-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VwAJ1ip6rOdbUZ79KZVNqNx4c02Y7ZMGEgy4nfaPNdJ6Usi3zrbs2LaVoTvJJghL 6tGTPhmmrGGdao/+QUHxrw== 0000950123-99-004414.txt : 19990511 0000950123-99-004414.hdr.sgml : 19990511 ACCESSION NUMBER: 0000950123-99-004414 CONFORMED SUBMISSION TYPE: F-1/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19990510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GILDAN ACTIVEWEAR INC CENTRAL INDEX KEY: 0001061894 STANDARD INDUSTRIAL CLASSIFICATION: KNIT OUTERWEAR MILLS [2253] IRS NUMBER: 000000000 FISCAL YEAR END: 1003 FILING VALUES: FORM TYPE: F-1/A SEC ACT: SEC FILE NUMBER: 333-74609 FILM NUMBER: 99616283 BUSINESS ADDRESS: STREET 1: 725 MONTEE DE LIESSE STREET 2: VILLE SAINT LAURENT CITY: QUEBEC CANADA STATE: A8 BUSINESS PHONE: 5147352023 MAIL ADDRESS: STREET 1: 725 MONTEE DE LIESSE STREET 2: ST LAURENT QUE CITY: CANADA F-1/A 1 GILDAN ACTIVEWEAR INC./ 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1999. REGISTRATION NO. 333-74609 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 2 TO FORM F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- GILDAN ACTIVEWEAR INC./ LES VETEMENTS DE SPORTS GILDAN INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CANADA 2253 NOT APPLICABLE (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION (I.R.S. EMPLOYER IDENTIFICATION INCORPORATION OR ORGANIZATION) CODE NUMBER) NUMBER)
725 MONTEE DE LIESSE VILLE SAINT-LAURENT, QUEBEC CANADA, H4T 1P5 (514) 735-2023 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------------- CT CORPORATION SYSTEM 1633 BROADWAY NEW YORK, NEW YORK 10019 (212) 664-1666 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------------- Copies of all correspondence to: GARY I. HOROWITZ, ESQ. STEPHEN M. BESEN, ESQ. SIMPSON THACHER & BARTLETT WEIL, GOTSHAL & MANGES LLP 425 LEXINGTON AVENUE 767 FIFTH AVENUE NEW YORK, NEW YORK 10017 NEW YORK, NEW YORK 10153 (212) 455-2000 (212) 310-8000
--------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. --------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, please 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, 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. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same Offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ] --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 EXPLANATORY NOTE This registration statement contains two forms of prospectus: one to be used in connection with an offering in the United States (the "U.S. Prospectus") and one to be used in connection with a concurrent offering in Canada (the "Canadian Prospectus"). The U.S. Prospectus is set forth following this page. The Canadian Prospectus will consist of alternate or additional pages set forth following the U.S. Prospectus, which are labeled "Alternate or Additional Pages for the Canadian Prospectus", and the balance of the pages included in the U.S. Prospectus for which no alternate page is provided. The U.S. Prospectus and the Canadian Prospectus are identical except that they contain different front, inside front and back cover pages and different "Prospectus Summary--The Offering", "Capitalization", "Legal Matters" and "Underwriting" sections. The U.S. Prospectus contains alternate or additional sections under the captions "Price Range of Our Shares", "Risk Factors--Because We Are a Canadian Company, You May Not Be Able To Enforce Civil Liabilities Under the U.S. Federal Securities Laws Against Us", "Taxation", "Exchange Controls", "Experts" and "Where You Can Find More Information", and the Canadian Prospectus contains alternate or additional sections under the captions "Table of Contents", "Explanatory Note", "Risk Factors--Dilution", "Dilution", "Prior Issuances", "Price Range and Trading Volume of the Class A Subordinate Voting Shares", "Material Contracts", "Auditors, Transfer Agent and Registrar", "Eligibility for Investment", "Quebec Stock Savings Plan", "Purchasers' Statutory Rights", "Certificate of the Company" and "Certificate of the Underwriters". 3 The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED MAY 7, 1999. PROSPECTUS 3,000,000 CLASS A SUBORDINATE VOTING SHARES LOGO GILDAN ACTIVEWEAR INC. This is a public offering of 3,000,000 Class A Subordinate Voting Shares of Gildan Activewear Inc. Gildan Activewear Inc. is selling all of the 3,000,000 Class A Subordinate Voting Shares offered under this prospectus. We have two classes of authorized share capital, the Class A Subordinate Voting Shares and the Class B Multiple Voting Shares. The economic rights of each class of share capital are identical, but the voting rights and conversion rights differ. Holders of Class A Subordinate Voting Shares are entitled to one vote per share on all matters while holders of Class B Multiple Voting Shares are entitled to eight votes per share on most matters. The Class A Subordinate Voting Shares are not convertible into Class B Multiple Voting Shares. The Class B Multiple Voting Shares are convertible into Class A Subordinate Voting Shares on a share-for-share basis at the option of the holder. Conversion of Class B Multiple Voting Shares into Class A Subordinate Voting Shares occurs automatically under some circumstances and is required under other circumstances. Our Class A Subordinate Voting Shares are listed on the American Stock Exchange under the symbol "GIL" and on both The Montreal Exchange and The Toronto Stock Exchange under the symbol "GIL.A". On May 5, 1999, the last reported sale price per Class A Subordinate Voting Share was US$14.25 on the American Stock Exchange and Cdn$20.50 on both The Montreal Exchange and The Toronto Stock Exchange. SEE "RISK FACTORS" BEGINNING ON PAGE 9 TO READ ABOUT CERTAIN RISKS THAT YOU SHOULD CONSIDER BEFORE BUYING OUR CLASS A SUBORDINATE VOTING SHARES. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------------
PER SHARE TOTAL --------- ----- Public offering price............................... US$ US$ Underwriting discounts and commissions.............. US$ US$ Proceeds, before expenses, to us.................... US$ US$
------------------------------ The underwriters may, under some circumstances, purchase up to an additional 450,000 Class A Subordinate Voting Shares from us at the public offering price less the underwriting discount to cover over-allotments. The underwriters are severally underwriting the Class A Subordinate Voting Shares being offered. The underwriters expect to deliver the shares against payment in New York, New York on , 1999. ------------------------------ BEAR, STEARNS & CO. INC. NESBITT BURNS SECURITIES INC. THE ROBINSON-HUMPHREY COMPANY WASSERSTEIN PERELLA SECURITIES, INC. CIBC WORLD MARKETS INC. THE DATE OF THIS PROSPECTUS IS , 1999. 4 TABLE OF CONTENTS
PAGE ---- Presentation of Financial Information.......................... i Cautionary Statement Regarding Forward- Looking Statements................... ii Prospectus Summary..................... 1 Risk Factors........................... 9 Use of Proceeds........................ 17 Dividends.............................. 17 Exchange Rates......................... 18 Capitalization......................... 19 Price Range of Our Shares.............. 20 Selected Consolidated Financial Information.......................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 23 Business............................... 30
PAGE ---- Management............................. 44 Certain Relationships and Related Transactions......................... 53 Principal Shareholders................. 56 Description of Share Capital........... 57 Description of Certain Indebtedness.... 64 Shares Eligible for Future Sale and Escrow Arrangements.................. 66 Taxation............................... 68 Exchange Controls...................... 73 Underwriting........................... 74 Legal Matters.......................... 75 Experts................................ 76 Where You Can Find More Information.... 76 Index to Consolidated Financial Statements........................... F-1
PRESENTATION OF FINANCIAL INFORMATION Gildan Activewear Inc. prepares its financial statements in Canadian dollars and in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). These principles conform in all material respects with accounting principles generally accepted in the United States ("U.S. GAAP"), except as described in note 19 to the consolidated financial statements of Gildan Activewear Inc. included elsewhere in this prospectus. "Consolidated Financial Statements" refers to consolidated statements of income, retained earnings and changes in financial position of Gildan Activewear Inc. for ten-month fiscal 1996, fiscal 1997, first fiscal quarter 1998, fiscal 1998 and first fiscal quarter 1999, and the consolidated balance sheets at September 29, 1996, October 5, 1997, October 4, 1998 and January 3, 1999, and the related notes thereto. Unless otherwise specified, all references in this prospectus to "dollars", "$" or "Cdn$" are to Canadian dollars. Solely for your convenience, we provide some financial information relating to our business in U.S. dollars based on exchange rates indicated. We caution you that the amounts and rates used may not always be consistent with those used in preparation of our Consolidated Financial Statements. The following table sets forth the terms we use in this prospectus to refer to our fiscal periods:
FISCAL PERIOD ENDED REFERENCE ------------------- --------- November 30, 1993 fiscal 1993 December 2, 1994 fiscal 1994 December 1, 1995 fiscal 1995 September 29, 1996 ten-month fiscal 1996 October 5, 1997 fiscal 1997 January 4, 1998 first fiscal quarter 1998 April 5, 1998 second fiscal quarter 1998 October 4, 1998 fiscal 1998 January 3, 1999 first fiscal quarter 1999 April 4, 1999 second fiscal quarter 1999 October 3, 1999 fourth fiscal quarter 1999 October 3, 1999 fiscal 1999 October 1, 2000 fiscal 2000
i 5 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Some of the statements in this prospectus are forward-looking. These forward-looking statements appear in the "Prospectus Summary--Gildan Activewear Inc.--Growth Strategy", "Use of Proceeds", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" sections of this prospectus. We typically use words such as "anticipate", "believe", "plan", "expect", "intend", "future", "will", "may" and similar expression to identify forward-looking statements. In addition, we may make forward-looking statements in future filings with the U.S. Securities and Exchange Commission and with the securities commissions in Canada and in written material, press releases and oral statements issued by us or on our behalf. Our actual results could differ materially from those anticipated from the forward-looking statements depending on risks, uncertainties and assumptions about us and the industry in which we operate, including, among other things: - our ability to implement our growth strategy; - the supply and price of cotton yarn; - competition in the activewear industry; - our relationship with major wholesale distributor customers; - anticipated trends in the activewear industry; - changes in international trade protection policies; and - social, political and economic conditions in countries other than the United States and Canada where we have operations. All forward-looking statements in this prospectus are based on information available to us on the date of this prospectus. We do not undertake to update any forward-looking statements that we may make in this prospectus or otherwise. ii 6 PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information you should consider before you invest in the Class A Subordinate Voting Shares (together with the Class B Multiple Voting Shares, the "Equity Shares"). You should read the entire prospectus carefully. Unless the context indicates otherwise, "Gildan", "we", "us" and "our" refer to Gildan Activewear Inc. and its subsidiaries. Unless otherwise indicated, all information in this prospectus assumes no exercise of the underwriters' over-allotment option. GILDAN ACTIVEWEAR INC. We are a rapidly growing, vertically-integrated manufacturer and marketer of premium quality branded basic activewear for sale principally into the wholesale imprinted activewear segment of the North American apparel market. We manufacture and sell premium quality 100% cotton T-shirts and placket collar golf shirts as well as premium quality sweatshirts, in a variety of weights, sizes, colors and styles. In April 1999, we launched a new line of 50% cotton/50% polyester T-shirts, which we expect to begin shipping to our customers in fourth fiscal quarter 1999. We sell our products as "blanks", meaning without design, which are ultimately decorated with designs and logos for sale to consumers. We believe that we are one of the low-cost producers of premium quality branded activewear. Our costs are low as a result of our modern, vertically-integrated textile operations and offshore sewing facilities in the Caribbean Basin and Central America. We market and sell our products through the wholesale channel of distribution, which is largely comprised of distributors, but also includes the largest screenprinters and embroiderers. We believe that our Gildan Activewear(TM) brand name is widely associated with premium quality merchandise and competitive pricing. We plan to capitalize on and strengthen this brand awareness by introducing new products and extending our existing product lines over the next few years. Over the past several years, we have significantly increased our customer base and increased our sales and earnings. From fiscal 1993 through fiscal 1998, our sales grew from $30.9 million to $215.4 million and our earnings before interest, taxes, depreciation and amortization (EBITDA) grew from $2.8 million to $29.8 million, representing compounded annual growth rates of 49.5% and 63.3%, respectively. Sales for first fiscal quarter 1999 were $45.1 million, which represented an increase of 41.8% over sales for first fiscal quarter 1998. OPERATING STRATEGY We believe that we have been able to rapidly increase our market presence by focusing on selected product lines with premium quality features and selling our products at competitive prices. We attribute our strong operating performance to our: - EMPHASIS ON PREMIUM QUALITY PRODUCTS. We offer our products in a wide variety of weights, sizes, colors and styles. All of our T-shirts are made with pre-shrunk cotton fabric, feature top-stitched seamless collars and double stitched hems, and are quarter-turned to eliminate the center crease which would otherwise result from the production process. We ensure the premium quality of our products by applying stringent quality control procedures at all stages of the production process. 1 7 - COMPETITIVE PRICING AND LOW-COST OPERATIONS. We are able to price our products competitively because of our success in achieving low production and operating costs. We accomplish this by: - locating the majority of our sewing operations in the Caribbean Basin and Central America, where we benefit from lower labor costs; - using only modern, automated facilities; - locating our knitting and dyeing facilities in the Province of Quebec, where we benefit from an abundant supply of low-cost energy and water, resources necessary for the manufacturing, dyeing and finishing of fabric; and - selling to the wholesale channel which enables us to use a small sales force and avoid the costs and complexities of selling to the retail channel. - CONTROLLED DISTRIBUTION TO THE WHOLESALE CHANNEL. While our major competitors focus primarily on sales directly to the retail apparel industry, we market our products through the wholesale distribution channel, which is principally comprised of distributors and major garment imprinters. As part of this controlled distribution strategy, we limit the number and monitor the quality of our distributors and sell only to the largest garment decorators. We believe that this focused strategy enables us to: - foster strong customer and brand loyalty among our distributors and decorators; - establish control over the marketing and orderly distribution of our products; - effectively plan and predict production; and - manage expected increases in demand. - MODERN, VERTICALLY-INTEGRATED OPERATIONS. We intend to continue to acquire modern, automated equipment for all aspects of our manufacturing process to maximize production capacity and achieve high efficiency rates. Over the past three fiscal years, we have spent approximately $36.4 million on such improvements. Our operations are vertically-integrated, which means that we knit, dye, finish, cut and sew our products at our facilities. This enables us to maximize profit margins and monitor quality at all stages of the production process. - EXPERIENCED MANAGEMENT TEAM. Our senior executives have significant industry experience. GROWTH STRATEGY We have a comprehensive long-term strategy to sustain our strong unit and dollar sales growth. The key elements of our strategy are: - INCREASING SALES TO NEW AND EXISTING CUSTOMERS. To increase sales, we plan to: - continue to develop new business with our existing customers as a result of our enhanced production and distribution capacity and the introduction of new products; - pursue additional wholesale distributors which we believe will generate substantial sales growth without adversely affecting sales to our existing customers; and - further develop our "mill direct" program which targets some of the largest screenprinters and embroiderers in North America which, due to their size, require larger quantities than distributors can typically provide. Our mill direct customers include, among others, Nike Canada Ltd. and Fortune Fashion, Inc., a major supplier of decorated T-shirts to The Walt Disney Company. 2 8 - BROADENING PRODUCT OFFERING. We also intend to increase our sales through the introduction of complementary product lines and new products. In fiscal 1999, in response to customer demand, we introduced: - a new lightweight T-shirt, the Famous T(TM), to compete in the lower-priced market segments; - placket collar golf shirts, which we believe to be one of the fastest growing product categories in the imprinted activewear industry; and - a new 50% cotton/50% polyester T-shirt, the Ultra-Blend(TM), which is our initial entry into the blended T-shirt market. - EXPANDING PRODUCTION AND DISTRIBUTION CAPACITY. To satisfy the increasing demand for our existing products and to introduce new products, we are expanding our production and distribution facilities through equipment acquisitions and new facility construction. Under our investment plans, in fiscal 1999, we: - added knitting, dyeing and finishing machines and plan to add additional machinery; - expanded the capacity of our Company-operated sewing facilities in Honduras by acquiring one of our sewing contractors, moving one of our operations into a larger facility and continuing to invest in new sewing equipment; - began building a facility in Barbados, which we expect to be operational by summer 1999, to provide additional sewing capacity for placket collar golf shirts; - opened a 210,000-square foot distribution center in Miami, Florida, which replaced our 67,000-square foot distribution center in Champlain, New York, to service our U.S. market and targeted Western European markets; and - opened a 60,000-square foot distribution center in Ville Saint-Laurent, Quebec to service our Canadian markets. - ENTERING NEW MARKETS. We plan to use the same strategy which has led to our success in North America to expand our selling territory to include Western Europe, with an initial emphasis on the United Kingdom. We anticipate shipping our products to distributors in Western Europe by fiscal 2000. RECENT DEVELOPMENTS In February 1999, we established an international subsidiary, Gildan Activewear SRL, headquartered in Bridgetown, Barbados, which we expect to be responsible for all of our non-Canadian sales and to manage all related activities, such as manufacturing, warehousing, distribution, marketing and customer service. We also expect to manufacture placket collar golf shirts in Barbados. We anticipate that our operations in Barbados will benefit from a favorable tax treaty between Barbados and Canada. In second fiscal quarter 1999, we obtained $35.0 million in new financings. We issued a $15.0 million subordinated note due 2004, to Le Fonds de solidarite des travailleurs du Quebec (the "Fund"), one of the largest venture capital firms in Canada. We also issued a $15.0 million subordinated note due 2004 to Capital d'Amerique CDPQ Inc., a subsidiary of Caisse de depot et placement du Quebec. Caisse is the largest pension fund in Canada and one of the largest institutional investors in North America. Concurrently with the debt financing, Capital d'Amerique CDPQ Inc. purchased 444,444 of our Class A Subordinate Voting Shares at the market price prevailing on the date of the commitment letter, for an aggregate purchase price of $5.0 million. On March 31, 1999, we entered into a new revolving loan agreement with a banking syndicate led by National Bank of Canada providing for maximum borrowings equal to the lesser of (a) $90.0 million and (b) a borrowing base calculated in accordance with a specified inventory and receivables formula. The new facility expires on March 31, 2002 and replaces our previously existing revolving loan arrangements with another Canadian chartered bank. In April 1999, we appointed Laurence G. Sellyn to the newly created senior management position of Chief Financial Officer. Prior to joining Gildan, Mr. Sellyn served as Senior Vice President, Finance and Corporate Development and Chief Financial Officer of Wajax Limited. 3 9 On May 4, 1999, we released unaudited results for second fiscal quarter 1999 and the six months ended April 4, 1999. We continued to grow sales and earnings during second fiscal quarter 1999. Sales for second fiscal quarter 1999 increased to $77.9 million from $42.6 million for second fiscal quarter 1998, which represented an 83% increase. Similarly, sales for the first six months of fiscal 1999 grew to $123.0 million from $74.4 million for the first six months of fiscal 1998, which represented a 65% increase. In addition, EBITDA for second fiscal quarter 1999 increased to $10.7 million, representing 13.7% of sales, from $4.7 million, representing 11.1% of sales, for second fiscal quarter 1998. Likewise, EBITDA for the first six months of fiscal 1999 increased to $15.5 million, representing 12.6% of sales, from $7.0 million, representing 9.3% of sales, for the first six months of fiscal 1998. ------------------------ Our principal executive offices are located at 725 Montee de Liesse, Ville Saint-Laurent, Quebec, Canada H4T 1P5, and our telephone number at that address is (514) 735-2023. 4 10 THE OFFERING Class A Subordinate Voting Shares Offered................ 3,000,000 Equity Shares Outstanding After the Offering: Class A Subordinate Voting Shares(1)................ 10,347,444 Class B Multiple Voting Shares........................ 3,047,000 Total.................... 13,394,444 Relative Rights of Equity Shares........................ The economic rights of the Class A Subordinate Voting Shares and the Class B Multiple Voting Shares are identical, but the voting rights and conversion rights differ. The holders of the Class A Subordinate Voting Shares are entitled to one vote per share on all matters while the holders of the Class B Multiple Voting Shares are entitled to eight votes per share on most matters. In addition, the holders of Class A Subordinate Voting Shares, voting as a separate class, are entitled to elect two of our directors. The remaining directors are elected by holders of Class A Subordinate Voting Shares and Class B Multiple Voting Shares, voting as a single class, with each Class A Subordinate Voting Share entitled to one vote and each Class B Multiple Voting Share entitled to eight votes. As a result, holders of Class B Multiple Voting Shares have, and will continue to have, substantial control over most matters submitted to a vote of the shareholders, including the election of directors. See "Description of Share Capital--Equity Shares--Voting Rights". After giving effect to this offering, Harco Holdings Ltd., the sole holder of Class B Multiple Voting Shares, will own approximately 22.7% of the total outstanding Equity Shares and will have approximately 70.2% of the voting power of Gildan. See "Principal Shareholders". The Class A Subordinate Voting Shares are not convertible into any other class of shares, including Class B Multiple Voting Shares. The Class B Multiple Voting Shares are convertible into Class A Subordinate Voting Shares on a share-for-share basis at the option of the holder. The Class B Multiple Voting Shares are automatically converted into Class A Subordinate Voting Shares under some circumstances and are required to be so converted under other circumstances. See "Description of Share Capital--Equity Shares--Conversion". - ------------------------- (1) Based on Class A Subordinate Voting Shares outstanding at May 7, 1999. Excludes 995,000 Class A Subordinate Voting Shares subject to options which may be granted under our stock option plan. At May 7, 1999, options to buy 856,500 Class A Subordinate Voting Shares were outstanding, of which 180,666 will become exercisable on June 16, 2000. See "Management-- Stock Option Plan". If the underwriters exercise their over-allotment option in full, we would offer an aggregate of 450,000 additional Class A Subordinate Voting Shares, and 10,797,444 Class A Subordinate Voting Shares would be outstanding after the offering. 5 11 Use of Proceeds............... We estimate the net proceeds from this offering to be approximately Cdn$52.8 million. We plan to use all of the net proceeds initially to repay borrowings under our revolving loan agreement. Subsequently, we intend to use the newly available borrowing capacity under our revolving loan agreement for the planned expansion of our production and distribution capacity. See "Use of Proceeds". Dividend Policy............... We currently intend to retain available funds for the development and expansion of our business. Accordingly, we do not intend to pay dividends on our shares in the foreseeable future. See "Dividends". American Stock Exchange Symbol........................ GIL The Montreal Exchange/The Toronto Stock Exchange Symbol........................ GIL.A RISK FACTORS For a description of certain risks that you should consider before you buy Class A Subordinate Voting Shares, see "Risk Factors" on page 9. 6 12 SUMMARY CONSOLIDATED FINANCIAL INFORMATION The summary consolidated financial information presented below is derived from Gildan's consolidated financial statements for, and as of the end of, fiscal 1994 and fiscal 1995, which have been audited by Richter, Usher & Vineberg, Chartered Accountants, and Gildan's consolidated financial statements for, and as of the end of, ten-month fiscal 1996, fiscal 1997 and fiscal 1998, which have been audited by KPMG LLP, Chartered Accountants. The summary consolidated financial information for the twelve months ended and as of September 29, 1996, for the first fiscal quarter ended January 4, 1998, and for the first fiscal quarter ended and as of January 3, 1999 is derived from the unaudited consolidated financial statements of Gildan, which in the opinion of management have been prepared on the same basis as the audited financial statements, reflecting all adjustments necessary, which consist only of normal recurring adjustments, for a fair presentation of such information. The Consolidated Financial Statements have been prepared in accordance with Canadian GAAP. These principles conform in all material respects with U.S. GAAP, except as described in note 19 to the Consolidated Financial Statements. The information presented below should be read in conjunction with the Consolidated Financial Statements included elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations".
TEN-MONTH TWELVE FISCAL YEAR ENDED PERIOD MONTHS FISCAL YEAR ENDED ----------------- ENDED ENDED --------------------------------- DEC. 2, DEC. 1, SEPT. 29, SEPT. 29, OCT. 5, OCT. 4, 1994 1995 1996 1996(1) 1997 1998 ------- ------- --------- ----------- -------- ---------------------- CDN$ CDN$ CDN$ CDN$ CDN$ CDN$ US$(2) ------- ------- --------- ----------- -------- -------- ----------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PERCENTAGES) STATEMENT OF INCOME DATA (CANADIAN GAAP): Sales.................. $45,896 $64,868 $70,448 $80,045 $119,844 $215,428 $147,876 Cost of sales.......... 36,621 51,854 56,367 64,294 93,059 164,850 113,289 ------- ------- ------- ------- -------- -------- -------- Gross profit........... 9,275 13,014 14,081 15,751 26,785 50,578 34,587 Selling, general and administrative expenses.............. 5,852 9,053 8,360 9,629 12,471 20,796 14,248 Depreciation and amortization expenses.............. 940 1,764 1,633 2,026 2,337 4,063 2,782 Writeoff of advances... -- 924 -- 281 -- -- -- ------- ------- ------- ------- -------- -------- -------- Operating income....... 2,483 1,273 4,088 3,815 11,977 25,719 17,557 Interest expense....... 1,382 2,709 2,507 2,997 2,974 5,032 3,460 Loss on settlement of debt.................. -- -- -- -- -- 819 565 ------- ------- ------- ------- -------- -------- -------- Income (loss) before income taxes.......... 1,101 (1,436) 1,581 818 9,003 19,868 13,532 Income taxes (recovery)............ 327 (249) 608 314 3,338 6,700 4,583 ------- ------- ------- ------- -------- -------- -------- Net income (loss)...... $ 774 $(1,187) $ 973 $ 504 $ 5,665 $ 13,168 $ 8,949 ======= ======= ======= ======= ======== ======== ======== Net income per share (basic)............... $ 1.65(3) $ 1.12 Number of shares (weighted avg.)....... 7,999 7,999 OTHER DATA (CANADIAN GAAP): Gross profit margin.... 20.2% 20.1% 20.0% 19.7% 22.3% 23.5% 23.5% Operating income margin................ 5.4% 2.0% 5.8% 4.8% 10.0% 11.9% 11.9% Capital expenditures... $ 6,997 $ 2,514 $ 6,390 $ 7,204 $ 5,439 $ 24,588 $ 17,031 EBITDA(4).............. $ 3,423 $ 3,037 $ 5,721 $ 5,841 $ 14,314 $ 29,782 $ 20,339 SELECTED OPERATING DATA (UNAUDITED): Dozens of T-shirts sold.................. 1,365 1,697 1,899 2,950 5,721 Dozens of sweatshirts sold.................. 103 63 85 158 195 ------- ------- ------- -------- -------- Total dozens sold...... 1,468 1,760 1,984 3,108 5,916 ======= ======= ======= ======== ======== FIRST FISCAL QUARTER ENDED --------------------------------------- JAN. 4, JAN. 3, 1998 1999 ----------- ------------------------- CDN$ CDN$ US$(2) ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) (UNAUDITED) STATEMENT OF INCOME DATA (CANADIAN GAAP): Sales.................. $31,812 $45,109 $29,253 Cost of sales.......... 25,969 33,079 21,451 ------- ------- ------- Gross profit........... 5,843 12,030 7,802 Selling, general and administrative expenses.............. 3,617 7,195 4,666 Depreciation and amortization expenses.............. 746 1,763 1,143 Writeoff of advances... -- -- -- ------- ------- ------- Operating income....... 1,480 3,072 1,993 Interest expense....... 848 1,543 1,001 Loss on settlement of debt.................. -- -- -- ------- ------- ------- Income (loss) before income taxes.......... 632 1,529 992 Income taxes (recovery)............ 332 550 357 ------- ------- ------- Net income (loss)...... $ 300 $ 979 $ 635 ======= ======= ======= Net income per share (basic)............... $ 0.10 $ 0.06 Number of shares (weighted avg.)....... 9,950 9,950 OTHER DATA (CANADIAN GAAP): Gross profit margin.... 18.4% 26.7% 26.7% Operating income margin................ 4.7% 6.8% 6.8% Capital expenditures... $ 6,362 $11,564 $ 7,498 EBITDA(4).............. $ 2,226 $ 4,835 $ 3,136 SELECTED OPERATING DATA (UNAUDITED): Dozens of T-shirts sold.................. 820 1,192 Dozens of sweatshirts sold.................. 59 41 ------- ------- Total dozens sold...... 879 1,233 ======= =======
7 13
DEC. 2, DEC. 1, SEPT. 29, OCT. 5, OCT. 4, JAN. 3, 1994 1995 1996 1997 1998 1999 ------- ------- --------- ----------- -------- ----------- CDN$ CDN$ CDN$ CDN$ CDN$ CDN$ ------- ------- --------- ----------- -------- ----------- (UNAUDITED) (IN THOUSANDS) BALANCE SHEET DATA (CANADIAN GAAP): Working capital............ $ 2,119 $ 1,149 $ 5,010 $15,406 $ 33,134 $ 34,222 Total assets............... 33,784 34,589 52,770 77,365 165,678 211,438 Total debt(5).............. 26,593 28,585 42,793 61,712 112,348 157,129 Shareholders' equity....... 7,191 6,004 9,977 15,653 53,330 54,309 BALANCE SHEET DATA (CANADIAN GAAP): Working capital............ Total assets............... Total debt(5).............. Shareholders' equity.......
FISCAL YEAR ENDED TEN-MONTH ------------------------------------- FIRST FISCAL QUARTER PERIOD ENDED OCT. 5, ENDED SEPT. 29, 1996 1997 OCT. 4, 1998 JAN. 3, 1999 -------------- ----------- ---------------------- -------------------- CDN$ CDN$ CDN$ US$(2) CDN$ US$(2) -------------- ----------- ------- ----------- -------- -------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FINANCIAL STATEMENT DATA (U.S. GAAP): Net income.................................... $ 973 $5,036 $12,438 $ 8,453 $ 975 $ 632 Net income (loss) per share................... (0.58) (2.36) 2.63(3) 1.79 0.10 0.06 Total assets.................................. 52,770 76,764 164,788 107,620 210,555 137,321 Total debt(5)................................. 48,343 82,590 112,317 73,352 157,108 102,464 Shareholders' equity.......................... 4,427 (5,826) 52,471 34,268 53,447 34,857 Cash flows from operations.................... (5,738) (4,797) (17,476) (11,413) (29,126) (18,996) Cash flows from investing activities.......... (7,735) (6,539) (26,537) (17,331) (12,987) (8,470) Cash flows from financing activities.......... 13,473 11,336 44,013 28,744 42,113 27,466
- ------------------------- (1) The data for the unaudited twelve-month period ended September 29, 1996 combine our unaudited data for the 62-day period ended December 1, 1995 and our audited data for ten-month fiscal 1996. (2) U.S. dollar amounts are provided for convenience only. For the statement of income data, the U.S. dollar amounts are calculated using a weighted average of the Bank of Canada monthly average exchange rates. For the balance sheet data and the cash flow items, the U.S. dollar amounts are calculated using Bank of Canada closing rates, which were $1.5312 Canadian dollars per U.S. dollar at October 4, 1998 and $1.5333 Canadian dollars per U.S. dollar at January 3, 1999. (3) The principal reason for the difference between net income per share of $1.65 under Canadian GAAP and net income per share of $2.63 under U.S. GAAP is the difference in the calculation of the weighted average number of shares outstanding. Under Canadian GAAP, 7,998,657 were outstanding, whereas under U.S. GAAP, 4,384,399 were outstanding. The primary difference between the weighted average number of shares outstanding calculations relates to the treatment of Class "A" Preferred Shares which were reclassified concurrently with our initial public offering in June 1998. (4) EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is included because we believe that some investors use this information as one measure of a company's historical ability to service debt. However, you should not consider EBITDA as an alternative to net earnings as an indicator of our operating performance or as an alternative to cash flow as a measure of our overall liquidity as presented in the Consolidated Financial Statements. EBITDA as presented may not be comparable to similar computations presented by other companies. (5) Total debt consists of total bank debt, current liabilities, other loans payable, secured and unsecured long-term debt, including capitalized leases and future taxes. 8 14 RISK FACTORS You should carefully consider the following risk factors in conjunction with the other information contained in this prospectus before you invest in the Class A Subordinate Voting Shares. OUR INDUSTRY IS EXTREMELY COMPETITIVE The wholesale imprinted activewear segment of the North American apparel market includes a number of significant competitors, and the activewear segment overall is extremely competitive. Some of our competitors are larger, more diversified, have substantially greater resources and, because they spin their own yarn, are more vertically integrated than we are. These factors may give them a competitive advantage over us. Our primary competitors are the major U.S.-based manufacturers of basic branded activewear for the wholesale and retail channels. These manufacturers include Anvil Knitwear, Inc., the Bassett-Walker division of VF Corporation, the Delta Apparel division of Delta Woodside Industries, Inc., Fruit of the Loom, Inc., the Hanes Corporation division of Sara Lee Corporation, the Jerzees division of Russell Corporation, Oneita Industries, Inc. and Tultex Corporation. Some of these manufacturers have moved the majority of their sewing operations "offshore" to lower-cost operating environments. We also compete with manufacturers of activewear outside the United States, which may have substantially lower labor costs. Our ability to remain competitive in the areas of quality, price, marketing, product development, manufacturing, distribution and order processing will, in large part, determine our future success. We cannot assure you that we will continue to compete successfully. OUR INDUSTRY IS SUBJECT TO PRICING PRESSURES Prices in our industry have been declining over the past several years primarily as a result of the trend to move sewing operations offshore and the introduction of new manufacturing technologies. Products sewn offshore cost less to make primarily because labor costs are lower. Some manufacturers have used these cost savings to reduce prices. Prices have also declined in recent years because of inventory dumping. Some manufacturers have engaged in this practice because they overproduced inventory as a result of excess plant and equipment capacity. To remain competitive, we adjust our prices from time to time in response to these industry-wide pricing pressures. For example, in response to inventory dumping, we incurred expenses of approximately $4.2 million in customer rebates in each of fiscal 1997 and fiscal 1998. In the future, our financial performance may be negatively affected by these pricing pressures if: - we are forced to reduce our prices and we cannot reduce our production costs; or - our production costs increase and we cannot increase our prices. THE EFFECT OF CHANGING INTERNATIONAL TRADE REGULATION ON OUR RESULTS OF OPERATIONS IS UNCERTAIN The textile and apparel industries in both the United States and Canada have historically received a relatively higher degree of international trade protection than some other industries. However, this protection is diminishing as a result of the implementation of trade agreements reached in the last ten years. The ultimate effect of the changes in quotas, duties and tariffs on our business is uncertain. 9 15 QUOTAS In 1995, the Agreement on Textiles and Clothing came into effect, requiring importing countries, including the United States, Canada and Western Europe, to eliminate quotas on imports of textiles and apparel from exporting countries by 2005. This could result in increased competition from developing countries which historically have lower labor costs. This agreement only applies to countries that are members of the World Trade Organization. China and Taiwan, each a major apparel manufacturing country, currently remain outside the World Trade Organization. However, both are seeking membership and if either or both were to be admitted into the World Trade Organization on terms that did not allow for the imposition of quotas against their products, this could have a material adverse effect on our business because it would result in increased competition from countries with significantly lower labor costs. None of our products is currently subject to quotas into the United States, which accounted for 86% of our total sales in fiscal 1998. However, it is possible that, during the ten-year quota phase-out period, the United States will impose quotas on some or all of our products assembled in Honduras, El Salvador, Haiti and Nicaragua. The imposition of quotas could have a material adverse effect on our business. FUTURE TRADE AGREEMENTS Efforts have been made in the United States to extend some of the trade benefits in the North American Free Trade Agreement ("NAFTA") to the Caribbean Basin Initiative ("CBI") countries, such as Honduras, El Salvador, Haiti and Nicaragua. It is not known whether this legislation will come into effect nor what its terms would be. Under all pending legislative proposals, there would be no duty on goods sewn in CBI countries upon entry into the United States if the fabric were knit in the United States from yarn spun in the United States. The adoption of this legislation in the United States could adversely affect our operations because we knit all of our fabric in Canada. If any of these proposals were adopted into law, all of our goods sewn in the Caribbean and subsequently exported to the United States would remain subject to duty whereas some of our competitors that knit their fabric in the United States from yarn spun in the United States would no longer be subject to duty. This outcome would give some of our competitors an advantage over us. See "Business--Competition" and "Business--Trade Regulatory Environment". OUR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED BY THE TREND TO GRANT EXTENDED PAYMENT TERMS Increased inventory costs, delays in collecting receivables and returns of inventory could negatively impact our business if: - wholesale distributors for the activewear industry demand and receive longer payment terms than are currently granted; or - consignment of inventory becomes common within the activewear industry. Wholesale distributors in the activewear industry generally warehouse inventory for a longer period than participants in other distribution channels and therefore receive longer payment terms. Historically, we have extended credit terms of 90 and 120 days to new customers to assist them in building inventory. In response to the seasonality of the activewear business, we have at times offered, and are currently offering, extended terms of 150 to 180 days to select existing customers, generally during our first two fiscal quarters. In addition, one activewear manufacturer recently introduced the practice of consigning products to wholesale distributors, which could become a trend in the activewear industry. 10 16 OUR RAPID GROWTH COULD SIGNIFICANTLY STRAIN MANAGERIAL AND FINANCIAL RESOURCES AND OPERATING SYSTEMS Our sales have grown from $30.9 million for fiscal 1993 to $215.4 million for fiscal 1998. This rapid growth has placed increasing demands on our managerial and financial resources and operating systems, and will continue to do so as we pursue our expansion strategy. We cannot guarantee that we will continue to manage growth effectively. In the future, we could experience manufacturing problems or product delivery delays due to factors such as: - the diversion of management's resources; - construction delays in connection with the expansion or renovation of existing or future facilities; - the training and integration of local labor at our offshore facilities; - ramping up production at new facilities; and - the introduction of new product lines. If we cannot meet our manufacturing and delivery commitments on a timely basis, we could lose sales and our reputation in the marketplace could be damaged. Examples of our recent growth include: - expanding our knitting facility in Ville Saint-Laurent in fiscal 1998; - purchasing an additional dyeing and finishing plant in Montreal in fiscal 1998; - leasing a plant in Honduras in fiscal 1998 to establish a second offshore Gildan-operated sewing facility; - creating a new international subsidiary in fiscal 1999 headquartered in Barbados, which we expect to be responsible for all of our non-Canadian sales and to manage all related activities; - establishing a new distribution center in Miami in fiscal 1999; - establishing a new distribution center in Ville Saint-Laurent in fiscal 1999; - building a sewing facility in Barbados, which is scheduled to begin operations in summer 1999, to increase our production of placket collar golf shirts; and - purchasing one of our Honduran sewing contractors. WE RELY ON A SMALL NUMBER OF SIGNIFICANT CUSTOMERS, SOME OF WHICH HAVE BEEN OR COULD BE ACQUIRED BY OUR COMPETITORS We sell our products to approximately 100 customers. In fiscal 1998, our top three customers, Broder Bros., Co., Pluma Corporation (the Frank L. Robinson Company subsidiary and the Stardust Corporation subsidiary) and Alpha Shirt, accounted for 26.6%, 9.6% and 7.4% of sales, respectively, and our top ten customers accounted for 68.5% of total sales. If any of our significant customers substantially reduces its purchases or ceases to buy from us and we cannot replace that business with sales to other customers on similar terms, our business would be materially adversely affected. In addition, in fiscal 1998, one of our competitors, Pluma Corporation, expanded into the wholesale distribution channel by purchasing Frank L. Robinson Company and Stardust Corporation, two of our wholesale distributor customers. Although this purchase has not had an impact on our sales to these customers to date, we cannot predict whether we will be able to maintain or expand our historical levels of sales to them in the future. In addition, we cannot predict whether any of our other wholesale 11 17 distributor customers will be acquired by our competitors, and if so, what impact this would have on our business. We do not have any purchase contracts with our wholesale distributor customers, except for a contract we entered into with Pluma Corporation in connection with its acquisitions of Frank L. Robinson Company and Stardust Corporation. Although we have maintained long-term relationships with many of our wholesale distributor customers, we cannot assure you that historic levels of business from any of our customers will continue or increase in the future. OUR PERFORMANCE COULD BE ADVERSELY AFFECTED BY DIFFICULTIES IN THE RETAIL INDUSTRY Historically, the apparel industry has been subject to substantial cyclical variations due, in part, to significant changes and difficulties in the retail industry. Significant and sustained difficulties at the retail level may adversely affect the wholesale activewear sector in general and our business. In addition, a recession in the U.S. or Canadian economy or uncertainties regarding future economic prospects that affect consumer spending habits would have a material adverse effect on our business. WE ARE SUBJECT TO RISKS OF FLUCTUATIONS IN THE SUPPLY AND PRICE OF COTTON YARN Cotton yarn is the principal raw material we use in the manufacture of our products. In recent years, there have been significant shortages in the supply of cotton. Unlike some of our competitors, we do not spin our own yarn. Instead, we obtain substantially all of our yarn from three U.S.-based spinners. In fiscal 1998, Parkdale Mills Inc., Mayo Yarns, Inc. and Frontier Spinning Mills, LLC accounted for 56.0%, 23.0% and 16.5%, respectively, of our total yarn purchases. Any interruption in the availability of sufficient quantities of quality yarn would have a material adverse effect on our business. See "Business--Raw Materials". The price of yarn has fluctuated substantially over the past several years due to price volatility in the cotton industry. We enter into one-year supply agreements with spinners which allow us to lock in the price of yarn for the fiscal year, but do not otherwise hedge. Our supply agreements do not protect us in the event of price increases in following fiscal years. Our supply agreements also do not enable us to benefit from price decreases which might occur during the given fiscal year. In either scenario, our business may be materially adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Raw Materials". OUR CARIBBEAN BASIN OPERATIONS ARE SUBJECT TO POLITICAL, SOCIAL AND ECONOMIC RISK In fiscal 1998, approximately 83% of our products were sewn outside of the United States and Canada. Our thirteen offshore sewing facilities are located in Honduras, El Salvador, Haiti, Mexico and Nicaragua. The following table provides, for the periods indicated, (a) the number of sewing facilities we operate, or that are operated for us, in each offshore country, (b) the percentage of total offshore sewing production generated by the largest facility in each country and (c) the percentage of total offshore sewing production generated in each country.
