1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 2000
REGISTRATION NO. 333-42008
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HUNTSMAN PACKAGING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 2673 87-0496065
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
EDISON PLASTICS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2673 98-0068474
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
HUNTSMAN BULK PACKAGING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 2673 87-0529726
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
HUNTSMAN CONTAINER CORPORATION INTERNATIONAL
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 2673 87-0473075
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
HUNTSMAN EDISON FILMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2673 13-5566477
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
HUNTSMAN FILM PRODUCTS OF MEXICO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 2673 87-0500805
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
HUNTSMAN KCL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 2673 87-0563872
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
HUNTSMAN PACKAGING GEORGIA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 2673 87-0558537
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
HUNTSMAN PACKAGING OF CANADA, LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 2673 85-0580929
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
------------------------
500 HUNTSMAN WAY
SALT LAKE CITY, UTAH 84108
(801) 532-5200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
RONALD G. MOFFITT
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL, SECRETARY
500 HUNTSMAN WAY
SALT LAKE CITY, UTAH 84108
(801) 532-5200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE OF PROCESS)
------------------------
WITH A COPY TO:
ROSA A. TESTANI, ESQ.
O'SULLIVAN GRAEV & KARABELL, LLP
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(212) 408-2400
(continued on next page)
2
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
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(d)
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. [ ] ----------
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3
EXPLANATORY NOTE
This Registration Statement covers the registration of $220,000,000
aggregate principal amount of 13% Senior Subordinated Notes due 2010 (the "New
Notes") of Huntsman Packaging Corporation, guaranteed by the Note Guarantors (as
defined herein), that may be exchanged for an equal aggregate principal amount
of Huntsman Packaging Corporation's outstanding 13% Senior Subordinated Notes
due 2010 (the "Old Notes" and, together with the New Notes, the "Notes"), also
guaranteed by the Note Guarantors. This Registration Statement also covers the
registration of New Notes for resale by Chase Securities Inc. in market-making
transactions. The complete prospectus relating to the exchange offer (the
"Exchange Offer Prospectus") follows this explanatory note. Following the
Exchange Offer Prospectus are certain pages of the prospectus relating solely to
such market-making transactions (the "Market-Making Prospectus"), including
alternate front and back cover pages, a section entitled "Risk
Factors -- Trading Market for the New Notes" to be used in lieu of the section
entitled "Risk Factors -- No Prior Market for the New Notes" and alternate
sections entitled "Use of Proceeds" and "Plan of Distribution." In addition, the
Market-Making Prospectus will not include the following captions (or the
information set forth under those captions) in the Exchange Offer Prospectus:
"Prospectus Summary -- Summary of the Terms of The Exchange Offer," "Risk
Factors -- Failure to Exchange Old Notes," "The Exchange Offer," "Exchange and
Registration Rights Agreement" and "Certain Federal Income Tax Considerations."
All other sections of the Exchange Offer Prospectus will be included in the
Market-Making Prospectus.
4
PROSPECTUS
[HUNTSMAN PACKAGING LOGO]
HUNTSMAN PACKAGING CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING
13% SENIOR SUBORDINATED NOTES DUE 2010
FOR 13% SENIOR SUBORDINATED NOTES DUE 2010
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
THE EXCHANGE OFFER
- - We will exchange all Old Notes that are validly tendered and not validly
withdrawn for an equal principal amount of New Notes that are freely
tradeable.
- - You may withdraw tenders of Old Notes at any time prior to the expiration of
the exchange offer.
- - The exchange offer expires at 5:00 p.m., New York City time, on September 29,
2000, unless we extend the offer.
THE NEW NOTES
- - The terms of the New Notes to be issued in the exchange offer are
substantially identical to the Old Notes, except that the New Notes will be
freely tradeable by persons who are not affiliated with us.
- - No public market currently exists for the Old Notes. We do not intend to list
the New Notes on any securities exchange and, therefore, no active public
market is anticipated.
------------------------------------------------------------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 17 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------------------------------------------------------
The date of this prospectus is August 29, 2000
5
TABLE OF CONTENTS
PAGE
----
Where You Can Find More Information... i
Disclosure Regarding Forward-Looking
Statements.......................... ii
Market and Industry Data.............. iii
Summary............................... 1
Risk Factors.......................... 17
Use of Proceeds....................... 25
Capitalization........................ 25
The Transactions...................... 26
The Exchange Offer.................... 28
Unaudited Pro Forma Financial Data.... 38
Selected Financial Data............... 44
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 45
Business.............................. 56
Management............................ 63
PAGE
----
Security Ownership of Certain
Beneficial Owners and Management.... 69
Certain Relationships and Related
Transactions........................ 71
Description of Credit Facilities...... 75
Description of Capital Stock.......... 78
Description of the Notes.............. 82
Description of the Note Warrants...... 126
Exchange and Registration Rights
Agreement........................... 131
Book-Entry; Delivery and Form......... 133
Certain Federal Income Tax
Considerations...................... 135
Plan of Distribution.................. 136
Legal Matters......................... 136
Experts............................... 136
Index to Consolidated Financial
Statements.......................... F-1
------------------------
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with
the Securities and Exchange Commission (the "SEC" or the "Commission"). You may
read and copy any reports, documents and other information we file at the
Commission's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. You may request copies of the documents, upon payment of a
duplicating fee, by writing the Public Reference Section of the Commission.
Please call 1-800-SEC-0330 for further information on the public reference
rooms. Our filings will also be available to the public from commercial document
retrieval services and at the web site maintained by the Commission at
http://www.sec.gov.
We have filed a Registration Statement on Form S-4 to register with the
Commission the New Notes to be issued in exchange for the Old Notes. This
prospectus is part of that Registration Statement. As allowed by the
Commission's rules, this prospectus does not contain all of the information you
can find in the Registration Statement or the exhibits to the Registration
Statement.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT US OR THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. IF YOU ARE GIVEN ANY INFORMATION OR
REPRESENTATIONS ABOUT THESE MATTERS THAT IS NOT DISCUSSED IN THIS PROSPECTUS,
YOU MUST NOT RELY ON THAT INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR
TO WHOM WE ARE NOT PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW.
THE DELIVERY OF THIS PROSPECTUS DOES NOT, UNDER ANY CIRCUMSTANCES, MEAN THAT
THERE HAS NOT BEEN A CHANGE IN OUR AFFAIRS SINCE THE DATE OF THIS PROSPECTUS. IT
ALSO DOES NOT MEAN THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AFTER THIS
DATE.
