricted
Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and shall provide such opinion to the Trustee
together with an Officer's Certificate setting forth in reasonable detail the
facts and circumstances of such transaction or series of related transactions.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to, and indemnity provided on behalf of,
officers, directors, employees or consultants of the Parent or any Restricted
Subsidiary of the Parent as determined in good faith by the Parent's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Parent and any of its Restricted Subsidiaries or exclusively between or
among such Restricted Subsidiaries, provided such transactions are not otherwise
prohibited by the Indenture; (iii) any agreement as in effect as of the Issue
Date (as set forth in a list to be provided to the Initial Purchasers on the
Issue Date) or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) or any replacement agreement
thereto so long as any such amendment or replacement agreement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date; (iv) Restricted Payments permitted by
the Indenture; and (v) transactions permitted by, and complying with, the
provisions of the covenant described under "Merger, Consolidation and Sale of
Assets."
ADDITIONAL SUBSIDIARY GUARANTEES. The Parent will not permit any of its
Restricted Subsidiaries to guarantee or secure through the granting of Liens the
payment of any Indebtedness (other than Indebtedness secured by Permitted Liens)
of the Parent or the Issuer, unless such Restricted Subsidiary is the Issuer or
a Guarantor. Any Restricted Subsidiary (other than the Issuer or any existing
Guarantor) may execute and deliver a supplemental indenture (and shall deliver
such legal opinions and other documents as are required by the Indenture)
evidencing its Guarantee of the Notes in order to facilitate a transaction which
would otherwise be prohibited by the foregoing restriction.
REPORTS TO HOLDERS. The Parent shall furnish to the Trustee and Holders all
annual and quarterly financial information that the Issuer or the Parent is
required to file with the Commission under the Exchange Act (or similar reports
in the event that the Issuer or the Parent is not at the time required to file
such reports with the Commission). In addition, even if the Issuer or the Parent
is entitled under the Exchange Act not to furnish such information to the
Commission or the Holders, it will nonetheless continue to furnish such
information to the Commission (to the extent the Commission is accepting such
reports) and Holders. The Company will also comply with the other provisions of
TIA (section mark) 314(a). The Issuer and the Guarantors will also make
available to the Trustee, Holders and any prospective purchaser of Notes
designated by any Holder, the information set forth in Rule 144A(d)(4) under the
U.S. Securities Act for so long as any Transfer Restricted Notes are
outstanding.
LIMITATION ON STATUS AS INVESTMENT COMPANY. The Parent will not become and
will not permit the Issuer or any Guarantor to conduct its business in a fashion
that would cause the Parent, the Issuer or any Guarantor to be required to
register as an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act")), or otherwise
become subject to regulation under the Investment Company Act.
LIMITATION ON LINE OF BUSINESS. The Parent and its Subsidiaries will not
engage in the manufacture or marketing of cigarettes, cigars or smokeless
tobacco products for retail consumption.
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EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest or Additional Interest, if any, on any
Notes when the same becomes due and payable and the default continues for a
period of 30 days;
(ii) the failure to pay the principal or premium on any Notes, when
such principal or premium becomes due and payable, at maturity, upon
redemption or otherwise (including the failure to make a payment to
purchase Notes tendered pursuant to a Change of Control Offer or a Net
Proceeds Offer);
(iii) a default in the observance or performance of the covenants
described under "Certain Covenants -- Limitations on Preferred Stock of
Restricted Subsidiaries," " -- Merger, Consolidation and Sale of Assets,"
and " -- Limitation on Line of Business";
(iv) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after the Parent receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Notes;
(v) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Issuer, the Parent or any Restricted Subsidiary
of the Parent, with respect to such Indebtedness, or the acceleration of
the final stated maturity of any such Indebtedness if the aggregate
principal amount of such Indebtedness, together with the principal amount
of any other such Indebtedness in default for failure to pay principal at
final maturity or which has been accelerated, aggregates $10 million or
more at any time;
(vi) one or more judgments in an aggregate amount in excess of $10
million (unless covered by insurance by a reputable insurer as to which the
insurer has acknowledged coverage or as to which the Issuer, the Parent or
such Restricted Subsidiary is fully indemnified and the indemnifying party
has acknowledged its obligations in respect of such indemnity) shall have
been rendered against the Issuer, the Parent or any of its Restricted
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and
non-appealable;
(vii) certain events of bankruptcy affecting the Issuer, the Parent or
any of its Significant Subsidiaries;
(viii) any of the Guarantees ceases to be in full force and effect or
any of the Guarantees is declared to be null and void and unenforceable or
any of such Guarantees is found to be invalid or any of the Guarantors
denies its liability under its Guarantee (other than by reason of release
of a Guarantor in accordance with the terms of the Indenture); or
(ix) any of the pledges of capital stock of the Issuer or Standard
Wool ceases to be in full force and effect or any such pledge is declared
to be null and void and unenforceable or any such pledge is found to be
invalid.
If an Event of Default (other than an Event of Default specified in clause
(vii) above with respect to the Issuer or the Parent) shall occur and be
continuing, the Trustee or the Holders of at least 25% in principal amount of
outstanding Notes may declare the principal of and accrued interest, premium, if
any, interest and any other monetary obligations on all the Notes to be due and
payable by notice in writing to the Issuer and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same shall become immediately due and payable;
PROVIDED that if prior to the delivery of any such "Notice of Acceleration" with
respect to an Event of Default specified in clause (iv) above, any such payment
default or acceleration relating to such other Indebtedness shall have been
cured or rescinded, as the case may be, or such Indebtedness has been discharged
in a manner consistent with the terms of the Indenture within 30 days of such
default or acceleration, as the case may be, then such Event of Default
specified in clause (iv) shall be deemed cured for all purposes of the
Indenture. If an Event of Default with respect to the Issuer or the Parent
specified in clause (vii) above occurs and is continuing, then all unpaid
principal of, and premium, if any, and accrued and unpaid interest on all of the
outstanding Notes shall IPSO FACTO become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal,
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which has become due otherwise than by such declaration of acceleration, has
been paid, (iv) if the Issuer has paid the Trustee its reasonable compensation
and reimbursed the Trustee for its expenses, disbursements and advances and (v)
in the event of the cure or waiver of an Event of Default of the type described
in clause (vii) of the description above of Events of Default, the Trustee shall
have received an officers' certificate and an opinion of counsel that such Event
of Default has been cured or waived. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest or Additional
Interest, if any, on any such Note held by a non-consenting Holder.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Issuer is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuer may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Issuer shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (ii) the Issuer's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (iii) the rights, powers, trust, duties and immunities of
the Trustee and the Issuer's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Issuer may, at
its option and at any time, elect to have the obligations of the Issuer released
with respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, reorganization and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Issuer must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Issuer shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Issuer has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Issuer shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than any Default or Event of Default with respect to
the Indenture resulting from the incurrence of Indebtedness, all or a portion of
which will be used to defease the Notes concurrently with such incurrence) or
insofar as Events of Default from bankruptcy or insolvency events are concerned,
at any time in the period ending on the 181st day after the date of deposit; (v)
such Legal Defeasance or Covenant Defeasance shall not
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result in a breach or violation of, or constitute a default under the Indenture
or any other material agreement or instrument to which the Issuer or any of its
Subsidiaries is a Party or by which the Issuer or any of its Subsidiaries is
bound; (vi) the Issuer shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Issuer with the intent
of preferring the Holders over any other creditors of the Issuer or any of the
Guarantors or with the intent of defeating, hindering, delaying or defrauding
any other creditors of the Issuer or any of the Guarantors or others; (vii) the
Issuer shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent provided for or
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with; (viii) the Issuer shall have delivered to the Trustee an opinion of
counsel in the United States (subject to customary exceptions) to the effect
that (A) the trust funds will not be subject to any rights of holders of
Indebtedness, including, without limitation, those arising under the Indenture
and (B) after the 181st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally under any applicable U.S.
federal or state law, and that the Trustee has a perfected security interest in
such trust funds for the ratable benefit of the Holders; and (ix) certain other
customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either
(a) all the Notes theretofore authenticated and delivered (except lost, stolen
or destroyed Notes which have been replaced or paid and Notes for whose payment
money has theretofore been deposited in trust or segregated and held in trust by
the Issuer and thereafter repaid to the Issuer or discharged from such trust)
have been delivered to the Trustee for cancellation or (b) all Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable and the Issuer has irrevocably deposited or caused to be deposited with
the Trustee funds in an amount sufficient to pay and discharge the entire
Indebtedness on the Notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on the Notes to
the date of deposit together with irrevocable instructions from the Issuer
directing the Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be; (ii) the Issuer has paid all other sums payable
under the Indenture by the Issuer; and (iii) the Issuer has delivered to the
Trustee an officers' certificate and an opinion of counsel stating that all
conditions precedent under the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Issuer, the Guarantors and the Trustee, without the
consent of the Holders, may amend the Indenture for certain specified purposes,
including, without limitation, (i) curing ambiguities, defects or
inconsistencies and (ii) other changes so long as any such change does not
adversely affect the rights of any of the Holders in any material respect. Other
modifications and amendments of the Indenture may be made with the consent of
the Holders of a majority in principal amount of the then outstanding Notes
issued under the Indenture, except that, without the consent of each Holder
affected thereby, no amendment may: (i) reduce the amount of Notes whose Holders
must consent to an amendment; (ii) reduce the rate of or change or have the
effect of changing the time for payment of premium, if any, and interest,
including defaulted interest, on any Notes; (iii) reduce the principal of or
change or have the effect of changing the fixed maturity of any Notes, or change
the date on which any Notes may be subject to redemption or repurchase, or
reduce the redemption or repurchase price therefore; (iv) make any Notes payable
in money other than that stated in the Notes; (v) make any change in provisions
of the Indenture protecting the right of each Holder to receive payment of
premium, if any, principal of and interest on such Note on or after the due date
thereof or to bring suit to enforce such payment, or permitting Holders of a
majority in principal amount of Notes to waive Defaults or Events of Default;
(vi) amend, change or modify in any material respect the obligation of the
Issuer to make and consummate a Change of Control Offer in the event of a Change
of Control or make and consummate a Net Proceeds Offer with respect to any Asset
Sale that has been consummated or modify any of the provisions or definitions
with respect thereto after a Change of Control has occurred or the subject Asset
Sale has been consummated; (vii) modify or change any provision of the Indenture
or the related definitions affecting the ranking of the Notes or any Guarantee
in a manner which adversely affects the Holders or (viii) release any Guarantor
from any of its obligations under its Guarantee or the Indenture otherwise than
in accordance with the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New York
but without giving effect to applicable principles of conflicts of law to the
extent that the
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application of the law of another jurisdiction would be required thereby;
PROVIDED that matters relating to the due authorization of the Notes by the
Issuer and the due authorization of (a) the Parent Guarantee by the Parent will
be governed by the laws of the State of North Carolina, and (b) Standard Wool
will be governed by the laws of the State of Delaware.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it by the Indenture, and use the same
degree of care and skill in its exercise as a prudent person would exercise or
use under the circumstances in the conduct of his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Issuer, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain of the defined terms used in the Indenture.
Reference is made to the Indenture, for the full definition of all such terms,
as well as any other terms used herein for which no definition is provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Parent or at the time it merges or consolidates with the Parent or any of
its Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Parent or such acquisition, merger or
consolidation.
"AFFILIATE" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"ASSET ACQUISITION" means (a) an Investment by the Parent or any Restricted
Subsidiary of the Parent in any other Person pursuant to which such Person shall
become a Restricted Subsidiary of the Parent or any Restricted Subsidiary of the
Parent, or shall be merged with or into the Parent or any Restricted Subsidiary
of the Parent, or (b) the acquisition by the Parent or any Restricted Subsidiary
of the Parent of the assets of any Person (other than a Restricted Subsidiary of
the Parent) which constitute all or substantially all of the assets of such
Person or comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Parent or any of its
Restricted Subsidiaries (including any Sale and Leaseback Transaction) to any
Person other than the Parent or a Restricted Subsidiary of the Parent of (a) any
Capital Stock of any Restricted Subsidiary of the Parent, (b) all or
substantially all of the properties and assets of any division or line of
business of the Parent or any Restricted Subsidiary or (c) any other property or
assets of the Company or any Restricted Subsidiary of the Parent, other than in
the ordinary course of business; provided that Asset Sales shall not include (i)
a transaction or series of related transactions for which the Parent or its
Restricted Subsidiaries receive aggregate consideration of less than $5 million,
(ii) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of the Parent as permitted under "Merger,
Consolidation and Sale of Assets," (iii) any disposition of assets or property
not in the ordinary course of business to the extent such property or assets are
obsolete, worn out or no longer useful in the Parent's or any Restricted
Subsidiary's business, (iv) the surrender or waiver of contract rights or the
settlement, release or surrender of contract, tort or other claims of any kind,
(v) the sale or discount, in each case without recourse, of accounts receivable
arising in the ordinary course of business, but only in connection with the
compromise or collection thereof, (vi) the factoring of accounts receivable
arising in the ordinary course of business pursuant to arrangements customary in
the region, (vii) the grant in the ordinary course of business of any
non-exclusive license of patents, trademarks, registrations therefor and other
similar intellectual property and (viii) any dividend, distribution, investment
or payment made pursuant to the first or second paragraph of the covenant
described under " -- Limitation on Restricted Payments".
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"BOARD OF DIRECTORS" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"BOARD RESOLUTION" means, with respect to any Person, a copy of a
resolution certified by the secretary, an assistant secretary or director of
such Person to have been duly adopted by the Board of Directors of such Person
and to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"CAPITALIZED LEASE OBLIGATION" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as finance lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"CAPITAL STOCK" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"CASH EQUIVALENTS" means: (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poors Corporation ("S&P") or Moody's Investors
Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than one year
from the date of creation thereof and, at the time of acquisition, having a
rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates
of deposit or bankers' acceptances maturing within one year from the date of
acquisition thereof issued by any bank organized under the laws of the United
States of America or any state thereof or the District of Columbia or any U.S.
branch of a foreign bank; (v) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clause (i)
above entered into with any bank meeting the qualifications specified in clause
(iv) above; (vi) in the case of any foreign Restricted Subsidiary, Investments
(a) in direct obligations of the sovereign nation (or any agency thereof) in
which such foreign Restricted Subsidiary is organized or is conducting a
substantial amount of business or in obligations fully and unconditionally
guaranteed by such sovereign nation (or any agency thereof), (b) of the type and
maturity described in clauses (i) through (v) above of foreign obligors, which
Investments or obligors (or the parents of such obligors) have ratings described
in such clauses or equivalent ratings from comparable foreign rating agencies or
(c) of the type and maturity described in clauses (i) through (v) above of
foreign obligors (or the parents of such obligors), which Investments or
obligors (or the parents of such obligors), are not rated as provided in such
clauses or in clause (vi)(b) but which are, in the reasonable judgment of the
Issuer, comparable in investment quality to such Investments and obligors (or
the parents of such obligors); and (vii) investments in money market funds which
invest substantially all their assets in securities of the types described in
clauses (i) through (vi) above.
"CERTIFICATED SECURITIES" means Notes in definitive registered form.
"CHANGE OF CONTROL" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture) (other than
to a Wholly Owned Restricted Subsidiary); (ii) the approval by the holders of
the Capital Stock of the Parent of any plan or proposal for the liquidation or
dissolution of the Parent (whether or not otherwise in compliance with the
provisions of the Indenture); (iii) the acquisition in one or more transactions,
of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act) by (x) any Person or Group (other than Permitted Holders), of any
securities of the Parent such that, as a result of such acquisition, such
Person, or Group either (A) beneficially owns (within the meaning of Rule 13d-3
under the Exchange Act), directly or indirectly, at least 30% of the Parent's
then outstanding voting securities entitled to vote on a regular basis for the
Board of Directors of the Parent, or (B) otherwise has the ability to elect,
directly or indirectly, a majority of the members of the Parent's Board of
Directors, including without limitation by the acquisition of proxies for the
election of directors; or (iv) the replacement of a majority of the Board of
Directors of the Parent over a two-year period from the directors who
constituted the Board of Directors of the Parent at the beginning of such
period, and such replacement shall not have been approved by a vote of at least
a majority of the Board of Directors of the Parent then still in office who
either were members of such Board of Directors at the beginning of such period
or whose election as a member of such Board of Directors was previously so
approved.
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"COMMON STOCK" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether outstanding on the Issue
Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"CONSOLIDATED EBITDA" means, with respect to any Person, for any period,
the sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes of
such Person and its Restricted Subsidiaries accrued in accordance with GAAP for
such period (other than income taxes attributable to extraordinary, unusual or
nonrecurring gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business), (B) Consolidated Interest Expense and
(C) Consolidated Non-cash Charges less (x) any non-cash items increasing
Consolidated Net Income for such period and (y) all cash payments during such
period relating to non-cash charges that were added back in determining
Consolidated EBITDA in any prior period, all as determined on a consolidated
basis for such Person and its Restricted Subsidiaries in accordance with GAAP.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges of
such Person for the Four Quarter Period. In addition to and without limitation
of the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis for the period of such calculation to the incurrence or repayment of
any Indebtedness of such Person or any of its Restricted Subsidiaries (and the
application of the proceeds thereof) giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness (and the
application of the proceeds thereof), other than the incurrence or repayment of
Indebtedness in the ordinary course of business for working capital purposes
pursuant to working capital facilities, occurring during the Four Quarter Period
or at any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment, as the case
may be (and the application of the proceeds thereof), occurred on the first day
of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the preceding
sentence shall give effect to the incurrence of such guaranteed Indebtedness as
if such Person or any Restricted Subsidiary of such Person had directly incurred
or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator (but
not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1)
interest on outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date, (2) if interest on any
Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period, and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, PLUS
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period TIMES
(y) a fraction, the numerator of which is one and the denominator of which is
one MINUS the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense with respect to all outstanding Indebtedness of such Person and its
Restricted Subsidiaries for such period determined on a consolidated basis in
accordance with GAAP, including without limitation, (a) any amortization of debt
discount and amortization or write-off of deferred financing costs, (b) the net
costs under Interest Swap Obligations, (c) all capitalized interest included in
cost of goods sold (but excluding capitalized interest included in inventory
held by the Person at the end of the period) and (d) the interest portion of any
deferred payment obligation; plus (ii) the interest component of Capitalized
Lease Obligations paid, accrued and/or scheduled to be paid or accrued by such
Person and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP; minus (iii) interest income received
by such Person and its Restricted Subsidiaries during such period as determined
on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP;
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PROVIDED that there shall be excluded therefrom (a) after-tax gains and losses
from Asset Sales or abandonments or reserves relating thereto, (b) after-tax
items classified as extraordinary or nonrecurring gains and losses or classified
as exceptional gains and losses to the extent they would be classified as
extraordinary or nonrecurring under GAAP, (c) the net income (or loss) of any
Person acquired in a "pooling of interests" transaction accrued prior to the
date it becomes a Restricted Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Restricted Subsidiary of the
referent Person, (d) the net income (but not loss) of any Restricted Subsidiary
of the referent Person to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is restricted
by a contract, operation of law or otherwise, (e) the net income of any Person,
other than a Restricted Subsidiary of the referent Person, except to the extent
of cash dividends or distributions paid to the referent Person or to a Wholly
Owned Restricted Subsidiary of the referent Person by such Person, (f) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of Consolidated Net Income accrued at
any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets and (i) one time non-cash compensation charges, including any
arising from existing stock options resulting from any merger or
recapitalization transaction.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Capital Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups subsequent
to the date of the Indenture in the book value of any asset owned by such Person
or a consolidated Subsidiary of such Person (other than purchase accounting
adjustments made, in connection with any acquisition of any entity that becomes
a consolidated Subsidiary of such Person after the date of the Indenture, to the
book value of the assets of such entity), (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in
each case, Permitted Investments), and (z) all unamortized debt discount and
expense and unamortized deferred charges as of such date, all of the foregoing
determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED NON-CASH CHARGES" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"CONSOLIDATED TANGIBLE NET WORTH" means, with respect to any Person as of
any date, the sum of (i) Consolidated Net Worth, MINUS (ii) the amount of such
Person's intangible assets at such date, including, without limitation, goodwill
(whether representing the excess of cost over book value of assets acquired or
otherwise), capitalized expenses (excluding capitalized interest included in
inventory held by the Person as of that date), patents, trademarks, trade names,
copyrights, franchises, licenses and deferred charges (such as, without
limitation, unamortized costs and costs of research and development), all
determined for such Person on a consolidated basis in accordance with GAAP, PLUS
(iii) translation adjustments as determined under FASB 52.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Parent or any Restricted Subsidiary of the Issuer against fluctuations in
currency values.
"DEFAULT" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"DISQUALIFIED CAPITAL STOCK" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof (except, in each case,
upon the occurrence of a customarily defined change of control), in whole or in
part, on or prior to the final maturity date of the Notes.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
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"FAIR MARKET VALUE" means, with respect to any asset or property or the
rendering of any service, the price which could be negotiated in an
arm's-length, free market transaction, for cash, between a willing seller and a
willing and able buyer, neither of whom is under undue pressure or compulsion to
complete the transaction. Fair market value shall be determined (A) by a
responsible senior officer of the Parent in the case of Fair Market Value not in
excess of $10 million, (B) by the Board of Directors of the Parent acting
reasonably and in good faith and evidenced by a Board Resolution of the Board of
Directors of the Parent delivered to the Trustee in the case of Fair Market
Value of greater than $10 million and less than $15 million and (C) by the Board
of Directors of the Parent acting reasonably and in good faith and evidenced by
a Board Resolution of the Board of Directors of the Parent and an opinion of an
Independent Financial Advisor as to the fairness of such transaction from a
financial point of view delivered to the Trustee in the case of Fair Market
Value of $15 million or greater.
"GAAP" means generally accepted accounting principles in the United States
as in effect as of the Issue Date, including without limitation, those set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"GLOBAL BANK FACILITY" means, collectively, the Credit Agreement, which was
entered into on the Issue Date, among the Issuer and two of its subsidiaries as
borrowers thereunder, Deutsche Bank A.G. as agent and Bankers Trust Company as
co-agent and the lenders thereunder (including any guarantee agreements and
related security documents), in each case as such agreements or documents may be
amended (including any amendment, restatement or restructuring thereof),
supplemented or otherwise modified or replaced from time to time, including any
agreement extending the maturity of, refunding, refinancing, increasing the
amount available under or replacing such agreement or document or any successor
or replacement agreement or document and whether by the same or any other agent,
lender or group of lenders.
"GUARANTORS" means the Parent, Standard Wool and any Restricted Subsidiary
of the Parent executing a supplemental indenture evidencing its guarantee of the
Notes subsequent to the Issue Date; PROVIDED that any Person constituting a
Guarantor as described above shall cease to constitute a Guarantor when its
respective Guarantee is released in accordance with the terms of the Indenture.
"HOLDER" means a holder of Notes.
"INDEBTEDNESS" means (without duplication) with respect to any Person, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business), (v) all Obligations for the
reimbursement of any obligor on any letter of credit, bankers' acceptance or
similar credit transaction, (vi) guarantees and other contingent obligations in
respect of Indebtedness of any other Person of the type referred to in clauses
(i) through (v) above and clause (viii) below, (vii) all Obligations of any
other Person of the type referred to in clauses (i) through (vi) which are
secured by any lien on any property or asset of such Person, the amount of such
Obligation being deemed to be the lesser of the fair market value of such
property or asset or the amount of the Obligation so secured, (viii) all
Obligations under currency agreements and interest swap agreements of such
Person and (ix) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed redemption price or repurchase price, but excluding accrued
dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of
any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the issuer of such
Disqualified Capital Stock.
"INDEPENDENT FINANCIAL ADVISOR" means a nationally recognized firm which,
in the judgment of the Board of Directors of the Parent, is independent and
qualified to perform the task for which it is to be engaged.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other
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Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"INVENTORY" means, as of any date, all inventory of the Parent and any of
its Restricted Subsidiaries, wherever located, valued in accordance with GAAP
and shown on the balance sheet of the Company for the quarterly period most
recently ended prior to such date for which financial statements of the Company
are available.
"INVESTMENT" means, with respect to any Person, any direct or indirect
loan, advance or other extension of credit (including, without limitation, a
guarantee (other than any guarantee which is made in compliance with the
provisions of "Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness" above) or capital contribution (by means of any transfer of cash
or other property (valued at the Fair Market Value thereof as of the date of
transfer)) to others or any payment for property or services for the account or
use of others), or any purchase or acquisition by such Person of any Capital
Stock, bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person, and all other items that would be classified as
investments on a balance sheet of such Person prepared in accordance with GAAP.
Notwithstanding the foregoing, "Investment" shall exclude extensions of trade
credit by the Company and its Restricted Subsidiaries on commercially reasonable
terms in accordance with normal trade practices of the Company or such
Restricted Subsidiary, as the case may be. For the purposes of the "Limitation
on Restricted Payments" covenant, (i) "Investment" shall include and be valued
at the Fair Market Value of the net assets of any Restricted Subsidiary at the
time that such Restricted Subsidiary is designated an Unrestricted Subsidiary
and shall exclude the Fair Market Value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment PLUS the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, but reduced by the payment of dividends or
distributions in connection with such Investment or any other amounts received
in respect of such Investment, provided that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Common
Stock of any direct or indirect Restricted Subsidiary of the Company such that,
after giving effect to any such sale or disposition, the Company no longer owns,
directly or indirectly, at least 50% of the outstanding Common Stock of such
Restricted Subsidiary, the Company shall be deemed to have made an Investment on
the date of any such sale or disposition equal to the fair market value of the
Common Stock of such Restricted Subsidiary not sold or disposed of.
"ISSUE DATE" means the date of original issuance of the Notes.
"LIEN" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"NET CASH PROCEEDS" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Parent or any of its Restricted Subsidiaries from such Asset Sale net of (a)
out-of-pocket expenses and fees relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees and sales commissions
and relocation expenses) and transmission costs (including foreign exchange
costs) in transferring money from the disposing entity) to an entity making a
prepayment required under the Indenture, (b) taxes paid or payable after taking
into account any reduction in consolidated tax liability due to available tax
credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Parent or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Parent or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"OBLIGATIONS" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"PERMITTED ADVANCES ON PURCHASES OF TOBACCO AND WOOL" means loans,
advances, extensions of credit and guarantees made by the Parent or any or its
Restricted Subsidiaries to growers and other suppliers of tobacco and wool
(including Affiliates) and tobacco growers' cooperatives, whether short-term or
long-term, in the ordinary course of business to finance
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the growing or processing of tobacco or wool only to the extent that the
aggregate principal amount of such loans, advances, extensions of credit and
guarantees outstanding at any time to any Person and such Person's Affiliates
does not exceed 20% (40% with respect to Meridional) of the Consolidated
Tangible Net Worth of the Company for the most recently ended fiscal quarter for
which internal financial statements are available.
"PERMITTED HOLDERS" means Mr. Ery W. Kehaya, his immediate family
(including grandchildren) and their spouses, as well as trusts or similar
entities for the benefit of any of the foregoing.
"PERMITTED INDEBTEDNESS" means, without duplication, each of the following:
(i) Indebtedness under the Notes, the Indenture and the Guarantees;
(ii) other Indebtedness of the Parent and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(iii) the incurrence by the Parent or any of its Restricted
Subsidiaries of Indebtedness under the Global Bank Facility (and the
incurrence by Restricted Subsidiaries of the Parent of guarantees thereof)
in an aggregate principal amount at any time outstanding (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Parent and its Restricted Subsidiaries
thereunder) not to exceed $200 million, less the aggregate amount of all
Net Proceeds of Asset Sales applied to permanently reduce the outstanding
amount of such Indebtedness (and to correspondingly reduce the commitments,
if any, with respect thereto) pursuant to the covenant described above
under the caption " -- Certain Covenants -- Limitation on Asset Sales";
(iv) the incurrence by the Parent or any of its Restricted
Subsidiaries of Indebtedness in an aggregate principal amount at any time
outstanding (excluding the amount then outstanding under the Parent's
outstanding 7 1/4% Convertible Subordinated Debentures due 2007) not to
exceed the sum of (A) 85% of Inventory, PLUS (B) 85% of Receivables, PLUS
(C) 85% of outstanding Permitted Advances on Purchases of Tobacco and Wool,
less the sum of any amounts then outstanding under clauses (i), (ii) and
(iii) of this definition;
(v) Interest Swap Obligations of the Parent and its Restricted
Subsidiaries, provided that such Interest Swap Obligations are entered into
to protect the Parent and its Restricted Subsidiaries from fluctuations in
interest rates on Indebtedness incurred in accordance with the Indenture to
the extent the notional principal amount of such Interest Swap Obligation
does not exceed the principal amount of the Indebtedness to which such
interest Swap Obligation relates;
(vi) Indebtedness under Currency Agreements; provided that (x) in the
case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Parent and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder and (y) in the case of Currency Agreements
which do not relate to Indebtedness, such Currency Agreements are entered
into for the purpose of hedging currency fluctuation risks associated with
the operation of the businesses of the Parent and its Restricted
Subsidiaries are not entered into for speculative purposes;
(vii) Indebtedness of a Restricted Subsidiary of the Parent to the
Issuer, the Parent or a Guarantor for so long as such Indebtedness is held
by the Issuer, the Parent or a Guarantor, in each case, subject to no Lien
held by a Person other than the Issuer, the Parent, a Guarantor, the
lenders under the Global Bank Facility or the Holders; provided that if as
of any date any Person other than the Issuer, the Parent or a Guarantor
owns or holds any such Indebtedness or any Person other than the Issuer,
the Parent, a Guarantor, the lenders under the Global Bank Facility or the
Holders holds a Lien in respect of such Indebtedness, such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness;
(viii) Indebtedness of the Parent to the Issuer or a Guarantor for so
long as such Indebtedness is held by the Issuer or a Guarantor, in each
case subject to no Lien; PROVIDED that (a) any Indebtedness of the Parent
to the Issuer or a Guarantor is unsecured and subordinated, pursuant to a
written agreement, to the Parent's obligations under the Indenture and the
Parent Guarantee and (b) if as of any date any Person other than the Issuer
or a Guarantor owns or holds any such Indebtedness or any Person (other
than the lenders under the Global Bank Facility) holds a Lien in respect of
such Indebtedness, such date shall be deemed the incurrence of Indebtedness
not constituting Permitted Indebtedness by the Parent;
(ix) Indebtedness of the Parent or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Parent or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
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(x) Indebtedness in respect of Capitalized Lease Obligations and/or
Purchase Money Indebtedness in an aggregate principal amount for all such
Indebtedness incurred pursuant to this clause (x) not to exceed $15 million
at any one time outstanding;
(xi) Indebtedness arising from agreements of the Parent or a
Restricted Subsidiary of the Parent providing for indemnification,
adjustment of purchase price, earn out or other similar obligations, in
each case incurred or assumed in connection with the disposition of any
business, assets or a Restricted Subsidiary of the Parent, other than
guarantees of indebtedness incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose
of financing such acquisition; PROVIDED that the maximum assumable
liability in respect of all such indebtedness shall at no time exceed the
gross proceeds actually received by the Parent and its Restricted
Subsidiaries in connection with such disposition;
(xii) Obligations in respect of performance and surety bonds and
completion guarantees provided by the Parent or any Restricted Subsidiary
of the Parent in the ordinary course of business;
(xiii) Refinancing Indebtedness;
(xiv) guarantees by the Parent and its Restricted Subsidiaries of each
other's Indebtedness; PROVIDED that such Indebtedness is permitted to be
incurred under the Indenture and such guarantee is permitted to be incurred
under the covenant described under "Certain Covenants -- Additional
Subsidiary Guarantees";
(xv) additional Indebtedness of the Parent and its Restricted
Subsidiaries in an aggregate principal amount not to exceed $15 million at
any one time outstanding; and
(xvi) Indebtedness incurred in connection with clause (xiii) of the
definition of "Permitted Investments."