COUNTRY PERCENTAGE OF TOTAL OFFSHORE (NUMBER OF FACILITIES IN PRODUCTION IN FISCAL 1998 BY PERCENTAGE OF TOTAL OFFSHORE EACH COUNTRY AT JANUARY 3, 1999) LARGEST FACILITY IN EACH COUNTRY PRODUCTION IN FISCAL 1998 - --------------------------------------- -------------------------------- ---------------------------- Honduras (seven)....................... 26% 62% El Salvador (two)...................... 12 14 Haiti (two)............................ 12 12 Mexico (one)........................... 6 6 Nicaragua (one)........................ 6 6
12 18 Some of these countries have experienced political, social and economic instability in the past several years. We cannot predict the future political, social or economic stability of these countries or the impact on our business of changes, if any, in the political, social or economic conditions in these countries. The three facilities we operate directly, which are located in Honduras, can import and export goods on a duty-free basis and the profits we generate through these facilities are generally exempt from income tax. We anticipate that our future operations in Barbados will benefit from advantageous tax treatment as well. If these tax benefits are reduced, eliminated or, in the case of Barbados, fail to materialize, our business could be materially adversely affected. OUR INDUSTRY IS SUBJECT TO SEASONALITY RISKS Typically, demand for our products is higher during the third and fourth quarters of each fiscal year than in the first and second quarters of each fiscal year. Based on discussions with our customers at the beginning of each fiscal year, we produce and store finished goods inventory to meet the expected demand for delivery in the second half of the fiscal year. If, after producing and storing inventory in anticipation of third and fourth quarter deliveries, demand is significantly less than expected, we may have to hold inventory for extended periods of time, or sell excess inventory at reduced prices. In either case, our profits would be reduced. Excess inventory could also result in slower production, lower plant and equipment utilization and lower fixed operating cost absorption, all of which would have a negative impact on our business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Seasonality". WE DEPEND ON KEY PERSONNEL TO MAINTAIN OUR COMPETITIVE POSITION Our ability to maintain our competitive position is largely dependent on the personal efforts and abilities of our senior management, particularly H. Gregory Chamandy, Chairman of the Board and Chief Executive Officer, Glenn J. Chamandy, President and Chief Operating Officer, and Edwin B. Tisch, Executive Vice President, Manufacturing. Each of H. Gregory Chamandy, Glenn J. Chamandy and Edwin B. Tisch has entered into an employment agreement with us. See "Management-- Employment Agreements and Change of Control Agreements". We currently do not maintain key person life insurance for key executives. The loss of the services of any of these executives could have a material adverse effect on our business. In addition, we believe that our success is dependent on our ability to attract and retain additional qualified employees, and the failure to recruit or retain additional skilled personnel could have a material adverse effect on our business. OUR OPERATIONS ARE SUBJECT TO ENVIRONMENTAL REGULATION We are subject to various environmental and occupational health and safety laws and regulations in our operations in the United States, Canada and offshore. Compliance with those laws and regulations has not had a material adverse effect on our business. However, future events, such as: - a change in existing laws and regulations; - the enactment of new laws and regulations; - a release of hazardous substances on or from our properties or any associated offsite disposal location; or - the discovery of contamination from prior activities at any of our properties, 13 19 may give rise to compliance costs that could have a material adverse effect on our business. See "Business--Environmental Regulation". OUR OPERATIONS MAY SUFFER FROM YEAR 2000 COMPUTER PROBLEMS Most of our computer systems, including those used to manage procurement, production, inventory control, distribution and accounting functions, as well as some of our manufacturing equipment, are susceptible to the Year 2000 problem. We use both internal and external resources to ensure that our systems and equipment will be Year 2000 compliant. We also plan to install a new Year 2000 compliant accounting system, which will replace our current accounting system. We cannot assure you that these measures will successfully identify and eliminate all possible Year 2000 problems in our systems and equipment. If we fail to identify or eliminate any Year 2000 problems, our business could be harmed. The failure of our customers and suppliers to be prepared for Year 2000 problems presents risks to us which we cannot quantify at this time. If any of the computer systems of these customers fail due to the "Year 2000" problem, our business could be harmed. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Compliance". CURRENCY AND EXCHANGE RATE FLUCTUATIONS MAY ADVERSELY AFFECT OUR OPERATIONS Most of our business is transacted in U.S. dollars. The exchange rate between Canadian dollars and U.S. dollars has fluctuated significantly over the last several years. Any strengthening in the value of the Canadian dollar against the U.S. dollar could result in lower sales and earnings for us when translated into Canadian dollars. In addition, because we pay the employees at our three Honduran facilities in Honduran Lempiras, any weakening in the value of the Canadian or U.S. dollar against the Lempira could have a material adverse effect on our business. Any Gildan-owned facility established outside of Canada and the United States may face a similar currency risk. WE ARE CONTROLLED BY HARCO Harco Holdings Ltd. ("Harco") is a Canadian corporation controlled jointly by H. Gregory Chamandy, our Chairman and Chief Executive Officer, and Glenn J. Chamandy, our President and Chief Operating Officer. Harco owns all of our outstanding Class B Multiple Voting Shares. Because the Class B Multiple Voting Shares have eight votes per share, H. Gregory Chamandy and Glenn J. Chamandy, through their ownership of Harco, will have, after giving effect to the sale of the Class A Subordinate Voting Shares offered hereby, approximately 70.2% of the voting power of Gildan. See "Principal Shareholders". Accordingly, H. Gregory Chamandy and Glenn J. Chamandy will be able to elect all of the directors, other than the two directors elected solely by the Class A Subordinate Voting Shares voting as a separate class, for so long as they retain more than 50.0% of the voting power of Gildan. See "Management--Board of Directors". OUR ABILITY TO ISSUE PREFERRED SHARES COULD DELAY OR PREVENT A CHANGE IN CONTROL TRANSACTION Our Articles authorize the issuance of an unlimited number of First Preferred Shares and Second Preferred Shares (collectively, the "Preferred Shares"), which our board of directors may issue in one or more series and determine the conversion and other rights and preferences of any such series without any further action on the part of the shareholders. The issuance of Preferred Shares could be used to delay or prevent a change in control transaction by: - discouraging an unsolicited acquisition proposal; 14 20 - discouraging a proxy contest; - making more difficult the acquisition of a substantial block of Class A Subordinate Voting Shares; or - limiting the price that investors might be willing to pay for Class A Subordinate Voting Shares. POTENTIAL SALES OF CLASS A SUBORDINATE VOTING SHARES COULD RESULT IN A DECLINE IN THE MARKET PRICE OF THE CLASS A SUBORDINATE VOTING SHARES The market price of the Class A Subordinate Voting Shares could decline as a result of sales of a large number of Class A Subordinate Voting Shares in the market after this offering, or the perception that such sales could occur. These factors also could make it more difficult for us to raise funds through future offerings of share capital. Immediately after the offering, we will have outstanding 13,394,444 Equity Shares. In addition, 995,000 Class A Subordinate Voting Shares are subject to options which may be granted under our stock option plan. At May 7, 1999, options to buy 856,500 Class A Subordinate Voting Shares were outstanding, of which 180,666 will become exercisable on June 16, 2000. All of our outstanding share capital, except for the Equity Shares held by "affiliates" (as defined in Rule 144 of the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act")), will be freely tradeable without restriction under the U.S. Securities Act. The Equity Shares held by the H. Gregory Chamandy Family Trust, the Glenn Chamandy Family Trust, the Shirley Chamandy Family Trust and the Tisch Family Trust (collectively, the "Trusts"), the Fund and Harco are deemed to be "restricted securities" (as defined in Rule 144). Therefore, the Equity Shares owned by them are not freely tradeable and may be sold only subject to the timing, manner and volume restrictions of Rule 144 or under a registration statement or pursuant to an exemption therefrom. See "Shares Eligible for Future Sale and Escrow Arrangements". Pursuant to a registration rights agreement, Harco, the Fund and the Trusts generally have the right to require us to register the Class A Subordinate Voting Shares held by them under the U.S. Securities Act. See "Certain Relationships and Related Transactions--Registration Rights Agreement". However, the resale by Harco, the Fund and the Trusts of their Equity Shares is subject to lock-up provisions and escrow arrangements described under "Shares Eligible for Future Sale and Escrow Arrangements" and "Underwriting". THE PRICE OF OUR SHARES MAY FLUCTUATE SIGNIFICANTLY The following factors, among others, could cause the market price of the Class A Subordinate Voting Shares to fluctuate significantly: - adverse changes in our results of operations, including as described in this "Risk Factors" section; - the limited number of outstanding Class A Subordinate Voting Shares that trade; - changes in the U.S. or Canadian apparel industry in general or the activewear industry in particular; - failure to meet the projections of securities analysts; or - other developments affecting us or our competitors. 15 21 In addition, in recent years stock markets have experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operating performance. WE DO NOT INTEND TO PAY DIVIDENDS We do not intend to pay dividends because we plan to retain all of our earnings in the foreseeable future to develop and expand our business. Our future dividend policy will depend on our earnings, capital requirements, financial condition, bank facilities and other factors the board of directors considers relevant. See "Dividends". In addition, some of our credit facilities and debt instruments require the consent of the lenders before paying dividends. See "Description of Certain Indebtedness". BECAUSE WE ARE A CANADIAN COMPANY, YOU MAY NOT BE ABLE TO ENFORCE CIVIL LIABILITIES UNDER THE U.S. FEDERAL SECURITIES LAWS AGAINST US We are incorporated in Canada under the Canada Business Corporations Act. Our registered office as well as a substantial portion of our assets are located outside the United States. Also, most of our directors and officers and some of the experts named in this prospectus reside outside the United States. Therefore, it may be difficult to serve process upon us or them in the United States or to collect upon a judgment obtained in the United States against us or them. Ogilvy Renault, our Canadian counsel, has advised us that there is doubt as to the enforceability of: - liabilities predicated on U.S. federal securities laws determined in original actions in the Province of Quebec; and - judgments of U.S. courts obtained in actions based upon the civil liability provisions of U.S. federal securities laws in the courts of the Province of Quebec. Moreover, no treaty exists between the United States and Canada for the reciprocal enforcement of foreign court judgments. Consequently, you may be effectively prevented from pursuing remedies under U.S. federal securities laws against us or them. WE HAVE DISCRETION OVER THE USE OF NET PROCEEDS We intend to use all of the net proceeds of the offering initially to repay our borrowings under our revolving loan agreement. Subsequently, we intend to use the newly available borrowing capacity under our revolving loan agreement for the planned expansion of our production and distribution capacity. We have not allocated such newly available borrowing capacity to specific uses. Consequently, we will retain a significant amount of discretion over the application of the newly available borrowing capacity under our revolving loan agreement resulting from our initial use of the proceeds of the offering. Because of the number and variability of factors that determine our ultimate use of net proceeds of the offering, we cannot assure you that such use will not vary substantially from our current intentions. 16 22 USE OF PROCEEDS We estimate that the net proceeds from the sale of the 3,000,000 Class A Subordinate Voting Shares offered hereby will be US$35.4 million (US$40.8 million if the underwriters' over-allotment option is exercised in full) based on an assumed public offering price of US$12.81 per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Based on the inverse of the Noon Buying Rate (as defined under "Exchange Rates") on April 14, 1999 of Cdn$1.00 per US$0.6698, the net proceeds from the sale of the 3,000,000 Class A Subordinate offered hereby are estimated to be $52.8 million ($60.9 million if the underwriters' over-allotment option is exercised in full). We plan to use all of the net proceeds initially to repay borrowings under our revolving loan agreement. Subsequently, we intend to use the newly available borrowing capacity under our revolving loan agreement for the planned expansion of our production and distribution capacity. DIVIDENDS Except for an aggregate dividend of $500,000 (US$354,887, based on an exchange rate of 1.41 Canadian dollars per U.S. dollar at November 12, 1997) which was declared on Gildan's then existing Class "A" common shares and Class "A" preferred shares on November 12, 1997 and subsequently distributed in 1998, Gildan has not declared or paid any dividends on its shares. We anticipate that all of our earnings in the foreseeable future will be retained for the development and the expansion of our business and, therefore, we have no current plans to pay dividends. Future dividend policy will depend on our earnings, capital requirements, financial condition, bank facilities and other factors considered relevant by the board of directors. In addition, certain of our credit facilities and debt instruments require the consent of the lenders prior to the payment of dividends. See "Description of Certain Indebtedness". 17 23 EXCHANGE RATES Fluctuations in the exchange rates between the Canadian dollar and the U.S. dollar will affect the U.S. dollar price of the Class A Subordinate Voting Shares. The following table sets forth the average, high, low and period-end Noon Buying Rate announced by the Federal Reserve Bank of New York (each, a "Noon Buying Rate").
CANADIAN DOLLARS/U.S. DOLLAR NOON BUYING RATE ------------------------------------------------------------------------------------ TEN-MONTH PERIOD ENDED FISCAL YEAR SEPTEMBER 29, FISCAL YEAR ---------------- ------------- ---------------- FIRST FISCAL SECOND FISCAL 1994 1995 1996 1997 1998 QUARTER 1999 QUARTER 1999 ------ ------ ------------- ------ ------ ------------ ------------- Average(1)........... 1.3614 1.3741 1.3683 1.3707 1.4522 1.5430 1.5116 High................. 1.3954 1.4238 1.3822 1.3995 1.5770 1.5570 1.5302 Low.................. 1.3103 1.3285 1.3530 1.3310 1.3718 1.5175 1.4873 Period End........... 1.3720 1.3660 1.3632 1.3713 1.5505 1.5375 1.4968
- ------------------------- (1) The average rate is the average of the exchange rates on the last day of each month during the applicable period. On May 5, 1999, the Noon Buying Rate was 1.4558 Canadian dollars per U.S. dollar. We did not use these exchange rates to calculate the U.S. dollar equivalents provided for fiscal 1998 and first fiscal quarter 1999 under "Prospectus Summary--Summary Consolidated Financial Information", and "Selected Consolidated Financial Information". Rather, for the statement of income data, we used a weighted average of the Bank of Canada monthly average exchange rates, and for the balance sheet data and cash flow items, we used Bank of Canada closing rates, which were $1.5312 Canadian dollars per U.S. dollar at October 4, 1998 and $1.5333 Canadian dollars per U.S. dollar at January 3, 1999. 18 24 CAPITALIZATION The following table sets forth our capitalization at March 7, 1999 (a) on an actual basis and (b) as adjusted to give effect to the sale of the Class A Subordinate Voting Shares offered hereby at an assumed public offering price of US$12.81 ($19.13, based on the inverse of the Noon Buying Rate on April 14, 1999 of Cdn$1.00 per US$0.6698) per Class A Subordinate Voting Share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The table should be read in conjunction with the Consolidated Financial Statements and related notes thereto included elsewhere in this prospectus, which include a summary of differences between Canadian GAAP and U.S. GAAP. See "Use of Proceeds", "Selected Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations".
AT MARCH 7, 1999 ---------------------------- ACTUAL AS ADJUSTED(1) ----------- -------------- (CDN$ IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED) (UNAUDITED) Short-term debt: Bank indebtedness......................................... $ 72,489 $ 19,696(2) Current portion of long-term debt......................... 6,089 6,089 -------- -------- Total short-term debt................................ $ 78,578 $ 25,785 ======== ======== Long-term debt(3)........................................... $ 69,024 $ 69,024 Shareholders' equity: First Preferred Shares, without par value, unlimited number authorized; 0 issued and outstanding at March 7, 1999; as adjusted, 0 issued and outstanding............ -- -- Second Preferred Shares, without par value, unlimited number authorized; 0 issued and outstanding at March 7, 1999; as adjusted, 0 issued and outstanding............ -- -- Class A Subordinate Voting Shares, without par value, unlimited number authorized; 7,347,444 shares issued and outstanding at March 7, 1999; as adjusted, 10,347,444 shares issued and outstanding(4)............ 34,375 87,168 Class B Multiple Voting Shares, without par value, unlimited number authorized; 3,047,000 shares issued and outstanding at March 7, 1999; as adjusted, 3,047,000 shares issued and outstanding................ 5,083 5,083 Contributed surplus....................................... 323 323 Retained earnings(5)...................................... 19,528 19,528 -------- -------- Total shareholders' equity........................... 59,309 112,102 -------- -------- Total capitalization.............................. $128,333 $181,126 ======== ========
- --------------- (1) Assumes that the net proceeds are US$35.4 million ($52.8 million, based on the inverse of the Noon Buying Rate on April 14, 1999 of Cdn$1.00 per US$0.6698), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. (2) This debt may be reborrowed. (3) Includes capitalized leases. See note 7 to the Consolidated Financial Statements. (4) The number of Class A Subordinate Voting Shares outstanding does not reflect 995,000 Class A Subordinate Voting Shares subject to options which may be granted under our stock option plan, of which options to buy 756,500 Class A Subordinate Voting Shares were outstanding at March 7, 1999. See "Management--Stock Option Plan" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". (5) At January 3, 1999. 19 25 PRICE RANGE OF OUR SHARES Since our initial public offering in June 1998, our Class A Subordinate Voting Shares have traded on the American Stock Exchange under the symbol "GIL" and The Montreal Exchange and The Toronto Stock Exchange under the symbol "GIL.A". The following table sets forth, for each of the fiscal quarterly periods indicated, the high and low closing prices of the Class A Subordinate Voting Shares as reported on each of the respective exchanges:
THE TORONTO AMERICAN STOCK THE MONTREAL STOCK EXCHANGE EXCHANGE EXCHANGE ------------------- --------------- --------------- HIGH LOW HIGH LOW HIGH LOW -------- -------- ------ ------ ------ ------ Fiscal Year Ended October 4, 1998 Third Quarter(1)................... US$7.00 US$6.31 $10.30 $ 9.25 $10.35 $ 9.25 Fourth Quarter..................... 9.25 6.00 14.25 9.25 14.00 9.20 Fiscal Year Ended October 3, 1999 First Quarter...................... 8.38 6.38 12.50 10.00 12.50 10.05 Second Quarter..................... 13.25 7.38 20.25 11.50 20.25 11.75 Third Quarter(2)................... 14.38 12.38 20.50 18.70 20.50 18.50
- ------------------------- (1) Trading began June 17, 1998. (2) Through May 5, 1999. On May 5, 1999, the last reported sale price of the Class A Subordinate Voting Shares was US$14.25 per share on the American Stock Exchange and $20.50 per share on both The Montreal Exchange and The Toronto Stock Exchange. As at March 15, 1999, there were approximately six holders of record in the United States, holding approximately 2,825,800 Class A Subordinate Voting Shares, which represents 38.46% of the outstanding Class A Subordinate Voting Shares. 20 26 SELECTED CONSOLIDATED FINANCIAL INFORMATION The selected consolidated financial information presented below is derived from Gildan's consolidated financial statements for, and as of the end of, fiscal 1994 and fiscal 1995, which have been audited by Richter, Usher & Vineberg, Chartered Accountants, and Gildan's consolidated financial statements for, and as of the end of, ten-month fiscal 1996, fiscal 1997 and fiscal 1998, which have been audited by KPMG LLP, Chartered Accountants. The selected consolidated financial information for the twelve months ended and as of September 29, 1996, for the first fiscal quarter ended January 4, 1998, and for the first fiscal quarter ended and as of January 3, 1999 is derived from the unaudited consolidated financial statements of Gildan, which in the opinion of management have been prepared on the same basis as the audited financial statements, reflecting all adjustments necessary, which consist only of normal recurring adjustments, for a fair presentation of such information. The Consolidated Financial Statements have been prepared in accordance with Canadian GAAP. These principles conform in all material respects with U.S. GAAP, except as described in note 19 to the Consolidated Financial Statements. The information presented below should be read in conjunction with the Consolidated Financial Statements included elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations".
TEN-MONTH TWELVE- FISCAL YEAR ENDED PERIOD MONTH FISCAL YEAR ENDED ----------------- ENDED ENDED ---------------------------------- DEC. 2, DEC. 1, SEPT. 29, SEPT. 29, OCT. 5, OCT. 4, OCT. 4, 1994 1995 1996 1996(1) 1997 1998 1998 ------- ------- --------- ----------- -------- -------- ----------- CDN$ CDN$ CDN$ CDN$ CDN$ CDN$ US$(2) ------- ------- ------- ------- -------- -------- -------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PERCENTAGES) STATEMENT OF INCOME DATA (CANADIAN GAAP): Sales..................... $45,896 $64,868 $70,448 $80,045 $119,844 $215,428 $147,876 Cost of sales............. 36,621 51,854 56,367 64,294 93,059 164,850 113,289 ------- ------- ------- ------- -------- -------- -------- Gross profit.............. 9,275 13,014 14,081 15,751 26,785 50,578 34,587 Selling, general and administrative expenses................. 5,852 9,053 8,360 9,629 12,471 20,796 14,248 Depreciation and amortization expenses.... 940 1,764 1,633 2,026 2,337 4,063 2,782 Writeoff of advances...... -- 924 -- 281 -- -- -- ------- ------- ------- ------- -------- -------- -------- Operating income.......... 2,483 1,273 4,088 3,815 11,977 25,719 17,557 Interest expense.......... 1,382 2,709 2,507 2,997 2,974 5,032 3,460 Loss on settlement of debt..................... -- -- -- -- -- 819 565 ------- ------- ------- ------- -------- -------- -------- Income (loss) before income taxes............. 1,101 (1,436) 1,581 818 9,003 19,868 13,532 Income taxes (recovery)... 327 (249) 608 314 3,338 6,700 4,583 ------- ------- ------- ------- -------- -------- -------- Net income (loss)......... $ 774 $(1,187) $ 973 $ 504 $ 5,665 $ 13,168 $ 8,949 ======= ======= ======= ======= ======== ======== ======== Net income per share (basic).................. $ 1.65(3) $ 1.12 Number of shares (weighted avg.).................... 7,999 7,999 OTHER DATA (CANADIAN GAAP): Gross profit margin....... 20.2% 20.1% 20.0% 19.7% 22.3% 23.5% 23.5% Operating income margin... 5.4% 2.0% 5.8% 4.8% 10.0% 11.9% 11.9% Capital expenditures...... $ 6,997 $ 2,514 $ 6,390 $ 7,204 $ 5,439 $ 24,588 $ 17,031 EBITDA(4)................. $ 3,423 $ 3,037 $ 5,721 $ 5,841 $ 14,314 $ 29,782 $ 20,339 SELECTED OPERATING DATA (UNAUDITED): Dozens of T-shirts sold... 1,365 1,697 1,899 2,950 5,721 Dozens of sweatshirts sold..................... 103 63 85 158 195 ------- ------- ------- -------- -------- Total dozens sold......... 1,468 1,760 1,984 3,108 5,916 ======= ======= ======= ======== ======== FIRST FISCAL QUARTER ENDED --------------------------------------- JAN. 4, 1998 JAN. 3, 1999 ----------- ------------------------- CDN$ CDN$ US$(2) (UNAUDITED) (UNAUDITED) (UNAUDITED) STATEMENT OF INCOME DATA (CANADIAN GAAP): Sales..................... $31,812 $45,109 $29,253 Cost of sales............. 25,969 33,079 21,451 ------- ------- ------- Gross profit.............. 5,843 12,030 7,802 Selling, general and administrative expenses................. 3,617 7,195 4,666 Depreciation and amortization expenses.... 746 1,763 1,143 Writeoff of advances...... -- -- -- ------- ------- ------- Operating income.......... 1,480 3,072 1,993 Interest expense.......... 848 1,543 1,001 Loss on settlement of debt..................... -- -- -- ------- ------- ------- Income (loss) before income taxes............. 632 1,529 992 Income taxes (recovery)... 332 550 357 ------- ------- ------- Net income (loss)......... $ 300 $ 979 $ 635 ======= ======= ======= Net income per share (basic).................. $ 0.10 $ 0.06 Number of shares (weighted avg.).................... 9,950 9,950 OTHER DATA (CANADIAN GAAP): Gross profit margin....... 18.4% 26.7% 26.7% Operating income margin... 4.7% 6.8% 6.8% Capital expenditures...... $ 6,362 $11,564 $ 7,498 EBITDA(4)................. $ 2,226 $ 4,835 $ 3,136 SELECTED OPERATING DATA (UNAUDITED): Dozens of T-shirts sold... 820 1,192 Dozens of sweatshirts sold..................... 59 41 ------- ------- Total dozens sold......... 879 1,233 ======= =======
21 27
DEC. 2, DEC. 1, SEPT. 29, OCT. 5, OCT. 4, JAN. 3, 1994 1995 1996 1997 1998 1999 ------- ------- --------- ----------- -------- ----------- CDN$ CDN$ CDN$ CDN$ CDN$ CDN$ ------- ------- ------- ------- -------- -------- (UNAUDITED) (IN THOUSANDS) BALANCE SHEET DATA (CANADIAN GAAP): Working capital............ $ 2,119 $ 1,149 $ 5,010 $15,406 $ 33,134 $ 34,222 Total assets............... 33,784 34,589 52,770 77,365 165,678 211,438 Total debt(5).............. 26,593 28,585 42,793 61,712 112,348 157,129 Shareholders' equity....... 7,191 6,004 9,977 15,653 53,330 54,309 BALANCE SHEET DATA (CANADIAN GAAP): Working capital............ Total assets............... Total debt(5).............. Shareholders' equity.......
FISCAL YEAR ENDED TEN-MONTH PERIOD ---------------------------- FIRST FISCAL QUARTER ENDED SEPT. 29, OCT. 5, OCT. 4, OCT. 4, ENDED JAN. 3, 1996 1997 1998 1998 1999 ---------------- ------- ------- -------- ---------------------- CDN$ CDN$ CDN$ US$(2) CDN$ US$(2) ------- ------- ------- -------- -------- -------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FINANCIAL STATEMENT DATA (U.S. GAAP): Net income............................................. $ 973 $ 5,036 $12,438 $ 8,453 $ 975 $ 632 Net income (loss) per share............................ (0.58) (2.36) 2.63(3) 1.79 0.10 0.06 Total assets........................................... 52,770 76,764 164,788 107,620 210,555 137,321 Total debt(5).......................................... 48,343 82,590 112,317 73,352 157,108 102,464 Shareholders' equity................................... 4,427 (5,826) 52,471 34,268 53,447 34,857 Cash flows from operations............................. (5,738) (4,797) (17,476) (11,413) (29,126) (18,996) Cash flows from investing.............................. (7,735) (6,539) (26,537) (17,331) (12,987) (8,470) Cash flows from financing activities................... 13,473 11,336 44,013 28,744 42,113 27,466
- --------------- (1) The data for the unaudited twelve-month period ended September 29, 1996 combine our unaudited data for the 62-day period ended December 1, 1995 and our audited data for ten-month fiscal 1996. (2) U.S. dollar amounts are provided for convenience only. For the statement of income data, the U.S. dollar amounts are calculated using a weighted average of the Bank of Canada monthly average exchange rates. For the balance sheet data and the cash flow items, the U.S. dollar amounts are calculated using Bank of Canada closing rates, which were $1.5312 Canadian dollars per U.S. dollar at October 4, 1998 and $1.5333 Canadian dollars per U.S. dollar at January 3, 1999. (3) The principal reason for the difference between net income per share of $1.65 under Canadian GAAP and net income per share of $2.63 under U.S. GAAP is the difference in the calculation of the weighted average number of shares outstanding. Under Canadian GAAP, 7,998,657 were outstanding, whereas under U.S. GAAP, 4,384,399 were outstanding. The primary difference between the calculations relates to the treatment of Class "A" Preferred Shares which were reclassified concurrently with our initial public offering in June 1998. (4) EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is included because we believe that some investors use this information as one measure of a company's historical ability to service debt. However, you should not consider EBITDA as an alternative to net earnings as an indicator of operating performance or as an alternative to cash flow as a measure of our overall liquidity as presented in the Consolidated Financial Statements. EBITDA as presented may not be comparable to similar computations presented by other companies. (5) Total debt consists of total bank debt, current liabilities, other loans payable, secured and unsecured long-term debt, including capitalized leases and future taxes. 22 28 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements included elsewhere in this prospectus. CHANGE OF YEAR-END Effective September 29, 1996, we changed our fiscal year-end from the first Friday following November 29 to the first Sunday following September 28. The effective result of this change was to create a ten-month fiscal 1996 ("ten-month fiscal 1996"), compared to a twelve-month period ended December 1, 1995 ("fiscal 1995") and a twelve-month period ended October 5, 1997 ("fiscal 1997"). The primary purpose of the change was to recognize that our primary selling season is completed by the end of September of each year. As a result of this change, the Consolidated Financial Statements and Management's Discussion and Analysis compare fiscal 1997 to ten-month fiscal 1996. Information is also provided for an unaudited twelve-month period ended September 29, 1996 ("unaudited twelve-month 1996") to facilitate a more meaningful understanding of trends through comparison of like periods. The Consolidated Financial Statements have been prepared in accordance with Canadian GAAP. These principles conform in all material respects with U.S. GAAP, except as described in note 19 to the Consolidated Financial Statements. The information below should be read in conjunction with the Consolidated Financial Statements included elsewhere in this prospectus. RESULTS OF OPERATIONS Our results of operations are affected by several factors, including: (a) competition; (b) general economic conditions; (c) raw material costs; (d) mix of products sold; and (e) plant utilization. Some activewear products of the type which we manufacture are generally available from multiple sources and our customers purchase products from more than one source. Sweatshirts and colored T-shirts are generally more profitable than white T-shirts. Accordingly, our overall gross profit margin is affected by our product mix. In addition, plant utilization levels are significant drivers of our profitability due to the capital intensive nature of our operations. Prices in the industry have been declining over the past several years primarily as a result of the trend to move sewing productions offshore by some manufacturers of basic activewear and the introduction of new manufacturing technologies. In addition, in recent years, some T-shirt and sweatshirt manufacturers have overproduced inventory as a result of excess plant and equipment capacity. This oversupply of inventory has on occasion led to inventory dumping, resulting in price reductions for T-shirts and sweatshirts. To remain competitive, we adjust our pricing structure from time to time in response to such industry-wide price changes. We generally have been able to mitigate pricing pressures by (a) continuing to improve and modernize our manufacturing processes to reduce production costs and (b) moving the majority of our sewing operations offshore to benefit from the lower wage rate environment. However, in response to price reductions initiated by our competitors, we incurred expenses of approximately $4.2 million in customer rebates in each of fiscal 1997 and fiscal 1998. See "Risk Factors--Our Industry Is Subject to Pricing Pressures". The largest component of our cost of goods sold is the cost of cotton yarn. Unlike some of our competitors, we do not spin our own yarn. Instead, we obtain substantially all of our yarn from three yarn suppliers and place our orders at the beginning of each fiscal year. In so doing, we can protect against 23 29 yarn price increases during the fiscal year. However, we may be competitively disadvantaged if yarn prices decrease during the fiscal year. See "Risk Factors--We Are Subject to Risks of Fluctuations in the Supply and Price of Cotton Yarn" and "Business--Raw Materials". The following table presents the major components of our Statements of Income as a percentage of sales:
AUDITED UNAUDITED AUDITED AUDITED UNAUDITED UNAUDITED SEPTEMBER 29, SEPTEMBER 29, OCTOBER 5, OCTOBER 4, JANUARY 4, JANUARY 3, 1996 1996 1997 1998 1998 1999 10 MONTHS 12 MONTHS 12 MONTHS 12 MONTHS 3 MONTHS 3 MONTHS ------------- ------------- ---------- ---------- ---------- ---------- Sales........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales................ 80.1 80.3 77.7 76.5 81.6 73.3 ----- ----- ----- ----- ----- ----- Gross profit................. 19.9 19.7 22.3 23.5 18.4 26.7 Selling, general and administrative expenses.... 11.8 12.0 10.4 9.7 11.4 16.0 Depreciation and amortization expenses................... 2.3 2.5 1.9 1.9 2.4 3.9 Writeoff of advances......... -- 0.4 -- -- -- -- ----- ----- ----- ----- ----- ----- Operating income............. 5.8 4.8 10.0 11.9 4.6 6.8 Interest expense............. 3.6 3.8 2.5 2.3 2.7 3.4 Loss on settlement of debt... -- -- -- 0.4 -- -- ----- ----- ----- ----- ----- ----- Income before income taxes... 2.2 1.0 7.5 9.2 1.9 3.4 Income taxes................. 0.8 0.4 2.8 3.1 1.0 1.2 ----- ----- ----- ----- ----- ----- Net income................... 1.4% 0.6% 4.7% 6.1% 0.9% 2.2% ===== ===== ===== ===== ===== =====
FIRST FISCAL QUARTER 1999 COMPARED TO FIRST FISCAL QUARTER 1998 Sales: Sales increased by $13.3 million to $45.1 million for first fiscal quarter 1999 from $31.8 million for first fiscal quarter 1998. This 41.8% increase was due to higher sales, primarily to existing customers. These sales resulted from greater product availability due to increased production capacity. Gross Profit: Gross profit increased to 26.7% of sales in first fiscal quarter 1999 from 18.4% of sales in first fiscal quarter 1998. The improvement was due to factors such as lower raw material costs (primarily yarn) and higher efficiencies in both textile and sewing operations. Selling, General and Administrative Expenses: Selling, general and administrative expenses increased to 16.0% of sales in first fiscal quarter 1999 from 11.4% of sales in first fiscal quarter 1998. The increase in selling, general and administrative expenses resulted from the following: - the transition from the Champlain distribution center to the Miami and Montreal distribution centers resulted in higher training costs and lower efficiencies. See "Business--Manufacturing Operations and Facilities--Distribution Operations"; - the transfer of products from the Champlain distribution center to the Miami distribution center also resulted in additional costs; - the creation of our international sales office in Barbados resulted in additional overhead as the new operation was established; and 24 30 - an increase in our staffing and executive ranks during first fiscal quarter 1999 in anticipation of the higher volumes we expect to ship in fiscal 1999 resulted in increased administrative costs. Depreciation and Amortization Expenses: Depreciation and amortization expenses increased to 3.9% of sales in first fiscal quarter 1999 from 2.4% of sales in first fiscal quarter 1998. This increase was principally due to capital expenditures incurred in fiscal 1998 to expand production capacity. Interest Expense: Interest expense rose to 3.4% of sales in first fiscal quarter 1999 from 2.7% of sales in first fiscal quarter 1998. This is the result of total interest-bearing debt levels that were 88.7% higher than those during first fiscal quarter 1998. The additional debt was used to fund capital expenditures and working capital requirements. Income Taxes: The effective income tax rate was 36.0% in first fiscal quarter 1999 compared to 52.5% in first fiscal quarter 1998 mainly due to the difference in the amount of unrecognized tax losses incurred by some of our subsidiaries of $11,000 in first fiscal quarter 1999 compared to $63,000 in first fiscal quarter 1998. YEAR ENDED OCTOBER 4, 1998 COMPARED TO YEAR ENDED OCTOBER 5, 1997 Sales: Sales increased by $95.6 million to $215.4 million for fiscal 1998 from $119.8 million for fiscal 1997. This 79.8% increase was due to higher sales to existing customers and the addition of new customers. Existing customers accounted for 40% of the increase and new customers accounted for 60%. The impact of higher unit sales was partially offset by lower average selling prices during fiscal 1998 due to industry-wide customer rebate programs in the United States. Gross Profit: Gross profit increased to 23.5% of sales in fiscal 1998 from 22.3% of sales in fiscal 1997. This improvement was due to: - increased absorption of factory overhead as a result of the higher production volume; - lower costs due to the increase in offshore sewing production; and - the elimination of custom duties in Canada on cotton yarn of U.S. origin. The increase in gross profit margin was partly offset by (a) the ice storm that hit the Province of Quebec and Northern New York State in January 1998, disrupting shipping and manufacturing activities and (b) lower average selling prices during fiscal 1998. Selling, General and Administrative Expenses: Selling, general and administrative expenses declined to 9.7% of sales in fiscal 1998 from 10.4% of sales in fiscal 1997. This is the result of our ongoing commitment to grow sales at a faster rate than expenses. Depreciation and Amortization Expenses: Depreciation and amortization expenses remained stable at 1.9% of sales for both fiscal 1998 and fiscal 1997. Interest Expense: Interest expense declined to 2.3% of sales during fiscal 1998 from 2.5% of sales in fiscal 1997. Our initial public offering in the third quarter of fiscal 1998 and the subsequent use of proceeds to repay long-term debt contributed to the reduction of interest expense as a percentage of sales. Settlement of Debt: Loss on settlement of debt in the amount of $0.8 million relates to a penalty incurred on the prepayment of $6.7 million of long-term debt in connection with the initial public offering. 25 31 Income Taxes: The effective income tax rate was 33.7% in fiscal 1998 compared to 37.1% in fiscal 1997. The reduction of income taxes is due to the favorable tax treatment arising from the purchase of fixed assets used in the manufacturing process. YEAR ENDED OCTOBER 5, 1997 COMPARED TO TEN MONTHS ENDED SEPTEMBER 29, 1996 Sales: Sales increased by $49.3 million, or 69.9%, to $119.8 million in fiscal 1997 from $70.5 million in ten-month fiscal 1996 (and increased by $39.8 million, or 50.0%, from $80.0 million in unaudited twelve-month 1996). This increase was primarily due to the addition of several major wholesale distributor customers during fiscal 1997. Broder Bros., the largest of these distributors, represented $23.5 million of sales. To a lesser extent, sales growth was due to an increase in sales to existing customers. The impact of the increase in unit sales was partially offset by lower prices during fiscal 1997 due to industry-wide customer rebate programs in the United States. Gross Profit: Gross profit increased to 22.3% of sales in fiscal 1997 from 19.9% of sales in ten-month fiscal 1996 (and 19.7% of sales in unaudited twelve-month 1996). The increase in gross profit was due to the following factors: - a shift of the majority of our sewing production from the United States and Mexico to the Caribbean Basin and Central America in fiscal 1997; - increased operating efficiencies; - increased sales of higher margin sweatshirts, which were 14.5% of sales in fiscal 1997 compared to 11% of sales in ten-month fiscal 1996 (and 12.6% of sales in unaudited twelve-month 1996); and - a reduction in our reliance on higher-priced outside knitting and dyeing contractors in fiscal 1997. Selling, General and Administrative Expenses: Selling, general and administrative expenses decreased to 10.4% of sales in fiscal 1997 from 11.8% of sales in ten-month fiscal 1996 (and 12.0% of sales in unaudited twelve-month 1996). This improvement resulted from cost containment efforts combined with growth in sales. Depreciation and Amortization Expenses: Depreciation and amortization expenses decreased to 1.9% of sales in fiscal 1997 from 2.3% of sales in ten-month fiscal 1996 (and 2.5% of sales in unaudited twelve-month 1996) as a result of our sales growth. Interest Expense: Interest expense decreased to 2.5% of sales in fiscal 1997 from 3.6% of sales in ten-month fiscal 1996 (and 3.8% of sales in unaudited twelve-month 1996) as (a) we leveraged off of higher sales and (b) interest rates on our outstanding indebtedness declined. Income Taxes: The effective tax rate was 37.1% in fiscal 1997 compared to 38.5% in ten-month fiscal 1996 (and 38.4% in unaudited twelve-month 1996). LIQUIDITY AND CAPITAL RESOURCES The principal sources of our liquidity have been bank loans, equipment and mortgage loans, unsecured and subordinated debt, cash generated from our operations and the proceeds from the initial public offering completed during the third quarter of fiscal 1998. Following the offering, we believe that, based upon current levels of operations and anticipated growth, we will be able to satisfy our ongoing cash requirements through the end of fiscal 2000 primarily with cash flow from operations, supplemented 26 32 by borrowings under our revolving loan agreement as well as other financing and loan facilities which may be entered into following the offering. Bank Loans: Pursuant to our revolving loan agreement with a banking syndicate led by a Canadian chartered bank executed on March 31, 1999, we have a revolving credit facility in the aggregate amount of $90.0 million, subject to a "borrowing base" limitation as defined in the loan agreement. At March 31, 1999, we had approximately $85.0 million in outstanding loans and $5.0 million of additional availability, based on our borrowing base at that time. The revolving loan agreement expires on March 31, 2002. The interest rate under the credit facility is variable. At March 31, 1999, the annual interest rate was 7.375% for Canadian dollar borrowings and 9.125% for U.S. dollar borrowings. The revolving loan agreement: - is secured by substantially all of our personal (moveable) property and guaranteed by certain of our subsidiaries; - imposes certain operating restrictions on us; and - requires us to maintain specific financial ratios and levels. See "Description of Certain Indebtedness--Revolving Loan Agreement". Equipment and Mortgage Loans: We have relationships with several lenders which have provided financing by way of secured loans, mortgages, conditional sales contracts and capitalized leases. At March 7, 1999, these financings totalled $29.3 million, with the largest amount due to a single lender totaling $16.5 million, and bore interest at annual rates ranging from 5.9% to 13.0%. See "Description of Certain Indebtedness--Secured Equipment and Mortgage Loans". Unsecured and Subordinated Debt: We have unsecured and subordinated debt. At March 31, 1999, this indebtedness totalled $45.9 million, principally represented by: - a $15.0 million unsecured and subordinated debenture due 2003 issued to the Fund, bearing interest at an annual rate of 11.0%; - a $15.0 million unsecured and subordinated debenture due 2004 issued to the Fund, bearing interest at an annual rate of 12.0% for the first two years and 13.0% for the next three years; and - a $15.0 million unsecured and subordinated debenture due 2004, bearing interest at an annual rate of 12.5%, issued to Capital d'Amerique CDPQ Inc. See "Description of Certain Indebtedness--The Fund" and "Description of Certain Indebtedness--Capital d'Amerique CDPQ Inc.". Cash Flow from Operations: For fiscal 1998, our operations generated cash, before changes in non-cash working capital, of $18.8 million. Our investment in working capital amounted to $36.0 million, resulting in a net use of $17.2 million, compared to a net use of $4.2 million in fiscal 1997. Cash used in operating working capital for fiscal 1998 was largely attributed to an increase in receivables and inventories of $24.5 million and $40.2 million, respectively, and offset by an increase in accounts payable and accrued liabilities of $27.5 million. - The increase in receivables was attributed to the increase in sales over the prior year. The majority of receivables were credit insured. - The increase in inventories was required to support the planned growth in sales for fiscal 1999 which we expect to result from (a) the increase in sales to existing customers, (b) the introduction of new products and (c) the expansion of our distribution channels. 27 33 - The increase in accounts payable and accrued liabilities was attributable to the build-up of inventories during fiscal 1998. While we have been generally unable to fund our growth from operations only, especially in light of the high levels of capital expenditures incurred during the past three years, we have been able to fund our growth through bank loans and other debt and equity financings. Proceeds from Offerings: The sale of 3,000,000 Class A Subordinate Voting Shares offered in connection with our initial public offering in June 1998 contributed $25.9 million in new funds. Of this amount, approximately $6.7 million was used to repay some of our secured and unsecured debt, $2.5 million was used to buy back a stock option owned by the Fund, $0.8 million was used to pay prepayment penalties and the balance was used to reduce bank indebtedness. The sale of 444,444 Class A Subordinate Voting Shares offered in a private placement to Capital d'Amerique CDPQ Inc. in February 1999 contributed $5.0 million in new funds, which were used for general corporate purposes, including working capital. CAPITAL EXPENDITURES Capital expenditures were $2.5 million in fiscal 1995, $6.4 million in ten-month fiscal 1996, $5.4 million in fiscal 1997, $24.6 million in fiscal 1998 and $11.6 million in first fiscal quarter 1999. The substantial portion of fiscal 1998 capital expenditures was used to acquire a second dyeing and finishing plant and purchase new equipment for the knitting, dyeing and finishing and sewing facilities. We expect that additional capital expenditures will be required in future years to meet continued growth expectations. We anticipate spending a total of approximately $25.0 million in fiscal 1999 to further update production and distribution facilities and enhance the information systems used to support our growth. INFLATION AND EXCHANGE RATES Inflation generally affects us by increasing the interest expense of floating rate indebtedness and by increasing the cost of labor, equipment and raw materials. We do not believe that inflation has had any material effect on our business during the periods discussed herein. Most of our business is transacted in U.S. dollars. The exchange rate between Canadian dollars and U.S. dollars has fluctuated significantly over the last several years. Any strengthening in the value of the Canadian dollar against the U.S. dollar could result in lower sales and earnings for Gildan when translated into Canadian dollars. FINANCIAL INSTRUMENTS We use interest rate swap arrangements to manage risks from fluctuations in interest rates and foreign exchange contracts to manage risks from fluctuations in the exchange rate between Canadian dollars and U.S. dollars. We do not use derivative financial instruments for trading purposes. YEAR 2000 COMPLIANCE The Year 2000 issue is the result of computer programs which use two digits rather than four to define the applicable year. As a result, date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This programming flaw could cause system failures or miscalculations which disrupt normal business activities. We have commenced a comprehensive plan to upgrade all of our management information and other computer systems which are not yet Year 2000 compliant. These systems include those used to manage procurement, production, inventory control, 28 34 distribution, finance and accounting functions. Having completed our evaluation of these systems, we currently estimate that the total costs associated with making our systems Year 2000 compliant will be approximately $1.0 million, the majority of which will be incurred in calendar year 1999. These costs will be expensed as incurred. As part of our Year 2000 preparations, we are in the process of upgrading our distribution, inventory control, production and procurement systems so that they are Year 2000 compliant. We anticipate completing the upgrade by June 1999. We recently began analyzing the extent of our exposure to risks of Year 2000 non-compliance by third parties with whom we have an ongoing business relationship, such as suppliers and customers. As part of this process, we are sending letters to third parties to inquire about their Year 2000 readiness. However, at this time, we are unable to estimate the extent of material non-compliance by these parties and the risks we might face as a result. We intend to complete our analysis and follow-up to these inquiries by May 1999. In order to ensure that these timetables are met, we have assigned two full-time employees to work exclusively on the Year 2000 project, and we use the services of additional staff on an "as needed" basis. We also employ outside resources, including a consulting firm, to assist us in evaluating our systems and equipment, and to assist us in implementing necessary remedial measures. We have completed a full inventory of all items needing evaluation and have begun our analysis of changes to be made. We expect to complete all modifications and testing by August 1999. In addition, as a result of our rapid growth, we plan to install a new accounting system by September 1999 that is Year 2000 compliant. In case of unexpected delays in installing this software, we are developing a contingency plan to make our current accounting software Year 2000 compliant by September 1999. We estimate the costs of implementing the new accounting system to be approximately $0.5 million. These costs are in addition to the estimated costs directly related to our Year 2000 compliance efforts. We are designing contingency plans for worst case scenarios regarding potential Year 2000 problems. We expect these contingency plans to be in place by the end of September 1999. See "Risk Factors -- Our Operations May Suffer from Year 2000 Computer Problems". RECENT ACCOUNTING PRONOUNCEMENTS In 1997, the Canadian Institute of Chartered Accountants and the Financial Accounting Standards Board, in a joint project, established identical standards for the way that public business enterprises report information about operating segments in interim and annual financial statements. The recommendations of the Canadian Institute of Chartered Accountants Handbook Section 1701 "Segment Disclosures" are effective for fiscal years beginning on or after January 1, 1998. Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" is effective for fiscal years beginning on or after December 15, 1997. In June 1998, the Canadian Institute of Chartered Accountants issued Handbook Section 1540 "Cash Flow Statements". The recommendations are effective for fiscal years beginning on or after August 1, 1998. Section 1540 establishes standards for the way that companies report information about the historical changes in cash and cash equivalents in interim and annual financial statements. We were not required to, and did not, adopt these sections for our fiscal 1998 consolidated financial statements. These sections had no material effect on our 1998 consolidated financial statements. We are currently evaluating what, if any, additional disclosures may be required when we do adopt the recommendations of these sections. 29 35 BUSINESS We are a rapidly growing, vertically-integrated manufacturer and marketer of premium quality branded basic activewear for sale principally into the wholesale imprinted activewear segment of the North American apparel market. We manufacture and sell premium quality 100% cotton T-shirts and placket collar golf shirts as well as premium quality sweatshirts, in a variety of weights, sizes, colors and styles. In April 1999, we launched a new line of 50% cotton/50% polyester T-shirts. We expect to begin shipping this new product to our customers in fourth fiscal quarter 1999. We sell our products as "blanks", which are ultimately decorated with designs and logos for sale to consumers. Over the past several years, we have significantly increased our customer base and increased sales and earnings. From fiscal 1993 through fiscal 1998, our sales grew from $30.9 million to $215.4 million and our EBITDA grew from $2.8 million to $29.8 million, representing compounded annual growth rates of 49.5% and 63.3%, respectively. Sales for first fiscal quarter 1999 were $45.1 million, which represented an increase of 41.8% over sales for first fiscal quarter 1998. COMPANY OVERVIEW We were incorporated on May 8, 1984 pursuant to the Canada Business Corporations Act under the name of Textiles Gildan Inc. At our inception, we focused our activities on the manufacture of textiles and produced and sold finished fabric as a principal product line. However, in 1992, we redefined our operating strategy and, by 1994, our operations focused exclusively on the manufacture and sale of activewear for the wholesale distribution market. In March 1995, we changed our name to Gildan Activewear Inc./Les Vetements de Sports Gildan Inc. On June 16, 1998, in conjunction with our initial public offering, we filed Articles of Amendment to, among other things, remove the private company restrictions contained in our charter documents and change the structure of our authorized share capital. OPERATING STRATEGY We believe that our focus on manufacturing selected product lines with premium quality features and selling our products at competitive prices, coupled with an innovative marketing strategy emphasized by our controlled distribution, is the reason we have been able to rapidly increase our market presence. We attribute our strong operating performance to our strategy which is composed of the following principal components: - EMPHASIS ON PREMIUM QUALITY PRODUCTS. We offer our products in a wide variety of weights, sizes, colors and styles. All of our T-shirts are made with pre-shrunk cotton fabric, feature top-stitched seamless collars and double stitched hems, and are quarter-turned to eliminate the center crease which would otherwise result from the production process. To ensure the premium quality of our products, we apply stringent quality control procedures at all stages of the production process, both at our facilities and those of our contractors. We believe that our commitment to consistently produce premium quality, value-added products at competitive prices enhances our long-term relationships with our customers. - COMPETITIVE PRICING AND LOW-COST OPERATIONS. We believe that our combination of competitive prices and premium quality products provides superior value to our customers. We are able to price our products competitively because of our success in maintaining low production and operating costs. We accomplish this by: - locating the majority of our sewing operations in the Caribbean Basin and Central America, where we benefit from lower labor costs; - using only modern, automated facilities; 30 36 - locating our knitting and dyeing facilities in the Province of Quebec, where we benefit from an abundant supply of low-cost energy and water, resources necessary for the manufacturing, dyeing and finishing of fabric; and - selling to the wholesale channel which enables us to use a small sales force and avoid the costs and complexities of selling to the retail channel. - CONTROLLED DISTRIBUTION TO THE WHOLESALE CHANNEL. While our major competitors focus primarily on sales directly to the retail apparel industry, we market our products through wholesale channels of distribution, which is principally comprised of distributors and major garment imprinters. As part of this controlled distribution strategy, we limit the number and monitor the quality of our distributors, which comprise the largest component of our customer base. We sell only to the largest garment decorators, and direct orders from smaller ones to our customers. We believe that this focused strategy enables us to: - foster strong customer and brand loyalty among our distributors and decorators; - establish control over the marketing and orderly distribution of our products; - effectively plan and predict production; and - manage expected increases in demand. - MODERN, VERTICALLY-INTEGRATED OPERATIONS. We believe that our modern, vertically-integrated operations, which have been designed and developed to support our operating strategy, provide us with the flexibility and efficiency to meet our customers' needs. We intend to continue to acquire modern, automated equipment for all aspects of our manufacturing process to maximize production and achieve high efficiency rates. Over the past three fiscal years, we have spent $36.4 million on such improvements. Our operations are vertically-integrated, which means that we knit, dye, finish, cut and sew our products at our facilities. This enables us to maximize profit margins and monitor quality at all stages of the production process. - EXPERIENCED MANAGEMENT TEAM. Our senior executives have significant industry experience. Our strategy of locating all of our capital and technology-intensive textile manufacturing operations within one hour of our executive offices facilitates a proactive management philosophy. GROWTH STRATEGY We have a comprehensive long-term strategy to sustain our strong unit and dollar sales growth. The key elements of this strategy are: - INCREASING SALES TO NEW AND EXISTING CUSTOMERS. To increase sales, we plan to: - continue to develop new business with our existing customers as a result of our enhanced production and distribution capacity and the introduction of new products; - pursue additional wholesale distributors which we believe will generate substantial sales growth without adversely affecting sales to our existing customers; and - further develop our "mill direct" program which targets some of the largest screenprinters and embroiderers in North America which, due to their size, require larger quantities than distributors can typically provide. Our mill direct customers include, among others, Nike Canada Ltd. and Fortune Fashion, Inc., a major supplier of decorated T-shirts to The Walt Disney Company. 31 37 - BROADENING PRODUCT OFFERING. We also intend to increase our sales to existing customers through the introduction of complementary product lines and new products. In fiscal 1999, in response to customer demand, we introduced: - a new lightweight T-shirt, the Famous T(TM), to enable Gildan to effectively compete in the lower priced market segments; - placket collar golf shirts, which we believe to be one of the fastest growing product segments in the imprinted activewear industry; and - a new 50% cotton/50% polyester T-shirt, the Ultra-Blend(TM), which is our initial entry into the blended T-shirt market. - EXPANDING PRODUCTION AND DISTRIBUTION CAPACITY. To satisfy the increasing demand for our existing products and to introduce new products, we are expanding our production and distribution facilities through equipment acquisitions and new facility construction. Under our investment plans, in fiscal 1999, we: - added knitting, dyeing and finishing machines and plan to add additional machinery; - expanded the capacity of our Company-operated sewing facilities in Honduras by acquiring one of our sewing contractors, moving one of our operations into a larger facility and continuing to invest in new sewing equipment; - began building a facility in Barbados, which we expect to be operational by summer 1999, to provide additional sewing capacity for placket collar golf shirts; - opened a 210,000-square foot distribution center in Miami, which replaced our 67,000-square foot distribution center in Champlain, to service our U.S. market and targeted Western European markets; and - opened a 60,000-square foot distribution center in Ville Saint-Laurent to service our Canadian markets. - ENTERING NEW MARKETS. We plan to use the same strategy which has led to our success in North America to expand our selling territory to include Western Europe, with an initial emphasis on the United Kingdom. We anticipate shipping our products to distributors in Western Europe by fiscal 2000. INDUSTRY OVERVIEW We focus principally on sales of T-shirts, placket collar golf shirts and sweatshirts, in "blank" form, to the wholesale imprinted activewear market. "Imprinted" activewear is typically imprinted or embroidered with a logo, design or character before it reaches the consumer. Imprinted activewear is either branded or private label. Branded products reach consumers carrying the manufacturer's label, whereas products sold on a private label basis reach consumers carrying the brand name of the customer. Based on publicly available information, we believe that sales of imprinted T-shirts at the wholesale level in the United States were US$6.1 billion for 1997 and are growing at an annual rate of 4-5%. We estimate that blended fabric T-shirts, such as 50% cotton/50% polyester T-shirts, comprise approximately 33% of this market. We believe that growth in the imprinted activewear market has been driven primarily by: - significant development of the entertainment/sports licensing and merchandising businesses; - substantial growth in the ad specialty business, for example, corporate advertising; - a greater use and acceptance of casual dress in the workplace; - a growing consumer preference for apparel with a relaxed feel and look; 32 38 - a substantial increase in tourism; and - an increasing emphasis on physical fitness. Over the past several years, casual wear has become increasingly acceptable in a wider array of settings. In the workplace, for example, many employers have adopted more flexible dress codes, resulting in greater consumer demand for casual wear, including T-shirts, knit shirts and sweatshirts. Based on publicly available information, we believe that 90% of United States companies now allow their employees to wear casual clothing to work, either regularly or on special occasions, as compared to 63% in 1992. In addition, a growing emphasis on physical fitness has spurred a substantial increase in sports participation and, as a result, has created a heightened demand for activewear. For example, based on published reports, from 1987 to 1996, the number of people in the United States participating more than once in the ten most popular sports increased by approximately 36.8 million. Furthermore, significant improvements in activewear apparel, ranging from enhanced product characteristics--pre-shrunk 100% cotton fabrics, improved fabric weight, blends and construction--to increased product variety--including new sizes, colors and styles--have enhanced consumer appeal. We believe these trends will continue to generate demand for activewear products for the foreseeable future. The activewear market is characterized by low fashion risk compared to many other apparel markets. While opportunity exists for product innovations and differentiation, basic garment styles generally are not driven by trends or fads. The activewear industry is also characterized by significant barriers to entry, including: - substantial capital expenditures required for vertically-integrated production; - large investments in inventories and working capital; - strong supplier relationships; and - established customer relationships. PRODUCTS Historically, we have manufactured two principal product lines: premium quality 100% cotton T-shirts and premium quality 90% cotton/10% polyester sweatshirts in a variety of weights, sizes, colors and styles. We market and sell these products under the Gildan Activewear(TM) brand name and have historically classified them into three categories: midweight, heavyweight and superweight. In 1999, we introduced a new lower weight T-shirt, the Famous T(TM). As part of our growth strategy, in fiscal 1999 we increased our product offerings to include 100% cotton placket collar golf shirts. In April 1999, we launched a new 50% cotton/50% polyester T-shirt, the Ultra-Blend(TM), which we expect to begin shipping to our customers in fourth fiscal quarter 1999. All of our products carry a sub-brand name, for example, Ultraweight Cotton(TM), which has been developed to reinforce our emphasis on premium quality. The following table sets forth, for the periods indicated, certain information regarding sales of our activewear products.