Until November 27, 2000 (90 days after the date of this prospectus), all
dealers effecting transactions in the New Notes, whether or not participating in
this exchange offer, may be required to deliver a prospectus.
i
6
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934. Forward-looking statements include statements concerning our plans,
objectives, goals, strategies, future events, future revenues or performance,
capital expenditures, financing needs, plans or intentions relating to
acquisitions and other information that is not historical information and, in
particular, appear under the headings "Summary," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." When
used in this prospectus, the words "estimates," "expects," "anticipates,"
"projects," "plans," "intends," "believes" and variations of such words or
similar expressions are intended to identify forward-looking statements. All
forward-looking statements, including, without limitation, management's
examination of historical operating trends, are based upon our current
expectations and various assumptions. Our expectations, beliefs and projections
are expressed in good faith and we believe there is a reasonable basis for them.
But, there can be no assurance that management's expectations, beliefs and
projections will result or be achieved.
There are a number of risks and uncertainties that could cause our actual
results to differ materially from the forward-looking statements contained in
this prospectus. Important factors that could cause our actual results to differ
materially from the forward-looking statements we make in this prospectus are
set forth in this prospectus, including under the heading "Risk Factors." As
stated elsewhere in this prospectus, such risks, uncertainties and other
important factors include, among others:
- general economic and business conditions;
- industry trends;
- increases in our leverage;
- changes in our ownership structure;
- raw material costs and availability, particularly resin;
- competition;
- the loss of any of our significant customers;
- changes in distribution channels or competitive conditions in the
markets or countries where we operate;
- loss of our intellectual property rights;
- costs of integrating any future acquisitions;
- foreign currency fluctuations and devaluations and political instability
in our foreign markets;
- changes in demand for our products;
- new technologies;
- changes in our business strategy or development plans;
- availability, terms and deployment of capital;
- availability of qualified personnel; and
- increases in the cost of compliance with laws and regulations, including
environmental laws and regulations.
There may be other factors that may cause our actual results to differ
materially from the forward-looking statements.
All forward-looking statements attributable to us or persons acting on our
behalf apply only as of the date of this prospectus and are expressly qualified
in their entirety by the cautionary statements included in this prospectus. We
undertake no obligation to publicly update or revise forward-looking statements
which may be made to reflect events or circumstances after the date made or to
reflect the occurrence of unanticipated events.
ii
7
MARKET AND INDUSTRY DATA
Unless otherwise indicated, the market share and industry data used
throughout this prospectus were obtained primarily from internal company surveys
and management estimates based on these surveys and our management's knowledge
of the industry. Although third party industry and market data exist for the
flexible packaging industry, third party industry and market data on the film
industry in which we participate are not readily available. Where we have relied
on third party market and industry data, we have so noted. The Flexible
Packaging Association and Mastio & Company were the primary sources for third
party industry data. The flexible packaging market, as defined by the Flexible
Packaging Association in compiling such data, does not include certain of the
products we sell, including many of our industrial films, and includes certain
products we do not sell, such as wax papers and aluminum foils. We believe,
however, that trends affecting the flexible packaging industry, as defined by
the Flexible Packaging Association, also affect many of the markets into which
we sell. Industry surveys and publications generally state that the information
contained therein has been obtained from sources believed to be reliable, but
there can be no assurance as to the accuracy and completeness of such
information. We have not independently verified any of the data from third party
sources. Similarly, internal company surveys and management estimates, while we
believe them to be reliable, have not been verified by any independent sources.
While we are not aware of any misstatements regarding our industry data
presented herein, our estimates involve risks and uncertainties and are subject
to change based on various factors, including those discussed under the caption
"Risk Factors" in this prospectus.
------------------------
"Huntsman Packaging," "Winwrap" and "Yieldmaster" are trademarks of
Huntsman Packaging. All other trademarks, service marks or trade names referred
to in this prospectus are the property of their respective owners.
iii
8
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this prospectus. Unless the context otherwise requires,
"Huntsman Packaging," "we," "us," "our" and similar terms refer to Huntsman
Packaging Corporation, its subsidiaries and their respective operations. Each
subsidiary of Huntsman Packaging is wholly owned. All market share data
presented herein are based on management's estimates for 1999.
THE COMPANY
We are one of North America's leading manufacturers of value-added films
and flexible packaging for food, personal care, medical, agricultural and
industrial applications. We offer one of the most diverse product lines in the
film industry and have achieved leading market positions in each of our major
product lines. We believe our market leadership is primarily attributable to our
strategy of building strong relationships with market-leading customers, by
offering a broad line of innovative products and by providing technological
leadership through our modern and low-cost manufacturing facilities. Our
products are frequently highly engineered and are important components of, or
provide critical attributes to, our customers' end-products. We operate 24
manufacturing and research and development facilities worldwide and we currently
have approximately one billion pounds of annual production capacity. For the
twelve months ended June 30, 2000, we generated pro forma net sales of $843.6
million, pro forma EBITDA of $107.0 million and pro forma Adjusted EBITDA of
$110.7 million, which we compute in our summary historical and pro forma
financial data.
Our products are sold into numerous markets for a wide variety of end uses
and are offered through three operating segments: Specialty Films, Design
Products and Industrial Films.
SPECIALTY FILMS. Our Specialty Films segment accounted for 56.3% of our
pro forma net sales, 64.9% of our total pro forma EBITDA of our operating
segments and 64.8% of our total pro forma Adjusted EBITDA of our operating
segments for the twelve months ended June 30, 2000. Our Specialty Films include:
- Personal Care: These highly engineered films are used in disposable
diapers, feminine care products and adult incontinence products. We are
the leading provider of personal care films in North America, with an
estimated market share of approximately 45%.
- Medical: Manufactured in "clean room" environments, these films are
used for sterile packaging for medical supplies and as components in
disposable surgical drapes and gowns. We are a leading provider of
medical films in North America, in a highly fragmented market.
- Converter: These films are sold to converters of flexible packaging who
may laminate them to foil, paper or other films, print them, and may
ultimately fabricate them into final flexible packaging products. These
films are a key component in a wide variety of flexible packaging
products, such as fresh-cut produce packages, toothpaste tubes and
stand-up pouches. We are North America's leading manufacturer of films
sold to converters, with an estimated market share of approximately 30%.
- Barrier and Custom: We are a leading manufacturer of barrier films for
cookie, cracker and cereal box liners. We are North America's second
largest producer in this market, with an estimated market share of
approximately 20%. We are also a leading producer of films for several
other custom film niche markets, such as films for photoresist coatings
for the electronics industry and films for the protection and
transportation of the sheet molding compound used in the manufacture of
boats and automotive parts.
- Agricultural: We are a leading supplier of polyethylene agricultural
films that are sold to fruit and vegetable growers and to nursery
operators. We are one of North America's two largest producers of mulch
films used to cover fruit and vegetable beds, with an estimated market
share of approximately 40%.
1
9
Our Specialty Films customers include Baxter, Becton-Dickinson, General
Mills, Johnson & Johnson, Kendall Healthcare, Kimberly-Clark, Lawson Mardon,
Nabisco, Pechiney, Printpack, Ralston Foods and Sonoco.