"PERMITTED INVESTMENTS" means without duplication, each of the following:
(i) Investments existing on the Issue Date; (ii) Investments by the Parent or
any Restricted Subsidiary of the Parent in the Parent or in any Person that is
or will become (as soon as practicable) after such Investment a Wholly Owned
Restricted Subsidiary of the Parent or that will merge or consolidate into the
Parent or a Wholly Owned Restricted Subsidiary of the Parent; (iii) Investments
in the Issuer by the Parent or any Restricted Subsidiary of the Parent; PROVIDED
that any Indebtedness evidencing such Investment is unsecured and subordinated,
pursuant to a written agreement, to the Issuer's obligations under the Notes and
the Indenture; (iv) Investments in cash and Cash Equivalents; (v) loans and
advances to employees and officers of the Parent and its Restricted Subsidiaries
in the ordinary course of business not in excess of $2 million at any one time
outstanding; (vi) Currency Agreements and Interest Swap Obligations entered into
in the ordinary course of the Parent's or its Restricted Subsidiaries'
businesses and otherwise in compliance with the Indenture; (vii) Investments in
securities of trade creditors or customers received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers; (viii) Investments made by the Parent or its
Restricted Subsidiaries as a result of consideration received in connection with
an Asset Sale made in compliance with the "Limitation on Asset Sales" covenant;
(ix) Investments made in the ordinary course of business in export notes, trade
credit assignments, bankers' acceptances, guarantees and instruments of a
similar nature issued in connection with the financing of international trading
transactions by (a) any commercial bank or trust company (or any Affiliate
thereof) organized under the laws of the United States of America, any state
thereof, or the District of Columbia having capital and surplus in excess of
$100,000,000 or (b) any international bank of recognized standing ranking among
the world's 300 largest commercial banks in terms of total assets; (x) any
Permitted Advances on Purchases of Tobacco and Wool; (xi) Investments made in
any Person, not to exceed 10% of Consolidated Tangible Net Worth for the most
recently ended fiscal quarter for which internal financial statements are
available, engaged in the business of distributing and/or processing of leaf
tobacco or wool or a business reasonably related thereto (excluding the
manufacture or marketing of cigarettes, cigars or smokeless tobacco products
intended for retail consumption) in which the Parent (either directly or through
one or more Restricted Subsidiaries) owns at least 10% of the equity interests
of such Person and the Parent (or a Restricted Subsidiary, as applicable), and
has the contractual right to purchase or process tobacco or wool from such
Person; (xii) an amount not to exceed $25 million for the acquisition of the
capital stock of a non Wholly Owned Restricted Subsidiary of the Parent engaged
in the business of distributing and/or processing of leaf tobacco; and (xiii)
the acquisition, directly or indirectly, of at least 74.9% of Meridional, for an
aggregate purchase price of no more than $30 million.
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"PERMITTED LIENS" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate proceedings and
as to which the Company or its Restricted Subsidiaries shall have set aside on
its books such reserves as may be required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business;
(iii) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance, pensions and
other types of social security;
(iv) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded;
(v) easements, rights-of-way, zoning restrictions and other similar charges
or encumbrances in respect of real property not interfering in any material
respect with the ordinary conduct of the business of the Parent and its
Restricted Subsidiaries, taken as a whole;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation permitted under the definition of "Permitted Indebtedness", provided
that such Liens do not extend to any property or assets which is not leased
property subject to such Capitalized Lease Obligation;
(vii) purchase money Liens to finance property or assets of the Parent or
any Restricted Subsidiary of the Parent acquired in the ordinary course of
business; provided, however, that (A) the related purchase money Indebtedness is
permitted under the definition of "Permitted Indebtedness" and shall not exceed
the cost of such property or assets and shall not be secured by any property or
assets of the Parent or any Restricted Subsidiary of the Parent other than the
property and assets so acquired and additions and accessions thereto and
proceeds therefrom and (B) the Lien securing such Indebtedness shall be created
within 90 days of such acquisition;
(viii) Liens given to secure Permitted Indebtedness described under clauses
(ii), (iii) or (iv) of the definition of "Permitted Indebtedness";
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits, including operating lease deposits made to
secure obligations arising from statutory, regulatory, contractual, or warranty
requirements of the Parent or any of its Subsidiaries, including rights of
offset and set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; provided that
(A) such Liens secured such Acquired Indebtedness at the time of and prior to
the incurrence of such Acquired Indebtedness by the Parent or a Restricted
Subsidiary of the Parent and were not granted in connection with, or in
anticipation of, the incurrence of such Acquired Indebtedness by the Parent or a
Restricted Subsidiary of the Parent and (B) such Liens do not extend to or cover
any property or assets of the Parent or of any of its Restricted Subsidiaries
other than the property or assets that secured the Acquired Indebtedness prior
to the time such Indebtedness became Acquired Indebtedness of the Parent or a
Restricted Subsidiary of the Parent and are no more favorable to the lienholders
than those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Parent or a Restricted Subsidiary of the Parent;
(xiv) Leases or subleases granted to others not interfering in any material
respect with the business of the Parent or any Restricted Subsidiary;
(xv) Any interest or title of a lessor in the property subject to any
lease, whether characterized as capitalized or operating, other than any such
interest or title resulting from or arising out of a default by the Parent or
any Restricted Subsidiary of its obligations under such lease;
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(xvi) Liens arising from filing UCC financing statements for precautionary
purposes in connection with true leases of personal property that are otherwise
permitted under the Indenture and under which the Parent or any Restricted
Subsidiary is lessee; and
(xvii) Liens in favor of the Trustee and any substantially equivalent Lien
granted to any trustee or similar institution under any indenture governing
Indebtedness permitted to be Incurred or outstanding under the Indenture.
"PERSON" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"PREFERRED STOCK" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the Parent or its
Restricted Subsidiaries incurred for the purpose of financing all or any part of
the purchase price or the cost of installation, construction or improvement of
any property.
"QUALIFIED CAPITAL STOCK" means any Capital Stock that is not Disqualified
Capital Stock.
"RECEIVABLES" means, as of any date, all accounts receivable of the Parent
and any of its Restricted Subsidiaries arising out of the sale of inventory in
the ordinary course of business, valued in accordance with GAAP and shown on the
balance sheet of the Company for the quarterly period most recently ended prior
to such date for which financial statements of the Company are available.
"REFINANCE" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"REFINANCING INDEBTEDNESS" means any Refinancing by the Parent or any
Restricted Subsidiary of the Parent of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (iii), (iv), (v), (vi), (vii), (viii), (ix), (xiv) or (xv) of
the definition of Permitted Indebtedness), in each case that does not (1) result
in an increase in the aggregate principal amount of Indebtedness of such Person
as of the date of such proposed Refinancing (plus the amount of any premium
required to be paid under the terms of the instrument governing such
Indebtedness and plus the amount of reasonable expenses incurred by the Parent
or its Restricted Subsidiary in connection with such Refinancing) or (2) in any
case where Indebtedness that is being Refinanced was long-term Indebtedness,
create Indebtedness with (A) a Weighted Average Life to Maturity that is less
than the Weighted Average Life to Maturity of the Indebtedness being Refinanced
or (B), in the case of Indebtedness, a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness of the Issuer, then such
Refinancing Indebtedness shall be Indebtedness solely of the Issuer and (y) if
such Indebtedness being Refinanced is subordinate or junior to the Notes, then
such Refinancing Indebtedness shall be subordinate to the Notes at least to the
same extent and in the same manner as the Indebtedness being Refinanced.
"RESTRICTED SUBSIDIARY" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary and shall
include, on the Issue Date, every Subsidiary of the Parent, including in the
case of Restricted Subsidiaries of the Parent, the Issuer.
"SALE AND LEASEBACK TRANSACTION" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Parent or a Restricted Subsidiary of any property, whether owned
by the Parent or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Parent or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such Property.
"SIGNIFICANT SUBSIDIARY" shall have the meaning set forth in Rule 1.02 (w)
of Regulation S-X under the Securities Act.
"SUBSIDIARY" of any Person means (i) any corporation of which the
outstanding Capital Stock having at least a majority of the votes entitled to be
cast in the election of directors under ordinary circumstances shall at the time
be owned, directly or indirectly, by such Person or (ii) any other Person of
which at least a majority of the voting interest under ordinary circumstances is
at the time, directly or indirectly, owned by such Person.
"TOTAL CAPITALIZATION" means the sum of (i) the total consolidated
indebtedness of the Company and (ii) the Company's consolidated shareholders'
equity (excluding any goodwill reserve).
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"UNRESTRICTED SUBSIDIARY" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Parent or any other Subsidiary of the Parent that is not a Subsidiary of the
Subsidiary to be so designated; provided that (x) the Parent certifies to the
Trustee that such designation complies with the "Limitation on Restricted
Payments" covenant and (y) each Subsidiary to be so designated and each of its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Parent or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Issuer is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant, (y) such
designation is at that time permitted under "Limitation on Restricted Payments"
above and (z) immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be evidenced to
the Trustee by promptly filing with the Trustee a copy of the Board Resolution
giving effect to such designation and an officers' certificate certifying that
such designation complied with the foregoing provisions.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
INITIAL NOTES REGISTRATION RIGHTS
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Issuer contained in the Registration Rights Agreement, dated
August 1, 1997 (the "Registration Rights Agreement") between the Issuer and BT
Securities Corporation and Wheat First Securities, Inc. (the "Initial
Purchasers"), with respect to the sale of the Initial Notes. Upon the Exchange
Offer Registration Statement being declared effective, the Issuer and the
Guarantors will offer the Exchange Notes in exchange for surrender of the Notes.
The Issuer and the Guarantors will keep the Exchange Offer open for not less
than 30 days (or longer if required by applicable law) after the date of notice
of the Exchange Offer is mailed to the Holders of the Initial Notes. For each of
the Initial Notes surrendered to the Issuer pursuant to the Exchange Offer, the
Holder who surrendered such Initial Notes will receive an Exchange Note having a
principal amount equal to that of the surrendered Initial Notes. Interest on
each Exchange Note will accrue (A) from the later of (i) the last interest
payment date on which interest was paid on the Initial Note surrendered in
exchange therefor or (ii) if the Initial Note is surrendered for exchange on a
date in a period which includes the record date for an interest payment date to
occur on or after the date of such exchange and as to which interest will be
paid, the date of such interest payment date or (B) if no interest has been paid
on the Initial Notes, from the Issue Date.
Under existing interpretations of the Commission contained in several
no-action letters to third parties, the Exchange Notes will be freely
transferable by holders thereof (other than affiliates of any of the Issuer or
the Guarantors) after the Exchange Offer without further registration under the
U.S. Securities Act; PROVIDED, HOWEVER, that each Holder that wishes to exchange
its Initial Notes for Exchange Notes will be required to represent (i) that any
Exchange Notes to be received by it will be acquired in the ordinary course of
its business, (ii) that at the time of the commencement of the Exchange Offer it
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the U.S. Securities Act) of the Exchange
Notes in violation of the U.S. Securities Act, (iii) that it is not an
"affiliate" (as defined in Rule 405 promulgated under the U.S. Securities Act)
of any of the Issuer or the Guarantors, (iv) if such Holder is not a
broker-dealer, that it is not engaged in, and does not intend to engage in, the
distribution of Exchange Notes and (v) if such Holder is a broker-dealer (a
"Participating Broker-Dealer") that will receive Exchange Notes for its own
account in exchange for Initial
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Notes that were acquired as a result of market-making or other trading
activities, that it will deliver a prospectus in connection with any resale of
such Exchange Notes. Each of the Issuer and the Guarantors has agreed to make
available, during the period required by the U.S. Securities Act, a prospectus
meeting the requirements of the U.S. Securities Act for use by Participating
Broker-Dealers and other persons, if any, with similar prospectus delivery
requirements for use in connection with any resale of Exchange Notes.
If, (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Issuer and the Guarantors
are not permitted to effect an Exchange Offer, (ii) the Exchange Offer is not
consummated within 165 days of the Issue Date, (iii) in certain circumstances,
certain holders of unregistered Exchange Notes so request or (iv) in the case of
any Holder that participates in the Exchange Offer, such Holder does not receive
Exchange Notes on the date of the exchange that may be sold without restriction
under state and federal securities laws (other than due solely to the status of
such Holder as an affiliate of any of the Issuer or the Guarantors within the
meaning of the U.S. Securities Act), then in each case, each of the Issuer and
the Guarantors will (x) promptly deliver to the Holders and the Trustee written
notice thereof and (y) at their sole expense, (a) as promptly as practicable,
file a shelf registration statement covering resales of the Initial Notes (the
"Shelf Registration Statement"), (b) use their best efforts to cause the Shelf
Registration Statement to be declared effective under the U.S. Securities Act
and (c) use their best efforts to keep effective the Shelf Registration
Statement until the earlier of two years after its effective date or such time
as all of the applicable Initial Notes have been sold thereunder; PROVIDED, that
they may suspend the effectiveness of the Shelf Registration Statement for a
period (a "Black-out Period") not to exceed 60 days in any calendar year if (i)
an event occurs and is continuing as a result of which the Shelf Registration
Statement would, in the Issuer's good faith judgment, contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading and (ii) (a) the Issuer determines in its good
faith judgment that the disclosure of such event at such time would have a
material adverse effect on the business, operations or prospects of the Company
or (b) the disclosure otherwise relates to a pending material business
transaction which has not yet been publicly disclosed. Each of the Issuer and
the Guarantors will, in the event that a Shelf Registration Statement is filed
and is not then subject to a Black-out Period, provide to each Holder copies of
the prospectus that is a part of the Shelf Registration Statement, notify each
such Holder when the Shelf Registration Statement for the Initial Notes has
become effective and take certain other actions as are required to permit
unrestricted resales of the Initial Notes. A Holder that sells Initial Notes
pursuant to the Shelf Registration Statement will be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the U.S. Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
Holder (including certain indemnification rights and obligations).
If the Issuer and the Guarantors fail to comply with the above provision or
if the Exchange Offer Registration Statement or the Shelf Registration Statement
fails to become or remain effective as required, then, as liquidated damages,
additional interest (the "Additional Interest") shall become payable in respect
of the Initial Notes as follows:
(i) if (A) neither the Exchange Offer Registration Statement nor
Shelf Registration Statement is filed with the Commission on or prior to
the Filing Date or (B) notwithstanding that the Issuer and the Guarantors
have consummated or will consummate an Exchange Offer, the Issuer and the
Guarantors are required to file a Shelf Registration Statement and such
Shelf Registration Statement is not filed on or prior to the date required
by the Registration Rights Agreement, then commencing on the day after
either such required filing date, Additional Interest shall accrue on the
principal amount of the Initial Notes at a rate of 0.50% per annum for the
first 90 days immediately following each such filing date, such Additional
Interest rate increasing by an additional 0.50% per annum at the beginning
of each subsequent 90-day period; or
(ii) if (A) neither the Exchange Offer Registration Statement nor a
Shelf Registration Statement is declared effective by the Commission on or
prior to the date required by the Registration Rights Agreement or (B)
notwithstanding that the Issuer and the Guarantors have consummated or will
consummate an Exchange Offer, the Issuer and the Guarantors are required to
file a Shelf Registration Statement and such Shelf Registration Statement
is not declared effective by the Commission on or prior to the 60th day
following the date such Shelf Registration statement was filed, then,
commencing on the day after the required effectiveness date, Additional
Interest shall accrue on the principal amount of the Initial Notes at a
rate of 0.50% per annum for the first 90 days immediately following such
date, such Additional Interest rate increasing by an additional 0.50% per
annum at the beginning of each subsequent 90-day period; or
(iii) if (A) the Issuer and the Guarantors have not exchanged Exchange
Notes for all Initial Notes validly tendered in accordance with the terms
of the Exchange Offer on or prior to the 45th day after the date on which
the Exchange
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<PAGE>
Offer Registration Statement was declared effective or (B) if applicable,
the Shelf Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
second anniversary of its effective date (other than after such time as all
Notes have been disposed of thereunder), then Additional Interest shall
accrue on the principal amount of the Initial Notes at a rate of 0.50% per
annum for the first 90 days commencing on (x) the 46th day after such
effective date, in the case of (A) above, or (y) the day such Shelf
Registration Statement ceases to be effective in the case of (B) above,
such Additional Interest rate increasing by an additional 0.50% per annum
at the beginning of each subsequent 90-day period;
PROVIDED, HOWEVER, that the Additional Interest rate on the Initial Notes may
not exceed in the aggregate 2.0% per annum; PROVIDED, FURTHER, HOWEVER, that (1)
upon the filing of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of clause (ii) above), or (3) upon the
exchange of Exchange Notes for all Initial Notes tendered (in the case of clause
(iii) (A) above), or upon the effectiveness of the Shelf Registration Statement
which had ceased to remain effective (in the case of clause (iii) (B) above),
Additional Interest on the Initial Notes as a result of such clause (or the
relevant subclause thereof) as the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clause (i), (ii) or
(iii) above will be payable in cash on February 1 and August 1 of each year to
the Holders of record on the preceding January 15 or July 15, respectively.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which is available upon request to the Issuer.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Exchange Notes initially
will be represented by one or more permanent global certificates in definitive,
fully registered form (each a "Global Note"). Upon issuance, each Global Note
will be deposited with, or on behalf of, The Depository Trust Company, New York,
New York ("DTC") and registered in the name of a nominee of DTC.
If a holder tendering Initial Notes so requests, such holder's Exchange
Notes will be issued as described below under "Certificated Securities" in
registered form without coupons (each a "Certificated Security").
GLOBAL NOTES. The Issuer expects that pursuant to procedures established by
DTC (i) upon the issuance of a Global Note, DTC or its custodian will credit, on
its internal system, the principal amount of Exchange Notes of the individual
beneficial interests represented by such Global Note to the respective accounts
of persons who have accounts with such depository and (ii) ownership of
beneficial interests in the Global Note will be shown on, and the transfer of
such ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of Participants (as defined herein)) and the
records of Participants (with respect to interests of persons other than
Participants). Ownership of beneficial interests in the Global Note will be
limited to persons who have accounts with DTC ("Participants") or persons who
hold interests through Participants. QIBs may hold their interests in the Global
Note directly through DTC, if they are participants in such system, or
indirectly through organizations which are Participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Exchange Notes represented by such Global Note for
all purposes under the Indenture. No beneficial owner of an interest in the
Global Note will be able to transfer that interest except in accordance with
DTC's procedures, in addition to those provided for under the Indenture with
respect to the Notes.
Payments of the principal of, premium (if any), and interest (including
Additional Interest) on any Exchange Note represented by a Global Note will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
None of the Company, the Trustee or any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Issuer expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest (including Additional Interest) on any
Exchange Note represented by a Global Note, will credit Participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of the Global Note as shown on the records of DTC or its
nominee. The Issuer also expects that payments by Participants to owners of
beneficial interests in the Global Note held through such Participants will be
governed by standing instructions and customary practice, as is now
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<PAGE>
the case with securities held for the accounts of customers registered in the
names of nominees for such customers. Such payments will be the responsibility
of such Participants.
Transfers between Participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same-day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Issuer that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more Participants to whose
account the DTC interests in the Global Note are credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Note
for Certificated Securities, which it will distribute to its Participants.
DTC has advised the Issuer as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among Participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations. Neither the Issuer nor the Trustee shall be liable
for any delay by DTC or any participant or indirect participant in identifying
the beneficial owners of the related Exchange Notes and each such person may
conclusively rely on, and shall be protected in relying on, instructions from
DTC for all purposes (including with respect to registration and delivery, and
the respective principal amounts, of the Exchange Notes to be issued).
CERTIFICATED SECURITIES. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Notes and a successor depositary is not
appointed by the Issuer within 90 days, Certificated Securities will be issued
in exchange for the Global Notes.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The Issuer has received the opinion of Wyrick Robbins Yates & Ponton LLP
that the following summary "fairly describes the material United States federal
income tax consequences to holders resulting from their exchange of the Initial
Notes for the Exchange Notes and the ownership and disposition of Exchange Notes
under currently applicable federal income tax law." The following summary is
based upon the provisions of the Internal Revenue Code of 1986, as amended, the
final, temporary and proposed regulations promulgated thereunder, and
administrative rulings and judicial decisions now in effect, all of which are
subject to change (possibly with retroactive effect) or different
interpretations. The following summary is not binding on the Internal Revenue
Service ("IRS") and there can be no assurance that the IRS will take a similar
view with respect to the tax consequences described below. No ruling has been or
will be requested by the Issuer from the IRS on any tax matters relating to the
Exchange Notes or the Exchange Offer. This discussion is for general information
only and does not purport to address all of the possible federal income tax
consequences or any state, local or foreign tax consequences of the acquisition,
ownership and disposition of the Initial Notes, the Exchange Notes or the
Exchange Offer. It is limited to investors who will hold the Initial Notes and
the Exchange Notes as capital assets and does not address the federal income tax
consequences that may be relevant to particular investors in light of their
unique circumstances or to certain types of investors (such as dealers in
securities, insurance companies, financial institutions, foreign corporations,
partnerships, trusts, nonresident individuals and tax-exempt entities) who may
be subject to special treatment under federal income tax laws. PERSONS
CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF EXCHANGE NOTES SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR INTERNATIONAL TAXING JURISDICTION.
75
<PAGE>
INDEBTEDNESS
The Initial Notes and the Exchange Notes should be treated as indebtedness
of the Issuer. In the unlikely event the Initial Notes or the Exchange Notes
were treated as equity, the amount treated as a distribution on any such Initial
Note or Exchange Note would first be taxable to the Holder as dividend income to
the extent of the Issuer's current and accumulated earnings and profits, and
would next be treated as a return of capital to the extent of the Holder's tax
basis in the Initial Notes or Exchange Notes, with any remaining amount treated
as a gain from the sale of an Initial Note or an Exchange Note. In addition, in
the event of equity treatment, amounts received in retirement of an Initial Note
or an Exchange Note might in certain circumstances be treated as a dividend, and
the Issuer could not deduct amounts paid as interest on such Initial Notes or
Exchange Notes. The remainder of this discussion assumes that the Initial Notes
and the Exchange Notes will constitute indebtedness.
EXCHANGE OFFER
The exchange of the Initial Notes for Exchange Notes pursuant to the
Exchange Offer should not be treated as an "exchange" because the Exchange Notes
should not be considered to differ materially in kind or extent from the Initial
Notes. Rather, the Exchange Notes received by a Holder of the Initial Notes
should be treated as a continuation of the Initial Notes in the hands of such
Holder. Accordingly, there should be no federal income tax consequences to
Holders exchanging the Initial Notes for the Exchange Notes pursuant to the
Exchange Offer. The holding period of Exchange Notes in the hands of a Holder
should include the holding period of the Initial Notes exchanged for such
Exchange Notes.
INTEREST
A Holder of an Initial Note or an Exchange Note will be required to report
stated interest on the Initial Note and the Exchange Note as interest income in
accordance with the Holder's method of accounting for tax purposes. Because the
Initial Notes were issued at par there is no original issue discount pursuant to
the de minimis exception to the "original issue discount" rules.
TAX BASIS IN INITIAL NOTES AND EXCHANGE NOTES
A Holder's tax basis in an Initial Note will generally be the Holder's
purchase price for the Initial Note. If a Holder of an Initial Note exchanges
the Initial Note for an Exchange Note pursuant to the Exchange Offer, the tax
basis of the Exchange Note immediately after such exchange should equal the
Holder's tax basis in the Initial Note immediately prior to the exchange.
DISPOSITION OF INITIAL NOTES OR EXCHANGE NOTES
The sale, exchange, redemption or other disposition of an Initial Note or
an Exchange Note, except in the case of an exchange pursuant to the Exchange
Offer (see the above discussion), generally will be a taxable event. A Holder
generally will recognize gain or loss equal to the difference between (i) the
amount of cash plus the fair market value of any property received upon such
sale, exchange, redemption or other taxable disposition of the Initial Note or
the Exchange Note (except to the extent attributable to accrued interest) and
(ii) the Holder's adjusted tax basis in such debt instrument. Such gain or loss
will be capital gain or loss, and will be mid-term if the Initial Notes or
Exchange Notes have been held for longer than a year but no more than 18 months
at the time of sale or other disposition, and will be long-term if the Initial
Notes or the Exchange Notes have been held for more than 18 months at the time
of the sale or other disposition.
PURCHASERS OF INITIAL NOTES AT OTHER THAN ORIGINAL ISSUANCE PRICE
The foregoing does not discuss special rules which may affect the treatment
of purchasers that acquired Initial Notes other than at par, including those
provisions of the Internal Revenue Code relating to the treatment of "market
discount" and "amortizable bond premium." Any such purchaser should consult its
tax advisor as to the consequences to it of the acquisition, ownership and
disposition of Initial Notes.
BACKUP WITHHOLDING
Unless a Holder provides its correct taxpayer identification number
(employer identification number or social security number) to the Issuer and
certifies that such number is correct, generally under the federal income tax
backup withholding rules, 31% of (1) the interest paid on the Initial Notes and
the Exchange Notes, and (2) proceeds of sale of the Initial Notes and the
Exchange Notes, must be withheld and remitted to the United States Treasury.
Therefore, each Holder should complete and sign the Substitute Form W-9 included
with the Letter of Transmittal so as to provide the information and
certification necessary to avoid backup withholding. However, certain Holders
(including, among others, certain foreign individuals) are not subject to these
backup withholding and reporting requirements. For a foreign individual Holder
to qualify as an exempt foreign recipient, that Holder must submit a statement,
signed under penalties of perjury, attesting to that individual's
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<PAGE>
exempt foreign status. Such statements can be obtained from the Issuer. For
further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete the Substitute
Form W-9 if the Initial Notes are held in more than one name), contact the
Issuer's Secretary, 2201 Miller Road, Wilson, North Carolina, or telephone
number (919) 291-5507.
Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to backup withholding will be
reduced by the amount of tax withheld. If backup withholding results in an
overpayment of taxes, a refund may be obtained from the IRS.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission (the "Staff") set
forth in no-action letters issued to third parties, the Issuer believes that
Exchange Notes issued pursuant to the Exchange Offer in exchange for the Initial
Notes may be offered for resale, resold and otherwise transferred by Holders
thereof (other than any Holder which is (i) an "affiliate" of the Issuer within
the meaning of Rule 405 under the Securities Act, (ii) a broker-dealer who
acquired Notes directly from the Issuer, or (iii) broker-dealers who acquired
Notes as a result of market-making or other trading activities) without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such Holders' business, and such Holders are not engaged in, and do
not intend to engage in, and have no arrangement or understanding with any
person to participate in, a distribution of such Exchange Notes; provided that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the
Exchange Offer will be subject to a prospectus delivery requirement with respect
to resales of such Exchange Notes. To date, the Staff has taken the position
that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as the exchange pursuant to the Exchange Offer (other than a resale of an
unsold allotment from the sale of the Initial Notes to the Initial Purchaser)
with the Prospectus contained in the Exchange Offer Registration Statement.
Pursuant to the Registration Rights Agreement, the Issuer has agreed to permit
Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use this Prospectus in connection with the
resale of such Exchange Notes. The Issuer has agreed that, for a period of 180
days after the Expiration Date, it will make this Prospectus, and any amendment
or supplement to this Prospectus, available to any broker-dealer that requests
such documents.
Each Holder of the Initial Notes who wishes to exchange its Initial Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations to the Issuer as set forth in "The Exchange Offer -- Purpose and
Effect of the Exchange Offer". In addition, each Holder who is a broker-dealer
and who receives Exchange Notes for its own account in exchange for Initial
Notes that were acquired by it as a result of market-making activities or other
trading activities, will be required to acknowledge that it will deliver a
prospectus in connection with any resale by it of such Exchange Notes.
The Issuer will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
a prospectus, and by delivering a prospectus a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The Issuer has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Initial Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act, as set
forth in the Registration Rights Agreement.
LEGAL MATTERS
Certain legal matters regarding the Exchange Notes will be passed upon for
the Company by Wyrick Robbins Yates & Ponton LLP, Raleigh, North Carolina.
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<PAGE>
EXPERTS
The Financial Statements of Standard Commercial Corporation and Standard
Commercial Tobacco Co., Inc. and Subsidiaries as of March 31, 1997 and 1996 and
for each of the three years in the period ended March 31, 1997 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and in the Registration Statement, and
are included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). In the event that the
Company ceases to be subject to the informational requirements of the Exchange
Act, the Company has agreed that, so long as any Notes remain outstanding, it
will file with the Commission and distribute to holders of the Initial Notes or
the Exchange Notes, as applicable, copies of the financial information that
would have been contained in such annual reports and quarterly reports,
including management's discussion and analysis of financial condition and
results of operations, that would have been required to be filed with the
Commission pursuant to the Exchange Act. See "Description of the
Notes -- Certain Covenants -- Reports to Holders".
The Issuer has filed with the Commission a registration statement on Form
S-4 (the "Registration Statement") under the Securities Act with respect to the
Exchange Notes. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. Items of information
omitted from this Prospectus but contained in the Registration Statement can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports, proxy
statements and other information concerning the Company may also be inspected at
the offices of the New York Stock Exchange, Inc. at 20 Broad Street, New York,
New York 10005.
The Commission maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's web-site is
http:\\www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Parent Guarantor with the Commission
are hereby incorporated by reference in this Prospectus: the Annual Report on
Form 10-K for the year ended March 31, 1997; definitive proxy solicitation
materials dated June 25, 1997; Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997; and Current Reports on Form 8-K filed July 10 and August 4,
1997.
All reports and other documents subsequently filed by the Issuer or the
Guarantors with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Prospectus and prior to the termination
of this offering shall be deemed to be incorporated by reference herein and to
be a part hereof from the date of filing of such reports and documents. Any
statement contained or incorporated or deemed to be incorporated herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written or oral request of such person, a copy of any or all of
the foregoing documents incorporated herein by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated herein by
reference into such documents). Requests for such documents should be submitted
in writing to the Company's Corporate Secretary at its principal executive
offices at 2201 Miller Road, Wilson, North Carolina 27893 or by telephone at
919-291-5507.