TWELVE MONTHS ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED SEPTEMBER 29, 1996 OCTOBER 5, 1997 OCTOBER 4, 1998 ----------------------------- ------------------------------ ------------------------------ GROSS AVG. SALES GROSS AVG. SALES GROSS AVG. SALES DOZENS PRICE PER DOZENS PRICE PER DOZENS PRICE PER SALES SOLD DOZEN SALES SOLD DOZEN SALES SOLD DOZEN ------- ------ ---------- -------- ------ ---------- -------- ------ ---------- (IN THOUSANDS, EXCEPT PRICE PER DOZEN) T-shirts............. $69,979 1,899 $ 36.85 $102,367 2,950 $ 34.70 $195,623 5,721 $ 34.19 Sweatshirts.......... 10,066 85 118.42 17,477 158 110.61 19,805 195 101.56 ------- ----- -------- ----- -------- ----- Total/Avg............ $80,045 1,984 $119,844 3,108 $215,428 5,916 ======= ===== ======== ===== ======== ===== FIRST FISCAL QUARTER ENDED JANUARY 3, 1999 ----------------------------- GROSS AVG. SALES DOZENS PRICE PER SALES SOLD DOZEN ------- ------ ---------- T-shirts............. $40,728 1,192 $ 34.17 Sweatshirts.......... 4,381 41 106.85 ------- ----- Total/Avg............ $45,109 1,233 ======= =====
33 39 T-SHIRTS In fiscal 1998, T-shirts represented approximately 90% of our sales. We produce T-shirts in a variety of weights, sizes, colors and styles, including short and long-sleeved shirts, henleys and pocketed and mockneck products. Our primary T-shirt offerings are the Famous T(TM) T-shirt (4.8 oz. per sq. yd.), the Gildan Activewear Heavyweight Cotton(TM) T-shirt (5.3 oz. per sq. yd.), the recently introduced Gildan Activewear Ultra-Blend(TM) T-shirt (5.5 oz. per sq. yd.), the Gildan Activewear UltraCotton Heavyweight(TM) T-shirt (6.1 oz. per sq. yd.) and the Gildan Activewear SupraCotton Superheavyweight(TM) T-shirt (7.0 oz. per sq. yd.). Each of these T-shirt lines incorporates styles with enhanced features such as quarter-turned creaseless fronts, shoulder to shoulder tape reinforcement, double stitching, tubular seamless neck and body, and 38 stitches per inch. SWEATSHIRTS In fiscal 1998, sweatshirts represented approximately 10% of our sales. We produce sweatshirts in a variety of weights, sizes, colors and styles. Our primary sweatshirt offerings are the Gildan Activewear Heavyweight Cotton(TM) Sweatshirt (7.0 oz. per sq. yd.), the Gildan Activewear UltraCotton Heavyweight(TM) Sweatshirt (9.0 oz. per sq. yd.) and the Gildan Activewear SupraCotton Superheavyweight(TM) Sweatshirt (12.0 oz. per sq. yd.). PLACKET COLLAR GOLF SHIRTS In fiscal 1999, we introduced placket collar golf shirts in a variety of weights, sizes, colors and styles. Our placket collar golf shirts include the Gildan Activewear UltraCotton Heavyweight(TM) Placket Collar Golf Shirt (6.1 oz. per sq. yd.) in jersey fabric, with or without a pocket, and the Gildan Activewear UltraCotton Heavyweight(TM) Placket Collar Golf Shirt (7.0 oz. per sq. yd.) in pique fabric. MARKETING AND SALES We market our products directly to our customers through our sales force. Unlike our major competitors, we do not maintain regional sales offices. Instead, our sales personnel work from home offices. This allows us to incur lower selling expenses than many of our major competitors. Sales management is divided into two divisions: Canada and international, which is comprised principally of the United States and Western Europe. Our marketing strategy concentrates exclusively on the wholesale distribution channel catering to screenprinters, embroiderers and decorators. We promote ourselves through appearances at tradeshows and magazine advertising. We also engage in various forms of co-operative advertising with our major customers, including print advertising, catalogs and mailings. We believe that we have been innovative in maximizing the impact of our marketing to create a strong awareness of our products in the screenprinter and embroiderer market. CUSTOMERS In fiscal 1998, we sold our products in the United States and Canada, which accounted for approximately 86% and 14% of total sales, respectively. We are also developing a network of distributors in Western Europe and we expect to ship our products to distributors in the United Kingdom in fiscal 2000. We currently sell our products to approximately 100 customers. In fiscal 1998, our top three customers, Broder Bros., Co., Pluma Corporation (the Frank L. Robinson Company subsidiary and the Stardust Corporation subsidiary) and Alpha Shirt, accounted for 26.6%, 9.6% and 7.4% of total sales, respectively, and our top ten customers accounted for 68.5% of total sales. 34 40 Approximately 95% of total sales in fiscal 1998 were made through our wholesale distributors. The balance of sales consisted of sales to our mill direct customers, which include some of the largest screenprinters and embroiderers in North America and, on a private label basis, Nike Canada Ltd. and Boca/Au Coton. Our screenprinter and embroider customers are capable of purchasing our minimum container order sizes (for example, 5,000-6,000 dozen) in accordance with our terms. These sales are made in cooperation with our wholesale distributors, which provide smaller fill-in orders. Under the mill direct program, we will supply our products to Fortune Fashion, Inc., a major supplier of decorated T-shirts to The Walt Disney Company. We do not have any purchase agreements with our wholesale distributor customers, except for a contract we entered into with Pluma Corporation in connection with its acquisitions of Frank L. Robinson Company and Stardust Corporation. Instead, we meet with these customers at the beginning of each fiscal year to ascertain their projected requirements and then plan our production and marketing strategy accordingly. Our wholesale distributor customers then send purchase orders to us during the course of the fiscal year. Our experience with this practice has been favorable, since customer projections have historically been reliable indicators of actual orders. RAW MATERIALS Cotton yarn is the principal raw material we use in the manufacture of our products. In fiscal 1998, we purchased all of our yarn from U.S.-based spinners. Although Parkdale Mills Inc., Mayo Yarns, Inc. and Frontier Spinning Mills, LLC accounted for approximately 56.0%, 23.0% and 16.5%, respectively, of our yarn in fiscal 1998, we believe that the yarn we use may be purchased from a number of sources. Our practice has been to enter into one-year yarn supply agreements at the beginning of each fiscal year based on a projected budget. This allows us to fix our price of yarn for the year, and, consequently, to insulate the largest part of our raw material cost from adverse price fluctuations. Each of our supply agreements require the spinner to supply, and Gildan to purchase, a fixed quantity of yarn for the year at a fixed price. To date, we have not experienced any significant shortages of raw materials, even during periods of cotton shortage. We also purchase chemicals and dyestuff, mainly from Clariant International AG, Bayer AG and BASF Aktiengesellschaft, and purchase thread from a variety of suppliers. These raw materials have historically been available in adequate supply. MANUFACTURING OPERATIONS AND FACILITIES We currently operate ten major facilities: - a knitting plant in Ville Saint-Laurent, Quebec, which knits all of the fabric from which our products are manufactured and also houses our executive offices; - a dyeing and finishing plant in Montreal, Quebec; - a dyeing and finishing plant in Valleyfield, Quebec; - a cutting plant in Malone, New York, which cuts all of the fabric from which our products are manufactured; - a sewing plant in Montreal, Quebec, which sews all products for sale in Canada; - three sewing plants in Honduras; - a distribution center in Miami, Florida; and - a distribution center in Montreal, Quebec. In addition to the ten major facilities we operate, we use the sewing services of ten contractors in the Caribbean Basin and Mexico on an exclusive basis. 35 41 The following diagram illustrates the present flow of our products through our vertically-integrated operations. DIAGRAM TEXTILE OPERATIONS Knitting. We conduct all of our knitting operations at our central knitting facility in Ville Saint-Laurent, Quebec. We operate circular knitting machines at this facility, producing jersey, fleece and ribbing in body-sized fabrics in tubular form using cotton and cotton/polyester yarns. Substantially all of our knitting equipment is less than five years old, and we believe that such equipment is among the latest technology available to the knitting industry. As part of our expansion strategy, we will continue to acquire additional knitting equipment. Dyeing and Finishing. Knitted fabric is batched for bleaching and dyeing and is taken to our dyeing and finishing facilities in Valleyfield and Montreal. We have invested approximately $30 million to acquire, modernize and expand operations at these facilities. These capital expenditures have resulted in a substantial improvement in the quality of fabrics and a significant reduction in the percentage of redyes, yield losses and claims with respect to off-shade, unevenness and roping flaws in the fabric. These capital improvements have also been directed to modernize production planning and control. These facilities have been very effective in meeting our needs. CUT AND SEW OPERATIONS Cutting. All of the fabric produced at the Montreal and Valleyfield plants is shipped to our automated cutting facility in Malone, New York, which began operations in July 1994 and serves as the cutting department for all of our sewing requirements. Sewing. We conduct our sewing operations for products sold in Canada at our 54,000-square foot facility in Montreal. The facility is automated and operates on a group incentive basis designed to 36 42 maximize productivity and output while maintaining our rigorous quality control system. This plant provides us with the ability to effectively service the Canadian marketplace. We conduct offshore sewing operations at thirteen facilities, three of which we operate out of leased premises located in Honduras. Of the remaining ten facilities, four are located in Honduras, two in El Salvador, two in Haiti, one in Mexico and one in Nicaragua. These thirteen facilities provide us with substantially all of our non-Canadian market sewing assembly requirements. Most of the ten facilities owned by third parties are used by us under exclusive contract arrangements. Our contractual arrangements with these independent operators have initial terms ranging between one and three years (with provisions for renewal), and provide us with a predetermined price and production output as well as the right of reasonable access to enforce our quality control procedures. Our offshore sewing management team, headquartered in San Pedro Sula, Honduras, maintains regular production and quality reviews at all thirteen of the offshore facilities. We expect to begin operations at a sewing facility in Barbados, which will provide additional sewing capacity for placket collar golf shirts, in summer 1999. We have invested significant managerial resources in ensuring that the working conditions at our offshore sewing facilities meet or exceed the standards imposed by Canadian occupational health and safety laws. We contractually obligate our contractors to follow prescribed employment policies requiring, for example, minimum employee age of sixteen years and a clean and safe work environment. To ensure that these employment standards are appropriate, we have worked with the Canadian International Development Agency, a Canadian federal governmental agency, to secure the services of professionals who specialize in social/gender analysis and environmental audits with respect to developing nations. DISTRIBUTION OPERATIONS During fiscal 1998, we distributed all of our products to our customers directly from our 67,000-square foot distribution center in Champlain, New York. In June 1998, we began leasing a 210,000-square foot facility located in Miami, Florida. This facility brings our distribution operations closer to the main port of entry of most of our products into the United States from the Caribbean Basin where they are sewn. This facility became operational in October 1998 and has replaced the Champlain facility which closed in April 1999. As a result of our rapid growth, we plan to replace the Miami distribution center with a larger facility in the same geographic region in calendar year 2000. To better service our Canadian customers, in November 1998 we acquired a 60,000-square foot distribution center in Ville Saint-Laurent, Quebec. This distribution center became fully operational in April 1999. 37 43 PROPERTIES The following table sets forth the location, use and approximate size of each of our principal properties, and indicates whether it is owned or leased, and if leased, when the lease expires.
APPROXIMATE AREA OWNED OR LOCATION USE IN SQUARE FEET LEASED LEASE EXPIRATION(1) - -------------------------------- ----------------------------- ---------------- -------- ------------------- Ville Saint-Laurent, Quebec Executive offices 17,000 Leased 2016 Knitting facility 93,000 Leased 2016 Bridgetown, Barbados Executive office 11,000 Owned n/a Sewing facility(2) 11,000 Owned n/a Valleyfield, Quebec Dyeing and finishing facility 63,000 Owned n/a Montreal, Quebec Dyeing and finishing facility 88,000 Owned n/a Malone, New York Cutting facility 87,000 Leased 2003 Montreal, Quebec Sewing facility 54,000 Leased (3) San Pedro Sula, Honduras Sewing facility 43,000 Leased 2012 El Progreso, Honduras Sewing facility 73,000 Leased 2013 Choloma, Honduras Sewing facility 34,000 Leased 2001 Ville Saint-Laurent, Quebec Distribution facility 60,000 Owned n/a Miami, Florida Distribution facility 210,000 Leased 2000
- ------------------------- (1) Includes renewals. (2) This facility is under construction. We expect to begin production of placket collar golf shirts at this facility in summer 1999. (3) This facility is comprised of three buildings with separate leases which expire in 2002, 2003 and 2004. We believe that all of these facilities, whether owned or leased, are well maintained and in good operating condition. We expect to accommodate our anticipated sales growth through ongoing maintenance and improvement of our manufacturing facilities, together with the openings of our Miami and Montreal distribution centers and the planned opening of our new sewing plant in Barbados. SUBSIDIARIES We have eight wholly-owned subsidiaries: - Gildan Activewear (Barbados) Inc., a Barbados corporation, which is the holding company for Gildan Activewear San Jose, S.A., Gildan Activewear El Progreso, S.A. and Winners Manufacturing, S.A.; - Gildan Activewear Properties (BVI) Inc., a British Virgin Islands corporation, which owns the facility in Barbados that will house both the executive offices of Gildan Activewear SRL and the sewing facility for placket collar golf shirts; - Gildan Activewear El Progreso, S.A., a Honduras corporation, which operates a sewing facility in Honduras; - Gildan Activewear Malone, Inc., a New York corporation, which cuts fabric; - Gildan Activewear Miami, Inc., a Florida corporation, which operates the Miami distribution center; - Gildan Activewear San Jose, S.A., a Honduras corporation, which operates a second sewing facility in Honduras; 38 44 - Gildan Activewear SRL, a Barbados corporation, which is responsible for all of our non-Canadian sales and related activities; and - Winners Manufacturing, S.A., a recently acquired Honduras corporation, which operates a third sewing facility in Honduras whose name will be changed to Gildan Activewear San Miguel, S.A. QUALITY CONTROL Our quality control team has adopted strict standards and procedures to ensure the quality of our products. Our quality control team enforces plant-specific quality control standards at the facilities we own and monitors quality control at the facilities run by offshore contractors. As a result of our quality control team's efforts, we have not experienced any significant quality claims from our customers or end-users. MANAGEMENT INFORMATION SYSTEMS We have invested in information technology as a tool to: - reduce overall costs; - enhance the efficiency of our garment design and manufacturing; and - support the sale and distribution of our products to our customers. Our production software processes customer orders, schedules production for such orders and monitors the products ordered during all stages of production, from knitting to sewing and during packaging and distribution. We believe that our information technology has been effective in meeting our needs. We have evaluated various Enterprise Resource Planning (ERP) systems, and, on March 25, 1999 we signed a contract for the implementation, during fiscal 1999 and fiscal 2000, of a new ERP package comprising financial, manufacturing, sales management and distribution modules. These new systems will enhance our information technology capabilities which, in turn, will support our planned growth. See "Management Discussion and Analyses of Financial Condition and Results of Operations--Year 2000 Compliance". SEASONALITY The activewear business is seasonal. Demand for our products is higher during the third and fourth quarters than in the first two quarters of each fiscal year. We meet with our customers at the beginning of each fiscal year to ascertain their projected requirements and then plan our production and marketing strategy accordingly. Based on these discussions, we produce and store finished goods inventory in order to meet the expected demand for delivery in the second half of the fiscal year. This practice enables us to plan for the expected demand for delivery during the year. Our experience with this practice has been favorable, as customers' projections have been sufficiently reliable in the past. However, if after producing and storing inventory in anticipation of third and fourth quarter deliveries, demand is significantly less than expected, we may be required to hold inventory for an extended period of time at our expense, or sell the excess inventory at reduced prices, thereby reducing profits. See "Risk Factors--Our Industry Is Subject to Seasonality Risks". COMPETITION The wholesale imprinted activewear segment of the North American apparel market includes a number of significant competitors, and the activewear segment overall is extremely competitive. Our 39 45 primary competitors are the major U.S.-based manufacturers of basic branded activewear for the wholesale and retail channels. These manufacturers include Anvil Knitwear, Inc., the Bassett-Walker division of VF Corporation, the Delta Apparel division of Delta Woodside Industries, Inc., Fruit of the Loom, Inc., the Hanes Corporation division of Sara Lee Corporation, the Jerzees division of Russell Corporation, Oneita Industries Inc., and Tultex Corporation. Some of these manufacturers have moved the majority of their sewing operations offshore to reduce operating costs by lowering labor costs. We also compete with manufacturers of activewear outside the United States, which may have substantially lower labor costs. We compete primarily on the basis of quality and price. We produce only premium quality products. We are able to price our products competitively because of our success in maintaining low production and operating costs. We accomplish this by: - locating the majority of our sewing operations in the Caribbean Basin and Central America, where we benefit from lower labor costs; - using only modern, automated facilities; - locating our knitting and dyeing and finishing facilities in the Province of Quebec, where we benefit from an abundant supply of low-cost energy and water, resources necessary for the manufacturing, dyeing and finishing of fabric; and - selling to the wholesale channel which enables us to us to use a small sales force and avoid the costs and complexities of selling to the retail channel. Our vertically-integrated operations allow us to produce activewear from our own fabrics, further maximizing profit margins, reducing transportation costs and enabling us to monitor quality. Furthermore, we have been innovative in product development, incorporating premium quality features without compromising our comparative price advantage. Our ability to remain competitive in the areas of quality, price, marketing, product development, manufacturing, distribution and order processing will, in large part, determine our future success. Anticipated changes in the regulatory environment affecting the textile and apparel industries may also affect the competitive pressures facing us. See "--Trade Regulatory Environment". TRADE REGULATORY ENVIRONMENT The textile and apparel industries in both the United States and Canada have historically received a relatively higher degree of international trade protection than some other industries. However, this protection is diminishing as a result of the implementation of trade agreements reached in the last ten years. So far, we have been able to adapt to this changing international regulatory climate. In order to maintain our competitiveness in the future, we must continue to adapt to future changes in trade protection, including changes reflected in existing trade agreements and changes that may be decided unilaterally by the governments of the countries and regions in which we and our competitors operate. We have structured our operations in order to minimize the impact that the current regulatory trade regime would have on the movement of inputs and the sale of final products internationally. For example, by cutting fabric in the United States, we can use favorable tariff provisions that would be unavailable if the cutting were done in Canada. However, we believe that, taken as a whole, the current regulatory trade regime is no more burdensome to us than to our competitors. 40 46 WORLD TRADE ORGANIZATION In 1995, the Agreement on Textiles and Clothing came into effect, requiring importing countries, including the United States and Canada, to eliminate quotas on imports of textiles and apparel from exporting countries by 2005. The Agreement on Textiles and Clothing establishes a new set of criteria to be applied by World Trade Organization member nations against other World Trade Organization members during the ten-year phase-in period. This regime permits the temporary imposition of additional quotas on textile and apparel exports in the event such exports are causing, or threatening to cause, serious damage to the industry in the importing nation. Although China and Taiwan currently remain outside the World Trade Organization, both are seeking membership. If either China or Taiwan were to be admitted into the World Trade Organization on terms that did not allow for the imposition of quotas against their products, this could have a material adverse effect on us because it would increase competition with products from countries with low labor costs. The United States maintains bilateral textile quota agreements under the Agreement on Textiles and Clothing with the countries in which Gildan assembles its garments, except Mexico. See "--NAFTA". None of our product categories is currently subject to quotas into the United States under these bilateral agreements. It is possible that during the World Trade Organization quota phase-out period, the United States could impose quotas on some or all of our products from these countries in conformity with its World Trade Organization obligations. Our Caribbean-made products are not subject to quotas in Canada, as Canada does not have bilateral textile quota agreements with the Caribbean countries in which we produce garments. The World Trade Organization also obtains commitments from all members to reduce tariffs over a ten-year period. The United States is committed to tariff reductions in the textile and apparel sector, but, compared to other industries, these reductions are very small, and textiles and apparel remain one of the most highly tariff-protected U.S. industries. Because our cutting operations are performed in the United States, we are able to take advantage of the duty deduction on finished garments imported into the United States under sub-heading 9802.00.80, Harmonized Tariff Schedules of the United States (formerly item 807.00, Tariff Schedules of the United States) for the value of the fabric cut in the United States and sewn outside the United States. The dutiable portion of the garment is assessed with duty at the Most Favored Nation rates bound in accordance with the World Trade Organization obligations, except for goods sewn in Mexico or Canada, which are subject to NAFTA rates, as discussed below. When such garments are then sent to Canada from the United States, they must pay the full Most Favored Nation rate of duty, which is currently 21%, but are eligible for duty drawback on the duty paid into the United States on Caribbean imports. NAFTA NAFTA was implemented on January 1, 1994. This agreement establishes a free trade area among the United States, Mexico and Canada. The United States and Canada had previously implemented a bilateral free trade agreement which was incorporated into NAFTA. None of the benefits of NAFTA applies to our goods sewn outside of the three NAFTA countries and exported to the United States for distribution. All NAFTA-originating merchandise was removed from quota upon implementation on January 1, 1994. NAFTA-originating merchandise generally requires goods to be made in a NAFTA country from the yarn stage forward. In other words, the yarn must be spun or extruded in a NAFTA country, the fabric must be woven or knitted in a NAFTA country, and the apparel must be cut and assembled in a NAFTA country to be considered NAFTA-qualifying. Certain exceptions and additional criteria for 41 47 qualification to these requirements are set forth in NAFTA. Because we knit our fabric in Canada from United States yarn, our garments sewn in either Canada or Mexico are NAFTA-qualifying and quota free. Our garments sewn in facilities located offshore, other than Mexico, do not qualify for any of the benefits of NAFTA, including preferential tariff treatment. NAFTA provides for the eventual unrestrained trade in all non-NAFTA originating textiles and clothing among the three nations by 2004. Only goods from Mexico were previously under quota into the United States, and there were no quotas on textile and apparel goods traded between Canada and the United States. Some non-NAFTA originating textile and apparel goods from Mexico exported to the United States were immediately removed from quota, other items will be integrated in three stages, January 1, 1994, January 1, 2001 and January 1, 2004. NAFTA sets forth a schedule to provide duty-free trade for textile and apparel goods originating in Canada, the United States or Mexico. The tariffs for NAFTA-originating textiles and apparel traded between the United States and Canada were eliminated effective January 1, 1998, pursuant to the tariff phase-out schedule carried over into NAFTA from the previous United States-Canada Free Trade Agreement. Thus, our Canadian-sewn goods imported into the United States were duty free as of January 1, 1998. The tariffs on some Mexican NAFTA-originating products, including our products, were eliminated on January 1, 1994 for imports into the United States and Canada. Other NAFTA-originating products were subject to staged duty reductions effective on January 1, 1994 and gradually phased-out over a six-or ten-year period. Non-NAFTA originating apparel goods cut or sewn in the NAFTA territory from non-NAFTA originating yarn or fabric are entitled to receive NAFTA duty rates up to "tariff preference levels". A tariff preference level is a quota which allows non-NAFTA originating goods to receive the same duty treatment as qualifying goods until that quota is reached. There is no provision in NAFTA for the removal of these limits, although certain U.S. interests are seeking to renegotiate certain of the tariff preference levels. FUTURE TRADE AGREEMENTS NAFTA may be expanded in the future to include other countries. Both Mexico and Canada have implemented free trade agreements with Chile. The United States has announced its intention to expand the scope of NAFTA, with Chile being the first country to join. Recent efforts have also been made by the United States to extend the benefits of NAFTA to the CBI countries. It is not known whether this legislation will come into effect nor what its terms will be. Under all pending legislative proposals, there would be no duty on goods sewn in CBI countries upon entry into the United States if the fabric were knit in the United States from yarn spun in the United States. The adoption of this legislation in the United States could adversely affect our operations because we knit all of our fabric in Canada. Thus, all of our goods sewn in the Caribbean and subsequently exported to the United States would remain subject to duties whereas some of our competitors that knit their fabric in the United States from yarn spun in the United States would no longer be subject to these duties. This outcome would give an advantage to some of our competitors. In addition, the Free Trade Agreement of the Americas is moving forward. This agreement would open a free trade area among the 34 nations of the western hemisphere. Negotiations have begun and are slated to end in 2005. 42 48 EMPLOYEES At March 31, 1999, we employed approximately 3,400 full-time employees. Our sewing contractors in Honduras, Mexico, Haiti, El Salvador and Nicaragua employ approximately 3,100 additional persons. Of our 3,400 full-time employees, approximately 270 are covered by collective bargaining agreements. Approximately 150 employees at the Valleyfield dyeing and finishing facility are covered by a collective bargaining agreement that expires on October 31, 2001 and approximately 120 employees at the Montreal dyeing and finishing facility are covered by a collective bargaining agreement that expires on December 31, 2001. We consider our relations with our employees to be very good and, as of the date of the prospectus, we have not experienced any work stoppages that have had a material impact on our operations. INTELLECTUAL PROPERTY We own several registered trademarks, including, among others, "Gildan" in Canada and the United States, the Gildan "logo" in Canada, and "Gildan Activewear" in several countries in Europe, Central America, South America and Asia and in Australia. Applications for the registration of a number of other trademarks, including "Gildan Activewear", are pending in Canada, the United States and several other countries. We believe that the rights to our trademarks are significant assets in Canada and the United States. We have and intend to continue to maintain our trademarks and the relevant registrations, and will actively pursue the registration of trademarks in Canada, the United States and abroad. ENVIRONMENTAL REGULATION All of our operations are subject to various environmental and occupational health and safety laws and regulations. Because we monitor environmental issues, we believe that we are in compliance with the regulatory requirements of those jurisdictions in which our facilities are located. We will continue to make expenditures to comply with these requirements, and we do not believe that compliance will have a material adverse effect on our business. As is the case with manufacturers in general, if a release of hazardous substances occurs on or from our properties or any associated offsite disposal locations, or if contamination from prior activities is discovered at any of our properties, we may be held liable. While the amount of such liability could be material, we endeavor to conduct our operations in a manner that reduces such risks. LEGAL PROCEEDINGS There are no material legal proceedings pending against us. 43 49 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning our directors and executive officers at May 1, 1999.
NAME AND MUNICIPALITY OF RESIDENCE AGE POSITION - ----------------------------------------- --- ----------------------------------------- H. Gregory Chamandy...................... 40 Chairman of the Board and Chief Executive Montreal, Quebec, Canada Officer Glenn J. Chamandy........................ 37 Director, President and Chief Operating Town of Mount Royal, Quebec, Canada Officer Edwin B. Tisch........................... 60 Director, Executive Vice President, Hampstead, Quebec, Canada Manufacturing William H. Houston III(3)................ 64 Director Memphis, Tennessee, United States Daniel Laporte(1)(2)(3).................. 52 Director Westmount, Quebec, Canada Norman M. Steinberg(1)(2)(3)............. 49 Director Cote St-Luc, Quebec, Canada Robert M. Baylis(1)...................... 60 Director Rowayton, Connecticut, United States Richard P. Strubel(2).................... 59 Director Chicago, Illinois, United States Laurence G. Sellyn....................... 50 Chief Financial Officer Surrey, British Columbia, Canada Gino Martel.............................. 40 Secretary Montreal West, Quebec, Canada Shirley Chamandy......................... 60 Treasurer Montreal, Quebec, Canada George Sam Yu Sum........................ 41 Vice President, Operations Hampstead, Quebec, Canada David Cherry............................. 42 President of Gildan Activewear SRL, Bridgetown, Barbados Gildan Activewear (Barbados) Inc. and Gildan Activewear Properties (BVI) Inc. Barry E. Mademann........................ 59 Vice President, Textile Manufacturing Statesville, North Carolina, United States Francois Vinette......................... 43 Vice President, Information Technology Dollard-des-Ormeaux, Quebec, Canada Ira Kaminsky............................. 57 President of Gildan Activewear San Jose, S.A., San Pedro Sula, Honduras Gildan Activewear El Progreso, S.A. and Winners Manufacturing, S.A.
- ------------------------- (1) Member of the audit committee. (2) Member of the compensation committee. (3) Member of the corporate governance committee. H. Gregory Chamandy is the co-founder of Gildan and has served as Chairman of the Board and Chief Executive Officer since December 1994, prior to which he served in various executive capacities 44 50 with Gildan. Mr. Chamandy has been involved in various Chamandy family textile and apparel businesses for over twenty years. Mr. Chamandy has been a director of Gildan since 1984. Glenn J. Chamandy is the co-founder of Gildan and has served as President and Chief Operating Officer since December 1994, prior to which he served in various executive capacities with Gildan. Mr. Chamandy has been involved in various Chamandy family textile and apparel businesses for over eighteen years. Mr. Chamandy has been a director of Gildan since 1984. Edwin B. Tisch has served as Executive Vice President, Manufacturing since April 1998 and was Vice President, Manufacturing from 1987 to 1998. Mr. Tisch has been involved in the textile and apparel businesses in Canada and Europe for over thirty years. Mr. Tisch has been a director of Gildan since January 1996. William H. Houston III has served as an associate with Flanagan Trading Corporation since 1996 and as a senior consultant with Sandler and Travis Trade Advisory Services, a firm he joined in 1990. Prior to accepting that position, he served as U.S. Ambassador/Chief Textile Negotiator for the United States Trade Representative during 1987 and 1988. He also worked with Sparks Companies, Inc., an international consulting firm specializing in the agricultural sector, during 1994 and 1995, and continues to operate World Trade Link, an international business consulting firm he founded in 1988. He is a past president of the Cotton Foundation and the Delta Council. Mr. Houston has been a director of Gildan since November 1997. Daniel Laporte has served as Vice President, Investment for the Fund, one of the largest venture capital funds in Canada, since June 1996. From February 1994 to June 1996, Mr. Laporte served as Investment Advisor and Portfolio Manager for the Fund. Prior to joining the Fund, Mr. Laporte was a Vice President with the venture capital arm of The Royal Bank of Canada, RBC Capital. Mr. Laporte has been a director of Gildan since January 1996. Norman M. Steinberg is a partner of Ogilvy Renault, our Canadian counsel, and a member of its management committee. He has been associated with Ogilvy Renault since 1976 and he is a director of various companies and non-profit organizations, such as the Montreal Symphony Orchestra and Centaur Theatre. He is also the President of the Canadian Club of Montreal. Mr. Steinberg has been a director of Gildan since March 1998. Robert M. Baylis is currently director of The International Forum, an executive education program of the Wharton School and is a director of various companies, including New York Life Insurance Company, Host Marriott Corporation and Covance, Inc. Mr. Baylis retired from the position of Vice Chairman of CS First Boston in 1996, after thirty-three years with this investment banking firm or associated corporations. He was Chairman and Chief Executive Officer of CS First Boston Pacific Inc./ Hong Kong from 1993 to 1994. Mr. Baylis has been a director of Gildan since February 1999. Richard P. Strubel acts as a trustee of the institutional and retail mutual funds managed by Goldman, Sachs & Co. and is a managing director of Tandem Partners, Inc., a privately held management services firm which he formed in 1990. He is also trustee of the Northern Institutional Funds, a family of institutional mutual funds managed by the Northern Trust Company, and a director of Kaynar Technologies Inc., a leading manufacturer of aircraft fasteners based in Orange, California listed on the NASDAQ. Mr. Strubel was President of Northwest Industries, which included Fruit of the Loom and BVD among its operating entities, from 1982 to 1983. Mr. Strubel has been a director of Gildan since February 1999. Laurence G. Sellyn has served as Chief Financial Officer since April 1999. He is a Chartered Accountant. Prior to joining Gildan, Mr. Sellyn served as Senior Vice President, Finance and Corporate Development and Chief Financial Officer of Wajax Limited, an industrial distribution company, from 45 51 October 1992 to March 1999. Prior to joining Wajax, he was employed by Domtar Inc., where he held various positions, including Corporate Controller and Vice President, Business Planning and Development. Gino Martel has served as Secretary since March 1998. Mr. Martel is also a partner of Hart, Saint-Pierre, our Canadian counsel. He has been employed by Hart, Saint-Pierre since 1985. Shirley Chamandy has served as Treasurer since Gildan's inception. Ms. Chamandy has been involved in various Chamandy family textile and apparel businesses for over thirty-three years. George Sam Yu Sum has served as Vice President, Operations since 1998. Previously, he served as Director of Operations. Prior to joining Gildan in 1995, Mr. Sam Yu Sum spent sixteen years with Dominion Textiles where he served in various managerial capacities, from manufacturing to sales. David Cherry has served as President of Gildan Activewear SRL, Gildan Activewear (Barbados) Inc. and Gildan Activewear Properties (BVI) Inc. since August 1998, March 1999 and March 1999, respectively. He served as Vice President, Logistics from July 1998 to February 1999. Prior to joining Gildan, he was employed by Fruit of the Loom for over twenty years, where his last position was Vice President of Distribution and Logistics. Barry E. Mademann has served as Vice President, Textile Manufacturing since June 1998. Prior to joining Gildan, he served as Vice President for Jockey International for thirteen years. He was also a principal at Kurt Salmon Associates for twelve years. Francois Vinette has served as Vice President, Information Technology since August 1998. Prior to joining Gildan, he served for two years as Senior Project Director at IBM Canada Ltd. Prior to IBM, he served for sixteen years as MIS project director for several other companies. Ira Kaminsky has served as the President of Gildan Activewear San Jose, S.A. Gildan Activewear El Progreso, S.A. and Winners Manufacturing, S.A. since June 1997, June 1998 and March 1999, respectively. From January 1997 to June 1997, he served as Production Manager, Offshore. Prior to joining Gildan, Mr. Kaminsky worked for Val-Dor, Inc., a sewing contractor. H. Gregory Chamandy and Glenn J. Chamandy are brothers and Shirley Chamandy is their mother. BOARD OF DIRECTORS Our board of directors currently consists of eight members. Each director is elected at the annual meeting of shareholders to serve until the next annual meeting or until a successor is elected or appointed. At each annual meeting of shareholders, two directors, called the Class A Directors, are elected by the holders of Class A Subordinate Voting Shares only, voting as a separate class. Messrs. Baylis and Houston are the current Class A Directors. The remaining directors are elected by the Class A Subordinate Voting Shares and the Class B Multiple Voting Shares, voting together as a single class, with holders of the Class A Subordinate Voting Shares having one vote per share and holders of the Class B Multiple Voting Shares having eight votes per share. If there are no longer any Class B Multiple Voting Shares outstanding on the date of any meeting of shareholders at which directors are to be elected, then all of our directors will be elected by the holders of Class A Subordinate Voting Shares. Because of the voting rights attached to the Class B Multiple Voting Shares, holders of the Class B Multiple Voting Shares may be able to elect all of the directors other than the Class A Directors even when the number of outstanding Class B Multiple Voting Shares represents a very small proportion of the Equity Shares outstanding. See "Risk Factors--We Are Controlled by Harco" and "Description of Share Capital". Executive officers are appointed annually and serve at the discretion of the board of directors. 46 52 COMMITTEES OF THE BOARD OF DIRECTORS Our board of directors has an audit committee, a compensation committee and a corporate governance committee. The audit committee is responsible for recommending to the board of directors the engagement of our independent auditors and reviewing with the independent auditors the scope and results of the audits, our internal accounting controls, audit practices and the professional services furnished by the independent auditors. The compensation committee reviews the performance of most of our executive officers and our operating subsidiaries, makes recommendations to the board on, among other things, the compensation of senior executives and administers our stock option plan. The corporate governance committee is responsible for matters relating to corporate governance. COMPENSATION OF DIRECTORS Each director who is not a salaried officer of Gildan or any of its subsidiaries (a "Non-Executive Director") receives the following compensation for services during his term of office: - a basic annual retainer of $8,000 payable in quarterly installments for services as a director; - an additional annual retainer of $1,000 ($3,500 in the case of the chairman of the committee) for services on a committee of the board of directors; - $1,000 for each board or committee meeting attended, or $500 in the case of meetings held on the same day as another meeting for which the Non-Executive Director is already being paid a fee; and - reimbursement for travel and other out-of-pocket expenses incurred in attending board or committee meetings. Non-Executive Directors residing in the United States receive the foregoing amounts in U.S. dollars. For example, the basic annual retainer paid is US$8,000, as opposed to the U.S. dollar equivalent of Cdn$8,000. In addition to the base compensation described above, Non-Executive Directors may also be granted options under our stock option plan, as described under "--Stock Option Plan". During fiscal 1998, options covering 5,000 Class A Subordinate Voting Shares were granted to each of the Non-Executive Directors then in office at an exercise price of $10.29 (US$7.00) per Class A Subordinate Voting Share. COMPENSATION STRATEGY We recently developed and implemented a formal strategic policy regarding the compensation of our executives (and other non-production employees). This policy is intended to ensure that our executives receive total compensation that (a) is competitive with the compensation received by executives employed by a group of comparable companies selected by us (the "reference market"), (b) links the executives' interests with those of the shareholders and (c) rewards superior performance. The policy is comprised of three components: - the base compensation strategy which is intended to align base salaries, benefits and perquisites with the median of the reference market; - the short-term incentive plan, which is our annual incentive plan and aims at providing bonuses which bring the total cash compensation received by our executives to the 75th percentile of total cash compensation received by executives in the reference market, if all of our financial objectives are met or exceeded; and 47 53 - the long-term incentive plan, which is our stock option plan and is intended to bring the total compensation received by our executives to the 75th percentile of total compensation received by executives in the reference market. EXECUTIVE COMPENSATION The aggregate amount of compensation we paid to our directors and executive officers as a group (15 persons) for fiscal 1998 was approximately $2.5 million. The following table sets forth certain compensation information for the Chief Executive Officer and the four other most highly compensated executive officers (collectively, the "Named Executive Officers") for services rendered in all capacities during fiscal 1997 and fiscal 1998.