DESIGN PRODUCTS. Our Design Products segment accounted for 24.4% of our
pro forma net sales, 18.5% of our total pro forma EBITDA of our operating
segments and 18.6% of our total pro forma Adjusted EBITDA of our operating
segments for the twelve months ended June 30, 2000. Our Design Products include
printed bags and rollstock used to package bread and baked goods, frozen foods,
personal care products and fresh-cut produce. The personal care films produced
by our Mexican subsidiary are also included in this segment for financial
reporting purposes.
We are the leading producer of films for the frozen foods market in North
America, with an estimated market share of approximately 30%. In addition, we
are the second largest producer of films for the bakery goods market in North
America, with an estimated market share of approximately 20%. Our Design
Products customers include IGA Fleming, Interstate Bakeries, Kimberly-Clark de
Mexico, Mission Foods, Ore-Ida, Pictsweet and Schmidt Baking.
INDUSTRIAL FILMS. Our Industrial Films segment accounted for 19.3% of our
pro forma net sales, 16.6% of our total pro forma EBITDA of our operating
segments and 16.6% of our total pro forma Adjusted EBITDA of our operating
segments for the twelve months ended June 30, 2000. The Industrial Films segment
manufactures stretch and PVC films.
- Stretch Films: Stretch films are used to bundle, unitize and protect
palletized loads during shipping and storage. These films are replacing
more traditional packaging, such as corrugated boxes and metal
strapping, because of their lower cost, greater strength and ease of
use. We are the fourth largest producer of stretch films in North
America, with an estimated market share of approximately 10%.
- PVC Films: PVC films are used by supermarkets, delicatessens and
restaurants to wrap meat, cheese and produce. PVC films are preferred in
these applications because of their clarity, elasticity and cling. We
are the second largest producer of PVC films in North America, with an
estimated market share of approximately 25%. In addition, we are the
leading producer of PVC films in Australia and the third largest
producer in Europe, with estimated market shares of approximately 60%
and 15%, respectively.
Our Industrial Films customers include national distributors, such as
Bunzl, Unisource, and xpedx, grocery chains, such as Albertson's, Kroger,
Publix, and Safeway, and end-users, such as General Mills and Wal-Mart.
INDUSTRY OVERVIEW
According to the Flexible Packaging Association, the North American market
for flexible packaging was approximately $18.1 billion in 1999 and has grown at
a CAGR of 5.0% from 1987 to 1999. The flexible packaging industry consists of
plastic films, wax papers and aluminum foils. The plastic film industry serves a
variety of flexible packaging markets, as well as secondary packaging and
non-packaging end markets, including food, pharmaceutical and medical, personal
care, household, industrial and agricultural markets. We estimate that North
American plastic film manufacturers produced approximately 12.5 billion pounds
of film in 1999.
Flexible packaging is the largest end market for plastic films, and food
packaging is by far the largest market for flexible packaging. Plastic films are
also used in secondary packaging such as pallet wrap, shrink wrap and grocery
and garbage bags, and as components in many non-packaging products, such as
moisture barriers for disposable diapers, feminine care products and surgical
drapes and gowns. Finally, plastic films are used in a variety of agricultural
applications, such as greenhouse films and mulch films.
2
10
Recent advancements in film extrusion and resin technology have produced
new, sophisticated films that are thinner and stronger and have better barrier
and sealant properties than other materials or predecessor films. These
technological advances have allowed flexible packaging to replace many
traditional forms of rigid packaging with film-based, flexible packaging that is
lighter, lower in cost and has enhanced performance characteristics, such as
oxygen and moisture barriers, printability and durability. For example, in
consumer applications, stand-up pouches that use plastic films are replacing
paperboard boxes, glass jars and metal cans. In industrial markets, stretch and
shrink films continue to replace corrugated boxes and metal strapping to
unitize, bundle and protect items during shipping and storage.
OUR COMPETITIVE STRENGTHS
STRONG MARKET POSITIONS. We have leading market positions in each of our
major product lines and hold the number one or two market positions in product
lines that account for approximately 85% of our 1999 pro forma net sales. We are
North America's leading supplier of personal care, converter and frozen food
films and its second largest supplier of PVC films, cookie, cracker and cereal
box liners and bread and bakery bags. We also maintain significant market shares
in stretch films in North America. We attribute our market leadership primarily
to our broad and innovative product lines, low-cost manufacturing capabilities,
technological capabilities and well-established customer relationships.
SUPERIOR MANUFACTURING CAPABILITY. We have modern and efficient
manufacturing facilities. During 1998 and 1999, we invested $87.8 million to
expand, upgrade and maintain our asset base. Since our split-off from Huntsman
Corporation in September 1997, we have closed or sold seven manufacturing
facilities, thereby eliminating approximately $10.8 million in annual fixed
manufacturing costs. During that period, we have also relocated and upgraded 15
production lines from closed facilities to more efficient, existing facilities,
purchased several new printing presses and extrusion lines, and significantly
upgraded and improved the manufacturing efficiency and productivity of our
existing assets. With 23 plants and over 180 extrusion lines, we are able to
allocate lines to specific products, resulting in fewer change-overs and more
efficient use of production capacity. Our combination of manufacturing
flexibility and efficiency enhances our ability to bring new technologies to the
marketplace and meet the ever-increasing performance needs of our customers in a
cost-effective manner.
LOW-COST PRODUCTION. We believe that our manufacturing costs are among the
lowest in the industry because of: (i) economies of scale provided by our high
volume production; (ii) high plant utilization, attained through the continual
consolidation of less efficient operations; (iii) favorable resin and other raw
material prices, based on our significant purchasing requirements; (iv) modern
manufacturing equipment that minimizes resin requirements and waste; and (v)
capital investment that has resulted in improved technical capabilities and
operating efficiencies.
INDUSTRY LEADING TECHNOLOGY AND PRODUCT DEVELOPMENT CAPABILITIES. We have
dedicated technical facilities to test and develop new films and new extrusion
technologies. Our primary research and development facility is located in
Newport News, Virginia and contains a pilot plant with a 17 million pound annual
capacity. The pilot plant allows us to run commercial "scale-ups" for new
products. We believe this commercial "scale-up" capability is a significant
competitive advantage, as it enables us to reduce the time needed to introduce
new products.
WELL-ESTABLISHED CUSTOMER RELATIONSHIPS. Our films are components of
flexible packaging for some of the largest food companies in the world,
including household names such as General Mills, Interstate Bakeries (Wonder
Bread), Kroger, Nabisco and Safeway. Our customers also include many of North
America's largest flexible packaging converters, such as Lawson Mardon, Pechiney
and Printpack, and the largest national distributors of industrial films, Bunzl,
Unisource, and xpedx. In addition, we manufacture and supply film to some of the
largest non-food film consumers in North America, including 3M, Baxter,
Becton-Dickinson, Goodyear, Johnson & Johnson and Kimberly-Clark.