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STANDARD COMMERCIAL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
STANDARD COMMERCIAL CORPORATION AND SUBSIDIARIES (the "Company")
Report of Independent Auditors....................................................................................... F-2
Consolidated Balance Sheets as of June 30, 1997 (unaudited), and March 31, 1997 and 1996............................. F-3
Consolidated Statements of Income and Retained Earnings
for the three months ended June 30, 1997 and 1996 (unaudited), and for the years ended March 31, 1997, 1996 and
1995.............................................................................................................. F-4
Consolidated Statements of Cash Flows for the three months ended June 30, 1997 and 1996 (unaudited), and for the
years ended March 31, 1997, 1996 and 1995......................................................................... F-5
Notes to Consolidated Financial Statements........................................................................... F-6
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES (the "Issuer")
Report of Independent Auditors....................................................................................... F-40
Consolidated Balance Sheets as of June 30, 1997 (unaudited), and March 31, 1997 and 1996............................. F-41
Consolidated Statements of Income and Retained Earnings
for the three months ended June 30, 1997 and 1996 (unaudited), and for the years ended March 31, 1997, 1996 and
1995.............................................................................................................. F-42
Consolidated Statements of Cash Flows for the three months ended June 30, 1997 and 1996 (unaudited), and for the
years ended March 31, 1997, 1996 and 1995......................................................................... F-43
Notes to Consolidated Financial Statements........................................................................... F-44
STANDARD COMMERCIAL CORPORATION (the "Parent Guarantor")
Report of Independent Auditors....................................................................................... F-51
Condensed Balance Sheets as of June 30, 1997 (unaudited), and March 31, 1997 and 1996................................ F-52
Condensed Statements of Income and Retained Earnings
for the three months ended June 30, 1997 and 1996 (unaudited), and for the years ended March 31, 1997, 1996 and
1995.............................................................................................................. F-53
Condensed Statements of Cash Flows for the three months ended June 30, 1997 and 1996 (unaudited), and for the years
ended March 31, 1997, 1996 and 1995............................................................................... F-54
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF STANDARD COMMERCIAL CORPORATION
We have audited the accompanying consolidated balance sheets of Standard
Commercial Corporation as of March 31, 1997 and 1996 and the related
consolidated statements of income and retained earnings and of cash flows for
each of the three years in the period ended March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at March 31, 1997
and 1996 and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1997 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
June 18, 1997
F-2
<PAGE>
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
----------- --------------------
1997 1997 1996
----------- -------- --------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Cash..................................................................................... $ 40,037 $ 41,117 $ 78,688
Receivables (Note 3)..................................................................... 240,694 266,560 252,117
Inventories (Notes 1 and 4).............................................................. 334,550 256,519 259,781
Prepaid expenses......................................................................... 8,286 6,285 3,690
Marketable securities (Note 1)........................................................... 798 837 5,325
----------- -------- --------
Current assets......................................................................... 624,365 571,318 599,601
Property, plant and equipment (Notes 1 and 5)............................................ 118,956 122,013 134,498
Investment in affiliates (Notes 1 and 6)................................................. 12,252 12,533 11,442
Other assets (Notes 1, 7 and 11)......................................................... 28,763 29,821 37,283
----------- -------- --------
Total assets........................................................................... $ 784,336 $735,685 $782,824
----------- -------- --------
----------- -------- --------
LIABILITIES
Short-term borrowings (Note 8)........................................................... $ 144,306 $272,325 $373,625
Current portion of long-term debt (Note 10).............................................. 7,831 8,985 11,665
Accounts payable (Note 9)................................................................ 208,681 141,145 133,737
Taxes accrued (Note 16).................................................................. 24,637 28,758 24,776
----------- -------- --------
Current liabilities.................................................................... 385,455 451,213 543,803
Long-term debt (Note 10)................................................................. 134,559 70,252 31,818
Convertible subordinated debentures (Note 10)............................................ 69,000 69,000 69,000
Retirement and other benefits (Note 11).................................................. 19,048 19,127 18,498
Deferred taxes (Notes 1 and 16).......................................................... 6,672 5,819 9,632
Commitments and contingencies (Note 12).................................................. -- -- --
----------- -------- --------
Total liabilities...................................................................... 614,734 615,411 672,751
----------- -------- --------
MINORITY INTERESTS (Note 1).............................................................. 30,110 30,312 27,473
----------- -------- --------
ESOP redeemable preferred stock (Note 13)................................................ -- -- 8,748
Unearned ESOP compensation (Note 13)..................................................... -- -- (6,320)
----------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $1.65 par value (Note 13)
Authorized shares 1,000,000; Issued none (1996 -- 87,477 to ESOP)
Common stock, $0.20 par value (Note 13)
Authorized shares 100,000,000; 15,300,862, 12,126,270 and 11,624,275 shares issued at
June 30, 1997 and March 31, 1997 and 1996 respectively................................. 3,060 2,425 2,325
Additional paid-in capital (Note 13)..................................................... 100,102 50,324 43,660
Unearned restricted stock plan compensation (Note 13).................................... (297) (321) (435)
Treasury stock at cost (Note 13), 2,617,707, 2,591,790 and 2,490,661 shares at June 30,
1997, March 31, 1997 and 1996, respectively............................................ (4,250) (3,799) (2,384)
Retained earnings........................................................................ 57,869 58,089 46,450
Cumulative translation adjustments (Notes 1 and 14)...................................... (16,992) (16,756) (9,444)
----------- -------- --------
Total shareholders' equity............................................................. 139,492 89,962 80,172
----------- -------- --------
Total liabilities and equity........................................................... $ 784,336 $735,685 $782,824
----------- -------- --------
----------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
--------------------- --------------------------------------
1997 1996 1997 1996 1995
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Sales.................................................... $300,315 $310,391 $1,354,270 $1,359,450 $1,213,565
Cost of sales
-- Materials, services and supplies (Note 4)............ 273,189 280,894 1,217,380 1,227,568 1,097,119
-- Interest............................................. 7,266 7,611 32,197 41,369 34,981
-------- -------- ---------- ---------- ----------
Gross Profit........................................ 19,860 21,886 104,693 90,513 81,465
Selling, general and administrative expenses............. 17,659 17,996 72,782 77,608 80,509
Restructuring charges (Note 2)........................... -- -- -- 12,500 --
Other interest expense................................... 2,216 2,387 9,920 9,559 9,947
Other income (expense), net (Note 15).................... 2,391 2,835 10,254 11,412 18,971
-------- -------- ---------- ---------- ----------
Income (loss) before taxes.......................... 2,376 4,338 32,245 2,258 9,980
Income taxes (Notes 1 and 16)............................ 358 1,112 12,782 6,836 16,370
-------- -------- ---------- ---------- ----------
Income (loss) after taxes........................... 2,018 3,226 19,463 (4,578) (6,390)
Minority interests (Note 1).............................. (291) (1,936) (3,938) (4,795) (9,634)
Equity in earnings (losses) of affiliates (Note 6)....... 126 218 1,412 (69) (4,470)
-------- -------- ---------- ---------- ----------
Income (loss) from continuing operations............ 1,853 1,508 16,937 (9,442) (20,494)
Income (loss) from discontinued operations
(Note 2)............................................... -- -- -- 10,050 (10,050)
-------- -------- ---------- ---------- ----------
Net income (loss)................................... 1,853 1,508 16,937 608 (30,544)
ESOP preferred stock dividends, net of tax............... -- (115) (347) (474) (485)
-------- -------- ---------- ---------- ----------
Net income (loss) applicable to common stock........ 1,853 1,393 16,590 134 (31,029)
Retained earnings at beginning of year................... 58,089 46,450 46,450 50,530 84,807
Common stock dividends................................... (2,073) (792) (4,951) (4,214) (3,248)
-------- -------- ---------- ---------- ----------
Retained earnings at end of year.................... $ 57,869 $ 47,051 $ 58,089 $ 46,450 $ 50,530
-------- -------- ---------- ---------- ----------
-------- -------- ---------- ---------- ----------
Earnings (loss) per common share (Note 1):
Primary -- from continuing operations.................... $ 0.17 $ 0.15 $ 1.78 $ (1.07) $ (2.25)
-- from discontinued operations................. -- -- -- $ 1.08 $ (1.09)
-- net.......................................... $ 0.17 $ 0.15 $ 1.78 $ 0.01 $ (3.34)
-- average shares outstanding................... 11,103 9,493 9,314 9,307 9,288
Fully diluted -- net..................................... * * $ 1.69 * *
-- average shares outstanding.............. * * 11,793 * *
</TABLE>
- ---------------
* Not applicable because fully diluted calculations included adjustments which
are antidilutive.
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
STANDARD COMMERCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
-------------------- ---------------------------------
1997 1996 1997 1996 1995
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................................ $ 1,853 $ 1,508 $ 16,937 $ 608 $ (30,544)
Depreciation and amortization.................................. 4,951 4,395 20,866 24,393 16,413
Minority interests............................................. 291 1,936 3,938 4,795 9,634
Deferred income taxes.......................................... 969 -- (484) (968) 793
Undistributed losses of affiliates net of dividends received... (126) (218) (1,268) 166 4,626
Gain on disposition of property, plant and equipment........... (1,177) (185) (2,252) (1,093) (13,581)
Loss (income) from discontinued operations..................... -- -- -- (10,050) 10,050
Other.......................................................... (1,075) 2,421 2,483 (5,244) 3,404
-------- -------- -------- -------- ---------
5,686 9,857 40,220 12,607 795
Net changes in working capital other than cash
Receivables.................................................... 21,043 43,114 (22,807) (24,752) 59,665
Inventories.................................................... (80,641) (27,498) (5,475) 85,901 38,342
Current payables............................................... 71,082 58,967 22,721 (23,909) (3,382)
-------- -------- -------- -------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES............................ 17,170 84,440 34,659 49,847 95,420
-------- -------- -------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment
-- additions................................................... (2,909) (2,265) (12,816) (12,211) (17,328)
-- dispositions............................................... 1,516 247 5,072 3,151 16,274
Minority interest................................................ -- -- -- (7,740) --
Business (acquisitions) dispositions............................. -- -- 3,304 440 (2,605)
-------- -------- -------- -------- ---------
CASH USED FOR INVESTING ACTIVITIES............................... (1,393) (2,018) (4,440) (16,360) (3,659)
-------- -------- -------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings............................... 10,405 9,645 10,442
Repayment of long-term borrowings................................ (4,639) (4,076) (21,131) (14,968) (29,113)
Net change in short-term borrowings.............................. (60,061) (24,731) (54,257) (5,330) (86,406)
Net proceeds of equity offering.................................. 47,043 -- -- -- --
Dividends paid, net of tax....................................... (115) (347) (474) (485)
Purchase and retirement of ESOP Preferred Stock.................. -- -- (2,460) -- --
Other............................................................ 800 -- 114 213
-------- -------- -------- -------- ---------
CASH USED FOR FINANCING ACTIVITIES............................... (16,857) (28,922) (67,790) (11,013) (105,349)
-------- -------- -------- -------- ---------
Increase/(decrease) in cash for period........................... (1,080) 53,500 (37,571) 22,474 (13,588)
Cash at beginning of period...................................... 41,117 78,688 78,688 56,214 69,802
-------- -------- -------- -------- ---------
CASH AT END OF PERIOD............................................ $ 40,037 $132,188 $ 41,117 $ 78,688 $ 56,214
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Cash payments for
-- interest.................................................... -- -- $ 42,790 $ 44,426 $ 47,588
-- income taxes............................................... -- -- $ 9,057 $ 6,433 $ 8,441
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
a) CONSOLIDATION. The accounts of all subsidiary companies are included in
the consolidated financial statements and all intercompany transactions have
been eliminated. Investments in affiliated companies are accounted for by the
equity method of accounting.
b) FOREIGN CURRENCY. Assets and liabilities of foreign subsidiaries are
translated at year-end exchange rates. The effects of these translation
adjustments are reported in a separate component of shareholders' equity.
Exchange gains and losses arising from transactions denominated in a currency
other than the functional currency of the entity involved and translation
adjustments in countries with highly inflationary economies are included in net
income.
c) MARKETABLE SECURITIES. Marketable securities are classified as available
for sale and consist of liquid equity securities. The specific identification
method is used to determine gains and losses when securities are sold.
d) INTANGIBLE ASSETS. The Company's policy is to amortize goodwill on a
straight line basis over its estimated useful life not to exceed 40 years. The
Company assesses recoverability of goodwill based on management's projections of
future cash flows of acquired businesses.
e) PROPERTY, PLANT AND EQUIPMENT. The cost of significant improvements to
property, plant and equipment is capitalized. Maintenance and repairs are
expensed as incurred. Provision for depreciation is charged to operations over
the estimated useful lives, primarily 3-30 years, of the assets on a
straight-line basis.
f) INVENTORIES. Inventories, which are primarily packed leaf tobacco and
wool, are stated at the lower of specific cost or estimated net realizable
value. Cost of tobacco includes a proportion of interest, buying commission
charges and factory overheads which can be related directly to specific items of
inventory. Cost of wool includes all direct costs except interest. Items are
removed from inventory on an actual cost basis.
g) REVENUE RECOGNITION. Sales and revenue are recognized on the passage of
title.
h) INCOME TAXES. The Company provides deferred income taxes on differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes and operating loss carryforwards.
i) MINORITY INTERESTS. Minority interests represent the interest of third
parties in the net assets of certain subsidiary companies.
j) COMPUTATION OF EARNINGS PER COMMON SHARE. Primary earnings per share are
computed by dividing earnings, less preferred stock dividends payable to ESOP,
net of tax, by the weighted average number of shares outstanding during each
year. Earnings per share and weighted average number of shares outstanding for
all prior periods have been restated to give effect to the increase in number of
shares outstanding resulting from quarterly stock dividends. Fully diluted
earnings per share assumes the conversion into common stock of all the 7 1/4%
Convertible Subordinated Debentures and ESOP preferred stock at the date of
issue, thereby increasing the weighted average number of shares deemed to be
outstanding during each period, and adding back to primary earnings the
after-tax interest expense.
k) NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS. In February 1997, Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE, was issued. This
Statement establishes standards for computing and presenting earnings per share
(EPS) and applies to entities with publicly held common stock or potential
common stock. This Statement simplifies the standards for computing earnings per
share previously found in APB No. 15, EARNINGS PER SHARE, and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of the numerator
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. This Statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. This Statement requires
restatement of all prior-period EPS data presented. The adoption of this
Statement will not have a material impact on the Company's financial statements.
In October 1995, Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, was issued. Statement No. 123, which
was effective for the Company beginning April 1, 1996, requires expanded
disclosure
F-6
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES -- Continued
of stock-based compensation arrangements with employees and encourages (but does
not require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB No. 25, which recognizes compensation cost based on the intrinsic
value of the equity instrument awarded. The Company will apply APB No. 25 to its
stock-based compensation awards to employees and will disclose the pro forma
effect on net income and earnings per share.
l) LONG-LIVED ASSETS. As required, the Company adopted Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. Accordingly,
long-lived assets are reviewed for impairment on a market-by-market basis
whenever events or changes in the circumstances indicate that the carrying
amount of an asset may not be recoverable. If an evaluation is required, the
projected future undiscounted future cash flows attributable to each market
would be compared to the carrying value of the long-lived assets (including an
allocation of goodwill, if appropriate) of that market if a write-down to fair
value is required. The Company also evaluates the remaining useful lives to
determine whether events and circumstances warrant revised estimates of such
lives.
m) USE OF ESTIMATES AND ASSUMPTIONS. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
n) RECLASSIFICATION. Certain amounts in prior year statements have been
reclassified for conformity with current statement presentation.
o) UNAUDITED FINANCIAL STATEMENTS. In the opinion of management, the
consolidated statements of income and retained earnings and of cash flows for
the three months ended June 30, 1997 and 1996, and the consolidated balance
sheet as of June 30, 1997 include all adjustments (which include only normal
recurring adjustments) necessary to present the financial position and results
of operations and cash flows for the periods then ended in accordance with
generally accepted accounting principles.
NOTE 2 -- DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES
a) DISCONTINUED OPERATIONS. In fiscal 1995, the Company entered into an
agreement to sell its wool operations. During the third quarter of fiscal 1996,
the proposed sale was terminated. Accordingly, the results of operations of the
wool business for the prior periods have been reclassified from discontinued
operations to continuing operations. The estimated loss on disposal of $10.1
million in 1995 was reversed in 1996. The estimated loss was determined by
deducting the $56 million estimated net asset value of discontinued wool
operations (i.e., sales price) from the $66.1 million value of net assets held
for sale.
Assets, liabilities, revenues and operating profits (losses) for the fiscal
year ending 1995, the year the wool operations were reported as discontinued
operations, were as follows:
<TABLE>
<CAPTION>
1995
--------------
<S> <C>
(IN THOUSANDS)
Total assets....................................................................................... $294,290
Total liabilities.................................................................................. 216,326
Revenues........................................................................................... 440,112
Pretax operating income............................................................................ 10,002
</TABLE>
In December 1993, the Company completed the sale of its Caro-Green Nursery
business to Zelenka Nursery Inc. At March 31, 1997, the consolidated balance
sheet includes notes receivable from the purchaser totaling approximately $2.7
million.
b) RESTRUCTURING CHARGES. As a result of the termination of the sale of the
wool operations, the Company implemented a reorganization plan for its
nontobacco business and determined that a pretax restructuring charge of $12.5
million ($11.0 million after-tax) was appropriate. The major components of the
restructuring charges relate to the wool division and
F-7
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 2 -- DISCONTINUED OPERATIONS AND RESTRUCTURING CHARGES -- Continued
include: (i) approximately $2.1 million associated with the closure of the wool
processing facility in Argentina; (ii) approximately $3.6 million for the
write-off of goodwill; (iii) approximately $2.8 million associated with the
write-off of export incentive allowances; and (iv) approximately $2.5 million of
expenses related to the terminated sale of the wool division and other
miscellaneous restructuring costs. To date in Argentina, the wool processing
operations have been discontinued, the factory has been leased to a third party,
181 employees have been terminated and certain impaired assets have been written
down. Identifiable expenses connected with the closure of the processing
facility included in the fiscal 1996 results of operations totaled $603,000,
including personnel costs of approximately $300,000 and plant overhead. The
Company continues to maintain a sales function in Argentina. In Australia,
operations have been consolidated under one management team to better and more
efficiently serve this market. The wool tops departments in the German and
French companies have been reorganized to streamline their marketing efforts.
The Company has undertaken a feasibility study to improve operational
efficiencies in the French topmaking factory. For the year ended March 31, 1997,
the restructuring resulted in lower depreciation, amortization and personnel
costs of approximately $1.1 million. With the exception of the export incentive
issue, which is expected to be resolved in fiscal 1998, substantially all
incurred amounts related to the restructuring had been expended at March 31,
1997. The charge for the export incentive allowance relates to a subsequently
discontinued South African export incentive program under which a Company claim
was initially approved and then subsequently disallowed. The issue is currently
before the Supreme Court of South Africa. The Company believes that an
unfavorable settlement would not have a material impact on liquidity.
NOTE 3 -- RECEIVABLES
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Trade accounts........................................................................................ $180,926 $173,413
Advances to suppliers................................................................................. 48,349 36,701
Affiliated companies.................................................................................. 9,773 17,357
Other................................................................................................. 31,113 30,196
-------- --------
270,161 257,667
Allowances for doubtful accounts...................................................................... (3,601) (5,550)
-------- --------
$266,560 $252,117
-------- --------
-------- --------
</TABLE>
NOTE 4 -- INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, --------------------
1997 (UNAUDITED) 1997 1996
---------------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Tobacco............................................................................. $255,991 $181,349 $160,721
Nontobacco.......................................................................... 78,559 75,170 99,060
---------------- -------- --------
$334,550 $256,519 $259,781
---------------- -------- --------
---------------- -------- --------
</TABLE>
Tobacco inventories at March 31, 1997 and 1996 included capitalized
interest, totaling $4.3 million and $4.2 million, and valuation reserves for
tobacco and wool of $4.9 million and $5.2 million, respectively. Inventory
valuation provisions included in cost of sales totaled approximately $0.9
million, $1.4 million and $5.3 million in 1997, 1996 and 1995, respectively.
F-8
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Land.................................................................................................. $ 14,063 $ 15,318
Buildings............................................................................................. 77,116 76,464
Machinery and equipment............................................................................... 131,124 133,959
Furniture and fixtures................................................................................ 13,157 12,023
Construction in progress.............................................................................. 2,322 1,210
-------- --------
237,782 238,974
Accumulated depreciation.............................................................................. (115,769) (104,476)
-------- --------
$122,013 $134,498
-------- --------
-------- --------
</TABLE>
Depreciation expense was $18.1 million, $18.1 million and $14.7 million in
1997, 1996 and 1995, respectively.
NOTE 6 -- INVESTMENT IN AFFILIATES
a) Net investment in affiliated companies are represented by the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Net current assets (liabilities)................................................................... $ 4,421 $ 4,445
Property, plant and equipment...................................................................... 29,446 24,156
Other long-term assets (liabilities)............................................................... (132) 1,977
Interests of other shareholders.................................................................... (21,033) (19,018)
-------- --------
Company's interest................................................................................. 12,702 11,560
Provision for withholding taxes.................................................................... (169) (118)
-------- --------
Net investments.................................................................................... $ 12,533 $ 11,442
-------- --------
-------- --------
</TABLE>
b) The results of operations of affiliated companies were:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Sales................................................................................. $119,022 $ 82,527 $ 99,236
-------- -------- --------
Income (loss) before taxes............................................................ $ 5,627 $ 2,493 (2,468)
Income taxes.......................................................................... 2,104 2,259 1,074
-------- -------- --------
Net income (loss)..................................................................... $ 3,523 $ 234 $ (3,542)
-------- -------- --------
Company's share....................................................................... $ 1,463 $ (260) $ (4,567)
Withholding taxes..................................................................... (51) 191 97
-------- -------- --------
Equity in earnings (losses)........................................................... $ 1,412 $ (69) $ (4,470)
-------- -------- --------
Dividends received.................................................................... $ 148 $ 96 $ 154
-------- -------- --------
-------- -------- --------
</TABLE>
c) Balances with the unconsolidated affiliates are for the procurement of
tobacco inventory as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Purchases of tobacco...................................................................... $41,952 $18,932 $26,421
Receivables from unconsolidated affiliates................................................ 9,773 17,357 17,190
Advances on purchases of tobacco.......................................................... 10,394 12,615 15,477
Payables to unconsolidated affiliates..................................................... -- 18 1,098
</TABLE>
F-9
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 6 -- INVESTMENT IN AFFILIATES -- Continued
The Company's significant affiliates and percentage of ownership at March 31,
1997 follow: Adams International Ltd, 49.0% (Thailand), Siam Tobacco Export
Corporation Ltd, 49.0% (Thailand), Tobacco Processors (Lilongwe) Ltd, 51.9%
(Malawi) and Independent Wool Dumpers Pty Ltd, 16.8% (Australia). Audited
financial statements of affiliates are obtained annually.
NOTE 7 -- OTHER ASSETS
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
(IN THOUSANDS)
Cash surrender value of life insurance policies (face amount $42,765)................................... $12,775 $12,567
Policy loans............................................................................................ 6,246 6,780
------- -------
6,529 5,787
Bank deposits........................................................................................... 418 118
Receivables............................................................................................. 14,588 17,851
Due from affiliates..................................................................................... 39 823
Investments............................................................................................. 2 3,294
Excess of purchase price of subsidiaries over net assets acquired -- net of accumulated amortization of
$7,354 (1996 -- $7,231)............................................................................... 4,224 4,347
Other................................................................................................... 4,021 5,063
------- -------
$29,821 $37,283
------- -------
------- -------
</TABLE>
NOTE 8 -- SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Weighted average interest on borrowings at end of year................................... 8.0% 8.5% 9.8%
Weighted average interest rate on borrowings during the year (1)......................... 8.0% 9.0% 9.2%
Maximum amount outstanding at any month-end.............................................. $372,747 $433,646 $450,590
Average month-end amount outstanding..................................................... $337,178 $388,875 $401,923
Amount outstanding at year-end (2)....................................................... $272,325 $373,625 $378,955
</TABLE>
- ---------------
(1) Computed by dividing short-term interest expense and amortized financing
costs by average short-term debt outstanding.
(2) During the first quarter of fiscal 1998 the Company completed a secondary
issue of 3,022,500 shares, from which the $47.0 million proceeds have been
applied as a reduction of short-term borrowings. Accordingly, since the
application of the equity proceeds will preclude the use of working capital
to satisfy these obligations, $47.0 million has been reclassified as
long-term debt in accordance with SFAS 6, "Classification of Short-Term
Obligations Expected to be Refinanced". For periods after March 31, 1997,
the equity proceeds of $47.0 million will be reported as an increase in
shareholders' equity. This amount has been excluded from the calculation of
average month-end amounts outstanding.
At March 31, 1997, under agreements with various banks, total short-term
credit facilities for continuing operations of $646.9 million (1996 -- $694.0
million) were available to the Company of which $71.0 million (1996 -- $53.0
million) were being utilized for letters of credit and guarantees and $299.0
million (1996 -- $287.0 million) were unused.
The Company's revolving credit facilities at March 31, 1997 included a
$100.0 million facility for U.S. tobacco operations and a $155.0 million master
credit facility for non-U.S. tobacco operations, both expiring in June 1998, in
addition to local lines of approximately $265.0 million. Also, separate
facilities totaling $127.0 million are in place for wool operations. On August
1, 1997, the Company entered into the Global Bank Facility. See Note 21.
At March 31, 1997 substantially all of the Company's assets were pledged
against current and long-term borrowings.
F-10
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 9 -- ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Trade accounts........................................................................................ $108,476 $100,286
Affiliated companies.................................................................................. 3,449 18
Other accruals and payables........................................................................... 29,220 33,433
-------- --------
$141,145 $133,737
-------- --------
-------- --------
</TABLE>
NOTE 10 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
(IN THOUSANDS)
6.48% fixed rate loans repayable annually through 1998.................................................. $ 3,637 $ 6,472
Floating rate loan at prime through March 1999 (1997 average 8.25%)..................................... 8,667 --
10.4% loan repayable annually through 2000.............................................................. 4,900 6,000
Floating rate note, at 82% of prime, repayable in 2001 (1997 average 8.25%)............................. 2,940 2,940
11.95% loan repayable through 2001...................................................................... 2,346 3,129
Italian prime + 1/8% payable through 2002 (1997 average 10.6%).......................................... 3,458 4,273
9.82% fixed rate loan repayable annually through 2005................................................... 3,282 3,566
9.25% note repayable through 2005....................................................................... 1,762 1,978
9.25% fixed rate loan repayable annually through 1997................................................... -- 820
Floating rate loan at 1.5% above LIBOR repayable annually through 1998.................................. -- 1,175
Floating rate loan, at 1.75% above LIBOR, repayable quarterly through March 1999........................ -- 1,535
Senior notes, at 1.75% above LIBOR repayable quarterly through March 1999............................... -- 3,103
Floating rate loan, at 1.75% above three-month negotiable CD rate, repayable quarterly through March
2002.................................................................................................. -- 6,533
Other................................................................................................... 1,202 1,959
------- -------
32,194 43,483
Current portion......................................................................................... (8,985) (11,665)
Revolving credit facilities (See Note 8)................................................................ 47,043 --
------- -------
$70,252 $31,818
------- -------
------- -------
</TABLE>
Long-term debt maturing after one year is as follows: 1999 -- $11,537;
2000 -- $3,963; 2001 -- $4,760; 2002 -- $716; and thereafter -- $186,233.
At June 30, 1997 and March 31, 1997, the Company reclassified $115.0 and
$47.0 million, respectively, of borrowings under its revolving credit facilities
as long-term debt. The reclassification of $115.0 million at June 30, 1997
results from the issuance of $115.0 million 8 7/8% senior notes due 2005
pursuant to Rule 144A, which closed on August 1, 1997. See Note 8 for a
discussion of the reclassification of $47.0 million at March 31, 1997. Because
the proceeds from these transactions were applied to reduce short-term
borrowings, and obviated the use of working capital to satisfy these short term
obligations, the Company reclassified these amounts per SFAS 6. The Company had
both the intent and ability to refinance these amounts on a long-term basis.
Certain debt agreements to which the Parent and its subsidiaries are
parties contain financial covenants (relating to, among other things: minimum
net worth and interest coverage ratios; and limits on capital expenditures,
permitted investments, indebtedness advances and liens) which could restrict the
payment of cash dividends.
CONVERTIBLE SUBORDINATED DEBENTURES
On November 13, 1991 the Company issued $69.0 million of 7 1/4% Convertible
Subordinated Debentures due March 31, 2007. Adjusted for subsequent stock
dividends, the debentures currently are convertible into shares of common stock
of the Company at a conversion price of $29.38. The debentures are subordinated
in right of payment to all senior indebtedness, as defined, of the Company, and
as of March 31, 1995 became redeemable in whole or in part at the option of the
Company any
F-11
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 10 -- LONG-TERM DEBT -- Continued
time. Beginning March 31, 2003 the Company will make annual payments to a
sinking fund which will be sufficient to retire at least 5% of the principal
amount of issued Debentures reduced by earlier conversions, redemptions and
repurchases.
At March 31, 1997, substantially all of the Company's assets were pledged
against current and long-term borrowings.
NOTE 11 -- BENEFITS
The Company has a noncontributory defined benefit pension plan covering
substantially all full-time salaried employees in the United States and a
Supplemental Executive Retirement Plan ("SERP") covering benefits otherwise
limited by Section 401(a)(17) (Compensation Limitation) and Section 415
(Benefits Limitation) of the Internal Revenue Code. Various other pension plans
are sponsored by foreign subsidiaries. Benefits under the plans are based on
employees' years of service and eligible compensation. Foreign plans which are
significant and considered to be defined benefit pension plans have adopted
Statement of Financial Accounting Standards No. 87, EMPLOYERS' ACCOUNTING FOR
PENSIONS. The Company's policy is to contribute amounts to the U.S. plan
sufficient to meet or exceed funding requirements of federal benefit and tax
laws.
U.S. PLAN
A summary of pension costs follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost -- benefits earned during the year..................................................... $ 498 $ 433 $ 421
Interest cost on projected benefit obligation....................................................... 649 549 501
Recognized return on plan assets (832)....... (670) (583)
Net amortization.................................................................................... (29) (72) (37)
----- ----- -----
Net pension cost.................................................................................... $ 286 $ 240 $ 302
----- ----- -----
----- ----- -----
</TABLE>
The funded status of the U.S. plans, which include a book-reserve SERP, at
March 31 is shown below:
<TABLE>
<CAPTION>
ABO EXCEEDS
ASSETS EXCEED ABO ASSETS
------------------- -----------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------- ------- ------ ------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
-- vested............................................................... $ 7,265 $ 6,429 $ -- $ --
-- nonvested benefits 44 56 486 334
------- ------- ------ ------
Accumulated benefit obligation................................................ 7,309 6,485 486 334
Benefits attributable to projected salaries................................... 2,142 1,989 51 152
------- ------- ------ ------
Projected benefit obligation.................................................. 9,451 8,474 537 486
Plan assets at fair value..................................................... 11,505 10,391 -- --
------- ------- ------ ------
Assets in excess of (less than) projected obligation.......................... 2,054 1,917 (537) (486)
Unamortized net transition gain............................................... (306) (367)
Unrecognized prior service cost............................................... (44) (55) 44 88
Unrecognized experience gain.................................................. (693) (389) (6) (6)
------- ------- ------ ------
Prepaid (accrued) pension costs............................................... $ 1,011 $ 1,106 $ (499) $ (404)
------- ------- ------ ------
------- ------- ------ ------
</TABLE>
The projected benefit obligation at March 31, 1997, 1996 and 1995 was
determined using an assumed discount rate of 7.375%, 7.25% and 7.25%,
respectively, and assumed future compensation increases of 5.00%, 5.25% and
5.25%, respectively. The assumed long-term rate of return on plan assets was
8.0%, 8.0% and 8.0% at March 31, 1997, 1996 and 1995, respectively. Assets
consist of pooled equity and fixed income funds managed by an independent
trustee.
F-12
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 11 -- BENEFITS -- Continued
NON-U.S. PLANS
A summary of pension costs follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost -- benefits earned during the year............................................... $ 1,367 $ 1,507 $ 1,428
Interest cost on projected benefit obligation................................................. 2,310 2,646 2,414
Recognized return on plan assets (2,348)....... (2,004) (1,655)
Net amortization.............................................................................. 49 222 147
------- ------- -------
Net pension cost.............................................................................. $ 1,378 $ 2,371 $ 2,334
------- ------- -------
------- ------- -------
</TABLE>
The funded status of non-U.S. plans, which include book-reserve plans, at
March 31 is shown below:
<TABLE>
<CAPTION>
ASSETS EXCEED ABO ABO EXCEEDS ASSETS
------------------ --------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------- ------- -------- --------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
-- vested.................................................................. $18,455 $11,575 $ 7,857 $ 12,945
-- nonvested benefits...................................................... 120 454 -- 48
------- ------- -------- --------
Accumulated benefit obligation................................................... 18,575 12,029 7,857 12,993
Benefits attributable to projected salaries...................................... 5,255 4,394 517 1,200
------- ------- -------- --------
Projected benefit obligation..................................................... 23,830 16,423 8,374 14,193
Plan assets at fair value........................................................ 26,150 17,402 -- 4,484
------- ------- -------- --------
Assets in excess of (less than) projected obligation............................. 2,320 979 (8,374) (9,709)
Unamortized net transition loss.................................................. 679 854 927 943
Unrecognized prior service cost.................................................. (2,094) (113) -- 913
Unrecognized experience gain..................................................... 566 (1,193) 56 (817)
Additional minimum liability..................................................... -- -- (1,031) (914)
------- ------- -------- --------
Prepaid (accrued) pension costs.................................................. $ 1,471 $ 527 $ (8,422) $ (9,584)
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
The assumptions used in 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------------- -------------- -------------
<S> <C> <C> <C>
Discount rates.............................................................. 7.375% to 8.5% 7.75% to 8.5% 7.5% to 8.5%
Compensation increases...................................................... 5.50% to 7.0% 3.25% to 6.5% 5.5% to 7.0%
Long-term rates of return on plan assets.................................... 10.0% 10.0% 10.0%
</TABLE>
Plan assets consist primarily of common stocks, pooled equity and fixed
income funds. The pension costs and obligations for non-U.S. plans shown above
also include certain unfunded book-reserve plans.
