Initial Public Offering (IPO): Pre-Effective Amendment to Registration Statement (General Form) — Form S-1
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-1/A Pre-Effective Amendment to Registration Statement 158 865K
(General Form)
2: EX-3.1 Form of Amended and Restated Certificate of 13 40K
Incorporation
3: EX-3.2 Amended and Restated By-Laws 22 69K
4: EX-11 Statement of Computation of Per Share Earnings 2± 12K
5: EX-23.1 Consent of Ernst & Young 1 6K
6: EX-23.2 Consent of Coopers & Lybrand 1 6K
7: EX-27 Financial Data Schedule 2 9K
S-1/A — Pre-Effective Amendment to Registration Statement (General Form)
Document Table of Contents
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1996
REGISTRATION NO. 333-2424
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
POLYMER GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2297131 57-1003983
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL
INCORPORATION OR CLASSIFICATION CODE IDENTIFICATION NUMBER)
ORGANIZATION) NUMBER)
4838 JENKINS AVENUE
NORTH CHARLESTON, SOUTH CAROLINA 29405
TELEPHONE: (803) 566-7293
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JAMES G. BOYD
4838 JENKINS AVENUE
NORTH CHARLESTON, SOUTH CAROLINA 29405
TELEPHONE: (803) 566-7293
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
H. KURT VON MOLTKE ROBERT E. BUCKHOLZ, JR.
KIRKLAND & ELLIS SULLIVAN & CROMWELL
200 EAST RANDOLPH DRIVE 125 BROAD STREET
CHICAGO, ILLINOIS 60601 NEW YORK, NEW YORK 10004
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] 333-2424.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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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 THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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POLYMER GROUP, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING
LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF FORM S-1.
[Download Table]
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION CAPTION OR LOCATION IN PROSPECTUS
----------------------- ---------------------------------
1. Forepart of the Registration Outside Front Cover Page of Registration
Statement and Outside Front Statement; Outside Front Cover Page of
Cover Page of Prospectus Prospectus
2. Inside Front and Outside Back Inside Front Cover Page; Outside Back Cover
Cover Pages of Prospectus Page
3. Summary Information and Risk Prospectus Summary; Risk Factors
Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Underwriting
Price
6. Dilution Dilution
7. Selling Security Holders Principal and Selling Stockholders
8. Plan of Distribution Outside Front Cover Page; Underwriting
9. Description of Securities to Description of Capital Stock
be Registered
10. Interests of Named Experts and Validity of Common Stock; Experts
Counsel
11. Information with Respect to Outside Front Cover Page; Prospectus
the Registrant Summary; Risk Factors; Use of Proceeds;
Dividend Policy; Dilution; Capitalization;
Unaudited Pro Forma Financial Information;
Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Principal
and Selling Stockholders; Certain
Relationships and Related Transactions;
Description of Certain Indebtedness;
Description of Capital Stock; Shares
Eligible for Future Sale
12. Disclosure of Commission Inapplicable
Position on Indemnification
for Securities Act Liabilities
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 MAY 7, 1996
14,242,424 SHARES
POLYMER GROUP, INC.
COMMON STOCK
LOGO (PAR VALUE $0.01 PER SHARE)
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Of the 14,242,424 shares of Common Stock offered, 11,393,939 shares are being
offered hereby in the United States and 2,848,485 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share will be
identical for both offerings. See "Underwriting."
Of the 14,242,424 shares of Common Stock offered, 11,500,000 shares are being
sold by the Company and 2,742,424 shares are being sold by the Selling
Stockholders. See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price per share will be between $15.00 and $18.00. For factors to be considered
in determining the initial public offering price, see "Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN CONSIDERATIONS RELEVANT TO
AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for listing on the New York Stock
Exchange, upon notice of issuance, under the symbol "PGH."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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[Download Table]
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT (1) COMPANY (2) STOCKHOLDERS (2)
-------------- ------------ ----------- -------------------
Per Share.......... $ $ $ $
Total (3).......... $ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Selling Stockholders have granted the U.S. Underwriters an option for
30 days to purchase up to an additional 1,709,092 shares at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments. Additionally, the Selling Stockholders have granted
the International Underwriters a similar option with respect to an
additional 427,273 shares as part of the concurrent international offering.
If such options are exercised in full, the total initial public offering
price, underwriting discount and proceeds to Selling Stockholders will be
$ , $ and $ , respectively. See "Underwriting."
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The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1996, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
CHASE SECURITIES INC.
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The date of this Prospectus is , 1996.
The Company produces nonwovens which are sold to its customers and used in a
wide array of products, including those shown below.
[PHOTO APPEARS HERE] [PHOTO APPEARS HERE]
Industrial and Specialty Wiping Products
Products (nonwoven)
[PHOTO APPEARS HERE] [PHOTO APPEARS HERE]
Medical Products Hygiene Products
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IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
2
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements, and
the related notes thereto, included elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, the term "Company"
includes the Company and all of its subsidiaries and its and their respective
predecessors and subsidiaries. Unless otherwise indicated, all financial
statements used in this Prospectus have been prepared in accordance with United
States generally accepted accounting principles and all dollar references are
to U.S. dollars. Except as otherwise indicated, (i) all information in this
Prospectus (a) assumes no exercise of the Underwriters' over-allotment options
and (b) has been adjusted to give effect to a reclassification and an
approximate 19.97 to 1 stock split of the Common Stock, (ii) the income
statement information presented herein on a pro forma basis for the year ended
December 30, 1995 gives effect to the Chicopee Acquisition (as defined) and the
Recapitalization (as defined) as if each had occurred on January 1, 1995, and
(iii) the income statement information presented herein on a pro forma basis
for the quarter ended March 30, 1996 gives effect to the Recapitalization as if
it had occurred on December 31, 1995.
THE COMPANY
Polymer Group, Inc. (the "Company") is a leading worldwide manufacturer and
marketer of a broad range of nonwoven and woven polyolefin products. The
Company's principal lines of business include industrial and specialty products
and disposable wiping, medical and hygiene products. The Company believes that
it is the third largest producer of nonwovens in the world and that it employs
the most extensive range of nonwoven technologies of any nonwovens producer,
which allows it to supply products tailored to customers' needs at a
competitive cost. Nonwovens are flat, flexible porous sheets produced by
interlocking fibers or filaments or by perforating films. Nonwovens provide
certain qualities similar to those of textiles at a significantly lower cost.
The Company also believes that it is the largest producer of woven polyethylene
fabrics in North America. Woven polyethylene fabrics are flat, flexible
structures produced by weaving narrow tapes of slit film and are characterized
by high strength-to-weight ratios.
The Company is a leading nonwovens supplier to a number of the largest
consumer products manufacturers in the world and specifically targets market
niches with high value-added products for these customers. The Company has a
global presence with an established customer base in the three major developed
markets of North America, Europe and Japan, as well as developing markets such
as Latin America. The Company's products are sold principally to converters
that manufacture a wide range of end-use products, such as hospital surgical
gowns and drapes, wound care sponges, multi-use wiping cloths and towels,
flexible industrial packaging, filtration media, battery separators, diapers,
feminine hygiene products and automotive insulation products. The Company
supplies nonwovens to customers such as Johnson & Johnson and its affiliates
(collectively, "Johnson & Johnson") for healthcare products, including
operating room gowns, The Procter & Gamble Company ("Procter & Gamble") for
Pampers(R) and Luvs(R) diapers and Paragon Trade Brands Inc. for private label
diapers.
The Company is a leader in nonwoven process technology. The Company operates
twelve manufacturing facilities located in five countries and is currently the
only nonwovens producer that utilizes all of the established nonwoven process
technologies. The Company recently successfully introduced the new, proprietary
Apex technology, which is a surface-forming technology capable of producing
low-cost textile replacement fabrics with intricate, three-dimensional
patterns. The Company believes that the quality of its manufacturing operations
and the breadth of its nonwovens process technologies give it a competitive
advantage in meeting the current and future needs of its customers and in
leading the development of an expanded range of applications for nonwovens. The
Company continues to make significant investments in advanced technology in
order to increase capacity, improve quality and develop new low-cost, high-
value structures. For example, the Company recently
3
invested in a spunbond/meltblown/spunbond ("SMS") line that the Company
believes is one of the most advanced in the world, which allows the Company to
produce highly uniform structures at less than half of the unit weight produced
by other SMS lines. The Company believes that its broad technological base
gives it the capability to design and manufacture products with optimal cost
and functionality. Working as a developmental partner with its major customers,
the Company utilizes its technologies to develop and manufacture new products
to meet their needs.
Management has built the Company through a series of strategic business
acquisitions that have broadened the Company's technology base and increased
its product lines. The Company's strategic acquisitions have helped it to
establish strong positions in both the nonwoven and woven polyolefin fabric
markets. Synergies realized through these acquisitions have enabled the Company
to better meet the needs of existing customers, to reach emerging geographic
markets and to exploit niche market opportunities through customer-interactive
specialty product development. For example, technology improvements developed
at the Company's Landisville, New Jersey facility, such as improvements in the
meltblown process, continuous spreading and comprehensive process automation,
have been integral to capacity increases and the implementation of new
production lines in Europe and Mexico.
The Company's objectives are to continue to expand its core business while
building new capabilities to capitalize on both a broad range of new, high
value-added niche product opportunities and expanded geographic markets. In
addition to growth in its core businesses, the Company expects growth to come
from the application of several new technologies, including (i) the Apex
nonwoven process technology, (ii) a new line of specialty sorbents, marketed
under the Micro-Set(TM) brand, providing EPA-approved disposability at a
competitive cost and (iii) a newly developed polymer technology designed to
recover heavy metals, which can then be recycled and sold, from contaminated
solutions such as hazardous waste sites. The Company expects to accomplish
these objectives by relying on its principal strengths, which include
technological leadership, state-of-the-art manufacturing capabilities,
significant market share in its primary markets and an experienced and
successful management team. The Company seeks to utilize these strengths by
following a strategy based on (i) continuous improvement aimed at increasing
product value and reducing costs, (ii) development of high value-added niche
products, (iii) entrance into new markets with existing products, (iv)
expansion of capacity through capital improvements and (v) strategic
acquisitions.
The principal executive offices of the Company are located at 4838 Jenkins
Avenue, North Charleston, South Carolina 29405, and the Company's telephone
number is (803) 566-7293.
4
THE OFFERINGS
The offering of 11,393,939 shares of Common Stock initially being offered in
the United States (the "U.S. Offering") and the concurrent offering of
2,848,485 shares of Common Stock initially being offered outside the United
States (the "International Offering") are collectively referred to herein as
the "Offerings."
[Enlarge/Download Table]
Common Stock offered by the Company. 11,500,000 shares
U.S. Offering................... 9,200,000 shares
International Offering.......... 2,300,000 shares
Common Stock offered by the Selling
Stockholders....................... 2,742,424 shares
U.S. Offering................... 2,193,939 shares
International Offering.......... 548,485 shares
Common Stock outstanding after the
Offerings.......................... 32,000,000 shares
Use of Proceeds..................... The net proceeds to be received by the Company from
the Offerings will be utilized by the Company
principally to repay outstanding borrowings under
the New Credit Facility (as defined), to redeem a
portion of the Notes (as defined) and to redeem the
Redeemable Preferred Stock (as defined). The Company
will not receive any of the proceeds from the sale
of shares by the Selling Stockholders (as defined).
See "Use of Proceeds" and "Certain Relationships and
Related Transactions."
New York Stock Exchange Symbol...... PGH
RISK FACTORS
Prospective purchasers should consider carefully the matters set forth under
the caption "Risk Factors," as well as the other information set forth in this
Prospectus. These factors include: the Company's significant leverage,
fluctuations in raw material prices, reliance on major customers, competition
in the Company's markets, importance of continued innovation, dependence on key
suppliers, acquisitions and the integration of acquired businesses, significant
operations in foreign countries, dependence on key personnel, increased costs
for environmental compliance, consumer environmental awareness, other business
interests of management, certain charter, by-laws and statutory provisions,
eligibility of shares for futures sale, registration rights of certain
stockholders, absence of prior public market for the Common Stock, possible
volatility of the price of the Common Stock and non-recurring charges in
connection with the Offerings.
5
SUMMARY FINANCIAL DATA FOR THE COMPANY
The Company was organized on June 16, 1994 and, effective June 24, 1994,
acquired PGI Polymer, Inc. ("PGI") in a transaction considered to be between
entities under common control and accounted for at historical cost in a manner
similar to a pooling of interests. The following table sets forth certain
historical financial information of the Company and PGI. The statement of
operations data for each of the years in the period ended December 30, 1995 and
the balance sheet data as of January 1, 1994, December 31, 1994 and December
30, 1995 have been derived from audited financial statements. The Company's
statement of operations data for the year ended December 30, 1995 include the
results of Chicopee (as defined) for the period March 16, 1995 to December 30,
1995. The data as of and for the three months ended April 1, 1995 and March 30,
1996 are derived from the consolidated unaudited interim financial statements
and include, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary to fairly present the data for such
periods. The table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the financial
statements of the Company and related notes thereto, the unaudited pro forma
financial information for the Company and related notes thereto and other
financial information included elsewhere in this Prospectus.
[Enlarge/Download Table]
THREE MONTHS ENDED
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YEAR ENDED YEAR ENDED YEAR ENDED APRIL 1, MARCH 30,
JANUARY 1, 1994 DECEMBER 31, 1994 DECEMBER 30, 1995 1995 1996
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(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Net sales............... $121,473 $165,333 $437,638 $ 66,012 $122,715
Cost of goods sold...... 97,291 129,071 333,606 50,013 93,320
-------- -------- -------- --------- --------
Gross profit........... 24,182 36,262 104,032 15,999 29,395
Selling, general and
administrative
expenses............... 13,022 20,699 61,744 8,242 18,111
-------- -------- -------- --------- --------
Operating income....... 11,160 15,563 42,288 7,757 11,284
Interest expense........ 4,387 13,216 37,868 6,530 10,579
Foreign currency
transaction losses,
net.................... 1,310 17,055 22,811 10,815 1,332
Other expenses, net..... 53 277 --
Income taxes (benefit).. 1,970 3,353 5,216 1,716 (144)
-------- -------- -------- --------- --------
Income (loss) before
extraordinary item.... 3,440 (18,338) (23,607) (11,304) (483)
Extraordinary item,
(loss) from
extinguishment of debt
net of income taxes of
$1,846................. -- (4,372) -- -- --
-------- -------- -------- --------- --------
Net income (loss)...... 3,440 (22,710) (23,607) (11,304) (483)
Redeemable preferred
stock dividends and
accretion.............. (2,480) (1,209) (4,839) (200) (2,104)
-------- -------- -------- --------- --------
Net income (loss)
applicable to common
stock................. $ 960 $(23,919) $(28,446) $ (11,504) $ (2,587)
======== ======== ======== ========= ========
Income (loss) before
extraordinary item per
common share(a)........ $ .05 $ (.95) $ (1.39) $ (0.56) $ (0.13)
======== ======== ======== ========= ========
Average common shares
outstanding(a)......... 20,500 20,500 20,500 20,500 20,500
======== ======== ======== ========= ========
OPERATING AND OTHER
DATA:
Net cash provided by
(used in) operating
activities............. $ 6,888 $ 17,386 $ 11,556 $ (5,527) $ (3,132)
Net cash (used in)
investing activities... (6,958) (61,375) (333,208) (286,729) (8,221)
Net cash provided by
(used in) financing
activities............. (1,038) 58,482 327,636 292,500 14,466
EBITDA(b)............... 16,115 23,864 72,122 11,606 20,555
EBITDA margin(c)........ 13.27% 14.43% 16.48% 17.58% 16.75%
Depreciation and
amortization........... $ 4,955 $ 8,348 $ 29,834 3,849 9,271
Mexican statutory
employee profit
sharing(d)............. -- (47) -- -- --
Capital expenditures.... 6,505 11,341 47,842 5,371 5,905
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital
(deficit).............. $ (5,786) $ 31,060 $ 61,558 $ 41,928 $ 78,572
Total assets............ 102,861 234,942 624,725 572,226 628,627
Total debt.............. 57,562 190,814 450,878 412,691 455,550
Redeemable preferred
stock, dividends and
accretion.............. 31,603 -- 44,339 39,700 56,443
Shareholders' equity
(deficit).............. (592) 2,220 13,562 26,354 9,647
6
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(a) Income (loss) before extraordinary item per common share is determined by
dividing income (loss) before extraordinary item applicable to common stock
by the average number of shares outstanding during the period. In
accordance with Staff Accounting Bulletin No. 83 of the Securities and
Exchange Commission (the "Commission"), all issuances of the Common Stock
and warrants at prices below the expected offering price during the twelve-
month period preceding the planned offering have been included as common
stock equivalents for purposes of calculating income (loss) before
extraordinary item per common share as if they had been issued at the
Company's inception. Income (loss) before extraordinary item per common
share and average shares outstanding reflect the approximate 19.97 to 1
stock split.
(b) EBITDA is defined as operating income plus depreciation, amortization and
Mexican statutory employee profit sharing and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation from or as a substitute for net income, cash flows from operating
activities and other consolidated income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as
a measure of profitability or liquidity.
(c) EBITDA margin represents EBITDA as a percentage of sales.
(d) In accordance with Mexican law, the Company's Mexican subsidiary is
required to share with employees 10% of its pre-tax profits.
7
SUMMARY PRO FORMA FINANCIAL DATA FOR THE COMPANY
The Company was organized on June 16, 1994 and, effective June 24, 1994,
acquired PGI Polymer, Inc. ("PGI") in a transaction considered to be between
entities under common control and accounted for at historical cost in a manner
similar to a pooling of interests. The pro forma financial information for the
Company set forth below has been derived from the unaudited pro forma financial
information included elsewhere in this Prospectus and gives effect to the
Chicopee Acquisition and to the Recapitalization as described under "Use of
Proceeds" and "Unaudited Pro Forma Financial Information." The pro forma
statement of operations data for the year ended December 30, 1995 give effect
to the Chicopee Acquisition and the Recapitalization as if each had occurred on
January 1, 1995. The pro forma statement of operations data for the quarter
ended March 30, 1996, give effect to the Recapitalization as if it had occurred
on December 31, 1995. The pro forma financial information does not purport to
represent what the Company's results of operations would have been if the
Chicopee Acquisition and the Recapitalization had actually been completed as of
the date indicated and are not intended to project the Company's results of
operations for any future period. The table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements of the Company and related notes thereto,
the unaudited pro forma financial information for the Company and related notes
thereto and other financial information included elsewhere in this Prospectus.
The pro forma results of operations for the period ended March 30, 1996 are not
necessarily indicative of the results to be expected for the entire year.
[Download Table]
YEAR ENDED THREE MONTHS ENDED
DECEMBER 30, 1995 MARCH 30, 1996
-------------------- --------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales............................ $437,638 $493,658 $122,715 $122,715
Cost of goods sold................... 333,606 379,486 93,320 93,320
-------- -------- -------- --------
Gross profit........................ 104,032 114,172 29,395 29,395
Selling, general and administrative
expenses............................ 61,744 67,845 18,111 18,111
-------- -------- -------- --------
Operating income.................... 42,288 46,327 11,284 11,284
Interest expense..................... 37,868 27,539 10,579 7,408
Foreign currency transaction losses,
net................................. 22,811 32 1,332 2,207
Other expenses, net.................. -- 1,190 -- --
Income taxes (benefit)............... 5,216 11,242 (144) 801
-------- -------- -------- --------
Income (loss) before extraordinary
item............................... (23,607) $ 6,324 (483) $ 868
======== ========
Redeemable preferred stock dividends
and accretion....................... (4,839) (2,104)
-------- --------
Income (loss) before extraordinary
item applicable to common stock.... $(28,446) $ (2,587)
======== ========
Income (loss) before extraordinary
item per common share(a)............ $ (1.39) $ .20 $ (0.13) $ .03
======== ======== ======== ========
Average common shares outstanding(a). 20,500 32,000 20,500 32,000
======== ======== ======== ========
OPERATING AND OTHER DATA:
Net cash provided by (used in)
operating activities................ $ 11,556 $ 20,821 $ (3,132) $ (1,781)
Net cash (used in) investing
activities.......................... (333,208) (337,401) (8,221) (8,221)
Net cash provided by financing
activities.......................... 327,636 327,636 14,466 14,466
EBITDA(b)............................ 72,122 83,958 20,555 20,555
EBITDA margin(c)..................... 16.48% 16.93% 16.75% 16.75%
Depreciation and amortization........ $ 29,834 $ 37,271 $ 9,271 $ 9,271
Capital expenditures................. 47,842 49,303 5,905 5,905
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital...................... $ 61,558 $ 78,572
Total assets......................... 624,725 628,627
Total debt........................... 450,878 455,550
Redeemable preferred stock, dividends
and accretion....................... 44,339 56,443
Shareholders' equity................. 13,562 9,647
8
--------
(a) Income (loss) before extraordinary item per common share is determined by
dividing income (loss) before extraordinary item applicable to common stock
by the average number of shares outstanding during the period. In
accordance with Staff Accounting Bulletin No. 83 of the Securities and
Exchange Commission (the "Commission"), all issuances of the Common Stock
and warrants at prices below the expected offering price during the twelve-
month period preceding the planned offering have been included as common
stock equivalents for purposes of calculating income (loss) before
extraordinary item per common share as if they had been issued at the
Company's inception. The 1995 pro forma average shares outstanding gives
effect to the Offerings as if they had occurred on January 1, 1995. As a
result, the Reclassification (as defined) is considered to have occurred on
such date. In addition, income (loss) before extraordinary item per common
share and average shares outstanding reflect the approximate 19.97 to 1
stock split.
(b) EBITDA is defined as operating income plus depreciation, amortization and
Mexican statutory employee profit sharing and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation from or as a substitute for net income, cash flows from operating
activities and other consolidated income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as
a measure of profitability or liquidity.
(c) EBITDA margin represents EBITDA as a percentage of sales.
9
RISK FACTORS
Prospective investors should consider carefully the specific factors set
forth below, in addition to the other information set forth in this
Prospectus, before purchasing shares of Common Stock offered hereby.
SIGNIFICANT LEVERAGE
After consummation of the Offerings and application of the proceeds
therefrom, the Company will have significant debt service obligations. As of
March 30, 1996, on a pro forma basis, the Company would have had total
outstanding long-term indebtedness of $343.3 million. Furthermore, the Company
may incur additional indebtedness in the future, subject to certain
limitations contained in the instruments governing its indebtedness. The
degree to which the Company is leveraged could have important consequences to
holders of Common Stock, including: (i) the Company's ability to obtain
additional financing for working capital, capital expenditures, acquisitions,
general corporate purposes or other purposes may be impaired in the future;
(ii) a substantial portion of the Company's net cash flows from operations
must be dedicated to the payment of principal of and interest on the
borrowings under the New Credit Facility and interest on the remaining Notes,
thereby reducing the funds available to the Company for its operations and
other purposes; (iii) certain of the Company's borrowings are and will
continue to be at variable rates of interest, which will expose the Company to
the risk of increased interest rates; (iv) the Company may be substantially
more leveraged than certain of its competitors, which may place the Company at
a relative competitive disadvantage; (v) the Indenture (as defined) contains
and the New Credit Facility will contain certain financial and restrictive
covenants, which, if not complied with, may result in an event of default,
possibly having a material adverse effect on the Company; and (vi) because of
its lesser financial flexibility, the Company may be unable to adjust to
rapidly changing market conditions and could be vulnerable in the event of a
downturn in general economic conditions or its business.
FLUCTUATIONS IN RAW MATERIAL PRICES
The primary raw materials used in the manufacture of most of the Company's
products are polypropylene and polyester fiber, polyethylene and polypropylene
resin, and, to a lesser extent, rayon and tissue paper. In 1995, polypropylene
fiber accounted for approximately 25% of the Company's cost of sales. The
price of polypropylene and polyethylene is a function of, among other things,
manufacturing capacity, demand and the price of crude oil. Historically, the
market price of polypropylene and polyethylene has fluctuated, such as in late
1994 and early 1995 when resin prices increased by approximately 60%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--General." There has generally been a lag time before such
increases could be passed on to the Company's customers. There can be no
assurance that the price of the Company's raw materials will not increase in
the future or that the Company will be able to pass on such increases to its
customers. A significant increase in the price of raw materials that cannot be
passed on to customers could have a material adverse effect on the Company's
results of operations and financial condition.
RELIANCE ON MAJOR CUSTOMERS
Two of the Company's customers, Johnson & Johnson and Procter & Gamble, each
accounted for over 10% of the Company's net sales during 1995. Net sales to
Johnson & Johnson accounted for approximately 28% of the Company's net sales
in 1995. Net sales to Procter & Gamble, primarily of facing fabric or
coverstock for diapers, accounted for approximately 15% of the Company's net
sales in 1995. A loss of either of these customers could have a material
adverse effect on the Company. See "Business--Products."
10
COMPETITION IN THE COMPANY'S MARKETS
Competition in the Company's markets is intense, and some of the Company's
competitors have economic resources greater than those of the Company and are
well established as suppliers to the markets that the Company serves. Quality,
performance, service and cost are generally the prime competitive factors.
Price continues to be a significant competitive factor in Europe and the
United States in thermal bond products due to continued competition with
spunbond products.
A number of the Company's niche product applications are sold into select
specialized markets. There can be no assurance, however, that these
specialized markets will not attract additional competitors that could have
greater financial, technological, manufacturing and marketing resources than
the Company, particularly as niche product applications become standardized
over time. See "Business--Competition."
IMPORTANCE OF CONTINUED DEVELOPMENT OF INNOVATIVE PRODUCTS
The Company's continued success is dependent in part upon its ability to
maintain a superior technological capability and to continue to identify,
develop and commercialize innovative, high value-added products for niche
applications. There can be no assurance that the Company will be able to
accomplish this or that technological developments by the Company's
competitors will not place certain of the Company's products at a competitive
disadvantage in the future. In addition, certain of the new products that the
Company has under development will be offered in markets in which the Company
does not currently compete, and there can be no assurance that the Company
will be able to compete successfully in those new markets.
DEPENDENCE ON KEY SUPPLIERS
The Company's major suppliers of polypropylene fiber are Hercules Fibres
Corp. ("Hercules"), Danaklon a/s ("Danaklon") and Steen & Co. GmbH ("Steen"),
while its major supplier of polyethylene is Novacor Chemicals Inc.
("Novacor"). The Company's major suppliers of rayon are Lenzing Fibers Corp.
("Lenzing Fibers") and Courtaulds Fibers, Inc. ("Courtaulds Fibers"), while
its major suppliers of polyester are Wellman, Inc. ("Wellman") and E.I. Du
Pont de Nemours & Co. ("Du Pont"). The Company purchases its polypropylene
resin and tissue paper from Indelpro, S.A. de C.V. ("Indelpro") and Crown
Vantage Inc. ("Crown Vantage"), respectively.
The loss of the Company's suppliers could, in the short term, adversely
affect the Company's business until alternative supply arrangements were
secured. In addition, there is no assurance that any new supply agreement
entered into by the Company will have terms as favorable as those contained in
current supply arrangements. See "Business--Raw Materials."
RISKS OF ACQUISITIONS AND THE FAILURE TO INTEGRATE ACQUIRED BUSINESSES
As part of its long-term strategy, the Company seeks to acquire
complementary businesses. There can be no assurance that the Company will find
attractive acquisition candidates or succeed at effectively managing the
integration of acquired businesses into the Company's existing businesses. If
the expected synergies from such transactions do not materialize or the
Company fails to successfully integrate new businesses into its existing
businesses, the Company's results of operations could be adversely affected.
POTENTIAL RISK OF SIGNIFICANT OPERATIONS IN FOREIGN COUNTRIES
The Company manufactures certain of its products in Germany, Canada, Mexico
and the Netherlands. In 1995, approximately 42% of the Company's net sales (or
$182.3 million) were derived from operations conducted outside the United
States. Foreign operations are subject to certain risks
11
that can materially affect the sales, profits, cash flows and financial
position of the Company, such as currency exchange rate fluctuations,
inflation and exchange controls. In particular, currency exchange rate
fluctuations may impact the revenues and gross margins of the Company's
foreign operations, as well as giving rise to unrealized gains or losses on
the conversion of U.S. dollar denominated intercompany debt to a foreign
currency. In addition, a highly inflationary economy may also give rise to
increased production costs without correspondingly increased prices,
especially if products are exported to countries with low inflation rates.
HISTORICAL LOSSES
The Company has experienced substantial net losses since 1994, principally
as a result of foreign currency transaction losses and interest charges
incurred in connection with the Chicopee Acquisition and the acquisitions of
Fabrene Inc. ("Fabrene") and Bonlam, S.A. de C.V. ("Bonlam"). These net losses
were $22.7 million and $23.6 million for the years ended December 31, 1994 and
December 30, 1995, respectively, and $11.3 million and $0.5 million for the
quarters ended April 1, 1995 and March 30, 1996, respectively.
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will largely depend on the efforts and
abilities of its executive officers and certain other key employees. The
Company's operations could be adversely affected if, for any reason, such
officers or key employees did not remain with the Company. See "Management."
RISK OF INCREASED COSTS FOR ENVIRONMENTAL COMPLIANCE
Actions by federal, state and local governments in the United States and
abroad concerning environmental matters could result in laws or regulations
that could increase the cost of producing the products manufactured by the
Company or otherwise adversely affect demand for its products. For example,
certain local governments have adopted ordinances prohibiting or restricting
the use or disposal of certain polyolefin products that are among the types of
products produced by the Company. If such prohibitions or restrictions were
widely adopted, such regulatory and environmental measures could adversely
affect demand for the Company's products and thereby have a material adverse
effect upon the Company. It is also possible that future developments in
environmental regulation could lead to material environmental compliance or
cleanup costs. See "Business--Environmental."
RISK OF CONSUMER ENVIRONMENTAL AWARENESS
A decline in consumer preference for polyolefin products due to
environmental considerations could have a material adverse effect upon the
Company.
CONTROL BY PRINCIPAL STOCKHOLDERS
Certain of the Company's principal stockholders have entered into an
agreement regarding the election of the Company's Board of Directors (the
"Board"). This agreement may render more difficult or tend to discourage
mergers, acquisitions, tender offers, proxy contests or assumptions of control
and changes of incumbent management, even when stockholders other than the
principal stockholders consider such a transaction to be in their best
interest. Accordingly, stockholders may be deprived of an opportunity to sell
their shares at a premium over the market price of the shares. See "Principal
and Selling Stockholders" and "Certain Relationships and Related
Transactions."
OTHER BUSINESS OPPORTUNITIES AND POTENTIAL CONFLICT OF INTEREST OF MANAGEMENT
Messrs. Zucker and Boyd, the senior executive officers of the Company, also
devote time to the affairs of, and may be deemed to control, a number of other
investment and operating entities,
12
including The InterTech Group, Inc. ("InterTech"). Messrs. Zucker and Boyd may
pursue other business opportunities presented to them and are currently in
discussions regarding certain other business opportunities. The time spent on
such other opportunities may be substantial. Messrs. Zucker and Boyd have
entered into an agreement granting the Company a right of first refusal to
acquire potential acquisition candidates that engage in, or plan to engage in,
the manufacture and marketing of nonwoven and woven polyolefin fabrics for
industrial and consumer applications or any other business then engaged in by
the Company. In the event that the Company was not able to take advantage of
an opportunity presented by Messrs. Zucker and Boyd, or chose not to pursue
it, Messrs. Zucker and Boyd may pursue such opportunity, which could result in
their devoting less time to the affairs of the Company. As of the date hereof,
no investments or operating entities controlled by Mr. Zucker or Mr. Boyd
compete in any markets in which the Company sells its products. See "Certain
Relationships and Related Transactions."
In addition, because the Indenture and the New Credit Facility place
restrictions on the ability of the Company to make acquisitions, it may be
possible that the Company is presented with a business opportunity that it
desires to exploit but is prohibited from taking.
CERTAIN CHARTER, BY-LAWS AND STATUTORY ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation and By-laws
to be effective upon consummation of the Offerings provide for a classified
Board, restrict the ability of stockholders to call special meetings or take
stockholder action by written consent, and contain advance notice requirements
for stockholder proposals and nominations and special voting requirements for
the amendment of the Company's Amended and Restated Certificate of
Incorporation and By-laws. These provisions could delay or hinder the removal
of incumbent directors and could discourage or make more difficult a proposed
merger, tender offer or proxy contest involving the Company or may otherwise
have an adverse effect on the market price of the Common Stock. The Company
also will be subject to provisions of Delaware corporate law that will
restrict the Company from engaging in certain business combinations with a
person who, together with affiliates and associates, owns 15% or more of the
Company's Common Stock (an "Interested Stockholder") for three years after the
person becomes an Interested Stockholder, unless certain conditions are met or
the business combination is approved by the Board and/or the Company's
stockholders in a prescribed manner. These provisions also could render more
difficult or discourage a merger, tender offer or other similar transaction.
The Board intends to adopt a resolution approving any acquisition of shares of
Common Stock by InterTech and its affiliates or by Golder, Thoma, Cressey Fund
III Limited Partnership ("GTC Fund III") and its affiliates that would
otherwise result in InterTech and its affiliates or GTC Fund III and its
affiliates becoming an Interested Stockholder. See "Description of Capital
Stock--Certain Provisions of the Amended and Restated Certificate of
Incorporation and By-laws and Statutory Provisions."
Pursuant to the Amended and Restated Certificate of Incorporation, shares of
preferred stock may be issued in the future without stockholder approval and
upon such terms and conditions, and having such rights, privileges and
preferences, as the Board may determine in the exercise of its business
judgment. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions, financings and other corporate
transactions, could have the effect of discouraging, or making more difficult,
a third party's acquisition of a majority of the Company's outstanding voting
stock. The Company has no present plans to issue any shares of preferred
stock. See "Description of Capital Stock--Preferred Stock."
ANTI-TAKEOVER EFFECT OF RIGHTS AGREEMENT
On April 15, 1996, the Board declared a dividend of one preferred share
purchase right (a "Right") for each share of Common Stock outstanding at the
close of business on June 3, 1996. A Right will
13
also be attached to each share of Common Stock subsequently issued. The Rights
will have certain anti-takeover effects. If triggered, the Rights would cause
substantial dilution to a person or group of persons (other than certain
exempt persons, which include GTC Fund III and its affiliates, InterTech and
its affiliates, Jerry Zucker and James G. Boyd) that acquires more than 15% of
the Common Stock on terms not approved by the Board. The Rights could
discourage or make more difficult a merger, tender offer or other similar
transaction. See "Description of Capital Stock--Rights Agreement."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
No prediction can be made as to the effect, if any, that future sales of
shares of Common Stock or availability of such shares for future sale will
have on the market price of the Common Stock prevailing from time to time.
Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect prevailing market prices for the
Common Stock. Upon the closing of the Offerings, 32,000,000 shares of Common
Stock will be outstanding. The shares sold in the Offerings will be freely
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"), unless such shares are acquired by
an "affiliate" of the Company as that term is defined under Rule 144 under the
Securities Act ("Rule 144"). Other than the shares of Common Stock being
offered hereby, none of the currently outstanding shares have been registered
under the Securities Act and may not be sold unless they are registered or
unless an exemption from registration, such as the exemption provided by Rule
144, is available. All of such unregistered shares would be eligible for sale
beginning on March 16, 1997, subject to certain volume and other limitations
under Rule 144 as currently in effect. The Company and its stockholders have
agreed, for a period beginning from the date of this Prospectus and continuing
to and including the date 180 days after the date of this Prospectus (the
"Lockup Period"), not to offer, sell, contract to sell or otherwise dispose
of, and the Company has agreed not to register, any shares of Common Stock or
any securities of the Company (other than the registration by the Company of
1,500,000 shares of Common Stock pursuant to its 1996 Key Employee Stock
Option Plan and the granting of options under such plan that do not vest
(except in case of death or disability) for a period that is longer than the
Lockup Period) which are substantially similar to the shares of Common Stock,
including but not limited to any securities that are convertible into or
exchangeable for, or represent the right to receive, Common Stock or any such
substantially similar securities, without the prior written consent of
Goldman, Sachs & Co., except for the shares of Common Stock offered in
connection with the Offerings. Upon the expiration of such Lockup Period, such
shares will be freely tradeable subject to the holding period, volume and
other limitations of Rule 144.
Under the Amended and Restated Registration Agreement, dated as of March 15,
1995 (the "Registration Agreement"), among the Company and the Stockholders
(as defined), the Stockholders have certain demand and piggy-back registration
rights in connection with future offerings of Common Stock, which rights may
be exercised after the expiration of the Lockup Period. The Company is
generally required to pay the expenses incurred in connection with any such
registration. The existence of the Registration Agreement and the perception
that such sales of Common Stock could occur thereunder could adversely affect
prevailing market prices for the Common Stock. See "Shares Eligible for Future
Sale--Registration Agreement."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock, and there can be no assurance given as to the liquidity of the trading
market for the Common Stock, that an active public market will develop for the
Common Stock or that the Common Stock will trade in the public market
subsequent to the Offerings at or above the initial public offering price. If
an active public market for the Common Stock does not develop, the market
price and liquidity of the Common Stock may be
14
materially adversely affected. The initial public offering price of the Common
Stock offered hereby will be determined by negotiations among the Company, the
Selling Stockholders and the Underwriters and may not be indicative of the
market price for the Common Stock after the Offerings. See "Underwriting." The
trading price of the Common Stock could be subject to wide fluctuations in
response to variations in the Company's quarterly operating results, changes
in earnings estimates by analysts, conditions in the Company's businesses or
general market or economic conditions. In addition, in recent years the stock
market has experienced extreme price and volume fluctuations. These
fluctuations have had a substantial effect on the market prices for many
emerging growth companies, often unrelated to the operating performance of the
specific companies. Such market fluctuations could have a material adverse
effect on the market price for the Common Stock.
NONRECURRING CHARGES IN CONNECTION WITH THE OFFERINGS
The Company expects to realize significant one-time charges in the second
quarter of 1996 in connection with the consummation of the Offerings,
including $15.4 million in connection with the non-cash write-off of
previously capitalized debt issuance costs and $6.125 million of cash expense
for prepayment costs paid in connection with the repurchase of a portion of
the Notes. These one-time charges are not reflected in the Pro Forma Combined
Statement of Operations Data for the year ended December 30, 1995 or the
quarter ended March 30, 1996. The market price of the Common Stock could be
negatively impacted when the Company reports these charges pursuant to the
second quarter earnings release.
15
UNAUDITED PRO FORMA FINANCIAL INFORMATION
INTRODUCTION
The unaudited pro forma financial information presents the pro forma
combined statement of operations data of the Company for the year ended
December 30, 1995 as if the Chicopee Acquisition and the Recapitalization had
occurred on January 1, 1995. The pro forma combined statement of operations
data for the year ended December 30, 1995 have been prepared by combining the
consolidated statement of operations of the Company for its fiscal year ended
December 30, 1995 (which includes Chicopee from March 16, 1995 through
December 30, 1995) with the historical financial information of Johnson &
Johnson Advanced Materials Company ("J&JAMC") and Chicopee B.V. (collectively,
"Chicopee") for the period from January 2, 1995 to March 15, 1995. The
unaudited pro forma combined statement of operations data for the three months
ended March 30, 1996 have been prepared by giving effect to the
Recapitalization as if it had occurred on December 31, 1995.
The unaudited pro forma financial information has been prepared on the basis
of assumptions described in the notes thereto. The consideration paid for
Chicopee has been allocated to the assets and liabilities of Chicopee.
The unaudited pro forma financial information does not purport to represent
what the Company's financial position and results of operations would have
been if the Chicopee Acquisition and the Recapitalization had actually been
completed as of the date indicated and are not intended to project the
Company's financial position or results of operations for any future period.
The unaudited pro forma financial information should be read in conjunction
with the respective historical financial statements of the Company and
Chicopee and the related notes thereto included elsewhere in this Prospectus.
16
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 30,
1995
The pro forma combined statement of operations data for the year ended
December 30, 1995 have been prepared by combining the consolidated statement
of operations of the Company for its fiscal year ended December 30, 1995
(which includes Chicopee from March 16, 1995 through December 30, 1995) with
the historical statement of operations of Chicopee for the period January 2,
1995 to March 15, 1995 and give effect to the pro forma adjustments as
described in the notes hereto.
[Download Table]
HISTORICAL
-------------------------
CHICOPEE
PERIOD FROM
COMPANY JANUARY 2,
YEAR ENDED 1995 THROUGH
DECEMBER 30, MARCH 15, PRO
1995 1995 ADJUSTMENTS FORMA(J)
------------ ------------ ----------- --------
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Net sales................. $437,638 $53,111 $ 2,909 (d) $493,658
Cost of goods sold........ 333,606 42,736 3,144 (e) 379,486
-------- ------- ------- --------
Gross profit.............. 104,032 10,375 (235) 114,172
Selling, general and
administrative expenses.. 61,744 6,887 (786)(d)(e) 67,845
-------- ------- ------- --------
Operating income........ 42,288 3,488 551 46,327
Interest expense.......... 37,868 -- (10,329)(f) 27,539
Foreign currency
transaction losses, net.. 22,811 158 (22,937)(g) 32
Other expenses, net....... -- 1,190 -- 1,190
Income taxes.............. 5,216 445 5,581 (h) 11,242
-------- ------- ------- --------
Income (loss) before
extraordinary item..... $(23,607) $ 1,695 $28,236 $ 6,324
========
Redeemable preferred
stock dividends and
accretion.............. (4,839) -- 4,839 (i)
-------- ------- -------
Income (loss) before
extraordinary item
applicable to common
stock.................. $(28,446) $ 1,695 $33,075
======== ======= =======
Income (loss) before
extraordinary item per
common share(a)........ $ (1.39) -- -- $ .20
Average common shares
outstanding(a)......... 20,500 -- -- 32,000
OPERATING AND OTHER DATA:
Net cash provided by
operating activities..... $ 11,556 $ 4,114 $ 5,151 $ 20,821
Net cash (used in)
investing activities..... (333,208) (4,193) -- (337,401)
Net cash provided by (used
in) financing activities. 327,636 (5,034) 5,034 327,636
EBITDA(b)................. 72,122 6,325 5,151 83,598
EBITDA margin(c).......... 16.48% 11.91% -- 16.93%
Depreciation and
amortization............. $ 29,834 $ 2,837 $ 4,600 $ 37,271
Capital expenditures...... 47,842 1,461 -- 49,303
(a) Income (loss) before extraordinary item per common share is determined by
dividing income (loss) before extraordinary item applicable to common
stock by the average number of shares outstanding during the period. In
accordance with Staff Accounting Bulletin No. 83 of the Commission, all
issuances of the Common Stock and warrants at prices below the expected
offering price during the twelve-month period preceding the planned
offering have been included as common stock equivalents for purposes of
calculating income (loss) before extraordinary item per common share as if
they had been issued at the Company's inception. The 1995 pro forma
average shares outstanding gives effect to the Offerings as if they had
occurred on January 1, 1995. As a result, the Reclassification is
considered to have occurred on such date. In addition, income (loss)
before extraordinary item per common share and average shares outstanding
reflect the approximate 19.97 to 1 stock split.
17
(b) EBITDA is defined as operating income plus depreciation, amortization and
Mexican statutory employee profit sharing and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation from or as a substitute for net income, cash flows from
operating activities and other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles
or as a measure of profitability or liquidity.
(c) EBITDA margin represents EBITDA as a percentage of sales.
(d) In 1993, the North American operation of Chicopee changed its method of
pricing among Johnson & Johnson affiliates (the "Affiliates") to a "cost-
plus" system whereby the unit selling price charged to Affiliates was
based on manufacturing cost plus an approximate mark-up of 8% to cover
other operating costs and expenses. This policy existed at the time of the
Chicopee Acquisition. Concurrently with the Chicopee Acquisition, the
Company entered into a long-term supply agreement pursuant to which it
supplies nonwoven fabric requirements to Johnson & Johnson. The products
sold by Chicopee to Johnson & Johnson, subsequent to the Chicopee
Acquisition, are at market prices; therefore, the pro forma adjustment as
presented below gives effect to the change in pricing structure between
Chicopee and Johnson & Johnson as a result of the Chicopee Acquisition. In
addition, the following pro forma adjustment gives effect to a reduction
in the historical general and administrative costs of Chicopee as a result
of the Chicopee Acquisition. Such reductions represent the elimination of
corporate and allocated costs charged by Johnson & Johnson prior to the
Chicopee Acquisition and the elimination of personnel costs for those
employees of Johnson & Johnson which were not part of the Chicopee
Acquisition.
[Download Table]
Increase in net sales as a result of a change in the pricing
structure between Chicopee and Johnson & Johnson.............. $ 2,909
=======
Reduction in historical general and administrative expenses of
Chicopee attributable to the elimination of allocated and
corporate costs charged by Johnson & Johnson and personnel
costs not assumed by the Company as part of the Chicopee
Acquisition................................................... $(2,242)
=======
(e) Represents net increase in depreciation and amortization resulting from
the application of purchase accounting and amortization of loan
acquisition cost:
[Download Table]
Increase in depreciation expense on assignment of purchase price
to fair value of property, plant and equipment.................. $3,144
======
Increase in amortization expense on assignment of purchase price
to identified intangible assets and loan acquisition cost....... $1,456
======
(f) In connection with the Offerings, the Company intends to consummate the
following transactions: (i) effectively repay outstanding indebtedness
under the 1994 Credit Facility (by rolling it into the New Credit
Facility); (ii) effectively repay outstanding indebtedness under the 1995
Credit Facility (by rolling it into the New Credit Facility); (iii) redeem
$50.0 million in aggregate principal amount of Notes at 112.25% of the
principal amount thereof plus accrued interest; and (iv) enter into a New
Credit Facility consisting of a $200.0 million term loan and a $125.0
million revolving credit facility. Therefore, the following pro forma
adjustments give effect to the transactions described above as if such
transactions occurred on January 1, 1995.
[Download Table]
Decrease in interest expense as a result of the effective
repayment of the 1994 Credit Facility.......................... $ (6,488)
Decrease in interest expense as a result of the effective
repayment of the 1995 Credit Facility.......................... (16,903)
Decrease in interest expense as a result of the redemption of
$50.0 million in aggregate principal amount of Notes........... (6,313)
--------
Total decrease in interest expense as a result of the
Offerings...................................................... (29,704)
Increase in interest expense as a result of entering into New
Credit Facility................................................ 19,375
--------
Net decrease in interest expense as a result of the Offerings... $(10,329)
========
18
(g) In connection with the Company's acquisition of Bonlam (the "Bonlam
Acquisition") on June 24, 1994, approximately $36.0 million of acquisition
debt was incurred by the Company and was allocated to Bonlam in the form
of United States dollar intercompany indebtedness. Subsequent to the
Bonlam Acquisition, the Company has invested approximately $20.0 million
in capital spending for the addition of new machinery, which has also been
allocated to Bonlam in the form of United States dollar intercompany
indebtedness. Since the functional currency of Bonlam is the nuevo peso,
Bonlam is required to remeasure its United States dollar indebtedness into
nuevo pesos, which has created net foreign currency transaction losses of
approximately $23.5 million during 1995 as a result of the nuevo peso
devaluation. Concurrently with the Recapitalization, the Company intends
to restructure the Bonlam United States dollar indebtedness, which will
effectively convert such debt into equity, thus eliminating foreign
currency transaction losses related to Bonlam's United States dollar
indebtedness from the results of operations in accordance with Statement
of Financial Accounting Standards No. 52 ("FAS No. 52"). As part of the
Recapitalization, the New Credit Facility will allow Fabrene and Chicopee
B.V. to borrow a portion of their working capital funding requirements in
local (functional) currencies, rather than borrowing such funds in United
States dollars as currently required under the 1994 Credit Facility and
the 1995 Credit Facility. The functional currencies of Fabrene and
Chicopee B.V. are the Canadian dollar and the Dutch guilder, respectively;
therefore, these entities are required to remeasure United States dollar
indebtedness into Canadian dollars and Dutch guilders. At December 30,
1995, Fabrene and Chicopee B.V. had United States dollar intercompany
indebtedness of $47.8 million and $85.7 million, respectively. For the
three months ended March 30, 1996, Fabrene and Chicopee B.V. incurred net
foreign currency transaction gains/(losses) of $1.2 million and $(1.1)
million, respectively, related primarily to United States dollar
intercompany indebtedness. Since the New Credit Facility will allow
Fabrene and Chicopee B.V. to borrow a portion of their working capital
requirements in local (functional) currencies, a portion of the Company's
net foreign currency transaction gains and losses related to this
indebtedness will also be reduced in accordance with FAS No. 52.