3
11
PROVEN AND COMMITTED MANAGEMENT TEAM. We have assembled an outstanding
management team at both our corporate and operating levels. At the corporate
level, our senior management has extensive and varied experience in identifying,
acquiring and integrating strategic businesses and in allocating capital,
developing corporate strategy and bringing financial discipline to such
businesses. At the operating level, our senior vice presidents have an average
of more than 20 years of film and flexible packaging industry experience, gained
from managing not just Huntsman Packaging, but other major film and flexible
packaging companies as well. Our management has successfully enhanced
productivity, diversified our product lines, and strengthened our customer
relationships. At August 25, 2000, our management owned, directly or indirectly,
approximately 12.7% of our total common equity (including restricted stock
subject to vesting).
STRATEGY
Since our formation, and particularly since our "split-off" from Huntsman
Corporation, our management team has successfully expanded and improved our
business through strategic acquisitions and increased our profitability by
offering a broad line of innovative products, providing technological leadership
and assembling modern and cost-efficient manufacturing assets. In order to
continue to expand our business and increase our profitability, we will continue
to pursue the following strategies:
DEVELOP NEW PRODUCTS AND NEW MARKETS. We continue to focus on bringing
innovative technological advances to the marketplace, through acquisitions,
internal product development and purchasing or licensing technology from other
film companies. We have introduced new products that have contributed
significantly to our growth and profitability, including:
- Microporous films that "breathe" for use in disposable infant diapers.
These films help prevent diaper rash.
- Embossed "quiet" films and ultra-thin films for adult incontinence
products. These films make adult incontinence products feel more like
cloth undergarments.
- Yieldmaster(R), an agricultural mulch film that reflects or absorbs
sunlight and helps control heat transmission. In independent tests,
Yieldmaster(R) has been proven to increase crop yields.
- Winwrap(R), a prestretched film that reduces cost and, due to its light
weight, can reduce injuries in high-frequency, hand wrap applications.
- Fresh-cut produce and salad films that are engineered to provide
superior package clarity and specific moisture and gas transmission
control for different kinds of produce. These films maintain freshness,
increase shelf life and are less expensive than competing laminated
products.
CONTINUE COST REDUCTIONS AND PRODUCTIVITY ENHANCEMENTS. We continue to
seek opportunities to reduce our operating costs and enhance our manufacturing
productivity. In March 2000, we began implementing a major initiative we
developed with the assistance of A.T. Kearney, a management consulting firm,
known as "SCORE", which stands for "Supply Chain and Operations Requirements for
Excellence." We estimate this supply chain initiative will enable us to generate
significant EBITDA and working capital improvements over the next three years by
standardizing and improving operating and manufacturing procedures throughout
our organization. The SCORE initiative focuses on the following four areas:
- Procurement. Reducing the number of different grades of resins
purchased, consolidating non-resin raw material purchasing, reducing the
number of energy suppliers and the amount of energy used, and
redeploying equipment.
- Logistics. Reducing raw materials and finished goods inventory levels
and shipping costs.
4
12
- Planning. Enhancing customer service, consolidating product lines and
developing integrated sales processes.
- Operations. Improving line utilization and product quality,
standardizing maintenance programs, and developing and implementing
company-wide plant production scheduling processes.
ENHANCE AND LEVERAGE CUSTOMER RELATIONSHIPS. We continue to focus on
meeting the increasingly complex packaging needs of our customers with our wide
array of film and flexible packaging products and product development
capabilities. We also continue to cultivate our long-standing customer
relationships. These customers value product innovation and reliable supply and,
consequently, exercise great care in establishing and maintaining their supplier
relationships. We believe that our reputation for innovation and reliability is
well-recognized in the marketplace.
THE TRANSACTIONS
The Recapitalization. On May 31, 2000, we consummated a recapitalization
pursuant to an agreement dated March 31, 2000, among us, our then existing
stockholders and Chase Domestic Investments, L.L.C., an affiliate of Chase
Capital Partners, whereby Chase Domestic Investments, L.L.C. acquired
approximately 56% of our total common stock. The recapitalization was valued at
$1.065 billion, including transaction costs, and is subject to post-closing
purchase price adjustments. Pursuant to the recapitalization agreement:
- we redeemed all of the shares of our common stock held by Jon M.
Huntsman, our founder, former majority stockholder and former Chairman
of the Board (the "Equity Redemption");
- Chase Domestic Investments, L.L.C. purchased (the "Investor Share
Purchase") approximately one-half of the shares of our common stock
formerly held collectively by The Christena Karen H. Durham Trust (the
"Trust") and by members of our senior management (the "Management
Investors");
- Chase Domestic Investments, L.L.C. and certain other institutional
investors purchased (the "Investor Common Equity Contribution") shares
of common stock directly from us;
- the Trust and the Management Investors retained or "rolled-over"
approximately one-half of the shares of our common stock collectively
owned by them prior to the recapitalization; and
- we issued to Chase Domestic Investments, L.L.C. and certain other
institutional investors a new series of senior cumulative exchangeable
redeemable preferred stock ("Preferred Stock") and detachable warrants
for our common stock (the "Preferred Stock Warrants").
The foregoing transactions are collectively referred to as the
"Recapitalization."
Immediately following the Recapitalization, approximately 55.5% of our
total common stock was owned by Chase Domestic Investments, L.L.C.,
approximately 4.3% of our total common stock was owned by certain other
institutional investors and approximately 40.2% of our total common stock was
owned collectively by the Trust and the Management Investors.
The Tender Offer and Consent Solicitation. In connection with the
Recapitalization, we offered to purchase in a tender offer all of our $125.0
million principal amount of 9 1/8% senior subordinated notes due 2007. We also
solicited and received the requisite consents from tendering holders of the
9 1/8% senior subordinated notes to amend the related indenture to eliminate
many of its restrictive covenants, which permitted us to effect the
Recapitalization, the offering of the Old Notes and the incurrence of borrowings
under the credit facilities. On May 31, 2000, we purchased all of the $125.0
million of 9 1/8% senior subordinated notes tendered and discharged our
obligations under the related indenture.
5
13
The Credit Facilities. On May 31, 2000, we refinanced all amounts
outstanding under our then existing credit facility and replaced them with
amended and restated senior secured credit facilities. The credit facilities
consist of the following:
- a $200.0 million senior secured tranche A facility, $40.0 million of
which is available to our principal Mexican subsidiary;
- a $280.0 million senior secured tranche B facility; and
- a $100.0 million revolving credit facility.
The Recapitalization, the tender offer and consent solicitation for our
9 1/8% senior subordinated notes, the entering into the credit facilities and
the offering of 220,000 units consisting of the Old Notes and warrants to
purchase 18,532 shares of our common stock (the "Note Warrants"), are
collectively referred to as the "Transactions."