The Company also sponsors a 401(k) savings incentive plan for most
full-time salaried employees in the United States. The expense for this plan was
$196,000 in 1997, $144,000 in 1996 and $127,000 in 1995.
The Company provides health care and life insurance benefits for
substantially all of its retired salaried employees in the U.S. These benefits
are accounted for in accordance with Statement of Financial Accounting Standards
No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS,
which requires the accrual of the estimated cost of retiree benefit payments
during the years the employee provides services.
F-13
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 11 -- BENEFITS -- Continued
The components of the net periodic cost of postretirement benefits for
1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost............................................................................. $193,942 $176,148 $168,613
Interest cost on accumulated benefit obligation.......................................... 493,527 522,164 405,299
Amortization of plan amendments.......................................................... (138,904) (136,649) (138,904)
-------- -------- --------
Net periodic cost........................................................................ $548,565 $561,663 $435,008
-------- -------- --------
-------- -------- --------
</TABLE>
The components of the liability included in the consolidated balance sheet
at March 31, 1997 and 1996 of the actuarial present value of benefits for
services rendered to date were:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current retirees.................................................................................. $ 489,487 $ 504,723
Active employees eligible to retire............................................................... 2,731,768 2,423,723
Active employees not eligible to retire........................................................... 3,343,157 4,041,795
---------- ----------
Total............................................................................................. 6,564,412 6,970,241
Unrecognized net gain (loss)...................................................................... 259,872 (672,154)
Unrecognized prior service cost................................................................... 972,323 1,111,227
---------- ----------
Accumulated postretirement benefit obligation..................................................... $7,796,607 $7,409,314
---------- ----------
---------- ----------
</TABLE>
The accumulated postretirement benefit obligation (APBO) was determined
using an 8.0% weighted-average discount rate. The medical cost trend rate used
in determining the APBO was assumed to be 12.5% in 1997. This rate was assumed
to gradually decline to 6.5% in 2004, and remain at that level thereafter.
Assuming a one percent increase in the medical cost trend rates, the
aggregate of the service and interest cost components of the net periodic
pension cost for 1997 would increase by $126,000 and the APBO as of March 31,
1997 would increase by $915,000. In general, postretirement benefit costs are
insured or paid as claims are incurred.
The ongoing impact of Statement 106 as it relates to employees of foreign
subsidiaries is immaterial. The Company expenses the cost of these benefits as
incurred.
EMPLOYEE STOCK OPTIONS
In March 1997, the Company entered into a three-year employment agreement
with its Chief Executive Officer. The agreement, which was ratified by the Board
of Directors on April 14, 1997, provides for the grant of nonqualified options
to purchase 100,000 shares of the Company's common stock at an exercise price
equal to the fair market value as of the date of grant. These options will
become exercisable (contingent on continued employment with the Company) in
equal annual installments over a three-year period. No options are currently
exercisable.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company is obligated under operating leases for equipment, office and
warehouse space with minimum annual rentals as follows: 1998 -- $3,601,757;
1999 -- $2,650,260; 2000 -- $1,964,891; 2001 -- $54,720; 2002 -- $24,203 and
thereafter $143,364. Some of the leases are subject to escalation.
Expenses under operating leases for continuing operations in 1997, 1996 and
1995 were $3,049,100, $3,811,000 and $963,000, respectively.
The Company operates a processing facility under a service agreement which
guarantees reimbursement of all of the facility's costs including operating
expenses and management fees. This lease is not considered a commitment of the
Company.
F-14
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 12 -- COMMITMENTS AND CONTINGENCIES -- Continued
The Company has commitments for capital expenditures of approximately $17.4
million, all of which are expected to be incurred in fiscal 1998.
The previously reported joint Canadian-U.S. criminal investigation into
alleged violations of law relating to the importation, exportation and taxation
of tobacco has been discontinued. The Canadian investigation is continuing as to
individual Canadian and U.S. citizens. Management does not believe that it will
have a material adverse effect on the Company's financial statements as a whole,
liquidity or future results of operations.
Other contingencies, consisting of guarantees, pending litigation and other
claims, in the opinion of management, are not considered to be material in
relation to the Company's financial statements as a whole, liquidity or future
results of operations.
CONCENTRATION OF CREDIT AND OFF-BALANCE SHEET RISKS
Financial instruments that potentially subject the Company to a
concentration of credit risks consist principally of cash and trade receivables
relating to customers in the tobacco and wool industries. Cash is deposited with
high-credit-quality financial institutions. Concentration of credit risks
related to receivables is limited because of the diversity of customers and
locations.
NOTE 13 -- COMMON STOCK
<TABLE>
<CAPTION>
NUMBER OF SHARES UNEARNED
OF COMMON STOCK COMMON ADDITIONAL RESTRICTED
---------------------- STOCK PAID IN STOCK PLAN TREASURY STOCK
ISSUED TREASURY PAR VALUE CAPITAL COMPENSATION AT COST
---------- --------- --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
March 31, 1994.................................. 10,913,459 2,346,318 $ 2,183 $ 34,875 $ (649) $ (583)
401(k) contributions............................ 8,585 2 125
Dividends reinvested............................ 19,391 4 302
RSP compensation earned......................... 134
RSP shares forfeited............................ (435) -- --
Stock dividends................................. 219,289 47,160 43 2,986 (650)
---------- --------- --------- ------------ ------------ --------------
March 31, 1995.................................. 11,160,289 2,393,478 2,232 38,288 (515) (1,233)
401(k) contributions............................ 12,283 3 141
Dividends reinvested............................ 729 -- 8
RSP compensation earned......................... 80
RSP shares forfeited............................ (1,359) -- (37)
Stock dividends................................. 452,333 97,183 90 5,260 (1,151)
---------- --------- --------- ------------ ------------ --------------
March 31, 1996.................................. 11,624,275 2,490,661 2,325 43,660 (435) (2,384)
401(k) contribution............................. 16,122 3 196
Dividends reinvested............................ 662 -- 10
RSP compensation earned......................... 114
RSP shares forfeited............................ (557) -- (10)
Stock dividends................................. 471,693 101,129 94 6,226 (1,415)
ESOP conversion................................. 14,075 3 242
---------- --------- --------- ------------ ------------ --------------
March 31, 1997.................................. 12,126,270 2,591,790 $ 2,425 $ 50,324 $ (321) $ (3,799)
---------- --------- --------- ------------ ------------ --------------
---------- --------- --------- ------------ ------------ --------------
</TABLE>
The Company maintains a Performance Improvement Compensation Plan
administered by the Compensation Committee of the Board of Directors as an
incentive for designated employees. In June 1993, the Board adopted a Restricted
Stock Plan ("RSP") as a means of awarding those employees to the extent that
certain performance objectives were met, restricted shares of the Company's
common stock pursuant to the RSP, the Compensation Committee of the Board
awarded 36,454
F-15
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 13 -- COMMON STOCK -- Continued
shares of Restricted Stock in fiscal 1994, of which 36,280 were issued as of
March 31, 1994. The shares were issued subject to a seven-year restriction
period.
The Company has a 401(k) savings incentive plan in the United States to
which the employer contributes shares of common stock under a matching program,
and a dividend reinvestment plan.
Treasury stock represents shares in the Company acquired by a foreign
affiliate prior to its becoming a wholly-owned subsidiary.
On January 31, 1997, the Company terminated the Employee Stock Ownership
Plan (the "ESOP") established by W A Adams Company prior to that company's
acquisition by the Company. This termination involved the redemption by the
Company of 24,602 shares of ESOP Preferred Stock for an aggregate price of
$2,460,287 in cash and the issuance of 14,075 shares of Common Stock. The
remaining 62,875 shares of unallocated ESOP Preferred Stock were canceled.
Subsequent to March 31, 1997 the Company completed the registration and
sale of 3,022,500 shares of common stock, priced at $16.75 per share. Assuming
that the net proceeds to the Company from the offering were used to repay
short-term borrowings as of April 1, 1996, after-tax interest savings of
$5,491,000 would have increased the net income and primary and fully diluted
earnings per share would have been $1.78 and $1.71, respectively, and the
corresponding weighted-average shares outstanding for purposes of these
computations would have been 12,383,000 and 14,861,000 after giving effect to
the increased shares resulting from quarterly stock dividends. This computation
is summarized as follows:
<TABLE>
<CAPTION>
FULLY
PRIMARY DILUTED
------------ ------------
<S> <C> <C>
Net income applicable to Common Stock.......................................................... $ 16,590,000 $ 19,890,000
Add -- After tax interest savings.............................................................. 5,491,000 5,491,000
------------ ------------
Pro forma net income applicable to Common Stock................................................ $ 22,081,000 $ 25,381,000
Average number of shares outstanding........................................................... 9,314,461 11,792,809
Add -- increase in shares outstanding.......................................................... 3,068,000 3,068,000
------------ ------------
Pro forma average number of shares outstanding................................................. 12,382,461 14,860,809
Pro forma earnings per share................................................................... $1.78 $1.71
</TABLE>
NOTE 14 -- FOREIGN CURRENCY
Changes in the translation adjustment component of shareholders' equity are
shown below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Beginning balance April 1.................................................................. $ (9,444) $(4,319) $(17,984)
Net change in translation of foreign financial statements.................................. (7,312) (5,125) 13,665
-------- ------- --------
Ending Balance March 31.................................................................... $(16,756) $(9,444) $ (4,319)
-------- ------- --------
-------- ------- --------
</TABLE>
Net amounts included in the income statement relating to foreign currency
losses from continuing operations were $920,000, $276,000, and $756,000 in 1997,
1996 and 1995, respectively.
F-16
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 15 -- OTHER INCOME (EXPENSE) -- NET
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Other income
Interest................................................................................... $ 4,493 $ 4,430 $ 4,644
Gain on asset sales and dispositions....................................................... 4,668 4,476 14,650
Rents received............................................................................. 610 441 233
Other...................................................................................... 3,520 4,976 2,162
------- ------- -------
13,291 14,323 21,689
------- ------- -------
Other expense
Amortization of goodwill................................................................... (132) (197) (582)
Other...................................................................................... (2,905) (2,714) (2,136)
------- ------- -------
(3,037) (2,911) (2,718)
------- ------- -------
$10,254 $11,412 $18,971
------- ------- -------
------- ------- -------
</TABLE>
NOTE 16 -- INCOME TAXES
a) Significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax liabilities:
Depreciation.......................................................................................... $10,528 $11,377
Capitalized interest.................................................................................. 1,183 763
Income recognition in foreign subsidiaries............................................................ 14,983 16,673
Prepaid pension assets................................................................................ 1,232 898
------- -------
Total deferred tax liabilities........................................................................ 27,926 29,711
------- -------
Deferred tax assets:
NOL carried forward................................................................................... 7,138 8,766
Valuation allowance................................................................................... (5,503) (7,021)
Postretirement benefits other than pensions........................................................... 3,071 2,919
Uniform capitalization................................................................................ 143 186
All other, net........................................................................................ 1,963 1,925
------- -------
Total deferred tax assets............................................................................... 6,812 6,775
------- -------
Net deferred tax liabilities............................................................................ $21,114 $22,936
------- -------
------- -------
</TABLE>
The net deferred tax liabilities include approximately $15,295 and $13,304
of current liabilities at March 31, 1997 and 1996, respectively.
The Parent has provided valuation allowances on deferred tax assets for
certain foreign subsidiaries based on their history of losses. Management cannot
assert that there will likely be sufficient profits generated by these
subsidiaries in the near future to offset these losses.
The change during 1997 is due to the utilization of tax loss carryforwards
for which no benefit had been recognized in prior years. The loss carryforwards
which give rise to the valuation allowances will expire in 2001 and thereafter.
F-17
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 16 -- INCOME TAXES -- Continued
b) Income tax provisions are detailed below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Current
Federal.................................................................................... $ 445 $ 130 $ 3,686
Foreign.................................................................................... 12,793 7,455 11,470
State and local............................................................................ 28 219 421
------- ------- -------
13,266 7,804 15,577
------- ------- -------
Deferred
Federal.................................................................................... 707 (1,131) (1,154)
Foreign.................................................................................... (1,194) 160 1,938
State and local............................................................................ 3 3 9
------- ------- -------
(484) (968) 793
------- ------- -------
Income tax provision......................................................................... $12,782 $ 6,836 $16,370
------- ------- -------
------- ------- -------
</TABLE>
c) Components of deferred taxes follow:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Tax on differences in timing of income recognition in foreign subsidiaries.................... $ (353) $(2,565) $ 2,055
Utilization of NOL carried forward............................................................ -- 185 --
Capitalized interest.......................................................................... 420 (248) (29)
DISC income................................................................................... -- -- (89)
Other......................................................................................... (551) 1,660 (1,144)
------- ------- -------
$ (484) $ (968) $ 793
------- ------- -------
------- ------- -------
</TABLE>
d) The provision for income taxes is determined on the basis of the
jurisdiction imposing the tax liability. As some of the income of foreign
companies may also be currently subject to U.S. tax, the U.S. and foreign income
taxes shown do not compare directly with the segregation of pretax income
between domestic and foreign companies that follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Pretax income
Domestic................................................................................... $ 3,663 $ 264 $ (89)
Foreign.................................................................................... 28,582 1,994 10,069
------- ------- -------
$32,245 $ 2,258 $ 9,980
------- ------- -------
------- ------- -------
</TABLE>
F-18
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 16 -- INCOME TAXES -- Continued
e) The following is a reconciliation of the income tax provision to the
expense calculated at the U.S. federal statutory rate.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Expense (benefit) at U.S. federal statutory tax rate......................................... $11,286 $ 768 $ 3,393
Foreign tax losses for which there is no relief available.................................... 321 4,359 9,750
U.S. tax on foreign income................................................................... 500 200 2,912
Different tax rates in foreign subsidiaries.................................................. 680 (177) (1,073)
Other -- net................................................................................. (5) 1,686 1,388
------- ------- -------
$12,782 $ 6,836 $16,370
------- ------- -------
------- ------- -------
</TABLE>
NOTE 17 -- DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments as of March
31, 1997 is provided below in accordance with Statement of Financial Accounting
Standards No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS.
Certain estimates and judgments were required to develop the fair value amounts,
which are not necessarily indicative of the amounts that would be realized upon
disposition, nor do they indicate the Company's intent or ability to dispose of
such instruments.
CASH AND CASH EQUIVALENTS: For purposes of the Consolidated Statement of
Cash Flows, the Company considers all highly liquid investments with a maturity
of three months or less to be cash equivalents. The estimated fair value of cash
and cash equivalents approximates carrying value.
SHORT-TERM AND LONG-TERM DEBT: The fair value of the Company's short-term
borrowings, which primarily consists of bank borrowings, approximates its
carrying value. The estimated fair value of long-term debt, including the
current portion, is approximately $90.7 million, compared with a carrying value
of $101.2 million, based on discounted cash flows for fixed-rate borrowings,
with the fair value of floating-rate borrowings considered to approximate
carrying value. Amounts reclassified from short-term borrowings to long-term
debt have been excluded for fair value computations (See Note 8).
F-19
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 18 -- SEGMENT INFORMATION
The Company is engaged primarily in purchasing, processing and selling leaf
tobacco and wool. Its activities other than these are minimal. Geographic
information is determined by the areas in which the companies conducting these
activities are registered. Generally, sales between segments are made at
prevailing market prices.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
GEOGRAPHIC AREAS
Sales
United States.................................................................. $ 466,066 $ 375,842 $ 288,143
Europe......................................................................... 737,346 781,910 702,606
Other areas.................................................................... 273,728 319,428 355,529
Intersegment eliminations...................................................... (122,870) (117,730) (132,713)
---------- ---------- ----------
$1,354,270* $1,359,450* $1,213,565*
---------- ---------- ----------
---------- ---------- ----------
Operating income, net of interest
United States.................................................................. $ 5,748 $ 3,576 $ 2,598
Europe......................................................................... 26,926 10,616 (9,406)
Other areas.................................................................... 2,906 (8,609) 20,425
Corporate expenses............................................................. (3,335) (3,325) (3,637)
---------- ---------- ----------
Income before taxes................................................................. $ 32,245 $ 2,258 $ 9,980
---------- ---------- ----------
---------- ---------- ----------
Assets
United States.................................................................. $ 150,555 $ 163,002 $ 142,793
Europe......................................................................... 445,085 469,247 503,397
Other areas.................................................................... 120,683 133,075 148,359
Investment in affiliates....................................................... 12,533 11,442 12,905
Corporate assets............................................................... 6,829 6,058 6,035
---------- ---------- ----------
$ 735,685 $ 782,824 $ 813,489
---------- ---------- ----------
---------- ---------- ----------
U.S. Exports
Europe......................................................................... $ 87,531 $ 103,526 $ 69,348
Far East....................................................................... 42,908 46,726 80,474
Other areas.................................................................... 6,000 5,007 12,369
---------- ---------- ----------
$ 136,439 $ 155,259 $ 162,191
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ---------------
* One tobacco customer accounted for 24.1%, 17.4% and 14.2% of total sales in
1997, 1996 and 1995, respectively.
F-20
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 18 -- SEGMENT INFORMATION -- Continued
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
BUSINESS SEGMENTS
Sales
Tobacco............................................................................ $ 997,449 $ 925,549 $ 755,971
Nontobacco......................................................................... 356,821 433,901 457,594
---------- ---------- ----------
$1,354,270* $1,359,450* $1,213,565*
---------- ---------- ----------
---------- ---------- ----------
Operating income, net of interest
Tobacco............................................................................ $ 32,421 $ 28,373 $ 2,759
Nontobacco......................................................................... 3,159 (22,790) 10,858
Corporate expenses................................................................. (3,335) (3,325) (3,637)
---------- ---------- ----------
Income before taxes..................................................................... $ 32,245 $ 2,258 $ 9,880
---------- ---------- ----------
---------- ---------- ----------
Interest expense included above
Tobacco............................................................................ $ 32,288 39,381 $ 35,207
Nontobacco......................................................................... 9,829 11,547 9,721
---------- ---------- ----------
$ 42,117 $ 50,928 $ 44,928
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization expense
Tobacco............................................................................ $ 16,613 $ 14,615 $ 11,278
Nontobacco......................................................................... 4,253 9,778 5,135
---------- ---------- ----------
$ 20,866 $ 24,393 $ 16,413
---------- ---------- ----------
---------- ---------- ----------
Equity in earnings of affiliates
Tobacco............................................................................ $ 1,242 $ (217) $ (4,489)
Nontobacco......................................................................... 170 148 19
---------- ---------- ----------
$ 1,412 $ (69) $ (4,470)
---------- ---------- ----------
---------- ---------- ----------
Assets
Tobacco............................................................................ $ 521,202 $ 532,627 $ 499,587
Nontobacco......................................................................... 207,654 244,139 307,867
Corporate assets................................................................... 6,829 6,058 6,035
---------- ---------- ----------
$ 735,685 $ 782,824 $ 813,489
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures
Tobacco............................................................................ $ 10,981 $ 10,398 $ 11,177
Nontobacco......................................................................... 1,835 1,813 6,151
---------- ---------- ----------
$ 12,816 $ 12,211 $ 17,328
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ---------------
* One tobacco customer accounted for 24.1%, 17.4% and 14.2% of total sales in
1997, 1996 and 1995, respectively.
F-21
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 19 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for 1997 and 1996:
<TABLE>
<CAPTION>
QUARTER
--------------------------------------------
1ST 2ND 3RD 4TH ANNUAL
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 Sales.................................................. $310,391 $249,005 $374,130 $420,744 $1,354,270
Gross profit........................................... 21,887 21,972 27,944 32,890 104,693
Income from continuing operations...................... 1,508 2,911 4,480 8,038 16,937
Net income............................................. 1,508 2,911 4,480 8,038 16,937
Earnings per share
Primary -- from continuing operations............. 0.15 0.30 0.47 0.85 1.78
-- net................................... 0.15 0.30 0.47 0.85 1.78
Fully diluted..................................... * * * 0.75 1.69
Dividends paid per share............................... ** ** ** **
Market price -- high................................... 12.00 15.00 20.75 21.50 21.50
-- low................................................. 8.25 11.25 11.75 17.38 8.25
1996 Sales.................................................. $296,965 $282,196 $377,555 $402,734 $1,359,450
Gross profit........................................... 14,473 14,762 26,311 34,967 90,513
Income (loss) from continuing operations............... (6,255) (3,175) (9,040) 9,028 (9,442)
Income (loss) from discontinued operations............. (4,500) 3,751 10,799 -- 10,050
Net income (loss)...................................... (10,755) 576 1,759 9,028 608
Earnings (loss) per share
Primary -- from continuing operations............. (0.69) (0.35) (0.99) 0.96 (1.07)
-- from discontinued operations.......... (0.48) 0.40 1.16 -- 1.08
-- net................................... (1.17) 0.05 0.17 0.96 0.01
Fully diluted..................................... * * * 0.82 *
Dividends paid per share............................... ** ** ** **
Market price -- high................................... 15.13 14.38 12.25 10.38 15.13
-- low................................................. 13.25 10.50 9.25 7.50 7.50
</TABLE>
- ---------------
* Not applicable because fully diluted calculations include adjustments which
are antidilutive.
** Distributed one percent stock dividend.
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION
Standard Commercial Corporation (the "Company") and Standard Wool, Inc.
jointly and severally, guarantee on a senior basis to each Holder and the
Trustee, the full and prompt performance of Standard Commercial Tobacco Company,
Inc.'s (the "Issuer") obligations under the Indenture and the $115.0 million
8 7/8% Senior Notes Due 2005 (the "Notes"), the issuance of which was closed on
August 1, 1997, including the payment of the principal of and interest and
Additional Interest, if any, on the Notes (the Company and Standard Wool, Inc.
being referred to herein as "Guarantors" and the guarantees being referred to
respectively as the "Parent Guarantee" and the "Standard Wool Guarantee," and
together, the "Guarantees"). In addition, all of the issued and outstanding
capital stock of the Issuer and Standard Wool, Inc. is pledged by the Company to
the Trustee for the benefit of the Holders of the Notes as security for the
Parent Guarantee.
(a) Each of the Guarantors has fully and unconditionally guaranteed on a
joint and several basis the performance and punctual payment when due, whether
at stated maturity, by acceleration or otherwise, of all of the Issuer's
obligations under the Notes and the related indenture, including its obligations
to pay principal, premium, if any, and interest with respect to the Notes. The
obligation of each Guarantor is limited to the maximum amount which, after
giving effect to all other contingent and fixed liabilities of such Guarantor
and after giving effect to any collections from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor
under its Guarantee or pursuant to its contribution obligations under the
Indenture, can be guaranteed by the relevant Guarantor without resulting in the
obligations of such Guarantor under its Guarantee constituting a fraudulent
conveyance or fraudulent transfer under applicable federal or state
F-22
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
law. Each of the Guarantees is a guarantee of payment and not collection. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in an amount PRO RATA,
based on the assets less liabilities of each Guarantor determined in accordance
with generally accepted accounting principles (GAAP).
Each Guarantor that makes a payment or distribution shall be entitled to a
contribution from each other Guarantor in an amount PRO RATA, based on the net
assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Issuer, or with other Persons upon the terms and conditions set forth in the
Indenture. See "Certain Covenants -- Merger, Consolidation and Sale of Assets."
In the event (A) more than 49% of the Capital Stock of Standard Wool, Inc. is
sold by the Company or (B) more than 49% of the consolidated assets of Standard
Wool, Inc. are sold in compliance with all of the terms of the Indenture, the
Standard Wool Guarantee will be released.
Management has determined that separate, full financial statements of the
Guarantors would not be material to investors and therefore such financial
statements are not provided. The following supplemental combining financial
statements present information regarding the Guarantors and the Issuer.
(b) Each of the Guarantors has accounted for their respective subsidiaries
on the equity basis.
(c) Certain reclassifications were made to conform all of the financial
information to the financial presentation on a consolidated basis. The principal
eliminating entries eliminate investments in subsidiaries and intercompany
balances.
(d) Included in the balance sheets are certain related party balances among
borrower, the guarantors and non-guarantors. Due to the Company's world-wide
operations, related party activity is included in most balance sheet accounts.