The following pro forma adjustments give effect to the restructuring of the
Bonlam intercompany indebtedness and to the provisions under the New Credit
Facility which allow Fabrene and Chicopee B.V. to borrow a portion of their
working capital funding requirements in local (functional) currency as if
the Recapitalization had occurred on January 1, 1995:
[Download Table]
Reduction of foreign currency transaction losses as a result of
the restructuring of the Bonlam United States dollar
indebtedness................................................... $(23,544)
Reduction of foreign currency transaction losses giving effect
to the provisions under the New Credit Facility which allows
Chicopee B.V. to borrow a portion of their working capital
funding requirements in Dutch guilders......................... (455)
Reduction of foreign currency transaction gains giving effect to
the provisions under the New Credit Facility which allows
Fabrene to borrow a portion of their working capital funding
requirements in Canadian dollars............................... 1,062
--------
Net decrease in foreign currency transaction losses............. $(22,937)
========
(h) Represents estimated tax effect associated with pro forma
adjustments...................................................... $ 5,581
========
(i) Represents elimination of mandatory redeemable preferred stock of
subsidiary and discount accretion--as a result of the Offerings.. $ (4,839)
========
(j) The Company expects to realize significant one-time charges in the second
quarter of 1996 in connection with the consummation of the Offerings,
including approximately $15.4 million in connection with the non-cash
write-off of previously capitalized debt issuance costs and
19
approximately $6.1 million of cash expense for prepayment costs paid in
connection with the repurchase of a portion of the Notes. These one-time
charges are not reflected in the pro forma combined statement of
operations.
PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH
30, 1996
The pro forma combined statement of operations data for the three months
ended March 30, 1996 have been prepared by giving effect to the pro forma
adjustments as described in the notes hereto.
[Download Table]
THREE MONTHS
ENDED
MARCH 30, 1996
--------------
PRO
HISTORICAL ADJUSTMENTS FORMA(H)
-------------- ----------- --------
(DOLLARS AND SHARE AMOUNTS IN
THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales............................... $122,715 $ -- $122,715
Cost of goods sold...................... 93,320 -- 93,320
-------- ------- --------
Gross profit............................ 29,395 -- 29,395
Selling, general and administrative
expenses............................... 18,111 18,111
-------- ------- --------
Operating income...................... 11,284 -- 11,284
Interest expense........................ 10,579 (3,171)(d) 7,408
Foreign currency transaction losses,
net.................................... 1,332 875 (e) 2,207
Income taxes (benefit).................. (144) 945 (f) 801
-------- ------- --------
Income (loss) before extraordinary
item................................. $ (483) $ 1,351 $ 868
========
Redeemable preferred stock dividends
and accretion........................ (2,104) 2,104 (g)
-------- -------
Income (loss) before extraordinary
item applicable to common stock...... $ (2,587) $ 3,455
======== =======
Income (loss) before extraordinary
item per common share(a)............. $ (0.13) -- $ 0.03
Average common shares outstanding(a).. 20,500 -- 32,000
OPERATING AND OTHER DATA:
Net cash provided by (used in) operating
activities............................. (3,132) 1,351 (1,781)
Net cash (used in) investing activities. (8,221) -- (8,221)
Net cash provided by financing
activities............................. 14,466 -- 14,466
EBITDA(b)............................... 20,555 -- 20,555
EBITDA margin(c)........................ 16.75% -- 16.75%
Depreciation and amortization........... 9,271 -- 9,271
Capital expenditures.................... 5,905 -- 5,905
(a) Income (loss) before extraordinary item per common share is determined by
dividing income (loss) before extraordinary item applicable to common
stock by the average number of shares outstanding during the period. In
accordance with Staff Accounting Bulletin No. 83 of the Commission, all
issuances of the Common Stock and warrants at prices below the expected
offering price during the twelve-month period preceding the planned
offering have been included as common stock equivalents for purposes of
calculating income (loss) before extraordinary item per common share as if
they had been issued at the Company's inception. The 1996 pro forma
average shares outstanding gives effect to the Offerings as if they had
occurred on December 31, 1995. As a result, the Reclassification is
considered to have occurred on such date. In addition, income (loss)
before extraordinary item per common share and average shares outstanding
reflect the approximate 19.97 to 1 stock split.
20
(b) EBITDA is defined as operating income plus depreciation, amortization and
Mexican statutory employee profit sharing and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation from or as a substitute for net income, cash flows from
operating activities and other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles
or as a measure of profitability or liquidity.
(c) EBITDA margin represents EBITDA as a percentage of sales.
(d) In connection with the Offerings, the Company intends to consummate the
following transactions: (i) effectively repay outstanding indebtedness
under the 1994 Credit Facility (by rolling it into the New Credit
Facility); (ii) effectively repay outstanding indebtedness under the 1995
Credit Facility (by rolling it into the New Credit Facility); (iii) redeem
$50.0 million in aggregate principal amount of Notes at 112.25% of the
principal amount thereof plus accrued interest; and (iv) enter into a New
Credit Facility consisting of a $200.0 million term loan and a $125.0
million revolving credit facility. Therefore, the following pro forma
adjustments give effect to the transactions described above as if such
transactions occurred on December 31, 1995.
[Download Table]
Decrease in interest expense as a result of the effective
repayment of the 1994 Credit Facility........................... $(1,478)
Decrease in interest expense as a result of the effective
repayment of the 1995 Credit Facility........................... (4,784)
Decrease in interest expense as a result of the redemption of
$50.0 million in aggregate principal amount of Notes............ (1,531)
-------
Total decrease in interest expense as a result of the
Offerings....................................................... (7,793)
Increase in interest expense as a result of entering into New
Credit Facility................................................. 4,622
-------
Net decrease in interest expense as a result of the Offerings.... $(3,171)
=======
(e) In connection with the Company's acquisition of Bonlam (the "Bonlam
Acquisition") on June 24, 1994, approximately $36.0 million of acquisition
debt was incurred by the Company and was allocated to Bonlam in the form
of United States dollar intercompany indebtedness. Subsequent to the
Bonlam Acquisition, the Company has invested approximately $20.0 million
in capital spending for the addition of new machinery, which has also been
allocated to Bonlam in the form of United States dollar intercompany
indebtedness. Since the functional currency of Bonlam is the nuevo peso,
Bonlam is required to remeasure its United States dollar indebtedness into
nuevo pesos, which has created net foreign currency transaction gains of
approximately $1.9 million during the three months ended March 30, 1996.
Concurrently with the Recapitalization, the Company intends to restructure
the Bonlam United States dollar indebtedness, which will effectively
convert such debt into equity, thus eliminating foreign currency
transaction gains and losses related to Bonlam's United States dollar
indebtedness from the results of operations in accordance with FAS No. 52.
As part of the Recapitalization, the New Credit Facility will allow
Fabrene and Chicopee B.V. to borrow a portion of their working capital
funding requirements in local (functional) currencies, rather than
borrowing such funds in United States dollars as currently required under
the 1994 Credit Facility and the 1995 Credit Facility. The functional
currencies of Fabrene and Chicopee B.V. are the Canadian dollar and the
Dutch guilder, respectively; therefore, these entities are required to
remeasure United States dollar indebtedness into Canadian dollars and
Dutch guilders. At March 30, 1996, Fabrene and Chicopee B.V. had United
States dollar intercompany indebtedness of $49.1 million and $82.7
million, respectively. For the three months ended March 30, 1996, Fabrene
and Chicopee B.V. incurred net foreign currency transaction gains/(losses)
of $0.2 million and $(2.4) million, respectively, related primarily to
United States dollar intercompany indebtedness. Since the New Credit
Facility will allow Fabrene and Chicopee B.V. to borrow a portion of their
working capital requirements in local (functional) currencies, a portion
of the Company's net foreign currency transaction gains and losses related
to this indebtedness will also be reduced in accordance with FAS No. 52.
21
The following pro forma adjustments give effect to the restructuring of the
Bonlam intercompany indebtedness and to the provisions under the New Credit
Facility which allow Fabrene and Chicopee B.V. to borrow a portion of their
working capital funding requirements in local (functional) currency as if
the Recapitalization had occurred on December 31, 1995:
[Download Table]
Reduction of foreign currency transaction gains as a result of the
restructuring of the Bonlam United States dollar indebtedness.... $ 1,904
Reduction of foreign currency transaction losses giving effect to
the provisions under the New Credit Facility which allows
Chicopee B.V. to borrow a portion of its working capital funding
requirements in Dutch guilders................................... (1,124)
Reduction of foreign currency transaction gains giving effect to
the provisions under the New Credit Facility which allow Fabrene
to borrow a portion of its working capital funding requirements
in Canadian dollars.............................................. 95
-------
Net increase in foreign currency transaction losses........... $ 875
=======
(f) Represents estimated tax effect associated with pro forma
adjustments........................................................ $ 945
=======
(g) Represents elimination of Redeemable Preferred Stock (as defined)--
as a result of the Offerings....................................... $(2,104)
=======
(h) The Company expects to realize significant one-time charges in the second
quarter of 1996 in connection with the consummation of the Offerings,
including approximately $15.4 million in connection with the non-cash
write-off of previously capitalized debt issuance costs and approximately
$6.1 million of cash expense for prepayment costs paid in connection with
the repurchase of a portion of the Notes. These one-time charges are not
reflected in the pro forma combined statement of operations.
22
SELECTED CONSOLIDATED FINANCIAL DATA
THE COMPANY--HISTORICAL
The Company was organized on June 16, 1994 and, effective June 24, 1994,
acquired PGI in a transaction considered to be between entities under common
control and accounted for at historical cost in a manner similar to a pooling
of interests. The following table sets forth certain historical financial
information of the Company, PGI and the Predecessor (as defined). The
statement of operations data for the ten-week period ended January 2, 1993,
each of the three years in the period ended December 30, 1995 and the balance
sheet data as of January 2, 1993, January 1, 1994, December 31, 1994 and
December 30, 1995 have been derived from audited financial statements. The
statement of operations data for the forty-two-week period ended October 22,
1992 were derived from the audited statement of revenues and expenses before
corporate interest and income taxes of the Predecessor. The Company's
statement of operations data for the year ended December 30, 1995 include the
results of Chicopee for the period March 16, 1995 to December 30, 1995. The
statement of operations data for the year ended December 28, 1991 were derived
from the unaudited statement of revenues and expenses before corporate
interest and income taxes of the Predecessor. The data as of and for the three
months ended April 1, 1995 and March 30, 1996 have been derived from the
consolidated unaudited interim financial statements and include, in the
opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary to fairly present the data for such periods. The table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the financial statements of
the Company and related notes thereto and other financial information included
elsewhere in this Prospectus.
[Enlarge/Download Table]
THE PREDECESSOR(A) COMPANY COMBINED(B) COMPANY
------------------------ ---------- ----------- --------------------------------------------------------
FORTY-TWO- TEN-WEEK THREE MONTHS
WEEK PERIOD PERIOD YEAR ENDED ENDED
YEAR ENDED ENDED ENDED ------------------------------------------------ -------------------
DECEMBER 28, OCTOBER 22, JANUARY 2, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1991 1992 1993 1993 1994 1994 1995 1995 1996
------------ ----------- ---------- ----------- ---------- ------------ ------------ -------- ---------
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
STATEMENT OF
OPERATIONS DATA:
Net sales........ $129,548 $99,119 $22,081 $121,200 $121,473 $165,333 $437,638 $ 66,012 $122,715
Cost of goods
sold............ 112,898 84,393 18,587 102,980 97,291 129,071 333,606 50,013 93,320
-------- ------- ------- -------- -------- -------- -------- -------- --------
Gross profit.... 16,650 14,726 3,494 18,220 24,182 36,262 104,032 15,999 29,395
Selling, general
and
administrative
expenses........ 6,466 5,753 2,291 8,044 13,022 20,699 61,744 8,242 18,111
-------- ------- ------- -------- -------- -------- -------- -------- --------
Operating
income......... 10,184 8,973 1,203 10,176 11,160 15,563 42,288 7,757 11,284
Interest
expense(c)...... -- -- 915 -- 4,387 13,216 37,868 6,530 10,579
Foreign currency
transaction
losses, net..... -- -- 1,016 -- 1,310 17,055 22,811 10,815 1,332
Other (income)
expense, net.... -- -- (113) -- 53 277 --
Income taxes(c).. -- -- 11 -- 1,970 3,353 5,216 1,716 (144)
-------- ------- ------- -------- -------- -------- -------- -------- --------
Income (loss)
before
extraordinary
item........... -- -- (626) -- 3,440 (18,338) (23,607) (11,304) (483)
Extraordinary
item, (loss)
from
extinguishment
of debt net of
income taxes of
$1,846.......... -- -- -- -- -- (4,372) -- -- --
-------- ------- ------- -------- -------- -------- -------- -------- --------
Net income
(loss).......... -- -- (626) -- 3,440 (22,710) (23,607) (11,304) (483)
Redeemable
preferred stock
dividends and
accretion....... -- -- -- -- (2,480) (1,209) (4,839) (200) (2,104)
-------- ------- ------- -------- -------- -------- -------- -------- --------
Net income (loss)
applicable to
common stock.... $ -- $ -- $ (626) $ -- $ 960 $(23,919) $(28,446) $(11,504) $ (2,587)
======== ======= ======= ======== ======== ======== ======== ======== ========
Income (loss)
before
extraordinary
item per common
share(d)........ $ -- $ -- $ -- $ -- $ .05 $ (.95) $ (1.39) $ (0.56) $ (0.13)
======== ======= ======= ======== ======== ======== ======== ======== ========
Average common
shares
outstanding(d).. -- -- -- -- 20,500 20,500 20,500 20,500 20,500
======== ======= ======= ======== ======== ======== ======== ======== ========
OPERATING AND
OTHER DATA:
Net cash provided
by (used in)
operating
activities...... $ -- $ -- $(5,561) $ -- $ 6,888 $ 17,386 $ 11,556 (5,527) (3,132)
Net cash (used
in) investing
activities...... -- -- (72,699) -- (6,958) (61,375) (333,208) (286,729) (8,221)
Net cash provided
by (used in)
financing
activities...... -- -- 83,602 -- (1,038) 58,482 327,636 292,500 14,466
EBITDA(e)........ 16,684 12,973 2,087 15,060 16,115 23,864 72,122 11,606 20,555
EBITDA margin(f). 12.88% 13.09% 9.45% 12.43% 13.27% 14.43% 16.48% 17.58% 16.75%
Depreciation and
amortization.... $ 6,500 $ 4,000 $ 884 $ 4,884 $ 4,955 $ 8,348 $ 29,834 3,849 9,271
Mexican statutory
employee profit
sharing(g)...... -- -- -- -- -- (47) -- -- --
Capital
expenditures.... 6,571 1,093 1,364 2,457 6,505 11,341 47,842 5,371 5,905
(table continued on following page)
23
[Enlarge/Download Table]
THE PREDECESSOR(A) COMPANY COMBINED(B) COMPANY
------------------------ ---------- ----------- -------------------------------------------------------
FORTY-TWO- TEN-WEEK THREE MONTHS
WEEK PERIOD PERIOD YEAR ENDED ENDED
YEAR ENDED ENDED ENDED ------------------------------------------------ ------------------
DECEMBER 28, OCTOBER 22, JANUARY 2, JANUARY 4, JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1991 1992 1993 1993 1994 1994 1995 1995 1996
------------ ----------- ---------- ----------- ---------- ------------ ------------ -------- ---------
(DOLLARS AND SHARE AMOUNTS IN THOUSANDS)
BALANCE SHEET
DATA (AT END OF
PERIOD):
Working capital
(deficit)...... $ -- $ -- $ 1,774 $ 1,774 $ (5,786) $ 31,060 $ 61,558 $ 41,928 $ 78,572
Total assets.... -- -- 98,925 98,925 102,861 234,942 624,725 572,226 628,627
Total debt...... -- -- 58,600 58,600 57,562 190,814 450,878 412,691 455,550
Redeemable
preferred
stock,
dividends and
accretion...... -- -- 29,123 29,123 31,603 -- 44,339 39,700 56,443
Shareholders'
equity
(deficit)...... -- -- (1,267) (1,267) (592) 2,220 13,562 26,354 9,647
-------
(a) Information regarding the Predecessor is for the Scott Nonwovens Products
Division prior to the Scott Acquisition (as defined).
(b) Audited operating data of the Predecessor for the period December 29, 1991
to October 22, 1992 have been combined for presentation purposes with the
audited data of PGI for the ten-week period ended January 2, 1993.
(c) The Predecessor was accounted for as a separate division that had no
interest expense or income taxes allocated to it.
(d) Income (loss) before extraordinary item per common share is determined by
dividing income (loss) before extraordinary item applicable to common
stock by the average number of shares outstanding during the period. In
accordance with Staff Accounting Bulletin No. 83 of the Commission, all
issuances of the Common Stock and warrants at prices below the expected
offering price during the twelve-month period preceding the planned
offering have been included as common stock equivalents for purposes of
calculating income (loss) before extraordinary item per common share as if
they had been issued at the Company's inception. As a result, the
Reclassification is considered to have occurred on such date. In addition,
income (loss) before extraordinary item per common share and average
shares outstanding reflect the approximate 19.97 to 1 stock split.
(e) EBITDA is defined as operating income plus depreciation, amortization and
Mexican statutory employee profit sharing and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation from or as a substitute for net income, cash flows from
operating activities and other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles
or as a measure of profitability or liquidity.
(f) EBITDA margin represents EBITDA as a percentage of sales.
(g) In accordance with Mexican law, the Company's Mexican subsidiary is
required to share with employees 10% of its pre-tax profits.
24
CHICOPEE--HISTORICAL
The following table sets forth certain historical financial information of
Chicopee. The statement of operations data for each of the two years in the
period ended January 1, 1995 have been derived from the audited combined
financial statements of Chicopee. The statement of operations data for the
period from January 2, 1995 through March 15, 1995 were derived from unaudited
combined financial statements of Chicopee. The table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the financial statements of Chicopee and related
notes thereto and other related financial information included elsewhere in
this Prospectus.
[Download Table]
PERIOD FROM
JANUARY 2, 1995
YEAR ENDED YEAR ENDED THROUGH
JANUARY 2, JANUARY 1, MARCH 15,
1994 1995 1995
---------- ---------- ---------------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Net sales:
Trade............................... $129,666 $122,034 $22,600
Affiliate........................... 115,798 118,484 30,511
-------- -------- -------
245,464 240,518 53,111
Cost of goods sold.................... 189,307 187,078 42,736
-------- -------- -------
Gross profit........................ 56,157 53,440 10,375
Selling, general and administrative
expenses............................. 46,788 46,633 6,887
-------- -------- -------
Operating income.................... 9,369 6,807 3,488
Other (expense) income, net........... 3,450 799 (1,348)
Income taxes.......................... 2,440 2,493 445
-------- -------- -------
Net income.......................... $ 10,379 $ 5,113 $ 1,695
======== ======== =======
OPERATING AND OTHER DATA:
Net cash provided by operating
activities........................... $ 16,766 $21,121 $ 4,114
Net cash (used in) investing
activities........................... (16,672) (12,602) (4,193)
Net cash (used in) financing
activities........................... (7,028) (1,287) (5,034)
EBITDA(a)............................. 23,801 21,369 6,325
EBITDA margin(b)...................... 9.70% 8.88% 11.91%
Depreciation and amortization......... $ 14,432 $ 14,562 $ 2,837
Capital expenditures.................. 14,462 15,258 1,461
--------
(a) EBITDA is defined as operating income plus depreciation and amortization
and is presented because it is generally accepted as providing useful
information regarding a company's ability to service and/or incur debt.
EBITDA should not be considered in isolation from or as a substitute for
net income, cash flows from operating activities and other consolidated
income or cash flow statement data prepared in accordance with generally
accepted accounting principles or as a measure of profitability or
liquidity.
(b) EBITDA margin represents EBITDA as a percentage of sales.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company's net sales in recent years have been affected by a variety of
factors, including generally increased sales volume as a result of growing
demand for the Company's products and increased average prices for the
Company's products due to increasing raw material prices, partially offset by
increased competition for many of the Company's mature product lines. Since
1991, the Company's sales volume has increased primarily as a result of
acquisitions and growth in sales of consumer disposable products that
incorporate the Company's products.
Prior to the second quarter of 1994, the Company's primary raw material,
polypropylene fiber, had reached its lowest price level in the past seven
years, which had been a major factor in the reduction of average selling
prices for the Company's products. During the next two quarters of 1994, the
cost of the Company's key raw materials increased sharply. The Company was
able to pass on the majority of this increase to its customers by the end of
the second quarter of 1995. The sharp increase was primarily due to short-term
interruptions in production capacity and increased demand as a result of an
expanding economy. By mid-1995, raw material supplies had increased, thereby
reducing the Company's key raw material prices.
In addition, increased competition in several of the Company's markets has
resulted in competitive allowances by the Company to maintain its existing
market shares, effectively reducing average selling prices and correspondingly
decreasing net sales. Despite the decline in average prices over the last
year, the Company has increased its gross margins primarily due to decreases
in operating expenses and raw material costs and improvements in manufacturing
efficiencies and material utilization. The Company has reduced operating
expenses primarily by increasing the efficiency of its workforce and by
process engineering developments, in turn allowing the Company to increase its
production line speeds. In addition, with the acquisition of Chicopee, the
Company began selling wipes products, which have generally produced higher
gross margins relative to the Company's other products.
The Company manufactures certain of its products in Germany, Canada, Mexico
and the Netherlands. The Company accounts for and reports translation of
foreign currency transactions and foreign currency financial statements in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation." The foreign entities use the local currency as the
functional currency and translate assets and liabilities at period-end
exchange rates and income and expense accounts at the average exchange rates
during the period. If foreign currency denominated revenues are greater than
costs, the translation of foreign currency denominated costs and revenues into
U.S. dollars will improve profitability when the foreign currency strengthens
against the U.S. dollar and will reduce profitability when the foreign
currency weakens. The non-cash adjustment resulting from translation of
financial statements is recorded in a separate component of shareholder's
equity. Prior to the translation of financial statements, the foreign entities
adjust assets and liabilities which are to be settled in a currency other than
the functional currency to the functional currency using period-end exchange
rates. Approximately 92% and 97%, or $17.3 million and $23.5 million, of the
Company's Mexican-related net foreign currency transaction losses during 1994
and 1995, respectively, resulted from its United States dollar denominated
intercompany indebtedness. This indebtedness represents an intercompany loan
to finance Bonlam's operations. The resulting adjustment for the remeasurement
of assets and liabilities that are to be settled in a currency other than the
functional currency is included in the determination of net income.
The Company's substantial foreign operations expose it to the risk of
exchange rate fluctuations. For example, because the Company's Mexican
operations generally generate positive net cash flow, which is denominated in
pesos, a decline in the value of the peso relative to the dollar would
adversely affect the Company's reported sales and earnings. In addition, the
restatement of foreign currency
26
denominated assets and liabilities into U.S. dollars gives rise to unrealized
foreign exchange gains or losses which are recorded in the statement of
operations. The Company does not currently participate in hedging transactions
related to foreign currency.
The financial data for the year ended December 30, 1995 include the results
of Chicopee for the period March 16, 1995 to December 30, 1995.
THE COMPANY
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships to net sales of
certain income statement items. See "Selected Consolidated Financial Data" and
"Unaudited Pro Forma Financial Information," as well as the financial
statements of the Company and the related notes thereto and other financial
information included elsewhere in the Prospectus.
[Download Table]
YEAR ENDED THREE MONTHS ENDED
------------------------------------ -------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1994 1994 1995 1995 1996
---------- ------------ ------------ -------- ---------
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0%
Raw material costs.... 57.7 52.3 48.8 50.1 46.7
Labor costs........... 6.0 7.5 7.5 6.4 7.3
Overhead costs........ 16.4 18.3 19.9 19.3 22.0
----- ----- ----- ----- -----
Total cost of goods
sold................... 80.1 78.1 76.2 75.8 76.0
----- ----- ----- ----- -----
Gross profit.......... 19.9 21.9 23.8 24.2 24.0
Selling, general and
administrative
expenses............... 10.7 12.5 14.1 12.5 14.8
----- ----- ----- ----- -----
Operating income...... 9.2 9.4 9.7 11.7 9.2
Interest expense........ 3.6 8.0 8.7 9.9 8.6
Foreign currency
transaction losses,
net.................... 1.1 10.3 5.2 16.4 1.1
Other expense, net...... -- 0.2 -- -- --
----- ----- ----- ----- -----
Income (loss) before
income tax and
extraordinary item..... 4.5 (9.1) (4.2) (14.6) (.5)
Income taxes (benefit).. 1.6 2.0 1.2 2.5 (.1)
----- ----- ----- ----- -----
Income (loss) before
extraordinary item... 2.9 (11.1) (5.4) (17.1) (.4)
Extraordinary item--loss
from extinguishment of
debt, net of income
taxes.................. -- 2.6 -- -- --
----- ----- ----- ----- -----
Net income (loss)....... 2.9% (13.7)% (5.4)% (17.1)% (.4)%
===== ===== ===== ===== =====
The following table sets forth the pro forma net sales for the Company for
the year ended December 30, 1995 as if the Chicopee Acquisition had occurred
on January 1, 1995.
1995 PRO FORMA NET SALES
[Download Table]
Industrial and Specialty Products.... 21%
Wiping Products...................... 18%
Medical Products..................... 17%
Hygiene Products..................... 44%
COMPARISON OF QUARTER ENDED MARCH 30, 1996 AND APRIL 1, 1995
NET SALES
Consolidated net sales increased $56.7 million, or 85.9%, from $66.0 million
in the first quarter of 1995 to $122.7 million in the first quarter of 1996,
primarily due to the Chicopee Acquisition, which
27
resulted in the inclusion of a full quarter of Chicopee net sales in 1996,
compared to Chicopee net sales for 15 days in the 1995 quarter. Chicopee
contributed $73.1 million in net sales in the first quarter of 1996 versus
$14.3 million in the first quarter of 1995.
Several unusual factors are reflected in the first quarter results and the
year-over-year comparison. First, the first quarter of 1995 reflected
unusually high shipment volumes, which were later offset by lower shipment
volumes in the second quarter of 1995. This shipment pattern resulted in a
difficult comparison with the first quarter of 1996, which reflected a more
typical shipment pattern for the Company. Second, the anticipated introduction
of cloth-like diaper backsheet by the industry has shifted from Spring to Fall
1996, resulting in lower-than-expected volumes for this product in the first
quarter. Finally, the unusually severe winter weather and the strike at
General Motors Corporation adversely affected industrial packaging and
construction-related product sales.
Net sales of Chicopee increased from the first quarter of 1995 to the first
quarter of 1996, primarily as a result of increased volume for the Company's
medical and wiping products in the United States and Canada, offset by
fluctuations in the exchange rate for the Dutch guilder.
GROSS PROFIT
Gross profit as a percentage of net sales was 24.0% in the first quarter of
1996 as compared to 24.2% in the first quarter of 1995, primarily as a result
of diversification in the product mix from the acquired businesses and the
integration of the two most recent acquisitions, Chicopee and Bonlam, which is
expected to be completed in 1997. While improving during the transition,
margins in these businesses are being held back in the near term, as expected,
by actions to rationalize production between these and the Company's other
plants. Gross profit increased by $13.4 million, from $16.0 million in the
first quarter of 1995 to $29.4 million in the first quarter of 1996, primarily
due to the Chicopee Acquisition and increased production in Mexico. Raw
material expenses decreased from 50.1% of net sales in the first quarter of
1995 to 46.7% of net sales in the first quarter of 1996, reflecting a mix of
less expensive raw materials associated with Chicopee and a reduction in
material usage. Labor expenses were 7.3% of sales in the first quarter, up
from the previous year's first quarter of 6.4%, due to the mix of wiping and
medical products from the acquired business. Overhead expenses increased from
19.3% of net sales in the first quarter of 1995 to 22.0% of net sales in the
first quarter of 1996 as a result of higher depreciation on completed capital
expenditures and the higher transitional overhead expenses of Chicopee.
The Company's margins in the first quarter of 1996 for hygiene products
improved as a result of improved product mix which included a higher
percentage of value-added products, such as leg cuff fabric and Reticulon(R)
facings for feminine hygiene protection products. The redirection of products
to the Mexico facility in the first quarter of 1996 yielded an average
production cost savings of approximately 40% for such products, resulting from
design and technology advancements implemented by the Company's engineers.
Offsetting these positive factors in the first quarter of 1996 was the effect
of lower volume in industrial and specialty products (as discussed above). The
recently improved building material markets should improve demand for
industrial and specialty products in the second quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $9.9 million from
$8.2 million in the first quarter of 1995 to $18.1 million in the first
quarter of 1996 primarily as a result of the acquired business. Additionally,
the Company has increased its sales and marketing capacity to support the
development of its new products and expansion into new geographic markets. As
a result, selling expenses as a percentage of net sales increased from 2.6% in
the first quarter of 1995 to 3.8% in the first quarter of 1996. The inclusion
of the wipes product line acquired with Chicopee also increased sales expense
as a percentage of sales due to the higher cost of promotion and distribution
associated with this product category.
28
OTHER EXPENSES
Interest expense increased $4.1 million from $6.5 million in the first
quarter of 1995 to $10.6 million in the first quarter of 1996. Interest
expense as a percentage of net sales decreased from 9.9% in the first quarter
of 1995 to 8.6% in the first quarter of 1996. The increase in interest expense
is principally due to a higher average amount of indebtedness outstanding in
the first quarter of 1996 resulting from the Chicopee Acquisition.
Net foreign currency transaction losses were $1.3 million, or 1.1% of sales,
in the first quarter 1996 as compared with the previous year's first quarter
net foreign currency transaction loss of $10.8 million, or 16.4% of sales. The
Company's Mexico operation incurred net foreign currency transaction gains of
$1.9 million, offset by its European operations, which recorded a $3.2 million
net foreign currency transaction loss. These gains and losses principally have
no cash impact and occur upon the remeasurement of U.S. dollar denominated
intercompany indebtedness applicable to the Company's foreign operations. The
Recapitalization will eliminate the majority of the intercompany debt,
effectively reducing the Company's exposure to net foreign currency
transaction gains or losses.
NET INCOME (LOSS)
Net loss (excluding cumulative dividends on redeemable preferred stock)
improved by $10.8 million, from a net loss of $11.3 million in the first
quarter of 1995 to a net loss of $0.5 million in the first quarter of 1996,
primarily as a result of a decrease in net foreign currency transaction
losses, offset by an increase in interest expense of $4.1 million due to a
higher average amount of indebtedness outstanding in the first quarter of 1996
resulting from the Chicopee Acquisition. Increasing the Company's net loss in
the first quarter of 1995 was a high effective tax rate resulting from foreign
losses, which did not give rise to a corresponding tax benefit. Net loss was
decreased during the first quarter of 1996 as a result of increased gross
profit of $13.4 million, attributable primarily to the Chicopee Acquisition.
COMPARISON OF YEAR ENDED DECEMBER 30, 1995 AND DECEMBER 31, 1994
NET SALES
Consolidated net sales increased $272.3 million, from $165.3 million in 1994
to $437.6 million in 1995, primarily as a result of the inclusion of Chicopee
for the period from March 16, 1995 to December 30, 1995 and, to a lesser
extent, from the inclusion of a full year of Fabrene and Bonlam net sales in
1995. For the period from March 16, 1995 to December 30, 1995, Chicopee's net
sales were $225.6 million.
Net sales of Chicopee increased from 1994 to 1995, primarily as a result of
the following factors: (i) volume growth due to the addition of a new line of
disposable baby wipes for the European market; (ii) a fluctuation in the
exchange rate for the Dutch guilder from 1.81 guilders to $1 US in 1994 to 1.6
guilders to $1 US in 1995, and (iii) incremental sales to the Canadian market
for wiping products and medical products. Net sales for Fabrene and Bonlam
increased $38.1 million, from $39.8 million in 1994 to $77.9 million in 1995.
Of this increase, $30.6 million was attributable to the inclusion of a full
year of net sales. The remaining $7.5 million increase in sales for Fabrene
and Bonlam represented organic volume growth, a 10.6% increase over the prior
year. The remaining $8.6 million increase in net sales was attributable to
organic growth in the rest of the Company's business, a 6.8% increase over the
prior year.
Of the $16.1 million overall increase in net sales not resulting from the
acquisition of Chicopee and the inclusion of a full year of Fabrene and
Bonlam, 53.4% was attributable to price increases in the Company's hygiene
products, which resulted from higher raw material costs and the addition of
higher
29
value end-use products, such as the hydrophobic backsheet fabric sold to
Procter & Gamble, into the product mix. The remaining 46.6% resulted from
volume increases, including increases in woven product volumes and SMS hygiene
product volumes of 9.5% and 13.4%, respectively. This volume growth was due to
the recently completed spunbond capacity expansion in the Company's Mexican
facility and the woven capacity addition in North Bay, Canada.
GROSS PROFIT
Gross profit as a percentage of net sales increased from 21.9% in 1994 to
23.8% in 1995, primarily as a result of favorable diversification in the
product mix from the acquired businesses and, to a lesser extent, cost
reduction programs and decreases in raw material prices. In particular, the
addition of the wipes product category to the Company's business produced a
favorable impact on gross margins. Gross profit increased by $67.7 million,
from $36.3 million in 1994 to $104.0 million in 1995, primarily due to the
Chicopee Acquisition and the effect of a full year of Fabrene and Bonlam. Raw
materials expenses decreased from 52.3% of net sales in 1994 to 48.8% of net
sales in 1995, reflecting a mix of less expensive raw materials associated
with Chicopee. Labor expenses remained constant at 7.5%. Overhead expenses
increased from 18.3% of net sales in 1994 to 19.9% of net sales in 1995 as a
result of higher depreciation on completed capital expenditures and the higher
overhead expenses of Chicopee.
The Company's gross profit not attributable to the inclusion of Chicopee and
a full year of Fabrene and Bonlam was relatively flat from 1994 to 1995 as a
result of the following factors: (i) one-time, transitional start-up expenses
associated with the integration of the acquired businesses, (ii) highly
competitive pricing by diaper producers as Procter & Gamble attempted to
increase market share, leading to pricing competition among rollgoods
producers, (iii) six months of excess supply and soft pricing of spunbond
products as Kimberly-Clark Inc. temporarily supplied the spot market with
spunbond products prior to its internal use of such products for clothlike
backsheet, and (iv) capacity limitations at the North Bay, Ontario wovens
facility, which prevented incremental volume growth until capacity was added.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $41.0 million from
$20.7 million in 1994 to $61.7 million in 1995, due to the acquisition of
Chicopee and the inclusion of a full year of operating expenses of Fabrene and
Bonlam. Selling, general and administrative expenses as a percentage of net
sales increased from 12.5% in 1994 to 14.1% in 1995, primarily as a result of
the acquisition of a branded wipes business as part of the Chicopee
Acquisition, which business requires greater selling and distribution expenses
than the Company's other businesses. General and administrative expenses
increased $18.2 million from 1994 to 1995 as a result of the Chicopee
Acquisition, although general and administrative expenses as a percentage of
net sales remained constant at 6.6%.
OTHER EXPENSES
Interest expense increased $24.7 million from $13.2 million in 1994 to $37.9
million in 1995. Interest expense as a percentage of net sales increased from
8.0% in 1994 to 8.7% in 1995. These increases are principally due to a higher
average amount of indebtedness outstanding in 1995 resulting from the Chicopee
Acquisition.
Net foreign currency transaction losses were $17.1 million (10.3% of net
sales) in 1994 and $22.8 million (5.2% of net sales) in 1995. The Company's
Canadian and European operations collectively incurred net foreign currency
transaction gains of $1.6 million which were offset by net foreign currency
transaction losses of $24.4 million within the Company's Mexican operation.
During the fourth quarter of 1994, the Mexican government discontinued
monetary support for the nuevo peso allowing it to float
30
to market rates, which caused the nuevo peso to devalue by approximately 124%
between December 20, 1994 and December 30, 1995. Approximately 97% ($23.5
million) of the Company's Mexican-related net foreign currency transaction
losses during 1995 resulted from its United States dollar denominated
intercompany indebtedness.
Increasing the Company's net loss in 1995 was a high effective income tax
rate resulting from foreign losses, which did not give rise to a corresponding
tax benefit. In accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes," a valuation allowance of $11.8 million
has been recognized at December 30, 1995 ($10.2 million at December 31, 1994)
to offset deferred tax assets due to the uncertainty of realizing the benefit
of foreign net operating and capital loss carryforwards of approximately $9.7
million. Deferred tax liabilities of approximately $47.6 million relating
primarily to the basis difference on foreign fixed assets ($27.8 million) also
contributed to the high effective tax rate during 1995.
The Company has operating loss carryforwards of approximately $12.5 million
for federal income tax purposes expiring in the years 2007-2010. At December
30, 1995, the Company's Canadian operation had a capital loss carryforward of
approximately $7.2 million and has recognized for accounting purposes an
additional amount of approximately $1.3 million of capital gains relating to
translation gains on debt denominated in United States dollars, which will be
a capital gain when realized. No accounting recognition has been given to the
potential income tax benefits of approximately $1.5 million related to the net
capital loss carryforwards, which have no fixed expiration date.
NET INCOME (LOSS)
Net loss (excluding cumulative dividends on redeemable preferred stock)
increased $0.9 million, from $22.7 million in 1994 to $23.6 million in 1995,
primarily as a result of an increase in net foreign currency transaction
losses of $5.8 million related mainly to the continued devaluation of the
nuevo peso during 1995 and to an increase in interest expense of $24.7 million
due to a higher average amount of indebtedness outstanding in 1995 resulting
from the Chicopee Acquisition. Increasing the Company's net loss in 1995 was a
high effective tax rate resulting from foreign losses, which did not give rise
to a corresponding tax benefit. Net loss was reduced during 1995 as a result
of increased net sales of $272.3 million and increased gross profit of $67.7
million, each attributable primarily to the Chicopee Acquisition.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND JANUARY 1, 1994
NET SALES
Consolidated net sales increased $43.9 million, or 36.1%, from $121.5
million in 1993 to $165.3 million in 1994, primarily as a result of the
consolidation of Fabrene and Bonlam for the period from June 25, 1994 to
December 31, 1994. For this period, Fabrene's sales were $28.6 million and
Bonlam's sales were $11.2 million compared to 1993, which did not include the
results of operations of Fabrene and Bonlam. Net sales for The FiberTech
Group, Inc. ("FiberTech") increased $4.8 million, or 4.0%, from $121.5 million
in 1993 to $126.3 million in 1994.
GROSS PROFIT
Gross profit as a percentage of net sales increased from 19.9% in 1993 to
21.9% in 1994, due to an improved product mix from the addition of the Fabrene
and Bonlam revenues which have higher margins. Gross profit increased by $13.1
million as a result of the Fabrene and Bonlam acquisitions, while net gross
profit increased $12.1 million, or 50%, from $24.2 million in 1993 to $36.3
million in 1994 due to an increase in fiber cost in the third quarter of 1994
that was not fully recovered in
31
increased selling prices. The Company successfully passed along the price of
such increase to substantially all of its foreign customers, and a
corresponding price increase was successfully passed along to several of its
U.S. customers by the end of the second quarter of 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $7.7 million, or
59.0%, from $13.0 million in 1993 to $20.7 million in 1994. Selling, general
and administrative expenses as a percentage of net sales increased from 10.7%
in 1993 to 12.5% in 1994. The inclusion of the expenses of Fabrene and Bonlam
for the period from June 25, 1994 to December 31, 1994 accounted for $5.9
million of the increase, while the remainder of the increase consisted
primarily of additional infrastructure costs and increased sales and
developmental expenses associated with diversification into higher value-added
businesses.
OTHER EXPENSES
Interest expense increased $8.8 million from $4.4 million in 1993 to $13.2
million in 1994. Interest expense as a percentage of net sales increased from
3.6% in 1993 to 8.0% in 1994. These increases are principally due to a higher
average amount of indebtedness outstanding in 1994, which was higher
principally as a result of the 1994 Transactions. As a result of the 1994
Transactions, an extraordinary loss of $4.4 million net of the income tax
benefit of $1.8 million was reported in 1994.
Net foreign currency transaction losses were $1.3 million (1.1% of net
sales) in 1993 and $17.1 million (10.3% of net sales) in 1994. The Company's
German operation incurred net foreign currency transaction gains of $2.1
million which were offset by losses of $0.3 million and $18.9 million at the
Company's Canadian and Mexican operations, respectively. On December 20, 1994,
the Mexican government discontinued monetary support for the nuevo peso,
allowing it to float to market rates. The pesos subsequently devalued by over
40% and exchange rates went from 3.4 pesos to $1 US to 5.1 pesos to $1 US at
December 31, 1994. Approximately 92% ($17.3 million) of the Company's Mexican-
related net foreign currency transaction losses during 1994 resulted from its
United States dollar denominated intercompany indebtedness.
Increasing the Company's net loss in 1994 was a high effective income tax
rate resulting from foreign losses which did not give rise to a corresponding
tax benefit. In accordance with FAS 109, a valuation allowance of $10.2
million has been recognized at December 31, 1994 ($0.7 million at January 1,
1994) to offset deferred tax assets due to the uncertainty of realizing the
benefit of net operating loss carryforwards of approximately $8.3 million at
Bonlam and capital loss carryforwards of approximately $2.1 million at
Fabrene. Deferred tax liabilities of approximately $5.1 million relating
primarily to non-deductible goodwill amortization under Canadian statutory tax
laws also contributed to the high effective tax rate during 1994. The Company
has operating loss carryforwards of approximately $11.0 million for Federal
tax purposes expiring in the years 2007-2009.
NET INCOME (LOSS)
Net loss (excluding cumulative dividends on redeemable preferred stock)
increased $26.1 million, from net income in 1993 of $3.4 million to a net loss
of $22.7 million in 1994 as a result of an increase in net foreign currency
transaction losses of $15.7 million related primarily to the devaluation of
the nuevo pesos which occurred during December 1994 and to an increase in
interest expense of $8.8 million due to a higher average amount of
indebtedness outstanding in 1994 resulting from the 1994 Transactions. As a
result of the 1994 Transactions, an extraordinary loss of $4.4 million net of
the income tax benefit of $1.8 million was reported in 1994. Increasing the
Company's net loss in 1994 was a high effective income tax rate resulting from
foreign losses which did not give rise to a corresponding tax benefit.
32
CHICOPEE
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to net sales of
certain income statement items for Chicopee based on the historical financial
information for Chicopee for the years ended January 2, 1994 and January 1,
1995, during which time Chicopee was owned by Johnson & Johnson. See "Selected
Consolidated Financial Data."
[Download Table]
YEAR ENDED
-------------------------------
JANUARY 2, 1994 JANUARY 1, 1995
--------------- ---------------
Net sales
Trade.................................. 52.8% 50.7%
Affiliate(a)........................... 47.2 49.3
----- -----
100.0 100.0
Cost of goods sold....................... 77.1 77.8
----- -----
Gross profit........................... 22.9 22.2
Selling, general and administrative
expenses................................ 19.1 19.4
----- -----
Operating income....................... 3.8 2.8
Other income, net........................ 1.4 0.3
----- -----
Income before income taxes............. 5.2 3.1
Income taxes............................. 1.0 1.0
----- -----
Net income............................. 4.2% 2.1%
===== =====
--------
(a) Represents net sales to Johnson & Johnson.
COMPARISON OF YEARS ENDED JANUARY 1, 1995 AND JANUARY 2, 1994
NET SALES
Net sales decreased $5.0 million, or 2.0%, from $245.5 million in 1993 to
$240.5 million in 1994, due primarily to a lower volume of units shipped
within the trade business of J&JAMC. J&JAMC trade sales decreased
approximately $6.9 million, or 7.5%, from $91.4 million in 1993 to $84.5
million in 1994, which was mitigated to a lesser degree by an increase of $1.0
million, or 1.2%, from $82.9 million in 1993 to $83.9 million in 1994 in the
J&JAMC North American affiliate business. Chicopee B.V.'s net sales increased
$1.0 million, or 1.4%, from $71.2 million in 1993 to $72.2 million in 1994.
Chicopee B.V.'s trade sales decreased $0.7 million, or 1.8%, which was offset
by an increase of $1.7 million, or 5.2%, in the J&JAMC affiliate business.
GROSS PROFIT AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Gross profit decreased $2.7 million, or 4.8%, from $56.2 million in 1993 to
$53.4 million in 1994. Gross profit as a percentage of net sales remained
relatively consistent between 1993 (22.9%) and 1994 (22.2%). An improved
product mix at Chicopee B.V. generated higher margins which offset volume
shortfalls in the J&JAMC trade business during 1994. Selling, general and
administrative expenses decreased $0.2 million from $46.8 million in 1993 to
$46.6 million in 1994, due primarily to a reduction in research and
development expenses in 1994.
NET INCOME
Net income decreased $5.3 million, from $10.4 million in 1993 to $5.1
million in 1994, due primarily to lower net sales of $4.9 million, lower
operating income of $2.6 million and lower non-operating income of $2.7
million. Net income was also unfavorably impacted by a higher effective tax
rate.
33
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
Net cash provided by operating activities decreased $5.8 million, or 33.5%,
from $17.4 million in 1994 to approximately $11.6 million in 1995. The
decrease in net cash provided by operating activities between 1995 and 1994,
excluding the effects of business acquisitions, resulted primarily from: (i) a
net increase in accounts receivable of $16.2 million; (ii) a net increase in
inventories of $7.8 million; and (iii) a net decrease in accounts payable and
accrued expenses of $2.7 million. During 1995, net cash provided by operating
activities was favorably impacted by a net increase in income taxes payable of
$2.7 million and a net increase in other operating assets of $4.4 million and
net non-cash charges of: (i) $29.8 million for depreciation and amortization
expense; (ii) $22.8 million for net foreign currency transaction losses; and
(iii) $5.8 million in provisions for losses on accounts receivable and price
concessions.
Net cash used in operating activities decreased $2.4 million, or 43.3%, from
$5.5 million in the first quarter of 1995 to $3.1 million in the first quarter
of 1996. The decrease in net cash used in operating activities resulted
primarily from (i) a lower net loss during first quarter 1996 and (ii) non-
cash charges of $9.3 million for depreciation and amortization expense, $1.3
million for net foreign currency transaction losses and $2.1 million in
provisions for losses on accounts receivable and price concessions.
INVESTING AND FINANCING
On March 15, 1995, the Company completed the Chicopee Acquisition for an
aggregate consideration of $290.0 million (including $15.0 million of fees and
expenses) in a transaction accounted for by the purchase method of accounting.
The Company financed the Chicopee Acquisition with the following sources of
funds: (i) borrowings by Chicopee under the 1995 Credit Facility (as more
fully described below); (ii) the issuance by Chicopee to Johnson & Johnson of
a $5.0 million subordinated promissory note, which was repaid at closing;
(iii) a $30.0 million common equity contribution from the Company; and (iv)
the issuance of $40.0 million redeemable preferred stock of Chicopee due 2004,
with warrants of the Company. Through the Chicopee Acquisition, the Company
gained substantial manufacturing and technological resources, as well as
consumer market recognition of certain of Chicopee's branded product lines. In
addition, the Chicopee Acquisition provided the Company with a significant
presence in the nonwovens markets for wipes and medical products. The
additional Chicopee businesses also enabled the Company to realize economies
of scale in production, such as in negotiating contracts with raw material
suppliers and in reducing barriers to entry for new products by pairing
complementary products together through established distribution channels.