LONG-TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION SHARES ------------------------------------- UNDERLYING OTHER ANNUAL OPTIONS FISCAL SALARY BONUS COMPENSATION(1) GRANTED NAME AND PRINCIPAL POSITIONS YEAR ($) ($) ($) (#) - ---------------------------- ------ ------- ------- --------------- ------------ H. Gregory Chamandy.................. 1998 298,000 249,558(2)(3) 26,086(4)(5) 88,000 Chairman of the Board and 1997 131,151 100,000 40,319(5)(6) -- Chief Executive Officer Glenn J. Chamandy.................... 1998 298,000 249,558(2)(3) 35,449(5)(7) 88,000 President and 1997 146,498 100,000 28,282(5)(8) -- Chief Operating Officer Edwin B. Tisch....................... 1998 298,000 249,558(2)(3) 4,758(9) 88,000 Executive Vice President, 1997 125,922 100,000 19,646(10) -- Manufacturing Ken Cieply(11)....................... 1998 194,000 43,090(3) -- 57,000 Vice President, 1997 173,826 115,034 373 -- Finance and Administration George Sam Yu Sum(12)................ 1998 143,749 33,317(3) -- 30,000 Vice President, 1997 -- -- -- -- Operations
- ------------------------- (1) Perquisites and other personal benefits which in the aggregate do not exceed 10% of the total annual salary and bonus of a Named Executive Officer for the year have been excluded. (2) These bonus amounts include a special bonus of $155,000 granted to each of H. Gregory Chamandy, Glenn J. Chamandy and Edwin B. Tisch. (3) Given that our annual incentive plan came into effect on May 1, 1998, incentive bonuses included in these amounts correspond to 5/12ths of the annual bonuses calculated pursuant to the annual incentive plan. (4) This amount includes $23,993 of interest benefit, imputed at an annual rate of 7.0%, on loans made available to the Named Executive Officer and his associates. See "--Indebtedness of Directors and Officers". (5) No amount has been included in this column on account of imputed interest on a loan in the amount of $1,712,769 ($990,000 in 1997) extended by us to Harco which, up to July 1998, was non-interest bearing, because such loan was extended otherwise than in connection with the Named Executive Officers' compensation. (6) This amount includes $15,051 relating to a housing benefit and $17,292 of interest benefit, imputed at an annual rate of 6.0%, on loans made available to the Named Executive Officer and his associates. See "--Indebtedness of Directors and Officers". (7) This amount includes $33,826 of interest benefit, imputed at an annual rate of 7.0%, on loans made available to the Named Executive Officer and his associates. See "--Indebtedness of Directors and Officers". (8) This amount includes $20,306 of interest benefit, imputed at an annual rate of 6.0%, on loans made available to the Named Executive Officer and his associates. See "--Indebtedness of Directors and Officers". 48 54 (9) This amount includes $2,091 of interest benefit, imputed at an annual rate of 7.0%, on loans made available to the Named Executive Officer and his associates. See "--Indebtedness of Directors and Officers". (10) This amount includes $11,077 relating to a housing benefit extended to Mr. Tisch. (11) As of April 1999, Mr. Cieply is no longer employed by Gildan. (12) Mr. Sam Yu Sum was appointed to his current position effective April 1998 and was not an executive officer of Gildan prior to that time. Accordingly, only his compensation for 1998 is reported in this table. ANNUAL INCENTIVE PLAN Our annual incentive plan, known as the Gildan Supplemental Cash Opportunity for Results Exceeded ("SCORE"), is intended to promote our financial performance. All full-time, permanent salaried employees are eligible for bonuses under our annual incentive plan. For a given fiscal year, if both our actual net earnings exceed the forecasted net earnings and our actual return on net assets exceeds the forecasted return on net assets by 5% each, we will pay a bonus based on a pre-determined target percentage of each eligible employee's base compensation. STOCK OPTION PLAN Our stock option plan came into effect in June 1998 and is designed to assist in attracting and retaining executives and other key employees and to better align their interests with those of the shareholders. The stock option plan provides for the granting of options to non-employee directors, officers and other key employees of Gildan and its subsidiaries. The compensation committee administers the stock option plan on behalf of the board of directors. Grant levels depend on the position of the employee and are based on the highest of the closing prices of the Class A Subordinate Voting Shares on The Montreal Exchange, The Toronto Stock Exchange and the American Stock Exchange on the trading day immediately preceding the effective date of the grant of the options ("Gildan Market Value"). Options must be exercised during a period established by the compensation committee which may not be longer than ten years from the effective date of the grant. The exercise price payable for each Class A Subordinate Voting Share covered by an option is equal to the Gildan Market Value. 995,000 Class A Subordinate Voting Shares have been reserved for issuance under the stock option plan. Our stock option plan provides that, unless shareholder approval is obtained, the number of Class A Subordinate Voting Shares reserved for issuance pursuant to the exercise of options thereunder as well as under other share compensation arrangements will be limited to 10% of the Equity Shares issued and outstanding. Our stock option plan further provides for certain limits on the number of Class A Subordinate Voting Shares which we may issue to insiders and their associates in any one-year period under all of our share compensation arrangements. At May 7, 1999, employees and non-employee directors of Gildan had been granted options to subscribe for a total of 856,500 Class A Subordinate Voting Shares at prices ranging from $10.29 to $16.50 per share, as shown in the following table.
DIRECTORS AND OTHER EXECUTIVE OFFICERS EMPLOYEES OF GILDAN OF GILDAN ------------------ --------- Number of options granted.................................. 601,000 255,500
49 55 OPTIONS GRANTED DURING FISCAL 1998 The table below shows information regarding grants of stock options made to the Named Executive Officers under our stock option plan during fiscal 1998.
PERCENTAGE OF MARKET VALUE SHARES TOTAL OF SHARES UNDERLYING OPTIONS UNDERLYING OPTIONS GRANTED TO OPTIONS ON THE GRANTED EMPLOYEES IN EXERCISE PRICE DATE OF GRANT EXPIRATION NAME (#) FISCAL YEAR (CDN$/SHARE) (CDN$/SHARE) DATE - ---- ---------- ------------- -------------- -------------- ------------- H. Gregory Chamandy............. 88,000 13.9% $10.29 $10.29 June 15, 2008 Glenn J. Chamandy............... 88,000 13.9 10.29 10.29 June 15, 2008 Edwin B. Tisch.................. 88,000 13.9 10.29 10.29 June 15, 2008 Ken Cieply...................... 57,000 9.0 10.29 10.29 June 15, 2008 George Sam Yu Sum............... 30,000 4.7 10.29 10.29 June 15, 2008
AGGREGATED OPTION EXERCISES DURING FISCAL 1998 AND FISCAL YEAR-END OPTION VALUES The following table summarizes, for each of the Named Executive Officers, (a) the number of stock options, if any, exercised during fiscal 1998, (b) the aggregate value realized upon exercise, which is the difference between the market value of the underlying shares on the exercise date and the exercise or base price of the option, (c) the total number of unexercised options, if any, held at October 4, 1998 and (d) the aggregate value of unexercised in-the-money options at fiscal year-end, which is the difference between the exercise or base price of the options and the market value of the Class A Subordinate Voting Shares on October 1, 1998, which was $11.25 (US$7.32, based on the inverse of the Noon Buying Rate on October 1, 1998 of Cdn$1.00 per US$0.6507) per share. The aggregate values indicated with respect to unexercised in-the-money options at fiscal year-end have not been, and may never be, realized. These options have not been, and may not be exercised, and actual gains, if any, on exercise will depend on the value of our Class A Subordinate Voting Shares on the date of exercise.
VALUE OF UNEXERCISED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS SHARES AGGREGATE FISCAL YEAR-END AT FISCAL YEAR-END ACQUIRED ON VALUE (#) ($) EXERCISE REALIZED ---------------------------- ---------------------------- NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- ----------- --------- ----------- ------------- ----------- ------------- H. Gregory Chamandy.. -- -- -- 88,000 -- $84,480 Glenn J. Chamandy.... -- -- -- 88,000 -- 84,480 Edwin B. Tisch....... -- -- -- 88,000 -- 84,480 Ken Cieply........... -- -- -- 57,000 -- 54,720 George Sam Yu Sum.... -- -- -- 30,000 -- 28,800
INDEBTEDNESS OF DIRECTORS AND OFFICERS At March 31, 1999, the aggregate amount owed to us or our subsidiaries by all of our current directors, officers and employees, and former directors, officers and employees as of such date, was approximately $1,552,000, exclusive of travel advances as permitted by Canadian securities laws. No portion of such indebtedness was advanced in connection with a purchase of our securities or those of our subsidiaries. The following table provides information regarding indebtedness owed to us by each individual who currently is or at any time during fiscal 1998 has been a director or officer of Gildan, or an associate of any of the foregoing. 50 56 TABLE OF INDEBTEDNESS OF DIRECTORS AND OFFICERS OTHER THAN UNDER SECURITIES PURCHASE PROGRAMS
INVOLVEMENT OF THE LARGEST AMOUNT AMOUNT CORPORATION OR OUTSTANDING FOR OUTSTANDING AT NAME SUBSIDIARY FISCAL 1998 MARCH 31, 1999 - ---- ------------------ --------------- -------------- H. Gregory Chamandy.................. Lender $ 426,587(1)(2) $ 750,000(2)(3) Glenn J. Chamandy.................... Lender 529,655(2)(4) 750,000(2)(4) Edwin B. Tisch....................... Lender 30,075(5) 27,850(5)
- ------------------------- (1) Includes an amount of $260,000 we advanced to Gregco Holdings Inc., which is wholly owned by H. Gregory Chamandy. This amount was repaid in full in February 1999. (2) Does not include an amount of $1,712,769 ($3,703,793 as at March 31, 1999), we advanced to Harco, which is controlled by H. Gregory Chamandy and Glenn J. Chamandy, and an amount of $3,360,000 which Harco borrowed from a third party and with respect to which we have issued a guaranty which was cancelled on November 19, 1998. With respect to the advance we made to Harco, at March 31, 1999, approximately $1,686,000 bears interest at an annual rate of 8.5% while the balance is interest free. (3) This amount is payable in ten equal and consecutive annual installments, without interest, beginning December 1, 1999. (4) Includes an amount of $320,000 advanced by us to Glennco Holdings Inc., a company wholly owned by Glenn J. Chamandy. This amount was repaid in full in March 1999. (5) Of this amount, $15,350 is owed to us by Mr. Tisch with respect to a "dwelling loan", for which principal is payable at a rate of $2,500 per year. Approval of any such loans must be obtained in accordance with our formal policy with respect to potential conflicts of interest. See "Certain Relationships and Related Transactions--Conflicts of Interest Policy". EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL AGREEMENTS We have entered into employment agreements (the "Employment Agreements") with certain of our key employees, including H. Gregory Chamandy, Glenn J. Chamandy, Edwin B. Tisch, George Sam Yu Sum and Francois Vinette. The Employment Agreements provide that we will pay the executive a base salary, the level of which will be reviewed annually in accordance with our policies. The Employment Agreements have an indefinite term. Nonetheless, we may terminate the executive at any time without making any severance payments upon his death, disability, breach of his Employment Agreement or for cause. In addition, the executive may terminate his employment at any time upon prior written notice ranging from one to six months. Each Employment Agreement provides that if we terminate the employment of the executive for any reason other than those stated above or take any action which could be construed as constructive dismissal, then the executive is entitled to: - an amount equal to 24 months' base salary (12 months in the case of Messrs. Sam Yu Sum and Vinette), paid out, at the executive's option, either as a one-time payment or as monthly or bi-weekly installments, as the case may be, covering the 24 months or the 12 months following termination, as the case may be (the "Termination Period"); - a one-time payment equal to 24 months of the target annual bonus established under the annual incentive plan (in favor of H. Gregory Chamandy, Glenn J. Chamandy and Edwin B. Tisch only); - continuation of group insurance benefits, except short and long-term disability, for the Termination Period, ceasing upon new employment, if earlier; - any earned bonus, for example, a bonus with respect to a previous fiscal year, that would otherwise be payable to the executive during Termination Period pursuant to the annual incentive plan; 51 57 - the right to exercise vested options pursuant to the stock option plan within 90 days following termination of employment; and - the payment of any earned but unused vacation days and any amounts due under the executive's business expense and personal spending accounts, as authorized. The Employment Agreements also provide that, following termination, the executive will not: - disclose to any person or use for his own purpose any confidential information or knowledge relating to Gildan; - solicit during the Termination Period any of our customers with the intent of selling them any products which are similar to or, competing with our products; or - induce, entice or hire any of our employees. We have also entered into change of control agreements (the "Change of Control Agreements") with each of H. Gregory Chamandy, Glenn J. Chamandy, Edwin B. Tisch, George Sam Yu Sum and Francois Vinette. Under these agreements, in the event of potential change of control (as defined in the Change of Control Agreements), the executive agrees to remain employed by us until the earliest of (a) 365 days from the date of the potential change of control, (b) his termination of employment by death or disability or (c) his termination of employment by us without cause or by the executive with good reason. The Change of Control Agreements also provide that if a change of control occurs and we terminate the executive without cause, or if the executive terminates his employment for good reason, then the executive will be entitled to: - his full base salary, subject to withholding, through the date of termination; - a one-time payment, subject to withholding, equal to 36 month's base salary (24 months in the case of Messrs. Sam Yu Sum and Vinette); - any amounts, subject to withholding, required to be paid to him under the stock option plan; - a one-time payment, subject to withholding, equal to 36 months (24 months in the case of Messrs. Sam Yu Sum and Vinette) of the target annual bonus established under the annual incentive plan; - continuation of employee benefits for 36 months (24 months in the case of Messrs. Sam Yu Sum and Vinette), ceasing upon new employment, if earlier; and - any earned but unused vacation days. 52 58 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CONFLICTS OF INTEREST POLICY We have put into effect a formal policy to address any potential conflicts of interest that may arise in connection with any material transaction involving Gildan and one of our officers or directors. Under this policy, each director or officer who: - is a party to any material contract or proposed material contract with us; or - has a material interest in, or is a director or officer of, any entity which is a party to any material contract or proposed contract with us, is required to disclose in writing to us the nature and extent of any such interest and, in the case of directors, is required to abstain from voting upon any resolution to approve the contract in question, unless such contract: - provides for our benefit or the benefit of one of our affiliates security for money lent to or obligations undertaken by the director; - relates primarily to the remuneration of a director, officer, employee or agent of Gildan or an affiliate of Gildan; - is for indemnity of insurance; or - is an agreement with one of our affiliates. The manner and timing of the disclosures contemplated by this policy, as well as the extent to which directors may be required to abstain from voting in connection with such contracts under this policy, have been established in accordance with, and by reference to, the applicable provisions of the Canada Business Corporations Act. TRANSACTIONS WITH AFFILIATES The following are the only material transactions we entered into since January 1, 1996, or propose to enter into, in which any existing or proposed director, officer or principal shareholder of Gildan, or any associates or affiliates thereof, has had or expects to have a material interest. OUR PRINCIPAL SHAREHOLDERS Harco: We lease the facility containing our executive offices and knitting operations in Ville Saint-Laurent from Harco. We paid rent of approximately $364,000, $420,000 and $545,485 in ten-month fiscal 1996, fiscal 1997 and fiscal 1998, respectively. We believe that the terms of this transaction are no less favorable to us than could have been obtained if the transaction was entered into with an unaffiliated third party. We guaranteed Harco's mortgage on the Ville Saint-Laurent facility. The total amount of such indebtedness guaranteed at September 29, 1996, October 5, 1997 and October 4, 1998 was $1,990,000, $2,360,000 and $3,360,000, respectively. This guaranty was cancelled on November 19, 1998. In 1996, in connection with the mortgage renewal on the Ville Saint-Laurent facility, we made a loan to Harco, which was non-interest bearing. Since June 1998 this loan bears interest, currently at an annual rate of 8.5%. At January 3, 1999, the aggregate amount of such indebtedness was approximately $1,700,000. In February 1999, we advanced $2.0 million to Harco. This advance does not bear interest and is payable on demand. 53 59 In 1987, we became indebted to Harco in the amount of $383,000, which amount was repaid in August 1998. Interest expenses incurred during ten-month fiscal 1996, fiscal 1997 and fiscal 1998 were approximately $28,000, $24,000 and $19,750, respectively. We had loans since January 1, 1996 which had been guaranteed by Harco, H. Gregory Chamandy, Glenn J. Chamandy and Shirlco Holding Ltd., a corporation then controlled by Shirley Chamandy which has since been amalgamated with Harco. At January 3, 1999, only Harco continued to guarantee loans which at that date totalled approximately $2,903,000 in aggregate principal amount. The Fund: We granted to the Fund two options, on January 31, 1996 and May 9, 1997, respectively, each of which was exercisable for $500,000 and allowed the Fund to purchase 3% of our outstanding voting shares, on a fully-diluted basis. In June 1998, the Fund exercised the first of the two options and received 291,294 Class "A" preferred shares and 29.13 Class "A" common shares at a price per share of $1.72. At the same time, we repurchased the second of these two options for $2.5 million. Also, in June 1998, we exercised an option, granted in August 1997, to redeem 581,500 Class "A" preferred shares and 58.15 Class "A" common shares held by the Fund, for an aggregate consideration of $100,000, at a price per share of $0.17. We believe that the terms of our transactions with the Fund, as a whole, are on terms no less favorable to us than could have been obtained if the transactions were entered into with an unaffiliated third party. We have also obtained from the Fund $30.0 million in financing, comprised of: - a $15.0 million unsecured and subordinated debenture due June 25, 2003, bearing interest at an annual rate of 11.0%, which replaced three then outstanding unsecured and subordinated debentures totalling $15.0 million; and - a $15.0 million unsecured and subordinated debenture due June 15, 2004, bearing interest at an annual rate of 12.0% for the first two years and 13.0% of the next three years. OUR OFFICERS AND DIRECTORS Gino Martel: We have retained Hart, Saint-Pierre as our corporate counsel since 1984. Mr. Martel, the Secretary of Gildan, is a partner of Hart, Saint-Pierre. We paid legal fees to Hart, Saint-Pierre of $91,333, $271,542 and $419,597 in ten-month fiscal 1996, fiscal 1997 and fiscal 1998, respectively. We believe that the terms of our relationship with Hart, Saint-Pierre are no less favorable to us than could be obtained from an independent third party. Norman M. Steinberg: We have retained Ogilvy Renault as our counsel in connection with various securities matters since November 1997. Mr. Steinberg, a director of Gildan, is a partner of Ogilvy Renault. We paid legal fees to Ogilvy Renault of $706,853 in fiscal 1998. We believe that the terms of our relationship with Ogilvy Renault are no less favorable to us than could be obtained from an independent third party. William H. Houston III: We have paid advisory and legal fees to various affiliates of Sandler & Travis Trade Advisory Services, for which Mr. Houston, one of our directors, serves as Senior Consultant. In ten-month fiscal 1996, fiscal 1997 and fiscal 1998, we paid US$10,320, US$50,118 and US$19,703 in fees to such affiliates, respectively. Sandler & Travis Trade Advisory Services acts as our advisor in reclaiming duty drawback payments from the U.S. government, and its affiliate, Sandler, Travis & Rosenberg, provides us with legal advice regarding trade regulatory issues. We believe that the terms of our relationships with these affiliated entities are no less favorable to us than could be obtained from an independent third party. 54 60 INDEBTEDNESS OF DIRECTORS AND OFFICERS For a detailed description of indebtedness owed to us by our directors and officers during fiscal 1998, see "Management--Indebtedness of Directors and Officers". REGISTRATION RIGHTS AGREEMENT Harco, the Fund and the Trusts have the right to require us to register the Class A Subordinate Voting Shares or the Class B Multiple Voting Shares (upon their conversion to Class A Subordinate Voting Shares), as the case may be, held by them under the U.S. Securities Act. Pursuant to the registration rights agreement, Harco, the Fund and the Trusts are granted an unlimited number of demand and piggy-back registration rights, except that no demand registration may be effected within one year after any other demand registration. We have agreed to pay all expenses incurred in connection with all piggy-back registrations and with the first five demand registrations, and will share expenses ratably with Harco, the Fund and the Trusts in connection with any additional demand registrations. The registration rights agreement provides for indemnities between us and Harco, the Fund and the Trusts for certain liabilities arising under the U.S. Securities Act. AGREEMENTS BETWEEN HARCO AND THE FUND Harco and the Fund have entered into an agreement (the "Agreement") with respect to the election of directors. Pursuant to the Agreement, for so long as the Fund holds at least 5% of the outstanding Equity Shares, - the Fund will abstain from voting its Class A Subordinate Voting Shares in the election of the Class A Directors; - the Fund will vote its Class A Subordinate Voting Shares in accordance with Harco's written instructions in the election of the non-Class A Directors; and - Harco will vote its Class B Multiple Voting Shares for one director designated by the Fund. The Agreement further provides that, for so long as the Fund holds at least 15% of the outstanding Equity Shares, Harco will vote its Class B Multiple Voting Shares for an additional director designated by the Fund, which designee must be reasonably acceptable to Harco. Currently, Mr. Laporte is the director who was designated by the Fund and Mr. Strubel is the additional designated director. Both parties' obligations under the Agreement terminate upon the Fund's ceasing to hold at least 5% of the outstanding Equity Shares and with respect to any of the Fund's Class A Subordinate Voting Shares transferred to a third party. Harco and the Fund also entered into an agreement which provides that Harco may not transfer any Class B Multiple Voting Shares to a third party, unless: - the transfer is pursuant to a takeover bid or a Permitted Transfer, as described under "Description of Share Capital--Equity Shares--Conversion"; or - the Fund is entitled to transfer to the third party the same number of Class A Subordinate Voting Shares, and on the same terms and conditions, as Harco is transferring. 55 61 PRINCIPAL SHAREHOLDERS The following table sets forth information regarding the beneficial ownership of our Class A Subordinate Voting Shares and our Class B Multiple Voting Shares as of February 28, 1999 by (a) each person known by us to own beneficially 10% or more of any class of Equity Shares and (b) all of our directors and executive officers as a group. Unless otherwise indicated, the address for each person listed is c/o Gildan Activewear Inc., 725 Montee de Liesse, Ville Saint-Laurent, Quebec, Canada H4T 1P5. See "Risk Factors--We Are Controlled by Harco".
CLASS A SUBORDINATE VOTING PERCENTAGE OF CLASS B SHARES OWNED CLASS A MULTIPLE VOTING BEFORE OFFERING SUBORDINATE SHARES OWNED PERCENTAGE OF ---------------------- VOTING SHARES ---------------------- TOTAL VOTING PERCENTAGE OWNED AFTER PERCENTAGE POWER AFTER NAME OF BENEFICIAL OWNER NUMBER OF CLASS OFFERING(1) NUMBER OF CLASS OFFERING(1) - ------------------------ --------- ---------- ------------- --------- ---------- -------------- Harco(2)................ -- -- -- 3,047,000 100% 70.20% H. Gregory Chamandy Family Trust(3)....... 856,300 11.65% 8.28% -- -- 2.47 Glenn Chamandy Family Trust(3).............. 856,300 11.65 8.28 -- -- 2.47 The Fund(4)............. 1,939,000 26.39 18.74 -- -- 5.58 Directors and Executive Officers as a group (16 persons)(2)(5).... 61,180 0.83 0.59 3,047,000 100 70.38
- ------------------------- (1) Assumes no exercise of the underwriters' over-allotment option. (2) H. Gregory Chamandy, Chairman and Chief Executive Officer of Gildan, and Glenn J. Chamandy, President and Chief Operating Officer of Gildan, who indirectly control Harco, may be deemed to beneficially own shares of Gildan owned by Harco. (3) The trustee for each of the Trusts is Royal Bank of Canada Financial Corporation which has sole voting power and sole investment power over the Class A Subordinate Voting Shares held by each of the Trusts. The Trusts are located at Royal Bank of Canada Financial Corporation, Royal Bank House, The Garrison, St. Michael, P.O. Box 48B, Bridgetown, Barbados, West Indies. (4) The Fund is located at 8717 rue Berri, Montreal, Quebec, Canada H2M 2T9. (5) Does not include shares held by the Trusts because, although some officers and directors are beneficiaries of the Trusts, they do not have voting power or investment power over the Class A Subordinate Voting Shares held by the Trusts. These officers and directors expressly disclaim beneficial ownership of these shares. 56 62 DESCRIPTION OF SHARE CAPITAL Our authorized share capital currently consists of an unlimited number of First Preferred Shares, issuable in series, an unlimited number of Second Preferred Shares, issuable in series (collectively, the "Preferred Shares"), an unlimited number of Class A Subordinate Voting Shares and an unlimited number of Class B Multiple Voting Shares, all of which are without par value. As of the date of this prospectus, only Class A Subordinate Voting Shares and Class B Multiple Voting Shares are outstanding. The following is a summary of the material terms of our authorized share capital as set forth in the Articles. This summary is qualified in its entirety by reference to, and is subject to, the detailed provisions of the Articles, as amended, and the Trust Agreement, as defined below. Because this is a summary, it does not contain all the information that may be important to you. You should read the Articles and the Trust Agreement before you buy Class A Subordinate Voting Shares. FIRST PREFERRED SHARES ISSUANCE IN SERIES The First Preferred Shares are issuable in series and the board of directors has the right, from time to time, to fix the number of, and to determine the designation, rights, privileges, restrictions and conditions attaching to, the First Preferred Shares of each series, subject to the limitations, if any, set out in the Articles. RANK The First Preferred Shares rank senior to the Second Preferred Shares and the Equity Shares with respect to the payment of dividends, return of capital and the distribution of assets in the event of the liquidation, dissolution or winding-up of Gildan. The First Preferred Shares in each series rank equally with the First Preferred Shares of any other series. VOTING RIGHTS Unless the Articles otherwise provide with respect to any series of the First Preferred Shares, the holders of the First Preferred Shares are not entitled to receive any notice of or attend any meeting of the shareholders of Gildan and are not entitled to vote at any such meeting. SECOND PREFERRED SHARES ISSUANCE IN SERIES The Second Preferred Shares are issuable in series and the board of directors has the right, from time to time, to fix the number of, and to determine the designation, rights, privileges, restrictions and conditions attaching to, the Second Preferred Shares of each series, subject to the limitations, if any, set out in the Articles. RANK The Second Preferred Shares are subject and subordinate to the rights, privileges, restrictions and conditions attaching to the First Preferred Shares. The Second Preferred Shares rank senior to the Equity Shares with respect to payment of dividends, return of capital and distribution of assets in the event of the liquidation, dissolution or winding-up of Gildan. The Second Preferred Shares in each series rank equally with the Second Preferred Shares of any other series. 57 63 VOTING RIGHTS Unless the Articles otherwise provide with respect to any series of the Second Preferred Shares, the holders of the Second Preferred Shares are not entitled to receive any notice of or attend any meeting of the shareholders of Gildan and are not entitled to vote at any such meeting. EQUITY SHARES Except as described herein, the Class A Subordinate Voting Shares and the Class B Multiple Voting Shares are equal in all respects and will be treated as if they were shares of one class only. RANK The Equity Shares rank junior to the First Preferred Shares and the Second Preferred Shares with respect to the payment of dividends, return of capital and distribution of assets in the event of the liquidation, dissolution or winding-up of Gildan. DIVIDENDS The holders of outstanding Equity Shares are entitled to receive dividends on a share-for-share basis out of assets legally available therefor at such times and in such amounts as the board of directors may from time to time determine without preference or distinction among or between the Class A Subordinate Voting Shares and the Class B Multiple Voting Shares. VOTING RIGHTS Except as set forth in the third succeeding paragraph, the Class A Subordinate Voting Shares carry one vote per share and the Class B Multiple Voting Shares carry eight votes per share. There is no cumulative voting. The holders of Class A Subordinate Voting Shares and the holders of Class B Multiple Voting Shares are entitled to receive notice of any meeting of our shareholders and to attend and vote at such meeting as a single class on all matters to be voted on by our shareholders, except for the election and the removal of directors as described below and as otherwise required by applicable law. With respect to the election of directors, the Articles provide that the board of directors will consist of between five and eleven members. The board of directors currently has eight members. For as long as any Class B Multiple Voting Shares are outstanding, at all shareholder meetings held after October 4, 1998 at which directors are elected, (a) two of the directors will be elected by the holders of the Class A Subordinate Voting Shares only, voting as a separate class and (b) the remaining directors will be elected by the holders of Class A Subordinate Voting Shares and Class B Multiple Voting Shares, voting together as a single class, with holders of Class A Subordinate Voting Shares having one vote per share and holders of Class B Multiple Voting Shares having eight votes per share. Because of the voting rights attached to the Class B Multiple Voting Shares, holders of Class B Multiple Voting Shares may be able to elect all of the directors other than the two Class A Directors even when the number of outstanding Class B Multiple Voting Shares is a very small proportion of the number of Equity Shares outstanding. See "Risk Factors--We Are Controlled by Harco". Directors may be removed, with or without cause, only by the holders of the class or classes of Equity Shares that, as of the date such removal is effected, would be entitled to elect such director at the next annual meeting of shareholders. Vacancies in a directorship may be filled only by (a) the remaining directors elected by holders of each class of Equity Shares that (1) elected such director and (2) as of the date such vacancy is filled, would be entitled to elect such director at the next annual meeting of 58 64 shareholders or (b) if there are no such remaining directors, then by the vote of the holders of the class or classes of Equity Shares that, as of the date such vacancy is filled, would be entitled to elect such director at the next annual meeting of shareholders, voting as a special class at a meeting, special or otherwise, of the holders of Equity Shares of such class or classes. The Articles provide that each Class A Subordinate Voting Share and each Class B Multiple Voting Share entitles its holder to one vote per share with respect to (a) shareholder approvals required (1) by section 189(3) of the Canada Business Corporations Act in respect of a sale, lease or exchange of all or substantially all of Gildan's property other than in the ordinary course of business as therein described, except to one of Gildan's wholly-owned subsidiaries, (2) by section 183 of the Canada Business Corporations Act in respect of an amalgamation of Gildan with one or more amalgamating companies, which are not one of Gildan's wholly-owned subsidiaries, (3) in connection with the liquidation, dissolution or winding-up of Gildan or (4) in connection with the issuance of Equity Shares as consideration for the acquisition of stock or assets of another company where such issuance requires shareholder approval in accordance with the rules of a stock exchange on which the Equity Shares are listed, and (b) amendments to Gildan's Articles or by-laws which alter, amend or repeal the provisions described in clause (a) above. CONVERSION The Class A Subordinate Voting Shares cannot be converted into any other class of shares. Each outstanding Class B Multiple Voting Share may at any time, at the option of the holder, be converted into one Class A Subordinate Voting Share and must be so converted upon a transfer other than a Permitted Transfer (as defined below). Each Class B Multiple Voting Share will automatically convert into one Class A Subordinate Voting Share in any of the following cases (each a "Triggering Event"): - upon the death of the later to die of H. Gregory Chamandy or Glenn J. Chamandy; - at any time that neither H. Gregory Chamandy nor Glenn J. Chamandy is Chief Executive Officer or Chief Operating Officer of Gildan; - in the event that more than 40% of the Class B Multiple Voting Shares in the aggregate owned by Harco upon the closing of the initial public offering are converted into Class A Subordinate Voting Shares; - in the event that more than 40% of the Class B Multiple Voting Shares in the aggregate owned by Harco upon the closing of the initial public offering are sold, transferred, charged, pledged, hypothecated, encumbered or otherwise disposed of (each, a "transfer"), whether directly or indirectly, otherwise than in a Permitted Transfer; - in the event (a) of the death of either H. Gregory Chamandy or Glenn J. Chamandy or (b) that either H. Gregory Chamandy or Glenn J. Chamandy ceases to be Chief Executive Officer or Chief Operating Officer of Gildan and that upon and from such event (1) the later to die of H. Gregory Chamandy or Glenn J. Chamandy or (2) the later to cease to be Chief Executive Officer or Chief Operating Officer of Gildan of H. Gregory Chamandy or Glenn J. Chamandy does not exercise, directly or indirectly, voting control over all of the shares of Holding Entities (as defined below), if any, and the Class B Multiple Voting Shares which, on the date of such occurrence, were beneficially owned by the deceased or retiring brother; or - in the event that the board of directors in a directors' circular or otherwise makes a recommendation to accept, or makes a statement to the effect that the directors are unable to make or are not making a recommendation, to shareholders of Gildan with respect to a takeover bid on the Class A Subordinate Voting Shares. 59 65 For purposes hereof, any transfer of shares of Harco or of a Permitted Transferee (as defined below), to the extent such entity then holds any Class B Multiple Voting Shares (a "Holding Entity"), shall be considered a transfer of Class B Multiple Voting Shares, with the necessary modifications. Notwithstanding the foregoing, Class B Multiple Voting Shares and shares of Holding Entities, if any, may be transferred in the following circumstances (each, a "Permitted Transfer"): (a) in favor of a Permitted Transferee; (b) upon the death of the first to die of H. Gregory Chamandy or Glenn J. Chamandy, such shares as are then beneficially owned by the deceased may be (1) sold to the survivor or (2) be transferred to the spouse or the living children of the deceased (either outright or by means of a spousal trust), by will or the law of succession, provided always that the survivor maintains full and complete voting control, whether directly or indirectly, over such shares; (c) upon the first to retire of H. Gregory Chamandy or Glenn J. Chamandy, such shares as are then beneficially owned by the retiring brother may be sold to the other brother; (d) upon the death or retirement of Edwin B. Tisch, such shares as are then beneficially owned by Edwin B. Tisch may be sold to H. Gregory Chamandy, Glenn J. Chamandy or, to the extent one or the other or H. Gregory Chamandy or Glenn J. Chamandy has passed away and transferred all of the shares of Holding Entities, if any, or of Class B Multiple Voting Shares to his spouse or living children as contemplated at (b)(2) of this paragraph, the spouse or living children of such deceased person, provided always that the purchasers maintain, or, to the extent one or the other of H. Gregory Chamandy or Glenn J. Chamandy has passed away, the survivor maintains full and complete voting control over such shares; and (e) in the case of a sale contemplated by (b), (c) and (d) above, or in the case of a transfer to Harco under paragraph (a) of the definition of Permitted Transferee below, the purchaser may charge, pledge, hypothecate or otherwise encumber any Class B Multiple Voting Shares or shares of Holdings Entities, if any, beneficially owned by him (including the shares acquired by him in such sale) in favor of a third party to secure any indebtedness incurred for the purpose of financing, in whole or in part, such sale. As used in this prospectus, the term "Permitted Transferee" refers only to the following: (a) Harco, if at the time of the transfer Harco is still the registered holder of some Class B Multiple Voting Shares; (b) in the case of Class B Multiple Voting Shares beneficially owned by H. Gregory Chamandy, (1) H. Gregory Chamandy, (2) corporations wholly-owned, directly or indirectly, by H. Gregory Chamandy, (3) any limited liability or similar company if all the value of the company is owned by H. Gregory Chamandy and (4) any trust, the sole beneficiary of which is H. Gregory Chamandy; (c) in the case of Class B Multiple Voting Shares beneficially owned by Glenn J. Chamandy, (1) Glenn J. Chamandy, (2) corporations wholly-owned, directly or indirectly, by Glenn J. Chamandy, (3) any limited liability or similar company if all the value of the company is owned by Glenn J. Chamandy and (4) any trust, the sole beneficiary of which is Glenn J. Chamandy; and 60 66 (d) in the case of Class B Multiple Voting Shares beneficially owned by Edwin B. Tisch, (1) Edwin B. Tisch, (2) corporations wholly-owned, directly or indirectly, by Edwin B. Tisch, (3) any limited liability or similar company if all the value of the company is owned by Edwin B. Tisch and (4) any trust, the sole beneficiary of which is Edwin B. Tisch, provided that the current voting arrangements in connection with the Class B Multiple Voting Shares are maintained. SUBDIVISION OR CONSOLIDATION No subdivision or consolidation of the Class A Subordinate Voting Shares or the Class B Multiple Voting Shares may be carried out unless, at the same time, the Class A Subordinate Voting Shares or Class B Multiple Voting Shares, as the case may be, are subdivided or consolidated in the same manner and on the same basis. ADDITIONAL ISSUANCE OF CLASS B MULTIPLE VOTING SHARES Gildan may not issue Class B Multiple Voting Shares without the approval of the holders of the Class A Subordinate Voting Shares. Approval must be given by a special resolution of the holders of the Class A Subordinate Voting Shares at a meeting of shareholders. However, approval is not required in connection with a subdivision on a pro rata basis as between the Class A Subordinate Voting Shares and the Class B Multiple Voting Shares, as permitted under the Articles. LIQUIDATION RIGHTS AND OTHER MATTERS The Equity Shares are not redeemable. Upon the liquidation, dissolution or winding-up of Gildan, the holders of Class B Multiple Voting Shares and Class A Subordinate Voting Shares are entitled to participate equally, share-for-share, in the remaining property and assets of Gildan available for distribution to the holders of Equity Shares. TAKEOVER BID PROTECTION Under applicable Canadian law, an offer to purchase Class B Multiple Voting Shares would not necessarily require that an offer be made to purchase Class A Subordinate Voting Shares. In compliance with the rules of The Montreal Exchange and The Toronto Stock Exchange, Harco and each of H. Gregory Chamandy, Glenn J. Chamandy and Edwin B. Tisch (collectively, the "Founders") entered into an agreement (the "Trust Agreement") with Gildan and the Montreal Trust Company (the "Trustee"). Pursuant to the Trust Agreement, Harco placed its Class B Multiple Voting Shares on deposit with the Trustee and each of Harco and the Founders have undertaken not to sell or dispose of, directly or indirectly, any Class B Multiple Voting Shares pursuant to any transaction under circumstances where securities legislation or any other law would require, if the sale or disposition had been of Class A Subordinate Voting Shares rather than Class B Multiple Voting Shares, that the same offer be made to all holders of Class A Subordinate Voting Shares. Under current rules, this would include a sale of Class B Multiple Voting Shares by Harco or the Founders at a price per share in excess of 115% of the market price of the Class A Subordinate Voting Shares as determined under such legislation (generally the 20-day average trading price of such shares prior to the sale). This undertaking does not apply if the sale is made pursuant to an offer made to all holders of Class B Multiple Voting Shares to purchase only part of the Class B Multiple Voting Shares where: - an offer is made concurrently to all holders of Class A Subordinate Voting Shares to purchase the same proportionate number of such Class A Subordinate Voting Shares at a price per share 61 67 at least as high as the highest price per share paid in connection with the sale or disposition of the Class B Multiple Voting Shares; - all of the terms of the offer for Class A Subordinate Voting Shares are at least as favorable as those of the offer for Class B Multiple Voting Shares; and - the offer for Class A Subordinate Voting Shares has no condition attached other than the right not to take up and pay for the Class A Subordinate Voting Shares tendered if no shares are purchased pursuant to the offer for Class B Multiple Voting Shares. This undertaking also does not apply if there is a concurrent unconditional offer, the terms of which are at least as favorable as the terms of the offer to purchase Class B Multiple Voting Shares, to purchase all of the Class A Subordinate Voting Shares at a price per share at least as high as the highest price per share paid in connection with the sale or disposition of the Class B Multiple Voting Shares. The Trust Agreement permits, subject to compliance with applicable law and the prior consent of the Trustee, certain indirect sales resulting from the acquisition of shares of a corporation which, directly or indirectly, controls Gildan, or controls or is controlled by Harco where: - the transferee is a Permitted Transferee; - the transfer either (a) results in no change to the beneficial ownership of the transferred shares other than between spouses or between the transferor and his or her descendants, or (b) in the case of a transfer to a Permitted Transferee, such transfer is made in accordance with applicable law; - no such transferee is a party to any agreement under which any other person would participate in the ownership of, control or direction over more than 10% of the votes or 50% of the equity of such corporation, Harco or Gildan; and - in the event that the transferee is a Permitted Transferee, but not a Founder, such transferee shall become a party to the Trust Agreement. Under the Trust Agreement, any direct or indirect sale or disposition of Class B Multiple Voting Shares, including a transfer to a pledgee as security, by a party to the agreement or any person or company which it controls is conditional upon the transferee becoming a party to an agreement on substantially similar terms and conditions as are contained in the Trust Agreement. The Trust Agreement provides that if a person or company carries out an indirect sale or disposition in respect of any Class B Multiple Voting Shares in breach of the Trust Agreement, no person shall from the time the sale becomes effective and thereafter, (a) directly or indirectly sell or dispose of any of such Class B Multiple Voting Shares or convert them into Class A Subordinate Voting Shares, in either case without the prior written consent of the Trustee or (b) exercise any voting rights attaching to such Class B Multiple Voting Shares except in accordance with the written instructions of the Trustee. The Trustee may attach conditions to any consent the Trustee gives in exercising its rights and must exercise these rights in the best interest of the holders of the Class A Subordinate Voting Shares, other than (a) Harco, (b) the Founders and (c) holders who, in the opinion of the Trustee, participated directly or indirectly in the transaction that triggered the operation of this provision. Notwithstanding a sale of shares which constitutes an indirect sale of Class B Multiple Voting Shares in breach of the Trust Agreement, Harco shall remain bound by the foregoing restrictions and prohibitions, but shall not have any liability for damages under the Trust Agreement in respect of such sale, provided that Harco otherwise complies with all other provisions of the Trust Agreement, including, without limitation, the foregoing provision. 62 68 The Trust Agreement provides that the prior consent of the Trustee shall be required in connection with any sale or disposition of Class B Multiple Voting Shares, whether direct or indirect, by Harco or the Founders. Such consent shall be given if the Trustee receives evidence satisfactory to it, acting reasonably, that the sale or disposition is not in breach of the Trust Agreement. The Trustee also has the right to require from time to time evidence satisfactory to it, acting reasonably, as to the number of Class B Multiple Voting Shares and Class A Subordinate Voting Shares held directly or indirectly by Harco, the Founders and any Permitted Transferee. The Trust Agreement contains provisions for authorizing action by the Trustee to enforce the rights under the Trust Agreement on behalf of the holders of the Class A Subordinate Voting Shares. The obligation of the Trustee to take such action will be conditional on Gildan or holders of the Class A Subordinate Voting Shares providing such funds and indemnity as the Trustee may require. No holder of Class A Subordinate Voting Shares will have the right, other than through the Trustee, to institute any action or proceeding or to exercise any other remedy to enforce any rights arising under the Trust Agreement unless the Trustee fails to act on a request authorized by holders of not less than 10% of the outstanding Class A Subordinate Voting Shares and reasonable funds and indemnity have been provided to the Trustee. Gildan has agreed to pay the reasonable costs of any action that may be taken in good faith by holders of Class A Subordinate Voting Shares pursuant to the Trust Agreement. The Trust Agreement provides that it may not be amended, and no provision thereof may be waived, unless, prior to giving effect to such amendment or waiver, the following have been obtained, (a) the consent of The Montreal Exchange, The Toronto Stock Exchange and any other applicable securities regulatory authority in Canada and (b) the approval of at least two-thirds of the votes cast by holders of Class A Subordinate Voting Shares excluding Harco, the Founders, their Permitted Transferees, their respective affiliates and any persons who have an agreement to purchase Class B Multiple Voting Shares on terms which would constitute a sale or disposition for purposes of the Trust Agreement other than as permitted thereby. No provision of the Trust Agreement limits the rights of any holders of Class A Subordinate Voting Shares under applicable law. 63 69 DESCRIPTION OF CERTAIN INDEBTEDNESS The following is a summary of the material terms of our currently outstanding indebtedness. REVOLVING LOAN AGREEMENT On March 31, 1999, we entered into a syndicated loan agreement led by National Bank of Canada. This loan agreement provides for a secured revolving operating credit facility, under which the maximum allowable borrowings equal the lesser of (a) $90.0 million and (b) a borrowing base calculated in accordance with a specified inventory and receivables formula. This facility expires on March 31, 2002. At March 31, 1999, we had approximately $85.0 million outstanding under the revolving loan agreement and $5.0 million available, based on our borrowing base at that time. On March 31, 1999, the annual interest rate was 7.375% for Canadian dollar borrowings and 9.125% for U.S. dollar borrowings. The revolving loan agreement contains covenants that limit, among other things, our ability to: - merge or consolidate; - effect or permit a change of control; - sell or lease assets; - incur or grant additional indebtedness or capital leases; - create or allow to exist liens and other encumbrances on our assets; - pay dividends or other distributions to our shareholders; - make certain capital expenditures and investments; and - enter into certain related-party transactions. Further, we are required to maintain specific financial ratios and levels including (a) a ratio of senior debt to EBITDA, (b) a fixed charge coverage ratio comparing EBITDA to specific disbursements and (c) a ratio comparing senior debt to total capitalization. For fiscal 1999, the required senior debt to EBITDA ratio is no more than 3.75 to 1.00, the fixed charge coverage ratio must be no less than 2.00 to 1.00 and the senior debt to total capitalization ratio must be no more than 0.65 to 1.00. The revolving loan agreement provides for customary events of default, including, among others, the occurrence of a change of control as well as the failure to complete, by June 1, 1999, the proposed restructuring of operations whereby Gildan Activewear SRL will become responsible for all of our non-Canadian sales. THE FUND In June 1998, we replaced three unsecured and subordinated debentures totalling $15.0 million with a new $15.0 million unsecured and subordinated debenture due 2003, which bears interest at an annual rate of 11.0%. In January 1999, we issued another $15.0 million unsecured and subordinated debenture due 2004, which bears interest at an annual rate of 12.0% for the first two years and 13.0% for the next three years. The debenture due 2004 contains certain financial ratio requirements. Both debentures provide for customary events of default, including, among others, the occurrence of a change of control, as defined in the Canada Business Corporations Act, without the Fund's prior consent. In the event of a default by Gildan, the Fund may require us to redeem the debentures. 