F-23
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING BALANCE SHEETS
JUNE 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash............................ $ 384 $ 36 $ 30,359 $ 81 $ 9,177 $ --
Receivables..................... 3,226 23,797 154,901 1,352 57,418 --
Intercompany receivable......... 64,498 136,314 50,373 -- 27,000 (278,185)
Inventories..................... -- 52,910 209,877 1,248 57,205 13,310
Prepaids and other.............. -- 403 6,779 39 1,065 --
Marketable securities........... -- -- 784 -- 14 --
----------- ----------- ----------- ----------- ----------- -------------
Current assets................ 68,108 213,460 453,073 2,720 151,879 (264,875)
----------- ----------- ----------- ----------- ----------- -------------
Property, plant
and equipment................. -- 21,371 82,434 62 15,089 --
Investment in subsidiaries...... 161,914 -- 66,586 37,006 33,900 (299,406)
Investment in affiliates........ -- -- 11,097 -- 1,155 --
Other noncurrent assets......... 12,916 1,692 8,452 -- 2,022 3,681
----------- ----------- ----------- ----------- ----------- -------------
Total assets.................. $ 242,938 $ 236,523 $ 621,642 $39,788 $ 204,045 $(560,600)
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
LIABILITIES
Short-term borrowings........... $ -- $ 11,028 $ 75,536 $ -- $ 57,742 $ --
Current portion of
long-term debt................ -- 2,320 5,311 -- 200 --
Accounts payable................ 2,023 12,437 183,734 131 24,807 (14,451)
Intercompany accounts payable... 31,608 23,908 176,058 4,889 19,270 (255,733)
Taxes accrued................... -- 3,205 16,680 -- 4,752 --
----------- ----------- ----------- ----------- ----------- -------------
Current liabilities........... 33,631 52,898 457,319 5,020 106,771 (270,184)
----------- ----------- ----------- ----------- ----------- -------------
Long-term debt.................. -- 126,993 5,445 -- 2,121 --
Convertible subordinated
debentures.................... 69,000 -- -- -- -- --
Retirement and
other benefits................ 529 7,896 6,636 -- 3,987 --
Deferred taxes.................. -- 82 4,473 -- 2,117 --
----------- ----------- ----------- ----------- ----------- -------------
Total liabilities............. 103,160 187,869 473,873 5,020 114,996 (270,184)
----------- ----------- ----------- ----------- ----------- -------------
Minority interests.............. -- -- 30,077 -- 33 --
SHAREHOLDERS' EQUITY
Common stock.................... 3,060 993 29,346 22,604 35,893 (88,836)
Additional paid-in capital...... 100,102 4,010 15,097 -- 55,710 (74,817)
Unearned restricted stock plan
compensation.................. (11) (87) (182) -- (17) --
Treasury stock at cost.......... (4,250) -- -- -- -- --
Retained earnings............... 57,869 43,738 90,132 7,727 (4,785) (136,812)
Cumulative translation
adjustments................... (16,992) -- (16,701) 4,437 2,215 10,049
----------- ----------- ----------- ----------- ----------- -------------
Total shareholders' equity.... 139,778 48,654 117,692 34,768 89,016 (290,416)
----------- ----------- ----------- ----------- ----------- -------------
Total liabilities and
shareholders' equity........ $ 242,938 $ 236,523 $ 621,642 $39,788 $ 204,045 $(560,600)
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
<CAPTION>
TOTAL
--------
<S> <C>
ASSETS
Cash............................ $ 40,037
Receivables..................... 240,694
Intercompany receivable......... --
Inventories..................... 334,550
Prepaids and other.............. 8,286
Marketable securities........... 798
--------
Current assets................ 624,365
--------
Property, plant
and equipment................. 118,956
Investment in subsidiaries...... --
Investment in affiliates........ 12,252
Other noncurrent assets......... 28,763
--------
Total assets.................. $784,336
--------
--------
LIABILITIES
Short-term borrowings........... $144,306
Current portion of
long-term debt................ 7,831
Accounts payable................ 208,681
Intercompany accounts payable... --
Taxes accrued................... 24,637
--------
Current liabilities........... 385,455
--------
Long-term debt.................. 134,559
Convertible subordinated
debentures.................... 69,000
Retirement and
other benefits................ 19,048
Deferred taxes.................. 6,672
--------
Total liabilities............. 614,734
--------
Minority interests.............. 30,110
SHAREHOLDERS' EQUITY
Common stock.................... 3,060
Additional paid-in capital...... 100,102
Unearned restricted stock plan
compensation.................. (297)
Treasury stock at cost.......... (4,250)
Retained earnings............... 57,869
Cumulative translation
adjustments................... (16,992)
--------
Total shareholders' equity.... 139,492
--------
Total liabilities and
shareholders' equity........ $784,336
--------
--------
</TABLE>
F-24
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING BALANCE SHEETS
MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash............................ $ 327 $ 1,102 $ 28,956 $ 119 $ 10,613 $ --
Receivables..................... 1,648 35,737 174,535 1,258 53,382 --
Intercompany accounts
receivable.................... 16,606 15,083 26,040 -- 36,545 (94,274)
Inventories..................... -- 74,309 139,386 1,256 52,675 (11,107)
Prepaid expenses................ 155 4,190 4,790 5 1,173 (4,028)
Marketable securities........... -- -- 823 -- 14 --
----------- ----------- ----------- ----------- ----------- -------------
Current assets................ 18,736 130,421 374,530 2,638 154,402 (109,409)
----------- ----------- ----------- ----------- ----------- -------------
Property, plant
and equipment................. -- 22,513 83,255 35 16,210 --
Investment in subsidiaries...... 159,014 -- 63,714 36,946 34,261 (293,935)
Investment in affiliates........ -- -- 11,321 -- 1,212 --
Other assets.................... 12,897 1,878 12,373 -- 2,673 --
----------- ----------- ----------- ----------- ----------- -------------
Total assets.................. $ 190,647 $ 154,812 $ 545,193 $39,619 $ 208,758 $(403,344)
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
LIABILITIES
Short-term borrowings........... $ -- $ 36,277 $ 178,317 $ -- $ 57,731 $ --
Current portion of
long-term debt................ -- 2,312 5,633 -- 1,040 --
Accounts payable................ 982 14,123 110,675 127 15,238 --
Intercompany accounts payable... 29,895 28,757 15,393 4,734 31,740 (110,519)
Taxes accrued................... -- 2,470 19,723 -- 6,565 --
----------- ----------- ----------- ----------- ----------- -------------
Current liabilities........... 30,877 83,939 329,741 4,861 112,314 (110,519)
----------- ----------- ----------- ----------- ----------- -------------
Long-term debt.................. -- 12,576 57,195 -- 3,451 (2,970)
Convertible subordinated
debentures.................... 69,000 -- -- -- -- --
Retirement and
other benefits................ 499 7,797 6,734 -- 4,097 --
Deferred taxes.................. -- 1,064 7,136 -- 783 (3,164)
----------- ----------- ----------- ----------- ----------- -------------
Total liabilities............. 100,376 105,376 400,806 4,861 120,645 (116,653)
----------- ----------- ----------- ----------- ----------- -------------
Minority interests.............. -- -- 30,278 -- 34 --
SHAREHOLDERS' EQUITY
Common stock.................... 2,425 993 29,681 22,604 35,893 (89,171)
Additional paid-in capital...... 50,324 4,010 15,414 -- 55,710 (75,134)
Unearned restricted stock plan
compensation.................. (12) (94) (198) -- (14) (3)
Treasury stock.................. (3,799) -- -- -- -- --
Retained earnings............... 58,089 44,527 86,441 6,803 (5,776) (131,995)
Cumulative translation
adjustments................... (16,756) -- (17,229) 5,351 2,266 9,612
----------- ----------- ----------- ----------- ----------- -------------
Total shareholders' equity.... 90,271 49,436 114,109 34,758 88,079 (286,691)
----------- ----------- ----------- ----------- ----------- -------------
Total liabilities and
shareholders' equity........ $ 190,647 $ 154,812 $ 545,193 $39,619 $ 208,758 $(403,344)
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
<CAPTION>
TOTAL
--------
<S> <C>
ASSETS
Cash............................ $ 41,117
Receivables..................... 266,560
Intercompany accounts
receivable.................... --
Inventories..................... 256,519
Prepaid expenses................ 6,285
Marketable securities........... 837
--------
Current assets................ 571,318
--------
Property, plant
and equipment................. 122,013
Investment in subsidiaries...... --
Investment in affiliates........ 12,533
Other assets.................... 29,821
--------
Total assets.................. $735,685
--------
--------
LIABILITIES
Short-term borrowings........... $272,325
Current portion of
long-term debt................ 8,985
Accounts payable................ 141,145
Intercompany accounts payable... --
Taxes accrued................... 28,758
--------
Current liabilities........... 451,213
--------
Long-term debt.................. 70,252
Convertible subordinated
debentures.................... 69,000
Retirement and
other benefits................ 19,127
Deferred taxes.................. 5,819
--------
Total liabilities............. 615,411
--------
Minority interests.............. 30,312
SHAREHOLDERS' EQUITY
Common stock.................... 2,425
Additional paid-in capital...... 50,324
Unearned restricted stock plan
compensation.................. (321)
Treasury stock.................. (3,799)
Retained earnings............... 58,089
Cumulative translation
adjustments................... (16,756)
--------
Total shareholders' equity.... 89,962
--------
Total liabilities and
shareholders' equity........ $735,685
--------
--------
</TABLE>
F-25
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING BALANCE SHEETS
JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash............................ $ 1,308 $ 3,465 $ 108,409 $ 97 $ 18,909 $ --
Receivables..................... 5,603 17,652 122,457 1,739 58,893 --
Intercompany receivable......... 16,705 8,015 42,804 -- 4,063 (71,587)
Inventories..................... -- 45,671 179,294 1,590 59,898 --
Prepaids and other.............. 368 2,819 1,592 39 703 --
Marketable securities........... -- -- 1,298 -- 13 --
----------- ----------- ----------- ----------- ----------- -------------
Current assets................ 23,984 77,622 455,854 3,465 142,479 (71,587)
----------- ----------- ----------- ----------- ----------- -------------
Property, plant
and equipment................. -- 22,650 91,549 43 18,813 --
Investment in subsidiaries...... 152,143 -- 61,268 39,015 45,093 (297,519)
Investment in affiliates........ -- -- 10,463 -- 1,194 --
Other noncurrent assets......... 10,575 2,050 19,324 -- 5,900 --
----------- ----------- ----------- ----------- ----------- -------------
Total assets.................. $ 186,702 $ 102,322 $ 638,458 $42,523 $ 213,479 $(369,106)
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
LIABILITIES
Short-term borrowings........... $ -- $ 13,301 273,428 $ -- 62,165 --
Current portion of
long-term debt................ 3,159 291 6,178 -- 825 --
Accounts payable................ 1,762 8,167 158,393 106 19,732 --
Intercompany accounts payable... 21,519 17,797 3,450 5,058 16,602 (64,426)
Taxes accrued................... -- 3,308 17,183 -- 8,037 --
----------- ----------- ----------- ----------- ----------- -------------
Current liabilities........... 26,440 42,864 458,632 5,164 107,361 (64,426)
----------- ----------- ----------- ----------- ----------- -------------
Long-term debt.................. 6,802 6,147 11,388 -- 4,685 --
Convertible subordinated
debentures.................... 69,000 -- -- -- -- --
Retirement and
other benefits................ 453 7,478 6,309 -- 4,411 --
Deferred taxes.................. -- 410 7,283 -- 1,021 --
----------- ----------- ----------- ----------- ----------- -------------
Total liabilities............. 102,695 56,899 483,612 5,164 117,478 (64,426)
----------- ----------- ----------- ----------- ----------- -------------
Minority interests.............. -- -- 29,310 -- 32 --
ESOP redeemable
preferred stock............... 8,748 -- -- -- -- --
Unearned ESOP compensation...... (6,320) -- -- -- -- --
SHAREHOLDERS' EQUITY
Common stock.................... 2,349 993 47,848 22,604 27,492 (98,937)
Additional paid-in capital...... 44,722 4,010 16,645 -- 66,716 (87,371)
Unearned restricted stock plan
compensation.................. (15) (116) (255) -- (22) --
Treasury stock at cost.......... (2,633) -- -- -- -- --
Retained earnings............... 47,051 40,536 77,484 6,818 (7,202) (117,636)
Cumulative translation
adjustments................... (9,895) -- (16,186) 7,937 8,985 (736)
----------- ----------- ----------- ----------- ----------- -------------
Total shareholders' equity.... 81,579 45,423 125,536 37,359 95,969 (304,680)
----------- ----------- ----------- ----------- ----------- -------------
Total liabilities and
shareholders' equity........ $ 186,702 $ 102,322 $ 638,458 $42,523 $ 213,479 $(369,106)
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
<CAPTION>
TOTAL
--------
<S> <C>
ASSETS
Cash............................ $132,188
Receivables..................... 206,344
Intercompany receivable......... --
Inventories..................... 286,453
Prepaids and other.............. 5,521
Marketable securities........... 1,311
--------
Current assets................ 631,817
--------
Property, plant
and equipment................. 133,055
Investment in subsidiaries...... --
Investment in affiliates........ 11,657
Other noncurrent assets......... 37,849
--------
Total assets.................. $814,378
--------
--------
LIABILITIES
Short-term borrowings........... $348,894
Current portion of
long-term debt................ 10,453
Accounts payable................ 188,160
Intercompany accounts payable... --
Taxes accrued................... 28,528
--------
Current liabilities........... 576,035
--------
Long-term debt.................. 29,022
Convertible subordinated
debentures.................... 69,000
Retirement and
other benefits................ 18,651
Deferred taxes.................. 8,714
--------
Total liabilities............. 701,422
--------
Minority interests.............. 29,342
ESOP redeemable
preferred stock............... 8,748
Unearned ESOP compensation...... (6,320)
SHAREHOLDERS' EQUITY
Common stock.................... 2,349
Additional paid-in capital...... 44,722
Unearned restricted stock plan
compensation.................. (408)
Treasury stock at cost.......... (2,633)
Retained earnings............... 47,051
Cumulative translation
adjustments................... (9,895)
--------
Total shareholders' equity.... 81,186
--------
Total liabilities and
shareholders' equity........ $814,378
--------
--------
</TABLE>
F-26
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING BALANCE SHEETS
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash............................ $ 3,851 $ 6,021 $ 50,441 $ 70 $ 18,305 $ --
Receivables..................... 6,237 40,605 133,994 2,092 69,189 --
Intercompany accounts
receivable.................... 16,617 8,409 45,958 -- 733 (71,717)
Inventories..................... -- 65,500 120,991 1,467 76,592 (4,769)
Prepaid expenses................ 617 1,741 2,723 12 328 (1,731)
Marketable securities........... -- -- 5,311 -- 14 --
----------- ----------- ----------- ----------- ----------- -------------
Current assets................ 27,322 122,276 359,418 3,641 165,161 (78,217)
----------- ----------- ----------- ----------- ----------- -------------
Property, plant
and equipment................. -- 22,410 92,092 47 19,949 --
Investment in subsidiaries...... 149,469 -- 69,430 39,676 45,268 (303,843)
Investment in affiliates........ -- -- 10,255 -- 1,187 --
Other assets.................... 10,632 2,181 21,583 -- 2,887 --
----------- ----------- ----------- ----------- ----------- -------------
Total assets.................. $ 187,423 $ 146,867 $ 552,778 $43,364 $ 234,452 $(382,060)
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
LIABILITIES
Short-term borrowings........... $ -- $ 50,416 $ 250,135 $ -- $ 73,074 $ --
Current portion of
long-term debt................ 3,765 284 6,793 -- 823 --
Accounts payable................ 3,072 10,188 86,211 5,267 28,999 --
Intercompany accounts payable... 20,756 22,356 13,433 -- 18,520 (75,065)
Taxes accrued................... -- 2,808 16,866 -- 8,230 (3,128)
----------- ----------- ----------- ----------- ----------- -------------
Current liabilities........... 27,593 86,052 373,438 5,267 129,646 (78,193)
----------- ----------- ----------- ----------- ----------- -------------
Long-term debt.................. 7,407 6,222 13,463 -- 4,726 --
Convertible subordinated
debentures.................... 69,000 -- -- -- -- --
Retirement and
other benefits................ 404 7,409 6,164 -- 4,521 --
Deferred taxes.................. -- 1,316 8,189 -- 1,171 (1,044)
----------- ----------- ----------- ----------- ----------- -------------
Total liabilities............. 104,404 100,999 401,254 5,267 140,064 (79,237)
----------- ----------- ----------- ----------- ----------- -------------
Minority interests.............. -- -- 27,436 -- 37 --
ESOP redeemable
preferred stock............... 8,748 -- -- -- -- --
Unearned ESOP compensation...... (6,320) -- -- -- -- --
SHAREHOLDERS' EQUITY
Preferred stock................. -- -- -- -- -- --
Common stock.................... 2,325 993 47,848 22,604 27,492 (98,937)
Additonal paid-in capital....... 43,660 4,010 16,893 -- 66,716 (87,619)
Unearned restricted stock plan
compensation.................. (16) (123) (269) -- (23) (4)
Treasury stock.................. (2,384) -- -- -- -- --
Retained earnings............... 46,450 40,988 73,651 7,075 (7,025) (114,689)
Cumulative translation
adjustments................... (9,444) -- (14,035) 8,418 7,191 (1,574)
----------- ----------- ----------- ----------- ----------- -------------
Total shareholders' equity.... 80,591 45,868 124,088 38,097 94,351 (302,823)
----------- ----------- ----------- ----------- ----------- -------------
Total liabilities and
shareholders' equity........ $ 187,423 $ 146,867 $ 552,778 $43,364 $ 234,452 $(382,060)
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
<CAPTION>
TOTAL
--------
<S> <C>
ASSETS
Cash............................ $ 78,688
Receivables..................... 252,117
Intercompany accounts
receivable.................... --
Inventories..................... 259,781
Prepaid expenses................ 3,690
Marketable securities........... 5,325
--------
Current assets................ 599,601
--------
Property, plant
and equipment................. 134,498
Investment in subsidiaries...... --
Investment in affiliates........ 11,442
Other assets.................... 37,283
--------
Total assets.................. $782,824
--------
--------
LIABILITIES
Short-term borrowings........... $373,625
Current portion of
long-term debt................ 11,665
Accounts payable................ 133,737
Intercompany accounts payable... --
Taxes accrued................... 24,776
--------
Current liabilities........... 543,803
--------
Long-term debt.................. 31,818
Convertible subordinated
debentures.................... 69,000
Retirement and
other benefits................ 18,498
Deferred taxes.................. 9,632
--------
Total liabilities............. 672,751
--------
Minority interests.............. 27,473
ESOP redeemable
preferred stock............... 8,748
Unearned ESOP compensation...... (6,320)
SHAREHOLDERS' EQUITY
Preferred stock................. --
Common stock.................... 2,325
Additonal paid-in capital....... 43,660
Unearned restricted stock plan
compensation.................. (435)
Treasury stock.................. (2,384)
Retained earnings............... 46,450
Cumulative translation
adjustments................... (9,444)
--------
Total shareholders' equity.... 80,172
--------
Total liabilities and
shareholders' equity........ $782,824
--------
--------
</TABLE>
F-27
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales............................ $ -- $67,784 $ 196,360 $ 1,305 $82,583 $ (47,717)
Cost of sales:
-- Materials, services
and supplies............... -- 64,663 177,403 1,212 77,628 (47,717)
-- Interest................... -- 1,115 4,851 -- 1,300 --
----------- ----------- ----------- ----------- ----------- ------------
Gross profit..................... -- 2,006 14,106 93 3,655 (0)
Selling, general and
administrative expenses........ 738 2,887 10,123 67 3,694 150
Restructuring Charges............ -- -- -- -- -- --
Other interest expense........... 1,367 299 467 -- 83 --
Other income (expense),
net............................ 484 (17) 340 (75) 1,509 150
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) before taxes..... (1,621) (1,197) 3,856 (49) 1,387 (0)
Income taxes..................... (695) (408) -- -- 396 1,065
----------- ----------- ----------- ----------- ----------- ------------
Income (loss)
after taxes.................. (926) (789) 3,856 (49) 991 (1,065)
Minority interest................ -- -- (291) -- -- --
Equity in earnings (losses) of
affiliates..................... -- -- 126 -- -- --
Equity in earnings (losses) of
subsidiaries................... 2,779 -- -- 973 -- (3,752)
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) from continuing
operations................... 1,853 (789) 3,691 924 991 (4,817)
Income (loss) from discontinued
operations................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
Net income (loss).............. 1,853 (789) 3,691 924 991 (4,817)
ESOP preferred stock dividends,
net of tax..................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
Net income (loss) applicable to
common stock................. 1,853 (789) 3,691 924 991 (4,817)
Retained earnings at beginning of
period......................... 58,089 44,527 86,441 6,803 (5,776) (131,995)
Common stock
dividends.................... (2,073) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
Retained earnings
at end of period............... $57,869 $43,738 $ 90,132 $ 7,727 $(4,785) $ (136,812)
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
<CAPTION>
TOTAL
--------
<S> <C>
Sales............................ $300,315
Cost of sales:
-- Materials, services
and supplies............... 273,189
-- Interest................... 7,266
--------
Gross profit..................... 19,860
Selling, general and
administrative expenses........ 17,659
Restructuring Charges............ --
Other interest expense........... 2,216
Other income (expense),
net............................ 2,391
--------
Income (loss) before taxes..... 2,376
Income taxes..................... 358
--------
Income (loss)
after taxes.................. 2,018
Minority interest................ (291)
Equity in earnings (losses) of
affiliates..................... 126
Equity in earnings (losses) of
subsidiaries................... --
--------
Income (loss) from continuing
operations................... 1,853
Income (loss) from discontinued
operations................... --
--------
Net income (loss).............. 1,853
ESOP preferred stock dividends,
net of tax..................... --
--------
Net income (loss) applicable to
common stock................. 1,853
Retained earnings at beginning of
period......................... 58,089
Common stock
dividends.................... (2,073)
--------
Retained earnings
at end of period............... $ 57,869
--------
--------
</TABLE>
F-28
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME AND RETAINED EARNINGS
YEAR ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales.......................... $ 9,379 $ 450,542 $ 757,426 $ 7,958 $ 341,258 $ (212,293)
Cost of sales:
-- Materials, services
and supplies............. -- 419,787 668,232 7,438 321,982 (200,059)
-- Interest................. -- 3,154 22,748 352 5,943 --
----------- ----------- ----------- ----------- ----------- ------------
Gross profit................... 9,379 27,601 66,446 168 13,333 (12,234)
Selling, general and adminis-
trative expenses............. 2,951 22,273 42,871 768 14,058 (10,139)
Other interest expense......... 5,472 1,188 2,187 -- 1,073 --
Other income (expense),
net.......................... (491) 255 4,971 (10) 3,434 2,095
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) before income
taxes...................... 465 4,395 26,359 (610) 1,636 --
Income tax expense (benefit)... 496 856 10,873 -- 557 --
----------- ----------- ----------- ----------- ----------- ------------
Income (loss)
after taxes................ (31) 3,539 15,486 (610) 1,079 --
Minority interests............. -- -- (3,938) -- -- --
Equity in earnings (losses) of
affiliates................... -- -- 1,242 -- 170 --
Equity in earnings (losses) of
subsidiaries................. 16,968 -- -- 338 -- (17,306)
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) from continuing
operations................. 16,937 3,539 12,790 (272) 1,249 (17,306)
----------- ----------- ----------- ----------- ----------- ------------
Net income (loss)............ 16,937 3,539 12,790 (272) 1,249 (17,306)
ESOP preferred stock dividends,
net of tax................... (347) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) applicable to
common stock............... 16,590 3,539 12,790 (272) 1,249 (17,306)
Retained earnings at beginning
of year...................... 46,450 40,988 73,651 7,075 (7,025) (114,689)
Common stock
dividends.................. (4,951) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
Retained earnings
at end of year............... $58,089 $ 44,527 $ 86,441 $ 6,803 $ (5,776) $ (131,995)
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
<CAPTION>
TOTAL
----------
<S> <C>
Sales.......................... $1,354,270
Cost of sales:
-- Materials, services
and supplies............. 1,217,380
-- Interest................. 32,197
----------
Gross profit................... 104,693
Selling, general and adminis-
trative expenses............. 72,782
Other interest expense......... 9,920
Other income (expense),
net.......................... 10,254
----------
Income (loss) before income
taxes...................... 32,245
Income tax expense (benefit)... 12,782
----------
Income (loss)
after taxes................ 19,463
Minority interests............. (3,938)
Equity in earnings (losses) of
affiliates................... 1,412
Equity in earnings (losses) of
subsidiaries................. --
----------
Income (loss) from continuing
operations................. 16,937
----------
Net income (loss)............ 16,937
ESOP preferred stock dividends,
net of tax................... (347)
----------
Income (loss) applicable to
common stock............... 16,590
Retained earnings at beginning
of year...................... 46,450
Common stock
dividends.................. (4,951)
----------
Retained earnings
at end of year............... $ 58,089
----------
----------
</TABLE>
F-29
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENTS OF INCOME AND RETAINED EARNINGS
THREE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sales........................... $ -- $35,700 $ 213,826 $ 1,880 $89,790 $ (30,805)
Cost of sales:
-Materials, services and
supplies.................... -- 32,929 191,834 1,772 85,164 (30,805)
-Interest..................... -- 577 5,356 -- 1,678 --
----------- ----------- ----------- ----------- ----------- -------------
Gross profit.................... -- 2,194 16,636 108 2,948 --
Selling, general and adminis-
trative expenses.............. 841 2,803 10,375 115 3,692 170
Restructuring charges........... -- -- -- -- -- --
Other interest expense.......... 1,451 84 682 -- 170 --
Other income (expense), net..... (161) 10 2,318 (70) 568 170
----------- ----------- ----------- ----------- ----------- -------------
Income (loss) before income
taxes......................... (2,453) (683) 7,897 (77) (346) --
Income taxes.................... (834) (231) 2,346 -- (169) --
----------- ----------- ----------- ----------- ----------- -------------
Income (loss)
after taxes................. (1,619) (452) 5,551 (77) (177) --
Minority interest............... -- -- (1,936) -- -- --
Equity in earnings (losses) of
affiliates.................... -- -- 218 -- -- --
Equity in earnings (losses) of
subsidiaries.................. 3,127 -- -- (180) -- (2,947)
----------- ----------- ----------- ----------- ----------- -------------
Income (loss) from continuing
operations.................. 1,508 (452) 3,833 (257) (177) (2,947)
Income (loss) from discontinued
operations.................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -------------
Net income.................... 1,508 (452) 3,833 (257) (177) (2,947)
ESOP preferred stock dividends,
net of tax.................... (115) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -------------
Net income (loss) applicable
to common stock............. 1,393 (452) 3,833 (257) (177) (2,947)
Retained earnings at beginning
of period..................... 46,450 40,988 73,651 7,075 (7,025) (114,689)
Common stock dividends........ (792) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- -------------
Retained earnings at
end of period................. $47,051 $40,536 $ 77,484 $ 6,818 $(7,202) $(117,636)
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
<CAPTION>
TOTAL
--------
<S> <C>
Sales........................... $310,391
Cost of sales:
-Materials, services and
supplies.................... 280,894
-Interest..................... 7,611
--------
Gross profit.................... 21,886
Selling, general and adminis-
trative expenses.............. 17,996
Restructuring charges........... --
Other interest expense.......... 2,387
Other income (expense), net..... 2,835
--------
Income (loss) before income
taxes......................... 4,338
Income taxes.................... 1,112
--------
Income (loss)
after taxes................. 3,226
Minority interest............... (1,936)
Equity in earnings (losses) of
affiliates.................... 218
Equity in earnings (losses) of
subsidiaries.................. --
--------
Income (loss) from continuing
operations.................. 1,508
Income (loss) from discontinued
operations.................... --
--------
Net income.................... 1,508
ESOP preferred stock dividends,
net of tax.................... (115)
--------
Net income (loss) applicable
to common stock............. 1,393
Retained earnings at beginning
of period..................... 46,450
Common stock dividends........ (792)
--------
Retained earnings at
end of period................. $ 47,051
--------
--------
</TABLE>
F-30
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales.......................... $ 6,340 $ 358,037 $ 775,969 $ 9,324 $ 425,262 $ (215,482)
Cost of sales:
-- Materials, services and
supplies.................. -- 330,813 681,879 9,087 412,361 (206,572)
-- Interest................. -- 3,971 28,727 -- 8,671 --
----------- ----------- ----------- ----------- ----------- ------------
Gross profit................... 6,340 23,253 65,363 237 4,230 (8,910)
Selling, general and adminis-
trative expenses............. 8,151 18,447 48,632 672 16,386 (9,480)
Restructuring charges.......... -- -- 5,028 -- 7,472 --
Other interest expense......... 6,092 648 2,722 -- 97 --
Other income (expense), net.... 1,504 1,049 7,702 53 1,674 (570)
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) before income
taxes........................ (1,399) 5,207 16,683 (182) (18,051) --
Income tax expense (benefit)... (1,669) 1,651 7,603 -- (753) --
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) after taxes.... 266 3,556 9,080 (182) (17,298) --
Minority interests............. -- -- (4,795) -- -- --
Equity in earnings (losses) of
affiliates................... -- -- (216) -- 147 --
Equity in earnings (losses) of
subsidiaries................. 342 -- -- (3,072) -- 2,730
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) from continuing
operations................. 608 3,556 4,069 (3,254) (17,151) 2,730
Income (loss) from discontinued
operations................... -- -- -- -- 10,050 --
----------- ----------- ----------- ----------- ----------- ------------
Net income (loss)............ 608 3,556 4,069 (3,254) (7,101) 2,730
ESOP preferred stock dividends,
net of tax................... (474) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) applicable to
common stock............... 134 3,556 4,069 (3,254) (7,101) 2,730
Retained earnings at beginning
of year...................... 50,530 37,432 69,582 10,329 76 (117,419)
Common stock dividends....... (4,214) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
Retained earnings at end of
year......................... $ 46,450 $ 40,988 $ 73,651 $ 7,075 $ (7,025) $ (114,689)
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
<CAPTION>
TOTAL
----------
<S> <C>
Sales.......................... $1,359,450
Cost of sales:
-- Materials, services and
supplies.................. 1,227,568
-- Interest................. 41,369
----------
Gross profit................... 90,513
Selling, general and adminis-
trative expenses............. 77,608
Restructuring charges.......... 12,500
Other interest expense......... 9,559
Other income (expense), net.... 11,412
----------
Income (loss) before income
taxes........................ 2,258
Income tax expense (benefit)... 6,836
----------
Income (loss) after taxes.... (4,578)
Minority interests............. (4,795)
Equity in earnings (losses) of
affiliates................... (69)
Equity in earnings (losses) of
subsidiaries................. --
----------
Income (loss) from continuing
operations................. (9,442)
Income (loss) from discontinued
operations................... 10,050
----------
Net income (loss)............ 608
ESOP preferred stock dividends,
net of tax................... (474)
----------
Income (loss) applicable to
common stock............... 134
Retained earnings at beginning
of year...................... 50,530
Common stock dividends....... (4,214)
----------
Retained earnings at end of
year......................... $ 46,450
----------
----------
</TABLE>
F-31
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENT OF INCOME AND RETAINED EARNINGS
YEAR ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sales.......................... $ 4,725 $ 263,306 $ 662,165 $10,272 $ 469,906 $ (196,809)
Cost of sales:
-- Materials, services and
supplies................... -- 236,663 602,432 9,844 439,854 (191,674)
-- Interest................. -- 4,600 23,406 -- 6,975 --
----------- ----------- ----------- ----------- ----------- ------------
Gross profit................... 4,725 22,043 36,327 428 23,077 (5,135)
Selling, general and adminis-
trative expenses............. 3,460 13,905 48,250 495 14,893 (494)
Restructuring charges..........
