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<SEC-DOCUMENT>0001104659-05-037664.txt : 20060905
<SEC-HEADER>0001104659-05-037664.hdr.sgml : 20060904
<ACCEPTANCE-DATETIME>20050809121005
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001104659-05-037664
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20050809

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			POLYMER GROUP INC
		CENTRAL INDEX KEY:			0000927417
		STANDARD INDUSTRIAL CLASSIFICATION:	BROADWOVEN FABRIC MILS, MAN MADE FIBER & SILK [2221]
		IRS NUMBER:				571003983
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0103

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		4055 FABER PLACE DR., SUITE 201
		CITY:			NORTH CHARLESTON
		STATE:			SC
		ZIP:			29405
		BUSINESS PHONE:		843-329-5151

	MAIL ADDRESS:	
		STREET 1:		4055 FABER PLACE DR., SUITE 201
		CITY:			NORTH CHARLESTON
		STATE:			SC
		ZIP:			29405
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
<TEXT>
<html>

<head>





</head>

<body lang="EN-US">

<div>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">August&nbsp;9, 2005</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Securities and Exchange Commission</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Division of Corporation Finance</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">450 Fifth Street, N.W.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Washington, DC 20549</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Attention: Andrew Blume</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="86%" style="border-collapse:collapse;margin-left:.5in;width:86.9%;">
 <tr>
  <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.92%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Re:</font></p>
  </td>
  <td width="91%" valign="top" style="padding:0in 0in 0in 0in;width:91.08%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Polymer Group,&nbsp;Inc.</font></p>
  </td>
 </tr>
 <tr>
  <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.92%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="91%" valign="top" style="padding:0in 0in 0in 0in;width:91.08%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Form&nbsp;10-K for the fiscal year ended January&nbsp;1,
  2005</font></p>
  </td>
 </tr>
 <tr>
  <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.92%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="91%" valign="top" style="padding:0in 0in 0in 0in;width:91.08%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Form&nbsp;10-Q for the quarterly period
  ended April&nbsp;2, 2005</font></p>
  </td>
 </tr>
 <tr>
  <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.92%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="91%" valign="top" style="padding:0in 0in 0in 0in;width:91.08%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Filed March&nbsp;29, 2005 and May&nbsp;16,
  2005</font></p>
  </td>
 </tr>
 <tr>
  <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.92%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="91%" valign="top" style="padding:0in 0in 0in 0in;width:91.08%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">File No.&nbsp;1-14330</font></p>
  </td>
 </tr>
</table>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Ladies and
Gentlemen:</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Polymer Group,&nbsp;Inc.
(&#147;PGI&#148;) hereby submits this response to comments received from the Staff of the
Securities and Exchange Commission (the &#147;Commission&#148; or &#147;Staff&#148;) with regard to
PGI&#146;s Annual Report on Form&nbsp;10-K for the fiscal year ended January&nbsp;1,
2005 and filed with the Commission on March&nbsp;29, 2005 (the &#147;Form&nbsp;10-K&#148;).&#160;&#160; The Staff delivered its original comments by
letter dated May&nbsp;18, 2005 from George F. Ohsiek,&nbsp;Jr., Branch Chief,
to James L. Schaeffer, Chief Executive Officer of PGI, to which PGI responded
by letter dated June&nbsp;10, 2005 from R. Douglas Harmon of Parker Poe Adams&nbsp;&amp;
Bernstein L.L.P., counsel to PGI (the &#147;Original Response Letter&#148;). &#160;The Staff provided additional comments by
letter dated June&nbsp;23, 2005 addressed to Mr.&nbsp;Schaeffer and signed by Mr.&nbsp;Ohsiek
(the &#147;Second Comment Letter&#148;), to which PGI responded by letter dated July&nbsp;18,
2005 from Mr.&nbsp;Harmon (the &#147;Second Response Letter&#148;).&#160; On August&nbsp;1, 2005, Andrew Blume and Robyn
Manuel of the Division of Corporation Finance, representatives of Ernst&nbsp;&amp;
Young LLP and the undersigned participated in a telephone conference call
discussion of the Staff&#146;s comments and PGI&#146;s prior responses (the &#147;Conference
Call&#148;).&#160; This letter supplements our
Original Response Letter and Second Response Letter and responds to and
clarifies certain accounting topics discussed with the Staff in the Conference
Call.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The numbered
paragraphs below correspond to the numbered paragraphs of the Second Comment
Letter and the page&nbsp;numbers referenced below refer to the page&nbsp;numbers
of the Form&nbsp;10-K.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