64 70 CAPITAL D'AMERIQUE CDPQ INC. In February 1999, we issued a $15.0 million unsecured and subordinated debenture due 2004, which bears interest at an annual rate of 12.5%, to Capital d'Amerique CDPQ Inc., a subsidiary of Caisse de depot et placement du Quebec. The debenture contains certain financial ratio requirements and provides for customary events of default, including the occurrence of a change of control without prior consent. SECURED EQUIPMENT AND MORTGAGE LOANS We have relationships with several lenders which have provided financing by way of secured loans, mortgages, conditional sales contracts and capitalized leases. At March 7, 1999, these financings totalled $29.3 million and bore interest at annual rates ranging from 5.9% to 13.0%. Each of the loans is secured by certain of our personal (movable) or real (immovable) property. While some of these lenders do not impose any covenants on us, others require that we meet specific financial ratios and comply with certain covenants. These covenants require us to: - maintain specific (a) shareholders' equity levels, (b) current ratios, (c) long-term debt to shareholders' equity ratios, (d) total debt to net worth ratios, (e) minimum tangible net worth, and (f) debt coverage ratios; - not declare any dividends without their prior consent unless specific debt coverage ratios are met; - maintain control within the Chamandy family; and - maintain collateral, property and insurance. Failure to satisfy or comply with any of the foregoing could result in the acceleration of amounts due or loss of collateral. 65 71 SHARES ELIGIBLE FOR FUTURE SALE AND ESCROW ARRANGEMENTS Upon completion of this offering, we will have outstanding 13,394,444 Equity Shares, comprised of 10,347,444 Class A Subordinate Voting Shares, of which 3,000,000 Class A Subordinate Voting Shares are offered hereby, and 3,047,000 Class B Multiple Voting Shares. The 3,000,000 Class A Subordinate Voting Shares being offered hereby are not restricted securities and, consequently, will be freely tradeable under the U.S. Securities Act, unless purchased by an "affiliate" of Gildan as such term is defined in the U.S. Securities Act. Any Class A Subordinate Voting Shares purchased by our affiliates generally may only be sold subject to the requirements of Rule 144 which are described below or pursuant to a registration rights statement or an exemption therefrom. The Class B Multiple Voting Shares held by Harco and the Class A Subordinate Voting Shares held by the Fund and the Trusts, collectively representing 51.9% of the Equity Shares outstanding immediately after the closing of this offering, are deemed to be restricted securities under Rule 144 of the U.S. Securities Act. Consequently, Harco, the Fund and each of the Trusts are entitled to sell within any three-month period only the number of shares that does not exceed the greater of (a) 1% of the then-outstanding Class A Subordinate Voting Shares (103,474 Class A Subordinate Voting Shares immediately after the closing of this offering) or (b) the average weekly trading volume of the Class A Subordinate Voting Shares during the four calendar weeks preceding the date on which notice of the sale is filed with the U.S. Commission. Furthermore, because a holder of restricted securities is not entitled to sell its shares pursuant to Rule 144 unless it has held such shares for one year, the Fund may not sell until June 6, 1999 its Class A Subordinate Voting Shares purchased on June 6, 1998 when it exercised an option to purchase 3% of our outstanding voting shares on a fully-diluted basis for $500,000. However, Harco, the Fund and the Trusts may sell their Equity Shares without regard to the restrictions of Rule 144 upon their registration under the U.S. Securities Act. Pursuant to a registration rights agreement with us, Harco, the Fund and the Trusts have the right to require us to register the Class A Subordinate Voting Shares or the Class B Multiple Voting Shares, upon their conversion to Class A Subordinate Voting Shares, held by them under the U.S. Securities Act. See "Certain Relationships and Related Transactions--Registration Rights Agreement". However, even if Harco, the Fund and the Trusts were to register shares, they are restricted in their ability to sell their Equity Shares by lock-up provisions. Specifically, Harco has agreed not to sell, offer to sell, contract to sell, announce its intention to sell, pledge, hypothecate, grant any option for the sale of or otherwise dispose of, directly or indirectly, or file with the U.S. Commission a registration statement under the U.S. Securities Act, or file with the applicable Canadian securities commissions a prospectus, relating to any Class A Subordinate Voting Shares or Class B Multiple Voting Shares or any securities convertible or exercisable into or exchangeable for any Class A Subordinate Voting Shares or Class B Multiple Voting Shares until December 17, 1999 without the prior written consent of Bear, Stearns & Co. Inc., as representative of the underwriters. The Trusts, except with respect to pledging and hypothecation, Gildan and the Fund have agreed to identical selling restrictions for a 180-day period following the date of the prospectus. In accordance with the policies of the relevant Canadian securities regulatory authorities and The Toronto Stock Exchange concerning the disposition of shares held by certain persons related to a company engaging in an initial public offering, Harco, the Fund, the H. Gregory Chamandy Family Trust and the Glenn Chamandy Family Trust entered into an escrow agreement with Montreal Trust Company, as escrow agent. Pursuant to the escrow agreement, 2,372,014 Class B Multiple Voting Shares and 2,842,499 Class A Subordinate Voting Shares were deposited with the escrow agent by these shareholders. The escrowed shares deposited with the escrow agent will be released to these shareholders in tranches of 33 1/3% immediately after each of June 18, 1999, June 18, 2000 and June 18, 2001, or at any prior time with the consent of the Commission des valeurs mobilieres du Quebec, the Ontario 66 72 Securities Commission and The Toronto Stock Exchange. During the period of the escrow, the escrowed shares may be pledged for security to financial institutions, subject to the prior approval of the Commission des valeurs mobilieres du Quebec, the Ontario Securities Commission and The Toronto Stock Exchange. We cannot predict the effect, if any, that future sales of Class A Subordinate Voting Shares or the availability of Class A Subordinate Voting Shares for future sale will have on the market price of the Class A Subordinate Voting Shares prevailing from time to time. Sales of substantial numbers of Class A Subordinate Voting Shares in the public market or the perception that such sales will occur could adversely affect the market price of the Class A Subordinate Voting Shares and could impair our ability to raise capital through the offering of our equity securities. See "Risk Factors--Potential Sales of Class A Subordinate Voting Shares Could Result In a Decline In the Market Price of the Class A Subordinate Voting Shares". 67 73 TAXATION Unless otherwise stated, statements of legal conclusion set forth under "Taxation--U.S. Federal Income Taxation" reflect the opinion of Simpson Thacher & Bartlett as to the material U.S. federal income tax consequences of the acquisition, ownership and disposition of Class A Subordinate Voting Shares to U.S. Holders (as defined below) and do not purport to be a complete analysis or listing of all possible tax considerations. Unless otherwise stated, statements of legal conclusion set forth under "Taxation--Canadian Taxation" reflect the opinion of Ogilvy Renault as to the material Canadian federal income tax consequences of the acquisition, ownership and disposition of Class A Subordinate Voting Shares by United States Holders, as defined below, and do not purport to be a complete analysis or listing of all possible tax consequences relating to an investment in the Class A Subordinate Voting Shares. As indicated below, certain conclusions are based on (i) certain factual assumptions or (ii) the belief of Gildan, and such conclusions (as well as such assumptions and beliefs) do not represent the opinions of Simpson Thacher & Bartlett or Ogilvy Renault. The discussion does not deal with all possible tax consequences relating to an investment in the Class A Subordinate Voting Shares and does not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as dealers in securities, insurance companies and tax-exempt entities) may be subject to special rules. In particular, the discussion does not address the tax consequences under state, provincial, local and other national (e.g., non-U.S., non-Canadian) tax laws. Accordingly, each prospective investor should consult its own tax advisor regarding the particular tax consequences to it of an investment in the Class A Subordinate Voting Shares. The following discussion is based upon laws, regulations and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change, possibly retroactively. U.S. FEDERAL INCOME TAXATION The following is a discussion of the U.S. federal income tax consequences of the acquisition, ownership and disposition of Class A Subordinate Voting Shares by U.S. Holders. It does not purport to be a complete analysis or listing of all possible tax considerations. The discussion deals only with Class A Subordinate Voting Shares held as capital assets and does not address any special U.S. tax consequences that may be applicable to U.S. Holders that are subject to special treatment under the U.S. Internal Revenue Code of 1986, as amended (the "Code"), such as dealers in securities or currencies, financial institutions, tax-exempt entities, life insurance companies, persons holding Class A Subordinate Voting Shares as part of a hedging or conversion transaction, constructive sale or a straddle, persons owning directly or indirectly 10% or more of the total combined voting power of all classes of voting stock of Gildan, or whose functional currency is not the U.S. dollar. Prospective purchasers who are U.S. Holders are urged to satisfy themselves as to the overall U.S. federal, state and local tax consequences of their ownership of the Class A Subordinate Voting Shares by consulting their own tax advisors. As used herein, a "U.S. Holder" of a Class A Subordinate Voting Share means a holder that is, for U.S. federal and income tax purposes, a citizen or resident of the United States, a corporation or partnership created or organized in or under the laws of the United States or any political subdivision thereof, an estate the income of which is subject to U.S. federal income taxation regardless of its source, or a trust (a) which is subject to the supervision of a court within the United States and the control of a United States person as described in Section 7701(a)(3) of the Code or (b) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person. 68 74 TAXATION OF DIVIDENDS The gross amount of dividends paid to U.S. Holders of Class A Subordinate Voting Shares (including amounts withheld to reflect Canadian withholding taxes, if any) will be treated as dividend income to such U.S. Holders, to the extent paid out of current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Such income will be includable in the gross income of a U.S. Holder as ordinary income. Such dividends will not be eligible for the dividends received deduction allowed to corporations under the Code. The maximum rate of withholding tax on dividends paid to a U.S. Holder pursuant to the Treaty is 15%. U.S. Holders may be required to properly demonstrate to Gildan and the Canadian tax authorities their entitlement to the reduced rate of withholding under the Treaty. Subject to certain significant conditions and limitations, Canadian withholding taxes will be treated as foreign taxes eligible for credit against a U.S. Holder's U.S. federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the Class A Subordinate Voting Shares will be treated as income from sources outside the United States and will generally constitute "passive income" or, in the case of certain U.S. Holders, "financial services income". Special rules apply to certain individuals whose foreign source income during the taxable year consists entirely of "qualified passive income" and whose creditable foreign taxes paid or accrued during the taxable year do not exceed $300 ($600 in the case of a joint return). Further, in certain circumstances, a U.S. Holder that: - has held Class A Subordinate Voting Shares for less than a specified minimum period with respect to each dividend payment during which it is not protected from risk of loss; - is obligated to make payments related to the dividends; or - holds the Class A Subordinate Voting Shares in an arrangement in which the U.S. Holder's expected economic profit after non-U.S. taxes is insubstantial will not be allowed a foreign tax credit for foreign taxes imposed on dividends paid on Class A Subordinate Voting Shares. Investors are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances. To the extent that the amount of any distribution exceeds Gildan's current and accumulated earnings and profits for a taxable year, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the Class A Subordinate Voting Shares (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by the investor on a subsequent disposition of the Class A Subordinate Voting Shares), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange. Consequently, such distributions in excess of Gildan's current and accumulated earnings and profits would not give rise to foreign source income and a U.S. Holder would not be able to use the foreign tax credit arising from any Canadian withholding tax imposed on such distributions, unless such credit can be applied (subject to applicable limitations) against U.S. tax due on other foreign source income in the appropriate category for foreign tax credit purposes. FOREIGN PERSONAL HOLDING COMPANY STATUS A foreign corporation will be classified as a foreign personal holding company (an "FPHC") if: - at any time during the corporation's taxable year, five or fewer individuals, who are U.S. citizens or residents, directly or indirectly own more than 50% of the corporation's stock (by either voting power or value) (the "FPHC shareholder test"); and 69 75 - the corporation receives at least 60% of its gross income (regardless of source), as adjusted, from certain passive sources (the "FPHC income test"). After its initial year of qualification as an FPHC, a corporation may remain an FPHC even if only 50% of its gross income is FPHC income (i.e., passive income such as interest, dividends, etc.). Gildan believes that it does not satisfy, and expects that it will continue to fail to satisfy, the FPHC income test. Gildan believes that the FPHC shareholder test also was not met prior to the offering and will not be met immediately after the offering. However, due to a number of factors (including the FPHC stock attribution rules, possible change in residence by current indirect shareholders, and possible acquisition of Class A Subordinate Voting Shares by purchase, gift, or bequest by individuals related to or partners of current indirect shareholders), Gildan cannot assure you that Gildan will not become an FPHC in the future. If Gildan were classified as an FPHC, U.S. Holders (including certain indirect holders) would be required to include in income their pro rata share of Gildan's undistributed FPHC income if they were holders on the last day of Gildan's taxable year (or if earlier, the last day on which Gildan satisfies the shareholder test). Such income would be taxable to such persons as a dividend, even if no cash dividend were actually paid. In general, a U.S. Holder would be entitled to increase its tax basis in the Class A Subordinate Voting Shares by the amount of such deemed FPHC dividend. U.S. Holders who dispose of their Class A Subordinate Voting Shares prior to the date discussed above would not be subject to these rules. Moreover, if Gildan became an FPHC, U.S. persons who acquire Class A Subordinate Voting Shares from decedents would not receive a "stepped-up" basis in such Class A Subordinate Voting Shares. Instead, such a holder would have a tax basis equal to the lower of fair market value or the decedent's basis. Gildan will notify U.S. Holders in the event that it concludes that it is classified as FPHC for any taxable year. PERSONAL HOLDING COMPANY TAX A corporation will be classified as a personal holding company (a "PHC") if: - at any time during the last half of the corporation's taxable year, five or fewer individuals own more than 50% of the corporation's stock (by value) directly or indirectly (the "PHC Shareholder test"); and - the corporation receives at least 60% of its gross income, as adjusted, from certain passive sources (the "PHC Income test"). However, if a corporation is an FPHC (see above), it cannot be a PHC. Gildan believes that it satisfies, and will continue to satisfy, the PHC shareholder test. Gildan believes that the PHC income test will not be met for the current taxable year and that it consequently will not be classified as a PHC. However, there can be no assurance that Gildan will not become a PHC in the future. A corporation classified as a PHC is subject to a 39.6% tax on its undistributed personal holding company income. Foreign corporations (such as Gildan) determine their liability for PHC tax by considering only (i) gross income derived from U.S. sources and (ii) gross income which is effectively connected with a U.S. trade or business (collectively, "U.S. Taxable Income"). 70 76 PASSIVE FOREIGN INVESTMENT COMPANY STATUS Gildan does not believe that it is, for U.S. federal tax purposes, a passive foreign investment company (a "PFIC"), and expects to continue its operations in such a manner that it will not be a PFIC. If, however, Gildan is or does become a PFIC, U.S. Holders could be subject to additional U.S. federal income taxes on certain distributions or gains with respect to Class A Subordinate Voting Shares, plus an interest charge on certain taxes treated as having been deferred by the U.S. Holder, under the PFIC rules. TAXATION OF CAPITAL GAINS For U.S. federal income tax purposes, a U.S. Holder will recognize taxable gain or loss on any sale or exchange of a Class A Subordinate Voting Share in an amount equal to the difference between the amount realized for the Class A Subordinate Voting Share and the U.S. Holder's basis in the Class A Subordinate Voting Share. Such gain or loss will be capital gain or loss. Capital gains of individuals derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitation. Any gain or loss recognized by a U.S. Holder will generally be treated as U.S. source gain or loss. Prospective investors should consult their own tax advisors with respect to the treatment of capital gains and losses. INFORMATION REPORTING AND BACKUP WITHHOLDING In general, information reporting requirements will apply to dividends paid in respect of the Class A Subordinate Voting Shares or the proceeds received on the sale, exchange, or redemption of the Class A Subordinate Voting Shares within the United States (and in certain cases, outside the United States) by non-corporate U.S. Holders, and a 31% backup withholding may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number or to report interest and dividends required to be shown on its federal income tax returns. Backup withholding will not apply with respect to payments made to certain exempt recipients, such as corporations and tax-exempt organizations. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder's U.S. federal income tax liability and may entitle such U.S. Holder to a refund, provided that the required information is furnished to the U.S. Internal Revenue Service. CANADIAN TAXATION The following takes into account the current provisions of the Income Tax Act (Canada) (the "Tax Act"), the regulations thereunder, all specific proposals to amend the Tax Act publicly announced prior to the date of this Offering, the Convention between Canada and the United States of America with respect to Taxes on Income and on Capital (the "Convention") and the current published administrative practices and policies of Revenue Canada, as understood by Ogilvy Renault. It assumes that all proposals to amend the Tax Act will be enacted in their present form and otherwise does not take into account or anticipate changes in the law, whether by way of judicial decision or legislative action nor does it take into account provincial, territorial or foreign tax legislation or considerations. This summary is generally applicable to a person who acquires the Class A Subordinate Voting Shares pursuant to this offering and who: - throughout the period during which the purchaser owns the Class A Subordinate Voting Shares, is not resident in Canada for the purposes of the Tax Act and is a resident of the United States for the purposes of the Convention; - holds the Class A Subordinate Voting Shares as capital property for the purposes of the Tax Act; and 71 77 - does not use or hold, and is not deemed for the purposes of the Tax Act to use or hold, such Class A Subordinate Voting Shares in, or in the course of, carrying on a business in Canada (a "United States Holder"). The Class A Subordinate Voting Shares will generally be considered to be capital property to a United States Holder unless either the United States Holder holds those shares in the course of carrying on a business or the United States Holder has acquired those shares in one or more transactions considered to be an adventure in the nature of trade. The following does not purport to be a complete analysis or listing of all possible tax considerations that may be relevant to purchasers of Class A Subordinate Voting Shares. Prospective purchasers who are United States Holders are urged to satisfy themselves as to the overall Canadian federal, provincial or territorial as well as foreign tax consequences of their ownership of Class A Subordinate Voting Shares by consulting their own tax advisers with respect to their particular circumstances. TAXATION OF DIVIDENDS Dividends paid or credited (or deemed to be paid or credited) by Gildan to a United States Holder that beneficially owns such dividends generally are subject to Canadian withholding tax at the rate of (a) 15% of the gross amount of such dividends, or (b) where the United States Holder is a company that owns at least 10% of the voting stock of Gildan, 5% of the gross amount of such dividends. A United States Holder, which is a trust company, organization or other arrangement generally exempt from income taxation in the United States in a given taxable year and operated exclusively either (a) to administer or provide pension, retirement or employee benefits or (b) to earn income for the benefit of an organization referred to in (a) shall not be subject to Canadian withholding tax on dividends paid or credited (or deemed to be paid or credited) by Gildan in such year unless such United States Holder is related to Gildan or receives such dividends in the course of carrying on a trade or business. TAXATION OF SALE OR OTHER DISPOSITION A United States Holder will not be subject to tax under the Tax Act on any gain in respect of the disposition or deemed disposition of Class A Subordinate Voting Shares unless those Class A Subordinate Voting Shares constitute "taxable Canadian property", as defined in the Tax Act, to such United States Holder. The Class A Subordinate Voting Shares generally will not constitute taxable Canadian property to a United States Holder unless the United States Holder, persons with whom the United States Holder does not deal at arm's length, or the United States Holder and such persons collectively own or have at any time within the five year period immediately prior to the disposition collectively owned, 25% or more of the issued shares of any class or series of the Company, including rights to acquire shares. Even if the Class A Subordinate Voting Shares are taxable Canadian property to a United States Holder, under the Convention, gains derived by a United States Holder from the disposition of Class A Subordinate Voting Shares would generally not be taxable in Canada unless the value of the Class A Subordinate Voting Shares is derived principally from real property situated in Canada. Gildan believes that the value of its Class A Subordinate Voting Shares is not currently derived principally from real property situated in Canada and it does not expect this to change in the foreseeable future. OTHER CANADIAN TAXES No other taxes on income or capital are payable by United States Holders in respect of the Class A Subordinate Voting Shares or the dividends thereon. 72 78 EXCHANGE CONTROLS There are currently no laws, decrees or regulations in Canada imposing restrictions on the import or export of capital affecting remittances of dividends on our Class A Subordinate Voting Shares or on the conduct of our operations. 73 79 UNDERWRITING Gildan and the underwriters for this offering named below, for whom Bear, Stearns & Co. Inc., Nesbitt Burns Inc., The Robinson-Humphrey Company, LLC, Wasserstein Perella Securities, Inc. and CIBC World Markets Inc. are acting as representatives (collectively, the "Representatives"), have entered into an underwriting agreement with respect to the Class A Subordinate Voting Shares being offered. Subject to the terms and conditions of the underwriting agreement, each underwriter has severally agreed to purchase the number of Class A Subordinate Voting Shares set forth opposite their respective names below:
NUMBER OF CLASS A SUBORDINATE NAME OF UNDERWRITER VOTING SHARES - ------------------- ------------------- Bear, Stearns & Co. Inc. ............................. Nesbitt Burns Inc. ................................... The Robinson-Humphrey Company, LLC.................... Wasserstein Perella Securities, Inc. ................. CIBC World Markets Inc................................ --------- Total............................................... 3,000,000 =========
If the underwriters sell more than the total number set forth in the table above, the underwriters have an option to buy up to an aggregate of 450,000 additional Class A Subordinate Voting Shares from us to cover such sales. They may exercise that option within 30 days after the date of this prospectus. If any Class A Subordinate Voting Shares are purchased pursuant to this option, the underwriters will severally purchase Class A Subordinate Voting Shares in approximately the same proportion as set forth in the above table. The following table shows the per Class A Subordinate Voting Share and total underwriting discounts and commissions to be paid to the underwriters by us. Such amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional Class A Subordinate Voting Shares.
PAID BY GILDAN ---------------------------- NO EXERCISE FULL EXERCISE ----------- ------------- Per Class A Subordinate Voting Share........................ US$ US$ Total....................................................... US$ US$
Class A Subordinate Voting Shares sold by the underwriters to the public will initially be offered at the public offering price set forth on the cover page of this prospectus. Any Class A Subordinate Voting Shares sold by the underwriters to securities dealers may be sold at a discount of up to US$ per Class A Subordinate Voting Share from the public offering price. Any such securities dealers may resell any Class A Subordinate Voting Shares purchased from the underwriters to certain other brokers or dealers at a discount of up to US$ per Class A Subordinate Voting Share from the public offering price. This offering is being made concurrently in the United States and in all the provinces of Canada. Subject to applicable law, the underwriters may offer the Class A Subordinate Voting Shares outside of the United States and Canada. Harco has agreed that until December 17, 1999, it will not, without the prior written consent of Bear, Stearns & Co. Inc., on behalf of the underwriters, sell, offer to sell, contract to sell, announce its intention to sell, pledge, hypothecate, grant any option for the sale of or otherwise dispose of, directly or indirectly, or file with the U.S. Commission a registration statement under the U.S. Securities Act, or file with the applicable Canadian securities commissions a prospectus, relating to any Class A 74 80 Subordinate Voting Shares or Class B Multiple Voting Shares or any securities convertible or exercisable into or exchangeable for any Class A Subordinate Voting Shares or Class B Multiple Voting Shares. Gildan, each of the Trusts, except with respect to pledging and hypothecation, and the Fund have agreed to identical selling limitations for a period of 180 days from the date of the prospectus. All of these undertakings are subject to limited exceptions. In connection with the offering, the underwriters may purchase and sell Class A Subordinate Voting Shares in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of Class A Subordinate Voting Shares than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or slowing a decline in the market price of the Class A Subordinate Voting Shares while the offering is in progress. The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the Representatives have repurchased Class A Subordinate Voting Shares sold by or for the account of such underwriter in stabilizing or short covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the Class A Subordinate Voting Shares. As a result, the price of a Class A Subordinate Voting Share may be higher than the price that otherwise might exist in the open market. We make no representation as to the magnitude or effect of any such stabilization or other transactions. Such transactions may be effected on the American Stock Exchange, The Montreal Exchange, The Toronto Stock Exchange or otherwise and, if commenced, may be discontinued at any time. We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the U.S. Securities Act and applicable Canadian securities laws, and, where such indemnification is unavailable, to contribute to payments that the underwriters may be required to make in respect of such liabilities. Some of the underwriters and their affiliates have from time to time provided, and may continue to provide, investment banking services to us for which such underwriters or affiliates have received and will receive fees and commissions. LEGAL MATTERS The validity of the Class A Subordinate Voting Shares offered hereby and certain other matters of Canadian law relating to the offering are being passed upon for us by Ogilvy Renault, Montreal, Quebec, a general partnership, and Hart, Saint-Pierre, Montreal, Quebec, a general partnership. Certain legal matters relating to the offering are being passed upon for us by Simpson Thacher & Bartlett, New York, New York, with respect to U.S. law, and certain legal matters relating to the offering are being passed upon for the underwriters by Weil, Gotshal & Manges LLP, New York, New York, with respect to U.S. law and Stikeman, Elliott, Montreal, Quebec, with respect to Canadian law. Simpson Thacher & Bartlett and Weil, Gotshal & Manges LLP will rely upon Ogilvy Renault with respect to matters of Canadian law. Mr. Norman M. Steinberg, a director of Gildan, is a partner of Ogilvy Renault. Mr. Gino Martel, Secretary of Gildan, is a partner of Hart, Saint-Pierre. Ogilvy Renault has acted as counsel to Gildan since 1997. Hart, Saint-Pierre has acted as counsel to Gildan since its inception in 1984. 75 81 EXPERTS Our consolidated financial statements as of and for ten-month fiscal 1996, fiscal 1997 and fiscal 1998 have been audited by KPMG LLP, Chartered Accountants, as stated in their report appearing herein. The consolidated financial statements referred to above have been so included in reliance upon such reports given upon the authority of said firms as experts in auditing and accounting. WHERE YOU CAN FIND MORE INFORMATION We have filed with the Securities and Exchange Commission a registration statement on Form F-1 under the Securities Act, with respect to the Class A Subordinate Voting Shares offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the exhibits thereto. For further information with respect to Gildan and the Class A Subordinate Voting Shares offered hereby, reference is made to the registration statement and to the financial statements and exhibits filed as a part thereof. Statements contained in this prospectus as to the contents of any contract, agreement or any other document are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the registration statement or otherwise with the Commission, each such statement being qualified in all respects by such reference and exhibits. The registration statement, including all exhibits thereto, may be found on the Commission's website at www.sec.gov or inspected without charge at the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the Commission's regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048, and copies of all or any part thereof may be obtained from such offices after payment of the fees prescribed by the Commission. You may obtain information regarding the operation of the public reference rooms at 1-800-SEC-0330. We furnish our shareholders with annual reports containing financial statements and a reconciliation with U.S. GAAP audited by an independent chartered accounting firm. We also furnish quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. Our annual reports and quarterly reports are prepared in accordance with Canadian GAAP and in Canadian dollars. We are subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, applicable to foreign private issuers and in accordance therewith we file reports and other information with the Commission. As a foreign private issuer, we are exempt from certain provisions of the U.S. Securities Exchange Act prescribing the furnishing and content of proxy statements and certain periodic reports and from provisions of the U.S. Securities Exchange Act relating to short swing profits reporting and liability. In addition, all of our continuous disclosure documents are available on-line on SEDAR, the System for Electronic Document Analysis and Retrieval, used by companies to electronically file information with the Canadian Securities Administrators. SEDAR is located on the internet at www.sedar.com and is operated by The Canadian Depository for Securities. 76 82 GILDAN ACTIVEWEAR INC. CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- FINANCIAL STATEMENTS Auditors' Report to the Board of Directors................ F-2 Consolidated Balance Sheets............................... F-3 Consolidated Statements of Income......................... F-4 Consolidated Statements of Retained Earnings.............. F-5 Consolidated Statements of Changes in Financial Position............................................... F-6 Notes to Consolidated Financial Statements................ F-7
F-1 83 AUDITORS' REPORT TO THE BOARD OF DIRECTORS We have audited the consolidated balance sheets of Gildan Activewear Inc. as at October 4, 1998 and October 5, 1997 and the consolidated statements of income, retained earnings and changes in financial position for the years ended October 4, 1998 and October 5, 1997 and the ten-month period ended September 29, 1996. 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 an audit to obtain reasonable assurance 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. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at October 4, 1998 and October 5, 1997 and the results of its operations and the changes in its financial position for the years ended October 4, 1998 and October 5, 1997 and for the ten-month period ended September 29, 1996 in accordance with generally accepted accounting principles in Canada. Accounting principles generally accepted in Canada vary in certain significant respects from accounting principles generally accepted in the United States. Application of accounting principles generally accepted in the United States would have affected results of operations for the years ended October 4, 1998, October 5, 1997 and the ten-month period ended September 29, 1996 and shareholders' equity as of October 4, 1998 and October 5, 1997, to the extent summarized in note 19 to the consolidated financial statements. /s/ KPMG LLP Chartered Accountants Montreal, Canada November 13, 1998 (Except as to note 18 which is as of May 7, 1999) F-2 84 GILDAN ACTIVEWEAR INC. CONSOLIDATED BALANCE SHEETS (In Canadian dollars)
JANUARY 3, OCTOBER 4, OCTOBER 5, 1999 1998 1997 ------------ ------------ ------------ (UNAUDITED) ASSETS Current assets: Accounts receivable (note 2)............... $ 57,206,600 $ 55,687,657 $ 31,166,610 Inventories (note 3)....................... 93,360,675 59,981,432 19,758,851 Prepaid expenses and deposits.............. 1,673,654 2,030,080 1,175,777 ------------ ------------ ------------ 152,240,929 117,699,169 52,101,238 Fixed assets (note 4)........................ 51,948,406 41,873,758 21,378,121 Other assets (note 5)........................ 7,248,229 6,105,008 3,885,276 ------------ ------------ ------------ $211,437,564 $165,677,935 $ 77,364,635 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank indebtedness (note 6)................. $ 61,528,877 $ 32,496,777 $ 15,029,867 Accounts payable and accrued liabilities... 47,937,576 45,309,533 17,833,894 Income taxes payable....................... 3,255,543 3,465,643 1,468,799 Current portion of long-term debt (note 7)...................................... 5,296,023 3,293,280 2,363,087 ------------ ------------ ------------ 118,018,019 84,565,233 36,695,647 Long-term debt (note 7)...................... 35,832,576 24,754,500 21,958,303 Advances from parent company................. -- -- 382,790 Future income taxes.......................... 3,278,000 3,028,000 2,675,000 Shareholders' equity: Share capital (note 8)..................... 34,458,145 34,458,145 7,271,994 Contributed surplus (note 8)............... 322,866 322,866 -- Retained earnings.......................... 19,527,958 18,549,191 8,380,901 ------------ ------------ ------------ 54,308,969 53,330,202 15,652,895 ------------ ------------ ------------ Commitments and contingent liabilities (note 9) $211,437,564 $165,677,935 $ 77,364,635 ============ ============ ============
On behalf of the Board: /s/ H. GREGORY CHAMANDY, Director /s/ NORMAN M. STEINBERG, Director
See accompanying notes to consolidated financial statements. F-3 85 GILDAN ACTIVEWEAR INC. CONSOLIDATED STATEMENTS OF INCOME (In Canadian dollars)
THREE-MONTH THREE-MONTH TEN-MONTH PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JANUARY 3, JANUARY 4, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1998 1997 1996 ------------ ------------ ------------ ------------ ------------- (UNAUDITED) Sales.............................. $45,109,313 $31,812,474 $215,427,668 $119,844,406 $70,448,421 Cost of sales...................... 33,078,967 25,969,379 164,849,498 93,059,472 56,367,062 ----------- ----------- ------------ ------------ ----------- Gross profit....................... 12,030,346 5,843,095 50,578,170 26,784,934 14,081,359 Expenses: Selling, general and administrative................. 7,194,791 3,617,318 20,795,860 12,470,101 8,359,505 Depreciation and amortization.... 1,763,011 746,150 4,062,850 2,337,073 1,633,292 Interest on long-term debt....... 675,255 506,381 2,767,468 1,683,548 1,080,277 Interest, other.................. 868,522 341,591 2,264,571 1,290,787 1,427,115 Loss on settlement of long-term debt (note 7).................. - - 819,131 - - ----------- ----------- ------------ ------------ ----------- 10,501,579 5,211,440 30,709,880 17,781,509 12,500,189 ----------- ----------- ------------ ------------ ----------- Income before income taxes......... 1,528,767 631,655 19,868,290 9,003,425 1,581,170 Income taxes (note 11): Current.......................... 300,000 - 4,771,000 1,787,000 170,000 Future........................... 250,000 331,269 1,929,000 1,551,000 438,000 ----------- ----------- ------------ ------------ ----------- 550,000 331,269 6,700,000 3,338,000 608,000 ----------- ----------- ------------ ------------ ----------- Net income......................... $ 978,767 $ 300,386 $ 13,168,290 $ 5,665,425 $ 973,170 =========== =========== ============ ============ =========== Net income per share (note 1 (g)): Basic............................ $ 0.10 $ 1.65 Fully diluted.................... 0.10 1.62 Weighted average number of common shares outstanding: Basic............................ 9,950,000 7,998,657 Fully diluted.................... 10,627,076 8,177,303
See accompanying notes to consolidated financial statements. F-4 86 GILDAN ACTIVEWEAR INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (In Canadian dollars)
THREE-MONTH THREE-MONTH TEN-MONTH PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JANUARY 3, JANUARY 4, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1998 1997 1996 ------------ ------------ ------------ ------------ ------------- (UNAUDITED) Retained earnings, beginning of period........................... $18,549,191 $ 8,380,901 $ 8,380,901 $ 2,715,476 $ 1,742,306 Net income......................... 978,767 300,386 13,168,290 5,665,425 973,170 Dividends.......................... - (500,000) (500,000) -- -- Cost of stock option re-acquired (note 8 (b))..................... -- -- (2,500,000) -- -- ----------- ----------- ------------ ------------ ----------- Retained earnings, end of period... $19,527,958 $ 8,181,287 $ 18,549,191 $ 8,380,901 $ 2,715,476 =========== =========== ============ ============ ===========
See accompanying notes to consolidated financial statements. F-5 87 GILDAN ACTIVEWEAR INC. CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION (In Canadian dollars)
THREE-MONTH THREE-MONTH TEN-MONTH PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JANUARY 3, JANUARY 4, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1998 1997 1996 ------------ ------------- ------------ ------------ ------------- (UNAUDITED) Cash provided by (used in): Operations: Net income..................... $ 978,767 $ 300,386 $ 13,168,290 $ 5,665,425 $ 973,170 Add (deduct) items not affecting cash: Depreciation and amortization............... 1,763,011 746,150 4,109,341 2,337,073 1,633,292 Future income taxes.......... 250,000 331,269 1,929,000 1,551,000 438,000 (Gain) loss on disposal of fixed assets............... -- 201,316 (380,783) 31,464 1,229 Net changes in non-cash working capital balances (note 12)... (32,123,819) (10,162,320) (36,012,448) (13,781,840) (8,784,038) ------------ ------------ ------------ ------------ ------------ (29,132,041) (8,583,199) (17,186,600) (4,196,878) (5,738,347) Financing: Increase in long-term debt..... 13,939,055 1,154,283 14,034,944 10,392,680 9,651,842 Repayment of long-term debt.... (858,236) (629,982) (10,308,554) (2,854,755) (3,562,397) Issue of common shares, net.... -- -- 25,920,017 10,000 3,000,000 Payment of dividends........... -- (500,000) (500,000) -- -- Redemption of share capital.... -- -- (422,866) -- -- Increase in contributed surplus...................... -- -- 322,866 -- -- Acquisition of stock option.... -- -- (2,500,000) -- -- ------------ ------------ ------------ ------------ ------------ 13,080,819 24,301 26,546,407 7,547,925 9,089,445 Investments: Decrease in advances to affiliated companies......... -- -- -- -- 20,000 Decrease (increase) in advances to/from parent company....... 50,967 (119,984) (1,110,412) 5,810 (987,957) Increase in deferred charges... (430,734) (60,917) (994,300) (996,293) (491,402) Increase in prepaid equipment rental....................... (106,520) -- (703,684) -- -- Purchase of fixed assets....... (11,563,406) (6,362,164) (24,587,694) (5,438,648) (6,390,257) Proceeds on disposal of fixed assets....................... -- 213,000 1,289,191 90,133 16,350 Decrease (increase) in deposits..................... (931,185) 355,194 (719,818) (799,712) 98,381 ------------ ------------ ------------ ------------ ------------ (12,980,878) (5,974,871) (26,826,717) (7,138,710) (7,734,885) ------------ ------------ ------------ ------------ ------------ Increase in bank indebtedness.... (29,032,100) (14,533,769) (17,466,910) (3,787,663) (4,383,787) Bank indebtedness, beginning of period......................... (32,496,777) (15,029,867) (15,029,867) (11,242,204) (6,858,417) ------------ ------------ ------------ ------------ ------------ Bank indebtedness, end of period......................... $(61,528,877) $(29,563,636) $(32,496,777) $(15,029,867) $(11,242,204) ============ ============ ============ ============ ============
See accompanying notes to consolidated financial statements. F-6 88 GILDAN ACTIVEWEAR INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended October 4, 1998, October 5, 1997 and period ended September 29, 1996 (In Canadian dollars) Gildan Activewear Inc. (the "Company") is incorporated under the Canada Business Corporations Act. Its principal business activities include the design, manufacture and distribution of activewear apparel. Effective September 29, 1996, the Company changed its fiscal year-end from the first Friday following November 29 to the first Sunday following September 28. The consolidated statements of income, retained earnings and changes in financial position for the three-month periods ended January 3, 1999 and January 4, 1998, and the balance sheet as at January 3, 1999 are unaudited but include all adjustments (consisting of normal recurring adjustments) that the Company considers necessary for a fair presentation. Operating results for the three-month period ended January 3, 1999 are not necessarily indicative of the results that may be expected for the year ending October 3, 1999. Financial disclosures herein relating to matters subsequent to November 13, 1998 are unaudited, except for matters disclosed in note 18. 1. SIGNIFICANT ACCOUNTING POLICIES: The consolidated financial statements are expressed in Canadian dollars and have been prepared in accordance with accounting principles generally accepted in Canada. (a) Principles of consolidation: The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation. (b) Inventories: Inventories are stated at the lower of cost (first in, first out method) and market value. Market value is defined as replacement cost for raw materials and net realizable value for work in process and finished goods. (c) Fixed assets: Fixed assets are recorded at cost. Depreciation and amortization are calculated on a straight-line basis at the following annual rates:
ASSET RATE ----- ---------- Building and improvements................................... 2 1/2% to 20% Equipment................................................... 5% to 25% Equipment under capital leases.............................. 5% to 25%
(d) Deferred charges: The costs of obtaining long-term financing are deferred and amortized on a straight-line basis over the term of the related debt, ranging over a period of 3 to 5 years. Plant start-up costs and significant plant renovation costs incurred to improve future production efficiencies are deferred and amortized over 2 years. The amortization of these charges is included in depreciation and amortization. F-7 89 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): (e) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (f) Foreign exchange: Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange at the balance sheet date. Other balance sheet items are translated at the rates prevailing at the respective transaction dates. Income and expenses are translated at average rates prevailing during the year. Gains or losses on foreign exchange are recorded in the statements of income. The foreign subsidiaries are considered to be integrated foreign operations and their accounts have been translated using the temporal method with translation gains and losses included in the statements of income. (g) Earnings per share: Earnings per share is calculated using the weighted average number of equity shares outstanding during the year after giving effect retroactively at the beginning of fiscal 1998 to the conversion of the Class A preferred shares and Class A common shares into Class A subordinate voting shares and Class B multiple voting shares as discussed in note 8 (d) to the Consolidated Financial Statements. Fully diluted earnings per share reflects the dilutive effects of the assumed exercise of stock options outstanding at the end of the period. Prior to the completion of the initial public offering, the Company, as a private entity, is not required to present earnings per share. (h) Revenue recognition: Sales are recognized at the time of shipment of products. At the time of sale, estimates are made, based upon existing programs, for customer price discounts and rebates. Accruals required for new programs which related to prior sales are recorded at the time the new program is introduced. (i) Advertising and promotion: All costs associated with advertising and promoting products are expensed in the period incurred. (j) Financial instruments: The Company uses derivative financial instruments, principally forward foreign exchange contracts to manage risks from fluctuations in exchange rates and interest rate swap arrangements to manage risks from fluctuations in interest rates. Derivative financial instruments are not used for trading purposes. Gains and losses on forward foreign exchange contracts are recognized through income and generally offset transaction losses or gains on the foreign currency cash flows, which they are intended to hedge. Forward foreign exchange contracts are entered into with maturities of no longer than six months. F-8 90 2. RECEIVABLES:
JANUARY 3, OCTOBER 4, OCTOBER 5, 1999 1998 1997 ----------- ----------- ----------- (UNAUDITED) Trade receivables........................ $54,249,616 $55,335,629 $30,161,104 Duty drawback............................ 726,675 783,769 425,000 Commodity taxes receivable............... 2,408,495 2,202,153 1,078,946 Other.................................... 1,325,177 1,186,916 431,560 Less allowance for doubtful accounts, price discounts and rebates............ (1,503,363) (3,820,810) (930,000) ----------- ----------- ----------- $57,206,600 $55,687,657 $31,166,610 =========== =========== =========== Allowance for doubtful accounts, price discounts and rebates: Beginning of period.................... $ 3,820,810 $ 930,000 $ 503,143 Amount provided for during the period.............................. 1,303,000 3,620,810 465,596 Amount applied against the provision during the period................... (3,620,447) (730,000) (38,739) ----------- ----------- ----------- Balance, end of period................... $ 1,503,363 $ 3,820,810 $ 930,000 =========== =========== ===========