The sources and uses of funds for the Transactions are presented in the
following table:
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
SOURCES:
Credit facilities(1)........................................ $ 485.9
Old Notes and Note Warrants (net of discount of $5.9)....... 214.1
Preferred Stock and Preferred Stock Warrants................ 100.0
Common equity investment(2)................................. 165.3
Trust equity rollover....................................... 76.8
Management equity rollover.................................. 22.9
--------
Total.................................................. $1,065.0
========
USES:
Equity Redemption........................................... $ 314.0
Investor Share Purchase..................................... 101.8
Refinance the prior credit facility and other debt.......... 379.5
Repay the 9 1/8% senior subordinated notes.................. 125.0
Tender and consent consideration............................ 11.9
Trust equity rollover....................................... 76.8
Management equity rollover.................................. 22.9
Transaction fees and expenses(3)............................ 33.1
--------
Total.................................................. $1,065.0
========
- ---------------
(1) Represents borrowings under the credit facilities as of May 31, 2000 of
$200.0 million under the tranche A facility, $280.0 million under the
tranche B facility and $5.9 million under the revolving credit facility. As
of May 31, 2000, we had $92.8 million of borrowing capacity under the
revolving credit facility and $1.3 million reserved for letters of credit
outstanding under the revolving credit facility. See "Description of Credit
Facilities."
(2) Consists of the Investor Share Purchase of $101.8 million and the Investor
Common Equity Contribution of $63.5 million.
(3) Consists of debt issuance costs of approximately $21.3 million, compensation
expense related to the long-term incentive plan triggered by the
Transactions of approximately $5.0 million, issuance costs for the Preferred
Stock of $1.5 million and for the common stock of $0.9 million and other
fees and expenses directly related to the Transactions of approximately $4.4
million.
6
14
THE SPONSOR
Chase Domestic Investments, L.L.C. is a limited liability company owned by
Chase Capital Partners. Chase Capital Partners is the private equity group of
The Chase Manhattan Corporation, one of the largest bank holding companies in
the U.S., and is one of the largest private equity organizations in the U.S.,
with over $16 billion under management. Through its affiliates, Chase Capital
Partners invests in leveraged buyouts, recapitalizations and venture capital
opportunities by providing equity and mezzanine capital. Since its inception in
1984, Chase Capital Partners has made over 1,000 direct investments in numerous
industries.
HISTORY
We were founded in 1992 to acquire the assets of Goodyear Tire & Rubber
Company's Film Products Division. Since that time, we have successfully combined
strategic acquisitions, internal growth, product innovation and operational
improvements to grow our business and increase its profitability. Net sales have
grown from $295.7 million in 1996 to $781.4 million in 1999. We have
successfully acquired and integrated 13 strategic film and flexible packaging
operations since 1992, including, most recently, the 1996 acquisition of
Deerfield Plastics, the 1997 acquisition of CT Film, and the 1998 acquisition of
Blessings Corporation -- each a leading producer of personal care, converter or
medical films. In October 1999, we acquired KCL Corporation, a leader in closure
technology for flexible packaging.
In September 1997, we were split-off from Huntsman Corporation. The
separation from Huntsman Corporation has allowed us to independently pursue our
value-added films business, implement our strategy of growing our market
position through superior products, technology and synergistic acquisitions, and
improve our financial and operating performance. On December 1, 1999, we
announced that we had begun the process of evaluating a variety of financial
alternatives to monetize the approximately 61% interest of our founder, former
majority stockholder and former Chairman of the Board, Jon M. Huntsman. As a
result of the Recapitalization, Mr. Huntsman no longer owns any of our stock,
and is not involved in our management.
7
15
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
On May 25, 2000, we completed the private offering of our 13% senior
subordinated notes due 2010. We and those of our subsidiaries that guaranteed
the Old Notes entered into an exchange and registration rights agreement with
the initial purchasers in the private placement offering of the Old Notes under
that agreement. We and the Note Guarantors agreed to deliver to you this
prospectus and to complete the exchange offer within 225 days after the date of
original issuance of the Old Notes. You are entitled to exchange in this
exchange offer your Old Notes for New Notes which are identical in all material
respects to the Old Notes except that:
- the New Notes have been registered under the Securities Act and will be
freely tradeable by persons who are not affiliated with us;
- the New Notes are not entitled to certain rights which are applicable to
the Old Notes under the exchange and registration rights agreement; and
- certain liquidated damages provisions are no longer applicable.
The Exchange Offer............ We are offering to exchange up to $220.0
million aggregate principal amount of 13%
senior subordinated notes which have been
registered under the Securities Act for up to
$220.0 million aggregate principal amount of
13% senior subordinated notes which were issued
on May 31, 2000 in the private offering. Old
Notes may be exchanged only in integral
multiples of $1,000.
Resales....................... Based on an interpretation by the staff of the
Commission set forth in no-action letters
issued to third parties, we believe that the
New Notes issued pursuant to the exchange offer
in exchange for the Old Notes may be offered
for resale, resold and otherwise transferred by
you (unless you are our "affiliate" within the
meaning of Rule 405 under the Securities Act)
without compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that you
- are acquiring the New Notes in the ordinary
course of business, and
- have not engaged in, do not intend to engage
in, and have no arrangement or understanding
with any person to participate in, a
distribution of the New Notes.
Each participating broker-dealer that receives
New Notes for its own account pursuant to the
exchange offer in exchange for the Old Notes
that were acquired as a result of market-
making or other trading activity must
acknowledge that it will deliver a prospectus
in connection with any resale of the New Notes.
See "Plan of Distribution."
Any holder of the Old Notes who
- is our affiliate,
- does not acquire the New Notes in the
ordinary course of its business, or
8
16
- tenders in the exchange offer with the
intention to participate, or for the purpose
of participating, in a distribution of New
Notes,
cannot rely on the position of the staff of the
SEC expressed in Exxon Capital Holdings
Corporation, Morgan Stanley & Co. Incorporated
or similar no-action letters and, in the
absence of an exemption, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with the resale of the New Notes.
Expiration Date; Withdrawal of
Tenders..................... The exchange offer will expire at 5:00 p.m.,
New York City time, on September 29, 2000 or
such later date and time to which we extend it.
We do not currently intend to extend the
expiration date. A tender of Old Notes pursuant
to the exchange offer may be withdrawn at any
time prior to the expiration date. Any Old
Notes not accepted for exchange for any reason
will be returned without expense to the
tendering holder promptly after the expiration
or termination of the exchange offer.
Conditions to the Exchange
Offer......................... The exchange offer is subject to customary
conditions, some of which we may waive. See
"The Exchange Offer -- Conditions to Exchange
Offer."
Procedures for Tendering Old
Notes....................... If you wish to accept the exchange offer, you
must complete, sign and date the accompanying
letter of transmittal, or a copy of the letter
of transmittal, according to the instructions
contained in this prospectus and the letter of
transmittal. You must also mail or otherwise
deliver the letter of transmittal, or the copy,
together with the Old Notes and any other
required documents, to the exchange agent at
the address set forth on the cover of the
letter of transmittal. If you hold Old Notes
through The Depository Trust Company and wish
to participate in the exchange offer, you must
comply with the Automated Tender Offer Program
procedures of DTC, by which you will agree to
be bound by the letter of transmittal.