</div>
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<div style="font-family:Times New Roman;">

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:0in;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Form&nbsp;10-K for the Fiscal Year Ended January&nbsp;1, 2005</font></u></b></p>

<p style="margin:0in 0in .0001pt;text-indent:0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><u><font size="2" face="Times New Roman" style="font-size:10.0pt;">Note 11.&#160;&#160;
Debt, page&nbsp;61</font></u></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">1.</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The Company has continued
to evaluate the accounting for the exchanges of its Junior Notes for PIK
Preferred Shares and has also considered the impact of those items discussed
with the Staff on Monday, August&nbsp;1, 2005.&#160;
The following information is intended to supplement the Company&#146;s prior responses
and to provide further clarification for the Staff in evaluating the Company&#146;s
accounting for the exchanges.</p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><i><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Mandatory Redemption Price</font></u></i></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">At the dates of exchange of the Junior Notes
for the PIK Preferred Shares, the mandatory redemption price of the two
instruments are identical; each amounting to approximately $52.7 million.&#160; There was no increase in the redemption price
under the PIK Preferred Shares at the dates of exchange over that which already
existed under the Junior Notes.&#160; To
clarify this point, the third paragraph of Note 15 to the Company&#146;s Form&nbsp;10-K
should be modified to state &#147;On June&nbsp;30, 2012, the Company must redeem all
of the PIK Preferred Shares then outstanding at a price equal to $1,000 per
share plus any other accrued and unpaid dividends whether or not declared,
which amount will be payable by the Company (&#147;Mandatory Redemption Price&#148;) &#133;.&#148;.&#160; This clarification will be made in the
Company&#146;s next filing.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><i><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Accounting for the exchange of Junior Notes
to PIK Preferred Shares</font></u></i></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As a result of the discussions with the
Staff, and further consideration of the applicable literature, the Company reaffirms
its assessment that, as presented in its Second Response Letter, the exchanges
were, in substance, capital transactions directed by the Company&#146;s majority
shareholder and involving other common shareholders, which related parties
represented approximately 93% of the value of the Junior Notes and PIK
Preferred Shares exchanged, and approximately 76% of the Company&#146;s common
stock, on an if-converted basis, and that no gain or loss, or other deduction
from income applicable to common shareholders, should have been recognized as a
result of the exchange.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The following are the journal entries that
the Company believes are appropriate to account for the substance of the
exchanges of the Junior Notes for the PIK Preferred Shares, and the relevant
accounting literature supporting the accounting:</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Journal
Entry # 1 (in millions), at dates of exchange</font></u></b></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="70%" style="border-collapse:collapse;margin-left:.5in;width:70.0%;">
 <tr>
  <td width="78%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:78.14%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dr.&nbsp;Junior Notes</font></p>
  </td>
  <td width="8%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.54%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.62%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
  </td>
  <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.42%;">
  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">52.7</font></p>
  </td>
  <td width="2%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.28%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="78%" valign="top" style="padding:0in 0in 0in 0in;width:78.14%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dr.&nbsp;APIC</font></p>
  </td>
  <td width="8%" valign="bottom" style="padding:0in 0in 0in 0in;width:8.54%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.62%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
  </td>
  <td width="9%" valign="bottom" style="padding:0in 0in 0in 0in;width:9.42%;">
  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">50.8</font></p>
  </td>
  <td width="2%" valign="top" style="padding:0in 0in 0in 0in;width:2.28%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="78%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:78.14%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cr. PIK Preferred Shares (Mezzanine Equity)</font></p>
  </td>
  <td width="8%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.54%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.62%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
  </td>
  <td width="9%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:9.42%;">
  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">103.5</font></p>
  </td>
  <td width="2%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.28%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
</table>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">2</font></p>