3. INVENTORIES:
JANUARY 3, OCTOBER 4, OCTOBER 5, 1999 1998 1997 ----------- ----------- ----------- (UNAUDITED) Raw materials............................ $ 3,568,257 $ 6,012,464 $ 2,255,196 Work in process.......................... 25,750,791 20,471,740 9,071,432 Finished goods........................... 64,041,627 33,497,228 8,432,223 ----------- ----------- ----------- $93,360,675 $59,981,432 $19,758,851 =========== =========== ===========
4. FIXED ASSETS:
JANUARY 3, ACCUMULATED 1999 DEPRECIATION ----------- AND NET BOOK COST AMORTIZATION VALUE ----------- ------------ ----------- (UNAUDITED) Land..................................... $ 1,757,647 $ -- $ 1,757,647 Building and improvements................ 8,997,006 1,455,761 7,541,245 Equipment................................ 34,542,324 8,941,201 25,601,123 Equipment under capital leases........... 19,705,183 2,656,792 17,048,391 ----------- ----------- ----------- $65,002,160 $13,053,754 $51,948,406 =========== =========== ===========
During the three-month period ended January 3, 1999, approximately $9,000,000 of equipment acquired during fiscal 1998 was refinanced under capital leases. A reclassification from equipment to equipment under capital leases has been reflected in the above table. F-9 91 4. FIXED ASSETS (CONTINUED):
OCTOBER 4, ACCUMULATED 1998 DEPRECIATION ----------- AND NET BOOK COST AMORTIZATION VALUE ----------- -------------- ----------- Land..................................... $ 755,975 $ -- $ 755,975 Building and improvements................ 6,930,171 1,311,375 5,618,796 Equipment................................ 36,010,956 8,198,399 27,812,557 Equipment under capital leases........... 9,741,650 2,055,220 7,686,430 ----------- ----------- ----------- $53,438,752 $11,564,994 $41,873,758 =========== =========== ===========
OCTOBER 5, ACCUMULATED 1997 DEPRECIATION ----------- AND NET BOOK COST AMORTIZATION VALUE ----------- -------------- ----------- Land..................................... $ 29,100 $ -- $ 29,100 Building and improvements................ 4,102,246 863,471 3,238,775 Equipment................................ 20,310,583 6,542,007 13,768,576 Equipment under capital leases........... 5,559,638 1,217,968 4,341,670 ----------- ----------- ----------- $30,001,567 $ 8,623,446 $21,378,121 =========== =========== ===========
Depreciation expense in 1998 was $3,183,649 (1997--$2,082,927; 1996--$1,537,140). The depreciation expense for the three-month periods ended January 3, 1999 and January 4, 1998 was $1,488,760 and $615,278 respectively (unaudited). 5. OTHER ASSETS:
JANUARY 3, OCTOBER 4, OCTOBER 5, 1999 1998 1997 ----------- ---------- ---------- (UNAUDITED) Advances to parent company.................. $1,661,802 $1,712,769 $ 985,147 Advances to affiliated companies............ 580,000 580,000 580,000 Deferred charges, net of accumulated amortization of $1,079,478 (unaudited) (1998--$1,264,183; 1997--$345,187)........ 1,471,425 1,313,268 1,237,964 Prepaid equipment rental.................... 810,204 703,684 -- Deposits.................................... 2,622,349 1,691,164 971,346 Goodwill, net of accumulated amortization of $64,661 (unaudited) (1998--$62,987; 1997--$56,291)............................ 102,449 104,123 110,819 ---------- ---------- ---------- $7,248,229 $6,105,008 $3,885,276 ========== ========== ==========
The amortization expense in fiscal 1998 for deferred charges and goodwill was $872,505 (1997--$247,450; 1996--$90,572) and $6,696 (1997--$6,696; 1996--$5,580) respectively. The amortization expense for the three-month periods ended January 3, 1999 and January 4, 1998 for deferred charges was $272,577 and $129,200 and for goodwill was $1,674 and $1,674 (unaudited). F-10 92 6. BANK INDEBTEDNESS: The Company has an operating line of credit with its bankers to a maximum of $50,000,000 (January 3, 1999--$70,000,000 (unaudited)) or the equivalent amount thereof in US dollars, which bears interest at a floating base rate and is secured by a first ranking moveable hypothec (a form of security on personal property) covering all of the Company's and its subsidiaries' assets, other than a first ranking security on specific machinery and equipment pledged as security for long-term debt, and the assignment of property insurance. The effective interest rate at October 4, 1998 was 9.75% on US dollar denominated loans and 8.25% on Canadian dollar denominated loans under the operating credit facility. Effective interest rates at October 5, 1997 were 10% on US dollar denominated loans and 6.50% on Canadian dollar denominated loans. The effective interest rate at January 3, 1999 was 9.25% on US dollar denominated loans and 7.75% on Canadian dollar denominated loans (unaudited). Under various financing arrangements with its bankers and long-term lenders, the Company is required to meet certain covenants. The Company was in compliance with these covenants as at January 3, 1999, October 4, 1998 and October 5, 1997. 7. LONG-TERM DEBT:
JANUARY 3, OCTOBER 4, OCTOBER 5, 1999 1998 1997 ----------- ----------- ----------- (UNAUDITED) UNSECURED: Debenture payable, bearing interest at 11% per annum, maturing in June 2003............... $15,000,000 $15,000,000 $ -- Loan payable, non-interest bearing except on overdue principal repayments, maturing in November 2001.............................. 394,650 460,425 591,975 Term loan, bearing interest at 6% per annum, maturing in January 2008................... 500,000 500,000 -- Loans payable, bearing interest at prime plus 1.5%....................................... -- -- 4,569,878 Debentures payable, bearing interest at 10% per annum.................................. -- -- 9,000,000 ----------- ----------- ----------- 15,894,650 15,960,425 14,161,853 Current portion of unsecured debt............. 181,550 181,550 131,550 ----------- ----------- ----------- $15,713,100 $15,778,875 $14,030,303 =========== =========== ===========
F-11 93 7. LONG-TERM DEBT (CONTINUED):
JANUARY 3, OCTOBER 4, OCTOBER 5, 1999 1998 1997 ----------- ----------- ----------- (UNAUDITED) SECURED: Mortgage loans, bearing interest at fixed rate, maturing in 2007, 2008 and 2013. (Effective interest rates at January 3, 1999--8.5% to 9.7%; October 4, 1998--8.5%; October 5, 1997--10.5%.)................... $ 4,488,717 $ 2,338,368 $ 946,896 Term loans, bearing interest at rates from 8.15% to 10.97%, maturing at various dates through 2003............................... 5,463,127 4,169,721 3,638,205 Note payable, bearing interest at 6%, maturing in March 2002, (January 3, 1999--US$154,937; October 4, 1998--US$165,653; October 5, 1997--US$206,950).......................... 237,565 253,647 283,980 Term loan, bearing interest at prime plus 1.5%....................................... -- -- 2,079,250 Obligations under capital leases, bearing interest at rates varying from 5.9% to 12.96% maturing at various dates through 2004....................................... 15,044,540 5,325,619 3,211,206 ----------- ----------- ----------- 25,233,949 12,087,355 10,159,537 Current portion of secured debt............... 5,114,473 3,111,730 2,231,537 ----------- ----------- ----------- $20,119,476 $ 8,975,625 $ 7,928,000 =========== =========== =========== Total unsecured and secured long-term debt.... $35,832,576 $24,754,500 $21,958,303 =========== =========== ===========
During 1998, the Company repaid certain secured and unsecured loans. A prepayment penalty and the write-off of the unamortized deferred financing costs related to these loans totaling $819,131 have been expensed as a loss on settlement of long-term debt in the consolidated statements of income. As at January 3, 1999, certain long-term debt amounting to $2,903,000 (unaudited) (1998--$3,058,000; 1997--$9,200,000) is guaranteed by Harco Holdings Ltd., the parent company. Principal payments due on long-term debt, other than obligations under capital leases, are approximately as follows:
JANUARY 3, OCTOBER 4, FISCAL YEAR 1999 1998 ----------- ----------- ----------- (UNAUDITED) 1999........................................................ $ 1,624,000 $ 1,809,000 2000........................................................ 2,025,000 1,558,000 2001........................................................ 2,093,000 1,602,000 2002........................................................ 1,329,000 810,000 2003........................................................ 16,098,000 15,550,000 Thereafter.................................................. 2,915,000 1,393,000 ----------- ----------- $26,084,000 $22,722,000 =========== ===========
F-12 94 7. LONG-TERM DEBT (CONTINUED): Future minimum lease payments under capital leases in each of the next five years are approximately as follows:
JANUARY 3, OCTOBER 4, FISCAL YEAR 1999 1998 ----------- ----------- ----------- (UNAUDITED) 1999........................................................ $ 3,237,000 $ 1,900,000 2000........................................................ 4,145,000 1,718,000 2001........................................................ 4,144,000 1,721,000 2002........................................................ 3,215,000 804,000 2003........................................................ 2,536,000 145,000 Thereafter.................................................. 648,000 -- ----------- ----------- Total minimum lease payments................................ 17,925,000 6,288,000 Less imputed interest....................................... 2,879,000 962,000 ----------- ----------- $15,046,000 $ 5,326,000 =========== ===========
8. SHARE CAPITAL:
JANUARY 3, OCTOBER 4, OCTOBER 5, 1999 1998 1997 ----------- ----------- ------------- (UNAUDITED) Authorized without limit as to number and without par value: First preferred shares, issuable in series, non-voting Second preferred shares, issuable in series, non-voting Class A subordinate voting shares, participating, one vote per share Class B multiple voting shares, participating, eight votes per share Issued and outstanding: Nil Class A preferred shares (1997--10,000,000 shares)................. $ -- $ -- $ 7,261,994 Nil Class A common shares (1997--1,000 shares)................................... -- -- 10,000 6,903,000 Class A subordinate voting shares (1997--nil)............................... 29,374,749 29,374,749 -- 3,047,000 Class B multiple voting shares (1997--nil)............................... 5,083,396 5,083,396 -- ----------- ----------- ----------- $34,458,145 $34,458,145 $ 7,271,994 =========== =========== ===========
F-13 95 8. SHARE CAPITAL (CONTINUED): Summary of issued and outstanding share capital:
NUMBER AMOUNT ----------- ----------- Class A preferred shares: Balance, September 29, 1996............................... -- $ -- Fiscal 1997: Conversion of common shares to Class A preferred shares............................................... 10,000,000 7,261,994 Fiscal 1998: Redemption of shares................................... (581,500) (422,285) Issuance of shares for cash............................ 291,294 499,860 Conversion of Class A preferred shares to Class A subordinate voting shares and Class B multiple voting shares............................................... (9,709,794) (7,339,569) ----------- ----------- Total Class A preferred shares, October 4, 1998............. -- $ -- =========== =========== Common shares: Balance, September 29, 1996................................ 10,000,000 $ 7,261,994 Fiscal 1997: Conversion of common shares to 10,000,000 Class A preferred shares and 300 Class A common shares......... (10,000,000) (7,261,994) ----------- ----------- Total common shares, October 5, 1997 and October 4, 1998.... -- $ -- =========== =========== Class A common shares: Balance, September 29, 1996................................ -- $ -- Fiscal 1997: Issuance of shares for cash............................... 700 10,000 Conversion of common shares to Class A common shares...... 300 -- ----------- ----------- Balance, October 5, 1997................................... 1,000 10,000 Fiscal 1998: Redemption of shares...................................... (58.15) (581) Issuance of shares for cash............................... 29.13 140 Conversion of Class A common shares to Class A subordinate voting shares.......................................... (970.98) (9,559) ----------- ----------- Total Class A common shares, October 4, 1998................ -- $ -- =========== ===========
F-14 96 8. SHARE CAPITAL (CONTINUED):
NUMBER AMOUNT ----------- ----------- Class A subordinate voting shares: Balance, October 5, 1997................................... -- $ -- Fiscal 1998: Conversion of 970.98 Class A common shares to Class A subordinate voting shares.............................. 2,724,000 9,559 Conversion of 2,709,794 Class A preferred shares to Class A subordinate voting shares............................ 1,179,000 2,256,173 Issuance of shares for cash............................... 3,000,000 30,870,000 Share issue costs, net of future taxes of $1,689,000...... -- (3,760,983) ----------- ----------- Total Class A subordinate voting shares, October 4, 1998 and January 3, 1999........................................... 6,903,000 $29,374,749 =========== =========== Class B multiple voting shares: Balance, October 5, 1997................................... -- $ -- Fiscal 1998: Conversion of 7,000,000 Class A preferred shares to Class B multiple voting shares............................... 3,047,000 5,083,396 ----------- ----------- Total Class B multiple voting shares, October 4, 1998 and January 3, 1999........................................... 3,047,000 $ 5,083,396 =========== ===========
(a) During fiscal 1997, the Company obtained a Certificate of Amendment which provided for: (i) the creation of an unlimited number of Class A common shares and Class A preferred shares; (ii) the conversion of 10,000,000 common shares into 10,000,000 Class A preferred shares and 300 Class A common shares; and (iii) the cancellation of the authorized and unissued common shares. The Class A preferred shares were retractable at $43,500,000 and upon retraction, the Company had the option to settle the shares in cash or through the issuance of Class A common shares. During fiscal 1997, the Company issued 700 Class A common shares for a total cash consideration of $10,000. (b) During fiscal 1998, a shareholder exercised an option and acquired 291,294 Class A preferred shares and 29.13 Class A common shares for an aggregate consideration of $500,000. The Company reacquired a second stock option from this shareholder for $2,500,000 using proceeds from the initial public offering. The cost of buying back the option was charged against retained earnings. (c) Under the terms of a renegotiated redemption agreement and immediately prior to the initial public offering, the Company redeemed 581,500 Class A preferred shares and 58.15 Class A common shares for an aggregate consideration of $100,000 which resulted in an amount of $322,866 being credited to contributed surplus. F-15 97 8. SHARE CAPITAL (CONTINUED): (d) By Certificate of Amendment dated June 16, 1998, the Articles of the Company were amended to provide for: (i) the creation of an unlimited number of: -- First preferred shares issuable in series; -- Second preferred shares issuable in series; -- Class A subordinate voting shares; -- Class B multiple voting shares. (ii) the exchange of the 970.98 outstanding Class A common shares for 2,724,000 Class A subordinate voting shares; (iii) the exchange of 9,709,794 outstanding Class A preferred shares for 1,179,000 Class A subordinate voting shares and 3,047,000 Class B multiple voting shares; (iv) the cancellation of the authorized Class A common shares and Class A preferred shares; (v) the elimination of all restrictions on the issue and transfer of the Company's shares to the public. (e) On June 24, 1998, the Company issued 3,000,000 Class A subordinate voting shares for a total cash consideration of $30,870,000. Issue expenses of $5,449,983 less future income taxes of $1,689,000 have been applied against proceeds from the initial public offering. (f) Pursuant to the initial public offering, 2,372,014 Class B multiple voting shares and 2,842,499 Class A subordinate voting shares are held in escrow and cannot be transferred, mortgaged, pledged or otherwise disposed of without the consent of the Quebec and Ontario securities commissions and The Toronto Stock Exchange. The release of these shares is based solely on the passage of time. 9. STOCK OPTION PLAN: Effective June 24, 1998, the Company established a stock option plan (the "Plan"). Under the Plan, the Company may grant options to purchase Class A subordinate voting shares at the then current market price to officers, other key employees and directors of the Company. Options vest ratably over a two to four-year period from the date of grant and expire no more than ten years after the date of grant. The Plan provides that the number of Class A subordinate voting shares reserved for issuance will be limited to 995,000, which were reserved for issuance under the Plan. Changes in outstanding options were as follows: Options outstanding, October 5, 1997........................ -- Granted..................................................... 633,000 ------- Options outstanding, October 4, 1998........................ 633,000 Expired or cancelled........................................ (7,000) Granted..................................................... 116,000 ------- Options outstanding, January 3, 1999 (unaudited)............ 742,000 =======
Details of the options outstanding were as follows:
OPTIONS OUTSTANDING EXERCISE PRICE PER SHARE EXPIRY DATE ------------------- ------------------------ ----------- 742,000.......................................... $10.29 to $11.50 2008 ================ =====
F-16 98 10. COMMITMENTS AND CONTINGENT LIABILITIES: (a) The Company has guaranteed a mortgage owed by the parent company on a building which serves as the Company's knitting facilities and executive offices. As at October 4, 1998, the total indebtedness outstanding amounted to approximately $3,360,000 (1997 -- $2,360,000). As at January 3, 1999, the Company was no longer a guarantor for this indebtedness. (b) The minimum annual lease payments under operating leases are approximately as follows:
JANUARY 3, OCTOBER 4, FISCAL YEAR 1999 1998 ----------- ----------- ----------- (UNAUDITED) 1999................................................ $ 3,915,000 $ 5,042,000 2000................................................ 3,743,000 3,654,000 2001................................................ 2,729,000 2,515,000 2002................................................ 2,397,000 2,254,000 2003................................................ 1,849,000 1,626,000 Thereafter.......................................... 5,002,000 4,887,000 ----------- ----------- $19,635,000 $19,978,000 =========== ===========
(c) As at January 3, 1999 and October 4, 1998, there were contractual obligations outstanding of approximately $8,600,000 (unaudited) and $8,500,000 respectively for the acquisition of fixed assets (1997--$4,879,000). (d) The Company has employment agreements with certain of its executives that provide for lump sum severance and other payments, certain group insurance benefits and the right to exercise vested options pursuant to the Company's stock option plan upon termination of employment under certain circumstances or a change of control, as defined. The minimum value of such contingent obligations for senior management personnel was estimated to be $3,800,000 as at October 4, 1998. 11. INCOME TAXES: A reconciliation of the statutory income tax rate and the effective tax rate is as follows:
JANUARY 3, JANUARY 4, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1998 1997 1996 ---------- ---------- ----------- ---------- ------------- (UNAUDITED) Combined basic Canadian federal and provincial income taxes.............. $ 581,000 $240,000 $ 7,550,000 $3,399,000 $597,000 Increase (decrease) in income taxes resulting from: Manufacturing and processing credit............................. (126,000) (35,000) (1,350,000) (629,000) (99,000) Large corporations tax............... 29,000 10,000 40,000 25,000 58,000 Effect of different tax rates on earnings of foreign subsidiaries... 52,000 68,000 (73,000) 62,000 (60,000) Utilization of losses carried forward by a subsidiary.................... (41,000) (5,000) (129,000) - - Permanent differences and other...... 55,000 54,000 662,000 481,000 112,000 --------- -------- ----------- ---------- -------- $ 550,000 $332,000 $ 6,700,000 $3,338,000 $608,000 ========= ======== =========== ========== ========
F-17 99 11. INCOME TAXES (CONTINUED): In fiscal 1998, the Company adopted the new Canadian Institute of Chartered Accountants' recommendations for the accounting for income taxes. The new standard requires the use of the asset and liability method for accounting for income taxes. Under the asset and liability method, future income taxes are recognized for the future income tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). Future income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in tax rates is included in income in the period that includes the enactment date. Future income tax assets are evaluated and if realization is not considered "more likely than not", a valuation allowance is provided. Previously, the Company followed the deferral method of accounting for income taxes which related the provision for income taxes to the accounting income for the period. Under the deferral method, the amount by which the income tax provision differed from the amount of income taxes currently payable was considered to represent the deferring to future periods of benefits obtained on expenditures incurred in the current period and accordingly was computed at current income tax rates. The accumulated income tax allocation debit or credit balance was not adjusted to reflect subsequent changes in income tax rates. Also, under the deferral method, tax benefits related to accounting losses could only be recognized in the period in which the loss was incurred if there was virtual certainty of realizing the benefits. The adoption of the new standard does not materially affect the reported earnings of the Company. The financial impact of adopting the new policy has been reflected in the current period and has not been applied retroactively. Future income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's future tax position as at January 3, 1999 and October 4, 1998 are as follows:
JANUARY 3, OCTOBER 4, 1999 1998 ----------- ----------- (UNAUDITED) Future tax assets: Share issue costs......................................... $ 1,491,000 $ 1,576,000 Deferred financing costs and other........................ 124,000 146,000 ----------- ----------- 1,615,000 1,722,000 Future tax liabilities: Tax depreciation in excess of book depreciation........... 4,860,000 4,717,000 Other..................................................... 33,000 33,000 ----------- ----------- 4,893,000 4,750,000 ----------- ----------- Net future tax liability.................................... $ 3,278,000 $ 3,028,000 =========== ===========
F-18 100 12. NET CHANGES IN NON-CASH WORKING CAPITAL BALANCES:
JANUARY 3, JANUARY 4, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1998 1997 1996 ------------- ------------ ------------ ------------ ------------- (UNAUDITED) Accounts receivable.......... $ (1,518,943) $ (7,819,141) $(24,521,047) $(16,542,668) $(6,582,757) Inventories.................. (33,379,243) (6,332,570) (40,222,581) (2,979,855) (5,638,409) Prepaid expenses and deposits................... 356,426 484,375 (854,303) (600,082) (199,812) Accounts payable and accrued liabilities................ 2,628,041 5,407,827 27,475,639 4,570,935 3,299,937 Income taxes................. (210,100) (1,902,811) 2,109,844 1,769,830 337,003 ------------- ------------ ------------ ------------ ----------- $ (32,123,819) $(10,162,320) $(36,012,448) $(13,781,840) $(8,784,038) ============= ============ ============ ============ ===========
13. RELATED PARTY TRANSACTIONS: Advances from parent company, which were repaid during fiscal 1998, bore interest at an effective rate of 7.8% (1997--6.3%) and were subordinated in favour of the Company's lenders. The advances to affiliated companies are non-interest bearing while the advances to parent company bear interest at an effective rate of 7.2% commencing June 1998. The advances have no specified terms of repayment. The Company had the following transactions with the parent or affiliated companies:
JANUARY 3, JANUARY 4, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1998 1997 1996 ------------- ------------ ------------ ------------ ------------- (UNAUDITED) Rent expense................. $ 185,484 $ 120,000 $ 545,484 $ 420,000 $ 363,936 Interest expense............. -- 4,950 19,750 24,000 28,000 Interest income.............. 32,616 -- 30,000 -- --
In management's opinion, the rent expense approximated market rates on normal terms at the time the lease was entered into. 14. FINANCIAL INSTRUMENTS: (a) Foreign currency risk management: A substantial portion of the Company's sales are denominated in US dollars. The Company uses the revenue stream in US dollars as a natural hedge to cover expenses denominated in US dollars. During the year, the Company also used forward foreign exchange contracts to hedge its foreign exchange exposure on cash flows related to payables and accounts receivable in US dollars. The forward exchange contracts represent an obligation to exchange principal amounts between the Company and counterparties. Credit risk exists in the event of failure by counterparties to meet their obligations. The Company reduces this risk by dealing only with highly rated counterparties, normally major North American financial institutions. F-19 101 14. FINANCIAL INSTRUMENTS (CONTINUED): (a) Foreign currency risk management (continued): At January 3, 1999, October 4, 1998 and October 5, 1997, there were no forward foreign exchange contracts outstanding. (b) Credit risk: Approximately 50% of the Company's sales were made to four unrelated companies for fiscal 1998, 1997 and 1996 and 52% and 72% for the three-month periods ended January 3, 1999 and January 4, 1998 respectively (unaudited). Percentages related to individual customers accounting for greater than 10% of total sales are as follows:
THREE-MONTH THREE-MONTH TEN-MONTH PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JANUARY 3, JANUARY 4, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1998 1997 1996 ------------ ------------ ---------- ---------- ------------- (UNAUDITED) Company A.............. 26.2% 41.8% 26.6% 19.6% -- Company B.............. -- 21.3% 9.6% 25.9% 40.9% Company C.............. 11.2% -- -- -- -- Company D.............. 10.4% -- -- -- --
The Company regularly monitors its credit risk exposure to these and other customers and takes steps to mitigate the risk of loss, including obtaining credit insurance. The Company's extension of credit is based on an evaluation of each customer's financial condition and the Company's ability to obtain credit insurance coverage for that customer. Credit losses are provided for in the financial statements. (c) Fair value disclosure: Fair value estimates are made as of a specific point in time, using available information about the financial instrument. These estimates are subjective in nature and often cannot be determined with precision. The Company has determined that the carrying value of its short-term financial assets and liabilities approximates fair values as at the balance sheet dates because of the short-term maturity of those instruments. The fair value of advances to parent and affiliated companies could not be determined because the advances have no specified repayment dates. The fair value and carrying value of other financial instruments are presented below:
JANUARY 3, 1999 OCTOBER 4, 1998 OCTOBER 5, 1997 ------------------------- ------------------------- ------------------------- CARRYING FAIR CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE VALUE VALUE ----------- ----------- ----------- ----------- ----------- ----------- (UNAUDITED) Long-term debt....... $41,128,599 $41,345,000 $28,047,780 $28,132,200 $24,321,390 $24,495,500
The fair value of the Company's long-term debt bearing interest at fixed rates has been calculated using the present value of future payments of principal and interest discounted at the current market rates of interest available to the Company for the same or similar debt instruments with the same remaining maturities. For long-term debt bearing interest at F-20 102 14. FINANCIAL INSTRUMENTS (CONTINUED): (c) Fair value disclosure (continued): variable rates, the fair value is considered to approximate the carrying value. The fair value of the interest rate swap described in note 14 (d) is considered to approximate its carrying value of $6,000. (d) Interest rate risk: The Company's principal exposure to interest rate fluctuations is with respect to its short-term and long-term financing which bear interest at floating rates. To mitigate the effects of interest rate fluctuations, the Company entered into a swap arrangement on October 1, 1997 with its bankers to cap the floating interest rate on the first $25,000,000 of borrowings under its credit facilities to a maximum of 13%. This arrangement expires on October 1, 1999. 15. SEGMENTED INFORMATION: The Company operates internationally in one industry segment, the manufacture and sale of activewear. Export sales amounted to approximately $185,000,000 in fiscal 1998 (1997--$86,200,000; 1996--$52,000,000) and $41,600,000 for the three-month period ended January 3, 1999 (January 4, 1998--$28,000,000) unaudited. 16. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE: The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900 or some other date, resulting in errors when information using year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. The effects of the Year 2000 Issue may be experienced before, on, or after January 1, 2000, and, if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failure which could affect an entity's ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. 17. RECLASSIFICATION: Certain amounts from the preceding years have been reclassified to be in conformity with the current year's presentation. 18. SUBSEQUENT EVENTS: (a) In January 1999, the Company obtained $30,000,000 of subordinated debenture financing, $15,000,000 of which bears interest at 12% per annum for the first two years and 13% per annum for the next three years and $15,000,000 bears interest at 12.5% per annum, both maturing in 2004. In addition, $5,000,000 of equity financing was obtained through the issuance of 444,444 Class A subordinate voting shares. The funds are used to finance working capital requirements and the acquisition of new assets. (b) In March 1999, the Company entered into a new three-year revolving credit agreement with a banking syndicate providing for a maximum borrowing capacity of $90,000,000. (c) The Company purchased the issued and outstanding shares of a subcontractor located in Honduras for US$1,200,000. F-21 103 18. SUBSEQUENT EVENTS (CONTINUED): (d) Subsequent to January 3, 1999, under the Plan the Company cancelled 5,000 options and granted 19,500 options to employees at a price of $16.50 per share and 100,000 options to an executive at a price of $13.25 per share. (e) The Company entered into capital lease agreements for machinery and equipment totaling approximately $10,000,000 bearing interest at rates varying from 8.1% to 8.6% per annum. 19. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: The consolidated financial statements of the Company are expressed in Canadian dollars and are prepared in accordance with Canadian generally accepted accounting principles ("GAAP"), which conform, in all material respects, with those generally accepted in the United States except as described below: (a) Consolidated statements of income:
THREE-MONTH THREE-MONTH TEN-MONTH PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JANUARY 3, JANUARY 4, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1998 1997 1996 ------------ ------------ ------------ ----------- ------------- (UNAUDITED) Net income in accordance with Canadian GAAP................ $978,767 $ 300,386 $ 13,168,290 $ 5,665,425 $ 973,170 Start-up costs (a) (i)......... (20,100) 50,000 (397,900) (408,000) -- Plant renovation costs (a) (ii)... 27,000 27,000 108,000 (192,000) -- Interest expense (a) (iii)..... -- (40,000) (640,000) (160,000) -- Loss on settlement of long-term debt (a) (v)................. -- -- 819,131 -- -- Tax effect of above adjustments.................. (10,000) 5,000 (76,131) 131,000 -- -------- ------------ ------------ ----------- ----------- Net income before extraordinary item......................... 975,667 342,386 12,981,390 5,036,425 973,170 Extraordinary item: Loss on settlement of long-term debt, net of taxes of $276,131..................... -- -- 543,000 -- -- -------- ------------ ------------ ----------- ----------- Net income in accordance with United States GAAP........... 975,667 342,386 12,438,390 5,036,425 973,170 Less accretion to fair value of temporary equity (c) (ii).... -- (11,250,000) (22,500,000) (14,997,000) (3,371,402) Plus excess of carrying amount over fair value on conversion of temporary equity (c) (ii)......................... -- -- 21,600,000 -- -- -------- ------------ ------------ ----------- ----------- Net income (loss) available to common shareholders.......... $975,667 $(10,907,614) $ 11,538,390 $(9,960,575) $(2,398,232) ======== ============ ============ =========== ===========
The Company has adopted the new Statement of Financial Accounting Standards ("SFAS") No. 128 for computing and presenting earnings per share under United States GAAP. F-22 104 19. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): (a) Consolidated statements of income (continued):
THREE-MONTH TEN-MONTH PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JANUARY 3, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1997 1996 ------------ ---------- ---------- ------------- (UNAUDITED) Basic net income (loss) per share: Net income (loss) before extraordinary item............... $ 0.10 $ 2.75 $ (2.36) $ (0.58) Extraordinary item: Loss on settlement of long-term debt..... -- (0.12) -- -- ---------- ---------- ---------- ---------- Basic net income (loss) per share under United States GAAP............. $ 0.10 $ 2.63 $ (2.36) $ (0.58) ========== ========== ========== ========== Weighted average number of common shares outstanding under United States GAAP............. 9,950,000 4,384,399 4,213,255 4,120,185 ========== ========== ========== ==========
Fully diluted earnings per share: United States GAAP requires the use of the treasury stock method for common stock equivalents to compute the weighted average number of common shares outstanding for the period. The use of the treasury stock method for stock options issued has been considered in the earnings per share figure.
THREE-MONTH TEN-MONTH PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JANUARY 3, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1997 1996 ------------ ---------- ---------- ------------- (UNAUDITED) Fully diluted net income (loss) per share: Net income (loss) before extraordinary item............ $ 0.10 $ 2.74 $ (2.36) $ (0.58) Extraordinary item: Loss on settlement of long-term debt.............. -- (0.12) -- -- ---------- --------- --------- --------- Fully diluted net income (loss) per share under United States GAAP... $ 0.10 $ 2.62 $ (2.36) $ (0.58) ========== ========= ========= ========= Weighted average number of common shares outstanding under United States GAAP...................... 10,011,621 4,397,464 4,213,255 4,120,185 ========== ========= ========= =========
For fiscal 1997 and 1996 the effect of outstanding options was anti-dilutive. F-23 105 19. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): (a) Consolidated statements of income (continued): (i) Start-up costs: Costs incurred during the start-up period for new manufacturing and distribution facilities are deferred and amortized on a straight-line basis over two years (see note 1 (d) to the Consolidated Financial Statements). United States GAAP requires these costs to be expensed in the year incurred. (ii) Plant renovation costs: Plant renovation costs incurred to improve the efficiency of the plant layout have been included in deferred charges and are being amortized over 2 years (see note 1 (d) to the Consolidated Financial Statements). Under United States GAAP, this amount, net of its related amortization, has been reversed and accounted for as a period expense. (iii) Debt discount: In connection with the issuance of debentures payable, the Company granted stock options to subscribe for additional shares. Under United States GAAP, the difference between the estimated fair market value of the options and the subscription price at the date the option is granted is accounted for as an adjustment to the carrying value of the debenture ("debt discount") and is amortized over the term of the related debt as an increase to interest expense with the corresponding amount credited to temporary equity. The estimated fair value of the options amounted to $800,000 at the dates the options were granted. During fiscal 1998, the debentures were refinanced and the related unamortized debt discount of $640,000 was recorded as additional interest expense under United States GAAP (1997 -- $160,000; 1996 -- nil). (iv) Stock-based compensation: United States GAAP requires the measurement and recognition of compensation expense related to certain stock-based compensation. As permitted by the provisions of SFAS No. 123 statement, the Company has measured compensation cost as the excess of the quoted market price of the Company's stock at the grant date over the amount the employee must pay for the stock. Accordingly, no compensation expense is recognized for stock option awards. There are no similar requirements under Canadian GAAP. SFAS No. 123 requires disclosure of pro forma net income and earnings per share as if the fair value based method had been applied in measuring compensation cost for options granted in fiscal 1998 and in the three-month period ended January 3, 1999. Management believes that the effects of applying SFAS No. 123 on a pro forma basis are not likely to be representative of the effects on reported pro forma net income for future years as the estimated compensation costs reflect only options granted to January 3, 1999 and do not consider awards which may occur in future years, the terms and conditions of which may vary. F-24 106 19. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): (a) Consolidated statements of income (continued): (iv) Stock-based compensation (continued): Reported and pro forma net income and earnings per share amounts under United States GAAP are set forth below:
THREE-MONTH PERIOD ENDED YEAR ENDED JANUARY 3, OCTOBER 4, 1999 1998 ------------ ----------- (UNAUDITED) Net income: As reported..................................... $974,643 $11,538,390 Pro forma....................................... 714,043 11,272,987 Earnings per share: Basic: As reported.................................. 0.10 2.63 Pro forma.................................... 0.07 2.57 Fully diluted: As reported.................................. 0.10 2.62 Pro forma.................................... 0.07 2.56
The weighted average fair value of options granted in fiscal 1998 and in the three-month period ended January 3, 1999 is $4.43 and $4.45 (unaudited) respectively. The fair value of the options granted was estimated on the date of their grant using the Black-Scholes option-pricing model based on the following weighted average assumptions:
JANUARY 3, OCTOBER 4, 1999 1998 ----------- ----------- (UNAUDITED) Risk-free interest rate........................... 5% 5% Expected life in years............................ 6.1 6.1 Expected volatility............................... 31.4% 29.4% Expected dividend yield........................... -- --
Dividend yield was excluded from the calculation since it is the present policy of the Company to retain all earnings to finance operations. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect their fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. (v) Loss on settlement of long-term debt: Under United States GAAP, the debt prepayment penalty incurred on settlement of long-term debt, which is identified as a separate expense item in the consolidated statements of income for Canadian GAAP purposes (see note 7 to the Consolidated Financial Statements), would have been treated as an extraordinary item and presented net of taxes as $543,000. F-25 107 19. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): (b) Consolidated statements of changes in financial position: (i) The Company's consolidated statements of changes in financial position reconcile the changes in bank indebtedness. Under United States GAAP, changes in bank indebtedness amounting to $(17,466,910) in fiscal 1998, ($3,787,663) in fiscal 1997 and ($4,383,787) in fiscal 1996 would have been disclosed as financing activities. Changes in bank indebtedness amounting to $(29,032,100) as of January 3, 1999 and $(14,533,769) as of January 4, 1998 would have been disclosed as financing activities (unaudited).
THREE-MONTH THREE-MONTH TEN-MONTH PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED PERIOD ENDED JANUARY 3, JANUARY 4, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1998 1997 1996 ------------ ------------ ------------ ----------- ------------- (UNAUDITED) Cash and equivalents, United States GAAP, beginning of period...... $ -- $ -- $ -- $ -- $ -- Changes due to United States GAAP: Operating activities on a Canadian basis......... (29,132,041) (8,583,199) (17,186,600) (4,196,878) (5,738,347) Start-up costs........... (20,100) 50,000 (397,900) (408,000) -- Plant renovation costs... 27,000 27,000 108,000 (192,000) -- ------------ ----------- ------------ ----------- ----------- Operating activities cash flow, United States GAAP................... (29,125,141) (8,506,199) (17,476,500) (4,796,878) (5,738,347) Investing activities on a Canadian basis......... (12,980,878) (5,974,871) (26,826,717) (7,138,710) (7,734,885) Start-up costs........... 20,100 (50,000) 397,900 408,000 -- Plant renovation costs... (27,000) (27,000) (108,000) 192,000 -- ------------ ----------- ------------ ----------- ----------- Investing activities cash flow, United States GAAP................... (12,987,778) (6,051,871) (26,536,817) (6,538,710) (7,734,885) Financing activities on a Canadian basis......... 13,080,819 24,301 26,546,407 7,547,925 9,089,445 Increase in bank indebtedness........... 29,032,100 14,533,769 17,466,910 3,787,663 4,383,787 ------------ ----------- ------------ ----------- ----------- Financing activities cash flow, United States GAAP................... 42,112,919 14,558,070 44,013,317 11,335,588 13,473,232 ------------ ----------- ------------ ----------- ----------- Cash and equivalents, United States GAAP, end of period................ $ -- $ -- $ -- $ -- $ -- ============ =========== ============ =========== ===========
(ii) Investing activities include additions to fixed assets of $1,553,715 in fiscal 1998 (1997--$534,925; 1996--$2,850,866) and $960,139 for the three-month period ended January 3, 1999 (January 4, 1998--$1,117,915) (unaudited) which were acquired through capital leases. F-26 108 19. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): (iii) United States GAAP requires that the amount of interest and income taxes paid during each fiscal period be disclosed. There is no requirement to disclose this information under Canadian GAAP. Cash paid during the years was as follows:
JANUARY 3, JANUARY 4, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1998 1997 1996 ---------- ---------- ---------- ---------- ------------- (UNAUDITED) Interest..................... $1,295,775 $ 700,836 $5,004,894 $2,971,316 $2,481,018 Income taxes................. 320,000 2,037,832 3,369,212 73,972 98,000
(c) Consolidated balance sheets: Differences between Canadian and United States GAAP are not material in the presentation of the assets, liabilities and shareholders' equity, except for:
JANUARY 3, OCTOBER 4, OCTOBER 5, 1999 1998 1997 ------------ ------------ ------------ (UNAUDITED) Other assets under Canadian GAAP........ $ 7,248,229 $ 6,105,008 $ 3,885,276 Start-up costs.......................... (826,000) (805,900) (408,000) Plant renovation costs.................. (57,000) (84,000) (192,000) ------------ ------------ ------------ Other assets under United States GAAP... $ 6,365,229 $ 5,215,108 $ 3,285,276 ============ ============ ============ Long-term debt under Canadian GAAP...... $ 37,065,041 $ 24,754,500 $ 21,958,303 Debt discount........................... -- -- (640,000) ------------ ------------ ------------ Long-term debt under United States GAAP.................................. $ 37,065,041 $ 24,754,500 $ 21,318,303 ============ ============ ============ Future income tax liabilities under Canadian GAAP......................... $ 3,278,000 $ 3,028,000 $ 2,675,000 Future taxes related to debt discount... -- -- 240,000 Future taxes related to GAAP adjustments........................... (21,000) (31,000) (71,000) ------------ ------------ ------------ Future income tax liabilities under United States GAAP (c)(i)............. $ 3,257,000 $ 2,997,000 $ 2,844,000 ============ ============ ============ Temporary equity under Canadian GAAP.... $ -- $ -- $ -- Stock options treated as temporary equity (c)(ii)........................ -- 800,000 800,000 Reclass of Class A preferred shares and Class A common shares (c)(ii)......... -- 43,050,000 20,550,000 Reduction in fair value of temporary equity (c)(ii)........................ -- (21,600,000) -- Redemption of shares.................... -- (1,950,000) -- Exercise of one option held and purchase of the second option.................. -- (300,000) -- Reclass of temporary equity to share capital (c) (ii)...................... -- (20,000,000) -- ------------ ------------ ------------ Temporary equity under United States GAAP.................................. $ -- $ -- $ 21,350,000 ============ ============ ============
F-27 109 19. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): (c) Consolidated balance sheets (continued):
JANUARY 3, OCTOBER 4, OCTOBER 5, 1999 1998 1997 ------------ ------------ ------------ (UNAUDITED) Share capital under Canadian GAAP....... $ 34,458,145 $ 34,458,145 $ 7,271,994 Reclass of Class A preferred shares and Class A common shares (c) (ii)........ (2,181,598) (2,181,598) (2,181,598) Redemption of shares.................... 422,866 422,866 -- Reclass of Class A preferred and Class A common shares issued during fiscal 1998.................................. (500,000) (500,000) -- Reclass of temporary equity to share capital (c) (ii)...................... 20,000,000 20,000,000 -- ------------ ------------ ------------ Share capital under United States GAAP.................................. $ 52,199,413 $ 52,199,413 $ 5,090,396 ============ ============ ============ Contributed surplus under Canadian GAAP.................................. $ 322,866 $ 322,866 $ -- Reversal of contributed surplus recorded under Canadian GAAP................... (322,866) (322,866) -- Excess of fair value of temporary equity shares redeemed over redemption price................................. 1,850,000 1,850,000 -- Excess of fair value of temporary equity (c) (ii).............................. 21,600,000 21,600,000 -- ------------ ------------ ------------ Contributed surplus under United States GAAP.................................. $ 23,450,000 $ 23,450,000 $ -- ============ ============ ============ Retained earnings under Canadian GAAP... $ 19,527,958 $ 18,549,191 $ 8,380,901 United States GAAP net income adjustments........................... (1,362,000) (1,358,900) (629,000) Future income tax on debt discount...... (300,000) (300,000) (300,000) Excess of fair value over book value of Class A preferred shares (c) (ii)..... (40,868,402) (40,868,402) (18,368,402) Re-acquired option included in temporary equity (c) (ii)....................... 800,000 800,000 -- ------------ ------------ ------------ Retained earnings (deficit) under United States GAAP........................... $(22,202,444) $(23,178,111) $(10,916,501) ============ ============ ============
(i) Future income taxes: Effective fiscal 1998, the Company adopted the new Canadian Institute of Chartered Accountants Handbook income tax recommendations which more closely align the Canadian and United States accounting policies. Differences in the calculation of deferred/future income taxes for fiscal 1997 were not material. F-28 110 19. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): (c) Consolidated balance sheets (continued): (i) Future income taxes (continued): As at the following dates, future tax assets and liabilities are the result of:
JANUARY 3, OCTOBER 4, OCTOBER 5, 1999 1998 1997 ----------- ----------- ----------- (UNAUDITED) Fixed assets.......................... $(4,860,000) $(4,717,000) $(2,621,000) Debt discount......................... -- -- (240,000) Share issue costs..................... 1,491,000 1,576,000 -- Deferred financing costs.............. 145,000 177,000 17,000 Other................................. (33,000) (33,000) -- ----------- ----------- ----------- $(3,257,000) $(2,997,000) $(2,844,000) =========== =========== ===========
(ii) Temporary equity: Under United States GAAP, Class A preferred shares and Class A common shares held by Le fonds de solidarite des travailleurs du Quebec would be classified outside of shareholders' equity and recorded as temporary equity at an amount equal to their fair market value. As at October 5, 1997, $18,368,402 representing the difference between the fair market value and the carrying value was charged against retained earnings. As at April 5, 1998, the end of the second quarter of fiscal 1998, the difference between the fair value and the carrying value of these shares had increased by $22,500,000, which amount had been reported as an accretion in the value of these shares and shown as a reduction to net income available to common shareholders for the six months then ended. Due to a subsequent decline in the stock market, $21,600,000 of this accretion had reversed by the time the Company priced its shares in the market. This reduction in the fair value was removed from temporary equity and credited to contributed surplus. Under Canadian GAAP, these shares are recorded as part of share capital at their book values. Under United States GAAP, the difference of $800,000 between the estimated fair market value of the options described in (a) (iii) and the subscription price at the date the options were granted is accounted for as an adjustment to temporary equity. During fiscal 1998, the Company re-acquired a stock option for $2,500,000 which was charged against retained earnings under Canadian GAAP (see note 8 (b) to the Consolidated Financial Statements). Under United States GAAP, since the option had been valued at $800,000 and accounted for as temporary equity, only $1,700,000 would be charged to retained earnings on the re-acquisition. The resulting net difference between Canadian and United States GAAP of $800,000 has been credited to retained earnings. As a result of the initial public offering, the amounts classified as temporary equity are reclassified as part of share capital. F-29 111 19. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): (d) Supplementary information: Under United States GAAP, separate disclosure is required of the following income statement and balance sheet items. There is no similar requirement under Canadian GAAP.