The 1994 Credit Facility, which would mature on June 30, 1998, has two
tranches, a $50.0 million facility available for working capital and general
corporate purposes and a $25.0 million facility available solely to fund the
development and construction of pre-determined capital projects for FiberTech,
Fabrene and Bonlam. The 1995 Credit Facility consists of a six-year $125.0
million amortizing term loan, an eight-year $85.0 million amortizing term loan
and a $30.0 million revolving credit facility. The 1994 Credit Facility and
the 1995 Credit Facility each contain various restrictive covenants, including
limitations on incurrence of indebtedness, the making of restricted payments,
transactions with affiliates, the existence of liens, mergers and acquisitions
and sales of assets. In connection with the Recapitalization, all outstanding
amounts under the 1994 Credit Facility and the 1995 Credit Facility
effectively will be repaid, and the 1994 Credit Facility and the 1995 Credit
Facility will be terminated. As of December 31, 1995, the Company was in
compliance with all of the covenants contained in the 1994 Credit Facility and
the 1995 Credit Facility.
In connection with the Offerings, the Company and its subsidiaries intend to
enter into the New Credit Facility with a group of lenders with The Chase
Manhattan Bank, N.A. ("Chase Bank"), as
34
Administrative Agent, and Chemical Bank, as Operations Agent. The commitment
of such lenders is subject to customary conditions and is also subject to the
condition that the Company receive gross proceeds of at least $175.0 million
from the Offerings. The New Credit Facility will consist of a $200.0 million
term loan and a $125.0 million revolving facility. Initial borrowings under
the New Credit Facility will be effected by rolling over existing loans
outstanding under the 1994 Credit Facility and the 1995 Credit Facility. Upon
consummation of the Offerings, a portion of the proceeds therefrom will be
applied to reduce the outstanding revolving loans under the New Credit
Facility, leaving a remaining availability of $77.0 million. The New Credit
Facility will be secured by all of the assets of the Company and by a
guarantee by each of the Company's domestic subsidiaries, which guarantee will
be secured by the assets of each such subsidiary. The Company's non-domestic
subsidiaries will either borrow directly under the New Credit Facility on a
secured basis or borrow from PGI, a wholly owned subsidiary of the Company,
with such borrowings being evidenced by a note pledged to the lenders. The
term loan will have required annual principal repayments in the aggregate of
$19.25 million in 1997, $26.5 million in 1998, $36.5 million in 1999, $46.5
million in 2000, $56.5 million in 2001 and $14.75 million in 2002. The term
loan will have a final maturity date of March 31, 2002. The revolving facility
may also be used to provide letter of credit support from the Company.
The New Credit Facility will contain various restrictive covenants customary
for financings of this type, including limitations on incurrence of debt, the
making of restricted payments, transactions with affiliates, the existence of
liens, mergers, acquisitions and sales of assets. The revolving facility will
mature in 2002, with a provision for two one-year extensions at the request of
the Company, subject to the consent of all of the lenders.
The ability of the Company to enter into the New Credit Facility with the
terms and conditions described above is subject to the affirmative consent
(the "Required Consents") of holders of a majority of the outstanding
principal amount of the Notes. Pursuant to a Consent Solicitation Statement
dated March 14, 1996, the Company has solicited and received the Required
Consents, and, accordingly, the Company and the Trustee have executed a Third
Supplemental Indenture dated as of April 9, 1996, to be effective upon the
consummation of the Offerings, that will allow the Company to enter into the
New Credit Facility.
During 1994, Bonlam entered into a contract with Reifenhauser GmbH
("Reifenhauser") to install a new state-of-the-art SMS line (the "New Line")
incorporating the Company's and Reifenhauser's technologies. This expansion,
which was completed by the end of second quarter 1995 as planned, allows
Bonlam to meet increasing demands from the customers it serves and provides
expansion opportunities for new markets and new products. Commercial start-up
of the New Line was completed during third quarter 1995. Cash outlays for the
New Line during 1995 approximated $17.2 million.
OTHER
In connection with the Chicopee Acquisition, management of the Company
adopted a plan (the "Plan") to relocate manufacturing equipment from
Chicopee's Canadian operation to certain other manufacturing sites within the
United States. The Plan also provides for relocation of Chicopee's corporate
offices, including certain equipment used in its North American research and
development activities, to other sites within the United States. As of March
15, 1995, the Company provided for accrued restructuring costs of
approximately $17.9 million in connection with the allocation of the purchase
price to the fair value of assets acquired and liabilities assumed. During
1995, the Company charged approximately $2.4 million against the liability
associated with the Plan, including $1.4 million related to asset and
personnel relocation and foreign import duties and approximately $1.1 million
associated with an unfavorable manufacturing contract that existed at the
acquisition date and other miscellaneous costs. During the three month period
ended March 30, 1996, the Company charged approximately $1.0 million against
the liability related to asset relocation and other miscellaneous costs. At
March 30, 1996, the Company's accrued restructuring costs associated with the
Plan
35
approximated $14.5 million. Management currently estimates that approximately
$6.5 million of the total accrued restructuring costs will be expended during
the remainder of 1996.
The Company uses derivative financial instruments to manage well-defined
interest rate risk and does not use them for trading purposes. On April 25,
1995, the Company (through Chicopee) entered into an interest rate cap
agreement (the "Agreement") for an initial premium (cash) of $0.4 million and
quarterly installments of $0.1 million through March 31, 1998. Premiums paid
for the Agreement, including quarterly installments, are amortized to interest
expense over the term of the Agreement. The Agreement provides for an initial
principal notional amount of $105.0 million on April 25, 1995, which declines
to $90.0 million on December 31, 1997. If the London Interbank Bid Offer Rate
("LIBOR") exceeds 8% on each quarterly reset date (as defined in the
Agreement), the Company shall be due the amount by which LIBOR exceeds 8%.
Over the term of the Agreement during 1995, LIBOR did not exceed 8%.
The Company estimates that it will fund approximately $25.4 million in
capital expenditures in 1996 to, among other things, implement FASE II
technology (a new proprietary web formation process), upgrade the Mexican and
Vancouver facilities and increase its spunlace and through-air bonding
capacity. The Company believes that based on the current levels of operations
and anticipated growth, its cash from operations, together with other
available sources of liquidity, including borrowings under the New Credit
Facility, will be adequate over the next several years to make required debt
payments, including interest thereon, permit anticipated capital expenditures
and fund the Company's working capital requirements.
Actions by federal, state and local governments in the United States and
abroad concerning environmental matters could result in laws or regulations
that could increase the cost of producing the products manufactured by the
Company or otherwise adversely affect demand for its products. For example,
certain local governments have adopted ordinances prohibiting or restricting
the use or disposal of certain plastic products, such as certain of the
plastic wrapping materials which are produced by the Company. Widespread
adoption of such prohibitions or restrictions could adversely affect demand
for the Company's products and thereby have a material adverse effect upon the
Company. In addition, a decline in consumer preference for plastic products
due to environmental considerations could have a material adverse effect upon
the Company.
EFFECT OF INFLATION; FOREIGN CURRENCY EXCHANGE RATES
Inflation generally affects the Company by increasing the cost of labor,
equipment and new materials. The Company does not believe that inflation has
had any material effect on the Company's business over the last three years.
The Company's substantial foreign operations expose it to the risk of
exchange rate fluctuations. If foreign currency denominated revenues are
greater than costs, the translation of foreign currency denominated costs and
revenues into U.S. dollars will improve profitability when the foreign
currency strengthens against the U.S. dollar and will reduce profitability
when the foreign currency weakens. In addition, the remeasurement of foreign
currency denominated assets and liabilities into U.S. dollars gives rise to
foreign exchange gains or losses which are included in the determination of
net income. The Company does not currently participate in hedging transactions
related to foreign currency.
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("FAS 121"), which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated
36
by those assets are less than the assets' carrying amount. FAS 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. FAS 121 is effective for financial statements for fiscal years
beginning after December 15, 1995; therefore, the Company adopted FAS 121 in
the first quarter of 1996. The effect of adoption did not have a material
impact on the Company's results of operations for the three months ended March
30, 1996.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation" ("FAS 123"). FAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. FAS 123 is
effective for transactions entered into in fiscal years beginning after
December 15, 1995. In connection with the Offerings, the Company has adopted
the 1996 Plan (as defined). With adoption of the 1996 Plan, the Company will
account for stock-based compensation awards under the provisions of Accounting
Principles Board Opinion No. 25, as permitted by FAS 123.
37
BUSINESS
GENERAL
The Company is a leading worldwide manufacturer and marketer of a broad
range of nonwoven and woven polyolefin products. The Company's principal lines
of business include industrial and specialty products and disposable wiping,
medical and hygiene products. The Company believes that it is the third
largest producer of nonwovens in the world and that it employs the most
extensive range of nonwoven technologies of any nonwovens producer, which
allows it to supply products tailored to customers' needs at a competitive
cost. Nonwovens are flat, flexible porous sheets produced by interlocking
fibers or filaments or by perforating films. Nonwovens provide certain
qualities similar to those of textiles at a significantly lower cost. The
Company also believes that it is the largest producer of woven polyethylene
fabrics in North America. Woven polyethylene fabrics are flat, flexible
structures produced by weaving narrow tapes of slit film and are characterized
by high strength-to-weight ratios.
The Company is a leading nonwovens supplier to a number of the largest
consumer products manufacturers in the world and specifically targets market
niches with high value-added products for these customers. The Company has a
global presence with an established customer base in the three major developed
markets of North America, Europe and Japan, as well as developing markets such
as Latin America. The Company's products are sold principally to converters
that manufacture a wide range of end-use products, such as hospital surgical
gowns and drapes, wound care sponges, multi-use wiping cloths and towels,
flexible industrial packaging, filtration media, battery separators, diapers,
feminine hygiene products and automotive insulation products. The Company
supplies nonwovens to customers such as Johnson & Johnson for healthcare
products, including operating room gowns, Procter & Gamble for Pampers(R) and
Luvs(R) diapers and Paragon Trade Brands Inc. for private label diapers.
The Company is a leader in nonwoven process technology. The Company operates
twelve manufacturing facilities located in five countries and is currently the
only nonwovens producer that utilizes all of the established nonwoven process
technologies. The Company recently successfully introduced the new,
proprietary Apex technology, which is a surface-forming technology capable of
producing low-cost textile replacement fabrics with intricate, three-
dimensional patterns. The Company believes that the quality of its
manufacturing operations and the breadth of its nonwovens process technologies
give it a competitive advantage in meeting the current and future needs of its
customers and in leading the development of an expanded range of applications
for nonwovens. The Company continues to make significant investments in
advanced technology in order to increase capacity, improve quality and develop
new low-cost, high-value structures. For example, the Company recently
invested in a spunbond/meltblown/spunbond ("SMS") line that the Company
believes is one of the most advanced in the world, which allows the Company to
produce highly uniform structures at less than half of the unit weight
produced by other SMS lines. The Company believes that this technological
advantage gives it the capability to design and manufacture products with
optimal cost and functionality. Working as a developmental partner with its
major customers, the Company utilizes its technologies to develop and
manufacture new products to meet their needs.
Management has built the Company through a series of strategic business
acquisitions that have broadened the Company's technology base and increased
its product lines. The Company's strategic acquisitions have helped it to
establish strong positions in both the nonwoven and woven polyolefin fabric
markets. Synergies realized through these acquisitions have enabled the
Company to better meet the needs of existing customers, to reach emerging
geographic markets and to exploit niche market opportunities through customer-
interactive specialty product development. For example, technology
improvements developed at the Company's Landisville, New Jersey facility, such
as improvements in the meltblown process, continuous spreading and
comprehensive process
38
automation, have been integral to capacity increases and the implementation of
new production lines in Europe and Mexico.
The Company's objectives are to continue to expand its core business while
building new capabilities to capitalize on both a broad range of new, high
value-added niche product opportunities and expanded geographic markets. In
addition to growth in its core businesses, the Company expects growth to come
from the application of several new technologies, including (i) the Apex
nonwoven process technology, (ii) a new line of specialty sorbents, marketed
under the Micro-Set(TM) brand, providing EPA-approved disposability at a
competitive cost and (iii) a newly developed polymer technology designed to
recover heavy metals, which can then be recycled and sold, from contaminated
solutions such as hazardous waste sites. The Company expects to accomplish
these objectives by relying on its principal strengths, which include
technological leadership, state-of-the-art manufacturing capabilities,
significant market share in its primary markets and an experienced and
successful management team. The Company seeks to utilize these strengths by
following a strategy based on (i) continuous improvement aimed at increasing
product value and reducing costs, (ii) development of high value-added niche
products, (iii) entrance into new markets with existing products, (iv)
expansion of capacity through capital improvements and (v) strategic
acquisitions.
HISTORY OF THE COMPANY
The Company was organized on June 16, 1994 and, effective June 24, 1994,
acquired a 100% ownership interest in PGI, which was incorporated in September
1992 by The InterTech Group, Inc. and Golder, Thoma, Cressey, Rauner, Inc.
("Golder, Thoma") to act as a holding company for entities engaged in the
development, manufacture and marketing of polyolefin products. See "Certain
Relationships and Related Transactions."
At the time of its formation, PGI acquired from InterTech approximately 27%
of the issued and outstanding shares of stock of Fabrene, a leading
manufacturer of industrial and commercial woven polyolefins. In addition, in
October 1992, through its wholly owned subsidiary FiberTech, PGI acquired (the
"Scott Acquisition") the Nonwoven Products Division (the "Predecessor") of
Scott Paper Company ("Scott"), a major supplier of nonwovens for diapers,
feminine hygiene products and adult incontinence products. Together, Fabrene
and FiberTech offered substantial representation in both the nonwoven and
woven polyolefin markets.
Upon the Company's formation in 1994 in connection with the Notes Offering
(as defined), the Company acquired the remaining issued and outstanding shares
of stock of Fabrene and became the 100% parent owner of PGI (together with the
Notes Offering, the "1994 Transactions"). In addition, the Company purchased
from Cydsa, S.A. ("Cydsa") all of the outstanding shares of Bonlam, the
largest manufacturer of spunbond nonwoven fabrics in Mexico. The Bonlam
Acquisition not only presented the opportunity to meet existing customers'
needs in Mexico, but also provided the Company with the additional nonwoven
capacity necessary to meet growing demand in North American and Latin American
markets and to develop further opportunities in those markets.
In March 1995, the Company purchased (the "Chicopee Acquisition") Chicopee,
a leading manufacturer and marketer of nonwoven roll and converted products in
North America and Europe, and consummated certain other transactions (the
"1995 Transactions") as described under "Certain Relationships and Related
Transactions." Through the Chicopee Acquisition, the Company gained
substantial manufacturing and technological resources, as well as consumer
market recognition of certain of Chicopee's branded product lines. In
addition, the Chicopee Acquisition provided the Company with a significant
presence in the nonwovens markets for wipes and medical products and enabled
the Company to realize economies of scale in production, such as in
negotiating contracts with raw material suppliers and in reducing barriers to
entry for new products by pairing complementary products together through
established distribution channels.
39
INDUSTRY OVERVIEW
The Company competes primarily in the worldwide market for nonwovens, which
is a $6.5 billion market based on 1995 sales, according to industry sources.
The nonwovens industry began in the 1950s when paper, textile and chemical
technologies were combined to produce new fabrics and products with the
attributes of textiles but at a significantly lower cost. Today, nonwovens are
used in a wide variety of consumer, industrial and healthcare products as a
result of their superior functionality and relatively low cost.
The nonwovens industry has benefitted from substantial improvements in
technology over the past few years, which have increased the number of new
applications for nonwovens and therefore increased demand. According to
industry sources, demand in the developed markets is expected to increase 4-5%
in each of the next five years, while the emerging markets are forecasted to
grow at a rate of 9-13% per annum. In the developed markets, growth will be
driven primarily by new applications for nonwovens, while growth in the
emerging markets will be volume driven as these countries create a middle
class of consumers. According to industry sources, worldwide consumption of
nonwovens has increased an average of 9% per annum for the past five years.
The Company also believes that future growth will depend upon the continuation
of improvements in raw materials and technology, which should result in the
development of high-performance nonwovens, leading to new uses and markets at
a lower cost than alternative materials.
Nonwovens are categorized as either disposable (54% of worldwide industry
sales in 1995 according to industry sources), which is the category in which
the Company primarily competes, or durable (46% of worldwide industry sales in
1995 according to industry sources). The largest end uses for disposable
nonwovens are for hygiene applications, including diapers, feminine sanitary
protection, baby wipes and adult incontinence products, and healthcare
applications, including surgical gowns and drapes and woundcare sponges and
dressings. Other disposable end uses include wipes, filtration media,
protective apparel and fabric softener sheets. Durable end uses include
apparel interlinings, furniture and bedding construction sheeting, automotive
components, geotextiles, roofing membranes, carpet backing, agricultural
fabrics, durable papers and coated and laminated structures for wallcoverings,
upholstery, shoes, luggage and tablecloths.
The Company also competes in the North American market for coated woven
polyolefin products. Woven polyolefin fabrics are flat, flexible structures
produced by weaving narrow tapes of slit film and are characterized by high
strength to weight ratios. While the broad uncoated woven polyolefin market is
primarily focused on carpet backing fabric and, to a lesser extent,
geotextiles and bags, the markets in which the Company primarily competes are
made up of a large number of specialized products manufactured for niche
applications. These markets include demanding industrial packaging
applications such as lumberwrap, steel wrap and fiberglass packaging, as well
as high-strength protective coverings and specialized components that are
integrated into a variety of industrial and consumer products.
COMPETITIVE STRENGTHS
The Company believes that it has a strong competitive position attributable
to a number of factors, including the following:
TECHNOLOGICAL LEADERSHIP. The Company believes it is a technological
leader in developing and manufacturing nonwoven and woven polyolefin
products. The Company is currently the only nonwovens producer that
utilizes all of the established nonwoven process technologies and has
recently introduced the new, proprietary Apex technology. The expertise of
the Company's
40
research and development staff have enabled the Company to develop
innovative products, frequently in response to specific customer needs. The
Company's research and development efforts have been focused on increasing
its production capacity and improving its production processes, developing
products based on the Company's existing technologies for new markets, and
developing new process technologies to enhance existing business and allow
entry into new businesses.
STATE-OF-THE-ART MANUFACTURING CAPABILITIES. The Company believes that it
has state-of-the-art manufacturing capability in both its nonwoven and
woven product lines. As a result, the Company is one of the lowest cost
producers in the markets in which it participates. In recent years, the
Company has invested in excess of $50.0 million in capital improvements to
increase capacity and has improved quality and uniformity through the
implementation of automated process technology. The Company recently
completed an expansion in Mexico with the installation of a new 4.2 meter
SMS line with unique and proprietary capabilities. The Company is currently
adding spunlace and through-air bonded capacity to meet demand in both the
United States and Europe. The Company has also developed a proprietary
method to produce an exceptionally lightweight thermal bond fabric of
superior uniformity, which allows the Company to offer more cost-effective
product performance.
SIGNIFICANT MARKET SHARE IN PRIMARY MARKETS. The Company has developed
significant market shares in its primary markets. For example, the Company
believes that it has a significant share of the noncaptive coverstock
market and the wipes market and that it is the leading North American
manufacturer of lumberwrap and woven uncoated fabric used for lamination to
paper for the steel wrap market. The Company also believes that it is the
leading North American supplier in both the manufactured housing bottom
board and fiberglass packaging markets. The Company believes it has been
able to obtain these market shares as a result of its commitment to, and
reputation for, innovation and quality.
EXPERIENCED AND SUCCESSFUL MANAGEMENT TEAM. The Company's senior
management team has significant experience in the manufacturing and
marketing of polyolefin products, with an average of 11 years of experience
in this industry. Management's experience includes acquiring and employing
assets at a low cost and increasing the utilization of assets. Management
also has a successful track record of acquiring and improving complementary
businesses while integrating them into the Company's existing businesses.
KEY CUSTOMER RELATIONSHIPS. The Company has successfully cultivated long-
term relationships with key customers, such as Johnson & Johnson and
Procter & Gamble, who are market leaders in their industries. The Company
currently works closely as a developmental partner of Procter & Gamble,
focusing resources and working together to develop advanced components for
next generation diapers. The Company has also negotiated a favorable, long-
term supply agreement with Johnson & Johnson, under which it is the
exclusive provider of nonwoven fabric requirements for Johnson & Johnson.
Similarly, the Company enjoys an exclusive, ten-year supply contract with
Bulldog Bag Ltd. for its woven fabrics product line. The Company's success
in developing and strengthening its relationships with these and other key
customers is attributable to its commitment to product quality, dedication
to customer technical service and sensitivity and responsiveness to
changing customer needs.
BUSINESS STRATEGY
The Company's goals are to continue to grow its core businesses while
developing new technologies to capitalize on a broad range of new high-margin
niche product opportunities and expanded geographic markets. The Company
intends to be the leading supplier in its chosen markets
41
by delivering high-quality products and service at competitive prices. To
achieve these goals, the Company's primary strategy focuses on:
CONTINUOUS IMPROVEMENT AIMED AT INCREASING PRODUCT VALUE AND REDUCING
COSTS. The Company is committed to continuous improvements throughout its
business to increase product value and lower costs. The Company's product
design team continuously seeks to incorporate new materials and operating
capabilities that enhance or maintain performance specifications while
lowering the cost of raw materials used in the products. State-of-the-art
equipment, much of which has been developed internally and is proprietary
to the Company, has been designed and installed to continuously measure
process parameters and maintain very narrow tolerances, resulting in less
product variation. As a result, the Company's manufacturing processes
utilize less material and produce a higher quality fabric. In addition, the
Company maintains a human resource program aimed at capturing productivity
gains through team building, formal training and employee empowerment.
DEVELOPMENT OF HIGH VALUE-ADDED NICHE PRODUCTS. The Company is committed
to investment in the development of products for high value-added niche
markets. One new offering is its Soft Touch(TM) line of backsheet
materials, developed to meet the growing demand for clothlike structures in
both the baby diaper and adult incontinence markets. To further its success
in the development of clothlike structures, the Company is currently in the
development stage of a next generation backsheet that is breathable and
more fabric-like, as well as cost effective. Another new addition is the
Company's proprietary FASE II(TM) technology which forms a part of its
Isolite(TM) line of products used in hygiene and construction applications.
FASE II(TM) uniformity is a new proprietary web formation process that
significantly improves fiber distribution and control over fiber
orientation and permits increased line speeds.
The Company has developed and sought patent approval for several new
concepts for absorbent core structures, including pulpless cores for blood
sorbents, diapers and adult incontinence products. These structures have
the potential to significantly reduce the core size and cost of traditional
pulp-filled absorbent cores while improving functionality. The Company has
also developed a new line, marketed under the Micro-Set(TM) brand, of
hydrocarbon sorbent polymers that encapsulate oil and other petroleum
products rather than merely absorbing them, thereby offering EPA-approved
disposability at a cost below existing technologies. Other new developments
include the new proprietary Apex technology, which is a surface-forming
technology capable of producing low-cost textile replacement fabrics with
intricate, three-dimensional patterns. This next generation technology is
currently in commercial production for Johnson & Johnson for medical
applications such as woven-like gauze, and could be utilized in the future
in a variety of other applications, including high-value wall coverings and
specialty apparel.
ENTRANCE INTO NEW MARKETS WITH EXISTING PRODUCTS. The Company believes
that it has significant additional market opportunities for its existing
products. The Company is actively expanding its capabilities to take
advantage of the penetration and growth of its core products
internationally, particularly in developing countries. For example, the
Company has increased sales to Latin America, the Caribbean, New Zealand
and Australia. In addition, the Company has expanded its technical
marketing staff to pursue novel applications of its current products with
new segments of end users. For example, the Company has developed a
multimillion square meter market in Europe for a new hygiene application by
introducing a product and technology primarily used as a wipe in North
America.
EXPANSION OF CAPACITY THROUGH CAPITAL PROJECTS. The Company continuously
evaluates opportunities to expand its existing production capacity or
enhance production technologies. The Company has invested approximately
$50.0 million in capital improvements since 1992 to either debottleneck
existing assets or to add new capabilities and capacity. The largest of
these projects
42
is a state-of-the-art SMS line at the San Luis Potosi, Mexico facility,
which line began commercial production in the third quarter of 1995. Other
significant projects include FASE II(TM) uniformity, which has increased
line speed and improved product fiber distribution on thermal bond lines.
Since 1992, capacity on these lines has increased by approximately 33%, and
the lines presently represent one of the lowest cost thermal bond processes
in the industry.
Since March 1995, the Company has invested substantially in the
debottlenecking of its spunlace process at Benson, North Carolina and
Cuijk, The Netherlands, resulting in an approximate 30% increase in
capacity. The Company's woven polyolefin business has completed a series of
expansions and debottlenecking projects since 1990, which have cumulatively
increased capacity by 56%. The expansions include facilities in Portland,
Oregon and Vancouver, British Columbia, which primarily supply the
Northwest lumber industry with coated and printed lumberwrap.
STRATEGIC ACQUISITIONS. The Company continuously evaluates opportunities
to make acquisitions which complement and expand its core businesses or
which have the potential to increase market share and distribution
capability in high-margin complementary products. The Company may seek to
vertically integrate operations where such expansion is economical and
supports the Company's core business without adversely impacting its
existing relationships.
PRODUCTS
The Company develops, manufactures and sells a broad array of nonwovens,
woven polyolefin products, conulated/apertured (perforated) films, laminated
composite structures, converted wipes and sorbent products. Sales are focused
in four general product categories that provide opportunities to leverage the
Company's advanced technology and substantial capacity. These product
categories include industrial and specialty products and disposable products
for wiping, medical and hygiene applications.
Marketing and research and development teams are committed to constant
product innovation in conjunction with, or at the request of, the Company's
customers. Close long-term relationships with end-use customers have been a
significant factor in the Company's success by enabling the Company to better
understand its customers' needs. In addition, the research and development
teams seek to develop high value-added specialty products using existing
assets in order to leverage the Company's capabilities to produce high-margin
products.
INDUSTRIAL AND SPECIALTY PRODUCTS
The industrial and specialty products category represented approximately
21%, 24% and 4%, or $102.1 million, $39.0 million and $4.9 million, of the
Company's pro forma 1995 net sales, 1994 net sales and 1993 net sales,
respectively. Demand for this product category is distributed among hundreds
of end-use applications. Some typical end uses include filtration media, home
furnishings, apparel interlinings, automotive insulation, agricultural
fabrics, battery separators, fabric softener sheets, protective coverings and
flexible industrial packaging. The Company's strength in engineering and
extensive range of process technologies are well-suited to meet the
specialized functionality requirements in this category. Customers typically
have very specific performance and quality requirements which the Company must
meet through efficient design and process conditions, which are strategic
strengths of the Company.
The Company produces a broad range of industrial and specialty products,
including alkaline battery separators, manufactured housing bottom board
fabric (used to enclose the underside of a manufactured home), home furnishing
dust covers and mattress pads, window coverings, fabric softener sheets,
protective apparel, Micro-Set(R) hydrocarbon sorption pads and specialized
protective coverings such as golf green covers, pool covers, salt pile covers,
landfill covers and athletic field
43
covers, such as the one used during the 1996 Super Bowl. The Company also
produces a variety of flexible packaging products utilizing coated and
uncoated woven polyolefin fabrics, such as Arbrene(R) and Lumber Guard(R)
lumberwrap, which are used to cover high-quality kiln dried lumber for
shipping and storage, fiberglass packaging tubes, which hold batts of
insulation under compression for efficient storage and shipping, balewrap for
synthetic and cotton fibers, steel and aluminum wrap, which are used to cover
mill rolls, and coated woven bags for animal feed, specialty chemicals and
mineral fibers. The Company is a leading supplier of several of these
products, including wetlaid alkaline battery separators, woven lumberwrap,
fiberglass packaging and bottom board fabric.
The Company also produces a variety of specialized niche products that add
further to the diversification of this product category. The Company expects
that the majority of its long-term growth will come in the industrial and
specialty products category. The Company's current primary industrial and
specialty products and applications are summarized below:
[Download Table]
Product Application
------- -----------
Microporous rollgoods Alkaline battery separators
Kiara(R) Filtration media, liquid
Key Bak(R) Automotive insulation
Arbrene(R) and Lumber Guard(R) Lumberwrap
Airgard(R) Housewrap
Fab-Strip(TM) Corrugated box reinforcement
Fabrene(TM) Protective coverings and laminated structures
Agricultural fabric Crop covers
Dust cover Furniture and bedding
The Company's industrial and specialty products are produced primarily using
wetlaid, adhesive bond, through-air fusible fiber bond, spun bond, woven
polyolefin and lamination technologies. Specialized converting facilities
operated by the Company include a wide-width paper/nonwoven/film laminating
and printing facility in Portland, Oregon and a thermal and ultrasonic bonding
facility in Vineland, New Jersey. The Company sells its industrial products
primarily to converter/distributors, except for battery separators, fiberglass
packaging and lumberwrap in the U.S. Pacific Northwest, which are sold by the
Company's own sales team.
WIPING PRODUCTS
The wiping products category represented approximately 18%, or $89.6
million, of the Company's pro forma 1995 net sales. The Company has a complete
line of wiping products used for food service, institutional, light
industrial, janitorial and consumer markets. Nonwovens represent approximately
40% of the overall wipes market and are categorized as either
"premoistened/wet wipes" or "dry wipes." The Company primarily participates in
the "dry wipes" portion of the market, which has more potential for growth and
generally contains more value-added, specialty products. Within the "dry wipe"
category, the three general end-use products are food service wipes, consumer
household wipes and industrial and specialty wipes. The Company maintains a
significant market share in the food service category and is a leading
producer for the consumer and industrial categories. Industry sources believe
that the overall disposable wipes product category will grow approximately 7%
per annum worldwide.
Products within this category include branded and unbranded light to
heavyweight cloth wipes, towels and aprons marketed under the Chix(R), Chix
Plus(R), Chiffonnette(TM) and Levette(TM) trademarks, medium to heavyweight
open weave towels marketed under the Fresh Guy(R) trademark and dry,
pretreated, water activated cleaning and sanitizing wipes for the food service
industry, marketed under the Quix(TM) trademark. Products for the industrial,
janitorial and institutional markets include light to heavy-duty towels and
cloths sold under a variety of trademarks including Worxwell(R), Durawipe(R),
Masslinn(R) and Stretch "N Dust(R). Specialty wipes consist of products
designed to meet specialized
44
customer requirements and specifications and include clean room wipes used in
the electronics, pharmaceutical and office equipment cleaning industries, tack
cloth used by automotive paint shops, and aerospace wipes for solvent and
sealant wiping, surface preparation and general purposes. The Company produces
multi-use kitchen wipes, including Colgate Palmolive's Handiwipes(R) brand
pursuant to a long-term supply agreement. The Company also markets a line of
catering products in Europe, including banquet rolls, table napkins and table
cloths. The Company's primary wiping products and applications are summarized
below:
[Download Table]
Product Application
------- -----------
Chix(R) and Chix Plus(R) Food service
Fresh Guy(R) Heavyweight food service
Durawipe(R) Industrial
Quix(TM) Sanitizing/food service
Worxwell(R) Consumer and janitorial
Masslinn(R) Janitorial
Stretch "N Dust(R) Janitorial
Duralace(R) Specialized, clean rooms
Chiffonnette(TM) Consumer--Europe
Levette(TM) Food service--Europe
Napkins and tablecloths Catering--Europe
Handiwipes(R) and Heavywipes(R)/1/ Consumer
/1/Handiwipes(R) and Heavywipes(R) are registered trademarks of Colgate
Palmolive. The Company produces wipes exclusively for Colgate Palmolive under
a long-term supply agreement.
The Company utilizes primarily dry form resin bonded and spunlace
technologies to manufacture its wiping products and also maintains dedicated
converting and packaging equipment. In North America, the Company has a long-
term manufacturing and distribution agreement with Berkley Medical Resources
Inc. ("BMR") in Fairfield, Pennsylvania to convert, warehouse and distribute a
wide range of wiping products. The equipment used in the converting and
packaging operations is owned by the Company and operated solely for its
benefit. In Europe, the Company operates its own converting and packaging
equipment within the Cuijk manufacturing facility. The Company is a leading
manufacturer and marketer of wiping products as a result of its wide range of
products, wide distribution base of dealers and food service distributors and
reputation for excellent customer and technical support, including the ability
to meet specific customer requirements.
MEDICAL PRODUCTS
The medical products category represented approximately 17%, or $84.5
million, of the Company's pro forma 1995 net sales. The Company's medical
products are used in the production of wound care sponges and dressings,
disposable surgical packs, apparel such as operating room gowns, drapes for
operating rooms and facemasks, shoecovers and headwear. Medical applications
represent the second largest market for nonwoven fabrics, with almost 2
billion square yards consumed annually in North America. Approximately half of
this demand is for disposable surgical packs, drapes and gowns, a market in
which Johnson & Johnson has a leading share.
Johnson & Johnson is the Company's primary customer for medical products
pursuant to a long-term supply agreement dated March 15, 1995 (the "Supply
Agreement"). The Supply Agreement grants the Company the exclusive right to
supply Johnson & Johnson with all of its nonwoven fabric requirements,
including those for its entire line of medical products as well as for other
disposable hygiene and wiping applications, for a period of five years, and,
provided that the Company's prices remain competitive with the marketplace,
extends for a period of an additional five years. During the
45
first five-year period, of which four years still remain, the Company enjoys
significantly favorable pricing terms. In addition, other preferential terms
continue throughout the duration of the contract. Johnson & Johnson accounted
for approximately 28% of the Company's 1995 net sales.
Industry sources estimate that the U.S. growth rate for nonwovens in medical
applications will be approximately 7% per annum, with much of the growth
coming from the expansion of traditional product lines. A 1992 ruling by the
Occupational Safety and Health Administration ("OSHA") required that employers
of healthcare workers supply personal protective equipment to employees at
risk of exposure to infectious body fluids. The OSHA ruling will affect
approximately five million workers, including those in funeral homes, linen
services and law enforcement agencies in addition to healthcare workers.
Surgical gowns and drapes containing a protective barrier against fluid
strike-through are the largest and fastest growing applications for nonwoven
fabrics in the medical products category. The Company produces Duralace(R)
spunlace fabric for this product group and treats the surface of the fabric to
give it high fluid repellency required for this application. The sponge and
dressing products are produced using spunlace apertured technology. A recently
developed product using this technology, Mirasorb(R), is a nonwoven sponge
that can replace woven gauze in some applications at considerably less cost.
The Company's primary medical products and applications are summarized below:
[Download Table]
Product Application
------- -----------
Duralace(R) Surgical gowns and drapes
Mirasorb(R) Sponges
Nugauze(R) Nonwoven gauze
HYGIENE PRODUCTS
The hygiene products category represented approximately 44%, 76% and 96% or
$217.3 million, $126.3 million and $116.6 million, of the Company's pro forma
1995 net sales, 1994 net sales and 1993 net sales, respectively. The Company
produces a variety of nonwoven fabrics and films for use in the production of
diapers, training pants, feminine sanitary protection, baby wet wipes and
adult incontinence products. The Company pioneered the first soft, comfortable
topsheet for disposable diapers. Today, the Company's customers annually
consume over 2 billion square yards of nonwoven fabrics for hygiene products.
The Company believes that it has a significant share of the noncaptive North
American topsheet market. Industry sources estimate that the global growth
rate for SMS and spunbond nonwovens in hygiene applications will average 12%
for each of the next three years, primarily due to an increase in the amount
of nonwoven fabric per diaper with the advent of the clothlike backsheet,
increased unit demand from developing countries and the rise in use of adult
incontinence products.
Recent innovations by the Company have broadened its product portfolio and
provided customers with a full range of specialized components for unique or
distinctive products. Such recent innovations include the Isolite(TM)
topsheet, Multi-Strike(TM) transfer layer, Soft Touch(TM) backsheet fabric,
Dry-Fit(TM) leg cuff fabric, Reticulon(R) sanitary protection facings,
absorbent pads for the Serenity(R)1 incontinence guard and Carefree(R)/1/
panty shield and Ensorb(TM) absorbent cores. The Company recently began
commercial production of a spunlace "wet wipe" product in Europe for Johnson &
Johnson. This product fills the gap between standard nonwoven wipes and a
quality cloth wipe and has improved thickness and softness over standard
airlaid pulp products. The Company is the only supplier capable of providing
all of the thermal bond, adhesive bond, spun bond, SMS, coextruded apertured
films, through-air bond
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and ultrasonic bond technologies which are required in the manufacture of
these products. The Company's primary hygiene products and applications are
summarized below:
[Download Table]
Product Application
------- -----------
Isolite(TM) Coverstock
Multi-Strike(TM) Transfer sublayer
Soft Touch(TM) Clothlike backsheet
Dry-Fit(TM) Leg cuff for diapers
Reticulon(R) Sanitary protection facing
Ensorb(R) Absorbent cores
Novaspun Topsheets
Baby wipes Consumer--Europe
/1/Serenity(R) and Carefree(R) are Johnson & Johnson trademarks. The Company
furnishes Johnson & Johnson with products used in the manufacture of these
products.
The Company has a significant relationship with Procter & Gamble and
supplies a full range of products to Procter & Gamble on a global basis.
Approximately 15% of the Company's 1995 net sales were related to Procter &
Gamble products, which sales represented approximately 14% of Procter &
Gamble's global nonwoven requirements. Procter & Gamble and the Company's
marketing and research and development teams work closely as partners in the
development of next generation products. The Company believes that this
technical support ensures that the Company's products will continue to be
incorporated into Procter & Gamble's product designs in the future. The
Company also has significant relationships with private-label producers of
diaper products, including Paragon Trade Brands Inc., First Quality Products
Inc. and several leading producers in Latin America. The Company is also the
primary supplier to Johnson & Johnson Personal Products for its nonwoven
requirements for sanitary protection, tampon and feminine incontinence
products.
NEW PRODUCT DEVELOPMENT
The Company continually develops new products that incorporate the Company's
wide variety of technologies. The Company's research and development efforts
have been focused on increasing its production capacity and improving its
production processes, developing products based on the Company's existing
technologies for new markets and developing new process technologies to
enhance existing businesses and allow entry into new businesses. The expertise
of the Company's research and development staff, working closely with
manufacturing and marketing personnel, have enabled the Company to develop
innovative products, frequently in response to specific customer needs. In
addition, the Company frequently enters into collaborative partnerships with
its customers to develop and manufacture next generation products in response
to its customers' changing needs. The Company believes that these
developmental partnerships enhance customer relationships by ensuring that the
Company's products will continue to be incorporated into its customers' future
products. The Company also utilizes in-plant pilot lines that are installed in
its manufacturing facilities in order to develop new products under real
manufacturing conditions prior to commercialization. The Company currently has
several projects in advanced stages of development that it believes will
present the potential for substantial growth.
Apex, a new surface-forming technology, has the potential to displace
traditional woven textile, knitted and composite products in many applications
because of its favorable price to value ratio. Apex technology is capable of
producing low-cost textile replacement fabrics with intricate, three-
dimensional patterns. This technology, which can be applied to all sheet
structures, will further enhance the Company's ability to gain competitive
advantages by increasing manufacturing efficiency and product differentiation.
Pursuant to an agreement with Johnson & Johnson, products for hygiene and
healthcare applications that are manufactured utilizing the Apex technology
may only be sold to
47
Johnson & Johnson. In all other markets, such as home furnishings, wall
coverings, apparel and filtration, the Company may manufacture and freely
market products utilizing the Apex technology.
The Company has also invented a new class of specific-purpose sorption
products that encapsulate target materials rather than merely absorbing them.
Marketed under the Micro-Set(TM) brand name, these products include a novel
line of hydrocarbon sorption pads that can encapsulate oil and other petroleum
products. As a result of this unique encapsulation feature, these products
offer EPA-approved disposability at a cost below competitive technologies.
The Company has also developed a pulpless absorption core for the hygiene
market. This pulpless core has the potential to allow diaper and adult
incontinence product manufacturers to produce thinner diapers and to eliminate
the need for wood pulp, which would both reduce such manufacturers' dependence
on the volatile wood pulp market and simplify their manufacturing processes.
The Company is at the forefront in the use of new generation resins, which
have the potential to produce stronger and thinner fabrics with advanced
performance characteristics such as elasticity, microporosity and surface
adhesion. The Company believes that its state-of-the-art equipment and
manufacturing processes will provide it with the flexibility to process these
advanced resins and allow it to be a leader in the introduction of these
materials for traditional as well as new end uses.
The Company has agreed in collaboration with the Los Alamos National
Laboratory ("LANL") to develop and commercialize specific applications of
polymer filtration/metal separations in aqueous, solid and vapor-phase
matrices, which permit removal and recovery of specific metal ions based on
sophisticated polymer chemistry. Initial polymer filtration techniques relate
to the removal and recovery of metal ions from electroplating and metal
finishing process waste streams. Additional polymer filtration/metal
separations applications are being identified by the Company and LANL for
commercialization. These techniques have potential applications in commercial
and large-scale waste site cleanup and disposal.
MARKETING AND SALES
The Company sells to well over 1,000 customers in the domestic and
international marketplace. Approximately 75%, 18%, 3% and 4% of the Company's
1995 net sales were to entities in North America, Europe, Japan and the rest
of the world, respectively. Johnson & Johnson, the Company's largest customer,
accounted for approximately 28% of the Company's 1995 net sales, while sales
to Procter & Gamble accounted for approximately 15% of the Company's net sales
for the same period. Sales to the Company's top 20 customers represented
approximately two-thirds of the Company's total 1995 net sales.
The Company sells primarily to manufacturers and converters, which
incorporate the Company's products into their finished goods. The Company
employs direct sales representatives, a number of whom are engineers and each
of whom has advanced technical knowledge of the Company's products and the
applications for which they are used. The Company's sales representatives are
active in the Company's new product development efforts and are strategically
located in the major geographic regions in which the Company's products are
utilized. The woven polyolefin products are sold primarily through a well-
established network of converters, most of whom have been doing business with
the Company for more than 15 years. Converters add incremental value to the
Company's products and service the small order size requirements typical of
many end users.
In certain new high-margin niche markets, the Company has maintained control
over distribution by dealing directly with the end-use customer through its
sales representatives. The Company offers a
48
broad range of high-quality products, utilizing multiple technologies and
materials, allowing its sales force to offer customers what the Company
believes is the widest range and variety of nonwoven and woven polyolefin
products available to meet customers' requirements from a single source. The
Company has utilized its broadened product base resulting from strategic
acquisitions to market its products in high-value niche product areas.
MANUFACTURING PROCESSES
GENERAL. The Company's competitive strengths include low-cost, high-quality
manufacturing processes and a broad range of process technologies, which allow
the Company to offer its customers the best-suited product for each respective
application. Additionally, the Company has made significant capital
investments in modern technology and has developed proprietary equipment and
manufacturing techniques. The Company believes that it exceeds industry
standards in productivity, reduction of variability and delivery lead time.
The Company has a wide range of manufacturing capabilities (many of which are
patented) that allow it to produce specialized products which, in certain
cases, cannot be reproduced in the market. Substantially all of the Company's
manufacturing sites have plant-wide real time control and monitoring systems
that constantly monitor key process variables using a sophisticated closed
loop system of computers, sensors and custom software.
NONWOVENS. The Company believes that it has the most comprehensive array of
nonwoven manufacturing technologies in the industry. The Company has
capabilities spanning the entire spectrum of nonwoven technologies, including
the following manufacturing processes: spunbond, SMS, thermal and adhesive
bond, spunlace, wet-laid, film extrusion and aperturing, through-air bond,
ultrasonic bond and tenters, which is a finishing process.
Nonwoven rollgoods typically have three process steps: web formation, web
consolidation or bonding and finishing. Web formation is the process by which
previously prepared fibers, filaments or films are arranged into loosely held
networks called webs, batts or sheets. In each process, the fiber material is
laid onto a forming or conveying surface, which may be dry, wet or molten. The
dry-laid process utilizes textile fiber processing equipment, called "cards,"
that have been specifically designed for high-capacity nonwoven production.
The carding process converts bales of entangled fibers into uniform oriented
webs that then feed into the bonding process. The wet-laid process utilizes
papermaking technology in which the fibers are suspended in a water slurry and
deposited onto a moving screen, allowing the water to pass through and the
fibers to collect. In a molten polymer-laid process, extrusion technology is
used to transform polymer pellets into filaments, which are laid on a
conveying screen and interlocked by thermal fusion. In this process, the fiber
formation, web formation and web consolidation are generally performed as a
continuous simultaneous operation, making this method very efficient.
Web consolidation is the process by which the fibers or film are bonded
together using either mechanical, thermal, chemical or solvent means. The
bonding method greatly influences the end products' strength, softness, loft
and utility. The principal bonding processes are thermal bond, resin or
adhesive bond, hydroentanglement or spunlace, binder fiber or through-air
bond, calender, spun bond, melt blown, SMS, ultrasonic bond and needlepunch.
Thermal bond utilizes heated calender rolls with embossed patterns to point
bond or fuse the fibers together. In the resin bond process, an adhesive,
typically latex, is pad rolled onto the web to achieve a bond. Spunlace, or
hydroentanglement, uses high pressure water jets to mechanically entangle the
fibers. Through-air bonding takes place through the fusion of bi-component
fibers in a blown hot air drum. Spunbond and meltblown take advantage of the
melt properties of the resins and may use thermal fusion with the aid of
calender rolls. SMS is the integrated process of combining spunbond and
meltblown sheets in a laminated structure, creating very strong, lightweight
and uniform fabrics. Ultrasonic bonding utilizes high-frequency sound waves
that heat the bonding sites. Needlepunch is a mechanical process in which beds
of needles are punched through the web, entangling the fibers.
49
Finishing, or post-treatment, adds value and functionality to the product
and typically includes surface treatments for fluid repellency, aperturing,
embossing, laminating, printing and slitting. Spunlace and resin bond systems
also have a post-treatment drying or curing step. Certain products also go
through an aperturing process in which holes are opened in the fabric,
improving absorbency.
FILMS AND WOVENS. The woven/film process begins with plastic resin, which is
extruded into a thin plastic film. The film is slit into narrow tapes and
stretched or "oriented," the process through which it derives its high
strength. The tapes are wound onto spools which feed weaving machines. In the
final step, the product is coated for water or chemical resistance,
ultraviolet stabilization and protection, flame retardancy, color and other
specialized characteristics. The Company operates 160-inch and 80-inch coating
lines that have been equipped with the latest technology for gauge control,
print treating, lamination, anti-slip finishes and perforation. The 160-inch
line is one of only two lines of that size in North America. At its Portland,
Oregon facility, the Company extrudes specialized films which are used to
laminate the woven product to paper and has the additional capability of
printing up to four colors on one of the widest printing presses in North
America.
OUTSIDE CONVERTING. The Company entered into a five-year manufacturing and
distribution agreement commencing in August 1993 with BMR to convert,
warehouse and distribute a wide range of wiping products. Under the agreement,
the Company sells base fabrics produced at its Benson, North Carolina
manufacturing facility to BMR. BMR then cuts, folds and packages the fabric
using Company-owned machinery in a dedicated facility on behalf of the Company
in accordance with specifications. BMR distributes the products directly to
the Company's customers, while marketing, sales and order processing are the
responsibility of the Company. In Europe, the Company operates its own
cutting, folding and packaging machines at its Cuijk manufacturing facility.
COMPETITION
The Company's primary competitors in its industrial and specialty product
markets are Du Pont, Freudenberg Nonwovens L.P., Kimberly-Clark Inc., Dexter
Nonwovens Division, Kuraray Co., Ltd., Veratec (a subsidiary of International
Paper Co.) and Reemay Inc. for nonwoven products and Intertape Polymer Group
Inc. and Amoco Fabrics and Fibers Co. for woven products. Generally, product
innovation and performance, quality, service and cost are the primary
competitive factors, with technical support being highly valued by the largest
customers.
The Company's primary competitors in its wiping product markets are Du Pont
in nonwovens and paper producers such as Fort Howard Corp., Atlantic Mills
Inc., James River Corp. of Virginia and Scott Paper Company. In addition to
like-kind products, the Company's wiping products also compete with used rags,
linen and paper products. Generally, cost, distribution and utility are the
principal factors considered in food service and janitorial end uses, while
product innovation, performance and technical support are the most important
factors for specialty and industrial wiping products.
The Company's primary competitors in its medical product markets are Du Pont
and FiberWeb Group, Inc. Price, distribution, variety of product offerings and
performance are the chief competitive factors in this product category.
The Company's primary competitors in its hygiene product categories are
Veratec, FiberWeb Group, Inc. and Poly-Bond Inc. in North America, Corovin
GmbH and J.W. Suominen O.Y. in Europe and Uni-Charm Corp. in Japan. Generally,
product cost, technical capacity and innovation and customer relationships are
the most important competitive factors in these markets. The Company believes
that it is an industry leader in each of these categories.