<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

</div>
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<div>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">This entry reflects the exchange of the
Junior Notes for the PIK Preferred Shares, and is based on the guidance
provided by Accounting Principles Board Opinion (&#147;APB&#148;) No.&nbsp;26, including
the footnote reference in paragraph 20 of that Opinion, which footnote provides
that &#147;&#133;extinguishment transactions between related parties may be in essence
capital transactions&#148;.&#160; Additionally,
this accounting is consistent with the provisions of Emerging Issues Task Force
(&#147;EITF&#148;) Topic D-98 (&#147;D-98&#148;) which provides that the initial carrying amount of
redeemable preferred stock should be at its fair value at the date of issue. As
further explained in the Second Response Letter, as the exchange was between
related parties, including the majority shareholder, it has been accounted for
as a capital transaction and, accordingly, the difference between the
reacquisition price, represented by the estimated fair value of the PIK
Preferred Shares, and the carrying amount of the Junior Notes surrendered, has
been charged to APIC as opposed to being recognized currently in income.</font></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As further evidence of the fact that no gain
or loss, or other deduction from income applicable to common shareholders,
should be recognized, there were no securities or assets given up in excess of
those that the Company was previously obligated to issue or pay (the conversion
price of $7.29 per share was identical in both instruments).&#160; The fair value of the Junior Notes
surrendered was approximately equal to the fair value of the PIK Preferred
Shares received.&#160; The changed features on
the PIK Preferred Shares (higher interest rate, longer maturity, lower priority
of claim and loss of collateral/guarantee) were intended to be fair value
neutral on a net basis.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Based on the consensus reached in EITF 00-27,
Issue #1, the effective conversion price, based on the proceeds received for or
allocated to the convertible instrument should be used to compute the intrinsic
value, if any, of the embedded conversion option.&#160; The estimated fair value of the PIK Preferred
Shares at the date of exchange is considered as the &#147;proceeds received&#148; under
EITF 00-27, Issue #1 and such amount approximated the then-fair value of the
underlying common shares into which the PIK Preferred Shares could be converted.
Therefore, the effective conversion price at the date of exchange would
approximate the then-fair value of the common stock and, accordingly, there was
no beneficial conversion feature at the date of exchange.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Journal
Entry # 2 (in millions), at dates of exchange</font></u></b></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="70%" style="border-collapse:collapse;margin-left:.5in;width:70.0%;">
 <tr>
  <td width="78%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:78.14%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dr.&nbsp;Preferred Shares (Mezzanine
  Equity)</font></p>
  </td>
  <td width="8%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:8.54%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.62%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="1%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:1.62%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
  </td>
  <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.82%;">
  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">50.8</font></p>
  </td>
  <td width="2%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.26%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="78%" valign="top" style="padding:0in 0in 0in 0in;width:78.14%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cr. APIC</font></p>
  </td>
  <td width="8%" valign="bottom" style="padding:0in 0in 0in 0in;width:8.54%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.62%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="1%" valign="bottom" style="padding:0in 0in 0in 0in;width:1.62%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
  </td>
  <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.82%;">
  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">50.8</font></p>
  </td>
  <td width="2%" valign="top" style="padding:0in 0in 0in 0in;width:2.26%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
</table>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Consistent with the guidance provided in D-98
and Accounting Series&nbsp;Release (&#147;ASR&#148;) 268, the PIK Preferred Shares should
be classified outside of permanent shareholders&#146; equity as of the date of the
exchange (as reflected in journal entry #1 above).&#160; At that point, the carrying value of the PIK
Preferred Shares exceeded the mandatory redemption amount. Therefore, journal entry
#2 reflects the necessary adjustment of the carrying value of the PIK Preferred
Shares to their mandatory redemption amount at that time.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">3</font></p>