Other interest expense......... 6,209 2,398 1,195 -- 145 --
Other income (expense),
net.......................... (638) 1,457 13,396 (61) 176 4,641
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) before income
taxes........................ (5,582) 7,197 278 (128) 8,215 --
Income tax expense (benefit)... 1,103 2,278 10,940 -- 2,049 --
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) after taxes.... (6,685) 4,919 (10,662) (128) 6,166 --
Minority interests............. -- -- (9,634) -- -- --
Equity in earnings (losses) of
affiliates................... -- -- (4,660) -- 190 --
Equity in earnings (losses) of
subsidiaries................. (23,859) -- -- 3,293 -- 20,566
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) from continuing
operations................. (30,544) 4,919 (24,956) 3,165 6,356 20,566
Income (loss) from discontinued
operations................... -- -- -- -- (10,050) --
----------- ----------- ----------- ----------- ----------- ------------
Net income (loss)............ (30,544) 4,919 (24,956) 3,165 (3,694) 20,566
ESOP preferred stock dividends,
net of tax................... (485) -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
Income (loss) applicable to
common stock............... (31,029) 4,919 (24,956) 3,165 (3,694) 20,566
Retained earnings at beginning
of year...................... 84,807 32,513 94,538 11,759 3,770 (142,580)
Common stock dividends....... (3,248) -- -- (4,595) -- 4,595
----------- ----------- ----------- ----------- ----------- ------------
Retained earnings at
end of year.................. $ 50,530 $ 37,432 $ 69,582 $10,329 $ 76 $ (117,419)
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
<CAPTION>
TOTAL
----------
<S> <C>
Sales.......................... $1,213,565
Cost of sales:
-- Materials, services and
supplies................... 1,097,119
-- Interest................. 34,981
----------
Gross profit................... 81,465
Selling, general and adminis-
trative expenses............. 80,509
Restructuring charges.......... --
Other interest expense......... 9,947
Other income (expense),
net.......................... 18,971
----------
Income (loss) before income
taxes........................ 9,980
Income tax expense (benefit)... 16,370
----------
Income (loss) after taxes.... (6,390)
Minority interests............. (9,634)
Equity in earnings (losses) of
affiliates................... (4,470)
Equity in earnings (losses) of
subsidiaries................. --
----------
Income (loss) from continuing
operations................. (20,494)
Income (loss) from discontinued
operations................... (10,050)
----------
Net income (loss)............ (30,544)
ESOP preferred stock dividends,
net of tax................... (485)
----------
Income (loss) applicable to
common stock............... (31,029)
Retained earnings at beginning
of year...................... 84,807
Common stock dividends....... (3,248)
----------
Retained earnings at
end of year.................. $ 50,530
----------
----------
</TABLE>
F-32
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATING
ACTIVITIES..................... $ (46,986) $ 30,674 $ (16,721) $ (7) $ 42 $ 50,168
CASH FLOWS FROM INVESTING
ACTIVITIES
Property, plant and
equipment -- additions......... -- (264) (2,078) (31) (697) 161
-- disposals......... -- 4 57 -- 1,488 (33)
Minority interest................ -- -- 201 -- -- (201)
Net advances from (to) group
companies...................... -- (6,231) 6,231 -- -- --
Collections of note receivable... -- -- -- -- -- --
Business (acquisitions)
dispositions................... -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ------------
CASH PROVIDED BY INVESTING
ACTIVITIES..................... -- (6,491) 4,411 (31) 791 (73)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term
borrowings..................... -- -- 584 -- -- (584)
Repayment of long-term
borrowings..................... -- -- -- -- (2,170) (2,469)
Net change in short-term
borrowings..................... -- (25,249) 12,219 -- 11 (47,042)
Dividends paid,
net of tax..................... -- -- -- -- -- --
Purchase and retirement of ESOP.. -- -- -- -- -- --
Net proceeds of equity
offering....................... 47,043 -- -- -- -- --
Other............................ -- -- 910 -- (110) --
----------- ----------- ----------- ----------- ----------- ------------
CASH USED FOR FINANCING
ACTIVITIES..................... 47,043 (25,249) 13,713 -- (2,269) (50,095)
Net increase (decrease) in
cash........................... 57 (1,066) 1,403 (38) (1,436) --
Cash at beginning of period...... 327 1,102 28,956 119 10,613 --
----------- ----------- ----------- ----------- ----------- ------------
CASH AT END OF PERIOD............ $ 384 $ 36 $ 30,359 $ 81 $ 9,177 --
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
<CAPTION>
TOTAL
--------
<S> <C>
CASH PROVIDED BY OPERATING
ACTIVITIES..................... $ 17,170
CASH FLOWS FROM INVESTING
ACTIVITIES
Property, plant and
equipment -- additions......... (2,909)
-- disposals......... 1,516
Minority interest................ --
Net advances from (to) group
companies...................... --
Collections of note receivable... --
Business (acquisitions)
dispositions................... --
--------
CASH PROVIDED BY INVESTING
ACTIVITIES..................... (1,393)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term
borrowings..................... --
Repayment of long-term
borrowings..................... (4,639)
Net change in short-term
borrowings..................... (60,061)
Dividends paid,
net of tax..................... --
Purchase and retirement of ESOP.. --
Net proceeds of equity
offering....................... 47,043
Other............................ 800
--------
CASH USED FOR FINANCING
ACTIVITIES..................... (16,857)
Net increase (decrease) in
cash........................... (1,080)
Cash at beginning of period...... 41,117
--------
CASH AT END OF PERIOD............ $ 40,037
--------
--------
</TABLE>
F-33
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATING
ACTIVITIES.................... $ 9,954 $ 10,380 $ 3,881 $ 53 $ 6,245 $ 4,146
CASH FLOWS FROM INVESTING
ACTIVITIES
Property, plant and
equipment -- additions........ -- (3,024) (8,691) (22) (1,085) 6
-- disposals........ -- 156 2,193 18 462 2,243
Minority interest............... -- -- (2,842) -- 3 2,839
Net advances from (to) group
companies..................... -- (6,674) 6,674 -- -- --
Collections of note
receivable.................... 500 -- -- -- -- (500)
Business (acquisitions)
dispositions.................. -- -- 3,148 -- 1,392 (1,236)
----------- ----------- ----------- ----------- ----------- -------------
CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES.......... 500 (9,542) 482 (4) 772 3,352
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term
borrowings.................... -- 10,000 405 -- -- --
Repayment of long-term
borrowings.................... (11,171) (1,618) (4,876) -- 1,058 (4,524)
Net change in short-term
borrowings.................... -- (14,139) (21,948) -- (15,343) (2,827)
Dividends paid,
net of tax.................... (347) -- -- -- -- --
Purchase and retirement of
ESOP Preferred Stock.......... (2,460) -- -- -- -- --
Other........................... -- -- 571 -- (424) (147)
----------- ----------- ----------- ----------- ----------- -------------
CASH USED FOR FINANCING
ACTIVITIES.................... (13,978) (5,757) (25,848) -- (14,709) (7,498)
Net increase (decrease) in cash
for year...................... (3,524) (4,919) (21,485) 49 (7,692) --
Cash at beginning of year....... 3,851 6,021 50,441 70 18,305 --
----------- ----------- ----------- ----------- ----------- -------------
CASH AT END OF YEAR............. $ 327 $ 1,102 $ 28,956 $ 119 $ 10,613 $ --
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE YEAR FOR:
Interest.................... $ 8,105 $ 951 $ 17,691 $ -- $ 16,043 $ --
Income taxes................ 660 1,365 6,935 -- 97 --
<CAPTION>
TOTAL
--------
<S> <C>
CASH PROVIDED BY OPERATING
ACTIVITIES.................... $ 34,659
CASH FLOWS FROM INVESTING
ACTIVITIES
Property, plant and
equipment -- additions........ (12,816)
-- disposals........ 5,072
Minority interest............... --
Net advances from (to) group
companies..................... --
Collections of note
receivable.................... --
Business (acquisitions)
dispositions.................. 3,304
--------
CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES.......... (4,440)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term
borrowings.................... 10,405
Repayment of long-term
borrowings.................... (21,131)
Net change in short-term
borrowings.................... (54,257)
Dividends paid,
net of tax.................... (347)
Purchase and retirement of
ESOP Preferred Stock.......... (2,460)
Other........................... --
--------
CASH USED FOR FINANCING
ACTIVITIES.................... (67,790)
Net increase (decrease) in cash
for year...................... (37,571)
Cash at beginning of year....... 78,688
--------
CASH AT END OF YEAR............. $ 41,117
--------
--------
SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE YEAR FOR:
Interest.................... $ 42,790
Income taxes................ 9,057
</TABLE>
F-34
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATING
ACTIVITIES.................... $(1,217) $ 35,045 $ 40,664 $27 $ 11,805 $(1,884)
CASH FLOWS FROM INVESTING
ACTIVITIES
Property, plant and equipment
-additions... -- (885) (1,183) -- (197) --
-disposals........... -- 5 7 -- 49 186
Minority interest............... -- -- (1,874) -- 5 1,869
Net advances from (to) group
companies..................... -- 394 (394) -- -- --
Collections of note
receivable.................... -- -- -- -- -- --
Business (acquisitions)
dispositions.................. -- -- -- -- -- --
----------- ----------- ----------- --- ----------- -------------
CASH PROVIDED BY INVESTING
ACTIVITIES.................... -- (486) (3,444) -- (143) 2,055
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term
borrowings.................... -- -- -- -- -- --
Repayment of long-term
borrowings.................... (1,211) -- (2,690) -- (39) (136)
Net change in short-term
borrowings.................... -- (37,115) 23,293 -- (10,909) --
Dividends paid, net of tax...... (115) -- -- -- -- --
Purchase and retirement of
ESOP.......................... -- -- -- -- -- --
Preferred stock................. -- -- -- -- -- --
Other........................... -- -- 145 -- (110) (35)
----------- ----------- ----------- --- ----------- -------------
CASH USED IN FINANCING
ACTIVITIES.................... (1,326) (37,115) 20,748 -- (11,058) (171)
Net increase (decrease) in
cash.......................... (2,543) (2,556) 57,968 27 604 --
Cash at beginning of period..... 3,851 6,021 50,441 70 18,305 --
----------- ----------- ----------- --- ----------- -------------
CASH AT END OF PERIOD........... $ 1,308 $ 3,465 $ 108,409 $97 $ 18,909 $ --
----------- ----------- ----------- --- ----------- -------------
----------- ----------- ----------- --- ----------- -------------
<CAPTION>
TOTAL
--------
<S> <C>
CASH PROVIDED BY OPERATING
ACTIVITIES.................... $ 84,440
CASH FLOWS FROM INVESTING
ACTIVITIES
Property, plant and equipment
-additions... (2,265)
-disposals........... 247
Minority interest............... --
Net advances from (to) group
companies..................... --
Collections of note
receivable.................... --
Business (acquisitions)
dispositions.................. --
--------
CASH PROVIDED BY INVESTING
ACTIVITIES.................... (2,018)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term
borrowings.................... --
Repayment of long-term
borrowings.................... (4,076)
Net change in short-term
borrowings.................... (24,731)
Dividends paid, net of tax...... (115)
Purchase and retirement of
ESOP.......................... --
Preferred stock................. --
Other........................... --
--------
CASH USED IN FINANCING
ACTIVITIES.................... (28,922)
Net increase (decrease) in
cash.......................... 53,500
Cash at beginning of period..... 78,688
--------
CASH AT END OF PERIOD........... $132,188
--------
--------
</TABLE>
F-35
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES.......... $ 7,548 $ (2,913) $ 7,750 $ 969 $ 23,822 $ 12,671
CASH FLOWS FROM INVESTING
ACTIVITIES
Property, plant and
equipment -- additions........ -- (1,120) (10,397) -- (603) (91)
-- disposals........ 340 1,268 2,115 (572)
Minority interest............... -- -- 3,863 -- 1 (11,604)
Net advances from (to) group
companies..................... -- (2,292) 2,292 -- -- --
Collections of note
receivable.................... 620 -- -- -- -- (620)
Business (acquisitions)
dispositions.................. -- -- (1,000) (35) 468 1,007
----------- ----------- ----------- ----------- ----------- -------------
CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES.......... 620 (3,072) (3,974) (35) 1,981 (11,880)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term
borrowings.................... 3,662 -- 6,000 -- -- (17)
Repayment of long-term
borrowings.................... (7,858) (257) (1,762) -- (611) (4,480)
Net change in short-term
borrowings.................... -- 10,446 (3,281) (1,000) (15,323) (3,828)
Dividends paid, net of tax...... (474) -- -- -- -- --
Other........................... -- -- 502 -- (266) (122)
----------- ----------- ----------- ----------- ----------- -------------
CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES.......... (4,670) 10,189 1,459 (1,000) (16,200) (791)
Net increase (decrease) in cash
for year...................... 3,498 4,204 5,235 (66) 9,603 --
Cash at beginning of year....... 353 1,817 45,206 136 8,702 --
----------- ----------- ----------- ----------- ----------- -------------
CASH AT END OF YEAR............. $ 3,851 $ 6,021 $ 50,441 $ 70 $ 18,305 $ --
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE YEAR FOR:
Interest.................... $ 2,962 $ 772 $ 24,992 $ -- $ 15,700 $ --
Income taxes................ 575 799 4,537 -- 522 --
<CAPTION>
TOTAL
--------
<S> <C>
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES.......... $ 49,847
CASH FLOWS FROM INVESTING
ACTIVITIES
Property, plant and
equipment -- additions........ (12,211)
-- disposals........ 3,151
Minority interest............... (7,740)
Net advances from (to) group
companies..................... --
Collections of note
receivable.................... --
Business (acquisitions)
dispositions.................. 440
--------
CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES.......... (16,360)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term
borrowings.................... 9,645
Repayment of long-term
borrowings.................... (14,968)
Net change in short-term
borrowings.................... (5,330)
Dividends paid, net of tax...... (474)
Other........................... 114
--------
CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES.......... (11,013)
Net increase (decrease) in cash
for year...................... 22,474
Cash at beginning of year....... 56,214
--------
CASH AT END OF YEAR............. $ 78,688
--------
--------
SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE YEAR FOR:
Interest.................... $ 44,426
Income taxes................ 6,433
</TABLE>
F-36
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL CORPORATION (THE "COMPANY")
CONDENSED FINANCIAL INFORMATION
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
STANDARD TOBACCO WOOL
STANDARD COMMERCIAL OPERATING OPERATING
COMMERCIAL TOBACCO CO. SUBSIDIARIES STANDARD SUBSIDIARIES
CORPORATION INC. (NON- WOOL, INC. (NON-
(GUARANTOR) (ISSUER) GUARANTORS) (GUARANTOR) GUARANTORS) ELIMINATIONS
----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES......... $ 7,082 $ 27,093 $ 76,042 $ 7,428 $ (19,172) $ (3,053)
CASH FLOWS FROM INVESTING
ACTIVITIES
Property, plant and equipment
-- additions... -- (4,566) (9,839) -- (2,923) --
-- disposals....... -- 30 14,073 -- 2,171 --
Net advances from (to) group
companies.................... -- 6,114 (6,114) -- -- --
Business (acquisitions)
dispositions................. 1,217 -- 807 -- -- (4,629)
----------- ----------- ----------- ----------- ----------- -------------
CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES......... 1,217 1,578 (1,073) -- (752) (4,629)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term
borrowings................... -- 3,943 815 -- 5,683 1
Repayment of long-term
borrowings................... (8,857) (120) (20,050) -- (79) (7)
Net change in short-term
borrowings................... -- (33,203) (66,099) (2,952) 12,024 3,824
Dividends paid, net of tax..... (485) -- -- (4,595) -- 4,595
Other.......................... -- -- (84) -- 1,028 (731)
----------- ----------- ----------- ----------- ----------- -------------
CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES......... (9,342) (29,380) (85,418) (7,547) 18,656 7,682
Net increase (decrease) in cash
for year..................... (1,043) (709) (10,449) (119) (1,268) --
Cash at beginning of year...... 1,396 2,526 55,655 255 9,970 --
----------- ----------- ----------- ----------- ----------- -------------
CASH AT END OF YEAR............ $ 353 $ 1,817 $ 45,206 $ 136 $ 8,702 $ --
----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- -------------
SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE YEAR FOR:
Interest................... $ 6,563 $ 2,415 $ 23,965 $ -- $ 14,645 $ --
Income taxes............... 1,052 4,645 2,139 -- 605 --
<CAPTION>
TOTAL
----------
<S> <C>
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES......... $ 95,420
CASH FLOWS FROM INVESTING
ACTIVITIES
Property, plant and equipment
-- additions... (17,328)
-- disposals....... 16,274
Net advances from (to) group
companies.................... --
Business (acquisitions)
dispositions................. (2,605)
----------
CASH PROVIDED BY (USED FOR)
INVESTING ACTIVITIES......... (3,659)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from long-term
borrowings................... 10,442
Repayment of long-term
borrowings................... (29,113)
Net change in short-term
borrowings................... (86,406)
Dividends paid, net of tax..... (485)
Other.......................... 213
----------
CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES......... (105,349)
Net increase (decrease) in cash
for year..................... (13,588)
Cash at beginning of year...... 69,802
----------
CASH AT END OF YEAR............ $ 56,214
----------
----------
SUPPLEMENTAL DISCLOSURES:
CASH PAID DURING THE YEAR FOR:
Interest................... $ 47,588
Income taxes............... 8,441
</TABLE>
F-37
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
The Company reorganized the ownership of its subsidiaries effective August
1, 1997 such that all of its tobacco operating subsidiaries are direct or
indirect subsidiaries of the Issuer and all of its wool operating subsidiaries
are direct subsidiaries of Standard Wool Inc., except that all of the capital
stock of Standard Wool (UK) Limited is owned by the Issuer and 19.6% of the
capital stock of Standard Wool France S.A. is indirectly owned by the Issuer.
This reorganization of entities under common control has been accounted for
retroactively in the financial statements of the Issuer for all periods
presented in a manner similar to a pooling of interests transaction. The
following pro forma supplemental financial statements present the financial
information of the Issuer after giving effect to the reorganization.
STANDARD COMMERCIAL TOBACCO CO., INC. (THE "ISSUER")
CONDENSED FINANCIAL INFORMATION
PRO FORMA SUPPLEMENTAL BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1997
----------- ---------
<S> <C> <C>
(UNAUDITED)
ASSETS
Cash................................................................................................. $ 30,395 $ 30,058
Receivables.......................................................................................... 178,698 210,272
Intercompany accounts receivable..................................................................... 186,687 41,123
Inventories.......................................................................................... 262,787 213,695
Prepaid expenses..................................................................................... 7,182 8,980
Marketable securities................................................................................ 784 823
----------- ---------
Current assets..................................................................................... 666,533 504,951
----------- ---------
Property, plant and equipment........................................................................ 103,805 105,768
Investment in affiliates............................................................................. 11,097 11,321
Other assets......................................................................................... 10,144 14,251
----------- ---------
Total assets....................................................................................... $ 791,579 $ 636,291
----------- ---------
----------- ---------
LIABILITIES
Short-term borrowings................................................................................ 86,564 $ 214,594
Current portion of long-term debt.................................................................... 7,631 7,945
Accounts payable..................................................................................... 196,171 124,798
Intercompany accounts payable........................................................................ 199,966 44,150
Taxes accrued........................................................................................ 19,885 22,193
----------- ---------
Current liabilities................................................................................ 510,217 413,680
----------- ---------
Long-term debt....................................................................................... 132,438 69,771
Retirement and other benefits........................................................................ 14,532 14,531
Deferred taxes....................................................................................... 4,555 8,200
----------- ---------
Total liabilities.................................................................................. 661,742 506,182
----------- ---------
Minority interests................................................................................... 30,077 30,278
SHAREHOLDERS' EQUITY
Common stock......................................................................................... 993 993
Additional paid-in capital........................................................................... 55,116 54,405
Unearned restricted stock plan compensation.......................................................... (87) (94)
Retained earnings.................................................................................... 43,738 44,527
----------- ---------
Total shareholders' equity......................................................................... 99,760 99,831
----------- ---------
Total liabilities and shareholders' equity......................................................... $ 791,579 $ 636,291
----------- ---------
----------- ---------
</TABLE>
F-38
<PAGE>
STANDARD COMMERCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 20 -- SUPPLEMENTAL GUARANTOR INFORMATION -- Continued
STANDARD COMMERCIAL TOBACCO CO., INC. (THE "ISSUER")
CONDENSED FINANCIAL INFORMATION
PRO FORMA SUPPLEMENTAL COMBINING STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEARS ENDED MARCH 31,
-------------------- --------------------------------------
1997 1996 1997 1996 1995
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Sales........................................................... $264,144 $249,526 $1,162,593 $1,099,482 $ 908,794
Cost of sales:
-Materials, services and supplies............................. 242,066 224,763 1,042,644 978,168 822,418
-Interest..................................................... 5,966 5,933 25,902 32,698 28,006
-------- -------- ---------- ---------- ----------
Gross profit.................................................... 16,112 18,830 94,047 88,616 58,370
Selling, general and administrative expenses.................... 13,010 13,178 65,144 67,079 62,155
Restructuring charges........................................... -- -- -- 5,028 --
Other interest expense.......................................... 766 766 3,375 3,370 3,593
Other income (expense), net..................................... 323 2,328 5,226 8,751 14,853
-------- -------- ---------- ---------- ----------
Income (loss) before income taxes............................... 2,659 7,214 30,754 21,890 7,475
Income tax expense (benefit).................................... 408 2,115 11,729 9,254 13,218
-------- -------- ---------- ---------- ----------
Income (loss) after taxes..................................... 3,067 5,099 19,025 12,636 (5,743)
Minority interests.............................................. (291) (1,936) (3,938) (4,795) (9,634)
Equity in earnings (losses) of affiliates....................... 126 218 1,242 (216) (4,660)
-------- -------- ---------- ---------- ----------
Net income (loss)............................................... $ 2,902 $ 3,381 $ 16,329 $ 7,625 $ 20,037
-------- -------- ---------- ---------- ----------
-------- -------- ---------- ---------- ----------
</TABLE>
NOTE 21 -- SUBSEQUENT EVENTS (UNAUDITED)
On August 1, 1997, the Company, through its wholly-owned subsidiary,
Standard Commercial Tobacco Company, Inc. (the "Issuer"), issued $115.0 million
aggregate principal amount 8 7/8% Senior Notes due 2005. See Note 20. The net
proceeds of the offering were used to retire the Company's existing U.S.
Revolving Credit Facility, to repay certain long-term bank loans in the United
States, and to reduce indebtedness under the $155.0 million master credit
facility. The Senior Notes will be exchanged for new notes in an exchange offer
upon the effectiveness of the Company's pending Form S-4 Registration Statement.
Concurrent with the notes offering, the Company (through the Issuer and two
of its wholly-owned subsidiaries) entered into a new revolving global bank
facility (the "Global Bank Facility") which amended the Company's master credit
facility and replaced the facility for U.S. tobacco operations. The Global Bank
Facility provides for borrowings of $200.0 million for working capital and other
general corporate purposes, and bears interest initially at LIBOR plus 1%. The
borrowings under the Global Bank Facility are guaranteed by the Company and
certain of its tobacco subsidiaries and secured by substantially all of the
assets of the tobacco subsidiaries and a pledge of all of the capital stock of
the Company's subsidiaries not otherwise pledged to secure other obligations. It
contains various covenants that restrict the Company and its subsidiaries from
taking various actions and that require that the Company and its tobacco
division achieve and maintain certain financial covenants. The Global Bank
Facility contains covenants relating to minimum net worth, minimum interest
coverage ratio, limitations on capital expenditures, investments, uncommitted
tobacco inventory, indebtedness, advances, liens, dividends, acquisitions and
sales of assets.
F-39
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Standard
Commercial Tobacco Co., Inc. and Subsidiaries as of March 31, 1997 and 1996 and
the related consolidated statements of income and retained earnings and of cash
flows for each of the three years in the period ended March 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at March 31, 1997
and 1996 and the results of its operations and its cash flows for each of the
three years in the period ended March 31, 1997 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE, LLP
Raleigh, North Carolina
June 18, 1997
F-40
<PAGE>
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, --------------------
1997 1997 1996
----------- -------- --------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Cash..................................................................................... $ 36 $ 1,102 $ 6,021
Receivables (Note 2)..................................................................... 23,797 35,737 40,605
Due from group companies (Note 5)........................................................ 136,314 15,083 8,409
Inventories (Notes 1 and 3).............................................................. 52,910 74,309 65,500
Prepaid expenses......................................................................... 403 4,190 1,741
----------- -------- --------
Current assets......................................................................... 213,460 130,421 122,276
Property, plant and equipment (Notes 1 and 4)............................................ 21,371 22,513 22,410
Other assets (Notes 1 and 9)............................................................. 1,692 1,878 2,181
-----------
Total assets........................................................................... $ 236,523 $154,812 $146,867
----------- -------- --------
----------- -------- --------
LIABILITIES
Short-term borrowings (Note 6)........................................................... $ 11,028 $ 36,277 $ 50,416
Current portion of long-term debt (Note 8)............................................... 2,320 2,312 284
Due to group companies (Note 5).......................................................... 23,908 28,757 22,356
Accounts payable (Note 7)................................................................ 12,437 14,123 10,188
Taxes accrued (Note 11).................................................................. 3,205 2,470 2,808
----------- -------- --------
Current liabilities.................................................................... 52,898 83,939 86,052
Long-term debt (Note 8).................................................................. 126,993 12,576 6,222
Retirement and other benefits (Note 9)................................................... 7,896 7,797 7,409
Deferred taxes (Notes 1 and 11).......................................................... 82 1,064 1,316
Commitments and contingencies (Note 10).................................................. -- -- --
----------- -------- --------
Total liabilities...................................................................... 187,869 105,376 100,999
SHAREHOLDERS' EQUITY
Common stock, $25 par value
Authorized shares 75,000;
39,700 shares issued................................................................ 993 993 993
Additional paid-in capital............................................................... 4,010 4,010 4,010
Unearned restricted stock plan compensation.............................................. (87) (94) (123)
Retained earnings........................................................................ 43,738 44,527 40,988
----------- -------- --------
Total shareholders' equity............................................................. 48,654 49,436 45,868
----------- -------- --------
Total liabilities and shareholders' equity............................................. $ 236,523 $154,812 $146,867
----------- -------- --------
----------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
------------------ --------------------------------
1997 1996 1997 1996 1995
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Sales (Note 13).................................................... $67,784 $35,700 $450,542 $358,037 $263,306
Cost of sales
-- Materials, services and supplies (Note 3).................... 64,663 32,929 419,787 330,813 236,663
-- Interest..................................................... 1,115 577 3,154 3,971 4,600
------- ------- -------- -------- --------
Gross Profit..................................................... 2,006 2,194 27,601 23,253 22,043
Selling, general and administrative expenses....................... 2,887 2,803 22,273 18,447 13,905
Other interest expense............................................. 299 84 1,188 648 2,398
Other income (expense), net........................................ (17) 10 255 1,049 1,457
------- ------- -------- -------- --------
Income (loss) before taxes....................................... (1,197) (683) 4,395 5,207 7,197
Income taxes (Notes 1 and 11)...................................... 408 231 856 1,651 2,278
------- ------- -------- -------- --------
Net income (loss)................................................ (789) (452) 3,539 3,556 4,919
Retained earnings at beginning of year............................. 44,527 40,988 40,988 37,432 32,513
------- ------- -------- -------- --------
Retained earnings at end of year................................... $43,738 $40,536 $ 44,527 $ 40,988 $ 37,432
------- ------- -------- -------- --------
------- ------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE>
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
------------------- --------------------------------
1997 1996 1997 1996 1995
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.......................................................... $ (789) $ (452) $ 3,539 $ 3,556 $ 4,919
Depreciation and amortization..................................... 840 754 2,769 2,769 2,725
Deferred income taxes............................................. (982) (906) (252) 177 32
Loss (gain) on disposition of property, plant and equipment....... (2) -- (4) (253) 5
Other............................................................. 4,803 (553) (2,067) (1,274) (1,557)
------- -------- -------- -------- --------
3,985 4,975 6,124
Net changes in working capital other than cash
Receivables....................................................... 11,940 22,953 4,868 (16,523) 1,045
Inventories....................................................... 21,399 19,829 (8,809) (1,254) 29,026
Current payables.................................................. (1,686) (2,021) 3,935 3,165 (1,107)
Due to group companies............................................ (4,849) (4,559) 6,401 6,724 (7,995)
------- -------- -------- -------- --------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES.................... 30,674 35,045 10,380 (2,913) 27,093
------- -------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment -- additions.......................... (264) (885) (3,024) (1,120) (4,566)
-- dispositions..................... 4 5 156 340 30
Net advances from (to) group company................................ (6,231) 394 (6,674) (2,292) 6,114
------- -------- -------- -------- --------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES.................... (6,491) (486) (9,542) (3,072) 1,578
------- -------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings.................................. -- -- 10,000 3,943
Repayment of long-term borrowings................................... -- -- (1,618) (257) (120)
Net change in short-term borrowings................................. (25,249) (37,115) (14,139) 10,446 (33,203)
------- -------- -------- -------- --------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES.................... (25,249) (37,115) (5,757) 10,189 (29,380)
------- -------- -------- -------- --------
Increase (decrease) in cash for year................................ (1,066) (2,556) (4,919) 4,204 (709)
Cash at beginning of year........................................... 1,102 6,021 6,021 1,817 2,526
------- -------- -------- -------- --------
CASH AT END OF YEAR................................................. $ 36 $ 3,465 $ 1,102 $ 6,021 $ 1,817
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Cash payments for -- interest....................................... -- -- $ 951 $ 772 $ 2,415
-- income taxes................................. -- -- $ 1,365 $ 799 $ 4,645
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE>
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
A) BASIS OF PRESENTATION AND CONSOLIDATION. Standard Commercial Tobacco
Co., Inc. (the "Company"), a leaf tobacco dealer located in Wilson, North
Carolina, is a wholly-owned subsidiary of Standard Commercial Corporation (the
"Parent"). The accounts of all subsidiary companies are included in the
consolidated financial statements and all intercompany transactions have been
eliminated. The Parent and its other subsidiaries are herein referred to as
"group companies."
CRES Tobacco Company, Inc. ("CRES"), a wholly-owned subsidiary of the
Company located in King, North Carolina, began operations during fiscal year
1995.
CRES utilizes its facility to provide nonexclusive processing services to a
major cigarette manufacturer pursuant to a services agreement (the "Services
Agreement"). Pursuant to the Services Agreement, the cigarette manufacturer
reimburses CRES for its (i) actual processing costs which includes salaries,
benefits, utilities, and other direct costs (i.e., "processing revenue") and
(ii) debt service on permanent financing (i.e., term note payable) and an
obligation under an operating lease commitment. The cigarette manufacturer also
pays CRES a management fee based on processed through-put. The Services
Agreement expires in September 2004 and is guaranteed by the cigarette
manufacturer's parent company. Such Services Agreement is assigned to a lessor
as security for the Company's operating lease and term note payable.
B) PROPERTY, PLANT AND EQUIPMENT. The cost of significant improvements to
property, plant and equipment is capitalized. Maintenance and repairs are
expensed as incurred. Provision for depreciation is charged to operations over
the estimated useful lives, primarily 3-25 years, of the assets on a
straight-line basis.
C) INVENTORIES. Inventories, which are primarily packed leaf tobacco, are
stated at the lower of specific cost or estimated net realizable value. Cost of
tobacco includes a proportion of interest, buying commission charges and factory
overheads which can be related directly to specific items of inventory. Other
inventories are valued at cost.
D) ADVANCES. The Company advances funds to vendors to be used as credits
against future tobacco purchases. These amounts are included in prepaid expenses
in the consolidated financial statements.
E) REVENUE RECOGNITION. Sales and revenue are recognized on the passage of
title.
F) DEFERRED REVENUES. The Company has received customer advances to be used
for tobacco purchases. These amounts are included in accounts payable in the
consolidated financial statements.
G) INCOME TAXES. The Company provides deferred income taxes on differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes and operating loss carryforwards.
H) LONG-LIVED ASSETS. As required, the Company adopted Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Accordingly,
long-lived assets are reviewed for impairment on a market-by-market basis
whenever events or changes in the circumstances indicate that the carrying
amount of an asset may not be recoverable. If an evaluation is required, the
projected future undiscounted future cash flows attributable to each market
would be compared to the carrying value of the long-lived assets (including an
allocation of goodwill, if appropriate) of that market if a write-down to fair
value is required. The Company also evaluates the remaining useful lives to
determine whether events and circumstances warrant revised estimates of such
lives.
I) USE OF ESTIMATES AND ASSUMPTIONS. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
J) RECLASSIFICATION. Certain amounts in prior year statements have been
reclassified for conformity with current statement presentation.
K) UNAUDITED FINANCIAL STATEMENTS. In the opinion of management, the
consolidated statements of income and retained earnings and of cash flows for
the three months ended June 30, 1997 and 1996, and the consolidated balance
sheet as of June
F-44
<PAGE>
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1 -- BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
30, 1997 include all adjustments (which include only normal recurring
adjustments) necessary to present the financial position and results of
operations and cash flows for the periods then ended in accordance with
generally accepted accounting principles.
2 -- RECEIVABLES
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
(IN THOUSANDS)
Trade accounts.................................................................. $34,528 $39,351
Other........................................................................... 1,209 1,254
------- -------
$35,737 $40,605
------- -------
------- -------
</TABLE>
3 -- INVENTORIES
<TABLE>
<CAPTION>
JUNE 30,
1997 (UNAUDITED) 1997 1996
---------------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Tobacco........................................................ $ 52,618 $74,049 $65,256
Nontobacco..................................................... 292 260 244
---------------- -------
$ 52,910 $74,309 $65,500
---------------- -------
---------------- -------
</TABLE>
Tobacco inventories at March 31, 1997 and 1996 included capitalized
interest, totaling $3.0 million and $2.7 million, respectively.
4 -- PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
(IN THOUSANDS)
Land............................................................................ $ 1,008 $ 985
Buildings....................................................................... 19,954 19,586
Machinery and equipment......................................................... 30,701 28,644
Furniture and fixtures.......................................................... 567 550
Construction in progress........................................................ 33 56
------- -------
52,263 49,821
Accumulated depreciation........................................................ (29,750) (27,411)
------- -------
$22,513 $22,410
------- -------
------- -------
</TABLE>
Depreciation expense was $2.8 million, $2.8 million and $2.7 million in
1997, 1996 and 1995, respectively.
F-45
<PAGE>
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5 -- GROUP COMPANIES
The accompanying consolidated financial statements include the following
transactions and balances with group companies for the years ended March 31,
1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Net sales............................................................ $ -- $ 519 $ 609
Purchases of tobacco................................................. 45,375 34,524 16,677
Management fee paid to Parent........................................ 9,380 6,275 4,600
Other purchases, rent, rehandling, and storage expense............... 2,524 1,849 1,003
Computer and consulting fees......................................... 972 847 651
Due from group companies............................................. 15,083 8,409 --
Due to group companies............................................... 28,757 22,356 --
</TABLE>
In addition, the Company pays salaries and other operating expenses on
behalf of various domestic group companies and charges those companies for
expenses paid on a reimbursement basis. Amounts paid on behalf of these
companies totaled $4.7 million and $6.7 million in 1997 and 1996, respectively.
6 -- SHORT-TERM BORROWINGS
At March 31, 1997, the Company had a $100.0 million, three-year credit
facility expiring May 1998. Included in the $100.0 million credit facility is a
facility for letters of credit. The interest on the credit facility is based on
a floating rate, and the facility is guaranteed by the Parent and an affiliated
company. At June 30, 1997 and March 31, 1997 and 1996, borrowings of
approximately $11.0 million, $35.6 million and $50.0 million, respectively, were
outstanding under the Company's credit facility. At March 31, 1997, these
borrowings bore interest at 7.8% to 9.0%. At March 31, 1997 substantially all of
the Company's assets were pledged against current and long-term borrowings. On
August 1, 1997 the Company entered into a new Global Credit Facility. See Note
14.
7 -- ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
(IN THOUSANDS)
Trade accounts.................................................................. $ 2,172 $ 5,616
Advances from customers......................................................... 8,088 1,540
Interest........................................................................ 405 287
Other accruals and payables..................................................... 3,458 2,745
------- -------
$14,123 $10,188
------- -------
------- -------
</TABLE>
8 -- LONG-TERM DEBT
Long-term debt of approximately $2.9 million at June 30, 1997 and March 31,
1997 and 1996, consisted of floating rate notes, interest at 81% of prime
(minimum rate of 6.5%), which are repayable in June 2000. The notes are
guaranteed by the Parent and are collateralized by property with a net book
value of approximately $1.0 million at March 31, 1997.
During 1997, the Company entered into a $10.0 million term loan with a
financial institution. This term loan matures in May 1998 and bears interest at
the prime rate (8.5% at March 31, 1997). At June 30 and March 31, 1997,
approximately $8.7 million was outstanding under this term loan.
At June 30, 1997 and March 31, 1997 and 1996, the Company had outstanding
approximately $3.3 million, $3.3 million and $3.6 million, respectively, under a
term note. The note, dated September 30, 1994, requires quarterly principal and
interest payments of approximately $156,000, bears interest at the stated rate
of 9.82% per annum, and matures in September 2004. The note is collateralized by
property, plant and equipment with a net book value of approximately $3.3
million at March 31, 1997. Pursuant to the Services Agreement, a major cigarette
manufacturer reimburses the Company for debt
F-46
<PAGE>
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
8 -- LONG-TERM DEBT -- Continued
service under the term note ($624,000, $624,000 and $312,000 in fiscal years
1997, 1996 and 1995, respectively), and such reimbursement is included in net
sales in the consolidated statement of income and retained earnings. The note is
guaranteed by the parent company of a major cigarette manufacturer.
At March 31, 1997, substantially all of the Company's assets were pledged
against current and long-term borrowings. On August 1, 1997, the Company closed
the offering of $115.0 million 8 7/8% Senior Notes due 2005. See Note 14.
Long-term debt maturing in the next five years and thereafter is as follows
(in thousands): 1998-$2,312; 1999-$7,011; 2000-$379; 2001-$3,358; 2002-$461;
thereafter-$1,368.
9 -- BENEFITS
The Company participates in a noncontributory defined benefit pension plan
covering substantially all full-time salaried employees. The pension plan is
sponsored by the Parent and also covers certain group companies' employees. The
group companies reimburse the Parent for their share of the cost. Benefits under
the plan are based on employees' years of service and eligible compensation. The
Company's policy is to contribute amounts to the plan sufficient to meet or
exceed minimum funding requirements of federal benefit and tax laws.