A number of the Company's niche product applications are sold into select
specialized markets, and the Company believes that the size of such markets,
relative to the amount of capital required for
50
entry, as well as the advanced manufacturing processes required to service
them, present barriers to entry. There can be no assurance, however, that
these specialized markets, particularly as niche product applications become
standardized over time, will not attract additional competitors that could
have greater financial, technological, manufacturing and marketing resources
than the Company. See "Risk Factors--Competition in the Company's Markets."
RAW MATERIALS
The primary raw materials used in the manufacture of most of the Company's
products are polypropylene and polyester fiber, polyethylene and polypropylene
resin, and, to a lesser extent, rayon and tissue paper. In 1995, polypropylene
fiber accounted for approximately 25% of the Company's cost of sales. The
price of polypropylene and polyethylene is a function of, among other things,
manufacturing capacity, demand and the price of crude oil. Historically, the
price of polypropylene and polyethylene has fluctuated, such as in late 1994
and early 1995 when resin prices increased significantly. The sharp increase
was primarily due to short-term interruptions in production capacity and
increased demand as a result of an expanding economy. By mid-1995, supply had
increased, reducing prices, which reductions the Company expects will continue
as incremental capacity continues to be added.
There can be no assurance that the price of polypropylene and polyethylene
will not increase in the future or that the Company will be able to pass on
such increases to its customers as it has generally been able to do in the
past. A significant increase in the price of polyolefin resins that cannot be
passed on to customers could have a material adverse effect on the Company's
results of operations and financial conditions.
The Company's major suppliers of polypropylene fiber are Hercules, Danaklon
and Steen, while its major supplier of polyethylene is Novacor. The Company's
major suppliers of rayon are Lenzing Fibers and Courtaulds Fibers, while its
major suppliers of polyester are Wellman and Du Pont. The Company purchases
its polypropylene resin and tissue paper from Indelpro and Crown Vantage,
respectively.
The Company believe that the loss of any one or more of its suppliers would
not have a long-term material adverse effect on the Company because other
manufacturers with whom the Company conducts business would be able to fulfill
the Company's requirements. However, the loss of the Company's suppliers
could, in the short term, adversely affect the Company's business until
alternative supply arrangements were secured. In addition, there is no
assurance that any new supply agreement entered into by the Company will have
terms as favorable as those contained in current supply arrangements. The
Company has not experienced any significant disruptions in supply as a result
of shortages in raw materials.
ENVIRONMENTAL
The Company is subject to a broad range of federal, foreign, state and local
laws and regulations relating to the pollution and protection of the
environment. Among the many environmental requirements applicable to the
Company are laws relating to air emissions, wastewater discharges and the
handling, disposal and release of solid and hazardous substances and wastes.
Based on continuing internal review and advice from independent consultants,
the Company believes that it is currently in substantial compliance with
applicable environmental requirements.
The Company is also subject to laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"),
that may impose liability retroactively and without fault for releases or
threatened releases of hazardous substances at on-site or off-site locations.
The Company is not aware of any releases for which it may be liable under
CERCLA or any analogous provision.
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Actions by federal, state and local governments in the United States and
abroad concerning environmental matters could result in laws or regulations
that could increase the cost of producing the products manufactured by the
Company or otherwise adversely affect demand for its products. For example,
certain local governments have adopted ordinances prohibiting or restricting
the use or disposal of certain plastic products, such as certain of the
plastic wrapping materials which are produced by the Company. Widespread
adoption of such prohibitions or restrictions could adversely affect demand
for the Company's products and thereby have a material adverse effect upon the
Company. In addition, a decline in consumer preference for plastic products
due to environmental considerations could have a material adverse effect upon
the Company.
Most of the Company's manufacturing processes are mechanical and are
therefore considered to be environmentally benign. The polyolefin resins are
readily recyclable, and the Company maintains a network of recyclers to
receive post-industrial waste for certain of the Company's products. In
addition, each of the Company's manufacturing sites has equipment and
procedures for reclaiming a majority of internally generated scrap, thus
reducing the amount of waste sent to local landfills. As a result, the Company
does not currently anticipate any material adverse effect on its operations,
financial condition or competitive position as a result of its efforts to
comply with environmental requirements. Some risk of environmental liability
is inherent, however, in the nature of the Company's business, and there can
be no assurance that material environmental liabilities will not arise. It is
also possible that future developments in environmental regulation could lead
to material environmental compliance or cleanup costs.
PROPERTIES
The Company and its subsidiaries operate the following principal
manufacturing plants and other facilities, all of which are owned, except as
noted. All of the Company's owned properties are subject to liens in favor of
the lenders under the Company's credit facilities.
[Enlarge/Download Table]
TOTAL SQUARE
LOCATION FEET PRINCIPAL FUNCTION
-------- ------------ ------------------
Benson, North Carolina.. 469,000 Manufacturing, Sales, Marketing and Warehousing
North Little Rock,
Arkansas (Plant 1)..... 364,000(1) Manufacturing
North Little Rock,
Arkansas (Plant 2)..... 119,000 Manufacturing and Warehousing
Gainesville, Georgia.... 121,000(2) Manufacturing and Warehousing
Dayton, New Jersey...... 239,200 Research and Development
Montreal, Quebec........ 118,000(2) Manufacturing
Cuijk, The Netherlands.. 364,000 Manufacturing, Sales, Marketing and Warehousing
Landisville, New Jersey. 245,000 Manufacturing, Sales, Marketing and Research and
Development
Vineland, New Jersey.... 83,500(3) Manufacturing
Rogers, Arkansas........ 126,000 Manufacturing
Rogers, Arkansas........ 15,000(2) Warehousing
Neunkirchen, Germany.... 108,000 Manufacturing, Sales and Marketing
North Bay, Ontario...... 300,000 Manufacturing
Mississauga, Ontario.... 2,900(2) Sales and Marketing
Portland (Clackamas),
Oregon................. 30,000 Manufacturing
Vancouver, British
Columbia............... 60,000(2) Manufacturing
San Luis Potosi, Mexico. 100,000 Manufacturing and Marketing
Guadalajara, Mexico..... 6,200(2) Sales, Marketing and Warehousing
Monterrey, Mexico....... 2,325(2) Sales, Marketing and Warehousing
Mexico City, Mexico..... 9,850(2) Sales, Marketing and Warehousing
North Charleston, South
Carolina............... 4,500(3) Corporate
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--------
(1) Approximately 52,000 square feet of manufacturing space is utilized by the
Company. The balance is leased to Johnson & Johnson.
(2) Leased.
(3) Leased from entities affiliated with one of the Company's stockholders.
See "Certain Relationships and Related Transactions."
EMPLOYEES
As of March 30, 1996, the Company employed approximately 1,962 persons.
Approximately 246 of the employees in Canada, 19 in Portland, 90 in North
Little Rock, 75 in Germany, 151 in Mexico, and 222 in the Netherlands are
represented by labor unions or trade councils that have entered into separate
collective bargaining agreements with the Company. The Company considers its
employee relations to be very good.
INVENTORY AND BACKLOG
Unfilled orders, excluding orders on hand not yet released for delivery, as
of December 30, 1995 and December 31, 1994 amounted to approximately $54.1
million and $21.5 million, respectively. As of March 30, 1996, unfilled orders
approximated $63.1 million. The Company's unfilled order position has
increased in the past year and in the first quarter of 1996 primarily as a
result of the Chicopee Acquisition.
PATENTS AND TRADEMARKS
The Company considers its patents, patent licenses and trademarks, in the
aggregate, to be of material importance to its business and seeks to protect
this proprietary know-how in part through United States and foreign patent and
trademark registrations. The Company maintains 44 registered trademarks and
nearly 100 patents or patent licenses in the United States. In addition, the
Company maintains certain trade secrets for which, in order to maintain the
confidentiality of such trade secrets, it has not sought patent protection.
LITIGATION
The Company is currently a party to various claims and legal actions which
arise in the ordinary course of business. The Company believes such claims and
legal actions, individually and in the aggregate, will not have a material
adverse effect on the business, financial condition or results of operations
of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers as of March 30, 1996:
[Download Table]
NAME AGE POSITION
---- --- --------
Jerry Zucker............... 46 Chairman, President, Chief Executive
Officer and Director of the Company
James G. Boyd.............. 51 Executive Vice President, Treasurer,
Secretary and Director of the Company
S. Grant Reeves............ 40 Vice President of the Company
Thomas E. Phillips......... 46 Group Vice President--Finance, Systems and
Administration, Nonwovens
James L. Schaeffer......... 45 Group Vice President--
Operations/Engineering, Nonwovens
Gregg Wilkinson............ 43 Group Vice President--Marketing, Sales and
Technology, Nonwovens
Peter C. Bourgeois......... 52 Vice President, Wovens
Bruce V. Rauner............ 40 Director of the Company
David A. Donnini........... 30 Director of the Company
JERRY ZUCKER, Chairman, President, Chief Executive Officer and Director of
the Company, 46, has been Chairman, President, Chief Executive Officer and a
Director of the Company since its inception. In addition to his duties with
the Company, Mr. Zucker presently serves as Chairman and Chief Executive
Officer of InterTech, one of the Company's principal stockholders, and has
served in this capacity since 1983.
JAMES G. BOYD, Executive Vice President, Treasurer, Secretary and Director
of the Company, 51, has been Executive Vice President, Treasurer, Secretary
and a Director of the Company since its inception. In 1986, Mr. Boyd joined
InterTech where he currently serves as Executive Vice President, Treasurer and
Director and performs various treasury, financial and legal functions for the
Company and its affiliates.
S. GRANT REEVES, Vice President of the Company, 40, has been Vice President
of the Company since its inception. Mr. Reeves joined InterTech in 1986 and
served as General Manager at Fabrene from 1991 through June 1994.
THOMAS E. PHILLIPS, Group Vice President--Finance, Systems and
Administration, Nonwovens, 46, has held this position since March 1995. From
1993 until March 1995, Mr. Phillips served as General Manager and Vice
President of FiberTech. Prior to joining FiberTech, Mr. Phillips served as a
Vice President (1986-1992) and a Senior Vice President (1992-1993) of Reemay,
Inc. Nonwovens Mfg., where his responsibilities included financial, systems,
human resources and administrative functions.
JAMES L. SCHAEFFER, Group Vice President--Operations/Engineering, Nonwovens,
45, has served in this capacity since March 1995. From 1992 until March 1995,
Mr. Schaeffer served as Vice President--Operations/Engineering of FiberTech.
Prior to joining FiberTech, Mr. Schaeffer served as General Manager for Scott
Nonwovens at the Landisville facility from 1990 to 1992.
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GREGG WILKINSON, Group Vice President--Marketing, Sales and Technology,
Nonwovens, 43, has served in this capacity since March 1995. From July 1994
until March 1995, Mr. Wilkinson served as Vice President--Marketing, Sales and
Technology of FiberTech and from August 1993 until July 1994, Mr. Wilkinson
served as Director--New Business Development. For the period 1987 to August
1993, Mr. Wilkinson served in sales and marketing management capacities with
Reemay, Inc., a former InterTech affiliate.
PETER C. BOURGEOIS, Vice President, Wovens, 52, has served in this capacity
since 1993. Prior to attaining this position, Mr. Bourgeois had served as Vice
President--Marketing and Sales for Fabrene since June 1989.
BRUCE V. RAUNER, Director, 40, has been a Director of the Company since its
inception. Mr. Rauner has been a Principal and General Partner with Golder,
Thoma in Chicago, Illinois since 1984, where he is responsible for originating
and making new investments, monitoring portfolio companies and recruiting and
training associates. Mr. Rauner is also a Director of ERO, Inc and COREStaff,
Inc.
DAVID A. DONNINI, Director, 30, has been a Director of the Company since its
inception. Mr. Donnini has been a Principal of Golder, Thoma since 1993. From
1991 to 1993, Mr. Donnini was an Associate with Golder, Thoma. Prior to
joining Golder, Thoma in 1991, Mr. Donnini attended The Stanford Graduate
School of Business.
The Board currently consists of four directors, who are divided into three
classes as nearly equal in number as possible, with Mr. Donnini's term
expiring in 1997, Mr. Boyd's term expiring in 1998 and Messrs. Zucker's and
Rauner's terms expiring in 1999. At each annual meeting of stockholders,
successors to the class of directors whose term expires at such meeting will
be elected to serve for three-year terms or until their successors are duly
elected and qualified. Following consummation of the Offerings, the Company
expects to appoint two additional directors who are not employees of the
Company or any affiliate of the Company. The Board has the power to appoint
the officers of the Company. Each officer will hold office for such term as
may be prescribed by the Board and until such person's successor is chosen and
qualified or until such person's death, resignation or removal. There are
three Committees of the Board: the Compensation Committee, the 1996 Key
Employee Stock Option Plan Committee (the "Stock Option Committee") and the
Audit Committee. The Compensation Committee, which is composed of Messrs.
Donnini and Rauner, reviews and makes recommendations to the Board regarding
salaries, compensation and benefits of executive officers and key employees of
the Company. The Stock Option Committee, which is composed of Messrs. Donnini
and Rauner, is empowered to grant options to purchase Common Stock of the
Company to any key employee in accordance with the 1996 Key Employee Stock
Option Plan (the "1996 Plan"). The Audit Committee is composed of Messrs.
Donnini and Rauner. Among other duties, the Audit Committee reviews the
internal and external financial reporting of the Company, reviews the scope of
the independent audit, considers comments by the auditors regarding internal
controls and accounting procedures and provides the management's response to
the auditors' comments. The Company does not have a nominating committee.
55
EXECUTIVE COMPENSATION
The table below sets forth the aggregate cash compensation paid to, or
accrued by the Company for, the chief executive officer of the Company and
each of the Company's four other most highly compensated executive officers
for each of fiscal year 1994 and fiscal year 1995.
SUMMARY COMPENSATION TABLE
[Download Table]
ANNUAL
COMPENSATION
--------------- ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1)
--------------------------- ----------- ------- ------- ---------------
Jerry Zucker...................... 1995 649,791 604,000 29,835
Chairman, President and Chief 1994 379,462 0 14,024
Executive Officer
James G. Boyd..................... 1995 350,000 321,000 20,343
Executive Vice President, 1994 237,048 0 12,494
Treasurer and Secretary
Thomas E. Phillips................ 1995 126,410 75,000 8,917
Group Vice President--Finance, 1994 104,400 76,000 7,690
Nonwovens
James L. Schaeffer................ 1995 126,410 75,000 8,917
Group Vice President-- 1994 104,400 66,000 7,980
Operations/Engineering,
Nonwovens
Gregg Wilkinson................... 1995 126,410 75,000 8,917
Group Vice President--Marketing, 1994 86,247 36,000 6,900
Sales and Technology, Nonwovens
--------
(1) The following table identifies and quantifies the amount of All Other
Compensation for each named executive officer.
[Download Table]
FISCAL MONEY PURCHASE 401(K) COMPANY 401(H) COMPANY
NAME YEAR PENSION PLAN CONTRIBUTION CONTRIBUTION
---- ------ -------------- -------------- --------------
Jerry Zucker................ 1995 $24,087 $1,866 $3,882
1994 12,919 1,105 0
James G. Boyd............... 1995 13,357 4,657 2,329
1994 7,822 4,672 0
Thomas E. Phillips.......... 1995 5,125 3,792 0
1994 5,020 2,670 0
James L. Schaeffer.......... 1995 5,125 3,792 0
1994 5,220 2,760 0
Gregg Wilkinson............. 1995 5,125 3,792 0
1994 4,312 2,588 0
The amounts included under the column entitled "Money Purchase Pension Plan"
are amounts paid by the Company into a trust fund which provides retirement
benefits and, under certain circumstances, death or disability benefits or
benefits upon termination of employment.
In connection with the Offerings, the Company has adopted the 1996 Plan. The
1996 Plan is administered by the Stock Option Committee, which is composed of
non-management members of the Board who are appointed by the Board. Any person
who is a full-time, salaried employee of the Company (excluding non-management
directors) is eligible to participate in the 1996 Plan (a "Participant"). The
Stock Option Committee selects the Participants and determines the terms and
56
conditions of the options. The 1996 Plan provides for the issuance of options
to Participants covering 1,500,000 shares of Common Stock, subject to certain
adjustments reflecting changes in the Company's capitalization.
At the time of the Offerings, options to acquire a number of shares of
Common Stock equal to $600,000 divided by the initial public offering price
per share of Common Stock will be granted at a price per share equal to the
initial public offering price per share of Common Stock. Such options will
vest over a five-year period and will expire three years from the date of
vesting. Messrs. Phillips, Schaeffer and Wilkinson will each be granted one-
sixth of such options, while the remaining one-half of such options will be
granted to three employees of the Company who are not named executive
officers.
Options granted under the 1996 Plan may be either incentive stock options
("ISOs") or such other forms of non-qualified stock options ("NQOs") as the
Stock Option Committee may determine. ISOs are intended to qualify as
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). The exercise price of the
options will be at least 100% of the fair market value of a share of Common
Stock on the date of grant.
Options granted under the 1996 Plan may be subject to time vesting and
certain other restrictions at the Stock Option Committee's sole discretion.
Subject to certain exceptions, the right to exercise an option generally
terminates at the earlier of (i) the first date on which the grantee of such
option is not employed by either the Company or any subsidiary for any reason
other than termination without cause, death, voluntary retirement or permanent
disability or (ii) the expiration date of the option. If the grantee of an
option dies or suffers a permanent disability while still employed by the
Company or any subsidiary, the right to exercise all unexpired installments of
such option may be accelerated and shall accrue as of the date of such death
or the later of the date of such permanent disability or the discovery of such
permanent disability, and such option may be exercisable, subject to certain
exceptions, for 90 days after such date in the case of death and for one year
in the case of disability. If the employee voluntarily retires, the option may
be exercisable for up to three years following the date of retirement, as long
as the employee does not engage in conduct that the Stock Option Committee
determines to be not in the best interest of the Company. If the employment of
the grantee of an option is terminated without cause, to the extent the option
has been vested, such option shall be exercisable for 30 days after such date.
The Board generally has the power and authority to amend the 1996 Plan at
any time without the approval of the Company's stockholders; provided that,
without the approval of the Company's stockholders, the Board shall not amend
the 1996 Plan to cause any outstanding ISOs to no longer qualify as ISOs. In
addition, the Board shall not amend the 1996 Plan to materially and adversely
affect the rights of an option holder under such option without the consent of
such option holder.
DIRECTORS' COMPENSATION
Each Director who is not an employee of the Company receives a $5,000 annual
retainer, which includes attendance at four quarterly meetings of the Board,
and $500 for any committee meeting attended on a day other than a Board
meeting. The outside directors are reimbursed for out-of-pocket expenses
incurred in connection with attending meetings. Employee Directors receive no
Director's compensation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Zucker, Rauner and Donnini served as members of the Compensation
Committee of the Board during fiscal year 1995. Mr. Zucker was an officer and
an employee of the Company during such period. Messrs. Rauner and Donnini will
serve as members of the Compensation Committee of the Board for fiscal year
1996.
57
EMPLOYMENT AND MANAGEMENT AGREEMENTS
Pursuant to management agreements originally entered into in October, 1992
(the "PGI Management Agreements"), Messrs. Zucker and Boyd (collectively, the
"Executives") have agreed to serve as President and Chief Executive Officer,
and Executive Vice President and Treasurer, respectively, of PGI and
FiberTech. Pursuant to management agreements entered into in March, 1995 (the
"Chicopee Management Agreements" and, together with the PGI Management
Agreements, the "Management Agreements"), the Executives have agreed to serve
in the same capacities for Chicopee. The Management Agreements provide that
the Executives' employment thereunder will continue until the Executive's
resignation, permanent disability, death or termination by PGI's or Chicopee's
Board of Directors, as the case may be.
The PGI Management Agreements provide for an annual base salary of $250,000
to be paid to Mr. Zucker and an annual base salary of $150,000 to be paid to
Mr. Boyd, while the Chicopee Management Agreements provide for an annual base
salary of $400,000 to be paid to Mr. Zucker and an annual base salary of
$200,000 to be paid to Mr. Boyd, all of which amounts may be increased as
determined in good faith by the Board of Directors of PGI and Chicopee,
respectively. The Management Agreements also provide for a bonus to be paid at
the end of each fiscal year to each of the Executives in an amount determined
by PGI's or Chicopee's Board of Directors, as the case may be, but not to
exceed such Executive's base salary.
The Management Agreements provide that upon the termination of either
Executive's employment, such Executive is entitled to receive severance
payments equal to either one-half (in the case of death, disability,
resignation without good reason or termination for cause) or three times (in
all other cases) his annual salary.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE 1994 TRANSACTIONS
In October, 1992, in connection with the Scott Acquisition, ZBG Partners
acquired 240,000 shares of PGI's Class A Preferred Cumulative Redeemable Stock
("Class A Preferred") at a price of $100 per share and 10,000 shares of PGI's
Class B Cumulative Convertible Preferred Stock ("Class B Preferred") at a
price of $100 per share. The Class A Preferred was non-voting, while the
holders of the Class B Preferred voted together with the holders of PGI common
stock on an as-if-converted basis. ZBG Partners was a general partnership, the
partners of which were GTC Fund III and ZB Holdings, Inc. ("ZB Holdings"),
which is a wholly owned subsidiary of InterTech, a corporation whose sole
stockholders are Messrs. Zucker and Boyd. In connection with the 1994
Transactions, ZBG Partners was dissolved, GTC Fund III received the shares of
Class A Preferred and Class B Preferred originally issued to ZBG Partners, PGI
redeemed a portion of such Class A Preferred for an aggregate redemption price
of approximately $11,367,652 in cash, and GTC Fund III transferred the
remainder of such Class A Preferred and Class B Preferred to the Company. In
return, GTC Fund III received 1,207,767 shares of Class A Common Stock, par
value $.01 per share, of the Company (the "existing Class A Common Stock").
Concurrently with the above transactions, in October, 1992, InterTech
acquired 22,104 shares of Class A Preferred and 921 shares of Class B
Preferred in exchange for 30,000 Class B Series Shares and 2,534,728 Class A
Series 1 Preference Shares of Fabrene. Pursuant to the 1994 Transactions, a
portion of such Class A Preferred was redeemed by PGI for approximately
$1,046,973 in cash. InterTech transferred the remaining Class A Preferred and
Class B Preferred to the Company in return for 111,236 shares of existing
Class A Common Stock of the Company.
On May 7, 1993, FTG acquired from The Chase Manhattan Bank of Canada and
First City senior subordinated loans of Fabrene in the amount of $10,251,076.
The purchase price was the full face
58
value of the senior subordinated loans. FTG was specifically organized to
acquire the notes and warrants attached thereto. The notes bore interest at
11.825% and were payable quarterly. The notes were repaid as part of the 1994
Transactions.
Pursuant to the PGI Management Agreements, Messrs. Zucker and Boyd acquired
132,343 shares and 44,113 shares, respectively, of common stock of PGI at a
price of $.45337 per share and 14,400 shares and 4,800 shares, respectively,
of Class A Preferred at a price of $100 per share. Pursuant to the 1994
Transactions, PGI redeemed a portion of such Class A Preferred for a
redemption price of $682,105, in the case of Mr. Zucker, and $227,330, in the
case of Mr. Boyd. Messrs. Zucker and Boyd transferred the remainder of such
Class A Preferred and common stock of PGI to the Company pursuant to the 1994
Transactions and received 152,527 shares and 50,840 shares, respectively, of
existing Class A Common Stock in return. PGI loaned Messrs. Zucker and Boyd
$1,498,532.92 and $499,509.52, respectively, in connection with the October
1992 purchases. The promissory notes evidencing this indebtedness bore an
interest rate of at least the minimum rate required by the Internal Revenue
Service to avoid imputed interest and have been repaid in full.
As part of the 1994 Transactions, Chase Manhattan Investment Holdings, Inc.
("CMIHI") received approximately $587,824 in payment of capitalized interest
with respect to a subordinated loan made to Fabrene by CMIHI's predecessor in
interest. In addition, in exchange for certain debt and equity securities of
Fabrene and PGI held by it, CMIHI received 81,000 shares of existing Class A
Common Stock, 10,835 shares of existing Class B Common Stock and cash in the
amount of $594,815. CMIHI is an affiliate of Chase Securities Inc., which is
one of the Underwriters. Chase Securities, Inc., a predecessor company, was
one of the Initial Purchasers (as defined) in the Notes Offering. CMIHI is
also an affiliate of Chase Bank, which acts as the agent bank and a lender
under the 1994 Credit Facility, for which Chase Bank received customary
syndication fees, commitment fees and annual agency fees. Chase Securities,
Inc. also acted as arranger in connection with the syndication of the 1994
Credit Facility, for which it received customary fees.
As part of the 1994 Transactions, FTG, Inc., an affiliate of InterTech
("FTG"), received 36,385 shares of existing Class A Common Stock of the
Company and $235,664 in cash in exchange for all of the debt and equity
securities of Fabrene held by it.
Also as part of the 1994 Transactions, Fabrene redeemed or purchased all of
the debt and equity securities of Fabrene held by First City Capital Markets
(Canada) Ltd. ("First City") for $12.5 million in cash. As a result of the
1994 Transactions, the Company owns approximately 66% of Fabrene, with PGI
owning the remainder.
In connection with the Notes Offering, Messrs. Zucker and Boyd entered into
an agreement with the Company pursuant to which Messrs. Zucker and Boyd
granted to the Company the prior right to acquire any business identified by
either of them (while employed by the Company), or their affiliates, engaged
in, or planning to engage in, the manufacture and marketing of nonwoven and
woven polyolefin fabrics for industrial and consumer applications or any other
business then engaged in by the Company. To the extent the Company does not
elect to pursue any such acquisition, Messrs. Zucker and Boyd are free to
acquire such business.
THE 1995 TRANSACTIONS
In connection with the 1995 Transactions, the Company, GTC Fund III,
InterTech, the Executives, FTG, CMIHI, Leeway & Co. ("Leeway") and the
California Public Employees' Retirement System ("CalPERS") (collectively, the
"Stockholders") entered into an Amended and Restated Stockholders Agreement,
which (i) provides for the designation of the Board, (ii) imposes certain
restrictions on transfer of shares of the Company, (iii) requires the Company
to offer shares to the Stockholders under certain circumstances upon
authorization of an issuance or sale of shares, (iv) grants the Stockholders
59
certain participation rights in connection with a sale of shares and (v)
imposes certain restrictive covenants on the Company regarding fundamental
corporate transactions. Concurrently with the Offerings, the Amended and
Restated Stockholders Agreement will be terminated.
In connection with the 1995 Transactions, the Company and the Stockholders
entered into an Amended and Restated Registration Agreement, pursuant to which
the Stockholders have the right, in certain circumstances and subject to
certain conditions, to require the Company to register shares of the Company's
Common Stock held by them under the Securities Act of 1933. Under the
Registration Agreement, except in certain limited circumstances, the Company
is obligated to pay all expenses in connection with such registration. See
"Shares Eligible for Future Sale--Registration Agreement."
In connection with the 1995 Transactions, the following transactions were
consummated: (i) pursuant to a Recapitalization Agreement among the Company,
InterTech, GTC Fund III, the Executives, CMIHI and FTG, (a) GTC Fund III
exchanged 1,207,767 shares of existing Class A Common Stock for 111,825 shares
of Class A-1 Common Stock, par value $.01 per share (the "Class A-1 Common
Stock"), 115,000 shares of Class A-3 Common Stock, par value $.01 per share
(the "Class A-3 Common Stock") and 185,902 shares of new Class B Common Stock,
par value $.01 per share (the "Class B Common Stock"), (b) CMIHI exchanged
81,000 shares of existing Class A Common Stock and 10,835 shares of existing
Class B Common Stock of the Company, par value $.01 per share, for 17,248
shares of Class A-1 Common Stock and 14,136 shares of Class B Common Stock,
(c) InterTech exchanged 111,236 shares of existing Class A Common Stock for
46,760 shares of Class B Common Stock, (d) FTG exchanged 36,385 shares of
existing Class A Common Stock for 15,295 shares of Class B Common Stock, (e)
Mr. Zucker exchanged 51,864 shares of existing Class A Common Stock for 21,802
shares of Class B Common Stock, and (f) Mr. Boyd exchanged 17,287 shares of
existing Class A Common Stock for 7,267 shares of new Class B Common Stock;
(ii) pursuant to a Stock Purchase Agreement, (a) GTC Fund III purchased 78,452
shares of Class A-1 Common Stock for $9.0 million in cash, (b) InterTech
purchased 163,655 shares of Class B Common Stock for $8,675,000 in cash, (c)
CMIHI purchased 8,584 shares of Class A-1 Common Stock and 35,000 shares of
Class A-2 Common Stock, par value $.01 per share (the "Class A-2 Common
Stock") for $5.0 million in cash, and (d) each of Leeway and CalPERS purchased
26,150 shares of Class A-1 Common Stock for $3.0 million in cash; (iii)
pursuant to the Chicopee Management Agreements, (a) Mr. Zucker purchased
61,809 shares of Class B Common Stock in exchange for 100,663 shares of
existing Class A Common Stock and $993,750 in cash, and (b) Mr. Boyd purchased
20,603 shares of Class B Common Stock in exchange for 33,553 shares of
existing Class A Common Stock and $331,250 in cash; and (iv) Leeway, CalPERS,
Chicopee and the Company entered into a Securities Purchase Agreement pursuant
to which each of Leeway and CalPERS purchased 20,000 shares of Preferred Stock
of Chicopee for $19,550,000 in cash and, for $250,000 in cash, warrants to
purchase 35,500 shares of the Company's Class C Common Stock, par value $.01
per share (the "Class C Common Stock").
Chase Securities, Inc., in March of 1995, acted (i) as arranger in
connection with the syndication of the 1995 Credit Facility, (ii) as
solicitation agent in connection with the solicitation of consents from the
holders of the Notes and (iii) as private placement agent of Chicopee's
Redeemable Preferred Stock and Warrants to purchase the Company's Class C
Common Stock. For each such transaction, Chase Securities, Inc. received
customary fees. Chase Bank acts as the agent bank and a lender under the 1995
Credit Facility, for which Chase Bank received customary syndication fees,
commitment fees and annual agency fees.
OTHER TRANSACTIONS
The Company's corporate headquarters are housed in space leased by InterTech
from an affiliate of InterTech. A portion of the payments and other expenses,
primarily insurance and allocated costs, are charged to the Company. Such
amounts approximated $2.3 million during 1995.
60
On September 1, 1993 ConX, Inc. ("ConX"), a subsidiary of InterTech,
acquired a manufacturing facility in Vineland, New Jersey for the benefit of
Technetics Group, Inc. ("Technetics"), a wholly owned subsidiary of FiberTech,
and entered into a lease of the facility to Technetics at a base rate of $2.50
per square foot, subject to adjustment to account for inflation, which is
comparable to similar properties in the area. The lease terminates on August
31, 2008 and is subject to a purchase option at termination. The leased
facility consists of 83,500 square feet of manufacturing space and was
acquired by ConX for $1,250,000.
Fabrene and PGI have entered into a Technical Services Agreement pursuant to
which PGI provides certain services for the benefit of Fabrene, including
strategic and operational management services, risk management (including the
issuance of comprehensive and general liability and property insurance),
environmental and safety assessment, and engineering support. Fabrene pays PGI
a monthly payment of $25,000, as well as the direct out-of-pocket cost of PGI
to provide these services.
On June 1, 1995, FiberTech and ConX II, Inc. ("ConX II"), a Delaware
corporation all of whose outstanding capital stock is held by InterTech and
GTC Fund III, entered into supply and services agreements (collectively, the
"ConX Agreements") pursuant to which (i) ConX II has agreed to purchase
certain manufacturing equipment, which equipment ConX II has agreed to install
at certain of FiberTech's manufacturing locations, (ii) FiberTech has agreed
to purchase from ConX II certain materials and supplies and (iii) FiberTech
has agreed to provide certain manufacturing, warehousing and administrative
services and to provide exclusive space and dedicated areas to ConX II at the
sites at which the equipment is located. The ConX Agreements are initially
terminable on the date which is five years after the date the equipment at
each plant becomes operational.
On January 11, 1996, the Company authorized and issued 10,000 shares of
Company Redeemable Preferred Stock to ConX II for $10.0 million cash. Of the
$10.0 million purchase price, an aggregate of $4.0 million was loaned to ConX
II by InterTech, ZB Holdings and Mr. Zucker, while $6.0 million was advanced
to ConX II by a third-party lender (the repayment of which is guaranteed by
GTC Fund III). The Company intends to use a portion of the proceeds of the
Offerings to redeem the Company Redeemable Preferred Stock.
Chase Bank will also act as the agent bank and a lender under the New Credit
Facility, for which it will receive customary syndication fees, commitment
fees and annual agency fees. Chemical Bank, an affiliate of Chase Securities
Inc., will act as Operations Agent under the New Credit Facility. In addition,
Chase Securities Inc. acted as solicitation agent in connection with the
solicitation of certain consents from the holders of the Notes. See
"Description of Certain Indebtedness."
Concurrently with the Offerings, certain of the stockholders will enter into
an agreement (the "Voting Agreement") providing, among other things, for the
nomination and voting for up to six directors of the Company by such
stockholders, which after consummation of the Offerings will own approximately
52.5% of the outstanding Common Stock. Under the Voting Agreement, each of the
stockholders party thereto will agree to vote its shares in favor of the
Company's Chief Executive Officer and Executive Vice President, two nominees
designated by GTC Fund III and two outside directors to be jointly designated
by GTC Fund III and InterTech. Each director nominated by parties to the
Voting Agreement may be removed only at the request of the party who nominated
such director. The Voting Agreement terminates at such time as (a) GTC Fund
III and its affiliates cease to own at least 10% of the Common Stock and (b)
InterTech and its affiliates cease to own at least 10% of the Common Stock.
The stockholders who are parties to the Voting Agreement will hold, in the
aggregate, a substantial amount of the voting power of the Company and thus,
if acting in unison or in various combinations, could likely be able to elect
a majority of the directors of the Company even if the Voting Agreement were
not in place.
61
PRINCIPAL AND SELLING STOCKHOLDERS
Prior to the Reclassification, the Company's issued and outstanding common
stock consisted of 268,409 shares of Class A-1 Common Stock, 35,000 shares of
Class A-2 Common Stock, 115,000 shares of Class A-3 Common Stock, 537,229
shares of Class B Common Stock and warrants to purchase 71,000 shares of Class
C Common Stock. The terms of the Class A-1 Common Stock, Class A-2 Common
Stock, and Class A-3 Common Stock (collectively, the "Class A Common Stock"),
the Class B Common Stock and the Class C Common Stock provide that the holders
of the Class A Common Stock and the Class B Common Stock are entitled to
receive the first $85.0 million of distributions to holders thereof as
follows: first, the holders of the Class A Common Stock are entitled to
receive an amount equal to the yield accrued (at a rate of 12% per annum,
compounded quarterly) on the unreturned original value of such Class A Common
Stock; second, the holders of the Class A Common Stock are entitled to receive
an amount equal to the unreturned original value of such Class A Common Stock;
and third, the holders of the Class A Common Stock and the Class B Common
Stock are entitled to receive, ratably, the balance, if any, of such $85.0
million. Thereafter, distributions are allocated ratably between the holders
of the Class A Common Stock and Class B Common Stock, on the one hand, and the
holders of the Class C Common Stock, on the other. The holders of Class A
Common Stock are entitled to receive all such distributions to the holders of
Class A Common Stock and Class B Common Stock until they receive all accrued
and unpaid yield on their Class A Common Stock together with the unreturned
original value thereof, and all subsequent distributions are shared ratably
among the holders of Class A Common Stock and Class B Common Stock. All
distributions to holders of Class C Common Stock are allocated ratably among
such holders.
Immediately prior to and contingent upon the consummation of the Offerings,
all of the outstanding warrants to acquire shares of Class C Common Stock will
be exercised, the outstanding shares of Class A, B and C Common Stock will
then be converted into shares of Common Stock (containing the terms set forth
in the Company's Amended and Restated Certificate of Incorporation) (such
transactions are collectively referred to herein as the "Reclassification"),
and the Common Stock will then be split on an approximate 19.97 shares to one
share basis. The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of the effectiveness of the
Reclassification and the stock split and immediately following the Offerings
(i) by each person who is known by the Company to own beneficially more than
5% of the Common Stock, (ii) by each current director of the Company, (iii) by
all officers and directors of the Company as a group and (iv) by each of GTC
Fund III, CMIHI, Leeway and CalPERS (collectively, the "Selling
Stockholders"). The numbers of shares shown for each listed stockholder are
based on an assumed initial public offering price of $16.50 per share and an
assumed closing date of the Recapitalization of April 30, 1996. The allocation
of the aggregate number of outstanding shares of Common Stock among the
various stockholders will depend upon the actual initial public offering price
and the actual closing date, which may vary from such assumptions. Except as
otherwise indicated below, each of the persons named in the table has sole
voting and investment power with respect to the securities beneficially owned
by it or him as set forth opposite its or his name.
62
[Enlarge/Download Table]
COMMON STOCK COMMON STOCK
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERINGS(1) AFTER OFFERINGS(2)
----------------------- -----------------------
DIRECTORS, OFFICERS NUMBER SHARES NUMBER
AND 5% STOCKHOLDERS OF SHARES PERCENT BEING OFFERED OF SHARES PERCENT
------------------- ------------- --------- ------------- ------------- ---------
Jerry Zucker(3)(4)(5)... 5,222,950 25.5% -- 5,222,950 16.3%
4838 Jenkins Avenue
North Charleston, SC
29405
James G. Boyd(3)(5)(6).. 4,284,956 20.9 -- 4,284,956 13.4
4838 Jenkins Avenue
North Charleston, SC
29405
The InterTech Group, 3,815,985 18.6 -- 3,815,985 11.9
Inc.(3)(7)............
4838 Jenkins Avenue
North Charleston, SC
29405
Golder, Thoma, Cressey
Fund III 10,704,099 52.2 1,982,376 8,721,723 27.3
Limited
Partnership(3)(5)(8)..
c/o Golder, Thoma,
Cressey, Rauner, Inc.
6100 Sears Tower
Chicago, IL 60606-6402
Bruce V. Rauner(8)...... 10,704,099 52.2 1,982,376 8,721,723 27.3
c/o Golder, Thoma,
Cressey, Rauner, Inc.
6100 Sears Tower
Chicago, IL 60606-6402
David A. Donnini........ -- -- -- -- --
c/o Golder, Thoma,
Cressey, Rauner, Inc.
6100 Sears Tower
Chicago, IL 60606-6402
Chase Manhattan 1,746,284 8.5 323,408 1,422,876 4.4
Investment Holdings,
Inc.(3)(5)............
One Chase Manhattan
Plaza
New York, NY 10081
Leeway & Co.(3)......... 1,178,848 5.8 218,320 960,528 3.0
c/o State Street Bank
and Trust Co.
Master Trust
Division--Q4W
P.O. Box 1992
Boston, MA 02110
CalPERS(3).............. 1,178,848 5.8 218,320 960,528 3.0
Investment Office
P.O. Box 2749
Sacramento, CA 95812-
2749
All Executive Officers
and Directors of the
Company as a group.... 16,396,020 80.0 1,982,376 14,413,644 45.0
--------
(1) Based on 20,500,000 shares of Common Stock outstanding prior to the
Offerings.
(2) Based on 32,000,000 shares of Common Stock outstanding after the
Offerings.
(3) All of these parties have entered into an agreement providing for the
election of directors. Each such party disclaims beneficial ownership of
shares of Common Stock owned by each other party.
(4) Includes 1,406,965 shares held by Mr. Zucker, 3,557,799 shares held by
InterTech, and 258,186 shares held by FTG. Mr. Zucker is Chairman and
Chief Executive Officer of InterTech and FTG, and as a result has voting
and dispositive power over the shares held by InterTech and FTG.
63
(5) Each of these stockholders has entered into an agreement pursuant to
which, upon the occurrence of certain events, Messrs. Zucker and Boyd and
CMIHI would acquire additional shares of Common Stock from GTC Fund III,
which would result in an increase in the ownership of Common Stock by
Messrs. Zucker and Boyd and CMIHI and a corresponding decrease in the
ownership of Common Stock by GTC Fund III.
(6) Includes 468,971 shares held by Mr. Boyd, 3,557,799 shares held by
InterTech and 258,186 shares held by FTG. Mr. Boyd is Executive Vice
President and Treasurer of InterTech and FTG.
(7) Includes 3,557,799 shares held by InterTech and 258,186 shares held by
FTG.
(8) All such shares are held by GTC Fund III, of which Golder, Thoma, Cressey
& Rauner, L.P. ("GTCR L.P.") is the general partner. Mr. Rauner is a
general partner of GTCR L.P. Mr. Rauner disclaims beneficial ownership of
the shares of Common Stock owned by GTC Fund III.
If the Underwriters over-allotment options are exercised in full, GTC Fund
III, Mr. Rauner, CMIHI, Leeway, CalPERS and all directors and executive
officers of the Company as a group would own 7,177,441, 7,177,441, 1,170,939,
790,455, 790,455 and 12,869,362 shares of Common Stock, respectively,
representing 22.4%, 22.4%, 3.7%, 2.5%, 2.5% and 40.2%, respectively, of the
Common Stock outstanding after the Offerings.
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
GENERAL. In connection with the Offerings, the Company and its subsidiaries
intend to enter into a New Credit Facility (the "New Credit Facility") with a
group of lenders with Chase Bank, as Administrative Agent, and Chemical Bank,
as Operations Agent. The commitment of such lenders is subject to customary
conditions and is also subject to the condition that the Company receive gross
proceeds of at least $175.0 million from the Offerings. The New Credit
Facility will provide for term loans in an aggregate principal amount of
$200.0 million and revolving loans in an aggregate principal amount not to
exceed $125.0 million. $130.0 million in the aggregate of the term loans will
be denominated in U.S. dollars and will be made to the Company, Chicopee and
FiberTech, $40.0 million of the term loans will be denominated in Dutch
guilders and will be made to Chicopee Holdings B.V., and $30.0 million of the
term loans will be denominated in Canadian dollars and will be made to
Fabrene. Revolving loans may be denominated in U.S. dollars, Dutch guilders
(up to $15.0 million) and Canadian dollars (up to $5.0 million). All
indebtedness under the New Credit Facility will be guaranteed (in whole or in
part) by each of the Company's domestic and certain of its foreign
subsidiaries.
Initial borrowings under the New Credit Facility will be effected by rolling
over existing loans outstanding under the 1994 Credit Facility and the 1995
Credit Facility. Upon consummation of the Offerings, a portion of the proceeds
therefrom will be applied to reduce the outstanding revolving loans under the
New Credit Facility, leaving a remaining availability of $77.0 million. See
"Use of Proceeds."
SECURITY. The New Credit Facility and the related guarantees will be secured
by (i) a lien on substantially all of the assets of the Company and its
domestic subsidiaries, (ii) a lien on substantially all of the assets of the
foreign borrowers, (iii) a pledge of all or a portion of the stock of the
direct and indirect subsidiaries of the Company, and (iv) a pledge of
intercompany notes issued by Bonlam and Fabrene evidencing advances made to
such entities (which notes will be secured by substantially all of the assets
of Bonlam and Fabrene, respectively).
MATURITY; AMORTIZATION; PREPAYMENT. The term loan will have required annual
principal payments in the aggregate of $19.25 million in 1997, $26.5 million
in 1998, $36.5 million in 1999, $46.5 million in 2000, $56.5 million in 2001,
and $14.75 million in 2002 and will have a final maturity date of March 31,
2002. The revolving loan will terminate on March 31, 2002, subject to two one-
year
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extensions upon the request of the Company and the consent of all of the
revolving loan lenders. The loans will be subject to mandatory prepayment out
of proceeds received in connection with casualty events, asset sales and debt
issuances.
INTEREST RATES. The interest rate applicable to borrowings under the New
Credit Facility will be, in the case of U.S. dollar denominated loans, the
Agent's base rate or LIBOR, in the case of Dutch guilder denominated loans,
the applicable Eurocurrency rate, and in the case of Canadian dollar
denominated loans, the Agent's Canadian base rate or the BA rate, in each case
plus a margin determined on the basis of the ratio of the Company's total
consolidated indebtedness to its consolidated EBITDA on a rolling four quarter
basis. The margin applicable to base rate loans will range from 0% to 1.25%
and the margin for LIBOR, Eurocurrency and BA loans will range from 1% to
2.5%.
COVENANTS. The New Credit Facility will contain covenants customary for
financings of this type, including, without limitation, maximum leverage,
maximum fixed charge coverage, and minimum net worth, and limitations on asset
sales, incurrence and refinancing of indebtedness and liens, restricted
payments, mergers and acquisitions and transactions with affiliates.
EVENTS OF DEFAULT. The New Credit Facility will contain covenants customary
for financings of this type.
NOTES
In June 1994, the Company issued and sold (the "Notes Offering") $150.0
million principal amount of 12 1/4% Senior Notes due 2002 (the "Original
Notes") pursuant to a Purchase Agreement dated June 17, 1994 among the
Company, Chase Securities, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Goldman, Sachs & Co. (the "Initial Purchasers") and an
indenture dated as of June 24, 1994 between the Company and First Union
National Bank of South Carolina ("First Union"), as amended by the First
Supplemental Indenture dated as of March 15, 1995 between the Company and
First Union and the Second Supplemental Indenture dated as of September 14,
1995 among the Company, First Union and Harris Trust and Savings Bank (as so
amended, the "Indenture"). The Initial Purchasers subsequently resold the
Original Notes to qualified institutional buyers pursuant to Rule 144A under
the Securities Act. In October 1995, pursuant to a Registration Statement on
Form S-4 (Reg. No. 33-81862) declared effective by the Commission on September
29, 1995, the Company consummated an exchange offer pursuant to which the
Company, in exchange for the $150.0 million principal amount of Original Notes
outstanding, issued, pursuant to the Indenture, an equal principal amount of
notes identical to the Original Notes (the "Notes"), with the exception that
the Notes have been registered under the Securities Act. The following summary
of the material provisions of the Indenture does not purport to be complete,
and where reference is made to particular provisions of the Indenture, such
provisions, including the definitions of certain terms, are qualified in their
entirety by reference to all of the provisions of the Indenture.
GENERAL. The Notes will mature on July 15, 2002, are limited to $150.0
million in aggregate principal amount, and are unsecured senior obligations of
the Company. As of March 30, 1996, $150.0 million principal amount of the
Notes were outstanding.
Payment of the Notes is fully and unconditionally guaranteed by certain of
the Company's subsidiaries, including PGI and FiberTech and its subsidiaries,
on a senior basis. The Notes are not guaranteed by Bonlam, Fabrene or
Chicopee.
OPTIONAL REDEMPTION. The Notes are subject to redemption at any time on or
after July 15, 1998, at the option of the Company, in whole or in part, on not
less than 30 nor more than 60 days' prior
65
notice in amounts of $1,000 or an integral multiple thereof at declining
redemption prices set forth in the Indenture, together with accrued and unpaid
interest, if any, to the redemption date.
In addition, at any time prior to July 15, 1997, the Company may redeem up
to $50.0 million of the Notes originally issued (provided that after such
redemption Notes having an aggregate principal amount of at least $100.0
million remain outstanding) at a redemption price of 112.25% of the principal
amount of Notes redeemed, plus accrued interest to the redemption date, with
the Net Cash Proceeds (as defined in the Indenture) of one or more Public
Equity Offerings (as defined in the Indenture) of Common Stock of the Company.
The Company intends to use the proceeds of the Offerings to redeem up to $50.0
million of Notes pursuant to this provision. See "Use of Proceeds."
CERTAIN COVENANTS. The Indenture contains a number of covenants restricting
the operations of the Company and its subsidiaries, including covenants with
respect to the following matters: (i) limitation on Indebtedness (as defined
in the Indenture); (ii) limitation on restricted payments (in the form of the
declaration or payment of certain dividends or distributions on the capital
stock of the Company or its Restricted Subsidiaries (as defined in the
Indenture), the purchase, redemption or other acquisition of any capital stock
of the Company (or any affiliate thereof), the voluntary prepayment of
subordinated Indebtedness, or an investment in any other person); (iii)
limitation on transactions with affiliates; (iv) limitation on certain
subordinated Indebtedness; (v) limitation on liens; (vi) limitation on sale of
assets; (vii) limitation on issuances of guarantees by Restricted
Subsidiaries; (viii) limitation on capital stock issuances by Restricted
Subsidiaries; (ix) limitations on dividends and other payment restrictions
affecting Restricted Subsidiaries; and (x) limitations on consolidations,
mergers and sales of substantially all assets.