<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

</div>
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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">This journal entry, when considered with
journal entry #1 above, results in the reporting of the PIK Preferred Shares at
their required mandatory redemption amount ($52.7 million), as mezzanine
equity, which equates to the cash obligation that the Company would incur to &#147;optionally
redeem or call&#148; the PIK Preferred Shares at the date of exchange.&#160; It should be noted that at the date of
exchange, the PIK Preferred Shares were immediately callable by the Company,
based on the terms of the PIK Preferred Share instrument.</font></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The effects of this entry are consistent with
the intent of ASR 268, as well as D-98 and Staff Accounting Bulletin No.&nbsp;64
(&#147;SAB 64&#148;).&#160; EITF Topic D-98 and SAB 64
provide that the initial carrying amount of redeemable preferred stock should
be its fair value at the date of issue.&#160;
Subsequent accounting is dependent on the instrument&#146;s redemption
provisions.&#160; For instruments that are
currently redeemable (callable) the security should be adjusted to its
redemption amount at each balance sheet date.&#160;
Ordinarily, increases in the carrying amount of the redeemable security
are affected by charges against retained earnings that are treated for
calculations of earnings per share as dividends on non-redeemable preferred
stock (i.e., a reduction of earnings applicable to common stockholders). In
this case, the carrying value of the security must be decreased to mandatory
redemption amount at the balance sheet date.&#160;
Journal entry #2 effects this provision of the relevant literature by
crediting APIC, rather than retained earnings.&#160;
The Company does not believe any increases in net income available to
common shareholders are appropriate in these circumstances. There was a
specific event, a transaction with a shareholder, which triggered an accounting
entry that required fair value.&#160; The
transaction did not represent any transfer of additional fair value to the debt
holder/shareholder, and likewise, the Company did not pay a &#147;premium&#148; for the
instrument.&#160; Under APB 26, the Company
did not recognize a loss on the transaction with the shareholder, and it is
counter-intuitive (and the Company believes not representationally faithful)
that it then generate future income available to common shareholders from the
transaction through subsequent adjustment to the amount recognized in
mezzanine, other than for the periodic increases in the redemption amount
represented by dividends accrued on the PIK Preferred Shares.&#160; The Company has also concluded that the PIK
Preferred Shares classified in mezzanine should be immediately adjusted to
their mandatory redemption amount, rather than amortizing the difference over
the remaining term of the PIK Preferred Shares.</font></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The net effects of the journal entries
described above have been reflected in the financial statements included in the
Company&#146;s Form&nbsp;10-K.&#160; The PIK
Preferred Shares at January&nbsp;1, 2005 are reported at the mandatory
redemption amount of $58.3 million, which includes the aforementioned $52.7
million, plus $5.6 million of accrued and unpaid dividends through such date.&#160; Accordingly, the Company does not believe any
adjustments need to be made to the balance sheet or the statement of operations
as of and for the year ended January&nbsp;1, 2005 to reflect the exchange of
the Junior Notes for PIK Preferred Shares, nor is any revision required to the
presentation of dividends on the PIK Preferred Shares in arriving at income
available to common shareholders for the year then ended.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">4</font></p>