JANUARY 3, JANUARY 4, OCTOBER 4, OCTOBER 5, SEPTEMBER 29, 1999 1998 1998 1997 1996 ----------- ---------- ----------- ----------- ------------- (UNAUDITED) STATEMENTS OF INCOME: Rental expenses............. $ 1,382,550 $488,051 $ 2,798,000 $ 1,876,000 $1,208,000 Foreign exchange gains (losses).................. (262,759) 456,889 902,000 158,000 61,000 Advertising expense......... 502,266 373,779 3,693,000 1,463,000 1,321,000 BALANCE SHEETS: Accounts payable............ 37,577,774 38,640,000 14,968,000 Accrued liabilities......... 10,359,802 6,670,000 2,366,000
F-30 112 - ------------------------------------------------------ - ------------------------------------------------------ PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NEITHER GILDAN ACTIVEWEAR INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES. NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES AND CANADA TO PERMIT A PUBLIC OFFERING OF THE CLASS A SUBORDINATE VOTING SHARES OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES AND CANADA ARE REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE THE RESTRICTIONS OF THAT JURISDICTION RELATED TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS. --------------------- TABLE OF CONTENTS ---------------------
PAGE ---- Presentation of Financial Information.......................... i Cautionary Statement Regarding Forward-Looking Statements........... ii Prospectus Summary..................... 1 Risk Factors........................... 9 Use of Proceeds........................ 17 Dividends.............................. 17 Exchange Rates......................... 18 Capitalization......................... 19 Price Range of Our Shares.............. 20 Selected Consolidated Financial Information.......................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 23 Business............................... 30 Management............................. 44 Certain Relationships and Related Transactions......................... 53 Principal Shareholders................. 56 Description of Share Capital........... 57 Description of Certain Indebtedness.... 64 Shares Eligible for Future Sale and Escrow Arrangements.................. 66 Taxation............................... 68 Exchange Controls...................... 73 Underwriting........................... 74 Legal Matters.......................... 75 Experts................................ 76 Where You Can Find More Information.... 76 Index to Consolidated Financial Statements........................... F-1
- ------------------------------------------------------ - ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ LOGO 3,000,000 CLASS A SUBORDINATE VOTING SHARES --------------------- PROSPECTUS --------------------- BEAR, STEARNS & CO. INC. NESBITT BURNS SECURITIES INC. THE ROBINSON-HUMPHREY COMPANY WASSERSTEIN PERELLA SECURITIES, INC. CIBC WORLD MARKETS INC. , 1999 ------------------------------------------------------ ------------------------------------------------------ 113 ALTERNATE OR ADDITIONAL PAGES FOR THE CANADIAN PROSPECTUS This prospectus has been filed under procedures in each of the provinces of Canada which permit certain information with respect to these securities to be determined after the prospectus has become final and permit the omission from this prospectus of such information. Such procedures require the delivery to purchasers of a prospectus or a prospectus supplement containing this omitted information within a specified period of time after agreeing to purchase any of these securities. This prospectus constitutes a public offering of these securities only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities. No securities commission or similar authority in Canada or the United States has in any way passed upon the merits of the securities offered hereunder and any representation to the contrary is an offence. New Issue May 7, 1999 LOGO GILDAN ACTIVEWEAR INC. $ -- 3,000,000 CLASS A SUBORDINATE VOTING SHARES All of the 3,000,000 Class A Subordinate Voting Shares (the "Class A Subordinate Voting Shares") offered hereby (the "offering") are being sold by Gildan Activewear Inc. ("Gildan", the "Company" or "we") in Canada and the United States. The Company has two classes of authorized equity shares: Class A Subordinate Voting Shares and Class B Multiple Voting Shares (collectively, the "Equity Shares"). These classes of shares are substantially the same except that the Class A Subordinate Voting Shares have one vote per share while the Class B Multiple Voting Shares have eight votes per share and except as further described under "Description of Share Capital". Harco Holdings Ltd. ("Harco" or the "Principal Shareholder") owns all the issued and outstanding Class B Multiple Voting Shares. After giving effect to the offering, Harco will own approximately 22.7% of the total outstanding Equity Shares and approximately 70.2% of the voting power, and hence control, of the Company. See "Principal Shareholders". THE OUTSTANDING CLASS A SUBORDINATE VOTING SHARES ARE LISTED ON THE MONTREAL EXCHANGE (THE "ME") AND THE TORONTO STOCK EXCHANGE (THE "TSE") UNDER THE SYMBOL "GIL.A" AND ON THE AMERICAN STOCK EXCHANGE (THE "AMEX") UNDER THE SYMBOL "GIL". ON MAY 5, 1999, THE LAST REPORTED SALE PRICE PER CLASS A SUBORDINATE VOTING SHARE WAS US$14.25 ON THE AMEX AND $20.50 ON BOTH THE ME AND THE TSE. After giving effect to the offering, the offering price of each Class A Subordinate Voting Share will exceed the consolidated net tangible book value thereof on a historical basis as at January 3, 1999 by $-- on a fully diluted basis, representing a dilution factor of -- % at a public offering price of US $ -- (Cdn $ -- , based on the inverse of the Noon Buying Rate on -- , 1999 of Cdn $1.00 per US $ -- ) per Class A Subordinate Voting Share. See "Dilution". SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH ANY INVESTMENT IN THE CLASS A SUBORDINATE VOTING SHARES OFFERED HEREBY. ----------------------------------------------------- PRICE: $ -- PER CLASS A SUBORDINATE VOTING SHARE -----------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------- PRICE TO THE UNDERWRITERS' NET PROCEEDS TO PUBLIC FEE THE COMPANY(1) - --------------------------------------------------------------------------------------------------------------------------- Per Class A Subordinate Voting Share............ $ -- $ -- $ -- - --------------------------------------------------------------------------------------------------------------------------- Total(2)(3)..................................... $ -- $ -- $ -- - ---------------------------------------------------------------------------------------------------------------------------
- --------------- (1) Before deducting expenses of the offering estimated at $ -- which will be paid by the Company out of its general funds. See "Use of Proceeds". (2) The Company has granted to the underwriters an option, exercisable for a period of 30 days from the closing of the offering, to purchase up to an additional 450,000 Class A Subordinate Voting Shares on the same terms set forth above to cover over-allotments, if any. This prospectus also qualifies the distribution of the additional Class A Subordinate Voting Shares issuable upon the exercise of this over-allotment option. If the underwriters' over-allotment option is exercised in full, the total Price to the Public, Underwriters' Fee and Net Proceeds to the Company with respect to the offering will be $ -- , $ -- and $ -- , respectively. (3) The Class A Subordinate Voting Shares are being offered in the United States in U.S. dollars at the approximate equivalent of the Canadian dollar price calculated based upon the U.S.-Canadian dollar noon buying rate of exchange on the business day preceding the date of this prospectus as quoted by the Federal Reserve Bank of New York. The underwriters, as principals, conditionally offer the 3,000,000 Class A Subordinate Voting Shares, subject to prior sale, if, as and when issued and sold by the Company and delivered to and accepted by the underwriters in accordance with the conditions of the underwriting agreement described under "Underwriting" and subject to the approval of certain legal matters on behalf of the Company by Ogilvy Renault, Montreal, a general partnership, and on behalf of the underwriters by Stikeman, Elliott. Subscriptions will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. It is expected that certificates evidencing the Class A Subordinate Voting Shares will be available for delivery on closing of the offering to occur on or about May 17, 1999, or such other date as may be agreed upon, but not later than May 31, 1999. CAN-1 114 TABLE OF CONTENTS
PAGE ---- EXPLANATORY NOTE....................... 2 PRESENTATION OF FINANCIAL INFORMATION.......................... 3 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS........... 4 EXCHANGE RATES......................... 5 PROSPECTUS SUMMARY..................... 6 Gildan Activewear Inc................ 6 The Offering......................... 10 Summary Consolidated Financial Information....................... 13 BUSINESS............................... 15 Company Overview..................... 15 Operating Strategy................... 15 Growth Strategy...................... 16 Industry Overview.................... 17 Products............................. 18 Marketing and Sales.................. 19 Customers............................ 19 Raw Materials........................ 20 Manufacturing Operations and Facilities........................ 20 Properties........................... 23 Subsidiaries......................... 23 Quality Control...................... 24 Management Information Systems....... 24 Seasonality.......................... 24 Competition.......................... 24 Trade Regulatory Environment......... 25 Employees............................ 28 Intellectual Property................ 28 Environmental Regulation............. 28 Legal Proceedings.................... 28 SELECTED CONSOLIDATED FINANCIAL INFORMATION.......................... 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................... 31 USE OF PROCEEDS........................ 38 DIVIDENDS.............................. 38 CAPITALIZATION......................... 39 DILUTION............................... 40 MANAGEMENT............................. 41 Directors and Executive Officers..... 41
PAGE ---- Board of Directors................... 43 Compensation Strategy................ 44 Executive Compensation............... 45 Annual Incentive Plan................ 46 Stock Option Plan.................... 46 Indebtedness of Directors and Officers.......................... 47 Employment Agreements and Change of Control Agreements................ 48 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................... 50 Conflicts of Interest Policy......... 50 Transactions with Affiliates......... 50 Indebtedness of Directors and Officers.......................... 52 Registration Rights Agreement........ 52 Agreements between Harco and the Fund.............................. 52 PRINCIPAL SHAREHOLDERS................. 53 DESCRIPTION OF SHARE CAPITAL........... 54 First Preferred Shares............... 54 Second Preferred Shares.............. 54 Equity Shares........................ 55 DESCRIPTION OF CERTAIN INDEBTEDNESS.... 61 SHARES ELIGIBLE FOR FUTURE SALE AND ESCROW ARRANGEMENTS.................. 63 RISK FACTORS........................... 65 UNDERWRITING........................... 73 PRIOR ISSUANCES........................ 74 PRICE RANGE AND TRADING VOLUME OF THE CLASS A SUBORDINATE VOTING SHARES.... 75 LEGAL MATTERS.......................... 75 MATERIAL CONTRACTS..................... 75 AUDITORS, TRANSFER AGENT AND REGISTRAR............................ 76 ELIGIBILITY FOR INVESTMENT............. 76 QUEBEC STOCK SAVINGS PLAN.............. 77 PURCHASERS' STATUTORY RIGHTS............................... 77 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS........................... F-1 CERTIFICATE OF THE COMPANY............. C-1 CERTIFICATE OF THE UNDERWRITERS........ C-2
EXPLANATORY NOTE This prospectus has been prepared in connection with the offering by Gildan of 3,000,000 Class A Subordinate Voting Shares both in Canada and the United States, in accordance with the requirements of the United States Securities Act of 1933, as amended (the "U.S. Securities Act") and the current rules of the United States Securities and Exchange Commission (the "U.S. Commission") requiring the use of "plain English" in the drafting of offering documents of this kind. CAN-2 115 THE OFFERING Class A Subordinate Voting Shares Offered................ 3,000,000 Equity Shares Outstanding After the Offering: Class A Subordinate Voting Shares................ 10,347,444 Class B Multiple Voting Shares........................ 3,047,000 Total.................. 13,394,444 _________ This amount is based on Class A Subordinate Voting Shares outstanding at May 7, 1999 and excludes 995,000 Class A Subordinate Voting Shares reserved for issuance under the Company's stock option plan (the "Stock Option Plan"). At May 7, 1999, options to buy 856,500 Class A Subordinate Voting Shares were outstanding, of which 180,666 will become exercisable on June 16, 2000. See "Management -- Stock Option Plan". This amount also excludes 450,000 Class A Subordinate Voting Shares which may be issued by Gildan pursuant to the exercise of the underwriters' over-allotment option. Use of Proceeds............... The net proceeds from this offering are estimated at approximately Cdn$52.8 million. Gildan plans to use all of the net proceeds initially to repay borrowings under its revolving loan agreement. Subsequently, Gildan intends to use the newly available borrowing capacity under the revolving loan agreement for the planned expansion of its production and distribution capacity. See "Use of Proceeds". Relative Rights of Equity Shares........................ The economic rights of the Class A Subordinate Voting Shares and the Class B Multiple Voting Shares are identical, but the voting rights and conversion rights differ. The holders of the Class A Subordinate Voting Shares are entitled to one vote per share on all matters while the holders of the Class B Multiple Voting Shares are entitled to eight votes per share on most matters submitted to a vote of the shareholders. In addition, the holders of Class A Subordinate Voting Shares, voting as a separate class, are entitled to elect two of Gildan's directors. The remaining directors are elected by the holders of Class A Subordinate Voting Shares and Class B Multiple Voting Shares, voting as a single class, with each Class A Subordinate Voting Share entitled to one vote and each Class B Multiple Voting Share entitled to eight votes. As a result, holders of Class B Multiple Voting Shares have, and will continue to have, substantial control over most matters submitted to a vote of the shareholders, including the election of directors. See "Description of Share Capital -- Equity Shares -- Voting Rights". After giving effect to the offering, Harco, the sole holder of Class B Multiple Voting Shares, will own CAN-3 116 approximately 22.7% of the total outstanding Equity Shares and have approximately 70.2% of the voting power of Gildan. See "Principal Shareholders". The Class A Subordinate Voting Shares are not convertible into any other class of shares, including Class B Multiple Voting Shares. The Class B Multiple Voting Shares are convertible into Class A Subordinate Voting Shares on a share-for-share basis at the option of the holder. The Class B Multiple Voting Shares are automatically converted into Class A Subordinate Voting Shares under some circumstances and are required to be so converted under other circumstances. See "Description of Share Capital -- Equity Shares -- Conversion". Takeover Bid Protection....... Holders of Class A Subordinate Voting Shares benefit from certain contractual undertakings from the Company's principal shareholder, Harco, providing protection in the event of offers to purchase Class B Multiple Voting Shares in certain circumstances and from certain provisions of its Articles requiring the conversion from Class B Multiple Voting Shares in particular cases. See "Description of Share Capital -- Equity Shares -- Takeover Bid Protection" and "Description of Share Capital -- Equity Shares -- Conversion". Dividend Policy............... Gildan currently intends to retain available funds for the development and expansion of its business. Accordingly, the Company does not intend to pay dividends on its shares in the foreseeable future. See "Dividends". Over-Allotment Option......... The Company has granted the underwriters an option, exercisable within 30 days following the closing of the offering, to purchase in the aggregate up to 450,000 additional Class A Subordinate Voting Shares, at the public offering price per share, less underwriting discounts and commissions, solely to cover over-allotments, if any. Quebec Stock Savings Plan..... The Company has obtained an advance income tax ruling of the ministere du Revenu du Quebec to the effect that the Class A Subordinate Voting Shares offered and sold hereby by the Company to the public will constitute shares which may be included as part of a stock savings plan under the Taxation Act (Quebec) and that such Class A Subordinate Voting Shares will entitle an individual, other than a trust, to deduct, in computing his taxable income for Quebec income tax purposes in his 1999 taxation year, 100% of the cost of such shares purchased in 1999 and included in such stock savings plan no later than January 31, 2000, provided certain conditions set forth in the Taxation Act (Quebec) are met. See "Quebec Stock Savings Plan". Risk Factors.................. See "Risk Factors" for a description of certain risks that you should consider before buying Class A Subordinate Voting Shares, CAN-4 117 including, without limitation, risks relating to the following: (a) competition, (b) pricing pressures, (c) changes to international trade regulation, (d) trend to grant extended payment terms, (e) rapid growth, (f) reliance on a few significant customers, (g) difficulties in the retail industry, (h) fluctuations in the supply and price of cotton yarn, (i) political, social and economic risk of operations in the Caribbean basin, (j) seasonality, (k) dependence on key personnel, (l) environmental regulation, (m) Year 2000 computer problems, (n) currency and exchange rate fluctuations, (o) control by Harco, (p) anti-takeover effect of preferred shares, (q) future sales of shares, (r) fluctuations in the price of our shares, (s) absence of dividends, (t) discretion over the use of proceeds, and (u) dilution. CAN-5 118 CAPITALIZATION The following table sets forth our capitalization (a) at October 4, 1998 on an actual basis, and (b) at March 7, 1999 (1) on an actual basis, (2) as adjusted to give effect to the sale of the Class A Subordinate Voting Shares offered hereby at an assumed public offering price of US$12.81 ($19.13, based on the inverse of the Noon Buying Rate on April 14, 1999 of Cdn$1.00 per US$0.6698) per Class A Subordinate Voting Share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. The table should be read in conjunction with the Consolidated Financial Statements and related notes thereto included elsewhere in this prospectus, which include a summary of differences between Canadian GAAP and U.S. GAAP. See "Use of Proceeds", "Selected Consolidated Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations".
AT OCTOBER 4, 1998 AT MARCH 7, 1999 ----------- ---------------------------- ACTUAL ACTUAL AS ADJUSTED(1) ----------- ----------- -------------- (CDN $ IN THOUSANDS, EXCEPT SHARE AMOUNTS) (AUDITED) (UNAUDITED) (UNAUDITED) Short-term debt: Bank indebtedness......................................... $ 32,497 $ 72,489 $ 19,696(2) Current portion of long-term debt......................... 3,293 6,089 6,089 -------- -------- -------- Total short-term debt................................. $ 35,790 $ 78,578 $ 25,785 ======== ======== ======== Long-term debt(3)........................................... $ 24,755 $ 69,024 $ 69,024 Shareholders' equity: First Preferred Shares, without par value, unlimited number authorized; 0 issued and outstanding at October 4, 1998 and March 7, 1999; as adjusted, 0 issued and outstanding............................................. -- -- -- Second Preferred Shares, without par value, unlimited number authorized; 0 issued and outstanding at October 4, 1998 and March 7, 1999; as adjusted, 0 issued and outstanding............................................. -- -- -- Class A Subordinate Voting Shares, without par value, unlimited number authorized; 6,903,000 shares issued and outstanding at October 4, 1998, 7,347,444 shares issued and outstanding at March 7, 1999; as adjusted, 10,347,444 shares issued and outstanding(4)............. 29,375 34,375 87,168 Class B Multiple Voting Shares, without par value, unlimited number authorized; 3,047,000 shares issued and outstanding at October 4, 1998, 3,047,000 shares issued and outstanding at March 7, 1999; as adjusted, 3,047,000 shares issued and outstanding........................... 5,083 5,083 5,083 Contributed surplus....................................... 323 323 323 Retained earnings......................................... 18,549 19,528(5) 19,528(5) -------- -------- -------- Total shareholders' equity............................ 53,330 59,309 112,102 -------- -------- -------- Total capitalization............................... $ 78,085 $128,333 $181,126 ======== ======== ========
- --------------- (1) Assumes that the net proceeds are US$35.4 million ($52.8 million, based on the inverse of the Noon Buying Rate on April 14, 1999 of Cdn$1.00 per US$0.6698), after deducting the estimated underwriting discount and commissions and estimated offering expenses payable by Gildan. (2) This debt may be reborrowed. (3) Includes capitalized leases. See note 7 to the Consolidated Financial Statements. (4) The number of Class A Subordinate Voting Shares outstanding does not reflect 995,000 Class A Subordinate Voting Shares subject to options which may be granted under our stock option plan, of which options to buy 756,500 Class A Subordinate Voting Shares were outstanding at March 7, 1999. See "Management--Stock Option Plan" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". (5) At January 3, 1999. CAN-6 119 DILUTION The net tangible book value of the Company as of January 3, 1999 was $52.7 million or $5.30 per share. Net tangible book value per share is determined by dividing the total tangible assets less total liabilities of the Company by the 9,950,000 Equity Shares outstanding as of that date. After giving effect to the sale of the 3,000,000 Class A Subordinate Voting Shares offered by the Company (at an assumed public offering price of US$12.81 ($19.13, based on the inverse of the Noon Buying Rate on April 14, 1999 of Cdn$1.00 per US$0.6698) per Class A Subordinate Voting Share), and deducting estimated expenses of the offering payable by the Company and underwriting discounts and commissions, the adjusted net tangible book value of the Company as of January 3, 1999 would have been $105.5 million or $8.15 per share. This represents an immediate dilution of $10.98 per share to purchasers of Class A Subordinate Voting Shares at the assumed public offering price. The following table illustrates the per share dilution: Assumed public offering price per Class A Subordinate Voting Share..................................................... $19.13 Net tangible book value per share prior to the offering(1)............................................... $5.30 Increase in net tangible book value per Class A Subordinate Voting Share attributable to the offering................. $2.85 Adjusted net tangible book value per Class A Subordinate Voting Share after giving effect to the offering(2).................... $ 8.15 ====== Dilution per share to purchasers of Class A Subordinate Voting Shares in the offering(3)........................................ $10.98 ====== Dilution as a percentage of the offering price.............. 57%
- ------------------------- (1) Net tangible book value per share before the offering is determined by dividing the net tangible book value of the Company (tangible assets less liabilities) by the number of Equity Shares outstanding. (2) Adjusted net tangible book value per Class A Subordinate Voting Share is determined by dividing the net tangible book value of the Company (tangible assets less liabilities) after receipt of the net proceeds of the offering by the number of Equity Shares outstanding after giving effect to the offering. (3) Dilution is determined by subtracting the adjusted net tangible book value per share after giving effect to the offering from the assumed public offering price paid by a purchaser in the offering of a Class A Subordinate Voting Share. CAN-7 120 RISK FACTORS -- DILUTION Investors in the offering will experience immediate and substantial dilution of $10.98 per Class A Subordinate Voting Share in net tangible book value of the Class A Subordinate Voting Shares from the public offering price (assuming a public offering price of US$12.81 per Class A Subordinate Voting Share ($19.13 per Class A Subordinate Voting Share based on the inverse Noon Buying Rate on April 14, 1999 of Cdn$1.00 per US$0.6698). See "Dilution", "Management's Discussion and Analysis of Financial Condition and Results Operations" and "Certain Relationships and Related Transactions". CAN-8 121 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement (the "Underwriting Agreement") dated -- , 1999, Bear, Stearns & Co. Inc., Nesbitt Burns Inc., The Robinson-Humphrey Company, LLC, Wasserstein Perella Securities, Inc. and CIBC World Markets Inc. (the "Underwriters") have severally agreed to purchase and the Company has agreed to sell to the Underwriters an aggregate of 3,000,000 Class A Subordinate Voting Shares on -- , 1999, or such other date as the parties may agree. Pursuant to the Underwriting Agreement, the Underwriters will be entitled to an underwriting fee of $ -- per Class A Subordinate Voting Share for their services in connection with the offering, for an aggregate amount of $ -- , assuming full exercise of the over-allotment option granted to them. The Underwriting Agreement provides that the obligations of the several Underwriters are subject to approval of certain legal matters by counsel and various other conditions. The obligations of the Underwriters under the agreement may be terminated at their discretion on the basis of their assessment of the state of financial markets and may also be terminated upon the occurrence of certain stated events. The nature of the Underwriters' obligations is such that they are committed to purchase all of the Class A Subordinate Voting Shares if any are purchased. The Underwriters propose to offer the Class A Subordinate Voting Shares directly to the public at the public offering price and to certain dealers at such price less a concession not in excess of $ -- per share. The Underwriters may allow, and such dealers may re-allow, a concession not in excess of $ -- per share to certain other dealers. The offering is being made concurrently in all the provinces of Canada and in the United States. Subject to applicable law, the Underwriters may offer the Class A Subordinate Voting Shares outside Canada and the United States. Subscriptions will be received subject to rejection or allotment in whole or in part and the right is reserved to close the subscription books at any time without notice. It is expected that definitive certificates evidencing the Class A Subordinate Voting Shares offered hereby will be available for delivery at the closing of this offering. Pursuant to policy statements of the Commission des valeurs mobilieres du Quebec and the Ontario Securities Commission, the Underwriters may not, throughout the period of distribution, bid for or purchase Class A Subordinate Voting Shares of the Company. The foregoing restriction is subject to exceptions on the condition that the bid or purchase not be engaged in for the purpose of creating actual or apparent active trading in, or raising the price of, the Class A Subordinate Voting Shares of the Company. Such exceptions include a bid or purchase permitted under the by-laws and rules of the ME and TSE relating to market stabilization and passive market-making activities and a bid or purchase made for on behalf of a customer where the order was not solicited during the period of distribution. Certain persons participating in the offering may over-allot or effect transactions which stabilize, maintain or otherwise affect the market price of the Class A Subordinate Voting Shares at levels above those which might otherwise prevail in the open market, including by entering into stabilizing bids or effecting syndicate covering transactions. A stabilizing bid means the placing of any bid or the effecting of any purchase, for the purpose of pegging, fixing or maintaining in the price of the Class A Subordinate Voting Shares. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with the offering. Such transactions may be effected on the ME, TSE and AMEX in the over-the-counter market, or otherwise. Such stabilizing, if commenced, may be discontinued at any time. The Company has granted to the Underwriters an option, expiring 30 days from the date of this prospectus, to purchase up to an additional 450,000 Class A Subordinate Voting Shares on the same CAN-9 122 terms as set forth on the cover page of this prospectus, solely to cover over-allotments, if any, incurred in the sale of the Class A Subordinate Voting Shares offered hereby. If the Underwriters exercise this option, each Underwriter will have a firm commitment, subject to certain conditions, to purchase such number of additional Class A Subordinate Voting Shares as is proportionate to such Underwriter's initial commitment to purchase Class A Subordinate Voting Shares from the Company. If this over-allotment option is exercised in full, the total price to the public will be $ -- and the net proceeds to the Company will be $ -- . The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the U.S. Securities Act and applicable Canadian securities laws, or to contribute to payments that the Underwriters may be required to make in respect thereof. Harco has agreed that, subject to certain limited exceptions, it will not sell, offer to sell, contract to sell, announce its intention to sell, pledge, hypothecate, grant any option for the sale of or otherwise dispose of, directly or indirectly, or file with the U.S. Commission a registration statement under the U.S. Securities Act, or file with the applicable Canadian securities commissions a prospectus, relating to any Class A Subordinate Voting Shares or Class B Multiple Voting Shares or any securities convertible or exercisable into or exchangeable for any Class A Subordinate Voting Shares or Class B Multiple Voting Shares until December 17, 1999, without the prior written consent of Bear, Stearns & Co. Inc., on behalf of the Underwriters. The Company, each of the Trusts, except with respect to pledging and hypothecation, and the Fund have agreed to identical selling restrictions for a period of 180 days from the date of the final prospectus. In addition, certain shareholders will be subject to certain restrictions pursuant to the Escrow Agreement. See "Shares Eligible for Future Sale and Escrow Arrangements". Certain of the Underwriters and their affiliates have from time to time provided, and may continue to provide, investment banking services to the Company for which such Underwriters or affiliates have received and will receive fees and commissions. PRIOR ISSUANCES In the twelve months preceding the filing of this prospectus, the Company issued the following shares: - on June 16, 1998, prior to the closing of its initial public offering, 3,903,000 Class A Subordinate Voting Shares and 3,047,000 Class B Multiple Voting Shares were issued to its existing shareholders in connection with the restructuring of its share capital; - on June 24, 1998, 3,000,000 Class A Subordinate Voting Shares were issued in its initial public offering at a price of $10.29 (US$7.00) per share; and - On February 1, 1999, 444,444 Class A Subordinate Voting Shares were issued to Capital d'Amerique CDPQ Inc. at a price of $11.25 per share. CAN-10 123 PRICE RANGE AND TRADING VOLUME OF THE CLASS A SUBORDINATE VOTING SHARES The Class A Subordinate Voting Shares have been listed for trading on the ME, the TSE and on AMEX since June 17, 1998. The following table sets forth the market price range for the Class A Subordinate Voting Shares and the number of shares traded on the three exchanges for the periods indicated:
ME TSE AMEX(1) ----------------------------- ----------------------------- ------------------------------ PRICE RANGE PRICE RANGE PRICE RANGE ------------------ ------------------ ------------------ HIGH LOW VOLUME HIGH LOW VOLUME HIGH LOW VOLUME ------- ------- ------- ------- ------- ------- ------- ------- -------- 1998 June(2)................. $10.30 $ 9.50 7,450 $10.35 $ 9.40 13,550 $ 7.00 $ 6.50 740,100 July.................... $12.90 $ 9.25 47,448 $12.75 $ 9.20 79,715 $ 8.38 $ 6.00 637,500 August.................. $14.25 $11.50 14,745 $14.00 $11.00 28,315 $ 9.25 $ 6.75 177,300 September............... $11.50 $11.00 8,955 $11.25 $10.75 2,985 $ 7.63 $ 6.88 36,900 October................. $11.50 $10.70 1,283 $11.25 $10.05 3,400 $ 7.31 $ 6.63 54,900 November................ $11.75 $10.00 5,517 $11.50 $10.15 54,900 $ 7.63 $ 6.38 118,600 December................ $12.50 $11.00 2,600 $12.50 $11.25 15,360 $ 8.38 $ 7.00 230,000 1999 January................. $14.00 $11.50 6,470 $14.00 $11.75 13,725 $ 9.25 $ 7.38 524,800 February................ $20.25 $14.50 18,700 $20.25 $14.50 28,175 $13.25 $ 9.38 573,600 March................... $19.00 $18.25 3,412 $19.15 $17.90 16,425 $12.88 $12.00 220,200 April................... $19.50 $18.70 1,190 $19.75 $18.50 7,335 $13.48 $12.38 184,200 May (May 1 to 5)........ $20.50 $20.50 3,300 $20.50 $19.50 3,201 $14.38 $13.25 61,000
- --------------- (1) In U.S. dollars. (2) Trading started June 18, 1998 for the ME and the TSE, and June 17, 1998 for the AMEX. On May 5, 1999, the last reported sale price per Class A Subordinate Voting Share was US$14.25 on the AMEX and $20.50 on both the ME and the TSE. LEGAL MATTERS The matters referred to under "Eligibility for Investment" and certain other legal matters arising under Canadian law and relating to the issue and sale of the Class A Subordinate Voting Shares offered hereunder will be passed upon on behalf of the Company by Ogilvy Renault, a general partnership, and Hart, Saint-Pierre, a general partnership, and on behalf of the Underwriters by Stikeman, Elliott, whereas certain legal matters arising under United States law in connection with this offering will be passed upon on behalf of the Company by Simpson Thacher & Bartlett and on behalf of the Underwriters by Weil, Gotshal & Manges LLP. Mr. Norman M. Steinberg, a director of the Company, is a partner of Ogilvy Renault. Mr. Gino Martel, Secretary of Gildan, is a partner of Hart, Saint-Pierre. Ogilvy Renault has acted as securities counsel to the Company since 1997, and Hart, Saint-Pierre has acted as counsel to the Company since 1984. As at March 15, 1999, the partners and associates of Hart, Saint-Pierre, Ogilvy Renault, Simpson Thacher & Bartlett, Stikeman, Elliott and Weil, Gotshal & Manges LLP, own, directly or indirectly, less than 1% of the Class A Subordinate Voting Shares. MATERIAL CONTRACTS Except for agreements entered into in the ordinary course of business, the only material agreements which the Company has entered into during the two-year period prior to the date hereof or will enter into prior to the closing of the offering are the following: (a) the Underwriting Agreement described under "Underwriting". (b) The Escrow Agreement described under "Shares Eligible for Future Sale and Escrow Arrangements"; and CAN-11 124 (c) The Trust Agreement described under "Description of Share Capital". Copies of each of the foregoing agreements may be inspected during ordinary business hours at the registered office of the Company during the period of distribution of the Class A Subordinate Voting Shares and for a period of 30 days thereafter. AUDITORS, TRANSFER AGENT AND REGISTRAR The auditors of the Company are KPMG LLP, Chartered Accountants, 2000 McGill College Avenue, Suite 1900, Montreal, Quebec, Canada H3A 3H8. The transfer agent and registrar for the Class A Subordinate Voting Shares are Montreal Trust Company at its principal offices in Montreal and Toronto and the Bank of Nova Scotia Trust Company of New York at its principal office in New York. ELIGIBILITY FOR INVESTMENT The eligibility of the Class A Subordinate Voting Shares offered hereby for investment by Canadian institutional purchasers to whom any of the following statutes apply is, in certain cases, governed by criteria which such purchasers are required to establish as policies or guidelines pursuant to the applicable statute (and, where applicable, the regulations thereunder) and is subject to the prudent investment standards and general investment provisions provided therein: (a) companies governed by the Trust and Loan Companies Act (Canada); (b) companies, foreign companies or societies governed by the Insurance Companies Act (Canada); (c) pension plans registered under the Pension Benefits Standards Act, 1985 (Canada); (d) insurers governed by An Act respecting insurance (Quebec), other than mutual associations, professional corporations and guarantee fund corporations; (e) pension plans registered under the Supplemental Pension Plans Act (Quebec); (f) trust companies or savings companies governed by An Act respecting trust companies and savings companies (Quebec) investing their own funds and in the case of trust companies, funds received as deposits; and (g) pension plans registered under the Pension Benefits Act (Ontario). In the opinion of Ogilvy Renault, Montreal, a general partnership, counsel to the Company, and Stikeman, Elliott, counsel to the Underwriters, the Class A Subordinate Voting Shares will also be qualified investments under the Income Tax Act (Canada) (the "Tax Act") for trusts governed by registered retirement savings plans, registered retirement income funds, deferred profit sharing plans and, under specific proposals to amend the Tax Act, for trusts governed by registered education savings plans and will not constitute "foreign property" for the purposes of the Tax Act. CAN-12 125 QUEBEC STOCK SAVINGS PLAN The Company has requested an advance income tax ruling from the ministere du Revenu du Quebec to the effect that the Class A Subordinate Voting Shares offered hereunder will constitute shares which may be included as part of a stock savings plan under the Taxation Act (Quebec) and that the Class A Subordinate Voting Shares will entitle an individual, other than a trust, who is resident in Quebec on the last day of his 1999 taxation year, to deduct, in computing his taxable income for Quebec income tax purposes in his 1999 taxation year, 100% of the cost of said shares purchased in 1999 and included in a stock savings plan no later than January 31, 2000, provided certain conditions set forth in the Taxation Act (Quebec) are met. In this regard, the individual must conclude an arrangement with a dealer within the meaning of the Taxation Act (Quebec), and indicate the intention to include the shares in a stock savings plan of which the individual is the beneficiary. For the purposes of the Quebec Stock Savings Plan, the cost of a share does not include the cost of borrowing, brokerage, custody or other similar expenses. The annual deductions pertaining to the subscription for shares which are included as part of a stock savings plan by an individual are restricted by the annual limit of 10% of the total income of the individual for Quebec income tax purposes. An individual who includes a Class A Subordinate Voting Share in a stock savings plan and who withdraws it from such plan, for example by selling it, prior to the end of the second taxation year following the year of its acquisition may be required to include an amount in computing his income for Quebec tax purposes for the taxation year during which such withdrawal is made. THE FOREGOING IS A SUMMARY ONLY OF THE MAIN FEATURES OF THE QUEBEC STOCK SAVINGS PLAN. ALL PURCHASERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING QUEBEC STOCK SAVINGS PLAN, INCLUDING THE MAXIMUM DEDUCTIONS PERMITTED THEREUNDER. PURCHASERS' STATUTORY RIGHTS Securities legislation in certain of the provinces provides purchasers with the right to withdraw from an agreement to purchase securities within two business days after receipt or deemed receipt of this prospectus and any amendment. In several of the provinces, securities legislation further provides a purchaser with remedies for rescission or, in some provinces, damages where the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, but such remedies must be exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province for the particulars of these rights or consult with a legal advisor. CAN-13 126 CERTIFICATE OF THE COMPANY Dated: May 7, 1999 The foregoing, together with the information deemed to be incorporated herein by reference, as of the date of the supplemented prospectus providing the information permitted to be omitted from this prospectus, will constitute full, true and plain disclosure of all material facts relating to the securities offered by this prospectus, as required by the securities laws of all the provinces of Canada and, for the purpose of the Province of Quebec, will not contain any misrepresentation likely to affect the value or the market price of the securities to be distributed. (Signed) H. Gregory Chamandy (Signed) Laurence G. Sellyn Chairman Chief Financial Officer and Chief Executive Officer
On behalf of the Board of Directors (Signed) Daniel Laporte (Signed) Norman M. Steinberg Director Director
CAN-14 127 CERTIFICATE OF THE UNDERWRITERS Dated: May 7, 1999 To the best of our knowledge, information and belief, the foregoing, together with the information deemed to be incorporated herein by reference, as of the date of the supplemented prospectus providing the information permitted to be omitted from this prospectus, will constitute full, true and plain disclosure of all material facts relating to the securities offered by this prospectus, as required by the securities laws of all the provinces of Canada and, to our knowledge for the purpose of the Province of Quebec, will not contain any misrepresentation likely to affect the value or the market price of the securities to be distributed. NESBITT BURNS INC. (Signed) Luigi Fraquelli CIBC WORLD MARKETS INC. (Signed) Francois Gervais The following includes the names of all persons having an interest, either directly or indirectly, to the extent of not less than 5% in the capital of: NESBITT BURNS INC., a wholly-owned subsidiary of The Nesbitt Burns Corporation Limited, a majority-owned subsidiary of a Canadian chartered bank; and CIBC WORLD MARKETS INC., a wholly-owned subsidiary of a Canadian chartered bank. CAN-15 128 LOGO (LOGO) PRINTED IN CANADA M00159 CAN-16 129 PART II. INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following sets forth the expenses, other than underwriting discounts and commissions, expected to be incurred by Gildan Activewear Inc. (the "Company" or "Gildan") in connection with the issuance and distribution of the securities registered under this Registration Statement. All expenses are estimated except for the Securities and Exchange Commission's (the "Commission") registration fee and the National Association of Securities Dealers filing fee.
DESCRIPTION AMOUNT - ----------- ---------- Securities and Exchange Commission Registration Fee......... US$ 12,109 Filing Fees for Canadian Provinces.......................... 29,000 Blue Sky Fees and Expenses.................................. 10,000 National Association of Securities Dealers Filing Fee....... 4,856 Listing Fees................................................ 40,500 Printing and Engraving Expenses............................. 250,000 Legal Fees and Expenses..................................... 450,000 Accounting Fees and Expenses................................ 100,000 Miscellaneous............................................... 100,000 ---------- Total..................................................... US$996,465 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Administrative Resolutions of the Company provide as follows: Subject to the limitations contained in the Canada Business Corporations Act (the "CBCA"), as amended, but without limit to the right of the Corporation to indemnify any person under such Act or otherwise, the Corporation shall indemnify a Director or Officer, a former Director or former Officer, or a person who acts or acted at the Corporation's request as the director or officer of a body corporate of which the Corporation is or was a shareholder or creditor, and his heirs and legal representatives against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by and in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a Director or Officer of the Corporation or of such body corporate, if (a) he acted honestly and in good faith with a view to the best interest of the Corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. The CBCA provides that directors and officers may be indemnified by the Company generally, as follows: "Except in respect of an action by or on behalf of the Corporation to procure a judgement in its favor, the Corporation shall indemnify any director or officer, any former director or former officer, and his heirs and legal representatives, against all costs, charges and expenses, including any amount paid to settle an action or satisfy a judgment reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer if: II-1 130 (a) he acted honestly and in good faith with a view to the best interests of the Corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. The Corporation shall, with the approval of the court, indemnify any person referred to in the immediately preceding paragraph in respect of an action by or on behalf of the Corporation to procure a judgement in its favor, to which he is made a party by reason of being or having been a director or officer, against all costs, charges and expenses reasonably incurred by him in connection with such action, if he fulfills the conditions set out in sub-paragraphs (a) and (b) above. Notwithstanding anything herein above contained, the Corporation shall indemnify any person referred to in the first paragraph of this by-law XXII who has been substantially successful in the defence of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer against all costs, charges and expenses reasonably incurred by him in respect of such action or proceeding." Except in the case of an action taken by the Company or of a derivative action taken by a shareholder on behalf of the Company, the CBCA provides that a director or officer may be indemnified by the Company against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment if (a) he acted honestly and in good faith with a view to the best interests of the Company; and (b) in the case of a criminal or administrative action, he had reasonable grounds for believing that his conduct was lawful. The right of indemnification is more limited under the CBCA where directors or officers are sued by the Company or on its behalf by a shareholder (a derivative action). In those cases, the Company may, with the approval of a court, indemnify directors and officers against all costs, charges and expenses but not the amount of the judgment or settlement of an action, provided he fulfills the conditions of (a) and (b) above. A director or officer must be indemnified for costs, charges and expenses if he was substantially successful on the merits of his defense and fulfills the conditions of (a) and (b) above. The Company maintains a Directors & Officers Indemnity Insurance Policy, which indemnifies the Company's directors and officers for wrongful acts. Among certain restrictions, the Company's policy limits liability coverage to $50.0 million. In addition, Mr. Daniel Laporte is covered by a $5.0 million directors and officers liability insurance policy maintained by Le Fonds de solidarite des travailleurs du Quebec (F.T.Q.) (the "Fund"). ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. Since January 1, 1996, the Company issued and sold the following unregistered securities: On January 31, 1996, Gildan issued to the Fund an unsecured and subordinated debenture in an aggregate principal amount of $3.0 million. On May 9, 1997, Gildan issued to the Fund an unsecured and subordinated debenture in an aggregate principal amount of $6.0 million. On August 7, 1997, in exchange for the 10,000,000 common shares of Gildan held by the Fund and Harco, Gildan issued 3,000,000 Class "A" preferred shares and 300 Class "A" common shares of Gildan to the Fund and 7,000,000 Class "A" preferred shares to Harco. II-2 131 On the same date, Gildan issued the following shares in exchange for the retirement of the following loans owed by Gildan:
NUMBER OF CLASS "A" COMMON SHARES AMOUNT OF NAME OF SHAREHOLDER ISSUED LOAN RETIRED - ------------------- ------------- ------------ H. Gregory Chamandy Family Trust............................ 305 $4,357.14 Glenn Chamandy Family Trust................................. 305 $4,357.14 Shirley Chamandy Family Trust............................... 20 $ 285.72 Tisch Family Trust.......................................... 70 $1,000.00
On January 28, 1998, Gildan issued to the Fund an unsecured and subordinated debenture in an aggregate principal amount of $6.0 million. On June 17, 1998, in connection with the initial public offering and to effect the recapitalization of the Company, Gildan issued 3,903,000 Class A Subordinate Voting Shares and 3,047,000 Class B Multiple Voting Shares. On June 25, 1998, Gildan issued to the Fund an unsecured and subordinated debenture due 2003 in an aggregate principal amount of $15.0 million which replaced Gildan's three then outstanding debentures held by the Fund. On January 4, 1999, Gildan issued to the Fund an unsecured and subordinated debenture due 2004 in an aggregate principal amount of $15.0 million. On February 1, 1999, Gildan issued to Capital d'Amerique CDPQ Inc. an unsecured and subordinated debenture due 2004 in an aggregate principal amount of $15.0 million. In connection with this issuance, Capital d'Amerique CDPQ Inc. purchased 444,444 Class A Subordinate Voting Shares at Cdn$11.25 per share for an aggregate purchase price of $5.0 million. Each of the securities listed above was sold to persons who were neither nationals nor residents of the United States and no facilities or instrumentalities of U.S. interstate commerce were used in connection with any offer or sale thereof. No underwriter or underwriting discount or commission was involved in any of such sales. II-3 132 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits: The following exhibits are filed pursuant to Item 601 of Regulation S-K.
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- * 1 Form of Underwriting Agreement. * 3.1 Restated Certificate and Articles of Incorporation, dated January 8, 1999. * 3.2 By-Law One. * 3.3 Administrative Resolutions. 4 Form of certificate of the Company's Class A Subordinate Voting Shares (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form F-1 No. 333-8770). ** 5 Opinion of Ogilvy Renault. ** 8.1 Opinion of Simpson Thacher & Bartlett. ** 8.2 Opinion of Ogilvy Renault. * 9 Agreement between Harco and the Fund. 10.1 Trust Agreement between the Company, Harco Holdings Ltd., H. Greg Chamandy, Glenn J. Chamandy, Edwin B. Tisch and Montreal Trust Company, dated June 16, 1998 (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.2 Amended and Restated Loan Agreement with Bank of America Canada, dated August 6, 1997 (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.3 Amendment No. 1 to the Amended and Restated Loan Agreement with Bank of America Canada (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.4 Amendment No. 2 to the Amended and Restated Loan Agreement with Bank of America Canada (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.5 Amendment No. 3 to the Amended and Restated Loan Agreement with Bank of America Canada (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.6 Amendment No. 4 to the Amended and Restated Loan Agreement with Bank of America Canada (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.7 Amendment No. 5 to the Amended and Restated Loan Agreement with Bank of America Canada (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form F-1 No. 333-8770). *10.8 Amendment No. 6 to the Amended and Restated Loan Agreement with Bank of America Canada. *10.9 Amendment No. 7 to the Amended and Restated Loan Agreement with Bank of America Canada.
II-4 133
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- *10.10 Amendment No. 8 to the Amended and Restated Loan Agreement with Bank of America Canada. *10.11 Amendment No. 9 to the Amended and Restated Loan Agreement with Bank of America Canada. 10.12 Employment Agreement with H. Gregory Chamandy (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.13 Change of Control Agreement with H. Gregory Chamandy (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.14 Employment Agreement with Glenn J. Chamandy (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.15 Change of Control Agreement with Glenn J. Chamandy (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.16 Employment Agreement with Edwin B. Tisch (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.17 Change of Control Agreement with Edwin B. Tisch (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form F-1 No. 333-8770). *10.18 Employment Agreement with Ken Cieply. *10.19 Change of Control Agreement with Ken Cieply. *10.20 Employment Agreement with George Sam Yu Sum. *10.21 Change of Control Agreement with George Sam Yu Sum. *10.22 Employment Agreement with Francois Vinette. *10.23 Change of Control Agreement with Francois Vinette. *10.24 Registration Rights Agreement. 10.25 Escrow Agreement between the Company, Harco Holdings Ltd, Fonds de solidarite des travailleurs du Quebec (F.T.Q.), H. Gregory Chamandy Family Trust, Glenn Chamandy Family Trust and Montreal Trust Company, dated June 16, 1998 (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form F-1 No. 333-8770). *10.26 Annual Incentive Plan (SCORES). *10.27 Gildan Stock Option Plan. *10.28 Debenture dated as of June 25, 1998 between the Company and Le Fonds de solidarite des travailleurs du Quebec (F.T.Q.). *10.29 Debenture dated as of January 15, 1999 between the Company and Le Fonds de solidarite des travailleurs du Quebec (F.T.Q.). *10.30 Share Subscription and Debenture Purchase Agreement dated as of February 1, 1999 between the Company and Capital d'Amerique CDPQ Inc. *10.31 Lease dated as of March 9, 1998 among the Company, Confecciones el Porvenir and Parque Industrial el Porvenir, S.A. *10.32 Lease dated as of May 28, 1998 between the Company and Fleming Companies Inc.
II-5 134
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- *10.33 Credit Agreement between the Company, the Lenders Named Therein as Lenders and National Bank of Canada (as agent), dated as of March 31, 1999. **10.34 FSTQ Subordination Agreement among Fonds de Solidarite des Travailleurs du Quebec (F.T.Q.), as Subordinated Creditors, the Lenders Set Forth in Schedule A Therein, as Lenders, National Bank of Canada, as Agent and the Company, dated March 31, 1999. **10.35 CDPQ Subordination Agreement among Capital D'Amerique CDPQ Inc., the Lenders Set Forth in Schedule A Therein, as Lenders, National Bank of Canada, as Agent and the Company, dated March 31, 1999. *21 Subsidiaries of the Company. **23.1 Consent of Simpson Thacher & Bartlett (included in Exhibit 8.1). **23.2 Consent of Ogilvy Renault (included in part in Exhibits 5 and 8.2). **23.3 Consent of KPMG LLP, Chartered Accountants. *24 Power of Attorney.
- ------------------------- * Previously filed. ** Filed herewith. (b) Attached hereto are the following statement schedules: None. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the U.S. Securities Act 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 U.S. Securities 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 of controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the U.S. Securities 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 U.S. Securities Act, 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 U.S. 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 U.S. Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration II-6 135 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-7 136 SIGNATURES Pursuant to the requirements of the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act"), the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Montreal, Quebec, Canada, May 7, 1999. GILDAN ACTIVEWEAR INC./LES VETEMENTS DE SPORTS GILDAN INC. By: /s/ H. GREGORY CHAMANDY ------------------------------------ H. Gregory Chamandy, Chairman of the Board and Chief Executive Officer (principal executive officer) Pursuant to the requirements of the U.S. Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- /s/ H. GREGORY CHAMANDY Chairman of the Board and Chief May 7, 1999 - --------------------------------------------- Executive Officer (principal H. Gregory Chamandy executive officer) /s/ * Director - --------------------------------------------- Glenn J. Chamandy /s/ * Director - --------------------------------------------- Edwin B. Tisch /s/ * Director - --------------------------------------------- William H. Houston III /s/ * Director - --------------------------------------------- Daniel Laporte
/s/ * Director - --------------------------------------------- Norman M. Steinberg /s/ * Director - --------------------------------------------- Robert M. Baylis /s/ * Director - --------------------------------------------- Richard P. Strubel
II-8 137 /s/ Laurence G. Sellyn Chief Financial Officer (principal May 7, 1999 - --------------------------------------------- financial and accounting officer) Laurence G. Sellyn
Authorized Representative in the United States: Puglisi & Associates By: * - ---------------------------------------- Gregory F. Lavelle Vice President
* By H. Gregory Chamandy as attorney-in-fact. II-9 138 EXHIBIT INDEX Exhibits identified in parentheses below are on file with the Securities and Exchange Commission and are incorporated herein by reference to such previous filings.
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- *1 Form of Underwriting Agreement. *3.1 Restated Certificate and Articles of Incorporation, dated January 8, 1999. (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form F-1 No. 333-8770). *3.2 By-Law One. *3.3 Form of Administrative Resolutions. 4 Form of certificate of the Company's Class A Subordinate Voting Shares (incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form F-1 No. 333-8770). **5 Opinion of Ogilvy Renault. **8.1 Opinion of Simpson Thacher & Bartlett. **8.2 Opinion of Ogilvy Renault. *9 Agreement between Harco and the Fund. 10.1 Trust Agreement between the Company, Harco Holdings Ltd., H. Greg Chamandy, Glenn J. Chamandy, Edwin B. Tisch and Montreal Trust Company, dated June 16, 1998 (incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.2 Amended and Restated Loan Agreement with Bank of America Canada, dated August 6, 1997 (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.3 Amendment No. 1 to the Amended and Restated Loan Agreement with Bank of America Canada (incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.4 Amendment No. 2 to the Amended and Restated Loan Agreement with Bank of America Canada (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.5 Amendment No. 3 to the Amended and Restated Loan Agreement with Bank of America Canada (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.6 Amendment No. 4 to the Amended and Restated Loan Agreement with Bank of America Canada (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.7 Amendment No. 5 to the Amended and Restated Loan Agreement with Bank of America Canada (incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form F-1 No. 333-8770). *10.8 Amendment No. 6 to the Amended and Restated Loan Agreement with Bank of America Canada. *10.9 Amendment No. 7 to the Amended and Restated Loan Agreement with Bank of America Canada.
II-10 139
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- *10.10 Amendment No. 8 to the Amended and Restated Loan Agreement with Bank of America Canada. *10.11 Amendment No. 9 to the Amended and Restated Loan Agreement with Bank of America Canada. 10.12 Employment Agreement with H. Gregory Chamandy (incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.13 Change of Control Agreement with H. Gregory Chamandy (incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.14 Employment Agreement with Glenn J. Chamandy (incorporated by reference to Exhibit 10.10 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.15 Change of Control Agreement with Glenn J. Chamandy (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.16 Employment Agreement with Edwin B. Tisch (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on Form F-1 No. 333-8770). 10.17 Change of Control Agreement with Edwin B. Tisch (incorporated by reference to Exhibit 10.13 to the Company's Registration Statement on Form F-1 No. 333-8770). *10.18 Employment Agreement with Ken Cieply. *10.19 Change of Control Agreement with Ken Cieply. *10.20 Employment Agreement with George Sam Yu Sum. *10.21 Change of Control Agreement with George Sam Yu Sum. *10.22 Employment Agreement with Francois Vinette. *10.23 Change of Control Agreement with Francois Vinette. *10.24 Registration Rights Agreement. 10.25 Escrow Agreement between the Company, Harco Holdings Ltd, Fonds de solidarite des travailleurs du Quebec (F.T.Q.), H. Gregory Chamandy Family Trust, Glenn Chamandy Family Trust and Montreal Trust Company, dated June 16, 1998 (incorporated by reference to Exhibit 10.15 to the Company's Registration Statement on Form F-1 No. 333-8770). *10.26 Annual Incentive Plan (SCORES). *10.27 Gildan Stock Option Plan. *10.28 Debenture dated as of June 25, 1998 between the Company and Le Fonds de solidarite des travailleurs du Quebec (F.T.Q.). *10.29 Debenture dated as of January 15, 1999 between the Company and Le Fonds de solidarite des travailleurs du Quebec (F.T.Q.). *10.30 Share Subscription and Debenture Purchase Agreement dated as of February 1, 1999 between the Company and Capital d'Amerique CDPQ Inc.