PURCHASE OF NOTES UPON A CHANGE OF CONTROL. If a Change of Control (as
defined in the Indenture) shall occur at any time, then each holder of Notes
shall have the right to require that the Company purchase such holder's Notes
in whole or in part in integral multiples of $1,000, at a purchase price in
cash in an amount equal to 101% of the principal amount of such Senior Notes,
plus accrued and unpaid interest, if any, to the date of purchase.
EVENTS OF DEFAULT. The events of default under the Indenture include
provisions that are typical of senior debt financings. Upon the occurrence and
continuance of certain events of default, the trustee or the holders of not
less than 25% in aggregate principal amount of the Notes then outstanding may,
and the trustee at the request of such holders shall, declare all unpaid
principal of, premium, if any, and accrued interest on all the Notes to be due
and payable immediately as provided in the Indenture.
DESCRIPTION OF CAPITAL STOCK
GENERAL MATTERS
Upon completion of the Offerings, the total amount of authorized capital
stock of the Company will consist of 100,000,000 shares of Common Stock, par
value $0.01 per share, 3,000,000 shares of Non-Voting Common Stock, par value
$0.01 per share (the "Non-Voting Common Stock"), and 10,000,000 shares of
preferred stock, par value $0.01 per share (the "Preferred Stock"). Upon
completion of the Offerings, 32,000,000 shares of Common Stock will be issued
and outstanding, 1,500,000 shares of Common Stock will be reserved for
issuance under the 1996 Plan, no shares of Non-Voting Common Stock will be
issued and outstanding, and 100,000 shares of Junior Participating Preferred
Stock, Series A (the "Junior Preferred Stock") will be reserved for issuance.
The Company's stockholders have approved an Amended and Restated Certificate
of Incorporation to become effective upon consummation of the Offerings. The
discussion herein describes the Company's capital stock, Amended and Restated
Certificate of Incorporation and By-laws as anticipated to be in effect upon
consummation of the Offerings. The following summary of certain provisions of
the Company's capital stock describes certain material provisions of, but does
not purport to be complete and is subject to,
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and qualified in its entirety by, the Amended and Restated Certificate of
Incorporation and the By-laws of the Company that are included as exhibits to
the Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law.
COMMON STOCK
Prior to the Reclassification, the Company's issued and outstanding common
stock consisted of 268,409 shares of Class A-1 Common Stock, 35,000 shares of
Class A-2 Common Stock, 115,000 shares of Class A-3 Common Stock, 537,229
shares of Class B Common Stock and warrants to purchase 71,000 shares of Class
C Common Stock. The terms of the Class A Common Stock, the Class B Common
Stock and the Class C Common Stock provide that the holders of the Class A
Common Stock and the Class B Common Stock are entitled to receive the first
$85.0 million of distributions to holders thereof as follows: first, the
holders of the Class A Common Stock are entitled to receive an amount equal to
the yield accrued (at a rate of 12% per annum, compounded quarterly) on the
unreturned original value of such Class A Common Stock; second, the holders of
the Class A Common Stock are entitled to receive an amount equal to the
unreturned original value of such Class A Common Stock; and third, the holders
of the Class A Common Stock and the Class B Common Stock are entitled to
receive, ratably, the balance, if any, of such $85.0 million. Thereafter,
distributions are allocated ratably between the holders of the Class A Common
Stock and Class B Common Stock, on the one hand, and the holders of the Class
C Common Stock, on the other. The holders of Class A Common Stock are entitled
to receive all such distributions to the holders of Class A Common Stock and
Class B Common Stock until they receive all accrued and unpaid yield on their
Class A Common Stock together with the unreturned original value thereof, and
all subsequent distributions are shared ratably among the holders of Class A
Common Stock and Class B Common Stock. All distributions to holders of Class C
Common Stock are allocated ratably among such holders.
THE RECLASSIFICATION
Immediately prior to and contingent upon the consummation of the Offerings,
all of the outstanding warrants to acquire shares of Class C Common Stock will
be exercised, and the outstanding shares of Class A, B and C Common Stock will
then be converted into shares of Common Stock (containing the terms set forth
in the Company's Amended and Restated Certificate of Incorporation). On March
5, 1996, the Board approved an approximate 19.97 to 1 stock split to be
effective upon consummation of the Offerings. Following the Reclassification
and the stock split and without giving effect to the Offerings, there will be
20,500,000 shares of Common Stock outstanding held by eight holders of record.
The rights of holders of Common Stock and Non-Voting Common Stock are
identical except for voting. The issued and outstanding shares of Common Stock
are, and the shares of Common Stock being offered hereby will be upon payment
therefor, validly issued, fully paid and nonassessable. Subject to the prior
rights of the holders of any Preferred Stock, the holders of outstanding
shares of Common Stock and Non-Voting Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board may from time to time determine. See "Dividend Policy."
Following consummation of the Offerings, the shares of Common Stock and Non-
Voting Common Stock will not be redeemable or convertible, and the holders
thereof will have no preemptive or subscription rights to purchase any
securities of the Company. Upon liquidation, dissolution or winding up of the
Company, the holders of Common Stock and Non-Voting Common Stock will be
entitled to receive pro rata the assets of the Company which are legally
available for distribution, after payment of all debts and other liabilities
and subject to the prior rights of any holders of Preferred Stock then
outstanding. Each outstanding share of Common Stock is entitled to vote on all
matters submitted to a vote of stockholders. Holders of Non-Voting Common
Stock are not entitled to vote, except as required by law and in the case of
certain mergers or consolidations. Subject to certain regulatory limitations
which may be imposed on a holder thereof, the Non-Voting Common
67
Stock is convertible on a one-for-one basis into Common Stock at any time at
the option of the holder thereof.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "PGH," subject to official notice of issuance.
PREFERRED STOCK
The Board may, without further action by the Company's stockholders, from
time to time, direct the issuance of shares of Preferred Stock in series and
may, at the time of issuance, determine the rights, preferences and
limitations of each series. Satisfaction of any dividend preferences of
outstanding shares of Preferred Stock would reduce the amount of funds
available for the payment of dividends on shares of Common Stock. Holders of
shares of Preferred Stock may be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding-up of the Company before
any payment is made to the holders of shares of Common Stock. Under certain
circumstances, the issuance of shares of Preferred Stock may render more
difficult or tend to discourage a merger, tender offer or proxy contest, the
assumption of control by a holder of a large block of the Company's securities
or the removal of incumbent management. The Board, without stockholder
approval, may issue shares of Preferred Stock with voting and conversion
rights which could adversely affect the holders of shares of Common Stock.
Upon consummation of the Offerings, there will be 100,000 shares of Junior
Preferred Stock reserved for issuance in connection with the Rights Agreement
as described below, and the Company has no present intention to issue any
shares of Preferred Stock.
CERTAIN PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
AND BY-LAWS AND STATUTORY PROVISIONS
The Amended and Restated Certificate of Incorporation to be effective upon
consummation of the Offerings will provide that the Board will be divided into
three classes, with each class, after a transitional period, serving for three
years, and one class being elected each year. A majority of the remaining
directors then in office, though less than a quorum, or the sole remaining
director, will be empowered to fill any vacancy on the Board which arises
during the term of a director. The provisions for a classified Board and the
exclusive power of the Board to fill vacancies may be amended, altered or
repealed only upon the affirmative vote of the holders of at least 80% of the
outstanding shares of the voting stock of the Company. The classification of
the Board may discourage a third party from making a tender offer or otherwise
attempting to gain control of the Company and may have the effect of
maintaining the incumbency of the Board.
The Amended and Restated Certificate of Incorporation will require that any
action required or permitted to be taken by the Company's stockholders must be
effected at a duly called annual or special meeting of stockholders and may
not be effected by consent in writing. Additionally, the Amended and Restated
Certificate of Incorporation will require that special meetings of the
stockholders of the Company be called only by the affirmative vote of at least
two members of the Board then in office or by certain officers. The provisions
requiring stockholders to take action only at a duly called annual or special
meeting, and those setting forth the manner in which such a special meeting
may be called, may be amended, altered or repealed only upon the affirmative
vote of the holders of at least 80% of the outstanding shares of voting stock
of the Company.
The By-laws will provide that stockholders seeking to bring business before
or to nominate directors at any annual meeting of stockholders must provide
timely notice thereof in writing. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of
the Company not less than 60 days nor more than 90 days prior to such meeting
or, if less than 70 days' notice was given for the meeting, within 10 days
following the date on which such notice was given. The By-laws also will
specify certain requirements for a stockholder's notice to be in proper
68
written form. These provisions will restrict the ability of stockholders to
bring matters before the stockholders or to make nominations for directors at
meetings of stockholders. These provisions may be amended, altered or repealed
only upon the affirmative vote of the holders of at least 80% of the
outstanding shares of voting stock of the Company.
Following the consummation of the Offerings, the Company will be subject to
the "business combination" provisions of the Delaware General Corporation Law.
In general, such provisions prohibit a publicly held Delaware corporation from
engaging in various "business combination" transactions with any Interested
Stockholder for a period of three years after the date of the transaction in
which the person became an Interested Stockholder, unless (i) the transaction
is approved by the Board prior to the date the Interested Stockholder obtained
such status, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an Interested Stockholder, the Interested Stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by (a) persons who are
directors and also officers and (b) employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) on or subsequent to such date the "business combination" is approved by
the Board and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock which
is not owned by the Interested Stockholder. A "business combination" is
defined to include mergers, asset sales and other transactions resulting in
financial benefit to a stockholder. The statute could prohibit or delay
mergers or other takeover or change in control attempts with respect to the
Company and, accordingly, may discourage attempts to acquire the Company. The
Board intends to adopt a resolution approving any acquisition of shares of
Common Stock by InterTech, GTC Fund III or their respective affiliates that
would otherwise result in InterTech, GTC Fund III or such affiliates becoming
an Interested Stockholder. See "Risk Factors--Certain Charter, By-Laws and
Statutory Provisions."
RIGHTS AGREEMENT
On April 15, 1996, the Board declared a dividend of one Right for each share
of Common Stock outstanding at the close of business on June 3, 1996. The
holders of any additional Common Stock issued subsequent to such date and
before the earliest of the Distribution Date (as defined), the redemption of
the Rights, the exchange of the Rights or the expiration of the Rights also
will be entitled to one Right for each such additional share. Each Right will
entitle the registered holder under certain circumstances to purchase from the
Company one one-thousandth of a share of Junior Preferred Stock at a price of
$80 per one one-thousandth share of Junior Preferred Stock (the "Purchase
Price"), subject to adjustment. The description and terms of the Rights are
set forth in the Rights Agreement, a copy of the form of which is filed as an
exhibit to the Registration Statement.
The Rights will be evidenced by Common Stock certificates and not by
separate certificates until the earlier of (i) the day following the first
date of public disclosure that a person or group other than an "Exempt Person"
(an "Acquiring Person"), together with persons affiliated or associated with
such Acquiring Person (other than Exempt Persons), has acquired, or obtained
the right to acquire, beneficial ownership of 15% or more of the outstanding
Common Stock (the "Stock Acquisition Date") and (ii) the tenth business day
after the date of commencement or public disclosure of an intention to
commence a tender offer or exchange offer by a person other than an Exempt
Person, the Company and certain related entities if, upon consummation of the
offer, such persons or group, together with persons affiliated or associated
with it (other than those that are exempt persons), would acquire beneficial
ownership of 15% or more of the outstanding Common Stock (the earlier of such
dates being called the "Distribution Date"). Until the Distribution Date (or
earlier redemption, exchange or expiration of the Rights), (i) the Rights will
be transferable only with the Common Stock (except with redemption of the
Rights); (ii) Common Stock certificates will contain a notation incorporating
the Rights
69
Agreement by reference; and (iii) the surrender for transfer of any
certificates for Common Stock will also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate. For purposes
of the Rights Agreement, an "Exempt Person" is defined to include, among other
persons, GTC Fund III and its affiliates, InterTech and its affiliates, Jerry
Zucker and James G. Boyd.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date. From and after the Distribution Date, such separate Rights
Certificates alone will evidence the Rights.
The Rights will first become exercisable on or after the Distribution Date
(unless sooner redeemed or exchanged). The Rights will expire at the close of
business on the tenth anniversary of the date of initial issuance (the
"Expiration Date"), unless earlier redeemed or exchanged by the Company as
described below.
The Purchase Price payable and the number of shares of Junior Preferred
Stock or other securities, cash or other property issuable upon exercise of
the Rights are subject to adjustment from time to time to prevent dilution (i)
in the event of a stock dividend or distribution on, or a subdivision or
combination of, or reclassification of the Junior Preferred Stock, (ii) upon
the grant to holders of the Junior Preferred Stock of certain rights, options
or warrants to subscribe for Junior Preferred Stock or securities convertible
into Junior Preferred Stock at less than the current market price of the
Junior Preferred Stock, or (iii) upon the distribution to holders of the
Junior Preferred Stock of other securities, cash (excluding regular periodic
cash dividends), property, evidences of indebtedness or assets.
If a person becomes an Acquiring Person, the Rights will "flip-in" and
entitle each holder of a Right, except as provided below, to purchase, upon
exercise at the then-current Purchase Price, that number of shares of Common
Stock having a market value of two times such Purchase Price. In addition,
following a "flip-in," the Board has the option of exchanging all or part of
the Rights, except as provided below, for Common Stock.
In the event that, following a "flip-in," the Company is acquired in a
merger or other business combination in which the Common Stock does not remain
outstanding or is exchanged or 50% or more of its consolidated assets or
earning power is sold, leased, exchanged, mortgaged, pledged or otherwise
transferred or disposed of (in one transaction or a series of related
transactions), the Rights will "flip-over" and entitle each holder (other than
the Acquiring Person and certain related persons or transferees) of a Right to
purchase, upon the exercise of the Right at the then-current Purchase Price,
that number of shares of common stock of the acquiring company (or, in certain
circumstances, one of its affiliates) which at the time of such transaction
would have a market value of two times such Purchase Price.
Any Rights beneficially owned at any time on or after the earlier of the
Distribution Date and the Stock Acquisition Date by an Acquiring Person or an
affiliate or associate (other than an Exempt Person) of an Acquiring Person
(whether or not such ownership is subsequently transferred) will become null
and void upon the occurrence of a "Triggering Event," and any such holder of
such Rights will have no right to exercise such Rights as provided above. A
"Triggering Event" will be deemed to occur in the event that any person
becomes an Acquiring Person.
The number of outstanding Rights, the number of one one-thousandths of a
share of Junior Preferred Stock issuable upon exercise of each right and the
Purchase Price are subject to adjustment in the event of a stock dividend on
the Common Stock payable in Common Stock or subdivision or combination of the
Common Stock occurring, in any such case, prior to the Distribution Date.
70
At any time prior to the earlier of the Stock Acquisition Date and the
Expiration Date, the Company may redeem the Rights at $0.01 per share.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends or distributions.
At any time prior to the Stock Acquisition Date, a majority of the
Continuing Directors (as defined therein) may, without the approval of any
holder of the Rights (except, in certain circumstances, an Exempt Person),
supplement or amend any provision of the Rights Agreement (including the date
on which the Distribution Date will occur after announcement of commencement
of the tender offer). Thereafter, the Rights Agreement may be amended by a
majority of the Continuing Directors without the approval of any holder of the
Rights only to cure ambiguities, to correct defective or inconsistent
provisions, or in ways that do not adversely affect the Rights holders.
Notwithstanding the foregoing, the Rights Agreement may not be amended to
change the Purchase Price, the number of shares of Junior Preferred Stock,
other securities, cash or other property obtainable upon exercise of a Right,
the redemption price or the Expiration Date.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group other than an exempt person that
attempts to acquire the Company on terms not approved by the Board, except
pursuant to an offer conditioned on a substantial number of Rights being
acquired. The Rights should not interfere with any merger or other business
combination approved by the Board prior to the time a person or group other
than an Exempt Person has acquired beneficial ownership of 15% or more of the
Common Stock, because until such time the Rights may be redeemed by the
Company.
The foregoing description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement (a copy of
the form of which is filed as an exhibit to the Registration Statement),
including the definitions therein of certain terms.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Amended and Restated Certificate of Incorporation will limit the
liability of directors to the fullest extent permitted by the Delaware General
Corporation Law. In addition, the Amended and Restated Certificate of
Incorporation and By-laws will provide that the Company shall indemnify
directors and officers of the Company to the fullest extent permitted by such
law.
TRANSFER AGENT, REGISTRAR AND RIGHTS AGENT
The Transfer Agent and Registrar for the Common Stock and the Rights Agent
for the Rights will be First Union National Bank of North Carolina.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offerings, there will be 32,000,000 shares of Common
Stock outstanding. The 14,242,424 shares of Common Stock sold in the Offerings
will be freely tradeable without restriction or further registration under the
Securities Act, unless held by an "affiliate" of the Company as that term is
defined in Rule 144, which shares will be subject to the resale limitations of
Rule 144. Of the outstanding shares, 17,757,576 will not have been registered
under the Securities Act and may not be sold unless they are registered or
unless an exemption from registration, such as the exemption provided by Rule
144, is available. All of such unregistered shares would be eligible for sale
beginning March 15, 1997, subject to certain volume and other limitations
under Rule 144. In June 1995, the Commission proposed shortening the two-year
holding period to one year.
Upon completion of the Offerings, 17,757,576 unregistered shares will be
subject to the Lockup Period. The Company and its stockholders, including the
Selling Stockholders, have agreed for the Lockup Period not to offer, sell,
contract to sell or otherwise dispose of, and the Company has agreed not to
register, any shares of Common Stock or any securities of the Company (other
than the registration by the Company of 1,500,000 shares of Common Stock
pursuant to the 1996 Plan and the granting of options under such plan that do
not vest (except in case of death or disability) for a period that is longer
than the Lockup Period) which are substantially similar to the shares of
Common Stock, including but not limited to any securities that are convertible
into or exchangeable for, or represent the right to receive, Common Stock or
any such substantially similar securities, without the prior written consent
of Goldman, Sachs & Co., except for the shares of Common Stock offered in
connection with the Offerings.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned shares
constituting "restricted securities" (generally defined as securities acquired
from the Company or an affiliate of the Company in a non-public transaction)
for at least two years, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of (i) one percent of the
outstanding Common Stock (320,000 shares of Common Stock immediately after the
Offerings) or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks preceding the date on which notice of such sale
is filed pursuant to Rule 144. Sales under Rule 144 are also subject to
certain provisions regarding the manner of sale, notice requirements and the
availability of current public information about the Company. A stockholder
(or stockholders whose shares are aggregated) who is not an affiliate of the
Company for at least 90 days prior to a sale and who has beneficially owned
"restricted securities" for at least three years is entitled to sell such
shares under Rule 144 without regard to the limitations described above. In
June 1995, the Commission proposed shortening the three-year holding period to
two years.
Pursuant to the Registration Agreement, the Stockholders, who will hold in
the aggregate 17,757,576 shares of Common Stock (the "Registrable Shares")
following the Offerings, are entitled to certain registration rights.
Following the Offerings, the holders of at least a majority of each of (i) the
Registrable Shares of GTC Fund III, (ii) the Registrable Shares of CMIHI or
(iii) the Registrable Shares of InterTech, FTG and Messrs. Zucker and Boyd may
require the Company on two occasions to effect the registration of their
Registrable Shares on Form S-1 (a "Long-Form Registration") in which the
Company will pay all registration expenses and two Long-Form Registrations in
which the participating stockholders will pay their respective shares of
registration expenses. In addition, holders of at least a majority of the
Registrable Shares of Leeway and CalPERS may also require the Company on one
occasion to the effect one Long-Form Registration at the Company's expense and
one Long-Form Registration at such holders' expense. Notwithstanding the
foregoing, Long-Form Registration rights may not be exercised more than once
during every six-month period, and, under certain circumstances, a request may
be delayed by the Company for up to six months (but no more than two times).
In addition to the Long-Form Registrations, after the Offerings, each of the
above groups of
72
1995 Stockholders will be entitled to request the Company to effect an
unlimited number of registrations of Registrable Shares with a minimum value
of $5 million on Form S-2 or S-3 in which the Company will pay all
registration expenses.
If the Company proposes to register any of its Common Stock under the
Securities Act, whether for its own account or otherwise, the holders of
Registrable Shares are entitled to notice of such registration and, subject to
certain priority provisions, are entitled to include their Registrable Shares
in such registration. The registration expenses of the holders of Registrable
Shares will be paid by the Company in all such registrations.
Promptly after consummation of the Offerings, the Company expects to file
with the Commission a Registration Statement on Form S-8 covering the shares
of Common Stock underlying options available for grant under the 1996 Plan.
Any options granted under the 1996 Plan will not be exercisable during the
Lockup Period.
Prior to the Offerings, there has been no public market for the Common
Stock, and no assurances can be given as to the effect, if any, that public
market sales of shares of Common Stock or the availability of such shares for
sale will have on the trading price prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock in the public
market, or the perception that such sales could occur, could adversely affect
trading prices of the Common Stock and could impair the Company's future
ability to raise capital through the sale of its equity securities. See "Risk
Factors--Shares Eligible for Future Sale."
73
VALIDITY OF COMMON STOCK
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Kirkland & Ellis (a partnership which includes professional
corporations), Chicago, Illinois, and for the Underwriters by Sullivan &
Cromwell, New York, New York.
EXPERTS
The consolidated financial statements and schedules of the Company at
December 31, 1994 and December 30, 1995, and for each of the three years in
the period ended December 30, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein,
and are included in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
The combined statements of income and cash flows of J&JAMC and Chicopee B.V.
for the years ended January 2, 1994 and January 1, 1995, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, which is based in part on the report of Coopers & Lybrand, independent
auditors, appearing elsewhere herein. The financial statements referred to
above are included in reliance upon such reports given upon the authority of
such firms as experts in accounting and auditing.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
In connection with the Chicopee Acquisition on March 15, 1995, the Company
appointed Ernst & Young LLP, independent auditors, as independent accountants
for Chicopee to replace Coopers & Lybrand LLP, independent public accountants
("Coopers & Lybrand"), whom the Company dismissed effective as of March 15,
1995. Coopers & Lybrand is the independent auditor for Johnson & Johnson.
In connection with the audits of Chicopee's financial statements for each of
the two most recent fiscal years preceding such replacement, there were no
disagreements with Coopers & Lybrand on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, nor
did Coopers & Lybrand's reports on the financial statements for such periods
contain an adverse opinion or disclaimer of opinion, nor were such reports
qualified or modified as to uncertainty, audit scope or accounting principles.
Coopers & Lybrand has been provided with a copy of this disclosure and has
been requested by the Company to furnish a letter addressed to the Commission
stating whether they agree with the above statements. A copy of Coopers &
Lybrand's letter to the Commission is filed as an exhibit to the Registration
Statement.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock being offered
hereby. This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain items
of which are omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus concerning the provisions
of documents filed with the Registration Statement as exhibits are necessarily
summaries of such documents, and each such statement is qualified in its
entirety by reference to the copy of the applicable document filed as
74
an exhibit to the Registration Statement. In addition, 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 and
other information with the Commission. Such reports and other information
concerning the Company and the Registration Statement can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; at its Chicago Regional Office,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and at its
New York Regional Office, Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can be obtained from the public reference
section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549,
upon payment of the prescribed rates. For further information pertaining to
the Company and the Common Stock being offered hereby, reference is made to
the Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof.
The Company intends to furnish to its stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited
interim financial information for the first three fiscal quarters of each
fiscal year of the Company.
75
POLYMER GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
[Download Table]
POLYMER GROUP, INC.
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Consolidated Balance Sheets as of December 31, 1994 and December 30, 1995. F-3
Consolidated Statements of Operations for the years ended January 1, 1994,
December 31, 1994 and December 30, 1995.................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the years
ended January 1, 1994, December 31, 1994 and December 30, 1995........... F-5
Consolidated Statements of Cash Flows for the years ended January 1, 1994,
December 31, 1994 and December 30, 1995.................................. F-6
Notes to Consolidated Financial Statements for the years ended January 1,
1994,
December 31, 1994 and December 30, 1995.................................. F-7
Condensed Consolidated Balance Sheets as of December 30, 1995 and March
30, 1996 (unaudited)..................................................... F-28
Consolidated Statements of Operations (unaudited) for the three months
ended April 1, 1995 and March 30, 1996................................... F-29
Condensed Consolidated Statements of Cash Flows (unaudited) for the three
months ended April 1, 1995 and March 30, 1996............................ F-30
Notes to Condensed Consolidated Financial Statements (unaudited) for the
three months ended April 1, 1995 and March 30, 1996...................... F-31
JOHNSON & JOHNSON ADVANCED MATERIALS COMPANY AND CHICOPEE B.V.
Combined Statements of Operations (unaudited) for the period from January
2, 1995 through
March 15, 1995........................................................... F-37
Condensed Combined Statements of Cash Flows (unaudited) for the period
from
January 2, 1995 through March 15, 1995................................... F-38
Notes to Combined Financial Statements (unaudited) for the period from
January 2, 1995 through March 15, 1995................................... F-39
Report of Ernst & Young LLP, Independent Auditors......................... F-40
Combined Statements of Income for the years ended January 2, 1994 and
January 1, 1995.......................................................... F-41
Combined Statements of Cash Flows for the years ended January 2, 1994 and
January 1, 1995.......................................................... F-42
Notes to Combined Statements of Income and Cash Flows for the years ended
January 2, 1994 and January 1, 1995...................................... F-43
Report of Independent Auditors--Coopers & Lybrand......................... F-48
F-1
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Polymer Group, Inc.
We have audited the accompanying consolidated balance sheets of Polymer
Group, Inc. as of December 31, 1994 and December 30, 1995, and the related
consolidated statements of operations, shareholders' equity (deficit), and
cash flows for each of the three years in the period ended December 30, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Polymer Group, Inc. at December 31, 1994 and December 30, 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 30, 1995, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 8, 1996, except as to
the second and third
paragraphs of Note 17, as to
which the date is May 6, 1996
F-2
POLYMER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
[Download Table]
PRO FORMA
SHAREHOLDERS'
EQUITY
1995
1994 1995 (NOTE 18)
-------- -------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and equivalents........................ $ 13,828 $ 18,088
Marketable securities....................... 1,927 4,861
Accounts receivable, net.................... 27,936 58,288
Inventories................................. 18,555 47,882
Other....................................... 4,068 14,035
-------- --------
Total current assets...................... 66,314 143,154
Property, plant and equipment, net........... 113,722 380,338
Intangibles, loan acquisition and
organization costs, net..................... 52,486 95,753
Other........................................ 2,420 5,480
-------- --------
Total assets.............................. $234,942 $624,725
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses....... $ 20,041 $ 44,001
Accrued interest payable.................... 12,401 8,898
Accrued salaries, wages and other fringe
benefits................................... 2,292 5,924
Income taxes payable........................ 520 4,295
Current portion of accrued restructuring
costs...................................... -- 7,540
Current portion of long-term debt........... -- 10,938
-------- --------
Total current liabilities................. 35,254 81,596
Accrued restructuring costs, less current
portion..................................... -- 7,913
Accrued postretirement benefit obligations... -- 3,493
Long-term debt, less current portion......... 190,814 439,940
Deferred income taxes........................ 6,654 33,882
Mandatory redeemable preferred stock of
subsidiary; 13% cumulative, non-voting, $.01
par value--40,000 shares authorized, issued
and outstanding at 1995 (0 at 1994); plus
accumulated dividends of $4,575 at 1995 (0
at 1994); mandatory redemption value of
$44,575 at 1995 (0 at 1994)................. -- 44,339
Shareholders' equity:
Class A common stock--$.0005 par value, 0
shares authorized at 1995 (39,936,180 at
1994) 0 shares issued and outstanding at
1995 (32,742,775 at 1994).................. 16 -- --
Class A-1 common stock--$.0005 par value,
8,985,641 shares authorized at 1995 (0 at
1994); 5,359,615 shares issued and
outstanding at 1995 (0 at 1994)............ -- 3 --
Class A-2 common stock--$.0005 par value,
998,405 shares authorized (0 at 1994);
698,883 shares issued and outstanding at
1995 (0 at 1994)........................... -- -- --
Class A-3 common stock--$.0005 par value,
2,995,214 shares authorized at 1995 (0 at
1994); 2,296,330 shares issued and
outstanding at 1995 (0 at 1994)............ -- 1 --
Class B common stock--$.0005 par value,
11,980,854 shares authorized at 1995
(1,996,809 at 1994); 10,727,437 shares
issued and outstanding at 1995 (216,354 at
1994)...................................... 1 6 --
Class C common stock--$.0005 par value,
4,992,023 shares authorized at 1995 (0 at
1994), 0 issued and outstanding at 1995 (0
at 1994)................................... -- -- --
Common Stock--$.01 par value, 100,000,000
shares authorized, 19,082,265 shares
issued and outstanding, pro forma.......... -- -- 191
Additional paid-in capital.................. 22,626 53,134 52,953
Deficit..................................... (24,207) (52,653) (52,653)
Cumulative translation adjustment........... 3,784 12,729 12,729
Unrealized holding gain on marketable
securities................................. -- 342 342
-------- -------- --------
2,220 13,562 13,562
-------- -------- --------
Total liabilities and stockholders'
equity................................... $234,942 $624,725 $ --
======== ======== ========
See accompanying notes.
F-3
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994 AND DECEMBER 30,
1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
[Download Table]
1993 1994 1995
-------- -------- --------
Net sales........................................ $121,473 $165,333 $437,638
Cost of goods sold............................... 97,291 129,071 333,606
-------- -------- --------
Gross profit..................................... 24,182 36,262 104,032
Selling, general and administrative expenses..... 13,022 20,699 61,744
-------- -------- --------
Operating income................................. 11,160 15,563 42,288
Other expense:
Interest expense............................... 4,387 13,216 37,868
Foreign currency transaction losses, net....... 1,310 17,055 22,811
Other, net..................................... 53 277 --
-------- -------- --------
5,750 30,548 60,679
-------- -------- --------
Income (loss) before income taxes and
extraordinary item.............................. 5,410 (14,985) (18,391)
Income taxes..................................... 1,970 3,353 5,216
-------- -------- --------
Income (loss) before extraordinary item.......... 3,440 (18,338) (23,607)
Extraordinary item, loss from extinguishment of
debt, net of income tax benefit of $1,846....... -- (4,372) --
-------- -------- --------
Net income (loss)................................ 3,440 (22,710) (23,607)
Redeemable preferred stock dividends and
accretion....................................... (2,480) (1,209) (4,839)
-------- -------- --------
Net income (loss) applicable to common stock..... $ 960 $(23,919) $(28,446)
======== ======== ========
Net income (loss) per common share:
Income (loss) before extraordinary item........ $ .05 $ (.95) $ (1.39)
Extraordinary item, loss from extinguishment of
debt.......................................... -- (.21) --
-------- -------- --------
Net income (loss) applicable to common stock..... $ .05 $ (1.17) $ (1.39)
======== ======== ========
Weighted average number of shares................ 20,500 20,500 20,500
======== ======== ========
See accompanying notes.
F-4
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE FISCAL YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994 AND DECEMBER 30,
1995
(IN THOUSANDS, EXCEPT SHARE DATA)
[Enlarge/Download Table]
UNREALIZED
NOTES HOLDING
ADDITIONAL CUMULATIVE RECEIVABLE GAIN ON
PAID-IN TRANSLATION FROM MARKETABLE
COMMON STOCK CAPITAL DEFICIT ADJUSTMENT SHAREHOLDERS SECURITIES TOTAL
------------ ---------- -------- ----------- ------------ ---------- -------
Balance--January 2,
1993................... $ 2 $ 78 $ (1,012) $ (255) $(80) $-- $(1,267)
Net income............. -- -- 3,440 -- -- -- 3,440
Foreign currency
translation
adjustments........... -- -- -- (285) -- -- (285)
Cumulative dividends on
redeemable preferred
stock................. -- -- (2,480) -- -- -- (2,480)
--- ------- -------- ------- ---- ---- -------
Balance--January 1,
1994................... 2 78 (52) (540) (80) -- (592)
Exchange of preferred
stock for common
stock................. -- 21,406 -- -- -- -- 21,406
Exchange of shareholder
loans for common
stock................. -- 2,523 -- -- -- -- 2,523
Cash paid to and
collected from
shareholders.......... -- (595) (236) -- 80 -- (751)
Acquisition of
affiliate............. -- (876) -- (698) -- -- (1,574)
Issuance of stock
(29,435,640 shares)... 15 -- -- -- -- -- 15
Net loss............... -- -- (22,710) -- -- -- (22,710)
Foreign currency
translation
adjustments........... -- 90 -- 5,022 -- -- 5,112
Cumulative dividends on
redeemable preferred
stock................. -- -- (1,209) -- -- -- (1,209)
--- ------- -------- ------- ---- ---- -------
Balance--December 31,
1994................... 17 22,626 (24,207) 3,784 -- -- 2,220
Exchange of Class A and
B stock (32,959,130
shares)............... (17) (22,626) -- -- -- -- (22,643)
Issuance of Class A-1
stock (5,359,615
shares)............... 3 21,155 -- -- -- -- 21,158
Issuance of Class A-2
stock (698,883
shares)............... -- 4,015 -- -- -- -- 4,015
Issuance of Class A-3
stock (2,296,330
shares)............... 1 4,621 -- -- -- -- 4,622
Issuance of Class B
stock (10,727,437
shares)............... 6 22,843 -- -- -- -- 22,849
Issuance of warrants... -- 500 -- -- -- -- 500
Net loss............... -- -- (23,607) -- -- -- (23,607)
Foreign currency
translation
adjustments........... -- -- -- 8,945 -- -- 8,945
Cumulative dividends on
redeemable preferred
stock and discount
accretion............. -- -- (4,839) -- -- -- (4,839)
Unrealized holding gain
on marketable
securities............ -- -- -- -- -- 342 342
--- ------- -------- ------- ---- ---- -------
Balance--December 30,
1995................... $10 $53,134 $(52,653) $12,729 $-- $342 $13,562
=== ======= ======== ======= ==== ==== =======
See accompanying notes.
F-5
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JANUARY 1, 1994, DECEMBER 31, 1994 AND DECEMBER 30,
1995
(IN THOUSANDS)
[Download Table]
1993 1994 1995
-------- --------- ---------
Operating activities
Net income (loss)............................. $ 3,440 $ (22,710) $ (23,607)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization expense......... 4,955 8,348 29,834
Foreign currency transaction losses, net...... 1,310 17,055 22,811
Write-off of loan acquisition costs........... -- 4,372 --
Provision for losses on accounts receivable
and price concessions........................ 15 435 5,788
Provision for deferred income taxes........... 947 582 (1,375)
Other, net.................................... 414 740 --
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable......................... (2,225) (7,401) (16,160)
Inventories................................. (2,571) 3,953 (7,799)
Accounts payable and accrued expenses....... 930 13,381 (2,666)
Income taxes payable........................ 229 78 2,742
Accrued restructuring costs................. -- -- (2,406)
Other, net.................................. (556) (1,447) 4,394
-------- --------- ---------
Net cash provided by operating activities. 6,888 17,386 11,556
Investing activities
Purchases of property, plant and equipment.... (6,505) (11,341) (47,842)
Purchases of marketable securities............ -- (4,705) (22,521)
Proceeds from sales of marketable securities.. -- 2,707 19,929
Acquisition of businesses, net of cash
acquired..................................... -- (48,643) (281,358)
Organization costs............................ -- (1,391) (1,416)
Other, net.................................... (453) 1,998 --
-------- --------- ---------
Net cash (used in) investing activities... (6,958) (61,375) (333,208)
Financing activities
Issuance of common stock...................... -- 15 30,000
Proceeds from debt............................ 11,900 189,514 273,654
Payments of debt.............................. (12,938) (113,404) (13,638)
Issuance of redeemable preferred stock of
subsidiary and warrants...................... -- -- 40,000
Redemption of preferred stock................. -- (13,324) --
Loan acquisition costs........................ -- (7,020) (2,380)
Other, net.................................... -- 2,701 --
-------- --------- ---------
Net cash provided by (used in) financing
activities............................... (1,038) 58,482 327,636
Effect of exchange rate changes on cash........ (120) (3,359) (1,724)
-------- --------- ---------
Net increase (decrease) in cash and
equivalents.............................. (1,228) 11,134 4,260
Cash and equivalents at beginning of year. 3,922 2,694 13,828
-------- --------- ---------
Cash and equivalents at end of year....... $ 2,694 $ 13,828 $ 18,088
======== ========= =========
Noncash investing and financing activities
Issuance of common stock in exchange for
preferred stock, cumulative dividends and
common stock in affiliated companies......... $ -- $ 23,065 $ --
Cumulative dividends on redeemable preferred
stock and accretion.......................... 2,480 1,209 4,839
Supplemental information
Cash paid for interest........................ 4,653 3,949 43,186
Cash paid for income taxes.................... 795 1,298 5,027
Acquisition of businesses
Fair value of assets acquired................. -- 122,165 358,814
Liabilities assumed and incurred.............. -- 73,522 77,456
Cash paid..................................... -- 48,643 281,358
See accompanying notes.
F-6
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
Polymer Group, Inc. (the "Company") is a world-wide manufacturer and
marketer of flexible nonwoven and woven polyolefin fabrics. The Company's
principal lines of business include industrial and specialty products and
disposable wiping, medical and hygiene products for consumer applications. The
Company operates twelve manufacturing facilities located in the United States,
Canada, Mexico, Germany and the Netherlands.
BASIS OF PRESENTATION
The accompanying consolidated financial statements are prepared on the basis
of generally accepted accounting principles and include the accounts of the
Company and its subsidiaries, all of which are wholly owned. All material
intercompany accounts are eliminated in consolidation. Certain amounts
previously presented in the consolidated financial statements for prior
periods have been reclassified to conform to current classification. 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 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.
NOTE 2. ORGANIZATION AND ACQUISITIONS
GENERAL
The Company is a Delaware corporation incorporated on June 16, 1994. On June
24, 1994, the Company: issued $150,000 in 12 1/4% Senior Notes (the "Notes" or
"Senior Notes") due 2002 in a private placement, in accordance with Rule 144A
of the Securities Act of 1933; acquired two affiliated companies, PGI Polymer,
Inc. ("PGI") and Fabrene Inc. ("Fabrene"); and acquired Bonlam, S.A. de C.V.
("Bonlam"). Following these transactions, PGI, Fabrene and Bonlam became
wholly owned subsidiaries of the Company. PGI, a holding company, was acquired
by exchanging 1,522,370 shares of the Company's common stock and approximately
$13,300 in cash for all of the outstanding shares of common stock and
preferred stock of PGI, and accrued dividends thereon. The acquisition was
considered to be between entities under common control and was accounted for
at historical cost in a manner similar to a pooling of interests. The net
assets of PGI on a historical cost basis were approximately $16,300 at the
time of the acquisition.
Prior to the acquisitions of PGI and Fabrene by the Company, PGI owned 27%
of Fabrene, a Canadian-based manufacturer and marketer of woven polyolefin
fabrics. This equity interest was acquired indirectly by the Company in
connection with the acquisition of PGI. The remaining 73% was acquired by the
Company in a transaction accounted for by the purchase method of accounting.
To effect the transaction, Fabrene acquired shares of its common stock and
warrants from a shareholder, and repaid a subordinated loan to the shareholder
for $12,500 in cash. The remaining shareholders of Fabrene exchanged their
common stock and common stock warrants for 128,220 shares of common stock of
the Company and approximately $830 in cash. The Company's total cost of
acquiring the ownership not previously owned by PGI was approximately $7,000.
The Company also acquired all the outstanding common stock of Bonlam, a
Mexican-based manufacturer and marketer of spunbond nonwoven products, for
approximately $40,700 in a transaction accounted for by the purchase method
F-7
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
of accounting. The Company's 1994 consolidated statements of operations
include 100% of Fabrene's net loss for the period from June 25, 1994 through
December 31, 1994 and 27% of Fabrene's net loss for periods prior to June 25,
1994. Bonlam's results of operations for the period from June 25, 1994 through
December 31, 1994 have been included in the Company's 1994 consolidated
results of operations. As a result of the acquisition of Fabrene and Bonlam,
the excess of cost over the fair value of net assets acquired ("goodwill")
approximated $45,859 and $41,837 as of December 31, 1994 and December 30,
1995, respectively.
CHICOPEE ACQUISITION
On March 15, 1995, the Company completed the acquisition (the "Chicopee
Acquisition") of Johnson & Johnson Advanced Materials Company and Chicopee
B.V. (collectively, "Chicopee") from Johnson & Johnson ("J&J") for an
aggregate consideration of $290,000 (including $15,000 of fees and expenses)
in a transaction accounted for by the purchase method of accounting. Chicopee
is a leading manufacturer and marketer of both nonwoven roll and converted
products, with a leading market share in the domestic and international health
care market. The Company financed the Chicopee Acquisition with the following
sources of funds: (i) borrowings by Chicopee under a six-year $125,000
amortizing term loan, an eight-year $85,000 amortizing term loan and initial
borrowings of $4,500 under a $30,000 revolving credit facility provided by a
group of banks; (ii) the issuance by Chicopee to J&J of a $5,000 subordinated
promissory note, which was repaid at closing; (iii) a $30,000 common equity
contribution from the Company; and (iv) the issuance of $40,000 redeemable
preferred stock due 2004 ("Preferred Stock") of Chicopee. Chicopee's results
of operations for the period from March 16, 1995 through December 30, 1995
have been included in the Company's 1995 consolidated results of operations.
In connection with the Chicopee Acquisition, management of the Company
adopted a plan (the "Plan") to relocate manufacturing equipment from
Chicopee's Canadian operation to certain other manufacturing sites within the
United States. The Plan also provides for relocation of Chicopee's corporate
offices, including certain equipment used in its North American research and
development activities, to other sites within the United States. As of March
15, 1995, the Company provided for accrued restructuring costs of
approximately $17,859 in connection with the allocation of the purchase price
to the fair value of assets acquired and liabilities assumed. During 1995, the
Company charged approximately $2,406 against the liability associated with the
Plan, including $1,353 related to asset and personnel relocation and foreign
import duties and approximately $1,053 associated with an unfavorable
manufacturing contract that existed at the acquisition date and other
miscellaneous costs. At December 30, 1995, the Company's accrued restructuring
costs associated with the Plan approximated $15,453. Management currently
estimates that approximately $7,540 of the total accrued restructuring costs
will be expended during 1996; therefore, this portion of the total accrual has
been recognized as a current liability in the consolidated balance sheet.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma information is presented as though the
acquisition of Fabrene, Bonlam and Chicopee (collectively, the "Acquisitions")
occurred as of the beginning of the respective periods. Such pro forma amounts
are not necessarily indicative of what the actual consolidated results of
operations might have been had the Acquisitions been effective at the
beginning of fiscal 1994 and 1995.
F-8
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
[Download Table]
1994 1995
-------- --------
Net sales............................................ $448,472 $493,658
(Loss) before extraordinary item..................... (20,290) (24,264)
Net (loss)........................................... $(24,662) $(24,264)
======== ========
Per Common Share:
(Loss) before extraordinary item................... $ (.99) $ (1.18)
Net (loss)......................................... $ (1.20) $ (1.18)
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from product sales is recognized at the time ownership of goods
transfers to the customer and the earnings process is complete.
CASH EQUIVALENTS
Investment securities with maturities of three months or less at the time of
acquisition are considered cash equivalents.
MARKETABLE SECURITIES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115") on January 1, 1994. In accordance with the provisions
of FAS 115, the Company has classified equity securities as available-for-sale
which are carried at fair market value based on quoted market prices. Material
unrealized holding gains on available-for-sale securities are included as a
component of shareholders' equity. Material realized gains and losses are
determined on the specific identification method and included in the
determination of net income.
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISKS
Accounts receivable potentially expose the Company to concentration of
credit risk, as defined by Statement of Financial Accounting Standards No. 105
"Disclosure of Information about Financial Instruments with Off-Balance Sheet
Risk and Financial Instruments with Concentration of Credit Risk." The Company
provides credit in the normal course of business and performs ongoing credit
evaluations on certain of its customers' financial condition, but generally
does not require collateral to support such receivables. The Company also
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other
information. The allowance for doubtful accounts was $496 and $1,885 at
December 31, 1994 and December 30, 1995, respectively, which management
believes is adequate to provide for credit loss in the normal course of
business, as well as losses for customers who have filed for protection under
the bankruptcy law. The Procter & Gamble Company ("P&G") and Paragon accounted
for approximately 62% and 47% of the Company's net sales during 1993 and 1994,
respectively. J&J and P&G accounted for approximately 28% and 15%,
respectively, of the Company's net sales during 1995.
F-9
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out ("FIFO") method of accounting. Supply inventories not expected to be
utilized within one year are classified as other non-current assets.
Inventories, classified as current assets, as of December 31, 1994 and
December 30, 1995, consist of the following:
[Download Table]
1994 1995
------- -------
Finished goods............................................ $ 9,773 $22,476
Work in process and stores and maintenance parts.......... 2,265 4,010
Raw materials............................................. 6,517 21,396
------- -------
Total................................................... $18,555 $47,882
======= =======
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed for financial reporting purposes on the
straight line method over the estimated useful lives of the related assets.
The estimated useful lives established for buildings and land improvements
range from 18 to 33 years, and the estimated useful lives established for
machinery, equipment and other fixed assets range from three to 15 years.
Costs of the construction of certain long-term assets include capitalized
interest which is amortized over the estimated useful life of the related
asset. The Company capitalized approximately $272, $483 and $1,933 of interest
costs during 1993, 1994 and 1995, respectively.
INTANGIBLES AND ORGANIZATION COSTS
Goodwill is amortized on the straight-line method over an estimated useful
life of 40 years. Identified intangibles are amortized on the straight-line
method over periods not exceeding an estimated useful life of 10 years. The
lives established for these assets are a composite of many factors;
accordingly, the Company evaluates the continued appropriateness of these
lives based upon the latest available economic factors and circumstances. The
carrying value of goodwill is reviewed if the facts and circumstances suggest
that it may be impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the Company's carrying value
of the goodwill is reduced by the estimated shortfall of cash flows.
Capitalized organization costs are amortized over 5 years on the straight-
line method. Loan acquisition costs relating to long-term debt are amortized
over the term of the related debt.
INCOME TAXES
The provision for income taxes and corresponding balance sheet accounts are
determined in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the deferred
tax liabilities and assets are determined based upon temporary differences
between the bases of certain assets and liabilities for income tax and
financial reporting purposes. A valuation allowance is recognized if it is
more likely than not that some portion or all of a deferred tax asset will not
be ultimately realized.
RESEARCH AND DEVELOPMENT
The cost of research and development is charged to expense as incurred and
is included in selling, general and administrative expense in the consolidated
statement of operations. The Company
F-10
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
incurred approximately $2,325, $2,860 and $6,375 of research and development
expense during 1993, 1994 and 1995, respectively.
FOREIGN CURRENCY TRANSLATION
The local currencies of the Company's foreign subsidiaries have been
determined to be the functional currencies in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation" ("FAS
52"). Assets and liabilities of the Company's foreign subsidiaries are
translated into United States dollars at current exchange rates and resulting
translation adjustments are included as a separate component of shareholders'
equity while revenue and expense accounts of these operations are translated
at weighted average exchange rates during the period. Transaction gains and
losses are included in the determination of net income.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is determined by dividing net income
(loss) applicable to common stock by the average number of shares outstanding
during the period. In accordance with Staff Accounting Bulletin No. 83 of the
Securities and Exchange Commission ("SEC"), all issuances of the Company's
common stock and warrants at prices below the expected Offering price during
the twelve month period preceding the planned Offering (See Note 17) have been
included as common stock equivalents for purposes of calculating net income
(loss) per common share as if they had been issued at the Company's inception.