<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

</div>
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<div>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><i><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Accounting for dividends on PIK Preferred
Shares</font></u></i></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Subsequent to discussions with the Staff on August&nbsp;1,
2005, the Company focused on the provisions of EITF 00-27, Issue 10 (&#147;Issue 10&#148;),
with respect to the accounting for the accrual and payment of dividends on its
PIK Preferred Shares.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As disclosed in the Form&nbsp;10-K, the
dividends on the PIK Preferred Shares accrue at an annual rate of 16%, are
payable semi-annually in arrears on each January&nbsp;1<sup>st</sup> and July&nbsp;1<sup>st</sup>,
and are payable at the option of the Company, (i)&nbsp;through the issuance of
additional shares of PIK Preferred Stock; (ii)&nbsp;in cash; or (iii)&nbsp;in a
combination thereof.&#160; The dividends are
cumulative and accrue (whether or not earned or declared), and the mandatory
redemption price specifically includes &#147;other accrued and unpaid dividends
whether or not declared&#148;.&#160; Therefore, consistent
with the provisions of the PIK Preferred instrument, the Company has reflected
the accretion of dividends, at the stated rate of 16%, in its Statements of
Operations for the fiscal year ended January&nbsp;1, 2005 as a reduction of
income applicable to common shareholders.&#160;
This accounting is consistent with the provisions of Issue 10 as, at the
end of the 2004 year, the decision to make the payment of the dividends in cash,
additional shares, or a combination thereof had not been determined or declared
by the Company&#146;s Board of Directors.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">On January&nbsp;14, 2005, the Company&#146;s Board
of Directors declared that dividends accrued on the PIK Preferred Shares from
the dates of issuance through January&nbsp;1, 2005, in the amount of
approximately $5.6 million, would be paid in the form of additional PIK
Preferred Shares.&#160; On such date, the last
sale price of the Company&#146;s common stock on the Over-the-Counter Bulletin Board
was $18.50 per share.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The consensus reached in Issue 10 is that for
dividends paid in-kind on certain instruments, the fair value of the underlying
issuer stock at the declaration date should be used to measure the intrinsic
value of the conversion option embedded in the PIK instrument.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As the PIK Preferred instrument provides that
the Company can exercise its discretion as to whether the dividends will be
settled in cash or by the issuance of additional PIK Preferred Shares, the
Company believes it to be appropriate to record the value, if any, of such additional
shares at such time as the Company&#146;s Board of Directors declares that such
accrued dividends will be paid in the form of additional PIK Preferred Shares,
rather than in cash.&#160; Additionally, in
computing the value of the dividend paid-in-kind as a result of the
declaration, the Company will consider the date of such declaration by the
Board of Directors as the Commitment Date. (In applying the guidance in Issue
10 of EITF Consensus 00-27, we note that if the payment of interest or
dividends in-kind is discretionary, the Commitment Date for the convertible
instruments issued as paid-in-kind interest or dividends is the date that the
interest or the dividends are paid-in-kind, and the fair value of the
underlying issuer stock at the recognition or declaration date should be used
to measure the intrinsic value of the conversion option embedded in the
paid-in-kind instruments.&#160; However,
because in this circumstance the Company believes that the PIK dividend must be
measured at the PIK instruments&#146; fair value on the date of the commitment to
pay in-kind, there is no beneficial conversion feature to account for
separately.)</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">5</font></p>

<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

</div>
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<div>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accordingly, the Company believes that the
dividend paid-in-kind on PIK Preferred Shares should have been recorded at the
value of the PIK Preferred Shares as of the dividend declaration date, reduced
by the amount of dividends previously accrued at the stated dividend rate.&#160; Based on the fact that the PIK conversion
price is deep in-the-money, and that the Company&#146;s Board of Directors has
resolved to exercise its right to redeem the PIK Preferred Shares (see &#147;Recent
Actions by the Company&#146;s Board of Directors&#148; below), the fair value of the
underlying common shares has been considered to approximate the fair value of
the PIK Preferred Shares.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Using the last sale price of the Company&#146;s
common stock on January&nbsp;14, 2005 (the declaration date) of $18.50 per
share, the fair value of the 5,540 PIK Preferred Shares issued in lieu of cash
payment was approximately $14.1 million (5,540 PIK Preferred Shares x&#160; $1,000 face value per PIK Preferred Share / &#160;$7.29 conversion price = 759,945 common
equivalent shares, x &#160;common stock price
of $18.50 per share = $14,059,000) which exceeded the amount accrued, based
upon the stated rate of $5.6 million, by approximately $8.5 million.&#160; Recording the additional $8.5 million
dividend at the date of declaration would also result in a decrease in income
applicable to common shareholders and retained earnings with a corresponding
increase in APIC.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The journal entry to reflect this treatment
in the first quarter of fiscal 2005 is as follows (in millions):</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt .5in;"><b><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-weight:bold;">Journal
Entry (in millions), first quarter fiscal 2005</font></u></b></p>