By signing or agreeing to be bound by the
letter of transmittal, you will represent to us
that, among other things:
- any New Notes that you receive will be
acquired in the ordinary course of your
business;
- you have no arrangement or understanding with
any person or entity to participate in the
distribution of the New Notes;
- if you are a broker-dealer that will receive
New Notes for your own account in exchange
for Old Notes that were acquired as a result
of market-making activities, that you will
deliver a prospectus, as required by law, in
connection with any resale of such New Notes;
and
9
17
- you are not our "affiliate" as defined in
Rule 405 under the Securities Act, or, if you
are an affiliate, you will comply with any
applicable registration and prospectus
delivery requirements of the Securities Act.
Guaranteed Delivery
Procedures.................... If you wish to tender your Old Notes and your
Old Notes are not immediately available or you
cannot deliver your Old Notes, the letter of
transmittal or any other documents required by
the letter of transmittal or comply with the
applicable procedures under DTC's Automated
Tender Offer Program prior to the expiration
date, you must tender your Old Notes according
to the guaranteed delivery procedures set forth
in this prospectus under "The Exchange Offer --
Guaranteed Delivery Procedures."
Effect on Holders of Old
Notes......................... As a result of the making of, and upon
acceptance for exchange of all validly tendered
Old Notes pursuant to the terms of, the
exchange offer, we will have fulfilled a
covenant contained in the exchange and
registration rights agreement and, accordingly,
we will not be obligated to pay liquidated
damages as described in the exchange and
registration rights agreement. If you are a
holder of Old Notes and do not tender your Old
Notes in the exchange offer, you will continue
to hold such Old Notes and you will be entitled
to all the rights and limitations applicable to
the Old Notes in the Indenture, except for any
rights under the exchange and registration
rights agreement that by their terms terminate
upon the consummation of the exchange offer.
Consequences of Failure to
Exchange.................... All untendered Old Notes will continue to be
subject to the restrictions on transfer
provided for in the Old Notes and in the
Indenture. In general, the Old Notes may not be
offered or sold unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. Other than in connection with this
exchange offer, we do not currently anticipate
that we will register the Old Notes under the
Securities Act.
Certain Federal Income Tax
Considerations.............. The exchange of Old Notes for New Notes in this
exchange offer should not be a taxable event
for U.S. federal income tax purposes. See
"Certain Federal Income Tax Considerations."
Use of Proceeds............... We will not receive any cash proceeds from the
issuance of the New Notes in this exchange
offer.
Exchange Agent................ The Bank of New York is the exchange agent for
this exchange offer. The address and telephone
number of the exchange agent are set forth in
the section captioned "The Exchange
Offer -- Exchange Agent."
10
18
SUMMARY OF THE TERMS OF THE NEW NOTES
Issuer........................ Huntsman Packaging Corporation.
New Notes Offered............. $220.0 million aggregate principal amount of
13% senior subordinated notes due 2010.
Maturity...................... June 1, 2010.
Interest...................... Annual rate: 13%.
Payment frequency: every six months on June 1
and December 1.
First payment: December 1, 2000.
Holders of Old Notes whose Old Notes are
accepted for exchange in this exchange offer
will be deemed to have waived the right to
receive any payment in respect of interest on
the Old Notes accrued from May 31, 2000, the
original issue date of the Old Notes, to the
date of issuance of the New Notes.
Consequently, holders who exchange their Old
Notes for New Notes will receive the same
interest payment on December 1, 2000, the first
interest payment date for the Old Notes and the
New Notes after the consummation of this
exchange offer, that they would have received
if they did not accept this exchange offer.
Optional Redemption........... On or after June 1, 2005, we may redeem some or
all of the New Notes at the redemption prices
listed in the section entitled "Description of
the New Notes -- Optional Redemption." Prior to
such date, we may not redeem the New Notes,
except as described in the following paragraph.
At any time prior to June 1, 2003, we may
redeem up to 35% of the original aggregate
principal amount of the New Notes with the net
cash proceeds of certain equity offerings at a
redemption price equal to 113% of the principal
amount thereof, plus accrued interest, so long
as (a) at least 65% of the original aggregate
amount of the New Notes remains outstanding
after each such redemption and (b) any such
redemption by us is made within 120 days of
such equity offering.
Change of Control............. Upon the occurrence of a change of control,
unless we have exercised our right to redeem
all of the New Notes as described above, you
will have the right to require us to repurchase
all or a portion of your New Notes at a
purchase price in cash equal to 101% of the
principal amount thereof, plus accrued interest
to the date of repurchase. See "Description of
the Notes -- Change of Control."
Guarantees.................... The New Notes will be fully and unconditionally
guaranteed on an unsecured senior subordinated
basis by each of our existing and future
domestic restricted subsidiaries and, to the
extent that they also guarantee any senior debt
(other than a foreign subsidiary that
guarantees senior debt of another foreign
subsidiary), by each of our existing and future
foreign restricted subsidiaries. If we fail to
make
11
19
payments on the New Notes, our subsidiaries
that are guarantors must make them instead.
Guarantees of the New Notes will be
subordinated to the guarantees of our senior
debt under the credit facilities.
Ranking....................... The New Notes will be unsecured and:
- will be subordinated to all of our existing
and future senior debt;
- will rank equally with all of our future
senior subordinated debt;
- will rank senior to any future subordinated
debt;
- will be effectively subordinated to our
secured debt to the extent of the value of
the assets securing such indebtedness; and
- will be effectively subordinated to all
liabilities of our subsidiaries that do not
guarantee the New Notes.
Similarly, the guarantees of the New Notes by
our subsidiaries that are also guaranteeing the
credit facilities will be unsecured and:
- will be subordinated to all of the
applicable guarantors' existing and future
senior debt;
- will rank equally with all of the applicable
guarantors' future senior subordinated debt;
- will rank senior to any of the applicable
guarantors' future subordinated debt; and
- will be effectively subordinated to any
secured debt of such guarantor to the extent
of the value of the assets securing such
debt.
At June 30:
- we had approximately $488.3 million of
senior debt to which the New Notes are
subordinated (which amount does not include
the remaining availability of $91.7 million
under the revolving credit facility);
- we did not have any senior subordinated debt
other than the New Notes;
- we did not have any subordinated debt; and
- our subsidiaries that are not guarantors of
the New Notes had $60.1 million of
liabilities, excluding liabilities owed to
us.
The Indenture permits us to incur a significant
amount of additional senior debt.
12
20
Certain Covenants............. The Indenture will, among other things,
restrict our ability and the ability of our
subsidiaries to:
- borrow money;
- make distributions, redeem equity interests
or redeem subordinated debt;
- make investments;
- use assets as security in other
transactions;
- sell assets;
- guarantee other debt;
- enter into agreements that restrict
dividends from subsidiaries;
- sell capital stock of subsidiaries;
- merge or consolidate; and
- enter into transactions with affiliates.