SHAREHOLDERS' EQUITY
Prior to the Chicopee Acquisition, the Company had outstanding 1,639,755
shares of existing Class A common stock and 10,835 shares of existing Class B
non-voting common stock. The existing Class A common stock and existing Class
B non-voting common stock were identical in all respects except that the
existing Class B non-voting common stock was non-voting. In connection with
the Chicopee Acquisition, the Company also consummated the following
transactions: (i) the Company, The InterTech Group, Inc. ("InterTech"),
Golder, Thoma, Cressey Fund III Limited Partnership ("GTC Fund III"), certain
executives (the "Executives"), Chase Manhattan Investment Holdings, Inc.
("CMIHI") and FTG, Inc. ("FTG") entered into a Recapitalization Agreement
pursuant to which (a) their respective shares of the Company's existing Class
A common stock and existing Class B common stock were exchanged for shares of
the new Class A-1 common stock, Class A-3 non-voting common stock and new
Class B common stock, (b) GTC Fund III and CMIHI received shares of new Class
B common stock, Class A-1 common stock and non-voting Class A-3 non-voting
common stock, and (c) InterTech, the Executives and FTG received shares of new
Class B common stock; (ii) the Company, InterTech, GTC Fund III, CMIHI, Leeway
& Co., ("Leeway") and the California Public Employees' Retirement System
("CalPERS") entered into a Stock Purchase Agreement pursuant to which
InterTech, GTC Fund III, CMIHI, Leeway and CalPERS purchased shares of Class
A-1 common stock, Class A-2 non-voting common stock and new Class B non-voting
common stock; and (iii) the Executives purchased shares of new Class B common
stock in exchange for shares of the Company's existing Class A common stock
and cash.
The Class A-1 common stock, Class A-2 non-voting common stock and Class A-3
non-voting common stock are identical in all respects with the exception that
the Class A-2 non-voting common stock and Class A-3 non-voting common stock
are non-voting. The Class A-2 non-voting common stock and Class A-3 non-voting
common stock may be converted into Class A-1 common stock upon
F-11
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
the occurrence of certain events at the option of the holder thereof. The
Class B common stock is identical to the Class A-1 common stock with the
exception of the yield and distribution preferences described below.
The terms of the Class A-1 common stock, the Class A-2 non-voting common
stock and the Class A-3 non-voting common stock (collectively, the "Class A
common stock"), the Class B common stock and the Class C common stock provide
that the holders of the Class A common stock and the Class B common stock are
entitled to receive the first $85,000 of distributions to holders thereof as
follows: first, the holders of the Class A common stock are entitled to
receive an amount equal to the yield accrued (at a rate of 12% per annum,
compounded quarterly) on the unreturned original value of such Class A common
stock; second, the holders of the Class A common stock are entitled to receive
an amount equal to the unreturned original value of such Class A common stock;
and third, the holders of the Class A common stock and the Class B common
stock are entitled to receive, ratably, the balance, if any, of such $85,000.
Thereafter, distributions are allocated ratably between the holders of the
Class A common stock and Class B common stock, on the one hand, and the
holders of the Class C common stock, on the other. The holders of Class A
common stock are entitled to receive all such distributions to the holders of
Class A common stock and Class B common stock until they receive all accrued
and unpaid yield on their Class A common stock together with the unreturned
original value thereof, and all subsequent distributions are shared ratably
among the holders of Class A common stock and Class B common stock. All
distributions to holders of Class C common stock are allocated ratably among
such holders. (See Note 17).
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("FAS 121"), which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. FAS 121
also addresses the accounting for long-lived assets that are expected to be
disposed of. FAS 121 is effective for financial statements for fiscal years
beginning after December 15, 1995; therefore, the Company will adopt FAS 121
in the first quarter of 1996 and, based on current circumstances, does not
believe the effect of adoption will be material.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation" ("FAS 123"). FAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. FAS 123 is
effective for transactions entered into in fiscal years beginning after
December 15, 1995. In connection with the Offering (see Note 18-unaudited),
the Company has adopted the 1996 Key Employee Stock Option Plan. With adoption
of the 1996 Key Employee Stock Option Plan, the Company will account for
stock-based compensation awards under the provisions of Accounting Principles
Board Opinion No. 25, as permitted by FAS 123. In accordance with FAS 123,
beginning in the fiscal year ended 1996, the Company will make pro forma
disclosures relative to stock-based compensation as part of the accompanying
footnotes to the consolidated financial statements.
F-12
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 4. MARKETABLE SECURITIES
Marketable securities as of December 31, 1994 and December 30, 1995, consist
of the following:
[Download Table]
UNREALIZED UNREALIZED GROSS FAIR
COST GAINS LOSSES VALUE
------ ---------- ---------- ----------
1994
Marketable securities--
preferred stocks.............. $1,927 $-- $-- $1,927
------ ---- ---- ------
$1,927 $-- $-- $1,927
====== ==== ==== ======
1995
Marketable securities--
preferred stocks.............. $4,519 $342 $-- $4,861
------ ---- ---- ------
$4,519 $342 $-- $4,861
====== ==== ==== ======
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1994 and December 30, 1995,
consist of the following:
[Download Table]
1994 1995
-------- --------
Cost:
Land................................................ $ 2,382 $ 9,091
Buildings and land improvements..................... 24,810 75,297
Machinery, equipment and other...................... 97,539 316,712
Construction in progress............................ 7,136 18,429
-------- --------
131,867 419,529
Less accumulated depreciation......................... (18,145) (39,191)
-------- --------
$113,722 $380,338
======== ========
Depreciation charged to expense was $4,131, $6,298 and $20,959 during 1993,
1994 and 1995, respectively.
NOTE 6. INTANGIBLES, LOAN ACQUISITION AND ORGANIZATION COSTS
Intangibles, loan acquisition and organization costs as of December 31, 1994
and December 30, 1995, consist of the following:
[Download Table]
1994 1995
------- --------
Cost:
Goodwill............................................. $45,859 $ 41,837
Identified intangibles:
Supply Agreement................................... -- 13,000
Proprietary technology............................. -- 24,100
Other.............................................. 1,366 876
Loan acquisition costs............................... 8,212 21,613
Organization and start-up costs...................... 1,391 7,375
------- --------
56,828 108,801
Less accumulated amortization.......................... (4,342) (13,048)
------- --------
$52,486 $ 95,753
======= ========
F-13
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Amortization charged to expense was $824, $2,050 and $8,875 during 1993,
1994 and 1995, respectively. The increase in intangibles, loan acquisition
costs and organizational costs between 1994 and 1995 was due primarily to the
Chicopee Acquisition.
NOTE 7. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain manufacturing, warehousing and other facilities
and equipment under operating leases.The leases on most of the properties
contain renewal provisions. Rent expense, including incidental leases,
approximated $200, $314 and $2,274 in 1993, 1994 and 1995, respectively. Rent
expense for 1995 is net of sub-lease income of $559. Rental income
approximated $0, $0 and $2,280 in 1993, 1994 and 1995, respectively. The
approximate net minimum rental payments required under operating leases that
have initial or remaining non-cancelable lease terms in excess of one year at
December 30, 1995 are:
[Download Table]
GROSS NET
MINIMUM SUB- MINIMUM
RENTAL LEASE RENTAL
YEAR ENDING PAYMENT (INCOME) PAYMENTS
----------- ------- -------- --------
1996............................................ $1,648 $(86) $1,562
1997............................................ 1,496 -- 1,496
1998............................................ 1,319 -- 1,319
1999............................................ 1,274 -- 1,274
2000............................................ 1,036 -- 1,036
Thereafter...................................... 2,851 -- 2,851
------ ---- ------
$9,624 $(86) $9,538
====== ==== ======
PURCHASE COMMITMENTS
At December 30, 1995, the Company had commitments of approximately $43,706
related to the purchase of raw materials, converting services and capital
projects.
ENVIRONMENTAL
The Company is subject to a broad range of federal, foreign, state and local
laws and regulations relating to the pollution and protection of the
environment. Among the many environmental requirements applicable to the
Company are laws relating to air emissions, wastewater discharges and the
handling, disposal and release of solid and hazardous substances and wastes.
Based on continuing internal review and advice from independent consultants,
the Company believes that it is currently in substantial compliance with
environmental requirements. The Company is also subject to laws, such as the
Federal Comprehensive Environmental Response, Compensation, and Liability Act
of 1980 ("CERCLA"), that may impose liability retroactively and without fault
for releases or threatened release of hazardous substances at on-site or off-
site locations. The Company is not aware of any releases for which it may be
liable under CERCLA or any analogous provision.
Actions by federal, state and local governments in the United States and
abroad concerning environmental matters could result in laws or regulations
that could increase the cost of producing the products manufactured or
otherwise adversely affect the demand for the Company's products. In addition,
a decline in consumer preference for plastic products due to environmental
considerations could have a material adverse effect upon the Company.
F-14
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Most of the Company's manufacturing processes are mechanical and are
therefore considered to be environmentally benign. The polyolefin resins are
readily recyclable, and the Company maintains a network of recyclers to
receive post-industrial waste for certain of the Company's products. In
addition, each of the Company's manufacturing sites has equipment and
procedures for reclaiming a majority of internally generated scrap, thus
reducing the amount of waste sent to local landfills. As a result, the Company
does not currently anticipate any material adverse effect on its operations,
financial condition or competitive position as a result of its efforts to
comply with environmental requirements. Some risk of environmental liability
is inherent, however, in the nature of the Company's business, and there can
be no assurance that material environmental liabilities will not arise.
COLLECTIVE BARGAINING AGREEMENTS
As of December 30, 1995, the Company employed approximately 2,023 persons.
Approximately 246 of the employees in Canada, 19 in Portland, 97 in North
Little Rock, 73 in Germany, 142 in Mexico, and 243 in the Netherlands are
represented by labor unions or trade councils that have entered into separate
collective bargaining agreements with the Company.
NOTE 8. LONG-TERM DEBT
Long-term debt as of December 31, 1994 and December 30, 1995, consist of the
following:
[Download Table]
1994 1995
-------- --------
Senior Notes, 12 1/4%, due 2002............................... $150,000 $150,000
Revolving credit facilities................................... 39,200 89,600
Term loans payable............................................ -- 209,363
Other......................................................... 1,614 1,915
-------- --------
190,814 450,878
Less current maturities....................................... -- 10,938
-------- --------
Total....................................................... $190,814 $439,940
======== ========
SENIOR NOTES
The Senior Notes mature on July 15, 2002 and are unsecured senior
obligations of the Company. The Senior Notes bear interest at a rate of 12
1/4% payable semi-annually on January 15 and July 15, commencing January 15,
1995. Payment of the Senior Notes is unconditionally guaranteed, jointly and
severally, on a senior basis by PGI and FiberTech Group, Inc. ("FiberTech")
(collectively, the "Guarantors"), wholly owned subsidiaries of the Company.
Separate financial statements of the Guarantors are not presented because
management has determined that they would not be material to investors. The
Senior Notes are subject to redemption at any time on or after July 15, 1998
at the option of the Company, in whole or in part in amounts of $1 or an
integral multiple thereof based on certain redemption prices declining from
106.125% in 1998 through the year 2000 and thereafter at 100% of the principal
amount, in each case, together with accrued and unpaid interest, if any, to
the redemption date. Notwithstanding the foregoing, at any time prior to July
15, 1997, the Company may redeem up to $50 million of the Senior Notes
originally issued at a redemption price of 112.25% of the principal amount
redeemed, plus accrued interest to the redemption date. In connection with the
Company's issuance of the Senior Notes on June 24, 1994, the Company agreed to
file a registration statement with the SEC with respect to the exchange of the
Senior Notes for notes registered under the Securities Act of 1933, as amended
(the "Exchange Notes"), to cause such registration statement to become
effective within 90 days of the original date of issuance of the Senior Notes,
and to
F-15
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
consummate the exchange of the Senior Notes within 120 days of the original
date of issuance of the Senior Notes. Because such registration statement was
not declared effective within such 90 day period and because the exchange was
not consummated within such 120 day period, the interest rate on the Senior
Notes increased 1/2% to 12 3/4% for the period September 23, 1994 through
September 29, 1995. On September 29, 1995 the registration statement was
declared effective by the SEC and the exchange of the Senior Notes was
completed within 30 days. Consequently, the interest rate on the Senior Notes
decreased 1/2% to 12 1/4% for the period from September 29, 1995 through
December 30, 1995. Selected financial data of the Guarantors of the Senior
Notes is presented below:
[Download Table]
1994 1995
------------------------- -------------------------
FIBERTECH PGI FIBERTECH PGI
GROUP, INC. POLYMER, INC. GROUP, INC. POLYMER, INC.
----------- ------------- ----------- -------------
Statement of Operations
Data:
Net sales............. $126,310 $ -- $134,889 $ --
Operating income
(loss)............... 8,591 (393) 5,476 (716)
Income (loss) before
income taxes and
extraordinary item... 5,161 (710) 518 (572)
Income (loss) before
extraordinary item... 3,162 (426) 311 (343)
Extraordinary item.... (1,803) -- -- --
Net income (loss)..... $ 1,359 $ (426) $ 311 $ (343)
Balance Sheet Data (at
end of period):
Working capital
(deficit)............ $ 25,691 $ 1,591 $ 22,525 $ (2,383)
Total assets.......... 126,539 77,714 154,118 103,673
Total debt............ 39,200 -- 71,600 --
Shareholder's equity.. $ 58,148 $62,713 $ 58,638 $ 62,956
FIBERTECH CREDIT FACILITY
On June 24, 1994 FiberTech entered into a credit facility ("FiberTech Credit
Facility") with a group of lenders, with a total commitment of $75,000 with
two tranches consisting of $50,000 ("FiberTech Tranche A") available for
working capital and general corporate purposes and $25,000 ("FiberTech Tranche
B") available solely to fund the development and construction of pre-
determined capital projects. All indebtedness under the FiberTech Credit
Facility is guaranteed by the restricted subsidiaries of the Company and the
Guarantors (other than FiberTech) and is collateralized by a lien on
substantially all of the assets of the restricted subsidiaries of the Company
including certain pledges of stock and intercompany notes. The FiberTech
Tranche A commitment will mature on June 30, 1997, and the FiberTech Tranche B
commitment will mature on June 30, 1998. The interest rate applicable to
borrowings under the FiberTech Credit Facility is the Agent's base rate or the
London Interbank Bid Offer Rate ("LIBOR"), in each case plus a margin. The
margin applicable to base rate loans is 2.0%, and the margin applicable to
LIBOR loans is 3.25%. At December 30, 1995, the effective interest rates on
the FiberTech Tranche A and FiberTech Tranche B commitments were 9.0% to
10.5%. At December 30, 1995, unused commitments under the FiberTech Credit
Facility approximated $3,400.
CHICOPEE CREDIT FACILITY
In connection with the Chicopee Acquisition on March 15, 1995, Chicopee
entered into a credit facility ("Chicopee Credit Facility") with a group of
lenders. The Chicopee Credit Facility provides for revolving credit loans to
Chicopee in an aggregate amount not to exceed $30,000 ("Chicopee
F-16
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Revolver"). Borrowings under the revolving credit commitment are subject to
meeting minimum coverage ratios at the time of borrowing. In addition, the
Chicopee Credit Facility provides for term loans of $125,000 ("Chicopee
Tranche A Term Loan") and $85,000 ("Chicopee Tranche B Term Loan"). The
Chicopee Credit Facility is secured by (i) a lien on substantially all of the
assets of Chicopee and (ii) a pledge of stock of all direct subsidiaries of
Chicopee. The Chicopee Tranche A Term Loan will mature and the Chicopee
Revolver will be reduced to zero on March 31, 2001. The Chicopee Tranche B
Term Loan will mature on March 31, 2003. The interest rate applicable to
borrowings under the Chicopee Credit Facility is the Agent's base rate or
LIBOR, in each case plus a margin. The margin applicable to base rate loans
ranges from 1.5% to 2.0%, and the margin applicable to LIBOR loans ranges from
2.75% to 3.25%. At December 30, 1995, the effective interest rates on the
Chicopee Tranche A Term Loan and Chicopee Tranche B Term Loan were 8.63% and
9.13%, respectively, while the effective interest rates on the Chicopee
Revolver were 8.63% to 10.5%. At December 30, 1995, unused commitments under
the Chicopee Credit Facility approximated $9,288.
INTEREST RATE CAP AGREEMENT
The Company uses derivative financial instruments to manage well-defined
interest rate risk and does not use them for trading purposes. On April 25,
1995, the Company (through Chicopee) entered into an interest rate cap
agreement (the "Agreement") for an initial premium (cash) of $421 and
quarterly installments of $50 through March 31, 1998. Premiums paid for the
Agreement, including quarterly installments, are amortized to interest expense
over the term of the Agreement. Unamortized premiums are included in other
assets in the consolidated balance sheet. The Agreement provides for an
initial principal notional amount of $105,000 on April 25, 1995, which
declines to $90,000 on December 31, 1997. If LIBOR exceeds 8% on each
quarterly reset date (as defined in the Agreement), the Company shall be due
the amount by which LIBOR exceeds 8%. Over the term of the Agreement during
1995, LIBOR did not exceed 8%.
OTHER
The Senior Notes, the FiberTech Credit Facility and the Chicopee Credit
facility contain certain financial ratio covenants. The Company is in
compliance with provisions of such covenants as of December 30, 1995. In
addition, the loan agreements prohibit the Company from paying dividends and,
accordingly shareholders' equity of $13,562 was restricted at December 30,
1995. Commitment fees on the FiberTech Credit Facility and Chicopee Credit
Facility are generally equal to a percentage of the daily average unused
amount of each such commitment. Loan acquisition costs, including commitment
and placement fees approximated $6,450 and $13,540 in 1994 and 1995,
respectively. Total annual maturities of long-term debt will be: 1996--
$10,938, 1997--$46,092, 1998--$72,821, 1999--$31,271, 2000--$35,278,
thereafter--$254,478.
As discussed in Note 18 (unaudited), the Company expects to refinance a
substantial amount of its outstanding debt.
NOTE 9. MANDATORY REDEEMABLE PREFERRED STOCK OF SUBSIDIARY AND COMMON STOCK
WARRANTS
MANDATORY REDEEMABLE PREFERRED STOCK OF SUBSIDIARY
Chicopee has outstanding 40,000 shares of redeemable preferred stock
("Preferred Stock") which were issued in part to finance the Chicopee
Acquisition. Dividends accrue, whether or not declared, on a daily basis at an
annual rate of $130 per share through March 31, 2000 and thereafter at an
annual rate of $150 per share. The holders of shares of the Preferred Stock
are entitled to receive dividends on a quarterly basis in an amount equal to
all accrued and unpaid dividends on the Preferred Stock; provided that if and
to the extent that the holder of the Preferred Stock does not receive
dividends on a quarterly basis, such dividends shall be cumulative and shall
accrue dividends at a rate of 13% per annum.
F-17
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Preferred Stock is mandatorily redeemable ("Mandatory Redemption") by
Chicopee at the earlier of (i) the last business day of March, 2004 and (ii)
the earlier of (a) the date on which Chicopee no longer is an indirect wholly
owned subsidiary of the Company and (b) the date on which a sale of
substantially all the assets of Chicopee is consummated. In connection with
the Mandatory Redemption, Chicopee shall redeem all of the shares of Preferred
Stock at a price of $1,000 per share, plus an amount equal to accrued but
unpaid dividends plus a call premium ("Preferred Redemption Price"). At any
time, and from time to time, Chicopee may at its option by resolution of its
Board of Directors redeem, at the Preferred Redemption Price, all or any part
of the shares of the Preferred Stock.
Upon the occurrence of a change in control of the Company, the holders of
the Preferred Stock shall have the right, at their option ("Optional
Redemption") exercisable within ninety (90) days after receipt of notice of
the occurrence of a change in control, to send a written put notice ("Put
Notice") to Chicopee instructing Chicopee to redeem all of the outstanding
shares of Preferred Stock. Upon receipt of the Put Notice, Chicopee shall
redeem all of the shares of Preferred Stock within thirty (30) days. The
redemption shall be made out of funds legally available at a price of $1,000
per share plus an amount equal to accrued, but unpaid dividends ("Basic
Redemption Price") plus an additional fee.
If on the date of the Mandatory Redemption or Optional Redemption, Chicopee
does not have funds legally available to redeem all of the shares required to
be redeemed on such date, Chicopee will on such date, and quarterly thereafter
until all such shares are redeemed, redeem the maximum number of shares for
which it has funds legally available.
Upon any liquidation, dissolution, or winding up of Chicopee, before any
distribution of common stock of Chicopee, the holders of the shares of the
Preferred Stock shall be paid in cash an amount equal to the Basic Redemption
Price. Upon any other liquidation, dissolution or winding up of Chicopee,
whether voluntary or involuntary, the holders of Preferred Stock shall be
entitled to be paid an amount equal to the Preferred Redemption Price before
any distribution of common stock of Chicopee.
Preferred Stock activity comprises the following:
[Download Table]
1995
-------
Balance at beginning of period................................... $ --
Issuance of Preferred Stock.................................... 39,500
Redemption of Preferred Stock.................................. --
Exchange of Preferred Stock for Common Stock................... --
Accrued dividends.............................................. 4,575
Accretion of discount.......................................... 264
-------
Balance at end of period......................................... $44,339
=======
As discussed in Note 18 (unaudited), the Company expects to redeem the
Preferred Stock of Chicopee in connection with the Offering (as defined).
COMMON STOCK WARRANTS
In connection with the Chicopee Acquisition, holders of the Preferred Stock
were issued 71,000 warrants to purchase Class C common stock, par value $.01
per share, of the Company. Each warrant entitles the holders to purchase,
prior to March 15, 2007, one fully paid and non assessable share of the Class
C common stock at a nominal exercise price of $.01 per share. The warrants
have been recorded at their fair values on their issuance dates and have been
accounted for as discounts on the respective Preferred Stock.
F-18
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 10. INCOME TAXES
Significant components of the provision for income taxes are as follows:
[Download Table]
1993 1994 1995
------ ------ -------
Current:
Federal and state............................... $1,023 $ (812) $ 1,461
Foreign......................................... -- 1,737 5,130
------ ------ -------
1,023 925 6,591
Deferred:
Federal and state............................... 947 833 (826)
Foreign......................................... -- (251) (549)
------ ------ -------
947 582 (1,375)
------ ------ -------
$1,970 $1,507 $ 5,216
====== ====== =======
The Company has not provided U.S. income taxes for undistributed earnings of
foreign subsidiaries which are considered to be retained indefinitely for
reinvestment. The distribution of these earnings would result in additional
foreign withholding taxes and additional U.S. federal income taxes to the
extent they are not offset by foreign tax credits, but it is not practicable
to estimate the total liability that would be incurred upon such a
distribution.
Significant components of the Company's deferred tax liabilities and assets
as of December 31, 1994 and December 30, 1995 are as follows:
[Download Table]
1994 1995
------- --------
Deferred tax assets:
Provision for restructuring......................... $ -- $ 3,341
Alternative minimum tax credit carryforward......... 88 2,108
Foreign withholding taxes........................... 497 733
U.S. net operating loss carryforward................ 4,315 4,360
Foreign net operating and capital loss carryforward. 10,450 9,660
Foreign tax credits................................. 654 783
Other............................................... 681 5,066
------- --------
Total deferred tax assets......................... 16,685 26,051
Valuation allowance for deferred tax assets related to
foreign operations................................... (10,198) (11,792)
------- --------
Net deferred tax assets............................... 6,487 14,259
Deferred tax liabilities:
Depreciation and amortization....................... (11,518) (16,827)
Basis difference on foreign fixed assets............ -- (27,795)
Other............................................... (2,008) (2,985)
------- --------
Total deferred tax liabilities.................... (13,526) (47,607)
------- --------
Net deferred taxes................................ $(7,039) $(33,348)
======= ========
The Company has operating loss carryforwards of approximately $12,456 for
federal income tax purposes expiring in the years 2007-2010. At December 30,
1995, one of the Company's foreign operations had a capital loss carryforward
of approximately $7,200 and has recognized for accounting
F-19
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
purposes an additional amount of approximately $1,300 of capital gains
relating to translation gains on debt denominated in U.S. dollars which will
be a capital gain when realized. No accounting recognition has been given to
the potential income tax benefits of approximately $1,500 related to these net
capital amounts. These capital loss amounts have no fixed expiration date.
Taxes on income are based on earnings (loss) before taxes as follows:
[Download Table]
1993 1994 1995
------- -------- --------
Domestic..................................... $ 7,144 $ 4,056 $ 1,611
Foreign...................................... (1,734) (19,041) (20,002)
------- -------- --------
$ 5,410 $(14,985) $(18,391)
======= ======== ========
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate as follows:
[Download Table]
1993 1994 1995
------ ------- -------
Computed tax (benefit) expense at the expected
statutory rate................................... $2,020 $(5,095) $(6,437)
Valuation allowance............................... (135) 6,800 7,521
Withholding taxes................................. 45 720 1,244
Effect of foreign operations...................... -- 239 2,375
Other, net........................................ 40 689 513
------ ------- -------
Provision for income taxes........................ $1,970 $ 3,353 $ 5,216
====== ======= =======
NOTE 11. RETIREMENT PLANS
FIBERTECH RETIREMENT PLANS
FiberTech maintains a 401(k) Plan ("FiberTech 401(k) Plan"), a Money
Purchase Salary Plan ("FiberTech Money Purchase Salary Plan") and a Money
Purchase Hourly Plan ("FiberTech Money Purchase Hourly Plan") (collectively,
the "FiberTech Money Purchase Plans") covering all employees who meet certain
service requirements. Under the provisions of the FiberTech Money Purchase
Plans, the Company has established 401(h) accounts to fund covered medical
claims for early retirees up to age 65. Under the FiberTech 401(k) Plan,
employer contributions are defined as a matching of employee contributions
allowing for a maximum matching contribution of 3% of a participant's
earnings. Under the FiberTech Money Purchase Salary Plan, employer
contributions are defined as 6.5% of a participant's base salary with 5%
contributed to an employee's account and 1.5% allocated to fund the general
pool of the 401(h) account. Under the FiberTech Money Purchase Hourly Plan,
employer contributions are defined as 2.5% of a participant's base salary with
2% given to an employee's account and .5% allocated to fund the 401(h)
account. The 401(h) accounts can be terminated at the Company's discretion at
any time without notice. Participant contributions are not allowed under the
FiberTech Money Purchase Plans or the 401(h) accounts. The cost of the
FiberTech plans was approximately $734, $791 and $772 for 1993, 1994 and 1995,
respectively.
CHICOPEE RETIREMENT PLANS
Chicopee maintains a 401(k) Retirement Savings Plan for non-union employees
("Chicopee Non-Union 401(k) Plan") and a Money Purchase Retirement Plan for
non-union employees ("Chicopee Non-Union Money Purchase Plan"). Under the
Chicopee Non-Union 401(k) Plan, employer
F-20
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
contributions are defined as a matching of employee contributions allowing for
a match of 25% of the first 2% contributed, 60% on the next 2% contributed and
75% of the next 2% contributed, for the maximum match of 3%. Under the
Chicopee Non-Union Money Purchase Plan, employer contributions are defined as
3.50% of a participant's base salary. Participant contributions are not
allowed under the Chicopee Non-Union Money Purchase Plan. Chicopee also
maintains a 401(k) Retirement Savings Plan for union employees ("Chicopee
Union 401(k) Plan") whereby employer contributions are based on 25% of the
first $.40 per hour deferred by the employee. The cost of the Chicopee plans
was approximately $707 during 1995.
OTHER
The Company maintains defined benefit retirement plans covering
substantially all employees at certain of the Company's subsidiaries. The
annual service costs are determined on the basis of an actuarial valuation by
using the projected benefit method prorated on services. Any realizable
surpluses are amortized on a straight-line basis over the expected average
remaining service lives of the employees in the plan. It is the Company's
policy to fund such plans in accordance with applicable laws and regulations.
At December 30, 1995, the pension plan assets were primarily invested in
separate funds whose values are subject to fluctuation in interest rates and
bond securities markets. Pension expense included in the determination of net
income for 1993, 1994 and 1995 is included in the following table:
[Download Table]
1993 1994 1995
---- ----- -------
Current service cost.................................... $-- $ 104 $ 1,297
Interest cost on projected benefit obligations.......... -- 163 1,169
Return on plan assets................................... -- (194) (1,400)
Net amortization of transition obligation............... -- (12) 6
---- ----- -------
Pension expense, net.................................... $-- $ 61 $ 1,072
==== ===== =======
Significant assumptions used in accounting for the defined benefit
retirement plans are as follows:
[Download Table]
1993 1994 1995
---- ---------- ----------
Return on assets.................................. -- 8.0% 6.5%- 9.0%
Discount rate on projected benefit obligation..... -- 8.0%-11.0% 6.0%-12.5%
Salary and wage escalation rate................... -- 4.0%- 8.0% 3.0%- 8.5%
The following table sets forth the funded status and amounts recognized as
other assets in the consolidated balance sheet as of December 31, 1994 and
December 30, 1995:
[Download Table]
1994 1995
------ -------
Actuarial present value of benefit obligation............... $5,568 $19,479
Plan assets at market value................................. 6,242 23,523
------ -------
Plan assets in excess of projected benefit obligation....... 674 4,044
Unrecognized transition net asset........................... (451) (412)
Unrecognized net gain....................................... 389 364
------ -------
Deferred pension costs included in other assets............. $ 612 $ 3,996
====== =======
The increases in net pension expense and deferred pension costs between 1994
and 1995 were due primarily to the Chicopee Acquisition.
F-21
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 12. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In connection with the Chicopee Acquisition, the Company assumed obligations
under a defined benefit health care retirement plan for union employees at
Chicopee's North Little Rock, Arkansas manufacturing facility in addition to
certain other postretirement benefits for non-union Chicopee employees.
Accordingly, the Company followed the provisions of Statement of Financial
Accounting Standards No. 106, "Employers Accounting for Postretirement
Benefits Other Than Pensions" ("FAS 106"). FAS 106 requires that the accrual
method of accounting for postretirement benefits other than pensions be used
and the accrual period be based on the period that employees render the
services necessary to earn their postretirement benefits. The Company
currently anticipates funding the plans on a "pay-as-you-go" basis. The
weighted average discount rate used in the calculation of the accumulated
postretirement benefit obligation and the net postretirement benefit cost was
6.5% to 7.5%. The assumed annual composite rate of increase in the per capita
cost of Company provided health care benefits begins at 10.0% for 1995,
gradually decreases to 6.0% by 1999 and remains at that level thereafter. A 1%
increase in these health care cost trend rates would cause the accumulated
obligation to increase by $606 and the aggregate of the service and interest
components of 1995 net postretirement benefit costs to increase by $135. Net
postretirement benefit cost included in the determination of net income for
1995 is included in the following table:
[Download Table]
1995
----
Service cost--benefits earned during period......................... $109
Interest cost on accumulated postretirement benefit obligation...... 174
----
Net postretirement benefit cost..................................... $283
====
The following table sets forth the funded status of the Company's obligation
under FAS 106 as of December 30, 1995:
[Download Table]
1995
------
Accumulated postretirement benefit obligation:
Retirees........................................................ $ --
Fully eligible active plan participants......................... --
Other active plan participants.................................. 3,493
------
Accrued postretirement benefit obligation......................... $3,493
======
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has estimated the fair value amounts of financial instruments as
required by Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," using available market information
and appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that the Company would realize in a current market exchange. The
carrying amount of cash and equivalents, accounts receivable, other assets and
accounts payable are reasonable estimates of their fair values. Fair value of
the Company's long-term debt, redeemable preferred stock and warrants, as
illustrated in the following table, was estimated using interest rates at
those dates for issuance of such financial instruments with similar terms and
remaining maturities and other independent valuation
F-22
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
methodologies. The estimated fair value of the Company's financial instruments
at December 31, 1994 and December 30, 1995 were as follows:
[Download Table]
1994 1995
----------------- -----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
Assets
Cash and equivalents.................. $ 13,828 $ 13,828 $ 18,088 $ 18,088
Marketable securities................. 1,927 1,927 4,861 4,861
Accounts receivable................... 27,936 27,936 58,288 58,288
Other current assets.................. 4,068 4,068 14,035 14,035
Interest rate cap agreement........... -- -- 419 571
Liabilities
Accounts payable and accrued expenses. 20,041 20,041 44,001 44,001
Long term debt........................ 190,814 185,564 439,940 445,190
Mandatory redeemable preferred stock of
subsidiary and warrants................ $ -- $ -- $ 44,839 $ 45,075
NOTE 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
[Download Table]
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
1994
Net sales......................... $ 26,921 $ 33,646 $ 50,623 $ 54,143
Gross profit...................... 5,329 5,584 10,998 14,351
Income (loss) before extraordinary
item............................. 1,191 173 321 (20,023)
Extraordinary item................ -- (4,372) -- --
Net income (loss)................. 1,191 (4,199) 321 (20,023)
Redeemable preferred stock
dividends and accretion.......... (605) (604) -- --
Net income (loss) attributable to
common stock..................... 586 (4,803) 321 (20,023)
Income (loss) before extraordinary
item per common share............ $ .03 $ (.02) $ .02 $ (.98)
Extraordinary item per common
share............................ -- (.21) -- --
Net income (loss) per common
share............................ $ .03 $ (.23) $ .02 $ (.98)
1995
Net sales......................... $ 66,012 $123,041 $122,521 $126,064
Gross profit...................... 15,999 30,856 29,101 28,076
Net income (loss)................. (11,304) 6,774 (2,860) (16,217)
Redeemable preferred stock
dividends and accretion.......... (200) (1,398) (1,454) (1,787)
Net income (loss) attributable to
common stock..................... $(11,504) $ 5,376 $ (4,314) $(18,004)
Net income (loss) per common
share............................ $ (.56) $ .26 $ (.21) $ (.88)
Net foreign currency transaction losses during 1995 increased $5,756 from a
net loss of $17,055 during 1994. The Company's Canadian and European
operations collectively incurred net foreign
F-23
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
currency transaction gains of $1,559 which were offset by net foreign currency
transaction losses of $24,370 within the Company's Mexican operation. During
fourth quarter 1994, the Mexican government discontinued monetary support for
the nuevo peso allowing it float to market rates which has caused the nuevo
peso to devalue by approximately 124% between December 20, 1994 and December
30, 1995. Substantially all of the Company's Mexican related net foreign
currency transaction losses during 1994 and 1995 resulted from its United
States dollar denominated debt. During fourth quarter 1995, the Company
completed its allocation of the purchase price to the fair value of assets
acquired and liabilities assumed in connection with the Chicopee Acquisition.
This resulted in the Company recording additional amortization expense of
approximately $2,063 related to identified intangible assets. The Company
recognized an extraordinary loss of $4,372 (net of the related income tax
benefit of $1,846) during second quarter 1994 which resulted from early
extinguishment of debt.
The calculation of net income (loss) per common share gives effect to the
approximate 19.97 to 1 stock split and the conversion of Class A common stock,
Class B common stock and Class C common stock into a single class of common
stock as discussed in Note 17.
NOTE 15. SEGMENT AND GEOGRAPHICAL INFORMATION
The Company operates in one business segment, manufacturing and marketing
woven and nonwoven polyolefin fabric for industrial and consumer applications.
Geographic data for the Company's operations are presented in the following
table. Intercompany sales and expenses are eliminated in determining results
for each operation. Export sales from the Company's United States operations
to unaffiliated customers approximated $9,481, $8,104 and $16,125 during 1993,
1994 and 1995, respectively.
[Download Table]
1993 1994 1995
-------- -------- --------
Net sales to unaffiliated customers:
United States................................ $102,616 $108,356 $255,296
Canada....................................... -- 24,418 59,417
Europe....................................... 18,857 21,347 99,180
Mexico....................................... -- 11,212 23,745
-------- -------- --------
Total...................................... $121,473 $165,333 $437,638
======== ======== ========
Income from operations:
United States................................ $ 10,195 $ 7,994 $ 16,918
Canada....................................... -- 5,746 13,485
Europe....................................... 965 181 4,994
Mexico....................................... -- 1,642 6,891
-------- -------- --------
Total...................................... 11,160 15,563 42,288
Other expense
Interest expense............................. 4,387 13,216 37,868
Foreign currency transaction losses, net..... 1,310 17,055 22,811
Other........................................ 53 277 --
-------- -------- --------
Income (loss) before income taxes and
extraordinary item............................ $ 5,410 $(14,985) $(18,391)
======== ======== ========
Identifiable assets:
United States................................ $ 78,080 $ 98,305 $310,832
Canada....................................... -- 71,088 88,100
Europe....................................... 24,781 29,020 180,978
Mexico....................................... -- 36,529 44,815
-------- -------- --------
Total...................................... $102,861 $234,942 $624,725
======== ======== ========
F-24
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 16. RELATED PARTY TRANSACTIONS
The Company's corporate headquarters are housed in space leased by a
shareholder ("Shareholder") of the Company from an affiliate of the
Shareholder. A portion of the payments and other expenses, primarily insurance
and allocated costs, are charged to the Company. Such amounts approximated
$1,100, $1,400 and $2,259 in 1993, 1994 and 1995, respectively.
On September 1, 1993, ConX, Inc. ("ConX"), an affiliated entity of the
Company acquired a manufacturing facility in Vineland, New Jersey for the
benefit of a wholly owned subsidiary (the "Subsidiary") of the Company and
entered into a lease of the facility to the Subsidiary at a base rate of $2.50
per square foot, subject to adjustment to account for inflation, which is
comparable to similar properties in the area. The lease terminates on August
31, 2003 and is subject to a purchase option at termination. Annual rental
expense relating to this lease approximated $70, $209 and $209 for 1993, 1994
and 1995, respectively.
On June 1, 1995 FiberTech and ConX II, Inc. ("ConX II"), an entity
affiliated with the Company, entered into supply and services agreements
(collectively, the "ConX Agreements") pursuant to which (i) ConX II has agreed
to purchase certain manufacturing equipment, which equipment ConX II has
agreed to install at certain of FiberTech's manufacturing locations, (ii)
FiberTech has agreed to purchase from ConX II certain materials and supplies
and (iii) FiberTech has agreed to provide certain manufacturing, warehousing
and administrative services and to provide exclusive space and dedicated areas
to ConX II at the sites at which the equipment is located. The ConX Agreements
are initially terminable on the date which is five years after the equipment
at each plant becomes operational.
NOTE 17. SUBSEQUENT EVENTS
On January 11, 1996, the Company authorized and issued 10,000 shares of 13%
Cumulative Redeemable Preferred Stock ("Company Preferred Stock"), $.01 par
value, to ConX II for $10,000.
On March 14, 1996, the Company filed a Registration Statement with the SEC
in connection with the offering by the Company of 11,500,000 shares of its
common stock for sale to the public (the "Offering"). Pursuant to the
Recapitalization Agreement dated May 6, 1996, all of the warrants to acquire
shares of Class C common stock will be exercised, and the outstanding shares
of Class A common stock, Class B common stock and Class C common stock will be
converted into shares of a single class of common stock concurrently with and
contingent upon the Offering. The Company's Board of Directors (the "Board")
has approved an approximate 19.97 to 1 stock split to be effective upon
consummation of the Offering. All common share and warrant data have been
restated to reflect such split.
On April 15, 1996, the Board declared a dividend of one right ("Right") for
each share of common stock outstanding at the close of business on June 3,
1996. The holders of any additional common stock issued subsequent to such
date and before the earliest of the distribution date (determined in
accordance with the Rights Agreement), the redemption of the Rights, the
exchange of the Rights or the expiration of the Rights also will be entitled
to one Right for each such additional share. Each Right will entitle the
registered holder under certain circumstances to purchase from the Company one
one-thousandth of a share of junior preferred stock (series A) at a price of
$80 per one one-thousandth share of preferred stock, subject to adjustment.
F-25
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 18. OTHER MATTERS (UNAUDITED)
NEW CREDIT FACILITY
In connection with the Offering, the Company intends to consummate the
following transactions: (i) effectively repay all outstanding indebtedness
under the FiberTech Credit Facility and Chicopee Credit Facility
(collectively, the "Facilities") and terminate the Facilities; (ii) redeem
$50,000 principal amount of the Senior Notes at a premium of 112.25%; (iii)
redeem the Preferred Stock of Chicopee at a price equal to $1,000 per share
plus accrued but unpaid dividends; (iv) redeem the Company Preferred Stock at
a price of $1,000 per share plus accrued but unpaid dividends; and (v) enter
into a new credit facility ("New Credit Facility") as more fully described
below.
The Company has entered into a definitive commitment letter, dated March 7,
1996, with The Chase Manhattan Bank, N.A. to provide, subject to customary
conditions, the financing for the New Credit Facility. The New Credit Facility
will consist of a $200,000 term loan and a $125,000 revolving facility. The
New Credit Facility will be secured by all of the assets of the Company and by
a guarantee by each of the Company's domestic subsidiaries, which guarantee
will be secured by the assets of each such subsidiary. The Company's non-
domestic subsidiaries will either borrow directly under the New Credit
Facility on a secured basis or borrow from the Company, with such borrowings
being evidenced by a note pledged to the lenders.
In order to enter into the New Credit Facility with the terms and conditions
described above, the Company is required to obtain the affirmative consents
(the "Required Consents") of holders of a majority of the outstanding
principal amount of the Senior Notes. Pursuant to a Consent Solicitation
Statement dated March 14, 1996, the Company has solicited and received the
Required Consents, and, accordingly, the Company and the Trustee have executed
a Third Supplemental Indenture dated as of April 9, 1996, to be effective upon
the consummation of the Offerings, that will allow the Company to enter into
the New Credit Facility.
1996 KEY EMPLOYEE STOCK OPTION PLAN
In connection with the Offering, the Company has adopted the 1996 Key
Employee Stock Option Plan (the "1996 Plan"). The 1996 Plan will be
administered by a committee (the "Committee") composed of non-management
members of the Board who are appointed by the Board. Any person who is a full-
time, salaried employee of the Company (excluding non-management directors)
will be eligible to participate in the 1996 Plan (a "Participant"). The
Committee will select the Participants and determine the terms and conditions
of the options. The 1996 Plan provides for the issuance of options to
Participants covering 1,500,000 shares of common stock, subject to certain
adjustments reflecting changes in the Company's capitalization. At the time of
the Offering, options to acquire a number of shares of common stock equal to
$600 divided by the initial public offering price per share of common stock
will be granted at a price per share equal to the initial public offering
price per share of common stock. Such options will vest over a five-year
period and will expire three years from the date of vesting.
PREFERRED STOCK
Concurrently with the Offering, the Company's Certificate of Incorporation
will be amended to permit the Board, without further action of the Company's
stockholders, from time to time, to direct the issuance of shares of preferred
stock in series and may, at the time of issuance, determine the rights,
preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding
F-26
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
shares of preferred stock would reduce the amount of funds available for
payment of dividends on shares of common stock. Holders of shares may be
entitled to receive a preference payment in the event of any liquidation,
dissolution or winding up of the Company before any payment is made to the
holders of shares of common stock. The Board, without stockholder approval,
may issue shares of preferred stock with voting and conversion rights which
could adversely affect the holders of shares of common stock. Upon
consummation of the Offering, there will be 100,000 shares of junior preferred
stock reserved for issuance in connection with the rights agreement as
discussed in Note 17. The Company has no present intention to issue any shares
of preferred stock.
UNAUDITED PRO FORMA SHAREHOLDERS' EQUITY
Unaudited pro forma shareholders' equity at December 30, 1995 gives effect
to the approximate 19.97 to 1 stock split to be effective upon the
consummation of the Offering, which was approved by the Company's Board on
March 5, 1996, and the conversion of Class A common stock, Class B common
stock and Class C common stock into a single class of common stock as
discussed in Note 17.
F-27
POLYMER GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
[Download Table]
DECEMBER 30, MARCH 30,
1995 1996
------------ -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and equivalents................................ $ 18,088 $ 20,902
Marketable securities............................... 4,861 7,693
Accounts receivable, net............................ 58,288 62,702
Inventories......................................... 47,882 47,659
Other............................................... 14,035 15,350
-------- --------
Total current assets.............................. 143,154 154,306
Property, plant and equipment, net.................... 380,338 376,595
Intangibles, loan acquisition and organization costs,
net.................................................. 95,753 93,626
Other................................................. 5,480 4,100
-------- --------
Total assets...................................... $624,725 $628,627
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............... $ 44,001 $ 42,107
Accrued interest payable............................ 8,898 4,116
Accrued salaries, wages and other fringe benefits... 5,924 6,968
Income taxes payable................................ 4,295 2,489
Current portion of accrued restructuring costs...... 7,540 6,637
Current portion long-term debt...................... 10,938 13,417
-------- --------
Total current liabilities......................... 81,596 75,734
Accrued restructuring costs, less current portion..... 7,913 7,820
Accrued postretirement benefit obligations............ 3,493 3,785
Long-term debt, less current portion.................. 439,940 442,133
Deferred income taxes................................. 33,882 33,065
Redeemable preferred stock, 13% cumulative............ -- 10,293
Mandatory redeemable preferred stock, 13% cumulative.. 44,339 46,150
SHAREHOLDERS' EQUITY
Common stock.......................................... 10 10
Additional paid-in capital............................ 53,134 53,134
Deficit............................................... (52,653) (55,240)
Cumulative translation adjustment..................... 12,729 11,831
Unrealized holding gain (loss) on marketable
securities........................................... 342 (88)
-------- --------
13,562 9,647
-------- --------
Total liabilities and shareholders' equity........ $624,725 $628,627
======== ========
See accompanying notes.
F-28
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
[Download Table]
THREE MONTHS
ENDED
------------------
APRIL 1, MARCH
1995 30, 1996
-------- --------
Net sales.................................................. $ 66,012 $122,715
Cost of goods sold......................................... 50,013 93,320
-------- --------
Gross profit............................................... 15,999 29,395
Selling, general and administrative expenses............... 8,242 18,111
-------- --------
Operating income........................................... 7,757 11,284
Other expense:
Interest expense......................................... 6,530 10,579
Foreign currency transaction losses, net................. 10,815 1,332
-------- --------
17,345 11,911
-------- --------
(Loss) before income taxes................................. (9,588) (627)
Income taxes (benefit)..................................... 1,716 (144)
-------- --------
Net (loss)................................................. (11,304) (483)
Redeemable preferred stock dividends and accretion......... (200) (2,104)
-------- --------
Net (loss) applicable to common stock...................... $(11,504) $ (2,587)
======== ========
Net (loss) applicable to common stock per share............ $ (0.56) $ (0.13)
======== ========
Weighted average number of shares.......................... 20,500 20,500
======== ========
See accompanying notes.
F-29
POLYMER GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
[Download Table]
THREE MONTHS ENDED
--------------------
APRIL 1, MARCH 30,
1995 1996
--------- ---------
Operating activities
Net (loss).............................................. $ (11,304) $ (483)
Adjustments to reconcile net (loss) to net cash provided
by operating activities:
Depreciation and amortization expense................. 3,849 9,271
Foreign currency transaction losses, net.............. 10,815 1,332
Provision for losses on accounts receivable and price
concessions.......................................... 310 2,111
Changes in operating assets and liabilities, net of
effects of business acquisition:
Accounts receivable................................... (6,001) (6,525)
Inventories........................................... (3,542) 223
Accounts payable and accrued expenses................. (390) (5,340)
Other, net............................................ 736 (3,721)
--------- -------
Net cash (used in) operating activities............. (5,527) (3,132)
--------- -------
Investing activities
Purchases of property, plant and equipment.............. (5,371) (5,905)
Purchases of marketable securities...................... (325) (8,582)
Proceeds from sales of marketable securities............ 325 6,300
Acquisition of business, net of cash acquired........... (281,358) --
Organization costs...................................... -- (34)
--------- -------
Net cash (used in) investing activities............. (286,729) (8,221)
--------- -------
Financing activities
Issuance of common stock................................ 30,000 --
Proceeds from debt...................................... 222,500 7,400
Payments of debt........................................ -- (2,734)
Issuance of redeemable preferred stock.................. 40,000 10,000
Loan acquisition costs.................................. -- (200)
--------- -------
Net cash provided by financing activities........... 292,500 14,466
--------- -------
Effect of exchange rate changes on cash................... 5,163 (299)
--------- -------
Net increase in cash and equivalents................ 5,407 2,814
Cash and equivalents at beginning of period......... 13,828 18,088
--------- -------
Cash and equivalents at end of period............... $ 19,235 $20,902
========= =======
Noncash financing activities
Cumulative dividends on redeemable preferred stock...... $ 200 $ 2,104
Acquisition of business
Fair value of assets acquired........................... 358,814 --
Liabilities assumed and incurred........................ 77,456 --
Cash paid............................................... 281,358 --
See accompanying notes.