<p style="margin:0in 0in .0001pt .5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="70%" style="border-collapse:collapse;margin-left:.5in;width:70.0%;">
 <tr>
  <td width="83%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:83.06%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Dr.&nbsp;Dividends (Retained Earnings)</font></p>
  </td>
  <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.08%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.06%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="2%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.06%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
  </td>
  <td width="7%" valign="bottom" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:7.92%;">
  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8.5</font></p>
  </td>
  <td width="2%" valign="top" bgcolor="#CCEEFF" style="background:#CCEEFF;padding:0in 0in 0in 0in;width:2.84%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="83%" valign="top" style="padding:0in 0in 0in 0in;width:83.06%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Cr. APIC</font></p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.08%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.06%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="2%" valign="bottom" style="padding:0in 0in 0in 0in;width:2.06%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">$</font></p>
  </td>
  <td width="7%" valign="bottom" style="padding:0in 0in 0in 0in;width:7.92%;">
  <p align="right" style="margin:0in 0in .0001pt;text-align:right;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8.5</font></p>
  </td>
  <td width="2%" valign="top" style="padding:0in 0in 0in 0in;width:2.84%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
</table>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Accordingly, the Company proposes to restate,
in its next quarterly filing, its year-to-date results for fiscal 2005 to
increase its dividends on PIK Preferred Shares, resulting in a decrease in
income applicable to common shareholders, as reflected above, of approximately
$8.5 million, and to make all appropriate disclosures and Form&nbsp;8-K filings.
&#160;&#160;Provided the Staff concurs with our
proposed treatment, the Company will thereafter promptly file a Form&nbsp;10-Q/A
to restate the first quarter of fiscal 2005 to reflect the above treatment.</font></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><i><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Accounting for interest cost on Junior Notes</font></u></i></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Although not specifically addressed with the
Staff, the Company, in connection with its further review of the accounting for
dividends on PIK Preferred Shares, has also now reviewed its accounting for
interest on its Junior Notes prior to the exchange, as both instruments
contained pay-in-kind features. The only substantive difference is that the
option under the PIK Preferred Shares to receive dividends in the form of cash,
or additional shares was that of the Company.&#160;
Under the Junior Notes, the option was that of the holder.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">6</font></p>

<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

</div>
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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">In 2004, certain interest expense under the
Junior Notes in the amount of approximately $1.8 million, at the stated rate of
10% as provided for in the Junior Notes instrument, was paid-in-kind through
the issuance of additional Junior Notes, which the Company now believes should
be accounted for at the fair value of the underlying securities issued.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As the Junior Notes could be converted at a
price of $7.29 per share, and such price was less than the estimated market
value of the underlying common stock into which the Junior Notes could be
converted. Therefore, the Company believes that it should have recorded
additional non-cash interest expense in an amount ranging between $987,000 and
$1.7 million, with a corresponding credit to APIC.&#160; The majority of the $1.7 million incremental
charge is calculated based on the price at the date of exchange, which happened
to be the highest market price of the Company&#146;s common stock during the first
seven months of 2004, which prices ranged from $7.50 to $14.51 during such
period.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The difference in the range of results
depends upon whether the additional interest cost is measured based upon the
date the liability is recognized (accrued), or at such time as the additional
Junior Notes are issued, and is dependent upon the ultimate interpretation of
applicable accounting literature.&#160;
Furthermore, the majority of the interest paid-in-kind was not paid at a
normal interest payment date but, rather, at the date of exchange for the PIK
Preferred Shares, raising further questions as to the determination of the
appropriate measurement date.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company has evaluated, based on
applicable literature, the materiality of this adjustment to its consolidated
financial statements for fiscal 2004, and has specifically considered the
guidance contained in Staff Accounting Bulletin (&#147;SAB&#148;) No.&nbsp;99 in making
its assessment. The following are certain of the key factors considered by the
Company in making its determination of materiality:</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>From
a review of the data, the Company notes that, strictly from a quantitative
standpoint, the adjustment may be considered significant when compared to net
income, loss applicable to common shareholders and per share amounts on an
absolute dollar basis as well as a percentage basis.&#160; However, since emerging from Bankruptcy (on March&nbsp;5,
2003) the Company incurred a net loss of $33.0 million for the 10 months ended January&nbsp;3,
2004, and reported an almost break-even net income, as originally stated, of
$4.7 million for fiscal 2004. As a result of these cumulative losses since
emergence and the fact that the Company was operating at break-even levels, the
Company does not believe that net income or related earnings per share measures
are the primary factors considered by an investor in assessing performance or
determining the market value of the Company.&#160;
Furthermore, it should be noted that the adjustment does not result in
the change of the Company&#146;s net performance from a net income position to a net
loss position (either at the net income line or the income applicable to common
shareholders line), nor result in the masking of a change in any trend of
earnings.</p>