These covenants will be subject to a number of
important exceptions. For more details, see
"Description of the Notes -- Certain
Covenants."
RISK FACTORS
You should carefully consider all of the information in this prospectus
and, in particular, should evaluate the specific factors set forth under the
caption "Risk Factors" before participating in this exchange offer.
------------------------
We are incorporated in Utah, with principal executive offices located at
500 Huntsman Way, Salt Lake City, Utah 84108. Our telephone number is (801)
584-5700.
13
21
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents summary financial data for Huntsman Packaging
and its subsidiaries. The summary historical financial data for the years ended
December 31, 1999, 1998 and 1997 have been derived from Huntsman Packaging's
audited consolidated financial statements. The summary financial data for the
six months ended June 30, 2000 and 1999 have been derived from our unaudited
interim condensed consolidated financial statements, which in our opinion
include all adjustments, consisting only of normal recurring adjustments, which
we consider necessary for the fair presentation of the financial position and
results of operations of Huntsman Packaging for these periods. Operating results
for the six months ended June 30, 2000 are not necessarily indicative of results
that may be expected for the entire year or any future period.
The summary unaudited condensed pro forma financial data are derived from
the unaudited pro forma statements of operations and balance sheet contained in
"Unaudited Pro Forma Financial Data."
The unaudited pro forma financial data are presented for informational
purposes only and are not necessarily indicative of the operating results or
financial position that would have occurred had the Transactions or the KCL
Corporation acquisition been consummated on or as of the dates indicated nor are
such data necessarily indicative of future operating results or financial
position.
You should read the following summary historical and pro forma financial
data together with "Capitalization," "Selected Financial Data," "Unaudited Pro
Forma Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of Huntsman Packaging and the notes thereto included elsewhere in this
prospectus.
14
22
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
HISTORICAL
SIX MONTHS
HISTORICAL ENDED PRO FORMA
YEARS ENDED DECEMBER 31, JUNE 30, TWELVE MONTHS
------------------------- --------------- ENDED
1997 1998 1999 1999 2000 JUNE 30, 2000
------ ------- ------ ------ ------ -------------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net sales..................................... $447.7 $ 651.9 $781.4 $361.2 $416.5 $843.6
Cost of sales................................. 389.6 532.4 623.4 284.2 337.2 683.2
------ ------- ------ ------ ------ ------
Gross profit.................................. 58.1 119.5 158.0 77.0 79.3 160.4
Total operating expenses...................... 45.0 70.1 82.0 38.4 59.7 96.4
------ ------- ------ ------ ------ ------
Operating income.............................. 13.1 49.4 76.0 38.6 19.6 64.0
Interest expense.............................. (17.0) (37.5) (44.0) (21.1) (25.9) (78.9)
Other income (expense), net................... 0.7 (0.8) 0.4 (0.2) (0.2) 1.3
------ ------- ------ ------ ------ ------
Income (loss) before income taxes and
discontinued operations and extraordinary
loss........................................ (3.2) 11.1 32.4 17.3 (6.5) (13.6)
Income tax expense (benefit).................. (0.5) 8.6 14.1 7.9 1.0 (1.6)
------ ------- ------ ------ ------ ------
Income (loss) before discontinued operations
and extraordinary loss...................... (2.7) 2.5 18.3 9.4 (7.5) (12.0)
Income from discontinued operations........... 3.1 0.6
Gain on sale of discontinued operations....... 5.2
------ ------- ------ ------ ------ ------
Extraordinary loss............................ -- -- -- -- (11.2) --
Net income.................................... $ 0.4 $ 8.3 $ 18.3 $ 9.4 $(18.7) $(12.0)
====== ======= ====== ====== ====== ======
OTHER FINANCIAL DATA:
Cash flows from operating activities.......... $ 28.6 $ 45.5 $ 51.4 $ 8.6 $ 16.3
Cash flows from investing activities.......... (87.2) (314.8) (46.0) (17.1) (25.2)
Cash flows from financing activities.......... 63.2 275.9 (16.7) 1.7 12.2
EBITDA(1)..................................... 39.5 80.6 114.7 55.3 39.6 $107.0
Adjusted EBITDA(2)............................ 110.7
Depreciation and amortization................. 16.4 27.1 35.0 16.9 19.0 37.5
Plant closing costs........................... 9.3 4.9 2.5 2.5
Noncash stock-based compensation expense...... 0.8 1.2 1.7
Capital expenditures.......................... 17.9 52.1 35.7 17.1 25.2 43.8
Cash interest expense...................................................................... 76.1
Ratio of Adjusted EBITDA to cash interest expense.......................................... 1.5x
Ratio of total net debt to Adjusted EBITDA(3).............................................. 6.3x
Ratio of earnings to fixed charges(4)......... -- 1.3x 1.7x 1.8x -- --
HISTORICAL
AS OF JUNE 30,
2000
--------------
BALANCE SHEET DATA:
Cash and cash equivalents.................................................................. $ 11.2
Working capital............................................................................ 127.0
Total assets............................................................................... 798.6
Total debt................................................................................. 699.0
Preferred Stock(5)......................................................................... 80.0
Stockholders' deficit...................................................................... (152.0)
- ---------------
(1) EBITDA is defined as income before discontinued operations, extraordinary
items, interest expense, income taxes, depreciation, amortization, plant
closing costs and noncash stock-based compensation expense. We believe
EBITDA information enhances an investor's understanding of a company's
ability to satisfy principal and interest obligations with respect to its
indebtedness and to utilize cash for other purposes. In addition, EBITDA is
used as a measure in the Indenture in determining our compliance with
certain covenants. However, there may be contractual, legal, economic or
other reasons which may prevent us from satisfying principal and interest
obligations with respect to our indebtedness and may require us to allocate
funds for other purposes. EBITDA does not represent and should not be
considered as an
15
23
alternative to net income or cash flows from operating activities as
determined by U.S. generally accepted accounting principles and may not be
comparable to other similarly titled measures of other companies.
(2) Adjusted EBITDA is EBITDA adjusted for the following non-recurring items:
PRO FORMA
TWELVE MONTHS
ENDED
JUNE 30, 2000
--------------------
EBITDA...................................................... $107.0
Adjustments:
Losses on exited businesses(a)............................ 1.4
Reduction in raw material costs(b)........................ 0.2
Federal grand jury subpoena costs(c)...................... 0.9
Transaction costs(d)...................................... 1.2
------
Adjusted EBITDA............................................. $110.7
======
- ---------------
(a) Reflects operating losses and write-offs incurred in exiting a non-core
laminating business and the write-off of a receivable from an exited
joint venture.
(b) Reflects the net reduction in KCL Corporation's raw material costs
calculated by comparing resin unit prices under our existing raw
material contractual arrangements for the twelve month period ended June
30, 2000, with KCL Corporation's resin unit prices and volume for the
same period.