F-30
POLYMER GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
Polymer Group, Inc. ("Polymer Group" or the "Company") is a world-wide
manufacturer of flexible nonwoven and woven polyolefin fabrics. The Company's
principal lines of business include industrial and specialty products and
disposable wiping medical and hygiene products for consumer applications. The
Company operates twelve manufacturing facilities located in the United States,
Canada, Mexico, Germany and the Netherlands.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the management of Polymer Group, these unaudited condensed
consolidated financial statements contain all adjustments of a normal
recurring nature necessary for a fair presentation. Operating results for the
three months ended March 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 28, 1996. Certain
amounts previously presented in the consolidated financial statements for
prior periods have been reclassified to conform to current classification. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2. ORGANIZATION
The Company is a Delaware corporation incorporated on June 16, 1994. On June
24, 1994, the Company: issued $150,000 in 12 1/4% Senior Notes ("Senior Notes"
or the "Notes") due 2002 in a private placement, in accordance with Rule 144A
of the Securities Act of 1933; acquired two affiliated companies, PGI Polymer,
Inc. ("PGI") and Fabrene Inc. ("Fabrene"); and acquired Bonlam, S.A. de C.V.
("Bonlam"). Following these transactions, PGI, Fabrene and Bonlam became
wholly owned subsidiaries of the Company. PGI, a holding company, was acquired
by exchanging 1,522,370 shares of the Company's common stock and approximately
$13,300 in cash for all of the outstanding shares of common stock and
preferred stock of PGI, and accrued dividends thereon. The acquisition was
considered to be between entities under common control and was accounted for
at historical cost in a manner similar to a pooling of interests. The net
assets of PGI on a historical cost basis were approximately $16,300 at the
time of the acquisition.
Prior to the acquisitions of PGI and Fabrene by the Company, PGI owned 27%
of Fabrene, a Canadian-based manufacturer and marketer of woven polyolefin
fabrics. This equity interest was acquired indirectly by the Company in
connection with the acquisition of PGI. The remaining 73% was acquired by the
Company in a transaction accounted for by the purchase method of accounting.
To effect the transaction, Fabrene acquired shares of its common stock and
warrants from a shareholder, and repaid a subordinated loan to the shareholder
for $12,500 in cash. The remaining shareholders of Fabrene exchanged their
common stock and common stock warrants for 128,220 shares of common stock of
the Company and approximately $830 in cash. The Company's total cost of
acquiring the ownership not previously owned by PGI was approximately $7,000.
The Company also acquired all the outstanding common stock of Bonlam, a
Mexican-based manufacturer and marketer of spunbond nonwoven products, for
approximately $40,700 in a transaction accounted for by the purchase method of
accounting.
F-31
POLYMER GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
On March 15, 1995, the Company completed the acquisition (the "Chicopee
Acquisition") of Johnson & Johnson Advanced Materials Company and Chicopee
B.V. (collectively, "Chicopee") from Johnson & Johnson ("J&J") for an
aggregate consideration of $290,000 (including $15,000 of fees and expenses).
The Company financed the Chicopee Acquisition with the following sources of
funds: (i) borrowings by Chicopee under a six-year $125,000 amortizing term
loan, an eight-year $85,000 amortizing term loan and initial borrowings of
$4,500 under a $30,000 revolving credit facility provided by a group of banks;
(ii) the issuance by Chicopee to J&J of a $5,000 subordinated promissory note,
which was repaid at closing; (iii) a $30,000 common equity contribution from
the Company; and (iv) the issuance of $40,000 redeemable preferred stock due
2004 of Chicopee with warrants to acquire shares of Class C common stock of
the Company. The acquisitions of Fabrene, Bonlam and Chicopee were accounted
for using the purchase method of accounting.
In connection with the Chicopee Acquisition, management of the Company
adopted a plan (the "Plan") to relocate manufacturing equipment from
Chicopee's Canadian operation to certain other manufacturing sites within the
United States. The Plan also provides for relocation of Chicopee's corporate
offices, including certain equipment used in its North American research and
development activities, to other sites within the United States. As of March
15, 1995, the Company provided for accrued restructuring costs of
approximately $17,859 in connection with the allocation of the purchase price
to the fair value of assets acquired and liabilities assumed. During the three
month period ended March 30, 1996, the Company charged approximately $996
against the liability related to asset relocation and other miscellaneous
costs. At March 30, 1996, the Company's accrued restructuring costs associated
with the Plan was $14,457. Management currently estimates that approximately
$6,637 of the total accrued restructuring costs will be expended over the next
twelve month period; therefore, this portion of the total accrual has been
recognized as a current liability in the accompanying condensed consolidated
balance sheet.
NOTE 3. INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method of accounting. Supply inventories not expected to be utilized
within one year are classified as other non-current assets. Inventories,
classified as current assets, as of March 30, 1996 and December 30, 1995,
consist of the following:
[Download Table]
DECEMBER 30, MARCH 30,
1995 1996
------------ ---------
Finished goods..................................... $22,476 $24,462
Work in process and stores and maintenance......... 4,010 3,826
Raw materials...................................... 21,396 19,371
------- -------
Total.......................................... $47,882 $47,659
======= =======
NOTE 4. SELECTED FINANCIAL DATA OF GUARANTORS
Payment of the Senior Notes is unconditionally guaranteed, jointly and
severally, on a senior basis by FiberTech Group, Inc. and PGI (collectively,
the "Guarantors"), wholly owned subsidiaries of the Company. Separate
financial statements of the Guarantors are not presented because management
F-32
POLYMER GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
has determined that they would not be material to investors. Selected unaudited
financial data of the Guarantors are presented in the following tables:
[Download Table]
STATEMENT OF OPERATIONS DATA
---------------------------------------------------
THREE MONTHS THREE MONTHS
ENDED APRIL 1, 1995 ENDED MARCH 30, 1996
------------------------- -------------------------
FIBERTECH PGI FIBERTECH PGI
GROUP, INC. POLYMER, INC. GROUP, INC. POLYMER, INC.
----------- ------------- ----------- -------------
Net sales.................. $ 34,742 $ -- $ 28,825 $ --
Operating income (loss).... 3,540 (26) 31 (71)
Income (loss) before income
taxes..................... 4,482 (12) (2,652) (271)
Net income (loss).......... $ 3,747 $ (12) $ (2,052) $ (402)
BALANCE SHEET DATA (AT END OF PERIOD)
---------------------------------------------------
DECEMBER 30, 1995 MARCH 30, 1996
------------------------- -------------------------
FIBERTECH PGI FIBERTECH PGI
GROUP, INC. POLYMER, INC. GROUP, INC. POLYMER, INC.
----------- ------------- ----------- -------------
Working capital (deficit).. $ 22,525 $ (2,383) $ 24,338 $ (1,660)
Total assets............... 154,118 103,673 152,923 113,510
Total debt................. 71,600 -- 74,500 --
Shareholder's equity....... $ 58,638 $ 62,956 $ 56,457 $ 62,845
F-33
POLYMER GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 5. NET (LOSS) PER SHARE
Net (loss) per common share is determined by dividing net (loss) applicable
to common stock by the average number of shares outstanding during the period.
In accordance with Staff Accounting Bulletin No. 83 of the Securities and
Exchange Commission (the "SEC"), all issuances of the Company's common stock
and warrants at prices below the expected offering price during the twelve
month period preceding the planned Offering (as defined) have been included as
common stock equivalents for purposes of calculating net (loss) per common
share as if they had been issued at the Company's inception.
NOTE 6. RELATED PARTY TRANSACTION
On January 11, 1996, the Company authorized and issued 10,000 shares of 13%
Cumulative Redeemable Preferred Stock, $.01 par value, to ConX II, Inc., an
entity affiliated with the Company, for $10,000.
NOTE 7. OTHER MATTERS
OFFERING
On March 14, 1996, the Company filed a Registration Statement with the SEC
in connection with the offering by the Company of 11,500,000 shares of its
common stock for sale to the public (the "Offering"). Pursuant to the
Recapitalization Agreement dated May 6, 1996, all of the warrants to acquire
shares of Class C common stock will be exercised, and the outstanding shares
of Class A-1 common stock, Class A-2 common stock, Class A-3 common stock,
Class B common stock and Class C common stock will be converted into a single
class of common stock concurrently with and contingent upon the Offering. The
Company's Board of Directors has approved an approximate 19.97 to 1 stock
split to be effective upon consummation of the Offering.
NEW CREDIT FACILITY
In connection with the Offering, the Company intends to consummate the
following transactions: (i) effectively repay all outstanding indebtedness
under the FiberTech Credit Facility and Chicopee Credit Facility
(collectively, the "Facilities") and terminate the Facilities; (ii) redeem
$50,000 principal amount of the Senior Notes at a premium of 112.25%; (iii)
redeem the preferred stock of Chicopee at a price equal to $1,000 per share
plus accrued but unpaid dividends; (iv) redeem the Company Preferred Stock at
a price of $1,000 per share plus accrued but unpaid dividends; and (v) enter
into a new credit facility ("New Credit Facility") as more fully described
below.
The Company has entered into a definitive commitment letter, dated March 7,
1996, with The Chase Manhattan Bank, N.A. to provide, subject to customary
conditions, the financing for the New Credit Facility. The New Credit Facility
will consist of a $200,000 term loan and a $125,000 revolving facility. The
New Credit Facility will be secured by all of the assets of the Company and by
a guarantee by each of the Company's domestic subsidiaries, which guarantee
will be secured by the assets of each such subsidiary. The Company's non-
domestic subsidiaries will either borrow directly under the New Credit
Facility on a secured basis or borrow from the Company, with such borrowings
being evidenced by a note pledged to the lenders.
In order to enter into the New Credit Facility with the terms and conditions
described above, the Company is required to obtain the affirmative consents
(the "Required Consents") of holders of a majority of the outstanding
principal amount of the Senior Notes. Pursuant to a Consent Solicitation
Statement dated March 14, 1996, the Company has solicited and received the
Required Consents, and, accordingly, the Company and the Trustee have executed
a Third Supplemental Indenture dated as of April 9, 1996, to be effective upon
the consummation of the Offerings, that will allow the Company to enter into
the New Credit Facility.
F-34
POLYMER GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1996 KEY EMPLOYEE STOCK OPTION PLAN
In connection with the Offering, the Company has adopted the 1996 Key
Employee Stock Option Plan (the "1996 Plan"). The 1996 Plan will be
administered by a committee (the "Committee") composed of non-management
members of the Board who are appointed by the Board. Any person who is a full-
time, salaried employee of the Company (excluding non-management directors)
will be eligible to participate in the 1996 Plan (a "Participant"). The
Committee will select the Participants and determine the terms and conditions
of the options. The 1996 Plan provides for the issuance of options to
Participants covering 1,500,000 shares of common stock, subject to certain
adjustments reflecting changes in the Company's capitalization. At the time of
the Offering, options to acquire a number of shares of common stock equal to
$600 divided by the initial public offering price per share of common stock
will be granted at a price per share equal to the initial public offering
price per share of common stock. Such options will vest over a five-year
period and will expire three years from the date of vesting.
PREFERRED STOCK
Concurrently with the Offering, the Company's Certificate of Incorporation
will be amended to permit the Board, without further action of the Company's
stockholders, from time to time, to direct the issuance of shares of preferred
stock in series and may, at the time of issuance, determine the rights,
preferences and limitations of each series. Satisfaction of any dividend
preferences of outstanding shares of preferred stock would reduce the amount
of funds available for payment of dividends on shares of common stock. Holders
of shares may be entitled to receive a preference payment in the event of any
liquidation, dissolution or winding up of the Company before any payment is
made to the holders of shares of common stock. The Board, without stockholder
approval, may issue shares of preferred stock with voting and conversion
rights which could adversely affect the holders of shares of common stock.
Upon consummation of the Offering, there will be 100,000 shares of junior
preferred stock reserved for issuance in connection with the rights agreement
as described in the next paragraph (the "Rights Agreement"). The Company has
no present intention to issue any shares of preferred stock.
RIGHTS
On April 15, 1996, the Board declared a dividend of one right ("Right") for
each share of common stock outstanding at the close of business on June 3,
1996. The holders of any additional common stock issued subsequent to such
date and before the earliest of the distribution date (determined in
accordance with the Rights Agreement), the redemption of the Rights, the
exchange of the Rights or the expiration of the Rights also will be entitled
to one Right for each such additional share. Each Right will entitle the
registered holder under certain circumstances to purchase from the Company one
one-thousandth of a share of junior preferred stock (series A) at a price of
$80 per one one-thousandth share of preferred stock, subject to adjustment.
NOTE 8. ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("FAS 121"), which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. FAS 121
also addresses the accounting for long-lived assets that are expected to be
disposed of. FAS 121 is effective for financial statements for
F-35
POLYMER GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
fiscal years beginning after December 15, 1995; therefore, the Company adopted
FAS 121 in the first quarter of 1996. The effect of adoption did not have a
material impact on the Company's results of operations for the three months
ended March 30, 1996.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-
Based Compensation" ("FAS 123"). FAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. FAS 123 is
effective for transactions entered into in fiscal years beginning after
December 15, 1995. In connection with the Offerings, the Company has adopted
the 1996 Plan. With adoption of the 1996 Plan, the Company will account for
stock-based compensation awards under the provisions of Accounting Principles
Board Opinion No. 25, as permitted by FAS 123.
F-36
JOHNSON & JOHNSON ADVANCED MATERIALS COMPANY
AND CHICOPEE B.V.
COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
[Download Table]
PERIOD FROM
JANUARY 2, 1995
THROUGH
MARCH 15, 1995
---------------
Net sales:
Trade......................................................... $22,600
Affiliate..................................................... 30,511
-------
53,111
Cost of goods sold.............................................. 42,736
Selling, general and administrative expenses.................... 6,887
-------
Income from operations........................................ 3,488
Other expenses, net............................................. 1,348
-------
Income before income taxes...................................... 2,140
Income taxes.................................................... 445
-------
Net income...................................................... $ 1,695
=======
F-37
JOHNSON & JOHNSON ADVANCED MATERIALS COMPANY
AND CHICOPEE B.V.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
[Download Table]
PERIOD FROM
JANUARY 2, 1995
THROUGH
MARCH 15, 1995
---------------
OPERATING ACTIVITIES
Net income..................................................... $ 1,695
Adjustments to reconcile net income to net cash provided by
operating activities.......................................... 2,419
-------
Net cash provided by operating activities...................... 4,114
-------
INVESTING ACTIVITIES
Purchases of property and equipment............................ (1,461)
Other, net..................................................... (2,732)
-------
Net cash (used in) investing activities........................ (4,193)
-------
FINANCING ACTIVITIES
(Increases) in due from affiliates............................. (5,034)
Effect of exchange rate change on cash......................... 135
-------
Net (decrease) in cash and cash equivalents.................... (4,978)
Cash at beginning of period.................................... 7,463
-------
Cash at end of period.......................................... $ 2,485
=======
F-38
JOHNSON & JOHNSON ADVANCED MATERIALS COMPANY
AND CHICOPEE B.V.
NOTES TO COMBINED STATEMENTS OF INCOME AND CASH FLOWS (UNAUDITED)
FOR THE PERIOD FROM JANUARY 2, 1995 THROUGH MARCH 15, 1995
(IN THOUSANDS)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
BASIS OF PRESENTATION
The accompanying unaudited combined statements of income and cash flows were
prepared on the basis of generally accepted accounting principles for interim
financial information and include the combined accounts of Johnson & Johnson
Advanced Materials Company and Chicopee B.V. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been
included in combination to reflect the businesses which were acquired by
Polymer Group, Inc. ("Polymer Group"). Operating results for the period from
January 2, 1995 through March 15, 1995 are not necessarily indicative of the
results that may be expected for the year ended December 30, 1995. For further
information, refer to the audited combined statements of income and cash flows
and footnotes thereto of Johnson & Johnson Advanced Materials Company and
Chicopee B.V. for the year ended January 1, 1995.
DESCRIPTION OF BUSINESS
The Company operates in one business segment, manufacturing and marketing
nonwoven roll and converted products. The Company's nonwoven roll products are
used in the production of spunlaced operating room gown fabrics, dry formed
and spunlaced sponge fabrics, dry formed sanitary protection facings, wet
formed facemask fabrics, thermal bonded nonwoven composites, battery separator
media, filtration media and automotive insulation products, wipes, towels and
aprons for the foodservice industry, as well as the industrial and consumer
markets. In addition, the Company manufactures and markets apertured films
used as sanitary protection facings. The Company is organized into two
geographically separate operations addressing the specific needs of the North
American and European markets. In both North America and Europe, the Company
operates separate divisions which manufacture and market a range of converted
and rolled nonwovens for both disposable and durable end-uses. Materials
produced by the Company are sold to other J&J affiliates for the production of
medical products and consumer absorbent products and to external trade
customers for use in disposable and durable products.
2. FUNCTIONAL CURRENCY
The local currency of Chicopee B.V. has been determined to be the functional
currency in accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation" ("FAS 52"). Assets and liabilities of
Chicopee B.V. are translated into United States dollars at current exchange
rates while income and expense accounts are translated at average rates
prevailing during the period. Resulting translation adjustments are included
as a component of division equity. Transaction gains and losses are included
in the determination of net income.
3. SUBSEQUENT EVENT
On March 15, 1995, Polymer Group completed the acquisition of Johnson &
Johnson Advanced Materials Company and Chicopee B.V. for an aggregate
consideration of $290 million in a transaction accounted for by the purchase
method of accounting.
F-39
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Polymer Group, Inc.
We have audited the accompanying combined statements of income and cash
flows of Johnson & Johnson Advanced Materials Company and Chicopee B.V. (the
"Company"), a division and wholly owned subsidiary, respectively, of Johnson &
Johnson for the years ended January 2, 1994 and January 1, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements of Chicopee B.V., which
statements reflect net sales of $82.4 million and $71.2 million for the years
ended January 2, 1994 and January 1, 1995, respectively. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the data included for Chicopee B.V., is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the combined results of operations and cash flows of Johnson &
Johnson Advanced Materials Company and Chicopee B.V., a division and wholly
owned subsidiary, respectively, of Johnson & Johnson for the years ended
January 2, 1994 and January 1, 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Greenville, South Carolina
May 24, 1995
F-40
JOHNSON & JOHNSON ADVANCED MATERIALS COMPANY
AND CHICOPEE B.V.
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
[Download Table]
YEAR ENDED
-----------------
JANUARY JANUARY
2, 1994 1, 1995
-------- --------
Net sales:
Trade...................................................... $129,666 $122,034
Affiliate.................................................. 115,798 118,484
-------- --------
245,464 240,518
Cost of goods sold........................................... 189,307 187,078
Selling, general and administrative expenses................. 46,788 46,633
-------- --------
Income from operations....................................... 9,369 6,807
Other income, net............................................ 3,450 799
-------- --------
Income before income taxes................................... 12,819 7,606
Income tax provisions........................................ 2,440 2,493
-------- --------
Net income (loss)............................................ $ 10,379 $ 5,113
======== ========
See accompanying notes.
F-41
JOHNSON & JOHNSON ADVANCED MATERIALS COMPANY
AND CHICOPEE B.V.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
[Download Table]
YEAR ENDED
---------------------
JANUARY 2, JANUARY 1,
1994 1995
---------- ----------
OPERATING ACTIVITIES
Net income (loss)....................................... $10,379 $ 5,113
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation.......................................... 14,432 14,562
Changes in operating assets and liabilities:
Accounts receivable................................. (4,875) 2,748
Inventories......................................... (3,720) 6,056
Prepaid expenses and other current assets........... 4,243 (2,155)
Accounts payable and accrued liabilities............ (3,824) (4,589)
Income taxes payable................................ 131 (614)
------- -------
Net cash provided by operating activities......... 16,766 21,121
INVESTING ACTIVITIES
Purchases of property, plant and equipment.............. (14,462) (15,258)
Proceeds from disposal of assets........................ 2,579 5,615
Other, net.............................................. (4,789) (2,959)
------- -------
Net cash (used in) investing activities........... (16,672) (12,602)
FINANCING ACTIVITIES
Dividends paid.......................................... (9,690) (3,890)
Proceeds from long-term debt............................ -- 8,640
Payments of long-term debt.............................. (2,212) --
(Increase) decrease in due from affiliates.............. 4,874 (6,037)
------- -------
Net cash (used in) financing activities........... (7,028) (1,287)
Effect of exchange rate change on cash.................. 529 (184)
------- -------
Increase (decrease) in cash....................... (6,405) 7,048
Cash at beginning of period....................... 6,820 415
------- -------
Cash at end of period............................. $ 415 $ 7,463
======= =======
SUPPLEMENTAL INFORMATION
Cash paid for interest.................................. $ 541 $ 624
Cash paid for taxes..................................... 2,393 1,947
See accompanying notes.
F-42
JOHNSON & JOHNSON ADVANCED MATERIALS COMPANY
AND CHICOPEE B.V.
NOTES TO COMBINED STATEMENTS OF INCOME AND CASH FLOWS
(IN THOUSANDS)
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
BASIS OF PRESENTATION
The accompanying combined statements of income and cash flows were prepared
on the basis of generally accepted accounting principles and include the
combined accounts of Johnson & Johnson Advanced Materials Company ("J&JAMC")
and Chicopee B.V. (collectively, the "Company"). On March 15, 1995, Polymer
Group, Inc. ("Polymer Group") acquired J&JAMC and Chicopee B.V. Prior to the
acquisition, J&JAMC operated as a division of McNeil Personal Products Company
which was a wholly-owned subsidiary of Johnson & Johnson ("J&J"). Chicopee
B.V. operated as a wholly-owned subsidiary of J&J.
The combined statements of income and cash flows were compiled from
historical books and records of the Company and have been adjusted in
combination to reflect the businesses which were acquired by Polymer Group.
Such adjustments consist of normal recurring adjustments. Operating results
for 1994 and 1993 are not necessarily indicative of the results that would
have been achieved if the Company were a separate entity for the periods
presented.
DESCRIPTION OF BUSINESS
The Company operates in one business segment, manufacturing and marketing
nonwoven roll and converted products. The Company's nonwoven roll products are
used in the production of spunlaced operating room gown fabrics, dry formed
and spunlaced sponge fabrics, dry formed sanitary protection facings, wet
formed facemask fabrics, thermal bonded nonwoven composites, battery separator
media, filtration media and automotive insulation products, wipes, towels and
aprons for the foodservice industry, as well as the industrial and consumer
markets. In addition, the Company manufactures and markets apertured films
used as sanitary protection facings. The Company is organized into two
geographically separate operations addressing the specific needs of the North
American and European markets. In both North America and Europe, the Company
operates separate divisions which manufacture and market a range of converted
and rolled nonwovens for both disposable and durable end-uses. Materials
produced by the Company are sold to other J&J affiliates for the production of
medical products and consumer absorbent products and to external trade
customers for use in disposable and durable products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION AND AFFILIATE PRICING
REVENUE RECOGNITION
Revenue from product sales is recognized at the time ownership of the goods
transfers to the customer and the earnings process is complete.
AFFILIATE PRICING
J&JAMC used a "cost-plus" system of affiliate pricing whereby the unit
selling price charged to affiliated entities was determined based on
manufacturing cost plus an approximate mark-up of 8% to cover other operating
cost and expenses.
F-43
JOHNSON & JOHNSON ADVANCED MATERIALS COMPANY
AND CHICOPEE B.V.
NOTES TO COMBINED STATEMENTS OF INCOME AND CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
CASH
Cash and investment activities for J&JAMC were included in J&J's centralized
cash management system and were combined with other J&J corporate cash
transactions and balances. Cash, which is reflected in the combined statements
of cash flows, represents the ending cash balance of Chicopee B.V. for the
periods presented.
DUE FROM AFFILIATES
Due from affiliates represents the result of cumulative transactions between
the Company and J&J. The net increase or decrease in this account is disclosed
in the accompanying combined statement of cash flows as a financing activity.
EARNINGS PER SHARE
Earnings per share are not applicable since the Company has operated as a
division or wholly-owned subsidiary of J&J.
RESEARCH AND DEVELOPMENT
The cost of research and development by the Company is charged to expense as
incurred and is included in selling, general and administrative expense in the
combined statements of income. The Company incurred approximately $8,326 and
$7,385 of research and development expense during 1993 and 1994, respectively.
FOREIGN CURRENCY TRANSLATION
The local currency of Chicopee B.V. has been determined to be the functional
currency in accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation" ("FAS 52"). Income and expense accounts are
translated at average rates prevailing during the period. Transaction gains
and losses are included in the determination of net income but were
insignificant for 1993 and 1994.
INCOME TAXES
The provision for income taxes and corresponding balance sheet accounts are
determined in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the deferred
tax assets and liabilities are determined based on temporary differences
between the basis of certain assets and liabilities for income tax and
financial reporting purposes. Income taxes, in the accompanying combined
statements of income have been allocated to the Company based on income taxes
which would have been provided for on a separate company basis.
FISCAL YEAR
The Company follows the concept of a fiscal year which ends on the Sunday
nearest to the end of the month of December. Normally, each fiscal year
consists of 52 weeks, but every five or six years the fiscal year consists of
53 weeks.
F-44
JOHNSON & JOHNSON ADVANCED MATERIALS COMPANY
AND CHICOPEE B.V.
NOTES TO COMBINED STATEMENTS OF INCOME AND CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
CORPORATE ALLOCATIONS
J&J paid for certain expenses, such as insurance, payroll taxes and 401(k)
contributions specifically related to the Company and also provided certain
services such as operations management, legal, accounting, treasury, insurance
and benefits management and tax, among others. Costs charged to the Company
for these services were allocated based on estimates of the proportionate
share of J&J's total cost for such services. Cost and expenses allocated to
the Company are included in selling, general and administrative expenses in
the combined statements of income and were $4,076 and $4,343 for 1993 and
1994, respectively.
3. INCOME TAXES
The provision for taxes on income consists of:
[Download Table]
1993 1994
------ ------
Current:
International taxes....................................... $2,440 $2,493
Deferred.................................................. -- --
------ ------
$2,440 $2,493
====== ======
A comparison of income tax expense at the Federal statutory rate to the
Company's effective tax rate is as follows:
[Download Table]
1993 1994
------ ------
Computed tax expense at the expected statutory rate....... $4,487 $2,662
Valuation allowance....................................... (2,429) (140)
Other..................................................... 382 (29)
------ ------
Provision for income taxes................................ $2,440 $2,493
====== ======
4. EMPLOYEE BENEFIT PLANS
Substantially all employees of J&JAMC participate in various retirement and
pension and employee savings plans, including defined benefit, defined
contribution and termination indemnity plans. J&J's actuarial valuation does
not provide an allocation of the information relevant to J&JAMC required by
Statement of Financial Accounting Standards No. 87. As of January 1, 1995, the
market value of J&J's plan assets were substantially equal to the actuarially
computed value of the projected benefit obligation. J&JAMC's expense based on
the ratio of its employee headcount to total J&J employee headcount was $1,303
and $1,447 for the years 1993 and 1994, respectively.
Substantially all employees of J&JAMC are eligible to participate in various
J&J sponsored postretirement and postemployment benefit plans. J&JAMC followed
the provisions of Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" and
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits." These standards require the accrual method of
accounting for these benefits rather than accounting for them on a cash basis.
J&J's actuarial valuation does not provide an allocation of the information
relevant to J&JAMC required by Statement of Financial Accounting Standards No.
106. J&JAMC's expense for postretirement and postemployment benefits, based on
the
F-45
JOHNSON & JOHNSON ADVANCED MATERIALS COMPANY
AND CHICOPEE B.V.
NOTES TO COMBINED STATEMENTS OF INCOME AND CASH FLOWS--(CONTINUED)
(IN THOUSANDS)
ratio of its employee headcount to total J&J employee headcount was $3,113 and
$3,070 for the years 1993 and 1994, respectively.
Chicopee B.V. has a contributory pension plan under which funds are
deposited with trustees, annuities are purchased under group contracts, or
reserves are provided. Such plan is insured by an insurance company and covers
substantially all employees over 25 years of age. No liability for prior
service existed at the end of 1994. Chicopee B.V. incurred pension expense of
$1,653 and $1,117 during 1993 and 1994, respectively.
5. LEASES
Rentals of space and equipment under operating leases approximated $2,144
and $2,346 in 1993 and 1994, respectively. These amounts are net of sub-lease
income of $617 for 1993 and $625 for 1994. The approximate net minimum rental
payments required under operating leases that have initial or remaining non-
cancellable lease terms in excess of one year at January 1, 1995, are:
[Download Table]
GROSS NET
MINIMUM SUB- MINIMUM
RENTAL LEASE RENTAL
YEAR ENDING PAYMENTS INCOME PAYMENTS
----------- -------- ------ --------
1995............................................. $2,684 $(660) $2,024
1996............................................. 1,044 (165) 879
1997............................................. 462 -- 462
1998............................................. 461 -- 461
1999............................................. 477 -- 477
Thereafter....................................... 1,648 -- 1,648
------ ----- ------
$6,776 $(825) $5,951
====== ===== ======
F-46
JOHNSON & JOHNSON ADVANCED MATERIALS COMPANY
AND CHICOPEE B.V.
NOTES TO COMBINED STATEMENTS OF INCOME AND CASH FLOWS--(CONCLUDED)
(IN THOUSANDS)
6. GEOGRAPHICAL AND EXPORT SALES INFORMATION
Geographic data for the Company's operations are presented in the following
table. During the years 1993 and 1994, 100% of J&JAMC's net sales were to
entities within North America while approximately 83% of Chicopee B.V.'s net
sales were to entities within Europe for each of the same time periods.
[Download Table]
1993 1994
-------- --------
Net sales:
North America:
Trade................................................ $ 91,408 $ 84,452
Affiliate............................................ 82,897 83,903
-------- --------
174,305 168,355
Europe:
Trade................................................ 38,258 37,582
Affiliate............................................ 32,901 34,581
-------- --------
71,159 72,163
-------- --------
Total trade........................................ 129,666 122,034
Total affiliate.................................... 115,798 118,484
-------- --------
Total.............................................. $245,464 $240,518
======== ========
Income (loss) from operations:.
North America.......................................... $ 4,003 $ (2,287)
Europe................................................. 5,366 9,094
-------- --------
Total.............................................. 9,369 6,807
Other income, net........................................ 3,450 799
-------- --------
Income before income taxes............................... $ 12,819 $ 7,606
======== ========
F-47
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Polymer Group, Inc.
We have audited the statements of income and changes in financial position
of Chicopee B.V. for each of the two years in the period ended December 31,
1994. These financial statements, drawn up under accounting principles
generally accepted in The Netherlands, are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements.
We conducted our audits in accordance with generally accepted auditing
standards in The Netherlands, which are substantially the same as generally
accepted auditing standards in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and changes in financial
position of Chicopee B.V. for each of the two years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles
in The Netherlands. The financial statements referred to above have been
subsequently adjusted for them to be in conformity with generally accepted
accounting principles in the United States, which adjustments, to the best of
our knowledge and belief, represent in all material respects the adjustments
deemed necessary for a fair presentation of the Company's statements of income
and changes in financial position for the years under review.
COOPERS & LYBRAND
Eindhoven, May 23, 1995
F-48
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholders have agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters, for whom
Goldman, Sachs & Co., Donaldson, Lufkin & Jenrette Securities Corporation,
Salomon Brothers Inc and Chase Securities Inc. are acting as representatives,
has severally agreed to purchase from the Company and the Selling
Stockholders, the respective number of shares of Common Stock set forth
opposite its name below:
[Download Table]
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ----------
Goldman, Sachs & Co...............................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
Salomon Brothers Inc..............................................
Chase Securities Inc..............................................
----------
Total........................................................... 11,393,939
==========
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at
such price less a concession of $ per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the representatives.
The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters
of the international offering (the "International Underwriters") providing for
the concurrent offer and sale of 2,848,485 shares of Common Stock in an
international offering outside the United States. The offering price and
aggregate underwriting discounts and commissions per share for the two
offerings are identical. The closing of the offering made hereby is a
condition to the closing of the international offering, and vice versa. The
representatives of the International Underwriters are Goldman Sachs
International, Donaldson, Lufkin & Jenrette Securities Corporation, Salomon
Brothers International Limited and Chase Securities Inc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two offerings, each of
the U.S. Underwriters named herein has agreed that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions,
it will offer, sell or deliver the shares of Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other
U-1
areas subject to its jurisdiction (the "United States") and to U.S. persons,
which term shall mean, for purposes of this paragraph: (a) any individual who
is a resident of the United States or (b) any corporation, partnership or
other entity organized in or under the laws of the United States or any
political subdivision thereof and whose office most directly involved with the
purchase is located in the United States. Each of the International
Underwriters has agreed pursuant to the Agreement Between that, as a part of
the distribution of the shares offered as part of the international offering,
and subject to certain exceptions, it will (i) not, directly or indirectly,
offer, sell, or deliver shares of Common Stock (a) in the United States or to
any U.S. persons or (b) to any person who it believes intends to reoffer,
resell or deliver the shares in the United States or to any U.S. persons, and
(ii) cause any dealer to whom it may sell such shares at any concession to
agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall
be the initial public offering price, less an amount not greater than the
selling concession.
The Selling Stockholders have granted the U.S. Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 1,709,092 additional shares of Common Stock solely to cover over-
allotments, if any. If the U.S. Underwriters exercise their over-allotment
option, the U.S. Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 14,242,424 shares of Common Stock offered. The Selling
Stockholders have granted the International Underwriters a similar option to
purchase up to an aggregate of 427,273 additional shares of Common Stock.
The Company and its stockholders, including the Selling Stockholders, have
agreed for the Lockup Period not to offer, sell, contract to sell or otherwise
dispose of, and the Company has agreed not to register, any shares of Common
Stock or any securities of the Company (other than the registration by the
Company of 1,500,000 shares of Common Stock pursuant to the 1996 Plan and the
granting of options under such plan that do not vest (except in the case of
death or disability) for a period that is longer than the Lockup Period) which
are substantially similar to the shares of the Common Stock, including but not
limited to any securities that are convertible into or exchangeable for, or
represent the right to receive, Common Stock or any such substantially similar
securities, without the prior written consent of Goldman, Sachs & Co., except
for the shares of Common Stock offered in connection with the concurrent U.S.
and international offerings.
The Company intends to use a portion of its net proceeds from the Offerings
to repay accrued interest under the 1994 Credit Facility and 1995 Credit
Facility and outstanding indebtedness under the New Credit Facility to one or
more affiliates of the Underwriters. See "Use of Proceeds." In addition,
CMIHI, an affiliate of Chase Securities Inc., will receive proceeds from the
Offerings as a Selling Stockholder, which may, when combined with the
foregoing, result in the Underwriters (or their affiliates) receiving more
than 10% of the net proceeds from the Offerings. See "Principal and Selling
Stockholders." Accordingly, this Offering is being conducted to comply with
the requirements of Section 44(c)(8) of Article III of the Rules of Fair
Practice of the National Association of Securities Dealers, Inc. Such rule
provides generally that if more than 10% of the aggregate net proceeds from
the sale of equity securities, not including underwriting compensation, is
paid to the underwriters of such securities or their affiliates, the initial
public offering price can be no higher than that recommended by a "qualified
independent underwriter" meeting certain standards. In accordance with this
requirement, Goldman, Sachs & Co. will serve in such role and will recommend a
price in compliance with the requirements of Section 44(c)(8). Goldman, Sachs
& Co. will receive compensation from the Company in the amount of $10,000 for
serving in such role. In connection with the Offerings, Goldman, Sachs & Co.
in its role as qualified independent underwriter has performed due diligence
investigations and reviewed and participated in the preparation of the
Prospectus and the Registration Statement of which this Prospectus forms a
part.
U-2
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares
of Common Stock offered by them.
After consummation of the Offerings, CMIHI, an affiliate of Chase Securities
Inc., will own 4.4% of the outstanding shares of Common Stock. In addition,
Chase Bank, an affiliate of Chase Securities Inc., currently acts as agent and
lender under the 1994 Credit Facility and the 1995 Credit Facility and will
serve in the same roles under the New Credit Facility. Chemical Bank, an
affiliate of Chase Securities Inc., will act as Operations Agent under the New
Credit Facility. Chase Securities Inc. acted as solicitation agent in
connection with the solicitation of certain consents from the holders of the
Notes and has performed certain other financial-related services for the
Company. See "Description of Certain Indebtedness" and "Certain Relationships
and Related Transactions."
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company, the
Selling Stockholders and the representatives of the U.S. Underwriters and the
International Underwriters. Among the factors to be considered in determining
the initial public offering price, in addition to prevailing market
conditions, will be the Company's historical performance, estimates of the
business potential and earnings prospects of the Company, an assessment of the
Company's management and the consideration of the above factors in relation to
market valuation of companies in related businesses.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "PGH," subject to official notice of issuance. In
order to meet the requirements for listing of the Common Stock on the New York
Stock Exchange, the Underwriters have undertaken to sell lots of 100 or more
shares to a minimum of 2,000 beneficial holders.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
U-3
USE OF PROCEEDS
The net proceeds from the sale of the 11,500,000 shares of Common Stock
offered by the Company in the Offerings (after deducting the underwriting
discounts and expenses) are estimated to be $177.4 million, assuming an
initial public offering price of $16.50 per share (the midpoint of the
estimated range). Simultaneously with the Offerings, the Company intends to
roll into the New Credit Facility the outstanding loans under the 1994 and
1995 Credit Facilities. The Company intends to use its net proceeds from the
Offerings, assuming a closing of the transactions listed below (together with
the Offerings, the Reclassification and the approximate 19.97 to 1 stock
split, the "Recapitalization") on March 30, 1996, to:
(i) Repay $0.3 million in aggregate accrued interest under the 1994
Credit Facility and 1995 Credit Facility;
(ii) Repay $58.3 million in aggregate principal amount of borrowings
under the New Credit Facility;
(iii) Redeem $50.0 million in aggregate principal amount of Notes at
112.25% of the principal amount thereof plus accrued interest;
(iv) Redeem the Company's outstanding 13% Cumulative Redeemable
Preferred Stock, par value $.01 per share (the "Company Redeemable
Preferred Stock"), for $10.3 million and the outstanding Redeemable
Preferred Stock due 2004 of Chicopee (the "Chicopee Redeemable
Preferred Stock" and, together with the Company Redeemable Preferred
Stock, the "Redeemable Preferred Stock") for $46.1 million; and
(v) Pay fees and expenses incurred in connection with the
Recapitalization.
The following table sets forth the estimated sources and uses of funds
associated with the Recapitalization (assuming that the Recapitalization is
consummated on March 30, 1996). The actual amounts of sources and uses of
funds may differ.
[Download Table]
IN THOUSANDS
------------
Sources:
Offerings.................................................. $189,750
--------
Total Sources ........................................... $189,750
========
Uses:
Effective Repayment of 1994 Credit Facility(a)............. $ 171
Effective Repayment of 1995 Credit Facility(b)............. 145
Repay New Credit Facility(c)............................... 58,300
Repurchase of Notes(d)..................................... 57,401
Redemption of Redeemable Preferred Stock................... 56,443
Fees and expenses(e)....................................... 17,290
--------
Total Uses............................................... $189,750
========
--------
(a) Consists of a $75.0 million revolving credit facility (the "1994 Credit
Facility"), of which $74.5 million was outstanding as of March 30, 1996.
Outstanding balances under the 1994 Credit Facility bear interest at the
agent's base rate or LIBOR, in each case plus a margin of 2.0% for base
rate loans and 3.25% for LIBOR loans. Outstanding balances under the 1994
Credit Facility would have matured on June 24, 1998. Upon consummation of
the Offerings and the effective repayment of all outstanding amounts under
the 1994 Credit Facility, the 1994 Credit Facility will be terminated.
(b) Consists of a $210.0 million term loan and a $30.0 million revolving
credit facility (the "1995 Credit Facility"), of which approximately
$229.2 million was outstanding as of March 30, 1996. Outstanding balances
under the 1995 Credit Facility bear interest at the agent's base rate or
U-4
LIBOR, in each case plus a margin ranging from 1.5% to 2% for base rate
loans and 2.75% to 3.25% for LIBOR loans. Borrowings under the 1995 Credit
Facility were used to consummate the Chicopee Acquisition. Upon
consummation of the Offerings and effective repayment of all outstanding
amounts under the 1995 Credit Facility through the roll-in into the New
Credit Facility, the 1995 Credit Facility will be terminated.
(c) See "Description of Certain Indebtedness--New Credit Facility."
(d) Includes a redemption premium of $6.125 million.
(e) Expenses are estimated and are inclusive of the underwriting discount for
the shares of Common Stock offered hereby.
In order to enter into the New Credit Facility with the terms and conditions
described above, the Company is required to obtain the Required Consents.
Pursuant to a Consent Solicitation Statement dated March 14, 1996, the Company
has solicited and received the Required Consents, and, accordingly, the
Company and the Trustee have executed a Third Supplemental Indenture dated as
of April 9, 1996, to be effective upon the consummation of the Offerings, that
will allow the Company to enter into the New Credit Facility.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has not declared or paid any cash or other dividends on the
Common Stock and presently intends for the foreseeable future to retain its
earnings to finance the development of its business and for repayment of debt.
The declaration and payment of dividends by the Company are subject to the
discretion of the Board. Any future determination to pay dividends will depend
on the Company's results of operations, financial condition, capital
requirements, contractual restrictions and other factors deemed relevant by
the Board. In addition, the New Credit Facility will contain, and the
Indenture contains, restrictions on the Company's ability to declare and pay
dividends. See "Description of Certain Indebtedness."
U-5
DILUTION
The net tangible book value of the Company as of March 30, 1996 was
approximately $(19.6) million, or $(.96) per share of Common Stock. Net
tangible book value per share is equal to shareholders' equity plus Redeemable
Preferred Stock less the net book value of goodwill and identified intangible
assets, divided by the number of shares of Common Stock outstanding. After
giving effect to the sale by the Company of 11.5 million shares of Common
Stock in the Offerings and the application of the estimated net proceeds
therefrom as described under "Use of Proceeds," the pro forma net tangible
book value of the Company at March 30, 1996 would have been approximately
$101.1 million, or $3.16 per share. This represents an immediate increase in
net tangible book value of $4.12 per share to the existing shareholders and an
immediate net tangible book value dilution of $13.34 per share to investors
purchasing shares in the Offerings. The following table illustrates this
dilution:
[Download Table]
Assumed initial public offering price............................... $16.50
Net tangible book value per share at March 30, 1996......... $(.96)
Increase in net tangible book value per share attributable
to new investors........................................... 4.12
-----
Pro forma net tangible book value after the Offerings............... 3.16
------
Dilution to new investors........................................... $13.34
======
The Company expects to realize significant one-time charges in the second
quarter of 1996 in connection with consummation of the Offerings, including
approximately $15.4 million in connection with the non-cash write-off of
previously capitalized debt issuance costs and approximately $6.1 million of
cash expense for prepayment costs paid in connection with the repurchase of a
portion of the Notes. These one-time charges, net of the estimated income tax
effect, have been reflected in the calculation of net tangible book per share
in the above table.
The following table summarizes, on a pro forma basis as of March 30, 1996,
the number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the existing
stockholders and new stockholders, adjusted to give effect to the sale of the
shares of Common Stock offered hereby and before deducting the underwriting
discounts and commissions and estimated offering expenses payable by the
Company:
[Download Table]
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
Existing stockholders...... 20,500,000 64% $ 53,141,814 22% $2.59
New investors.............. 11,500,000 36 189,750,000 78 16.50
---------- --- ------------ ---
Total.................... 32,000,000 100% $242,891,814 100%
========== === ============ ===
U-6
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at March 30, 1996 (i) as adjusted to give effect to the
Reclassification and the approximate 19.97 to1 stock split and (ii) as
additionally adjusted to give effect to the sale by the Company of 11,500,000
shares of Common Stock in the Offerings, at an assumed initial public offering
price of $16.50 per share (the midpoint of the estimated range) and the
application of the net proceeds of the Offerings as described under "Use of
Proceeds." This table should be read in conjunction with the unaudited pro
forma financial data and the combined consolidated financial statements of the
Company and notes thereto included elsewhere in this Prospectus.
[Download Table]
MARCH 30, 1996
---------------------------------
AS ADJUSTED
---------------------------------
RECLASSIFICATION
AND STOCK SPLIT RECAPITALIZATION
---------------- ----------------
(IN THOUSANDS)
Current portion of long-term debt............ $ 13,417 $ 5,067
-------- --------
Long-term debt, less current portion......... $442,133 $343,333
-------- --------
Cumulative redeemable preferred stock; 13%,
non-voting, $.01 par value--10,000 shares
authorized, issued and outstanding at March
30, 1996; plus accumulated dividends of $293
at March 30, 1996........................... $ 10,293 $ --
-------- --------
Mandatory redeemable preferred stock of
subsidiary; 13% cumulative, non-voting, $.01
par value--40,000 shares authorized, issued
and outstanding at March 30, 1996; plus
accumulated dividends of $6,150 at March 30,
1996; mandatory redemption value of $46,150
at March 30, 1996........................... $ 46,150 $ --
-------- --------
Shareholders' Equity
Preferred stock, $.01 par value, 10,000,000
shares authorized,
0 issued and outstanding.................. -- --
Common Stock--$.01 par value, 100,000,000
shares authorized, 32,000,000 shares
issued and outstanding, as adjusted....... 191 320
Non-Voting Common Stock--$.01 par value,
3,000,000 shares authorized, 0 shares
issued and outstanding.................... -- --
Additional paid-in capital................. 52,953 230,238
Deficit.................................... (55,240) (65,771)
Cumulative translation adjustment.......... 11,831 11,831
Unrealized holding (loss) on marketable
securities................................ (88) (88)
-------- --------
Total shareholders' equity............... $ 9,647 $176,530
-------- --------
Total capitalization..................... $521,640 $524,930
======== ========
U-7
[PHOTO APPEARS HERE]
Industrial and
Specialty Products
(woven/film)
[PHOTO APPEARS HERE]
Micro-Set(R)
Sorbents
[PHOTO APPEARS HERE]
Polymer Assisted
Metal Reclamation
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS 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. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. 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 COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
[Download Table]
PAGE
----
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 10
Unaudited Pro Forma Financial Information................................. 16
Selected Consolidated Financial Data...................................... 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 26
Business.................................................................. 38
Management................................................................ 54
Certain Relationships and Related Transactions............................ 58
Principal and Selling Stockholders........................................ 62
Description of Certain Indebtedness....................................... 64
Description of Capital Stock.............................................. 66
Shares Eligible for Future Sale........................................... 72
Validity of Common Stock.................................................. 74
Experts................................................................... 74
Additional Information.................................................... 74
Index to Financial Statements............................................. F-1
Underwriting.............................................................. U-1
Use of Proceeds........................................................... U-4
Dividend Policy........................................................... U-5
Dilution.................................................................. U-6
Capitalization............................................................ U-7
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14,242,424 SHARES
POLYMER GROUP, INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
----------------------
LOGO
----------------------
GOLDMAN, SACHS & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
CHASE SECURITIES INC.
REPRESENTATIVES OF THE UNDERWRITERS
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of the expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation, all of which are estimates with the exception of the Securities
and Exchange Commission fee and the National Association of Securities Dealers
fee and all of which will be paid by the Company:
[Download Table]
Securities and Exchange Commission registration fee........... $ 101,661
National Association of Securities Dealers fee................ 29,982
Blue sky fees and expenses (including attorneys' fees and
expenses).................................................... 32,000
Printing and engraving expenses............................... 200,000
Transfer agent's fees and expenses............................ 1,500
Accounting fees and expenses.................................. 175,000
Legal fees and expenses....................................... 485,000
Miscellaneous expenses........................................ 74,857
----------
Total..................................................... $1,100,000
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation), by reason of
the fact that such person was an officer, director, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action
or proceeding, had no reasonable cause to believe that his conduct was
illegal. A Delaware corporation may indemnify any persons who are, or are
threatened to be made, a party to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person was a director, officer, employee or agent of such corporation, or is
or was serving at the request of such corporation as a director, officer,
employee or agent of another corporation or enterprise. The indemnity may
include expenses (including attorneys' fees) actually and reasonably incurred
by such person in connection with the defense or settlement of such action or
suit, provided such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests except
that no indemnification is permitted without judicial approval if the officer
or director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses
which such officer or director has actually and reasonably incurred.