A summary of pension costs follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
(IN THOUSANDS)
Service cost -- benefits earned during the year....................................................... $484 $433 $421
Interest cost on projected benefit obligation......................................................... 612 549 501
Recognized return on plan assets...................................................................... (832) (670) (583)
Net amortization...................................................................................... (72) (72) (37)
---- ---- ----
Net pension cost...................................................................................... $192 $240 $302
---- ---- ----
---- ---- ----
</TABLE>
The funded status of the plan at March 31 is shown below:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
(IN THOUSANDS)
Actuarial present value of benefit obligations:
-- vested................................................................. $ 7,265 $ 6,429
-- nonvested benefits..................................................... 44 56
------- -------
Accumulated benefit obligation.................................................. 7,309 6,485
Benefits attributable to projected salaries..................................... 2,142 1,989
------- -------
Projected benefit obligation.................................................... 9,451 8,474
Plan assets at fair value....................................................... 11,505 10,391
------- -------
Assets in excess of projected obligation........................................ 2,054 1,917
Unamortized net transition gain................................................. (306) (367)
Unrecognized prior service cost................................................. (44) (55)
Unrecognized experience gain.................................................... (693) (389)
------- -------
Prepaid pension costs........................................................... $ 1,011 $ 1,106
------- -------
------- -------
</TABLE>
The projected benefit obligation at March 31, 1997, 1996 and 1995 was
determined using an assumed discount rate of 7.375%, 7.25% and 7.25%,
respectively, and assumed future compensation increases of 5.00%, 5.25% and
5.25%, respectively. The assumed long-term rate of return on plan assets was
8.0%, 8.0% and 8.0% at March 31, 1997, 1996 and 1995, respectively. Assets
consist of pooled equity and fixed income funds managed by an independent
trustee.
F-47
<PAGE>
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
9 -- BENEFITS -- Continued
The Company also participates in a 401(k) savings incentive plan for most
full-time salaried employees in the United States. The plan is sponsored by the
Parent. The plan provides participants an opportunity for tax-deferred savings
of up to 18% of their basic annual compensation or $9,240, whichever is less.
The Company makes a 50% matching contribution, in the form of common stock of
the Parent, up to the first 4% of basic annual compensation saved by each
participant. The expense for this plan was $196,000 in 1997, $144,000 in 1996
and $127,000 in 1995.
In addition to providing pension benefits, the Company participates in a
postretirement health care and life insurance benefit plan sponsored by the
Parent. Generally, the benefits are provided to employees who retire after the
age of 60, and whose sum of age and service equal at least 75. SFAS No. 106
requires the Company to accrue the estimated cost of retiree benefit payments
during the years the employee provides services.
The components of the net periodic cost of postretirement benefits for
1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost..................................................... $193,942 $176,148 $168,613
Interest cost on accumulated benefit obligation.................. 493,527 522,164 405,299
Amortization of plan amendments.................................. (138,904) (136,649) (138,904)
-------- -------- --------
Net periodic cost................................................ $548,565 $561,663 $435,008
-------- -------- --------
-------- -------- --------
</TABLE>
The components of the liability included in the consolidated balance sheet
at March 31, 1997 and 1996 of the actuarial present value of benefits for
services rendered to date were:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
(IN THOUSANDS)
Current retirees................................................................... $ 490 $ 505
Active employees eligible to retire................................................ 2,732 2,424
Active employees not eligible to retire............................................ 3,343 4,041
------ ------
Total......................................................................... 6,565 6,970
Unrecognized net gain (loss)....................................................... 260 (672)
Unrecognized prior service cost.................................................... 972 1,111
------ ------
Accumulated postretirement benefit obligation...................................... $7,797 $7,409
------ ------
------ ------
</TABLE>
The accumulated postretirement benefit obligation (APBO) was determined
using an 8.0% weighted-average discount rate. The medical cost trend rate used
in determining the APBO was assumed to be 12.5% in 1997. This rate was assumed
to gradually decline to 6.5% in 2004, and remain at that level thereafter.
Assuming a one percent increase in the medical cost trend rates, the
aggregate of the service and interest cost components of the net periodic
pension cost for 1997 would increase by $126,000 and the APBO as of March 31,
1997 would increase by $915,000. In general, postretirement benefit costs are
insured or paid as claims are incurred.
10 -- COMMITMENTS AND CONTINGENCIES
The Company is obligated under operating leases for warehouse space with
minimum annual rentals as follows: 1998-$734,757; and 1999-$293,464.
Expenses under operating leases for continuing operations in 1997, 1996 and
1995 were $2,549,000, $2,356,000 and $1,816,000, respectively.
The Company operates a processing facility under a service agreement which
guarantees reimbursement of all of the facility's costs including operating
expenses and management fees. This lease is not considered a commitment of the
Company.
F-48
<PAGE>
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
10 -- COMMITMENTS AND CONTINGENCIES -- Continued
Other contingencies, consisting of guarantees, pending litigation and other
claims, in the opinion of management, are not considered to be material in
relation to the Company's financial statements as a whole, financial position,
future results of operations, or liquidity.
CONCENTRATION OF CREDIT AND OFF-BALANCE SHEET RISKS
Financial instruments that potentially subject the Company to a
concentration of credit risks consist principally of cash and trade receivables
relating to customers in the tobacco industry. Cash is deposited with
high-credit-quality financial institutions. Concentration of credit risks
related to receivables is limited because of the diversity of customers and
locations.
11 -- INCOME TAXES
a) Significant components of the Company's deferred tax liabilities and
assets are as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax liabilities:
Depreciation................................................................................. $2,672 $2,796
Capitalized interest......................................................................... 1,168 1,054
Prepaid pension assets....................................................................... 399 436
Other........................................................................................ 99 110
------ ------
Total deferred tax liabilities............................................................... $4,338 $4,396
------ ------
Deferred tax assets:
Postretirement benefits other than pensions.................................................. 3,071 2,919
Uniform capitalization....................................................................... 118 161
All other, net............................................................................... 85
------ ------
Total deferred tax assets...................................................................... 3,274 3,080
------ ------
Net deferred tax liabilities................................................................... $1,064 $1,316
------ ------
------ ------
</TABLE>
The net deferred tax liabilities include approximately $965 and $893 of
current liabilities at March 31, 1997 and 1996, respectively.
b) Income tax provisions are detailed below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
(IN THOUSANDS)
Current
Federal............................................................................ $1,028 $1,167 $1,829
State and local.................................................................... 80 307 417
Deferred............................................................................. (252) 177 32
------ ------ ------
Income tax provision................................................................. $ 856 $1,651 $2,278
------ ------ ------
------ ------ ------
</TABLE>
F-49
<PAGE>
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
11 -- INCOME TAXES -- Continued
c) The following is a reconciliation of the income tax provision to the
expense calculated at the U.S. federal statutory rate.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
(IN THOUSANDS)
Expense at U.S. federal statutory tax rate........................................... $1,494 $1,770 $2,447
State income taxes, net of federal benefit........................................... 27 221 282
Foreign Sales Corporation benefits................................................... (272) (476) (598)
Other -- net......................................................................... (393) 136 147
------ ------ ------
$ 856 $1,651 $2,278
------ ------ ------
------ ------ ------
</TABLE>
12 -- DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments as of March
31, 1997 is provided below in accordance with Statement of Financial Accounting
Standards No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS.
Certain estimates and judgments were required to develop the fair value amounts,
which are not necessarily indicative of the amounts that would be realized upon
disposition, nor do they indicate the Company's intent or ability to dispose of
such instruments.
CASH AND CASH EQUIVALENTS: The estimated fair value of cash and cash
equivalents approximates carrying value.
SHORT-TERM AND LONG-TERM DEBT: The fair value of the Company's short-term
borrowings, which primarily consists of bank borrowings, approximates its
carrying value. The estimated fair value of long-term debt, including the
current portion, is approximately $14.0 million, compared with a carrying value
of $14.9 million, based on discounted cash flows for fixed-rate borrowings, with
the fair value of floating-rate borrowings considered to approximate carrying
value.
13 -- MAJOR CUSTOMERS
Two customers each accounted for approximately 55% and 10%, respectively,
of the Company's net sales for the year ended March 31, 1997, two customers each
accounted for approximately 45% and 12%, respectively, of the Company's net
sales for the year ended March 31, 1996, and two customers each accounted for
approximately 22% and 21%, respectively, of the Company's net sales for the year
ended March 31, 1995.
NOTE 14 -- SUBSEQUENT EVENTS (UNAUDITED)
The Parent reorganized the ownership of its subsidiaries effective August
1, 1997 such that all tobacco operating subsidiaries are direct or indirect
subsidiaries of the Company and all of its wool operating subsidiaries (other
than Standard Wool (UK) Limited, which is a direct subsidiary of the Company)
are direct or indirect subsidiaries of Standard Wool, Inc. (a wholly-owned
subsidiary of the Parent).
On August 1, 1997, the Company issued $115.0 million aggregate principal
amount 8 7/8% Senior Notes due 2005 (the "Notes"). The Parent and Standard Wool,
Inc. jointly and severally, guarantee on a senior basis the full and prompt
performance of the Company's obligations under the Notes, including the payment
of principal of and interest on the Notes. In addition, all of the issued and
outstanding capital stock of the Company and Standard Wool, Inc. has been
pledged by the Parent to the Trustee for the benefit of the Holders of the
Notes. Under the terms and conditions of the Notes, the Company is required to
maintain certain financial covenants relating to minimum net worth, minimum
interest coverage ratios, limits on capital expenditures, permitted investments,
indebtedness, advances, and liens. In addition, dividends to the Parent are
limited to such amount as is required to enable the Parent to meet its
obligations to creditors or 1) 60% of the Company's net income during calendar
1998, 2) 70% of the Company's net income during calendar 1999, and 3) 80% of
Company's net income during calendar 2000 and thereafter. The net proceeds of
the offering were used to retire the Company's existing U.S. Revolving Credit
Facility, to repay certain long-term bank loans in the United States, and to
advance funds to its subsidiaries.
F-50
<PAGE>
STANDARD COMMERCIAL TOBACCO CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE 14 -- SUBSEQUENT EVENTS (UNAUDITED) -- Continued
The Senior Notes will be exchanged for new notes in an exchange offer upon the
effectiveness of the Company's pending Form S-4 Registration Statement.
Concurrent with the notes offering, the Company and two of its subsidiaries
entered into a new revolving global bank facility (the "Global Bank Facility")
which amended the master credit facility and replaced the facility for U.S.
tobacco operations. The Global Bank Facility provides for borrowings of $200.0
million for working capital and other general corporate purposes, and bears
interest initially at LIBOR plus 1%. The borrowings under the Global Bank
Facility are guaranteed by the Parent and certain of its tobacco subsidiaries
and secured by substantially all of the assets of the tobacco subsidiaries and a
pledge of all of the capital stock of the Parent's subsidiaries not otherwise
pledged to secure other obligations. It contains various covenants that restrict
the Company and its subsidiaries from taking various actions and that require
that the Company and its tobacco division achieve and maintain certain financial
covenants. The Global Bank Facility contains covenants relating to minimum net
worth, minimum interest coverage ratio, limitations on capital expenditures,
investments, uncommitted tobacco inventory, indebtedness, advances, liens,
dividends, acquisitions and sales of assets.
F-51
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND
SHAREHOLDERS OF STANDARD COMMERCIAL CORPORATION
We have audited the consolidated financial statements of Standard
Commercial Corporation (the "Company") as of March 31, 1997 and 1996, and for
each of the three years in the period ended March 31, 1997, and have issued our
report thereon dated June 18, 1997; such financial statements and report are
included in your 1997 Annual Report to Shareholders and are incorporated herein
by reference. Our audits also included the financial statement schedule of the
Company. The financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
June 18, 1997
F-52
<PAGE>
STANDARD COMMERCIAL CORPORATION (THE "PARENT GUARANTOR")
CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, --------------------
1997 1997 1996
----------- -------- --------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents........................................................... $ 384 $ 327 $ 3,851
Intercompany accounts receivable.................................................... 64,498 16,606 16,617
Current portion of notes receivable from Zelenka Nursery, Inc. ..................... 500 500 500
Income taxes receivable............................................................. 1,850 153 3,086
Other receivables................................................................... 876 995 2,651
Prepaids and other.................................................................. -- 155 617
----------- -------- --------
Current assets.................................................................... 68,108 18,736 27,322
Investment in subsidiaries.......................................................... 161,914 159,014 149,469
Long-term notes receivable from Zelenka Nursery, Inc. .............................. 2,183 2,183 2,683
Cash surrender value of life insurance policies
(net of policy loans (1997-$6,780; 1996-$6,550)................................... 6,479 6,529 5,758
Deferred loan costs................................................................. 1,581 1,585 1,744
Deferred income taxes............................................................... 2,260 2,260 86
Other noncurrent assets............................................................. 413 340 361
----------- -------- --------
Total assets...................................................................... $ 242,938 $190,647 $187,423
----------- -------- --------
----------- -------- --------
LIABILITIES
Intercompany accounts payable....................................................... $ 31,608 $ 29,895 $ 20,756
Current portion of long-term debt................................................... -- -- 3,765
Other payables and accrued expenses................................................. 2,023 982 3,072
----------- -------- --------
Current liabilities............................................................... 33,631 30,877 27,593
Long-term debt...................................................................... -- -- 7,407
Convertible subordinated debt....................................................... 69,000 69,000 69,000
Retirement and other benefits....................................................... 529 499 404
----------- -------- --------
Total liabilities................................................................. 103,160 100,376 104,404
----------- -------- --------
ESOP redeemable preferred stock..................................................... -- -- 8,748
Unearned ESOP compensation.......................................................... -- -- (6,320)
----------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock $1.65 par value; shares authorized-1,000,000; shares issued and
outstanding: 1997-0; 1996-87,477 to ESOP........................................... -- --
Common stock, $0.20 par value
Authorized shares 100,000,000; 15,300,862, 12,126,270 and 11,624,275 shares issued
at June 30, 1997 and March 31, 1997 and 1996, respectively......................... 3,060 2,425 2,325
Additional paid-in capital.......................................................... 100,102 50,324 43,660
Unearned restricted stock plan compensation......................................... (11) (12) (16)
Treasury stock at cost, 2,617,707, 2,591,790 and 2,490,661 shares at June 30, 1997
and March 31, 1997 and 1996, respectively.......................................... (4,250) (3,799) (2,384)
Retained earnings................................................................... 57,869 58,089 46,450
Cumulative translation adjustments.................................................. (16,992) (16,756) (9,444)
----------- -------- --------
Total shareholders' equity........................................................ 139,778 90,271 80,591
----------- -------- --------
Total liabilities and shareholders' equity........................................ $ 242,938 $190,647 $187,423
----------- -------- --------
----------- -------- --------
</TABLE>
NOTE: These condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of
Standard Commercial Corporation.
F-53
<PAGE>
STANDARD COMMERCIAL CORPORATION (THE "PARENT GUARANTOR")
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
------------------ -------------------------------
1997 1996 1997 1996 1995
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Management fee income................................................ $ -- $ -- $ 9,379 $ 6,340 $ 4,725
------- ------- -------- ------- --------
Selling, general and administrative expenses......................... 738 841 2,951 3,151 3,460
Interest expense..................................................... 1,367 1,451 5,472 6,092 6,209
Other (income) expense, net.......................................... (484) 161 491 (1,504) 638
------- ------- -------- ------- --------
Income (loss) before taxes...................................... (1,621) (2,453) 465 (1,399) (5,582)
Income tax expense (benefit)......................................... (695) (834) 496 (1,665) 1,103
------- ------- -------- ------- --------
Net income (loss) after taxes................................... (926) (1,619) (31) 266 (6,685)
Equity in earnings (losses) of subsidiaries.......................... 2,779 3,127 16,968 342 (23,859)
------- ------- -------- ------- --------
Net income (loss)............................................... 1,853 1,508 16,937 608 (30,544)
ESOP preferred stock dividends, net of tax........................... -- (115) (347) (474) (485)
------- ------- -------- ------- --------
Net income (loss) applicable to common stock.................... 1,853 1,393 16,590 134 (31,029)
Retained earnings, beginning of period............................... 58,089 46,450 46,450 50,530 84,807
Common stock dividends............................................... (2,073) (792) (4,951) (4,214) (3,248)
------- ------- -------- ------- --------
Retained earnings, end of period..................................... $57,869 $47,051 $ 58,089 $46,450 $ 50,530
------- ------- -------- ------- --------
------- ------- -------- ------- --------
</TABLE>
NOTE: These condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of
Standard Commercial Corporation.
F-54
<PAGE>
STANDARD COMMERCIAL CORPORATION (THE "PARENT GUARANTOR")
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, YEAR ENDED MARCH 31,
------------------- ------------------------------
1997 1996 1997 1996 1995
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH PROVIDED BY OPERATING ACTIVITIES................................. $(46,986) $(1,217) $ 9,954 $ 7,548 $ 7,082*
CASH FLOWS FROM INVESTING ACTIVITIES
Collections of note receivable................................... -- -- 500 620 --
Business dispositions............................................ -- -- -- -- 1,217
-------- ------- --------
CASH PROVIDED BY INVESTING ACTIVITIES............................ -- -- 500 620 1,217
-------- ------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of equity offering.................................. 47,043 -- -- -- --
Proceeds from long-term borrowings............................... -- -- -- 3,662 --
Repayment of long-term borrowings................................ -- (1,211) (11,171) (7,858) (8,857)
Dividends paid, net of tax....................................... -- (115) (347) (474) (485)
Purchase and retirement of ESOP Preferred Stock.................. -- -- (2,460) -- --
-------- ------- -------- ------- -------
CASH USED IN FINANCING ACTIVITIES..................................... 47,043 (1,326) (13,978) (4,670) (9,342)
-------- ------- -------- ------- -------
Increase (decrease) in cash and cash equivalents................. 57 (2,543) (3,524) 3,498 (1,043)
Cash and cash equivalents, beginning of period........................ 327 3,851 3,851 353 1,396
-------- ------- -------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............................. $ 384 $ 1,308 $ 327 $ 3,851 $ 353
-------- ------- -------- ------- -------
-------- ------- -------- ------- -------
Cash paid during the year for -interest............................... -- -- $ 8,105 $ 2,962 $ 6,563
-income taxes.......................... -- -- $ 660 $ 575 $ 1,052
</TABLE>
* Includes cash dividends of $4,595,000 paid by Standard Wool France SA, a
wholly-owned subsidiary.
NOTE: These condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of
Standard Commercial Corporation.
F-55
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE ISSUER, THE GUARANTORS OR THE INITIAL PURCHASERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITY OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE
AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE ISSUER OR THE GUARANTORS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................... 1
Note Regarding Forward-Looking Statements............ 12
Risk Factors......................................... 12
Use of Proceeds of the Exchange Notes................ 18
Capitalization....................................... 19
Selected Historical Consolidated Financial Data...... 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 22
The Exchange Offer................................... 28
Business............................................. 34
Management........................................... 46
Principal Shareholders............................... 49
Description of Global Bank Facility.................. 50
Description of Notes................................. 51
Initial Notes Registration Rights.................... 72
Book-Entry; Delivery and Form........................ 74
Certain U.S. Federal Income Tax Consequences......... 75
Plan of Distribution................................. 77
Legal Matters........................................ 77
Experts.............................................. 78
Available Information................................ 78
Incorporation of Certain Documents by Reference...... 78
Index to Consolidated Financial Statements........... F-1
</TABLE>
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN SELLING
EXCHANGE NOTES RECEIVED IN EXCHANGE FOR INITIAL NOTES HELD FOR THEIR OWN
ACCOUNT.
------------------------------------------
PROSPECTUS
------------------------------------------
(Standard logo)
STANDARD COMMERCIAL
TOBACCO CO., INC.
OFFER TO EXCHANGE ITS
8 7/8% SENIOR NOTES DUE 2005
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
("EXCHANGE NOTES")
FOR ANY AND ALL
8 7/8% SENIOR NOTES DUE 2005
("INITIAL NOTES")
EACH GUARANTEED ON A SENIOR BASIS BY STANDARD COMMERCIAL CORPORATION AND
STANDARD WOOL, INC.
, 1997
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation and Bylaws include provisions to
(i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the fullest extent permitted
by Section 55-8-30(e) of the North Carolina Business Corporation Act (the "North
Carolina Law"), and (ii) require the Registrant to indemnify its directors and
officers to the fullest extent permitted by Sections 55-8-50 through 55-8-58 of
the North Carolina Law, including circumstances in which indemnification is
otherwise discretionary. Pursuant to Sections 55-8-51 and 55-8-57 of the North
Carolina Law, a corporation generally has the power to indemnify its present and
former directors, officers, employees and agents against expenses incurred by
them in connection with any suit to which they are, or are threatened to be
made, a party by reason of their serving in such positions so long as they acted
in good faith and in a manner they reasonably believed to be in, or not opposed
to, the best interests of the corporation, and with respect to any criminal
action, they had no reasonable cause to believe their conduct was unlawful. The
Registrant believes that these provisions are necessary to attract and retain
qualified persons as directors and officers. These provisions do not eliminate
the directors' duty of care, and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under North Carolina Law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for acts or omissions that the director
believes to be contrary to the best interests of the Registrant or its
shareholders, for any transaction from which the director derived an improper
personal benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Registrant or its shareholders when the director was
aware or should have been aware of a risk of serious injury to the Registrant or
its shareholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
Registrant or its shareholders, for improper transactions between the director
and the Registrant and for improper distributions to shareholders and loans to
directors and officers. These provisions do not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
The Registrant's Bylaws require the Registrant to indemnify in directors
and officers against expenses, judgments, fines, settlement and other amounts
actually and reasonably incurred (including expenses of a derivative action) in
connection with any proceeding, whether actual or threatened, to which any such
person may be made a party by reason of the fact that such person is or was a
director or officer of the Registrant or any of its affiliated enterprises,
provided such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interest of the Registrant and,
with respect to any criminal proceeding, had no reasonable cause to believe his
or her conduct was unlawful. The Registrant's Bylaws also set forth certain
procedures that will apply in the event of a claim for indemnification
thereunder.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
The Purchase Agreement filed as Exhibit 1.1 to this Registration Statement
provides for indemnification by the Initial Purchasers of the Registrant and its
directors and officers, and by the Registrant of the Initial Purchasers, for
certain liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"), or otherwise.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Purchase Agreement dated July 25, 1997 among the Issuer, the Guarantors and the Initial Purchasers
(previously filed).
3.1 * Restated Articles of Incorporation, as amended, of the Company.
3.2 ** Amended Bylaws of the Company.
4.1 Indenture dated August 1, 1997 among the Issuer, the Guarantors and Crestar Bank (previously filed).
5.1 Opinion of Wyrick Robbins Yates & Ponton LLP (previously filed).
8.1 Tax Opinion of Wyrick Robbins Yates & Ponton LLP.
10.1 *** Performance Improvement Compensation Plan.
10.2 + Agreement dated May 2, 1995 between the Company and Ery W. Kehaya.
10.3 ++ Employment Agreement dated March 21, 1997 with Robert E. Harrison.
10.4 Registration Rights Agreement dated August 1, 1997 among the Issuer, the Guarantors and the Initial
Purchasers (previously filed).
11.1 Computation of Earnings Per Common Share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consents of Wyrick Robbins Yates & Ponton LLP (contained in Exhibits 5.1 and 8.1).
24.1 Power of attorney (see pages II-4 through II-7).
25.1 Statement of Eligibility of Trustee (previously filed).
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* Incorporated by reference to Standard Commercial Corporation's Registration
Statement on Form S-8 (File No. 33-59760).
** Incorporated by reference to Standard Commercial Corporation's Annual Report
on Form 10-K for the year ended March 31, 1994.
*** Incorporated by reference to Standard Commercial Corporation's Annual Report
on Form 10-K for the year ended March 31, 1993.
+ Incorporated by reference to Standard Commercial Corporation's Annual Report
on Form 10-K for the year ended March 31, 1995.
++ Incorporated by reference to Standard Commercial Corporation's Registration
Statement on Form S-3 (File No. 333-23835).
(b) FINANCIAL STATEMENT SCHEDULES.
Schedule II -- Valuation and Qualifying Accounts.
No other schedules have been included because the information required to
be set forth therein is not applicable.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include
any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change
to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE>
(b) That, for purposes of determining any liability under the
Securities Act, each filling of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(g)(1) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) the issuer undertakes that
such reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who may
be deemed underwriters, in addition to the information called for by the
other Items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph
(1) immediately preceding, or (ii) that purports to meet the requirements
of section 10(a)(3) of the Act and is used in connection with an offering
of securities subject to Rule 415, will be filed as a part of an amendment
to the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the Registrant pursuant of provisions described in
Item 15 above, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer, or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certified that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to
Registration Statement No. 333-35645 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilson, State of North
Carolina, on the 3rd day of November, 1997.
STANDARD COMMERCIAL TOBACCO CO., INC.
By: /s/ THOMAS M. EVINS, JR.*__________
THOMAS M. EVINS, JR.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ THOMAS M. EVINS, JR.* Director and President (Principal November 3, 1997
THOMAS M. EVINS, JR. Executive Officer)
/s/ DAVID L. WILLIAMS* Director and Principal Financial November 3, 1997
DAVID L. WILLIAMS Officer
/s/ RICK N. HARDY* Principal Accounting Officer November 3, 1997
RICK N. HARDY
/s/ B. DALE WELLS* Director November 3, 1997
B. DALE WELLS
Director November , 1997
JAMES A. JOHNSON
/s/ EDWARD C. DILDA* Director November 3, 1997
EDWARD C. DILDA
/s/ JAMES R. DAVIDSON* Director November 3, 1997
JAMES R. DAVIDSON
*By: /s/ ROBERT E. HARRISON Attorney-in-fact November 3, 1997
ROBERT E. HARRISON
</TABLE>
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certified that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to
Registration Statement No. 333-35645 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilson, State of North
Carolina, on the 3rd day of November, 1997.
STANDARD COMMERCIAL CORPORATION
By: /s/ ROBERT E. HARRISON_____________
ROBERT E. HARRISON,
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ ROBERT E. HARRISON Director and President, Chief Executive November 3, 1997
ROBERT E. HARRISON Officer and Chief Financial Officer
(Principal Executive and Financial
Officer)
/s/ GUY M. ROSS* Vice President (Principal Accounting November 3, 1997
GUY M. ROSS Officer)
/s/ MARVIN W. COGHILL* Director November 3, 1997
MARVIN W. COGHILL
/s/ THOMAS M. EVINS, JR.* Director November 3, 1997
THOMAS M. EVINS, JR.
Director November , 1997
ERY W. KEHAYA
/s/ J. ALEC G. MURRAY* Director November 3, 1997
J. ALEC G. MURRAY
/s/ WILLIAM S. BARRACK, JR.* Director November 3, 1997
WILLIAM S. BARRACK, JR.
Director November , 1997
HENRY R. GRUNZKE
Director November , 1997
CHARLES H. MULLEN
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------------------ ------------------------------------------- -------------------
<S> <C> <C>
/s/ DANIEL M. SULLIVAN* Director November 3, 1997
DANIEL M. SULLIVAN
/s/ WILLIAM A. ZIEGLER* Director November 3, 1997
WILLIAM A. ZIEGLER
*By: /s/ ROBERT E. HARRISON Attorney-in-fact November 3, 1997
ROBERT E. HARRISON
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certified that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-4 and has duly caused this Amendment No. 1 to
Registration Statement No. 333-35645 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilson, State of North
Carolina, on the 3rd day of November, 1997.
STANDARD WOOL, INC.
By: /s/ PETER A. MUNRO*________________
PETER A. MUNRO
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------------------ ------------------------------------------- ------------------
<S> <C> <C>
/s/ PETER A. MUNRO* Director and President (Principal Executive November 3, 1997
PETER A. MUNRO Officer)
/s/ TIMOTHY S. PRICE* Director and Principal Financial Officer November 3, 1997
TIMOTHY S. PRICE
/s/ DEBORAH H. MCCANN* Principal Accounting Officer November 3, 1997
DEBORAH H. MCCANN
/s/ GUY M. ROSS* Director November 3, 1997
GUY M. ROSS
/s/ PAUL H. BICQUE* Director November 3, 1997
PAUL H. BICQUE
/s/ RICK N. HARDY* Director November 3, 1997
RICK N. HARDY
*By: /s/ ROBERT E. HARRISON Attorney-in-fact November 3, 1997
ROBERT E. HARRISON
</TABLE>
II-7
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
STANDARD COMMERCIAL CORPORATION
<TABLE>
<CAPTION>
COL. C
COL. A COL. B ADDITIONS COL. D COL. E
- ------------------------------------------------- ----------- -------------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT
BEGINNING CHARGED TO CHARGED TO BALANCE AT
OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------------------------------- ----------- ----------- ----------- ----------- -----------
YEAR ENDED MARCH 31, 1995
DEDUCTED FROM ASSET ACCOUNTS
Allowance for doubtful accounts................ $ 7,696,167 $ 9,164,938 $11,493,835 $ 5,367,270
Inventory...................................... 14,578,000 5,296,148 5,668,757 14,207,391
----------- ----------- ----------- ----------- -----------
Total............................................ $22,274,167 $14,461,086 $17,180,592 $19,574,661
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
YEAR ENDED MARCH 31, 1996
DEDUCTED FROM ASSET ACCOUNTS
Allowance for doubtful accounts................ $ 5,387,270 $ 328,156 $ 145,199 $ 5,950,227
Inventory...................................... 14,207,391 1,394,334 10,427,299 5,174,426
----------- ----------- ----------- ----------- -----------
Total............................................ $19,574,661 $ 1,722,490 $10,572,498 $10,724,653
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
YEAR ENDED MARCH 31, 1997
DEDUCTED FROM ASSET ACCOUNTS
Allowance for doubtful accounts................ $ 5,558,227 $ 1,055,067 $ 3,004,587 $ 3,600,727
Inventory...................................... 5,174,426 877,403 1,116,004 4,935,825
----------- ----------- ----------- ----------- -----------
Total............................................ $10,724,653 $ 1,932,470 $ 4,120,571 $ 8,536,552
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE>
EXHIBIT 8.1
November 3, 1997
Standard Commercial Tobacco Co., Inc.
2201 Miller Road
Wilson, North Carolina 27893
Ladies and Gentlemen:
We have acted as counsel to Standard Commercial Tobacco Co., Inc., a North
Carolina corporation (the "Issuer"), in connection with the offer to exchange
under the Securities Act of 1933, as amended (the "Act"), $1,000 in principal
amount of 8 7/8% Senior Notes due 2005 registered under the Act (the "Exchange
Notes") for each $1,000 in principal amount of outstanding 8 7/8% Senior Notes
due 2005 (the "Initial Notes"), up to an aggregate of $115,000,000, pursuant to
Registration Statement on Form S-4, File No. 333-35645 (the "Registration
Statement").
As such counsel, we have examined such documents as we have deemed
necessary as a basis for the opinion hereinafter expressed. Based upon the
foregoing, we are of the opinion that:
The description under the heading "Certain U.S. Federal Income Tax
Consequences" in the Registration Statement fairly describes the material United
States federal income tax consequences to holders resulting from their exchange
of the Initial Notes for the Exchange Notes and the ownership and disposition of
the Exchange Notes under currently applicable federal income tax law.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement, and to the reference to us under the heading "Certain
U.S. Federal Income Tax Consequences" therein.