II-11 140
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- *10.31 Lease dated as of March 9, 1998 among the Company, Confecciones el Porvenir and Parque Industrial el Porvenir, S.A. *10.32 Lease dated as of May 28, 1998 between the Company and Fleming Companies Inc. *10.33 Credit Agreement between the Company, the Lenders Named Therein as Lenders and National Bank of Canada (as agent), dated as of March 31, 1999. **10.34 FSTQ Subordination Agreement among Fonds de Solidarite des Travailleurs du Quebec (F.T.Q.), as Subordinated Creditors, the Lenders Set Forth in Schedule A Therein, as Lenders, National Bank of Canada, as Agent and the Company, dated March 31, 1999. **10.35 CDPQ Subordination Agreement among Capital D'Amerique CDPQ Inc., the Lenders Set Forth in Schedule A Therein, as Lenders, National Bank of Canada, as Agent and the Company, dated March 31, 1999. **21 Subsidiaries of the Company. **23.1 Consent of Simpson Thacher & Bartlett (included in Exhibit 8.1). **23.2 Consent of Ogilvy Renault (included in part in Exhibits 5 and 8.2). **23.3 Consent of KPMG LLP, Chartered Accountants. *24 Power of Attorney.
- ------------------------- * Previously filed. ** Filed herewith. II-12 EX-5 2 OPINION OF OGILVY RENAULT 1 Exhibit 5 OGILVY RENAULT S.E.N.C. BARRISTERS & SOLICITORS MONTREAL OGILVY RENAULT 1981 McGILL COLLEGE AVENUE, SUITE 1100 MONTREAL, QUEBEC, CANADA H3A 3C1 TELEPHONE: (514) 847-4747 FAX: (514) 286-5474 www.ogilvyrenault.com DIRECT DIAL: (514) 847-4747 Montreal, May 7, 1999 Gildan Activewear 725 Montee de Liesse Ville Saint Laurent, Quebec H4T 1P5 RE: GILDAN ACTIVEWEAR INC. (THE "COMPANY") ------------------------------------------- Dear Sirs: We have acted as Canadian counsel to the Company in connection with the registration under the United States Securities Act of 1933, as amended (the "SECURITIES ACT") of Class A Subordinate Voting Shares of the Company's share capital by the Company. All capitalized terms used but not otherwise defined herein have the same meaning ascribed thereto in the Registration Statement on Form F-1 which will be filed by the Company on or about May 7, 1999 (the "REGISTRATION STATEMENT"). In this regard, we have reviewed and assisted in the preparation of the Registration Statement. This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act. We are of the opinion that the Shares to be offered and sold by the Company (including Shares, if any, registered on a registration statement relating to the offering filed by the Company pursuant to Rule 462(b) under the Securities Act) as set forth in the Registration Statement, have been legally authorized and, when sold pursuant to the terms described in the Registration Statement and in conformity with applicable state and Canadian securities laws, will be legally issued as fully paid and non-assessable. 2 We consent to the use of our name in the Registration Statement under the captions "Because We Are a Canadian Company, You May Not Be Able to Enforce Civil Liabilities Under The U.S. Federal Securities Laws Against Us", "Taxation", and "Legal Matters". We also consent to the filing of this opinion as Exhibit 5 to the Registration Statement. In addition, we hereby consent to the incorporation by reference of this opinion and consent in a registration statement, if any, relating to the offering filed by the Company pursuant to Rule 462(b) under the Securities Act. Yours truly, /s/ Ogilvy Renault EX-8.1 3 OPINION OF SIMPSON THACHER & BARTLETT 1 Exhibit 8.1 SIMPSON THACHER & BARTLETT 425 LEXINGTON AVENUE NEW YORK, N.Y. 10017-3954 (212) 455-2000 _______ DIRECT DIAL NUMBER FACSIMILE (212) 455-2500 E-MAIL ADDRESS May 7, 1999 Gildan Activewear Inc. 725 Montee de Liesse Ville Saint-Laurent, Quebec Canada, H4T 1P5 Dear Sirs: We have acted as special United States tax counsel to Gildan Activewear Inc. (the "Company"), in connection with the offering of Class A Subordinate Voting Shares of the Company (the "Class A Shares"). In connection with the offering, we have examined the Registration Statment on Form F-1 filed by the Company with the Securities and Exchange Commission on March 17, 1999, Amendment No. 1 to the Registration Statement as filed with the Commission on April 15, 1999, and Amendment No. 2 to the Registration Statement to be filed with the Commission on the date hereof (such registration Statement, as so amended, being hereinafter referred to as the "Registration Statement") under the Securities Act of 1933, as amended. In addition, we have examined such other documents, and have made such other and further investigations, as we have deemed relevant and necessary as a basis for the opinion hereinafter set forth. In such examination, we have assumed the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to 2 SIMPSON THACHER & BARTLETT Gildan Activewear Inc. -2- May 7, 1999 us as drafts or as certified, conformed, photostatic or facsimile copies, and the authenticity of the originals of such latter documents. Further, we have relied upon certain other statements and representations made by the officers of the Company and by the Company's representatives. We also have assumed that the Registration Statement will be in the form examined by us as set forth above. Based upon the foregoing, and subject to the qualifications and limitations stated herein, we hereby advise you that the statements of legal conclusion set forth in the Registration Statement under the caption "Taxation -- U.S. Federal Income Taxation", subject to qualifications expressly stated therein, reflect our opinion as to the material federal income tax consequences of the acquisition, ownership and disposition of the Class A Shares. We express no opinion with respect to the transactions referred to herein or in the Registration Statement other than as expressly set forth herein. We are members of the Bar of the State of New York, and we do not express any opinion herein concerning any law other than the federal law of the United States. We hereby consent to the filing of this opinion letter as Exhibit 8.1 to the Registration Statement and to the use of our name under the captions "Taxation" and "Legal Matters" in the Prospectus included in the Registration Statement. Very truly yours, /s/ Simpson Thacher & Bartlett SIMPSON THACHER & BARTLETT EX-8.2 4 OPINION OF OGILVY RENAULT 1 Exhibit 8.2 OGILVY RENAULT S.E.N.C. BARRISTERS & SOLICITORS MONTREAL OGILVY RENAULT 1981 McGILL COLLEGE AVENUE, SUITE 1100 MONTREAL, QUEBEC, CANADA H3A 3C1 TELEPHONE: (514) 847-4747 FAX: (514) 286-5474 www.ogilvyrenault.com DIRECT DIAL: BY MESSENGER Montreal, May 7, 1999 Gildan Activewear 725 Montee de Liesse Montreal QC H4T 1P5 Attention: Mr. H. Greg Chamandy Chairman of the Board and Chief Executive Officer - -------------------------------------- RE: NEW ISSUE OF CLASS "A" SUBORDINATE VOTING SHARES OF GILDAN ACTIVEWEAR INC. -------------------------------------------------------- Dear Sirs: You have requested our opinion with respect to the Canadian federal income tax considerations which would apply to the acquisition, holding and disposition of Class "A" Subordinate Voting Shares (the "SHARES") of Gildan Activewear Inc. (the "COMPANY") pursuant to the above-mentioned offering (the "OFFERING") by persons (referred to herein as "UNITED STATES HOLDERS") who possess the following characteristics: 1. Throughout the period during which a United States Holder owns the Shares, the holder is not resident in Canada for the purposes of the Income Tax Act R.S.C. 1985, c.1(5th suppl.) as amended (the "ACT"). 2 2. Throughout the time the United States Holder owns Shares, the Holder is a resident of the United States of America for the purposes of the Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital signed on September 26, 1980, as amended by the Protocols signed on June 14, 1983, March 28, 1984, March 17, 1995 and July 29, 1997 (the "CONVENTION"). 3. The Shares are "capital property" to the United States Holder for the purposes of the Act. 4. The United States Holder does not use or hold and is not deemed for the purposes of the Act to use or hold the Shares in, or in the course of, carrying on a business in Canada for the purposes of the Act. In order for a person to be considered to be holding the Shares as capital property under the Act, that person must not hold those Shares in the course of carrying on a business and must not be considered to have acquired those shares in one or more transactions considered to be an adventure in the nature of trade, under the Act. The opinion set out hereunder takes into account the current provisions of the Act, the Regulations thereunder, all specific proposals to amend the Act publicly announced prior to the date of the Offering, the terms of the Convention and the current published administrative practices and policies of Revenue Canada, as we understand them. We have assumed for the purposes of this opinion that all proposals to amend the Act will be enacted or adopted in their present form and we otherwise have not taken into account or anticipated changes in the law, whether by way of judicial decision or legislative or administrative action nor have we taken into account any provincial, territorial or foreign (non-Canadian) tax legislation or considerations. Finally, this opinion is subject to the general limitation that applies to any statement regarding the application of the law to a class of persons, rather than a person in particular. It is not possible to state in a definitive manner the taxation consequences which would positively attach to a specific person without knowing the specific circumstances of such person. We would therefore recommend that each United States Holder seek his or her own professional advice with respect to the taxation consequences which apply to that person's acquisition, holding and disposition of Shares. 3 OPINION Based on the facts and subject to the assumptions and limitations set out above, we are of the opinion that: 1. Dividends paid or credited (or deemed to be paid or credited) on the Shares to a United States Holder that beneficially owns such dividends generally are subject to Canadian withholding tax at the rate of (i) 15% of the gross amount of such dividends, or (ii) where the United States Holder is a company that owns at least 10% of the voting stock of the Company, 5% of the gross amount of such dividends. 2. A United States Holder which is a trust company, organization or other arrangement generally exempt from income taxation in the United States in a given taxable year and operated exclusively either (i) to administer or provide pension, retirement or employee benefits or (ii) to earn income for the benefit of an organization referred to in (i) shall not be subject to Canadian withholding tax on dividends paid or credited (or deemed to be paid or credited) by the Company in such year unless such United States Holder is related to the Company or receives such dividends in the course of carrying on a trade or business. 3. A United States Holder will not be subject to tax under the Act on any gain in respect of the disposition or deemed disposition of Shares unless those Shares constitute "taxable Canadian property" to such United States Holder as defined in the Act. The Shares generally will not constitute taxable Canadian property to a United States Holder unless the United States Holder, persons with whom the United States Holder does not deal at arm's length, or the United States Holder and such persons collectively own or have at any time within the five-year period immediately prior to the disposition collectively owned, 25% or more of the issued shares of any class or series of Shares of the capital stock of the Company, including rights to acquire shares. Even if the Shares are taxable Canadian property to a United State Holder, under the Convention, gains derived by a United States Holder from the disposition of Shares would generally not be taxable in Canada unless the value of the Shares is derived principally from real property situated in Canada. 4 4. No other taxes on income or capital are payable by United States Holders in respect of the Shares or the dividends thereon. We consent to the filing of this opinion as Exhibit 8.2 to the registration statement on Form F-1 to be filed by the Company with the Securities and Exchange Commission of the United States with respect to the Offering on or about May 7, 1999. In addition, we hereby consent to the incorporation by reference of this opinion and consent in a registration statement, if any, relating to the Offering filed by the Company pursuant to Rule 462(b) under the United States Securities Act of 1933, as amended. Yours truly, /s/ Ogilvy Renault EX-10.34 5 FSTQ SUBORDINATION AGREEMENT 1 EXHIBIT 10.34 FSTQ SUBORDINATION AGREEMENT entered into at Montreal, as of March 31, 1999. AMONG: FONDS DE SOLIDARITE DES TRAVAILLEURS DU QUEBEC (F.T.Q.), as Subordinated Creditor AND: THE LENDERS SET FORTH IN SCHEDULE "A" HERETO, as Lenders AND: NATIONAL BANK OF CANADA, as Agent AND: GILDAN ACTIVEWEAR INC., as Borrower
WHEREAS Gildan Activewear Inc., as borrower (the "Borrower"), the Lenders initially set forth in Schedule "A" hereto (the "Lenders") and National Bank of Canada, as agent (the "Agent"), have entered into a credit agreement bearing formal date of March 31, 1999 (which agreement, as same may be amended, supplemented or restated at any time and from time to time is hereinafter referred to as the "Credit Agreement"); WHEREAS it is a condition precedent to the making of any advance under the Revolving Credit Facility provided for under the Credit Agreement that this Subordination Agreement be executed and a copy of same be delivered to the Agent; WHEREAS the Borrower has issued in favour of Fonds de solidarite des travailleurs du Quebec (F.T.Q.) (the "Subordinated Creditor") a Cdn $15,000,000 debenture No. A-4 dated June 25, 1998 bearing interest at an annual rate of 11% calculated and payable pursuant to the terms and conditions set forth thereunder and a Cdn $15,000,000 debenture No. A-5 dated January 15, 1999 bearing interest at an annual rate of 12% calculated and payable pursuant to the terms and conditions set forth thereunder (which debentures, as same may be amended, supplemented or restated from time to time are hereafter referred to as the "Debentures"); WHEREAS it is in the best interest of the Borrower and consequently of the Subordinated Creditor to subordinate and postpone all of the debts owed to it by the Borrower under the Debentures, the whole in accordance with and subject to the terms and conditions of this Subordination Agreement; and NOW, THEREFORE, in consideration of the Agent and the Lenders having entered into the Credit Agreement with the Borrower and having agreed, subject to the terms and conditions therein provided, to make the Revolving Credit Facility (as defined in the Credit Agreement) available to the Borrower, the parties hereto have agreed as follows: 2 - 2 - 1. INTERPRETATION 1.1 DEFINITIONS The following capitalized words and expressions, whenever used in this Agreement or in any deed, document or instrument supplemental or ancillary hereto, unless there be something in the subject or the context inconsistent therewith, shall have the meaning ascribed to them herein below: "Agent" has the meaning ascribed to it in the first preamble paragraph hereto; "Borrower" has the meaning ascribed to it in the first preamble paragraph hereto; "Charged Property" means any property or asset of the Borrower being subject to Lenders' Liens; "Credit Agreement" has the meaning ascribed to it in the first preamble paragraph hereto; "Debentures" has the meaning ascribed to it in the third preamble paragraph hereto; "Default" means any one of the events specified in the Credit Agreement, the occurrence or failure to occur of which, as the case may be, constitutes or with the passage of time or the giving of notice or both, would constitute an event permitting the Lenders to accelerate the Lenders' Indebtedness; "Disposed", "Dispose" or "Disposition" means any realization or sale, liquidation, transfer or alienation, or the exercise of any right of compensation or appropriation of any deposits or credits, the creation of any lien, hypothec, charge or security interest or any other disposition of the whole or any part of the assets and properties of the Borrower by private agreement, call for tenders, public auction, judicial sale or any other type of sale having essentially the same effects as a judicial sale, sale by judicial authority or otherwise; "Lenders" has the meaning ascribed to it in the first preamble paragraph hereto; "Lenders' Indebtedness" has the meaning ascribed to it in Section 2.1; "Lenders' Liens" refers to all Liens now or hereafter held by the Agent and/or the Lenders and/or any Person on their behalf securing the Lenders Indebtedness or any part thereof; "Lien" means any interest in property or the income or profits therefrom securing an obligation owed to, or a claim by, a Person other than the owner of such property, whether such interest is based on common law, civil law, statute or contract, and including, but not limited to, any security interest, hypothec, mortgage, pledge, lien, claim, charge, cession, transfer, assignment, encumbrance, title retention agreement, lessor's interest under a lease which would be capitalized on a balance sheet of the owner of such property or analogous instrument in, of, or on any property or the income or profits therefrom of a Person, other than Liens incurred in the ordinary course of business and for the purpose of carrying on same not in connection with the borrowing 3 - 3 - of money or the obtaining of credit and which do not in the aggregate materially impair the use, the income or profits therefrom, of the property covered thereby in the operation of such Person's business; "Person" means any corporation, natural person, firm, joint venture, partnership, trust, unincorporated organization, government or any department, agency or instrumentality of any government; "Rights, Remedies and/or Recourses" with respect to any Person, refers to any personal action, provisional measure, any other real or personal right, any other remedy, whether or not hypothecary, or whether same is exercised under the terms of any security, or any other recourse whatsoever; "Subordinated Creditor" has the meaning ascribed to it in the third preamble paragraph hereto; "Subordinated Indebtedness" has the meaning ascribed to it in Section 2.1; 1.2 ACCOUNTING TERMS AND PRACTICES Each accounting term used in this Agreement has the meaning ascribed to it under generally accepted accounting principles in Canada as established in the Canadian Institute of Chartered Accountants Handbook, unless otherwise defined herein. The financial calculations, audits, audit reports and financial statements (and their different items) referred to herein shall be made or prepared in accordance with such accounting principles applied on a consistent basis and in accordance with the normal practice in the industry. 1.3 HEADINGS The headings are inserted for convenience only and shall be ignored in construing this Agreement. 1.4 GOVERNING LAW This Agreement and the interpretation and enforcement thereof shall be governed by and construed in accordance with the laws applicable in the Province of Quebec. 1.5 SCHEDULES The schedules annexed to this Agreement shall form an integral part thereof. 1.6 REFERENCE TO THIS AGREEMENT The expressions "hereto" or "hereunder" or "hereof" or "herein" or "this Agreement" refer to this agreement together with any future amendment, updating or restatement. 4 - 4 - 2. SUBORDINATION AND POSTPONEMENT 2.1 SUBORDINATION AND POSTPONEMENT OF INDEBTEDNESS Subject to the provisions of Sections 2.2 and 2.3 hereof, the Subordinated Creditor acknowledges, declares and agrees that the indebtedness, of the Borrower to it under the Debentures (the "Subordinated Indebtedness") is junior and subordinate, and the payment thereof, whether in whole or in part, and whether as to principal, interest, fees or otherwise, and whether at or prior to maturity or upon acceleration of any maturity, is postponed to the prior payment in full of the loans and of all the indebtedness, present and future, of the Borrower to the Lenders under the Credit Agreement (all of which loans and indebtedness are herein collectively referred to as the "Lenders' Indebtedness"). 2.2 EXCEPTION AS TO PAYMENT OF INTEREST. Notwithstanding the provisions of Section 2.1, the Borrower, subject nevertheless to the satisfaction of the conditions stipulated below in this Section, may pay, at any time, any and all amounts due to the Subordinated Creditor on account of interest accrued on the Debentures, the whole, on the date such amounts are due and payable and in accordance with the provisions of the Debentures (including, without limitation all overdue amounts not previously paid by the Borrower to the Subordinated Creditor because of the existence at the time of their scheduled payment of a Default), on condition that at the time of such payment no Event of Default (within the meaning set forth under the Credit Agreement) exists of the nature described under subsection 17.1.1 (re: failure to pay) or 17.1.6 (re: bankruptcy and insolvency) of the Credit Agreement. 2.3 EXCEPTION AS TO CERTAIN PAYMENT OF PRINCIPAL Notwithstanding the provisions of Section 2.1 and in addition to the provisions of Section 2.2, the Borrower, subject nonetheless to the satisfaction of the conditions stipulated below in this Section, may pay, at maturity, the principal amounts of the Debentures and, at any time, any amounts due to the Subordinated Creditor (in principal, interest, fees, penalties or otherwise) following a voluntary prepayment made in compliance with the provisions of section 3.2 of the Debentures (including, without limitation all overdue amounts not previously paid by the Borrower to the Subordinated Creditor because of the existence at the time of their scheduled payment of a Default), on conditions that at the time of such payment no Default exists or would result therefrom. 2.4 NO LIEN The Subordinated Creditor hereby acknowledges, declares and agrees that no Lien exists in its favour in connection with the Subordinated Indebtedness and that no Lien will be created in the future in connection with such Indebtedness as long as the Lenders' Indebtedness has not been paid in full and the Revolving Credit Facility provided for under the Credit Agreement has not been terminated and cancelled. 5 - 5 - 2.5 EXERCISE OF RIGHTS UNDER THE SUBORDINATED INDEBTEDNESS In the event that any default or event of default occurs and continues under the Debentures, the Subordinated Creditor agrees not to directly or indirectly exercise any Right, Remedy or Recourse granted to it by law or the Debentures until the earlier of: (i) the date of delivery by the Agent (acting upon the instructions of the Majority Lenders) to the Subordinated Creditor of a written consent to the exercise of such Rights, Remedies or Recourses; (ii) the date of delivery by the Agent to the Subordinated Creditor of a written confirmation stating that the Lenders' Indebtedness has been fully repaid and that the Revolving Credit Facility provided for under the Credit Agreement has been terminated and cancelled; or (iii) the 90th day following the date the Borrower defaults in making a scheduled payment of interest as provided under the Debentures provided such default is not cured by the Borrower or on its behalf prior to such 90th day. 2.6 COLLOCATION OF PROCEEDS OF SALE, ETC. In the event that the Charged Property, whether in whole or in part, is Disposed or is otherwise realized, or proceeds of insurance polices are paid in respect thereof, the Lenders shall be collocated and paid in full for all Lenders' Indebtedness owing to the Lenders prior to the payment of the Subordinated Indebtedness. 2.7 PRIOR PAYMENT OF LENDERS' INDEBTEDNESS IN BANKRUPTCY, ETC. In the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceedings relating to the Borrower or its debts or assets, and in the event of any proceedings for liquidation, dissolution or other winding-up of the Borrower or distribution or marshalling of assets or securities of any kind or any composition with creditors of the Borrower, whether or not involving insolvency or bankruptcy and whether voluntary or involuntary, if the Lenders' Indebtedness has not been paid in full at such time, the Agent is hereby irrevocably authorized by the Subordinated Creditor, at any such meeting or in any such proceeding, to collect any assets or securities of any kind of the Borrower distributed, divided or applied by way of dividend or payment or any such securities issued on account of any of the Subordinated Indebtedness and to apply the same, or the proceeds of any realization upon the same, as the Agent in its discretion, elects to effect, to the Lenders' Indebtedness until the Lenders' Indebtedness shall have been paid in full, rendering any surplus then remaining to the Persons entitled by Law to receive same. 2.8 PAYMENTS HELD IN DEPOSIT In the event of any payment or distribution to the Subordinated Creditor made in breach of the terms hereof, such a payment or distribution shall be held under gratuitous deposit for the Lenders and shall be paid to the Agent, for the benefit of the Lenders, forthwith following demand therefor by the Agent, acting in accordance with the instructions of the Majority Lenders. 6 - 6 - 2.9 SCOPE OF SUBORDINATION AND POSTPONEMENT The provisions of this Agreement are intended solely to define and establish the relative rights of the creditors of the Borrower who are parties hereto. Nothing in this Agreement shall in any way impair, modify or affect, as between or among the Borrower, on the one hand, and its creditors, on the other hand, the obligations of the Borrower to effect payment of principal, interest, costs, fees and other amounts, obligations and liabilities owing under or pursuant to the terms of the documents evidencing such indebtedness or affect the relative rights of the creditors of the Borrower thereunder. 3. GENERAL PROVISIONS 3.1 NOTICES Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be in writing and shall be deemed to have been duly given or made to the party to whom such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, when delivered to such party (by certified mail, postage prepaid or by telecopier or hand delivery) at its address and attention set forth with its signature below, or at such other address as any of the parties hereto may hereafter notify the others in writing. No other method of giving notice is hereby precluded. 3.2 SEVERABILITY Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction. 3.3 NOTICES OF BORROWER'S DEFAULT The Agent undertakes to furnish to the Subordinated Creditor copies of all notices and requests sent to the Borrower under the Credit Agreement concurrently with the sending of such notices and requests to the Borrower, it being expressly understood, however, that the failure by the Agent to comply with the obligation incumbent upon it under this Section does not in any way affect or reduce the obligations of the Subordinated Creditor under the terms of this Agreement nor does it prevent or preclude the Agent or the Lenders for exercising any Rights, Remedies or Recourses any one of them may have against the Borrower. 3.4 AMENDMENT TO CREDIT AGREEMENT The Lenders hereby acknowledge and agree that the Credit Agreement shall not be amended or restated without the prior written consent of the Subordinated Creditor (which consent shall not be unreasonably withheld) if any such amendment has the effect of prohibiting 7 - 7 - payments to the Subordinated Creditor except as contemplated hereunder or, subject to the terms of this Agreement, of creating a default under the Debentures. 3.5 ASSIGNMENT BY SUBORDINATED CREDITOR The Subordinated Creditor does hereby agree that it shall not sell, assign, transfer or otherwise dispose of all or any portion of the Subordinated Indebtedness until and unless any purchaser, assignee or beneficiary of such disposition shall have intervened into this Agreement and acknowledged, declared and agreed that it shall be bound by the terms hereof as fully as though it were an original party to this Agreement. 3.6 BENEFIT OF THIS AGREEMENT FOR FUTURE LENDERS The parties hereto do hereby expressly acknowledge, declare and agree that the rights, benefits and remedies created and intended to be created, at any time and from time to time, by this Agreement in favour of the Lenders, are created and intended to be created in favour of the Lenders and such Person or Persons who may, at any time and from time to time, become Lender following an assignment pursuant to the provisions of the Credit Agreement, in the same manner and to the same extent as though each such Person was personally an original party to or a Person specifically named as a beneficiary in this Agreement. In furtherance of the provisions of this Section, the parties hereto do hereby irrevocably mandate the Agent, for and on their behalf, to confirm to and confer upon each Person who becomes a Lender, the benefits of this Agreement and to execute any instrument necessary to evidence same. 3.7 TERMINATION This Agreement and the respective rights and obligations of the parties hereto shall terminate upon the termination and cancellation of the Revolving Credit Facility provided for under the Credit Agreement, the repayment in full of the Lenders' Indebtedness and the discharge and acquittance of the Lenders' Liens. 3.8 LANGUAGE The parties hereto have specifically required that this Agreement, the Security and all related documents be drafted in English. Les parties aux presentes ont expressement requis que la presente convention, les suretes et tous les documents accessoires soient rediges en anglais. 8 - 8 - IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the date and in the place first hereinabove mentioned. FONDS DE SOLIDARITE DES TRAVAILLEURS DU QUEBEC (F.T.Q.), as Subordinated Creditor per: /s/ ---------------------------------------- per: ---------------------------------------- 8717 Berri St. Montreal, Quebec H2M 2T9 Fax.: (514) 383-2500 Attention of the Legal Services and Fax: (514) 383-2505 Attention of the Director, Investments NATIONAL BANK OF CANADA, as Lender per: /s/ ---------------------------------------- per: /s/ ---------------------------------------- 1155 Metcalfe Street North American Corporate Banking Eastern Canada 5th Floor Montreal, Quebec H3B 4S9 Fax: (514) 394-6438 Attention of the Manager 9 - 9 - LAURENTIAN BANK OF CANADA, as Lender per: /s/ ---------------------------------------- per: ---------------------------------------- 1981 McGill College Avenue Suite 1485 Montreal, Quebec H3A 3K3 Fax.: (514) 284-4551 Attention of the Principal Manager BANCA COMMERCIALE ITALIANA OF CANADA, as Lender per: /s/ ---------------------------------------- per: /s/ ---------------------------------------- 888 Sherbrooke Street West Montreal (Quebec) H3A 1G3 Fax.: (514) 284-1860 Attention of the Vice-President 10 - 10 - LA CAISSE CENTRALE DESJARDINS DU QUEBEC, as Lender per: /s/ ---------------------------------------- per: /s/ ---------------------------------------- 1, Complexe Desjardins Tour Sud, Suite 2822 Montreal (Quebec) H5B 1B3 Fax: (514) 281-7083 Attention of the Manager NATIONAL BANK OF CANADA, as Agent per: /s/ ---------------------------------------- per: ---------------------------------------- 1155 Metcalfe Street North American Corporate Banking Eastern Canada 5th Floor Montreal, Quebec H3B 4S9 Fax: (514) 394-6438 Attention of the Manager 11 - 11 - GILDAN ACTIVEWEAR INC., as Borrower per: /s/ Ken Cieply ---------------------------------------- per: ---------------------------------------- 725 Montee de Liesse Montreal (Quebec) H4T 1P5 12 SCHEDULE "A" LENDERS National Bank of Canada Laurentian Bank of Canada Banca Commerciale Italiana of Canada La Caisse Centrale Desjardins du Quebec EX-10.35 6 CDPQ SUBORDINATION AGREEMENT 1 EXHIBIT 10.35 CDPQ SUBORDINATION AGREEMENT entered into at Montreal, as of March 31, 1999.
AMONG: CAPITAL D'AMERIQUE CDPQ INC., as Subordinated Creditor AND: THE LENDERS SET FORTH IN SCHEDULE "A" HERETO, as Lenders AND: NATIONAL BANK OF CANADA, as Agent AND: GILDAN ACTIVEWEAR INC., as Borrower
WHEREAS Gildan Activewear Inc., as borrower (the "Borrower"), the Lenders initially set forth in Schedule "A" hereto (the "Lenders") and National Bank of Canada, as agent (the "Agent"), have entered into a credit agreement bearing formal date of March 31, 1999 (which agreement, as same may be amended, supplemented or restated at any time and from time to time is hereinafter referred to as the "Credit Agreement"); WHEREAS it is a condition precedent to the making of any advance under the Revolving Credit Facility provided for under the Credit Agreement that this Subordination Agreement be executed and a copy of same be delivered to the Agent; WHEREAS the Borrower has issued in favour of Capital d'Amerique CDPQ Inc. (the "Subordinated Creditor") a Cdn $15,000,000 debenture No. A-6 dated February 1, 1999 bearing interest at an annual rate of 12.5% calculated and payable pursuant to the terms and conditions set forth thereunder (which debenture, as same may be amended, supplemented or restated from time to time is hereafter referred to as the "Debenture"); WHEREAS it is in the best interest of the Borrower and consequently of the Subordinated Creditor to subordinate and postpone all of the debts owed to it by the Borrower under the Debenture, the whole in accordance with and subject to the terms and conditions of this Subordination Agreement; and NOW, THEREFORE, in consideration of the Agent and the Lenders having entered into the Credit Agreement with the Borrower and having agreed, subject to the terms and conditions therein provided, to make the Revolving Credit Facility (as defined in the Credit Agreement) available to the Borrower, the parties hereto have agreed as follows: 2 - 2 - 1. INTERPRETATION 1.1 DEFINITIONS The following capitalized words and expressions, whenever used in this Agreement or in any deed, document or instrument supplemental or ancillary hereto, unless there be something in the subject or the context inconsistent therewith, shall have the meaning ascribed to them herein below: "Agent" has the meaning ascribed to it in the first preamble paragraph hereto; "Borrower" has the meaning ascribed to it in the first preamble paragraph hereto; "Charged Property" means any property or asset of the Borrower being subject to Lenders' Liens; "Credit Agreement" has the meaning ascribed to it in the first preamble paragraph hereto; "Debenture" has the meaning ascribed to it in the third preamble paragraph hereto; "Default" means any one of the events specified in the Credit Agreement, the occurrence or failure to occur of which, as the case may be, constitutes or with the passage of time or the giving of notice or both, would constitute an event permitting the Lenders to accelerate the Lenders' Indebtedness; "Disposed", "Dispose" or "Disposition" means any realization or sale, liquidation, transfer or alienation, or the exercise of any right of compensation or appropriation of any deposits or credits, the creation of any lien, hypothec, charge or security interest or any other disposition of the whole or any part of the assets and properties of the Borrower by private agreement, call for tenders, public auction, judicial sale or any other type of sale having essentially the same effects as a judicial sale, sale by judicial authority or otherwise; "Lenders" has the meaning ascribed to it in the first preamble paragraph hereto; "Lenders' Indebtedness" has the meaning ascribed to it in Section 2.1; "Lenders' Liens" refers to all Liens now or hereafter held by the Agent and/or the Lenders and/or any Person on their behalf securing the Lenders Indebtedness or any part thereof; "Lien" means any interest in property or the income or profits therefrom securing an obligation owed to, or a claim by, a Person other than the owner of such property, whether such interest is based on common law, civil law, statute or contract, and including, but not limited to, any security interest, hypothec, mortgage, pledge, lien, claim, charge, cession, transfer, assignment, encumbrance, title retention agreement, lessor's interest under a lease which would be capitalized on a balance sheet of the owner of such property or analogous instrument in, of, or on any property or the income or profits therefrom of a Person, other than Liens incurred in the ordinary course of business and for the purpose of carrying on same not in connection with the borrowing 3 - 3 - of money or the obtaining of credit and which do not in the aggregate materially impair the use, the income or profits therefrom, of the property covered thereby in the operation of such Person's business; "Person" means any corporation, natural person, firm, joint venture, partnership, trust, unincorporated organization, government or any department, agency or instrumentality of any government; "Rights, Remedies and/or Recourses" with respect to any Person, refers to any personal action, provisional measure, any other real or personal right, any other remedy, whether or not hypothecary, or whether same is exercised under the terms of any security, or any other recourse whatsoever; "Subordinated Creditor" has the meaning ascribed to it in the third preamble paragraph hereto; "Subordinated Indebtedness" has the meaning ascribed to it in Section 2.1; 1.2 ACCOUNTING TERMS AND PRACTICES Each accounting term used in this Agreement has the meaning ascribed to it under generally accepted accounting principles in Canada as established in the Canadian Institute of Chartered Accountants Handbook, unless otherwise defined herein. The financial calculations, audits, audit reports and financial statements (and their different items) referred to herein shall be made or prepared in accordance with such accounting principles applied on a consistent basis and in accordance with the normal practice in the industry. 1.3 HEADINGS The headings are inserted for convenience only and shall be ignored in construing this Agreement. 1.4 GOVERNING LAW This Agreement and the interpretation and enforcement thereof shall be governed by and construed in accordance with the laws applicable in the Province of Quebec. 1.5 SCHEDULES The schedules annexed to this Agreement shall form an integral part thereof. 1.6 REFERENCE TO THIS AGREEMENT The expressions "hereto" or "hereunder" or "hereof" or "herein" or "this Agreement" refer to this agreement together with any future amendment, updating or restatement. 4 - 4 - 1.7 FRENCH AND ENGLISH VERSIONS OF THIS AGREEMENT This agreement exists in a French version and in an English version both of which have been signed by all parties hereto. Each of the parties to this agreement acknowledges being bound by its provisions notwithstanding the language of signature which provisions are deemed to constitute a single agreement. However, in case of incompatibility between the provisions of the French version and the English version, the provisions of the French version shall prevail. 2. SUBORDINATION AND POSTPONEMENT 2.1 SUBORDINATION AND POSTPONEMENT OF INDEBTEDNESS Subject to the provisions of Sections 2.2 and 2.3 hereof, the Subordinated Creditor acknowledges, declares and agrees that the indebtedness, of the Borrower to it under the Debenture (the "Subordinated Indebtedness") is junior and subordinate, and the payment thereof, whether in whole or in part, and whether as to principal, interest, fees or otherwise, and whether at or prior to maturity or upon acceleration of any maturity, is postponed to the prior payment in full of the loans and of all the indebtedness, present and future, of the Borrower to the Lenders under the Credit Agreement (all of which loans and indebtedness are herein collectively referred to as the "Lenders' Indebtedness"). 2.2 EXCEPTION AS TO PAYMENT OF INTEREST. Notwithstanding the provisions of Section 2.1, the Borrower, subject nevertheless to the satisfaction of the conditions stipulated below in this Section, may pay at any time, any and all amounts due to the Subordinated Creditor on account of interest accrued on the Debenture, the whole, on the date such amounts are due and payable and in accordance with the provisions of the Debenture (including, without limitation all overdue amounts not previously paid by the Borrower to the Subordinated Creditor because of the existence at the time of their scheduled payment of a Default), on condition that at the time of such payment no Event of Default (within the meaning set forth under the Credit Agreement) exists of the nature described under subsections 17.1.1 (re: failure to pay) or 17.1.6 (re: bankruptcy and insolvency) of the Credit Agreement. 2.3 EXCEPTION AS TO CERTAIN PAYMENT OF PRINCIPAL Notwithstanding the provisions of Section 2.1 and in addition to the provisions of Section 2.2, the Borrower, subject nonetheless to the satisfaction of the conditions stipulated below in this Section, may pay, at maturity, the principal amount of the Debenture and, at any time, any amounts due to the Subordinated Creditor (in principal, interest, fees, penalties or otherwise) following a voluntary prepayment made in compliance with the provisions of Sections 3 or 4 of the Debenture (including, without limitation all overdue amounts not previously paid by the Borrower to the Subordinated Creditor because of the existence at the time of their scheduled payment of a Default), on conditions that at the time of such payment no Default exists or would result therefrom. 5 - 5 - 2.4 NO LIEN The Subordinated Creditor hereby acknowledges, declares and agrees that no Lien exists in its favour in connection with the Subordinated Indebtedness and that no Lien will be created in the future in connection with such Indebtedness as long as the Lenders' Indebtedness has not been paid in full and the Revolving Credit Facility provided for under the Credit Agreement has not been terminated and cancelled. 2.5 EXERCISE OF RIGHTS UNDER THE SUBORDINATED INDEBTEDNESS In the event that any default or event of default occurs and continues under the Debenture, the Subordinated Creditor agrees not to directly or indirectly exercise any Right, Remedy or Recourse granted to it by law or the Debenture until the earlier of: (i) the date of delivery by the Agent (acting upon the instructions of the Majority Lenders) to the Subordinated Creditor of a written consent to the exercise of such Rights, Remedies or Recourses; (ii) the date of delivery by the Agent to the Subordinated Creditor of a written confirmation stating that the Lenders' Indebtedness has been fully repaid and that the Revolving Credit Facility provided for under the Credit Agreement has been terminated and cancelled; or (iii) the 90th day following the date the Borrower defaults in making a scheduled payment of interest as provided under the Debenture, provided such default is not cured by the Borrower or on its behalf prior to such 90th day. 2.6 COLLOCATION OF PROCEEDS OF SALE, ETC. In the event that the Charged Property, whether in whole or in part, is Disposed or is otherwise realized, or proceeds of insurance polices are paid in respect thereof, the Lenders shall be collocated and paid in full for all Lenders' Indebtedness owing to the Lenders prior to the payment of the Subordinated Indebtedness. 2.7 PRIOR PAYMENT OF LENDERS' INDEBTEDNESS IN BANKRUPTCY, ETC. In the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceedings relating to the Borrower or its debts or assets, and in the event of any proceedings for liquidation, dissolution or other winding-up of the Borrower or distribution or marshalling of assets or securities of any kind or any composition with creditors of the Borrower, whether or not involving insolvency or bankruptcy and whether voluntary or involuntary, if the Lenders' Indebtedness has not been paid in full at such time, the Agent is hereby irrevocably authorized by the Subordinated Creditor, at any such meeting or in any such proceeding, to collect any assets or securities of any kind of the Borrower distributed, divided or applied by way of dividend or payment or any such securities issued on account of any of the Subordinated Indebtedness and to apply the same, or the proceeds of any realization upon the same, as the Agent in its discretion, elects to effect, to the Lenders' Indebtedness until the Lenders' Indebtedness shall have been paid in full, rendering any surplus then remaining to the Persons entitled by Law to receive same. 6 - 6 - 2.8 PAYMENTS HELD IN DEPOSIT In the event of any payment or distribution to the Subordinated Creditor made in breach of the terms hereof, such a payment or distribution shall be held under gratuitous deposit for the Lenders and shall be paid to the Agent, for the benefit of the Lenders, forthwith following demand therefor by the Agent, acting in accordance with the instructions of the Majority Lenders. 2.9 SCOPE OF SUBORDINATION AND POSTPONEMENT The provisions of this Agreement are intended solely to define and establish the relative rights of the creditors of the Borrower who are parties hereto. Nothing in this Agreement shall in any way impair, modify or affect, as between or among the Borrower, on the one hand, and its creditors, on the other hand, the obligations of the Borrower to effect payment of principal, interest, costs, fees and other amounts, obligations and liabilities owing under or pursuant to the terms of the documents evidencing such indebtedness or affect the relative rights of the creditors of the Borrower thereunder. 3. GENERAL PROVISIONS 3.1 NOTICES Except as otherwise specified herein, all notices, requests, demands or other communications to or upon the respective parties hereto shall be in writing and shall be deemed to have been duly given or made to the party to whom such notice, request, demand or other communication is required or permitted to be given or made under this Agreement, when delivered to such party (by certified mail, postage prepaid or by telecopier or hand delivery) at its address and attention set forth with its signature below, or at such other address as any of the parties hereto may hereafter notify the others in writing. No other method of giving notice is hereby precluded. 3.2 SEVERABILITY Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof in that jurisdiction or affecting the validity or enforceability of such provision in any other jurisdiction. 3.3 NOTICES OF BORROWER'S DEFAULT The Agent undertakes to furnish to the Subordinated Creditor copies of all notices and requests sent to the Borrower under the Credit Agreement concurrently with the sending of such notices and requests to the Borrower, it being expressly understood, however, that the failure by the Agent to comply with the obligation incumbent upon it under this Section does not in any way affect or reduce the obligations of the Subordinated Creditor under the terms of this 7 - 7 - Agreement nor does it prevent or preclude the Agent or the Lenders for exercising any Rights, Remedies or Recourses any one of them may have against the Borrower. 3.4 AMENDMENT TO CREDIT AGREEMENT The Lenders hereby acknowledge and agree that the Credit Agreement shall not be amended or restated without the prior written consent of the Subordinated Creditor (which consent shall not be unreasonably withheld) if any such amendment has the effect of prohibiting payments to the Subordinated Creditor except as contemplated hereunder or, subject to the terms of this Agreement, of creating a default under the Debenture. 3.5 ASSIGNMENT BY SUBORDINATED CREDITOR The Subordinated Creditor does hereby agree that it shall not sell, assign, transfer or otherwise dispose of all or any portion of the Subordinated Indebtedness until and unless any purchaser, assignee or beneficiary of such disposition shall have intervened into this Agreement and acknowledged, declared and agreed that it shall be bound by the terms hereof as fully as though it were an original party to this Agreement. 3.6 BENEFIT OF THIS AGREEMENT FOR FUTURE LENDERS The parties hereto do hereby expressly acknowledge, declare and agree that the rights, benefits and remedies created and intended to be created, at any time and from time to time, by this Agreement in favour of the Lenders, are created and intended to be created in favour of the Lenders and such Person or Persons who may, at any time and from time to time, become Lender following an assignment pursuant to the provisions of the Credit Agreement, in the same manner and to the same extent as though each such Person was personally an original party to or a Person specifically named as a beneficiary in this Agreement. In furtherance of the provisions of this Section, the parties hereto do hereby irrevocably mandate the Agent, for and on their behalf, to confirm to and confer upon each Person who becomes a Lender, the benefits of this Agreement and to execute any instrument necessary to evidence same. 3.7 TERMINATION This Agreement and the respective rights and obligations of the parties hereto shall terminate upon the termination and cancellation of the Revolving Credit Facility provided for under the Credit Agreement, the repayment in full of the Lenders' Indebtedness and the discharge and acquittance of the Lenders' Liens. 8 - 8 - IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the date and in the place first hereinabove mentioned. CAPITAL D'AMERIQUE CDPQ INC., as Subordinated Creditor per: /s/ ---------------------------------------- per: /s/ ---------------------------------------- 1981 McGill College Avenue Montreal, Quebec H3A 3C7 Fax.: (514) 847-2493 Attention of the Vice-President, Legal Affairs NATIONAL BANK OF CANADA, as Lender per: /s/ ---------------------------------------- per: /s/ ---------------------------------------- 1155 Metcalfe Street North American Corporate Banking Eastern Canada 5th Floor Montreal, Quebec H3B 4S9 Fax: (514) 394-6438 Attention of the Manager 9 - 9 - LAURENTIAN BANK OF CANADA, as Lender per: /s/ ---------------------------------------- per: ---------------------------------------- 1981 McGill College Avenue Suite 1485 Montreal, Quebec H3A 3K3 Fax.: (514) 284-4551 Attention of the Principal Manager BANCA COMMERCIALE ITALIANA OF CANADA, as Lender per: /s/ ---------------------------------------- per: /s/ ---------------------------------------- 888 Sherbrooke Street West Montreal (Quebec) H3A 1G3 Fax.: (514) 284-1860 Attention of the Vice-President 10 - 10 - LA CAISSE CENTRALE DESJARDINS DU QUEBEC, as Lender per: /s/ ---------------------------------------- per: /s/ ---------------------------------------- 1, Complexe Desjardins Tour Sud, Suite 2822 Montreal (Quebec) H5B 1B3 Fax: (514) 281-7083 Attention of the Manager NATIONAL BANK OF CANADA, as Agent per: /s/ ---------------------------------------- per: ---------------------------------------- 1155 Metcalfe Street North American Corporate Banking Eastern Canada 5th Floor Montreal, Quebec H3B 4S9 Fax: (514) 394-6438 Attention of the Manager 11 - 11 - GILDAN ACTIVEWEAR INC., as Borrower per: /s/ Ken Cieply ---------------------------------------- per: ---------------------------------------- 725 Montee de Liesse Montreal (Quebec) H4T 1P5 12 SCHEDULE "A" LENDERS National Bank of Canada Laurentian Bank of Canada Banca Commerciale Italiana of Canada La Caisse Centrale Desjardins du Quebec EX-23.3 7 CONSENT OF KPMG LLP 1 Exhibit 23.3 CONSENT OF INDEPENDENT AUDITORS To the Board Of Directors Gildan Activewear Inc. We consent to the use of our report included in this registration statement on Form F-1 and related prospectus for the registration of Class A Subordinate Voting Shares of Gildan Activewear Inc. and to the reference to our firm under the headings "Summary Consolidated Financial Data", "Selected Consolidated Financial Data" and "Experts" therein. /s/ KPMG LLP Chartered Accountants Montreal, Canada May 7, 1999 [LOGO] -----END PRIVACY-ENHANCED MESSAGE-----