The Company's Amended and Restated Certificate of Incorporation and By-laws
provide for the indemnification of directors and officers of the Company to
the fullest extent permitted by Section 145.
In that regard, the Amended and Restated Certificate of Incorporation and
By-laws provide that the Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, administrative or
investigative (other than action by or in the right of the corporation) by
reason of the fact that he is or
II-1
was a director or officer of the Company, or is or was serving at the request
of the Company as a director, officer or member of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of such corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. Indemnification in connection with an action
or suit by or in the right of such corporation to procure a judgment in its
favor is limited to payment of expenses (including attorneys' fees) actually
and reasonably incurred in connection with the defense or settlement of such
an action or suit except that no such indemnification may be made in respect
of any claim, issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of his duty to
the indemnifying corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought
shall determine that, despite the adjudication of liability but in
consideration of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following securities of the Company were sold by the Company within the
past three years without registration:
On June 24, 1994, the Company issued the following securities to the persons
and for the consideration described below:
(1) 1,207,767 shares of Class A Common Stock (the "Class A Common") to
GTC Fund III in exchange for 140,240 shares of PGI Class A Preferred
Cumulative Redeemable Stock (the "PGI Class A Preferred") and 10,000 shares
of PGI Class B Cumulative Convertible Preferred Stock (the "PGI Class B
Preferred");
(2) 111,236 shares of Class A Common to InterTech in exchange for 12,916
shares of PGI Class A Preferred and 921 shares of PGI Class B Preferred;
(3) 152,527 shares of Class A Common to Mr. Zucker in exchange for 8,414
shares of PGI Class A Preferred and 140,061 shares of PGI common stock;
(4) 50,840 shares of Class A Common to Mr. Boyd in exchange for 2,805
shares of PGI Class A Preferred and 46,685 shares of PGI common stock;
(5) 81,000 shares of Class A Common and 10,835 shares of Class B Non-
voting Common Stock to CMIHI (together with a cash payment of $594,815) in
exchange for 25,878 shares of Fabrene Class A Non-voting Series 3 shares,
4,122 shares of Fabrene Class B Series 3 shares, a promissory note in the
original principal amount of $3,530,504.54 issued by Fabrene, and Warrants
to acquire Class A Non-voting Series 2 shares of Fabrene; and
(6) 36,385 shares of Class A Common to FTG (together with a cash payment
of $235,664) in exchange for Warrants to acquire Class A Non-voting Series
2 shares of Fabrene.
On March 15, 1995, the Company issued the following securities to the
persons and in exchange for the securities described below:
(1) 111,825 shares of Class A-1 Common Stock (the "Class A-1 Common"),
115,000 shares of Class A-3 Common Stock (the "Class A-3 Common"), and
185,902 shares of Class B Common Stock (the "Class B Common") to GTC Fund
III in exchange for 1,207,767 shares of Class A Common;
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(2) 46,760 shares of Class B Common to InterTech in exchange for 111,236
shares of Class A Common;
(3) 21,802 shares of Class B Common to Mr. Zucker in exchange for 51,864
shares of Class A Common;
(4) 7,267 shares of Class B Common to Mr. Boyd in exchange for 17,287
shares of Class A Common;
(5) 17,248 shares of Class A-1 Common and 14,136 shares of Class B Common
to CMIHI in exchange for 81,000 shares of Class A Common and 10,835 shares
of Class B Non-voting Common Stock; and
(6) 15,295 shares of Class B Common to FTG in exchange for 36,385 shares
of Class A Common.
In addition, on March 15, 1995, the Company issued the following securities
in sales to the persons listed:
(1) 78,452 shares of Class A-1 Common to GTC Fund III for $9,000,000
cash;
(2) 163,655 shares of Class B Common to InterTech for $8,675,000 cash;
(3) 8,584 shares of Class A-1 Common and 35,000 shares of Class A-2
Common Stock to CMIHI for $5,000,000;
(4) 26,150 shares of Class A-1 Common to Leeway for $3,000,000; and
(5) 26,150 shares of Class A-1 Common to CalPERS for $3,000,000.
On March 15, 1995, pursuant to the Chicopee Management Agreements, the
Company issued 61,809 shares of Class B Common to Mr. Zucker in exchange for
100,663 shares of Class A Common and $993,750 in cash, and issued 20,603
shares of Class B Common to Mr. Boyd in exchange for 33,553 shares of Class A
Common and $331,250 in cash.
Pursuant to a Securities Purchase Agreement entered into on March 15, 1995,
Leeway and CalPERS each purchased 35,500 warrants (each warrant representing
the right to purchase one share of the Company's Class C Common Stock) for
$250,000 per party.
On January 11, 1996, the Company issued 10,000 shares of 13% Cumulative
Redeemable Preferred Stock, par value $0.01 per share, to ConX II, Inc., an
affiliate of the Company, for $10,000,000 cash.
Such sales and issuances of securities were deemed exempt from registration
under the Securities Act of 1933, as amended, by virtue of section 4(2)
thereof, as transactions not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
[Download Table]
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
Form of Amended and Restated Certificate of Incorporation of the
3.1** Company.
3.2** Amended and Restated By-laws of the Company.
--------
*Previously filed.
**Filed herewith.
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[Download Table]
4.1* Form of certificate representing Common Stock of the Company.
4.2* Form of Rights Agreement.
5* Opinion and consent of Kirkland & Ellis.
10.1 Stock Purchase Agreement dated as of June 17, 1994 by and among
the Company, Cydsa and Bonlam (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form
S-4 (Reg. No. 33-81862)).
10.2 Intercompany Notes Agreement dated as of June 24, 1994 by and
among Fabrene, the Subsidiary Guarantors identified therein,
the Company and FiberTech (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-4 (Reg. No. 33-81862)).
10.3 Intercompany Notes Agreement dated as of June 24, 1995 by and
among FiberTech de Mexico, S.A. de C.V., the Subsidiary
Guarantors identified therein, the Company and FiberTech
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.4 Stockholders Agreement dated as of June 24, 1994 by and among
the Company, InterTech, GTC Fund III, Jerry Zucker, James G.
Boyd, FTG and CMIHI (incorporated by reference to Exhibit 10.4
to the Company's Registration Statement on Form S-4 (Reg. No.
33-81862)).
10.5 Registration Agreement dated as of June 24, 1994 by and among
the Company, InterTech, GTC Fund III, Jerry Zucker, James G.
Boyd, FTG and CMIHI (incorporated by reference to Exhibit 10.5
to the Company's Registration Statement on Form S-4 (Reg. No.
33-81862)).
10.6 Exchange Agreement dated as of June 24, 1994 by and among the
Company, InterTech, GTC Fund III, Jerry Zucker, James G. Boyd,
FTG and CMIHI (incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form S-4 (Reg. No. 33-
81862)).
10.7 Management Agreement dated October 21, 1992 by and among PGI,
FiberTech, GTC Fund III and Jerry Zucker (incorporated by
reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.8 Amendment No. 1 to Management Agreement dated June 24, 1994 by
and among PGI, FiberTech, GTC Fund III and Jerry Zucker
(incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.9 Management Agreement dated October 21, 1992 by and among PGI,
FiberTech, GTC Fund III and James G. Boyd (incorporated by
reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.10 Amendment No. 1 to Management Agreement dated June 24, 1994 by
and among PGI, FiberTech, GTC Fund III and James G. Boyd
(incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.11 Agreement dated June 24, 1994 among the Company, Jerry Zucker
and James G. Boyd (incorporated by reference to Exhibit 10.11
to the Company's Registration Statement on Form S-4 (Reg. No.
33-81862)).
10.12 Asset Purchase Agreement dated as of October 29, 1993 by and
among Fortifiber Corporation, Stanwall Corporation and Fabrene
(incorporated by reference to Exhibit 10.14 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
--------
*Previously filed.
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[Download Table]
10.13 Joint Venture Agreement dated December 1, 1993 by and between
FiberTech and Avgol Ltd (incorporated by reference to Exhibit
10.15 to the Company's Registration Statement on Form S-4 (Reg.
No. 33-81862)).
10.14 Lease Agreement dated as of September 1, 1993 by and between
ConX, Inc. and Technetics Group, Inc (incorporated by reference
to Exhibit 10.16 to the Company's Registration Statement on
Form S-4 (Reg. No. 33-81862)).
10.15 Amendment No. 2 to Management Agreement dated March 15, 1995 by
and among PGI, FiberTech, GTC Fund III and Jerry Zucker
(incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.16 Amendment No. 2 to Management Agreement dated March 15, 1995 by
and among PGI, FiberTech, GTC Fund III and James G. Boyd
(incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.17 Stock Purchase Agreement made as of March 15, 1995 between the
Company and the Purchasers defined therein (incorporated by
reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.18 Amended and Restated Registration Agreement made as of March 15,
1995 by and among the Company, InterTech, GTC Fund III, Jerry
Zucker, James G. Boyd, FTG, CMIHI, Leeway and CalPERS
(incorporated by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.19 Amended and Restated Stockholders Agreement made as of March 15,
1995 by and among the Company, InterTech, GTC Fund III, Jerry
Zucker, James G. Boyd, FTG, CMIHI, Leeway and CalPERS
(incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.20 Management Agreement made as of March 15, 1995 by and among the
Company, Chicopee, Inc. and Jerry Zucker (incorporated by
reference to Exhibit 10.23 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.21 Management Agreement made as of March 15, 1995 by and among the
Company, Chicopee, Inc. and James G. Boyd (incorporated by
reference to Exhibit 10.24 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.22 Supply Agreement dated as of June 1, 1995 by and between
FiberTech and ConX II (incorporated by reference to Exhibit
10.25 to the Company's Registration Statement on Form S-4 (Reg.
No. 33-81862)). Certain portions of the Agreement have been
omitted and filed separately with the Commission pursuant to an
Application for Confidential Treatment granted by the
Commission on October 12, 1995. The Company agrees to furnish
supplementally to the Commission a copy of any omitted schedule
or exhibit to the Agreement upon request by the Commission.
10.23 Services/Production Agreement dated as of June 1, 1995 by and
between FiberTech and ConX II (incorporated by reference to
Exhibit 10.26 to the Company's Registration Statement on Form
S-4 (Reg. No. 33-81862)). The Company agrees to furnish
supplementally to the Commission a copy of any omitted schedule
or exhibit to the Agreement upon request by the Commission.
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[Download Table]
10.24 Roll-In Agreement entered into as of November 18, 1994 by and
among ZB Holdings, InterTech, FTG, the Company, Polypore,
CMIHI, Jerry Zucker, James G. Boyd and GTC Fund III
(incorporated by reference to Exhibit 10.27 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.25 Indenture dated as of June 24, 1994 among the Company, PGI,
FiberTech and its subsidiaries and the Trustee (including Form
of Exchange Note) (incorporated by reference to Exhibit 4.1 to
the Company's Registration Statement on Form S-4 (Reg. No. 33-
81862)).
10.26 Purchase Agreement dated as of June 17, 1994 among the Company,
PGI, FiberTech and the Initial Purchasers (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.27 Registration Rights Agreement dated as of June 24, 1994 among
the Company, PGI, FiberTech and the Initial Purchasers
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.28 Amended and Restated Credit Agreement dated as of June 24, 1994
by and among FiberTech, the Company, PGI, the Subsidiary
Guarantors identified therein, the Banks identified therein
and The Chase Manhattan Bank (National Association), as agent
(incorporated by reference to Exhibit 4.4 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.29 Amended and Restated Security Agreement dated as of June 24,
1994 by and among FiberTech, the Subsidiary Guarantors
identified therein and The Chase Manhattan Bank (National
Association), as agent (incorporated by reference to Exhibit
4.5 to the Company's Registration Statement on Form S-4 (Reg.
No. 33-81862)).
10.30 Pledge Agreement dated as of June 24, 1994 by and among the
Company, PGI and The Chase Manhattan Bank (National
Association), as agent (incorporated by reference to Exhibit
4.6 to the Company's Registration Statement on Form S-4 (Reg.
No. 33-81862)).
10.31 Amendment No. 1 dated as of September 30, 1994 by and among
FiberTech, the Subsidiary Guarantors identified therein, the
Lenders signatory thereto and the Chase Manhattan Bank
(National Association), as agent (incorporated by reference to
Exhibit 4.7 to the Company's Registration Statement on Form S-
4 (Reg. No. 33-81862)).
10.32 Amendment No. 2 dated as of March 8, 1995 by and among
FiberTech, the Subsidiary Guarantors identified therein, the
Lenders signatory thereto and the Chase Manhattan Bank
(National Association), as agent (incorporated by reference to
Exhibit 4.8 to the Company's Registration Statement on Form S-
4 (Reg. No. 33-81862)).
10.33 Amendment No. 3 dated as of June 27, 1995 by and among
FiberTech, the Subsidiary Guarantors identified therein, the
Lenders signatory thereto and the Chase Manhattan Bank
(National Association), as agent (incorporated by reference to
Exhibit 4.9 to the Company's Registration Statement on Form S-
4 (Reg. No. 33-81862)).
10.34* Amendment No. 4 dated as of December 22, 1995 by and among
FiberTech, the Subsidiary Guarantors and Parent Guarantors
identified therein, the Lenders signatory thereto and the
Chase Manhattan Bank (National Association), as agent.
--------
*Previously filed.
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[Download Table]
10.35 Securities Purchase Agreement dated as of March 15, 1995 among
the Company, Chicopee, Leeway & Co. ("Leeway") and the
California Public Employee's Retirement System ("CalPERS")
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K, regarding the acquisition of
Chicopee Holdings, Inc. and its subsidiaries, filed on March
30, 1995).
10.36 Warrant Certificate dated March 15, 1995 from the Company with
respect to warrants issued to Leeway (incorporated by reference
to Exhibit 4.2 to the Company's Current Report on Form 8-K,
regarding the acquisition of Chicopee Holdings, Inc. and its
subsidiaries, filed on March 30, 1995).
10.37 Warrant Certificate dated March 15, 1995 from the Company with
respect to warrants issued to CalPERS (incorporated by
reference to Exhibit 4.3 to the Company's Current Report on
Form 8-K, regarding the acquisition of Chicopee Holdings, Inc.
and its subsidiaries, filed on March 30, 1995).
10.38 Recapitalization Agreement dated as of March 15, 1995 between
the Company, GTC Fund III, InterTech, Jerry Zucker, James G.
Boyd, CMIHI and FTG (incorporated by reference to Exhibit 4.4
to the Company's Current Report on Form 8-K, regarding the
acquisition of Chicopee Holdings, Inc. and its subsidiaries,
filed on March 30, 1995).
10.39 First Supplemental Indenture dated as of March 15, 1995 between
the Company and the Trustees (incorporated by referenced to
Exhibit 4.5 to the Company's Current Report on Form 8-K,
regarding the acquisition of Chicopee Holdings, Inc. and its
subsidiaries, filed on March 30, 1995).
10.40 Stock Subscription Agreement dated as of January 18, 1995 with
respect to Chicopee (incorporated by reference to Exhibit 4.6
to the Company's Current Report on Form 8-K, regarding the
acquisition of Chicopee Holdings, Inc. and its subsidiaries,
filed on March 30, 1995).
10.41 Stock Subscription Agreement dated as of March 13, 1995 with
respect to Chicopee Holdings (incorporated by reference to
Exhibit 4.7 to the Company's Current Report on Form 8-K,
regarding the acquisition of Chicopee Holdings, Inc. and its
subsidiaries, filed on March 30, 1995).
10.42 Credit Agreement dated as of March 15, 1995 between Chicopee,
Chicopee Holdings B.V., Chicopee B.V., each of the lenders
party thereto, The Chase Manhattan Bank (National Association),
as administrative agent, and The Chase Manhattan Bank (National
Association), The Bank of Nova Scotia and BHF-Bank, as co-
agents (incorporated by reference to Exhibit 4.8 to the
Company's Current Report on Form 8-K, regarding the acquisition
of Chicopee Holdings, Inc. and its subsidiaries, filed on March
30, 1995).
10.43 Second Supplemental Indenture dated as of September 14, 1995
among the Company, the Trustee and Harris Trust and Savings
Bank, as successor trustee (incorporated by reference to
Exhibit 4.18 to the Company's Registration Statement on Form S-
4 (Reg. No. 33-81862)).
10.44 Purchase Agreement dated as of January 27, 1995 by and among
J&JAMC, Johnson & Johnson, InterTech and Chicopee (incorporated
by reference to the Company's Current Report on Form 8-K,
regarding the acquisition of Chicopee Holdings, Inc. and its
subsidiaries, filed on March 30, 1995). The Company agrees to
furnish supplementally to the Commission a copy of any omitted
schedule or exhibit to the Agreement upon request by the
Commission.
II-7
[Download Table]
10.45 First Amendment to Purchase Agreement dated as of March 15, 1995
by and among J&JAMC, Johnson & Johnson, InterTech and Chicopee
(incorporated by reference to Exhibit 2.2 to the Company's
Current Report on Form 8-K, regarding the acquisition of
Chicopee Holdings, Inc. and its subsidiaries, filed on March
30, 1995).
10.46* Supply Agreement dated as of March 15, 1995 between Johnson &
Johnson and Chicopee. Certain portions of the Agreement have
been omitted and filed separately with the Commission pursuant
to an Application for Confidential Treatment filed on March 7,
1996, as amended on April 29, 1996.
10.47* Stock Purchase Agreement dated as of January 10, 1996 between
the Company and ConX II.
10.48* 1996 Key Employee Stock Option Plan of the Company.
10.49* Form of Non-Qualified Stock Option Grant.
10.50* Amendment No. 5 dated as of December 30, 1995 by and among
FiberTech, the Subsidiary Guarantors and Parent Guarantors
identified therein, the Lenders signatory thereto and the Chase
Manhattan Bank (National Association), as agent.
10.51* Form of New Credit Facility.
10.52* Form of Third Supplemental Indenture between the Company and
Harris Trust and Savings Bank, as successor trustee.
11** Statement of Computation of Per Share Earnings.
16* Letter of Coopers & Lybrand.
21* Subsidiaries of the Company.
23.1** Consent of Ernst & Young LLP.
23.2** Consent of Coopers & Lybrand.
23.3* Consent of Kirkland & Ellis (included in Exhibit 5).
24* Powers of Attorney (included in signature page).
27** Financial Data Schedule.
--------
*Previously filed.
**Filed herewith.
(b) FINANCIAL STATEMENT SCHEDULES.
[Download Table]
PAGE
----
Report of Independent Auditors on Schedules....... S-1
Schedule I--Condensed Financial Information....... S-2
Schedule II--Valuation and Qualifying Accounts.... S-9
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
ITEM 17. UNDERTAKINGS.
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 to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the 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
II-8
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 of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-9
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 4 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NORTH
CHARLESTON, STATE OF SOUTH CAROLINA, ON MAY 7, 1996.
Polymer Group, Inc.
/s/ Jerry Zucker
By: ________________________________
Jerry Zucker
Chairman, President and CEO
****
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 4 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED:
[Download Table]
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Jerry Zucker Chairman, President, CEO and May 7, 1996
____________________________________ Director (principal
Jerry Zucker executive officer)
/s/ James G. Boyd Executive Vice President, May 7, 1996
____________________________________ Treasurer and Director
James G. Boyd (principal financial
officer and principal
accounting officer)
/s/ Bruce V. Rauner Director May 7, 1996
____________________________________
Bruce V. Rauner
/s/ David A. Donnini Director May 7, 1996
____________________________________
David A. Donnini
/s/ Jerry Zucker
*By ___________________________
Jerry Zucker
Attorney-in-Fact
II-10
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Polymer Group, Inc.
We have audited the consolidated financial statements of Polymer Group, Inc.
as of December 31, 1994 and December 30, 1995, and for each of the three years
in the period ended December 30, 1995, and have issued our report thereon
dated February 8, 1996, except as to the second and third paragraphs of Note
17, as to which the date is May 6, 1996 (included elsewhere in this
Registration Statement). Our audits also included the financial statement
schedules listed in Item 16(b) of this Registration Statement. These schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Greenville, South Carolina
February 8, 1996, except as to
the second and third
paragraphs of Note 17, as to
which the date is May 6, 1996
S-1
POLYMER GROUP, INC. (PARENT COMPANY)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 AND DECEMBER 30, 1995
(IN THOUSANDS)
[Download Table]
ASSETS 1994 1995
------ -------- --------
Cash........................................................ $ -- $ 286
Due from affiliates......................................... 98,484 91,881
Investment in affiliates.................................... 64,016 81,515
-------- --------
Total assets............................................ $162,500 $173,682
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Accounts payable and accrued liabilities.................... $ 10,280 $ 10,120
Long term debt.............................................. 150,000 150,000
Shareholders' equity
Common stock.............................................. 17 10
Additional paid in capital................................ 22,626 53,134
Deficit................................................... (24,207) (52,653)
Cumulative translation adjustment......................... 3,784 12,729
Unrealized holding gain on marketable securities.......... -- 342
-------- --------
2,220 13,562
-------- --------
Total liabilities and shareholders' equity.............. $162,500 $173,682
======== ========
S-2
POLYMER GROUP, INC. (PARENT COMPANY)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JUNE 23, 1994 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1994 AND FOR THE YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS)
[Download Table]
1994 1995
-------- --------
Cost and expenses:
Equity in (income) of affiliate.......................... $ (167) $ --
Interest expense......................................... 436 295
Foreign currency transaction losses, net................. 19 18
-------- --------
(Loss) before taxes and equity in (loss) of
subsidiaries.......................................... (288) (313)
Income taxes............................................... 1,188 2,763
-------- --------
(Loss) before equity in (loss) of subsidiaries......... (1,476) (3,076)
Equity in net (loss) of subsidiaries....................... (22,731) (20,531)
-------- --------
Net (loss)............................................. $(24,207) $(23,607)
======== ========
S-3
POLYMER GROUP, INC. (PARENT COMPANY)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 23, 1994 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1994
AND
FOR THE YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS)
[Enlarge/Download Table]
UNREALIZED
HOLDING
COMMON STOCK ADDITIONAL CUMULATIVE GAIN ON
--------------- PAID-IN TRANSLATION MARKETABLE
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT SECURITIES TOTAL
------- ------ ---------- -------- ----------- ---------- -------
Balance at June 23,
1994................... -- $-- $ -- $ -- $ -- $-- $ --
Net loss for the period
from June 23, 1994
through December 31,
1994................... -- -- -- (1,476) -- -- (1,476)
Equity in net loss of
subsidiaries from June
23, 1994 through
December 31, 1994...... -- -- -- (22,731) -- -- (22,731)
Issuance of common stock
& other................ 32,959 17 78 -- -- -- 95
Exchange of preferred
stock for common stock. -- -- 21,406 -- -- -- 21,406
Exchange of shareholder
subordinated loans for
common stock........... -- -- 2,523 -- -- -- 2,523
Cash paid to
shareholders........... (595) (595)
Acquisition of remaining
73% of affiliate....... -- -- (876) -- (698) -- (1,574)
Foreign currency
translation
adjustments............ -- -- 90 -- 4,482 -- 4,572
------- ---- ------- -------- ------- ---- -------
Balance at December 31,
1994................... 32,959 17 22,626 (24,207) 3,784 -- 2,220
Net loss for the year
ended December 30,
1995................... -- -- -- (3,076) -- -- (3,076)
Equity in net loss of
subsidiaries from
January 1, 1995 through
December 30, 1995...... -- -- -- (20,531) -- -- (20,531)
Exchange of Class A &
Class B stock.......... (32,959) (17) (22,626) -- -- -- (22,643)
Issuance of Class A-1,
Class A-2, Class A-3
and Class B stock and
warrants............... 19,082 10 53,134 -- -- -- 53,144
Cumulative dividends on
redeemable preferred
stock of subsidiary and
accretion.............. -- -- -- (4,839) -- -- (4,839)
Foreign currency
translation
adjustments............ -- -- -- -- 8,945 -- 8,945
Unrealized holding gain
on marketable
securities............. -- -- -- -- -- 342 342
------- ---- ------- -------- ------- ---- -------
Balance at December 30,
1995................... 19,082 $ 10 $53,134 $(52,653) $12,729 $342 $13,562
======= ==== ======= ======== ======= ==== =======
S-4
POLYMER GROUP, INC. (PARENT COMPANY)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION
CONDENSED STATEMENTS OF CASH FLOW
FOR THE PERIOD FROM JUNE 23, 1994 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1994
AND
FOR THE YEAR ENDED DECEMBER 30, 1995
(IN THOUSANDS)
[Download Table]
1994 1995
-------- --------
Cash (used in) operating activities...................... $ (9,445) $(14,480)
Investing activities
Net increase in investment in subsidiaries............. (65,591) (17,499)
Financing activities
Proceeds from issuance of debt......................... 150,000 --
Issuance of common stock and warrants.................. 17 30,500
Net (increase) decrease in due from affiliates......... (74,554) 6,603
Other.................................................. (595) (4,838)
-------- --------
Cash provided by investing activities.................... 74,868 32,265
Effect of exchange rate change on cash................... 168 --
Cash and cash equivalents at beginning of period..... -- --
-------- --------
Cash and cash equivalents at end of period........... $ -- $ 286
======== ========
S-5
POLYMER GROUP, INC. (PARENT COMPANY)
SCHEDULE I--CONDENSED FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
DECEMBER 30, 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1. BASIS OF PRESENTATION
The condensed financial statements of Polymer Group, Inc.--Parent Company
(the "Company") have been prepared in accordance with generally accepted
accounting principles, but do not include all of the information required by
generally accepted accounting principles for complete financial statements.
NOTE 2. ORGANIZATION
General
The Company is a Delaware corporation incorporated on June 16, 1994. On June
24, 1994, the Company: issued $150,000 in 12 1/4% Senior Notes (the "Notes")
due 2002 in a private placement, in accordance with Rule 144A of the
Securities Act of 1933; acquired two affiliated companies, PGI Polymer, Inc.
("PGI") and Fabrene Inc. ("Fabrene"); and acquired Bonlam, S.A. de C.V.
("Bonlam"). Following these transactions, PGI, Fabrene and Bonlam became
wholly owned subsidiaries of the Company. PGI, a holding company, was acquired
by exchanging 1,522,370 shares of the Company's common stock and approximately
$13,300 in cash for all of the outstanding shares of common stock and
preferred stock of PGI, and accrued dividends thereon. The acquisition was
considered to be between entities under common control and was accounted for
at historical cost in a manner similar to a pooling of interests. The net
assets of PGI on a historical cost basis were approximately $16,300 at the
time of the acquisition.
Prior to the acquisition of PGI and Fabrene by the Company, PGI owned 27% of
Fabrene, a Canadian-based manufacturer and marketer of woven polyolefin
fabrics. This equity interest was acquired indirectly by the Company in
connection with the acquisition of PGI. The remaining 73% was acquired by the
Company in a transaction accounted for by the purchase method of accounting.
To effect the transaction, Fabrene acquired shares of its common stock and
warrants from a shareholder, and repaid a subordinated loan to the shareholder
for $12,500 in cash. The remaining shareholders of Fabrene exchanged their
common stock and common stock warrants for 128,220 shares of common stock of
the Company and approximately $830 in cash. The Company's total cost of
acquiring the ownership not previously owned by PGI was approximately $7,000.
The Company also acquired all the outstanding common stock of Bonlam, a
Mexican-based manufacturer and marketer of spunbond nonwoven products, for
approximately $40,700 in a transaction accounted for by the purchase method of
accounting. The Company's 1994 consolidated statements of operations include
100% of Fabrene's net loss for the period from June 25, 1994 through December
31, 1994 and 27% of Fabrene's net loss for periods prior to June 25, 1994.
Bonlam's results of operations for the period from June 25, 1994 through
December 31, 1994 have been included in the Company's 1994 consolidated
results of operations.
Chicopee Acquisition
On March 15, 1995, the Company completed the acquisition (the "Chicopee
Acquisition") of Johnson & Johnson Advanced Materials Company and Chicopee
B.V. (collectively, "Chicopee") from Johnson & Johnson ("J&J") for an
aggregate consideration of $290,000, including $15,000 of fees and expenses.
Chicopee is a leading manufacturer and marketer of both nonwoven roll and
converted products, with a leading market share in the domestic and
international health care market. The
S-6
POLYMER GROUP, INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
Company financed the Chicopee Acquisition with the following sources of funds:
(i) borrowings by Chicopee under a six-year $125,000 amortizing term loan, an
eight-year $85,000 amortizing term loan and initial borrowings of $4,500 under
a $30,000 revolving credit facility provided by a group of banks; (ii) the
issuance by Chicopee to J&J of a $5,000 subordinated promissory note, which
was repaid at closing; (iii) a $30,000 common equity contribution from the
Company; and (iv) the issuance of $40,000 redeemable preferred stock due 2004
("Preferred Stock") of Chicopee.
NOTE 3. SHAREHOLDERS' EQUITY
Prior to the Chicopee Acquisition, the Company had outstanding 1,639,755
shares of existing Class A common stock and 10,835 shares of existing Class B
non-voting common stock. The existing Class A common stock and existing Class
B non-voting common stock was identical in all respects except that the
existing Class B non-voting common stock was non-voting. In connection with
the Chicopee Acquisition, the Company also consummated the following
transactions: (i) the Company, The InterTech Group, Inc. ("InterTech"),
Golder, Thoma, Cressey Fund III ("GTC Fund III"), certain executives (the
"Executives"), Chase Manhattan Investment Holdings ("CMIHI") and FTG, Inc.
("FTG") entered into a Recapitalization Agreement pursuant to which (a) their
respective shares of the Company's existing Class A common stock and existing
Class B common stock were exchanged for shares of the new Class A-1 common
stock, Class A-3 non-voting common stock and new Class B common stock, (b) GTC
Fund III and CMIHI received shares of new Class B common stock, Class A-1
common stock and Class A-3 non-voting common stock, and (c) InterTech, the
Executives and FTG received shares of new Class B common stock; (ii) the
Company, InterTech, GTC Fund III, CMIHI, Leeway & Co. ("Leeway") and the
California Public Employee's Retirement System ("CalPERS") entered into a
Stock Purchase Agreement pursuant to which InterTech, GTC Fund III, CMIHI,
Leeway and CalPERS purchased shares of Class A-1 common stock, Class A-2 non-
voting common stock and new Class B common stock; and (iii) the Executives
purchased shares of new Class B common stock in exchange for shares of the
Company's existing Class A common stock and cash.
The Class A-1 common stock, Class A-2 non-voting common stock and Class A-3
non-voting common stock are identical in all respects with the exception that
the Class A-2 non-voting common stock and Class A-3 non-voting common stock
are non-voting. The Class A-2 non-voting common stock and Class A-3 non-voting
common stock may be converted into Class A-1 common stock upon the occurrence
of certain events at the option of the holder thereof. The Class B common
stock is identical to the Class A-1 common stock with the exception of the
yield and distribution preferences described below.
The terms of the Class A-1 common stock, the Class A-2 non-voting common
stock and the Class A-3 non-voting common stock (collectively, the "Class A
common stock"), the Class B common stock and the Class C common stock provide
that the holders of the Class A common stock and the Class B common stock are
entitled to receive the first $85.0 million of distributions to holders
thereof as follows: first, the holders of the Class A common stock are
entitled to receive an amount equal to the yield accrued (at a rate of 12% per
annum, compounded quarterly) on the unreturned original value of such Class A
common stock; second, the holders of the Class A common stock are entitled to
receive an amount equal to the unreturned original value of such Class A
common stock; and third, the holders of the Class A common stock and the Class
B common stock are entitled to receive, ratably, the balance, if any of such
$85.0 million. Thereafter, distributions are allocated ratably between the
holders of the Class A common stock and Class B common stock, on the one hand,
and the holders of the
S-7
POLYMER GROUP, INC. (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED))
(IN THOUSANDS, EXCEPT SHARE DATA)
Class C common stock, on the other. The holders of Class A common stock are
entitled to receive all such distributions to the holders of Class A common
stock and Class B common stock until they receive all accrued and unpaid yield
on their Class A common stock together with the unreturned original value
thereof, and all subsequent distributions are shared ratably among the holders
of Class A common stock and Class B common stock. All distributions to holders
of Class C common stock are allocated ratably among such holders.
NOTE 4. SUBSEQUENT EVENTS
On January 11, 1996, the Company issued 10,000 shares of 13% Cumulative
Redeemable Preferred Stock, $.01 par value, to an entity affiliated with the
Company for $10,000.
On March 14, 1996, the Company filed a Registration Statement with the SEC
in connection with the offering by the Company of 11,500,000 shares of its
common stock for sale to the public (the "Offering"). Pursuant to the
Recapitalization Agreement dated May 6, 1996, all of the warrants to acquire
shares of Class C common stock will be exercised, and the outstanding shares
of Class A common stock, Class B common stock and Class C common stock will be
converted into shares of common stock concurrently with and contingent upon
the Offering. The Board has approved an approximate 19.97 to 1 stock split to
be effective upon consummation of the Offering.
S-8
POLYMER GROUP, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
[Download Table]
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- --------- ------------------ ------------ --------
ADDITIONS
BALANCE ------------------ BALANCE
AT CHARGED TO AT END
BEGINNING COSTS AND DEDUCTIONS-- OF
DESCRIPTION OF PERIOD EXPENSES OTHER DESCRIBE PERIOD
----------- --------- ---------- ------- ------------ --------
Year ended January 1,
1994
Allowance for doubtful
accounts, price
concessions and other. $ 130 15 -- 28 $ 117
Valuation allowance for
deferred tax assets... $ 730 -- -- 37(3) $ 693
Year ended December 31,
1994
Allowance for doubtful
accounts, price
concessions and other. $ 117 435 121 177 $ 496
Valuation allowance for
deferred tax assets... $ 693 9,505 -- -- $10,198
Year ended December 30,
1995
Allowance for doubtful
accounts, price
concessions and other. $ 496 5,788 674(2) 5,073(1) $ 1,885
Valuation allowance for
deferred tax assets... $10,198 1,594 -- -- $11,792
Restructuring costs.... $ -- -- 17,859(5) 2,406(4) $15,453
--------
(1) Uncollectible accounts written off, net.
(2) Business acquisitions, net.
(3) Reduction in valuation allowance for deferred tax assets.
(4) Charges to reserve.
(5) Reserve established as part of business acquisition.
S-9
[Download Table]
SEQ
PAGE
EXHIBITS ----
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
Form of Amended and Restated Certificate of Incorporation of
3.1** the Company.
3.2** Amended and Restated By-laws of the Company.
4.1* Form of certificate representing Common Stock of the Company
4.2* Form of Rights Agreement.
5* Opinion and consent of Kirkland & Ellis.
10.1 Stock Purchase Agreement dated as of June 17, 1994 by and
among the Company, Cydsa and Bonlam (incorporated by
reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.2 Intercompany Notes Agreement dated as of June 24, 1994 by and
among Fabrene, the Subsidiary Guarantors identified therein,
the Company and FiberTech (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-4 (Reg. No. 33-81862)).
10.3 Intercompany Notes Agreement dated as of June 24, 1995 by and
among FiberTech de Mexico, S.A. de C.V., the Subsidiary
Guarantors identified therein, the Company and FiberTech
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.4 Stockholders Agreement dated as of June 24, 1994 by and among
the Company, InterTech, GTC Fund III, Jerry Zucker, James G.
Boyd, FTG and CMIHI (incorporated by reference to Exhibit
10.4 to the Company's Registration Statement on Form S-4
(Reg. No. 33-81862)).
10.5 Registration Agreement dated as of June 24, 1994 by and among
the Company, InterTech, GTC Fund III, Jerry Zucker, James G.
Boyd, FTG and CMIHI (incorporated by reference to Exhibit
10.5 to the Company's Registration Statement on Form S-4
(Reg. No. 33-81862)).
10.6 Exchange Agreement dated as of June 24, 1994 by and among the
Company, InterTech, GTC Fund III, Jerry Zucker, James G.
Boyd, FTG and CMIHI (incorporated by reference to Exhibit
10.6 to the Company's Registration Statement on Form S-4
(Reg. No. 33-81862)).
10.7 Management Agreement dated October 21, 1992 by and among PGI,
FiberTech, GTC Fund III and Jerry Zucker (incorporated by
reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.8 Amendment No. 1 to Management Agreement dated June 24, 1994
by and among PGI, FiberTech, GTC Fund III and Jerry Zucker
(incorporated by reference to Exhibit 10.8 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.9 Management Agreement dated October 21, 1992 by and among PGI,
FiberTech, GTC Fund III and James G. Boyd (incorporated by
reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.10 Amendment No. 1 to Management Agreement dated June 24, 1994
by and among PGI, FiberTech, GTC Fund III and James G. Boyd
(incorporated by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
--------
*Previously filed.
**Filed herewith.
E-1
[Download Table]
SEQ
PAGE
EXHIBITS ----
10.11 Agreement dated June 24, 1994 among the Company, Jerry Zucker
and James G. Boyd (incorporated by reference to Exhibit
10.11 to the Company's Registration Statement on Form S-4
(Reg. No. 33-81862)).
10.12 Asset Purchase Agreement dated as of October 29, 1993 by and
among Fortifiber Corporation, Stanwall Corporation and
Fabrene (incorporated by reference to Exhibit 10.14 to the
Company's Registration Statement on Form S-4 (Reg. No. 33-
81862)).
10.13 Joint Venture Agreement dated December 1, 1993 by and between
FiberTech and Avgol Ltd (incorporated by reference to
Exhibit 10.15 to the Company's Registration Statement on
Form S-4 (Reg. No. 33-81862)).
10.14 Lease Agreement dated as of September 1, 1993 by and between
ConX, Inc. and Technetics Group, Inc (incorporated by
reference to Exhibit 10.16 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.15 Amendment No. 2 to Management Agreement dated March 15, 1995
by and among PGI, FiberTech, GTC Fund III and Jerry Zucker
(incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.16 Amendment No. 2 to Management Agreement dated March 15, 1995
by and among PGI, FiberTech, GTC Fund III and James G. Boyd
(incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.17 Stock Purchase Agreement made as of March 15, 1995 between
the Company and the Purchasers defined therein (incorporated
by reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.18 Amended and Restated Registration Agreement made as of March
15, 1995 by and among the Company, InterTech, GTC Fund III,
Jerry Zucker, James G. Boyd, FTG, CMIHI, Leeway and CalPERS
(incorporated by reference to Exhibit 10.21 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.19 Amended and Restated Stockholders Agreement made as of March
15, 1995 by and among the Company, InterTech, GTC Fund III,
Jerry Zucker, James G. Boyd, FTG, CMIHI, Leeway and CalPERS
(incorporated by reference to Exhibit 10.22 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.20 Management Agreement made as of March 15, 1995 by and among
the Company, Chicopee, Inc. and Jerry Zucker (incorporated
by reference to Exhibit 10.23 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.21 Management Agreement made as of March 15, 1995 by and among
the Company, Chicopee, Inc. and James G. Boyd (incorporated
by reference to Exhibit 10.24 to the Company's Registration
Statement on Form S-4 (Reg. No. 33-81862)).
10.22 Supply Agreement dated as of June 1, 1995 by and between
FiberTech and ConX II (incorporated by reference to Exhibit
10.25 to the Company's Registration Statement on Form S-4
(Reg. No. 33-81862)). Certain portions of the Agreement have
been omitted and filed separately with the Commission
pursuant to an Application for Confidential Treatment
granted by the Commission on October 12, 1995. The Company
agrees to furnish supplementally to the Commission a copy of
any omitted schedule or exhibit to the Agreement upon
request by the Commission.
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10.23 Services/Production Agreement dated as of June 1, 1995 by and
between FiberTech and ConX II (incorporated by reference to
Exhibit 10.26 to the Company's Registration Statement on
Form S-4 (Reg. No. 33-81862)). The Company agrees to furnish
supplementally to the Commission a copy of any omitted
schedule or exhibit to the Agreement upon request by the
Commission.
10.24 Roll-In Agreement entered into as of November 18, 1994 by and
among ZB Holdings, InterTech, FTG, the Company, Polypore,
CMIHI, Jerry Zucker, James G. Boyd and GTC Fund III
(incorporated by reference to Exhibit 10.27 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.25 Indenture dated as of June 24, 1994 among the Company, PGI,
FiberTech and its subsidiaries and the Trustee (including
Form of Exchange Note) (incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-4
(Reg. No. 33-81862)).
10.26 Purchase Agreement dated as of June 17, 1994 among the
Company, PGI, FiberTech and the Initial Purchasers
(incorporated by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.27 Registration Rights Agreement dated as of June 24, 1994 among
the Company, PGI, FiberTech and the Initial Purchasers
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-81862)).
10.28 Amended and Restated Credit Agreement dated as of June 24,
1994 by and among FiberTech, the Company, PGI, the
Subsidiary Guarantors identified therein, the Banks
identified therein and The Chase Manhattan Bank (National
Association), as agent (incorporated by reference to Exhibit
4.4 to the Company's Registration Statement on Form S-4
(Reg. No. 33-81862)).
10.29 Amended and Restated Security Agreement dated as of June 24,
1994 by and among FiberTech, the Subsidiary Guarantors
identified therein and The Chase Manhattan Bank (National
Association), as agent (incorporated by reference to Exhibit
4.5 to the Company's Registration Statement on Form S-4
(Reg. No. 33-81862)).
10.30 Pledge Agreement dated as of June 24, 1994 by and among the
Company, PGI and The Chase Manhattan Bank (National
Association), as agent (incorporated by reference to Exhibit
4.6 to the Company's Registration Statement on Form S-4
(Reg. No. 33-81862)).
10.31 Amendment No. 1 dated as of September 30, 1994 by and among
FiberTech, the Subsidiary Guarantors identified therein, the
Lenders signatory thereto and the Chase Manhattan Bank
(National Association), as agent (incorporated by reference
to Exhibit 4.7 to the Company's Registration Statement on
Form S-4 (Reg. No. 33-81862)).
10.32 Amendment No. 2 dated as of March 8, 1995 by and among
FiberTech, the Subsidiary Guarantors identified therein, the
Lenders signatory thereto and the Chase Manhattan Bank
(National Association), as agent (incorporated by reference
to Exhibit 4.8 to the Company's Registration Statement on
Form S-4 (Reg. No. 33-81862)).
10.33 Amendment No. 3 dated as of June 27, 1995 by and among
FiberTech, the Subsidiary Guarantors identified therein, the
Lenders signatory thereto and the Chase Manhattan Bank
(National Association), as agent (incorporated by reference
to Exhibit 4.9 to the Company's Registration Statement on
Form S-4 (Reg. No. 33-81862)).
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10.34* Amendment No. 4 dated as of December 22, 1995 by and among
FiberTech, the Subsidiary Guarantors and Parent Guarantors
identified therein, the Lenders signatory thereto and the
Chase Manhattan Bank (National Association), as agent.
10.35 Securities Purchase Agreement dated as of March 15, 1995
among the Company, Chicopee, Leeway & Co. ("Leeway") and the
California Public Employee's Retirement System ("CalPERS")
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K, regarding the acquisition of
Chicopee Holdings, Inc. and its subsidiaries, filed on March
30, 1995).
10.36 Warrant Certificate dated March 15, 1995 from the Company
with respect to warrants issued to Leeway (incorporated by
reference to Exhibit 4.2 to the Company's Current Report on
Form 8-K, regarding the acquisition of Chicopee Holdings,
Inc. and its subsidiaries, filed on March 30, 1995).
10.37 Warrant Certificate dated March 15, 1995 from the Company
with respect to warrants issued to CalPERS (incorporated by
reference to Exhibit 4.3 to the Company's Current Report on
Form 8-K, regarding the acquisition of Chicopee Holdings,
Inc. and its subsidiaries, filed on March 30, 1995).
10.38 Recapitalization Agreement dated as of March 15, 1995 between
the Company, GTC Fund III, InterTech, Jerry Zucker, James G.
Boyd, CMIHI and FTG (incorporated by reference to Exhibit
4.4 to the Company's Current Report on Form 8-K, regarding
the acquisition of Chicopee Holdings, Inc. and its
subsidiaries, filed on March 30, 1995).
10.39 First Supplemental Indenture dated as of March 15, 1995
between the Company and the Trustees (incorporated by
referenced to Exhibit 4.5 to the Company's Current Report on
Form 8-K, regarding the acquisition of Chicopee Holdings,
Inc. and its subsidiaries, filed on March 30, 1995).
10.40 Stock Subscription Agreement dated as of January 18, 1995
with respect to Chicopee (incorporated by reference to
Exhibit 4.6 to the Company's Current Report on Form 8-K,
regarding the acquisition of Chicopee Holdings, Inc. and its
subsidiaries, filed on March 30, 1995).
10.41 Stock Subscription Agreement dated as of March 13, 1995 with
respect to Chicopee Holdings (incorporated by reference to
Exhibit 4.7 to the Company's Current Report on Form 8-K,
regarding the acquisition of Chicopee Holdings, Inc. and its
subsidiaries, filed on March 30, 1995).
10.42 Credit Agreement dated as of March 15, 1995 between Chicopee,
Chicopee Holdings B.V., Chicopee B.V., each of the lenders
party thereto, The Chase Manhattan Bank (National
Association), as administrative agent, and The Chase
Manhattan Bank (National Association), The Bank of Nova
Scotia and BHF-Bank, as co-agents (incorporated by reference
to Exhibit 4.8 to the Company's Current Report on Form 8-K,
regarding the acquisition of Chicopee Holdings, Inc. and its
subsidiaries, filed on March 30, 1995).
10.43 Second Supplemental Indenture dated as of September 14, 1995
among the Company, the Trustee and Harris Trust and Savings
Bank, as successor trustee (incorporated by reference to
Exhibit 4.18 to the Company's Registration Statement on Form
S-4 (Reg. No. 33-81862)).
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*Previously filed.
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10.44 Purchase Agreement dated as of January 27, 1995 by and among
J&JAMC, Johnson & Johnson, InterTech and Chicopee
(incorporated by reference to the Company's Current Report
on Form 8-K, regarding the acquisition of Chicopee Holdings,
Inc. and its subsidiaries, filed on March 30, 1995). The
Company agrees to furnish supplementally to the Commission a
copy of any omitted schedule or exhibit to the Agreement
upon request by the Commission.
10.45 First Amendment to Purchase Agreement dated as of March 15,
1995 by and among J&JAMC, Johnson & Johnson, InterTech and
Chicopee (incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K, regarding the
acquisition of Chicopee Holdings, Inc. and its subsidiaries,
filed on March 30, 1995).
10.46* Supply Agreement dated as of March 15, 1995 between Johnson &
Johnson and Chicopee. Certain portions of the Agreement have
been omitted and filed separately with the Commission
pursuant to an Application for Confidential Treatment filed
on March 7, 1996, as amended on April 29, 1996.
10.47* Stock Purchase Agreement dated as of January 10, 1996 between
the Company and ConX II.
10.48* 1996 Key Employee Stock Option Plan of the Company.
10.49* Form of Non-Qualified Stock Option Grant.
10.50* Amendment No. 5 dated as of December 30, 1995 by and among
FiberTech, the Subsidiary Guarantors and Parent Guarantors
identified therein, the Lenders signatory thereto and the
Chase Manhattan Bank (National Association), as agent.
10.51* Form of New Credit Facility.
10.52* Form of Third Supplemental Indenture between the Company and
Harris Trust and Savings Bank, as successor trustee.
11** Statement of Computation of Per Share Earnings.
16* Letter of Coopers & Lybrand.
21* Subsidiaries of the Company.
23.1** Consent of Ernst & Young LLP.
23.2** Consent of Coopers & Lybrand.
23.3* Consent of Kirkland & Ellis (included in Exhibit 5).
24* Powers of Attorney (included in signature page).
27** Financial Data Schedule.
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*Previously filed.
**Filed herewith.
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Dates Referenced Herein and Documents Incorporated by Reference
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