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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">7</font></p>

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</font></div>

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<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The
adjustment has no effect on the consolidated statement of cash flows, or on the
consolidated balance sheet, except for an insignificant reclassification within
shareholders&#146; equity.</p>

<p style="margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The
Company notes that the adjustment, when taken in the view of the Company in its
totality; specifically, $753 million in total assets and $844 million in net
sales, is not deemed significant on an absolute dollar basis or on a percentage
basis.</p>

<p style="margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>Due
to the fact that this adjustment would represent the recording of non-cash
interest, such adjustment would have no impact on the Company&#146;s debt covenant
calculations as they are all calculated based on cash interest and cash
generated by operations.</p>

<p style="margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The
adjustment would not impact operating income or the operating results of any of
the Company&#146;s operating segments or of any of the Company&#146;s businesses that
constitute a significant portion of the Company&#146;s operations or profitability.</p>

<p style="margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The
Company notes that there is no turn-around effect, resulting from this
adjustment not being recorded in the 2004 financial statements, which impacts
the Company&#146;s 2005 financial statements.</p>

<p style="margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="font-size:10.0pt;margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="3" face="Times New Roman" style="font-size:12.0pt;">&#149;</font><font size="1" style="font-size:3.0pt;">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font>The
Junior Notes were exchanged for PIK Preferred Shares in mid 2004, thus
eliminating any future accounting for interest on the Junior Notes, and the
Company has recently exercised its option to redeem the PIK Preferred Shares no
later than September&nbsp;30, 2005 (see <i><font style="font-style:italic;">Recent Actions by the
Company&#146;s Board of Directors).</font></i></p>

<p style="margin:0in 0in .0001pt .5in;text-indent:-.25in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">As a result of its evaluation, the Company does
not consider the adjustment to be material; accordingly, the Company believes
that a prudent investor would not consider the adjustment as important, nor be
influenced in their evaluation of the Company by the inclusion or exclusion of
the adjustment.&#160; Additionally, inclusion
of the proposed adjustment would certainly not significantly alter the total
mix of information available to the investor, given that the Company has
appropriately disclosed the terms of the Junior Notes, their conversion
privileges, and their exchange for PIK Preferred Shares, for which, the Company&#146;s
Board of Directors has now resolved to exercise its right to redeem such PIK
Preferred Shares.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;"><i><u><font size="2" face="Times New Roman" style="font-size:10.0pt;font-style:italic;">Recent Actions by the Company&#146;s Board of
Directors</font></u></i></p>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:1.0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">The Company&#146;s Board of Directors, on July&nbsp;28,
2005, resolved to exercise its right to redeem all of the PIK Preferred Shares
no later than September&nbsp;30, 2005.&#160; The
redemption price will be paid through the issuance of Class&nbsp;A Common
Stock.&#160; Based on the closing price of the
Class&nbsp;A Common Stock on August&nbsp;3, 2005, a holder of one PIK Preferred
Share would receive 36.698 shares of Class&nbsp;A Common Stock upon
redemption.&#160; However, the PIK Preferred
Shares are convertible at the option of the holder into 137.174 shares of Class&nbsp;A
Common Stock.&#160; As a result, the Company
fully expects that the holders of the PIK Preferred Shares will convert their
holdings to Class&nbsp;A Common Stock prior to the redemption date.</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">8</font></p>