Very truly yours,
/s/ WYRICK
ROBBINS YATES & PONTON LLP
<PAGE>
EXHIBIT 11.1
STANDARD COMMERCIAL CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT SHARE INFORMATION; UNAUDITED)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED MARCH 31,
-----------------------------------------
<S> <C> <C> <C>
1997 1996* 1995*
------------ ----------- -----------
PRIMARY EARNINGS PER COMMON SHARE
Income (loss) from continuing operations........................................ $ 16,937 $ (9,442) $ (20,494)
Less -- ESOP preferred stock dividends net of tax............................... 347 474 485
------------ ----------- -----------
Income (loss) from continuing operations applicable to common stock............. 16,590 (9,916) (20,979)
Income (loss) from discontinued operations...................................... -- 10,050 (10,050)
------------ ----------- -----------
Net earnings (loss) applicable to common stock.................................. $ 16,590 $ 134 $ (31,029)
------------ ----------- -----------
------------ ----------- -----------
Average number of common shares outstanding..................................... 9,314,461 9,307,438 9,287,802
Increase applicable to restricted stock awards.................................. -- -- --
------------ ----------- -----------
Primary average shares outstanding.............................................. 9,314,461 9,307,438 9,287,802
------------ ----------- -----------
------------ ----------- -----------
Earnings (loss) per common share
-- from continuing operations................................................ $ 1.78 $ (1.07) $ (2.25)
-- from discontinued operations.............................................. -- 1.08 (1.09)
------------ ----------- -----------
-- net....................................................................... $ 1.78 $ 0.01 $ (3.34)
------------ ----------- -----------
------------ ----------- -----------
FULLY DILUTED EARNINGS PER COMMON SHARE*
Income (loss) from continuing operations applicable to common stock............. $ 16,590 $ (9,916) $ (20,979)
Add -- after-tax interest expense on 7 1/4% convertible subordinated
debentures............................................................... 3,300 3,300 3,300
-- dividends payable to ESOP assuming conversion to common stock........... -- -- 26
------------ ----------- -----------
Adjusted income (loss) from continuing operations............................... 19,890 (6,616) (17,653)
Income (loss) from discontinued operations...................................... -- 10,050 (10,050)
------------ ----------- -----------
Net earnings (loss) applicable to common stock.................................. $ 19,890 $ 3,434 $ (27,703)
------------ ----------- -----------
------------ ----------- -----------
Primary average shares outstanding.............................................. 9,314,461 9,307,438 9,267,802
Increase in shares outstanding assuming
-- conversion of 7 1/4% convertible subordinated debentures at November 13,
1991...................................................................... 2,279,708 2,190,689 2,126,348
-- conversion of ESOP convertible preferred stock at July 1, 1993............ 196,640 267,142 262,871
------------ ----------- -----------
Fully diluted average shares outstanding........................................ 11,792,809 11,765,269 11,677,021
------------ ----------- -----------
------------ ----------- -----------
Earnings (loss) per common share
-- from continuing operations................................................ $ 1.69 $ (0.56) $ (1.51)
-- from discontinued operations.............................................. -- 0.85 (0.86)
------------ ----------- -----------
-- net....................................................................... $ 1.69 $ 0.29 $ (2.37)
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
- ---------------
* The calculations of fully diluted earnings per share for 1996 and 1995 include
adjustments which are antidilutive and, therefore, are not shown on the face
of the income statements.
<PAGE>
EXHIBIT 12.1
STANDARD COMMERCIAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
FORMA PRO
THREE THREE MONTHS FORMA
MONTHS ENDED YEAR
ENDED JUNE 30, ENDED YEAR ENDED MARCH 31,
JUNE 30, --------------- MARCH 31, ----------------------------------
1997 (1) 1997 1996 1997 (2) 1997 1996 1995 1994
-------- ------ ------ --------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes...................... 2,054 2,376 4,338 36,890 32,245 2,258 9,980 (24,437)
Less interest capitalized to inventories during
the period.................................... (100) (100) -- (400) --
-------- ------ ------ --------- ------ ------ ------ -------
Adjusted income (loss) before taxes............. 2,054 2,376 4,338 36,790 32,145 2,258 9,580 (24,437)
-------- ------ ------ --------- ------ ------ ------ -------
Fixed Charges:
Interest incurred related to inventories and
cost of sales.............................. 7,588 7,266 7,611 27,508 32,297 41,369 35,381 29,416
Other interest expense........................ 2,216 2,216 2,387 9,920 9,920 9,559 9,947 7,173
Amortization of financing costs............... 906 743 570 3,416 2,766 6,293 1,713 2,160
Rental expense(3)............................. 115 115 115 457 457 572 144 118
-------- ------ ------ --------- ------ ------ ------ -------
Total fixed charges............................. 10,825 10,340 10,683 41,301 45,440 57,793 47,185 38,867
-------- ------ ------ --------- ------ ------ ------ -------
Earnings........................................ 12,879 12,716 15,021 78,091 77,585 60,051 56,765 14,430
-------- ------ ------ --------- ------ ------ ------ -------
Ratio (shortfall) of earnings to fixed charges.. 1.2x 1.2x 1.4x 1.9x 1.7x 1.0x 1.2x (24,437)
-------- ------ ------ --------- ------ ------ ------ -------
-------- ------ ------ --------- ------ ------ ------ -------
<CAPTION>
1993
------
<S> <C>
Income (loss) before taxes...................... 37,291
Less interest capitalized to inventories during
the period.................................... (2,100)
------
Adjusted income (loss) before taxes............. 35,191
------
Fixed Charges:
Interest incurred related to inventories and
cost of sales.............................. 33,733
Other interest expense........................ 8,183
Amortization of financing costs............... 1,024
Rental expense(3)............................. 132
------
Total fixed charges............................. 43,072
------
Earnings........................................ 78,263
------
Ratio (shortfall) of earnings to fixed charges.. 1.8x
------
------
</TABLE>
- ---------------
(1) Pro forma decrease in gross profit and increase in total net interest
expense of $322,000 is primarily attributable to replacing short-term
borrowings with long-term borrowings with higher interest rates. Pro forma
decrease in income from continuing operations is primarily attributable to
increase in interest expense offset by tax savings on interest deductions of
$110,000.
(2) Pro forma increase in gross profit is primarily attributable to lower
interest costs of $4,789,000 achieved by replacing short-term borrowings
with $47.0 million of proceeds from issuance of equity securities in the
first quarter of fiscal 1998. Pro forma decrease in total net interest
expense due to savings described above offset by increase in interest
expense of $350,000 due to replacing short-term borrowings with $115.0
million in long-term borrowings with higher interest rates. Pro forma
increase in income from continuing operations due to interest savings
described above plus decrease in amortization of fees associated with
long-term debt retired with proceeds of $115.0 million in long-term
borrowings of $206,000.
(3) 15% of rental expense related to operating losses representing an
appropriate interest factor.
<PAGE>
EXHIBIT 12.1 (CONT'D)
STANDARD COMMERCIAL TOBACCO COMPANY, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE
30, YEAR ENDED MARCH 31,
------------- -----------------------------------------
1997 1996 1997 1996 1995 1994 1993
------ ---- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes............................................ (1,197) (683) 4,395 5,207 7,197 10,828
Less interest capitalized to inventories during the period............ (300) (100) -- (1,100) 400
------ ---- ----- ------ ------ ------ ------
Adjusted income (loss) before taxes................................... (1,197) (683) 4,095 5,107 7,197 9,728 11,095
------ ---- ----- ------ ------ ------ ------
Fixed charges:
Interest incurred related to inventories and cost of sales.......... 1,115 577 3,454 4,071 4,600 3,500 2,600
Other interest expense.............................................. 299 84 1,188 648 2,398 335 1,469
Amortization of financing costs..................................... 184 130 -- -- --
Rental expense (1).................................................. 95 95 382 353 272 52 50
------ ---- ----- ------ ------ ------ ------
1,693 886 5,024 5,072 7,270 3,887 4,119
------ ---- ----- ------ ------ ------ ------
Earnings.............................................................. 496 203 9,119 10,179 14,467 13,615 15,214
------ ---- ----- ------ ------ ------ ------
Ratio (shortfall) of earnings to fixed charges........................ (1,197) (683) 1.8x 2.0x 2.0x 3.5x 3.7x
------ ---- ----- ------ ------ ------ ------
------ ---- ----- ------ ------ ------ ------
</TABLE>
- ---------------
(1) 15% of rental expense related to operating losses representing an
appropriate interest factor.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
STANDARD COMMERCIAL CORPORATION
We consent to the use in this Registration Statement of Standard Commercial
Tobacco Co., Inc. on Form S-4 of our reports dated June 18, 1997 on the
consolidated financial statements of Standard Commercial Corporation and on the
financial statement schedule of Standard Commercial Corporation, and to the
incorporation by reference in this Registration Statement on Form S-4 of our
reports dated June 18, 1997 incorporated by reference and appearing in the
Annual Report on Form 10-K of Standard Commercial Corporation for the year ended
March 31, 1997.
We also consent to the use of our report dated June 18, 1997 on the
consolidated financial statements of Standard Commercial Tobacco Co., Inc. and
subsidiaries which appears in the Prospectus which is a part of this
Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Our audits of the financial statements of Standard Commercial Corporation
also included the financial statement schedule of Standard Commercial
Corporation listed in Item 21. This financial statement schedule is the
responsibility of Standard Commercial Corporation's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth herein.
DELOITTE & TOUCHE LLP
Raleigh, North Carolina
November 3, 1997
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
STANDARD COMMERCIAL TOBACCO CO., INC.
OFFER TO EXCHANGE ITS
8 7/8% SENIOR NOTES DUE 2005
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
FOR ALL OF ITS OUTSTANDING 8 7/8% SENIOR NOTES DUE 2005
EACH GUARANTEED BY STANDARD COMMERCIAL CORPORATION AND STANDARD WOOL, INC.
PURSUANT TO THE PROSPECTUS
DATED , 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON , 1997, UNLESS THE OFFER IS EXTENDED.
The Exchange Agent for the Exchange Offer is:
Crestar Bank
For information by telephone:
(804) 782-7323
By registered or certified mail,
by hand or overnight delivery:
Crestar Bank
10th Floor
919 East Main Street
Richmond, Virginia 23219
Attn: Kelly Pickerel
Facsimile transmissions:
(For Eligible Institutions only)
(804) 782-7855
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1997 (the "Prospectus") of Standard Commercial Tobacco Co.,
Inc. (the "Issuer") and this Letter of Transmittal, which together constitute
the Issuer's offer (the "Exchange Offer") to exchange $1,000 principal amount of
its 8 7/8% Senior Notes due 2005 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus is a part, for each
$1,000 principal amount of its outstanding 8 7/8% Senior Notes due 2005 (the
"Initial Notes"). The term "Expiration Date" shall mean 12:00 midnight, New York
City time, on , 1997, unless the Issuer, in its sole
discretion, extends the Exchange Offer, in which case the term shall mean the
latest date and time to which the Exchange Offer is extended. Capitalized terms
used but not defined herein have the meaning given to them in the Prospectus.
<PAGE>
This Letter of Transmittal is to be completed by holders of Initial Notes
either if Initial Notes are to be forwarded herewith or if tenders of Initial
Notes are to be made by book-entry transfer to an account maintained by Crestar
Bank (the "Exchange Agent") at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedures set forth under the caption "The
Exchange Offer -- Procedures for Tendering" in the Prospectus.
Holders of Initial Notes who cannot deliver required documents to the
Exchange Agent on or prior to the Expiration Date or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Initial
Notes according to the guaranteed delivery procedures set forth under the
caption "The Exchange Offer -- Guaranteed Delivery Procedures" in the
Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS SHOULD COMPLETE THIS BOX:
Senior Notes Tendered
(Attach Additional List if Necessary)
<TABLE>
<S> <C>
IF BLANK,
PLEASE PRINT
NAME AND
ADDRESS OF
REGISTERED
HOLDER AS IT Name:
APPEARS ON Address:
THE 8 7/8
SENIOR
NOTES
("INITIAL
NOTES").
</TABLE>
<TABLE>
<S> <C> <C> <C>
Aggregate Principal
Principal Amount
Amount of Tendered
Certificate Senior (If less than Total Amount
Number(s)* Notes all)** Tendered
</TABLE>
- ---------------
* Need not be completed by book-entry holders.
** Initial Notes may be tendered in whole or in part in integral multiples of
$1,000. All Initial Notes held shall be deemed tendered unless a lesser
number is specified in this column.
2
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
h CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
DEPOSITORY TRUST COMPANY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _______________________________________________
The Depository Trust Company Account Number _________________________________
Transaction Code Number _____________________________________________________
h CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) ________________________________________________
Window Ticket Number (if any) _______________________________________________
Date of Execution of Notice of Guaranteed Delivery __________________________
Name of Institution which Guaranteed Delivery _______________________________
If Guaranteed Delivered is to be made By Book-Entry Transfer:
Name of Tendering Institution _______________________________________________
The Depository Trust Company Account Number _________________________________
Transaction Code Number _____________________________________________________
h CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED INITIAL NOTES
ARE TO BE RETURNED BY CREDITING THE DEPOSITORY TRUST COMPANY ACCOUNT NUMBER
SET FORTH ABOVE.
h CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE INITIAL NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: _______________________________________________________________________
Address: ____________________________________________________________________
3
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuer the principal amount of the Initial
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of such Initial Notes tendered hereby, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Issuer all right,
title and interest in and to such Notes as are being tendered hereby, including
all rights to accrued and unpaid interest thereon as of the Expiration Date. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent the
true and lawful agent and attorney-in-fact of the undersigned (with full
knowledge that said Exchange Agent acts as the agent of the Issuer in connection
with the Exchange Offer) to cause the Initial Notes to be assigned, transferred
and exchanged. The undersigned represents and warrants that it has full power
and authority to tender, exchange, assign and transfer the Initial Notes and to
acquire Exchange Notes issuable upon the exchange of such tendered Initial
Notes, and that when the same are accepted for exchange, the Issuer will acquire
good and unencumbered title to the tendered Initial Notes, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim.
The undersigned represents to the Issuer or the Guarantors that (i) the
Exchange Notes acquired pursuant to the Exchange Offer are being obtained in the
ordinary course of business of the person receiving such Exchange Notes, whether
or not such person is the undersigned, (ii) neither the undersigned nor any such
other person is participating in, intends to participate in, or has an
arrangement or understanding with any person to participate in, the distribution
of such Exchange Notes and (iii) the undersigned is not an "affiliate," as
defined in Rule 405 of the Securities Act of 1933, as amended, of the Issuer or
the Guarantors. If the undersigned or the person receiving the Exchange Notes
covered hereby is a broker-dealer that is receiving the Exchange Notes for its
own account in exchange for Initial Notes that were acquired as a result of
market-making activities or other trading activities, the undersigned
acknowledges that it or such other person will deliver a prospectus in
connection with any resale of such Exchange Notes; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. The undersigned
and any such other person acknowledge that, if they are participating in the
Exchange Offer for the purpose of distributing the Exchange Notes, (i) they
cannot rely on the position of the staff of the Securities and Exchange
Commission enunciated in Exxon Capital Holdings Corporation (available April 13,
1989), Morgan Stanley & Co., Inc. (available June 5, 1991) or similar no-action
letters and, in the absence of an exemption therefrom, must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with the resale transaction and (ii) failure to comply with such
requirements in such instance could result in the undersigned or any such other
person incurring liability under the Securities Act for which such persons are
not indemnified by the Issuer or the Guarantors. If the undersigned or the
person receiving the Exchange Notes covered by this letter is an affiliate (as
defined under Rule 405 of the Securities Act) of the Issuer or the Guarantors,
the undersigned represents to the Issuer or the Guarantors that the undersigned
understands and acknowledges that such Exchange Notes may not be offered for
resale, resold or otherwise transferred by the undersigned or such other person
without registration under the Securities Act or an exemption therefrom.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Issuer to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Notes or transfer ownership of such Notes on the account books
maintained by a book-entry transfer facility. The undersigned further agrees
that acceptance of any tendered Notes by the Issuer and the issuance of Exchange
Notes in exchange therefor shall constitute performance in full by the Issuer
and the Guarantors of their obligations under the Registration Rights Agreement
and that the Issuer and the Guarantors shall have no further obligations or
liabilities thereunder for the registration of the Initial Notes or the Exchange
Notes.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer -- Certain Conditions to the
Exchange Offer". The undersigned recognizes that as a result of these conditions
(which may be waived, in whole or in part, by the Issuer), as more particularly
set forth in the Prospectus, the Issuer may not be required to exchange any of
the Notes tendered hereby and, in such event, the Notes not exchanged will be
returned to the undersigned at the address shown below the signature of the
undersigned.
All authority herein conferred or agreed to be conferred shall survive the
dissolution, liquidation, death or incapacity of the undersigned and every
obligation of the undersigned hereunder shall be binding upon the heirs,
4
<PAGE>
personal representatives, successors and assigns of the undersigned. Tendered
Notes may be withdrawn at any time prior to the Expiration Date.
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instruction" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Notes, and any Initial Notes delivered herewith but not exchanged, will
be registered in the name of the undersigned and shall be delivered to the
undersigned at the address shown below the signature of the undersigned. If an
Exchange Note is to be issued to a person other than the person(s) signing this
Letter of Transmittal, or if the Exchange Note is to be mailed to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address different than the address
shown on this Letter of Transmittal, the appropriate boxes of this Letter of
Transmittal should be completed. If Notes are surrendered by Holder(s) that have
completed either the box entitled "Special Registration Instructions" or the box
entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (defined in Instruction 4).
5
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
(See Instructions 4 and 5)
To be completed ONLY if Exchange Notes are to be issued in the name of someone
other than the registered holder of the Initial Notes whose name(s) appear(s)
above.
Issue:
h Exchange Notes to:
h Initial Notes not tendered to:
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
_________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Taxpayer Identification or Social Security No.)
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4 and 5)
To be completed ONLY if Exchange Notes are to be sent to someone other than the
registered holder of the Initial Notes whose name(s) appear(s) above, or to the
registered holder(s) at an address other than that shown above.
Mail:
h Exchange Notes to:
h Initial not tendered to:
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
__
(Include Zip Code)
________________________________________________________________________________
(Taxpayer Identification or Social Security No.)
- --------------------------------------------------------------------------------
6
<PAGE>
REGISTERED HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 4 AND 5)
(Please Also Complete Substitute
Form W-9 Below)
(Note: Signature(s) must be
guaranteed if required by
Instruction 4)
________________________________________________________________________________
________________________________________________________________________________
(Signature(s) of Holder(s))
Date: ____________________________________________________________________, 1997
Name(s) ________________________________________________________________________
________________________________________________________________________
(Please Print)
Area Code(s) and Telephone Number:
________________________________________________________________________________
________________________________________________________________________________
(Tax Identification or Social Security Number)
Must be signed by registered Holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Initial Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certificates and other information as may be required by the Issuer or
the Trustee for the Initial Notes to comply with the restrictions on transfer
applicable to the Initial Notes). If signature is by an attorney-in-fact,
executor, administrator, trustee, guardian, officer of a corporation or another
acting in a fiduciary capacity or representative capacity, please set forth the
signer's full title. See Instruction 4.
MEDALLION
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED BY INSTRUCTION 4)
________________________________________________________________________________
(Authorized Signature)
Name: __________________________________________________________________________
(Please Print)
Date: ____________________________________________________________________, 1997
Capacity or Title: _____________________________________________________________
Name of Firm: __________________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number:
________________________________________________________________________________
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TO BE COMPLETED BY ALL
TENDERING SECURITY HOLDERS
(SEE INSTRUCTION 11)
PAYER'S NAME: STANDARD COMMERCIAL TOBACCO CO., INC.
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<S> <C> <C>
SUBSTITUTE PART I -- PLEASE PROVIDE YOUR TIN IN THE TIN_____________
FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. Social Security #
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY OR
THAT (1) the number shown on this form is my correct
taxpayer identification number (or I am waiting for a number
to be issued to me), (2) I am not subject to backup
withholding either because (i) I am exempt from backup
withholding, (ii) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest
or dividends, or (iii) the IRS has notified me that I am no
longer subject to backup withholding, and (3) any other
information provided on this form is true and correct.
</TABLE>
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<S> <C>
DEPARTMENT OF THE TREASURY PART II
INTERNAL Employer Identification
REVENUE Number
SERVICE Awaiting
TIN h
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PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) AND CERTIFICATION
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO
THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
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<S> <C> <C>
Signature Date:
You must cross out item
(iii) in Part (2) above if
you have been notified by
the IRS that you are
subject to backup
withholding because of
under reporting interest
or dividends on your tax
return and you have not
been notified by the IRS
that you are no longer
subject to backup
withholding.
</TABLE>
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CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the New Capital Securities shall be retained
until I provide a taxpayer identification number to the Exchange Agent and that,
if I do not provide my taxpayer identification number within 60 days, such
retained amounts shall be remitted to the Internal Revenue Service as backup
withholding and 31% of all reportable payments made to me thereafter will be
withheld and remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
Signature : __________________________________________________________ Date : _
9
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INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES. All physically
delivered Initial Notes or confirmation of any book-entry transfer to the
Exchange Agent's account at a book-entry transfer facility of Initial Notes
tendered by book-entry transfer, as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile thereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at any of its addresses set forth herein on or prior to the
Expiration Date. The method of delivery of this Letter of Transmittal, the
Initial Notes and any other required documents is at the election and risk of
the Holder, and except as otherwise provided below, the delivery will be deemed
made only when actually received by the Exchange Agent. If such delivery is by
mail, it is suggested that registered mail with return receipt requested,
properly insured, be used.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering Holders, by execution of this Letter of Transmittal (or
facsimile thereof), shall waive any right to receive notice of the acceptance of
the Notes for exchange.
Delivery to an address other than as set forth herein, or instructions via
a facsimile number other than the one set forth herein, will not constitute a
valid delivery.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Initial
Notes, but whose Initial Notes are not immediately available and thus cannot
deliver their Initial Notes, the Letter of Transmittal or any other required
documents to the Exchange Agent (or comply with the procedures for book-entry
transfer) prior to the Expiration Date, may effect a tender if:
(a) the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust Issuer having an office or correspondent
in the United States or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution");
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the registration
number(s) of such Initial Notes and the principal amount of Initial Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof), together
with the Initial Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility) and any other documents required by the Letter of Transmittal,
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Initial Notes in proper form
for transfer (or a confirmation of book-entry transfer of such Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility) and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Initial Notes according to the
guaranteed delivery procedures set forth above. Any Holder who wishes to tender
Initial Notes pursuant to the guaranteed delivery procedures described above
must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
relating to such Notes prior to the Expiration Date. Failure to complete the
guaranteed delivery procedures outlined above will not, of itself, affect the
validity or effect a revocation of any Letter of Transmittal form properly
completed and executed by a Holder who attempted to use the guaranteed delivery
procedures.
3. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount
of Initial Notes evidenced by a submitted certificate is tendered, the tendering
Holder should fill in the principal amount tendered in the column entitled
"Principal Amount Tendered" of the box entitled "Senior Notes Tendered Hereby".
A newly issued Initial Note for the principal amount of Initial Notes submitted
but not tendered will be sent to such Holder as soon as practicable after the
Expiration Date. All Initial Notes delivered to the Exchange Agent will be
deemed to have been tendered in full unless otherwise indicated.
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Initial Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date, after which tenders of Initial Notes are
irrevocable. To be effective, a written, telegraphic or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Initial Notes to be withdrawn (the "Depositor"), (ii) identify the Initial
Notes to be withdrawn (including the registration number(s) and principal amount
of such Notes, or, in the case of Initial Notes transferred by book-entry
transfer, the name and number of the account at the Book-Entry Transfer Facility
to be credited), (iii) be signed by the Holder in the same manner as the
original signature on this Letter of Transmittal (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Initial Notes register the transfer of such
Notes into the name of the person withdrawing the tender and (iv) specify the
name in which any such notes are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Issuer, whose
determination shall be final and binding on all parties. Any Initial Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Initial Notes so withdrawn are validly retendered. Any Initial Notes which
have been tendered but which are not accepted for exchange, will be returned to
the Holder thereof without cost to such Holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered Holder(s) of the Initial Notes tendered hereby, the signature
must correspond with the name(s) as written on the face of the certificates
without alternation or enlargement or any change whatsoever. If this Letter of
Transmittal is signed by a participant in the Book-Entry Transfer Facility, the
signature must correspond with the name as it appears on the security position
listing as the owner of the Initial Notes.
If any of the Initial Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Initial Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Notes.
Signatures on this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be medallion guaranteed by an Eligible Institution unless the
Initial Notes tendered hereby are tendered (i) by a registered Holder who has
not completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" on this Letter of Transmittal or (ii) for the account of
an Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or Holders
of Initial Notes (which term, for the purposes described herein, shall include a
participant in the Book-Entry Transfer Facility whose name appears on a security
listing as the owner of the Initial Notes) listed and tendered hereby, no
endorsements of the tendered Initial Notes or separate written instruments of
transfer or exchange are required. In any other case, the registered Holder (or
acting Holder) must either properly endorse the Initial Notes or transmit
properly completed bond powers with this Letter of Transmittal (in either case,
executed exactly as the name(s) of the registered Holder(s) appear(s) on the
Initial Notes, and, with respect to a participant in the Book-Entry Transfer
Facility whose name appears on a security position listing as the owner of
Initial Notes, exactly as the name of the participant appears on such security
position listing), with the signature on the Initial Notes or bond power
medallion guaranteed by an Eligible Institution (except where the Initial Notes
are tendered for the account of an Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Issuer, proper evidence
satisfactory to the Issuer of their authority so to act must be submitted.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. If Exchange Notes are to
be issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, tendering Holders should indicate, in the applicable box, the name and
address (or account at the Book-Entry Transfer Facility) in which the Exchange
Notes or substitute Initial Notes for principal amounts not tendered or not
accepted for exchange are to be issued (or deposited), if different from the
names and addresses or accounts of the person
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signing this Letter of Transmittal. In the case of issuance in a different name,
the employer identification number or social security number of the person named
must also be indicated and the tendering Holder should complete the applicable
box.
If no instructions are given, the Exchange Notes (and any Initial Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
Holder of the Initial Notes or deposited at such Holder's account at the
Book-Entry Transfer Facility.
6. TRANSFER TAXES. The Issuer shall pay all transfer taxes, if any,
applicable to the transfer and exchange of Initial Notes to it or its order
pursuant to the Exchange Offer. If a transfer tax is imposed for any other
reason other than the transfer of Initial Notes to the Issuer or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered Holder or any other person) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or exception
therefrom is not submitted herewith, the amount of such transfer taxes will be
collected from the tendering Holder by the Exchange Agent.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Initial Notes listed in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS. The Issuer reserves the right, in its reasonable
judgment, to waive, in whole or in part, any of the conditions to the Exchange
Offer set forth in the Prospectus.
8. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any Holder whose Initial
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions. This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, stolen or destroyed Initial Notes have been followed.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number(s) set forth above.
10. VALIDITY AND FORM. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Initial Notes
will be determined by the Issuer in its sole discretion, which determination
will be final and binding. The Issuer reserves the absolute right to reject any
and all Initial Notes not properly tendered or any Initial Notes the Issuer's
acceptance of which may, in the opinion of counsel for the Issuer, be unlawful.
The Issuer also reserves the right, in its reasonable judgment, to waive any
defects, irregularities or conditions of tender as to particular Initial Notes.
The Issuer's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Initial Notes must be cured within such time as the
Issuer shall determine. Although the Issuer intends to notify Holders of defects
or irregularities with respect to tenders of Initial Notes, neither the Issuer,
the Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Initial Notes will not be deemed to have been
made until such defects or irregularities have been cured or waived. Any Initial
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holder as soon as practicable
following the Expiration Date.
11. BACKUP WITHHOLDING; FORM W-9. Under U.S. federal income tax law, a
holder whose tendered Initial Notes are accepted for exchange is required to
provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on Form W-9. If the Exchange Agent is not provided with the
correct TIN, the Internal Revenue Service (the "IRS") may subject the holder or
other payee to a $50 penalty. In addition, payments to such holders or other
payees with respect to Initial Notes exchanged pursuant to the Exchange Offer
may be subject to 31% backup withholding.
If the tendering holder has not been issued a TIN and has applied for a TIN
or intends to apply for a TIN in the near future, the holder or other payee must
also complete the Certificate of Awaiting Taxpayer Identification Number in
order to avoid backup withholding. Notwithstanding that the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60-day period following the date of the Form W-9. If the
holder furnishes the Exchange Agent
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with its TIN within 60 days after the date of the Form W-9, the amounts retained
during the 60-day period will be remitted to the holder and no further amounts
shall be retained or withheld from payments made to the holder thereafter. If,
however, the holder has not provided the Exchange Agent with its TIN within such
60-day period, amounts withheld will be remitted to the IRS as backup
withholding. In addition, 31% of all payments made thereafter will be withheld
and remitted to the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Initial Notes or of the last transferee appearing on the transfers attached
to, or endorsed on, the Initial Notes. If the Initial Notes are registered in
more than one name or are not in the name of the actual owner, consult the
Instructions to Form W-9 for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Form W-9, and write "exempt" on the face thereof, to avoid
possible erroneous backup withholding. A foreign person may qualify as an exempt
recipient by submitting a properly completed IRS Form W-8, signed under
penalties of perjury, attesting to that holder's exempt status. Please consult
the Instructions to Form W-9 for additional guidance on which holders are exempt
from backup withholding.
Backup withholding is not an additional U.S. federal income tax. Rather,
the U.S. federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH
NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS)
OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
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EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
TO TENDER
8 7/8% SENIOR NOTES DUE 2005
IN EXCHANGE FOR
8 7/8% SENIOR NOTES DUE 2005
OF
STANDARD COMMERCIAL TOBACCO CO., INC.
Registered holders of outstanding 8 7/8% Senior Notes due 2005 (the
"Initial Notes") who wish to tender their Initial Notes in exchange for a like
principal amount of 8 7/8% Senior Notes due 2005 which have been registered
under the Securities Act of 1933, as amended (the "Exchange Notes"), and whose
Initial Notes are not immediately available or who cannot deliver their Initial
Notes and Letter of Transmittal (and any other documents required by the Letter
of Transmittal) to Crestar Bank (the "Exchange Agent") prior to the Expiration
Date, may use this Notice of Guaranteed Delivery or one substantially equivalent
hereto. This Notice of Guaranteed Delivery may be delivered by hand or sent by
facsimile transmission or mail to the Exchange Agent, See "The Exchange
Offer -- Procedures for Tendering" in the Prospectus.
The Exchange Agent for the Exchange Offer is:
Crestar Bank
For information by telephone:
(804) 782-7323
By registered or certified mail or
by hand or overnight delivery:
10th Floor
919 East Main Street
Richmond, Virginia 23219
Attn: Kelly Pickerel
Facsimile transmissions:
(For Eligible Institutions only)
(804) 782-7855
Delivery of this Notice to an address other than as set forth above or
transmission of instructions via a facsimile transmission to a number other than
set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution under the instructions thereto, such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
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Ladies and Gentlemen:
The undersigned hereby tenders the principal amounts of Initial Notes
indicated below, upon the terms and subject to the conditions contained in the
Prospectus dated , 1997 of Standard Commercial Tobacco Co.,
Inc. (the "Prospectus"), receipt of which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
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NAME AND ADDRESS OF REGISTERED
HOLDER AS IT CERTIFICATE PRINCIPAL
APPEARS ON 8 7/8% SENIOR NUMBER(S) OF INITIAL AMOUNT OF
NOTES DUE 2005, NOTES TRANSMITTED INITIAL NOTES
("INITIAL NOTES") (IF AVAILABLE) TRANSMITTED
<S> <C> <C>
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THE FOLLOWING MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, hereby guarantees to deliver to
the Exchange Agent at one of its addresses set forth above, the Initial Notes,
together with a properly completed and duly executed Letter of Transmittal
within three New York Stock Exchange, Inc. trading days after the date of
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execution of this Notice of Guaranteed Delivery.
Name of Firm: (Authorized Signature)
Address: Title:
Name:
<S> <C> <C>
(Zip Code)
</TABLE>
Area Code and Telephone Number:
Date:
NOTE: DO NOT SEND CERTIFICATES FOR INITIAL NOTES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR INITIAL NOTES SHOULD BE SENT ONLY WITH YOUR
LETTER OF TRANSMITTAL.