<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

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</font></div>

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<div>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">PGI reaffirms all representations and
acknowledgements made in the Original Response Letter and in the Second
Response Letter.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Please call the undersigned if you have any
questions or comments regarding the foregoing.</font></p>

<p style="margin:0in 0in .0001pt;text-indent:.5in;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="100%" style="border-collapse:collapse;width:100.0%;">
 <tr>
  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="50%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Sincerely
  yours,</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
  <td width="50%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">
  <p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">
  <p style="margin:0in 0in .0001pt;page-break-after:auto;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="18%" valign="top" style="border:none;border-bottom:solid windowtext 1.0pt;padding:0in 0in 0in 0in;width:18.34%;">
  <p style="margin:0in 0in .0001pt;page-break-after:auto;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">/s/ Willis C. Moore,&nbsp;III</font></p>
  </td>
  <td width="31%" valign="top" style="padding:0in 0in 0in 0in;width:31.66%;">
  <p style="margin:0in 0in .0001pt;page-break-after:auto;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">
  <p style="margin:0in 0in .0001pt;page-break-after:auto;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
  <td width="50%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">
  <p style="margin:0in 0in .0001pt;page-break-after:auto;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">&nbsp;</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">
  <p style="margin:0in 0in .0001pt;page-break-after:auto;"><font size="2" face="Times New Roman" style="font-size:1.0pt;">&nbsp;</font></p>
  </td>
  <td width="50%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">
  <p style="margin:0in 0in .0001pt;page-break-after:auto;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">Willis C. Moore,&nbsp;III</font></p>
  </td>
 </tr>
 <tr>
  <td width="50%" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">
  <p style="letter-spacing:-.25pt;line-height:normal;margin:0in 0in .0001pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:0pt;">&nbsp;</font></p>
  </td>
  <td width="50%" colspan="2" valign="top" style="padding:0in 0in 0in 0in;width:50.0%;">
  <p style="letter-spacing:-.25pt;line-height:normal;margin:0in 0in .0001pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:0pt;">Chief Financial Officer</font></p>
  </td>
 </tr>
</table>

<p style="letter-spacing:-.25pt;line-height:normal;margin:0in 0in .0001pt 27.35pt;text-indent:206.65pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:0pt;">&nbsp;</font></p>

<p style="letter-spacing:-.25pt;line-height:normal;margin:0in 0in .0001pt 27.35pt;text-indent:206.65pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:0pt;">&nbsp;</font></p>

<table border="0" cellspacing="0" cellpadding="0" width="97%" style="border-collapse:collapse;width:97.28%;">
 <tr>
  <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.3%;">
  <p style="letter-spacing:-.25pt;line-height:normal;margin:0in 0in .0001pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:0pt;">cc:</font></p>
  </td>
  <td width="91%" valign="top" style="padding:0in 0in 0in 0in;width:91.7%;">
  <p style="letter-spacing:-.25pt;line-height:normal;margin:0in 0in .0001pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:0pt;">James L. Schaeffer, Chief Executive Officer</font></p>
  </td>
 </tr>
 <tr>
  <td width="8%" valign="top" style="padding:0in 0in 0in 0in;width:8.3%;">
  <p style="letter-spacing:-.25pt;line-height:normal;margin:0in 0in .0001pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:1.0pt;letter-spacing:0pt;">&nbsp;</font></p>
  </td>
  <td width="91%" valign="top" style="padding:0in 0in 0in 0in;width:91.7%;">
  <p style="letter-spacing:-.25pt;line-height:normal;margin:0in 0in .0001pt;text-indent:0in;"><font size="2" face="Times New Roman" style="font-size:10.0pt;letter-spacing:0pt;">Daniel L. Rikard, Vice President and General Counsel</font></p>
  </td>
 </tr>
</table>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman">&nbsp;</font></p>

<p align="center" style="margin:0in 0in .0001pt;text-align:center;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">9</font></p>

<div style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman" style="font-size:10.0pt;">

<hr size="2" width="100%" noshade color="gray" align="left">

</font></div>

<p style="margin:0in 0in .0001pt;"><font size="2" face="Times New Roman">&nbsp;</font></p>

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