(c) Non-recurring costs incurred in responding to a federal grand jury
subpoena.
(d) Non-recurring costs incurred in connection with the Transactions.
(3) Total net debt is defined as total debt less cash and cash equivalents.
(4) Earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of (i) interest, whether expensed or capitalized, (ii)
amortization of debt issuance costs and (iii) an allocation of one-third of
the rental expense from operating leases, which management considers to be a
reasonable approximation of the interest factor of operating lease payments.
In 1997, earnings were insufficient to cover fixed charges by approximately
$3.2 million. During the six months ended June 30, 2000 and the pro forma
twelve months ended June 30, 2000, earnings were insufficient to cover fixed
charges by approximately $6.5 million and $13.6 million, respectively.
(5) Includes proceeds of $100.0 million less issuance costs of $1.5 million for
the Preferred Stock and less the value of the Preferred Stock Warrants of
$18.5 million.
16
24
RISK FACTORS
In addition to the other matters described in this prospectus, you should
carefully consider the specific factors set forth below before participating in
this exchange offer.
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
ABILITY TO OPERATE OUR BUSINESS AND TO MEET OUR OBLIGATIONS UNDER THE NOTES.
As a result of the Transactions, we are highly leveraged, which means that
we have a large amount of indebtedness relative to our stockholders' deficit.
The following chart shows certain important credit statistics and, in the case
of the ratios of earnings to fixed charges is presented assuming we had
completed the Transactions as of January 1, 1999:
AS OF
JUNE 30, 2000
---------------------
(DOLLARS IN MILLIONS)
Total debt.................................................. $ 699.0
Preferred Stock............................................. 80.0
Stockholders' deficit....................................... (152.0)
PRO FORMA FOR THE
----------------------------------------
YEAR ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------------
Ratio of earnings to fixed charges............ 1.0x --
During the pro forma twelve months ended June 30, 2000, earnings were
insufficient to cover fixed charges by approximately $13.6 million.
Our relatively high degree of leverage could have important consequences to
us and to you, including, but not limited to, the following:
- Our ability to obtain additional financing in the future for working
capital, capital expenditures, product development, debt service
requirements, acquisitions and general corporate or other purposes may
be materially limited or impaired;
- A substantial portion of our cash flows from operating activities must
be dedicated to the payment of principal and interest on our
indebtedness, thereby reducing the funds available to us for other
purposes, including our operations and future business opportunities;
- Certain of our borrowings, including borrowings under the credit
facilities, are at variable rates of interest, exposing us to the risk
of increased interest rates;
- The indebtedness under the credit facilities is secured by a lien on
substantially all of our assets and the assets of our domestic
subsidiaries and matures prior to the maturity of the Notes;
- Our flexibility to adjust to changing market conditions and ability to
withstand competitive pressures could be limited by our leveraged
position and the covenants contained in our debt instruments, thus
putting us at a competitive disadvantage; and
- We may be vulnerable in a downturn in general economic conditions or in
our business or be unable to carry out capital spending that is
important to our growth and productivity improvement programs.
17
25
ABILITY TO SERVICE INDEBTEDNESS -- TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE
A SIGNIFICANT AMOUNT OF CASH AND OUR ABILITY TO GENERATE CASH DEPENDS ON MANY
FACTORS BEYOND OUR CONTROL.
Cash Flow Limitations -- If our cash flows are not sufficient, we may try to
take other actions to satisfy our obligations under our indebtedness, but
these other actions may not be successful.
We are required to make scheduled principal payments under the credit
facilities commencing in 2001. Our ability to make scheduled payments or to
refinance our obligations with respect to our indebtedness, including the Notes,
will depend on our financial and operating performance, which is subject to
prevailing economic and competitive conditions and to certain financial,
business and other factors beyond our control, including interest rates,
unscheduled plant shutdowns, increased operating costs, raw material and product
prices and regulatory developments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." We cannot assure you that we will maintain a level of cash flows
from operating activities sufficient to permit us to pay the principal, premium,
if any, and interest on our indebtedness, including the Notes.
If our cash flows and capital resources are insufficient to fund our debt
service obligations, we may be forced to reduce or delay capital expenditures,
sell assets, seek additional capital or restructure or refinance our
indebtedness, including the Notes. We cannot assure you that any such
alternative measures would be successful or would permit us to meet our
scheduled debt service obligations. In the absence of such operating results and
resources, we could face substantial liquidity problems and might be required to
dispose of material assets or operations to meet our debt service and other
obligations. The credit facilities and the Indenture restrict our ability to
dispose of assets and use the proceeds therefrom. We cannot assure you that we
will be able to consummate such dispositions or to obtain the proceeds which we
could realize therefrom or that such proceeds would be adequate to meet any debt
service obligations then due. See "Description of Credit Facilities" and
"Description of the Notes."
Default Under Agreements Governing Indebtedness -- If we default on our
obligations to pay our indebtedness we may be forced into bankruptcy or would
be otherwise unable to pay the Notes.
If we are unable to generate sufficient cash flow and are otherwise unable
to obtain funds necessary to meet required payments of principal, premium, if
any, and interest on our indebtedness, or if we otherwise fail to comply with
the various covenants, including financial and operating covenants, in the
instruments governing our indebtedness (including covenants in the Indenture and
the credit facilities), we could be in default under the terms of the agreements
governing such indebtedness, including the credit facilities and the Notes. In
the event of such default, the holders of such indebtedness could elect to
declare all the funds borrowed thereunder to be due and payable, together with
accrued and unpaid interest, the lenders under the credit facilities could elect
to terminate their commitments thereunder and institute foreclosure proceedings
against our assets, and we could be forced into bankruptcy or liquidation. Any
default under the agreements governing our indebtedness could have a significant
adverse effect on our ability to pay principal, premium, if any, and interest on
the Notes and on the market value of the Notes. If our results of operations for
the third quarter ending September 30, 2000 do not substantially improve from
our historical results of operations for the second quarter ended June 30, 2000,
we may not be in compliance with certain financial covenants in our credit
facilities. We would then be required to obtain a waiver from the required
lenders under our credit facilities to avoid being in default under the credit
facilities and we cannot assure you that such waiver will be obtained. See
"Description of Credit Facilities" and "Description of the Notes."
Change of Control -- We may not be able to repurchase the Notes upon a change
of control.
The Indenture provides that upon a change in control under the Indenture of
our company, we will be required to offer to repurchase all of the outstanding
Notes at 101% of the principal amount
18
26
thereof, plus accrued interest to the date of repurchase. This provision will
not necessarily provide protection to holders of the Notes in a highly leveraged
transaction or certain other transactions involving us or our subsidiaries. In
addition, our ability to repurchase the Notes may be limited by our then
existing financial resources, including a similar obligation to repay amounts
outstanding under the credit facilities. We cannot assure you that in the event
of a change of control, we will have, or will have access to, sufficient funds,
or will be contractually permitted under the terms of our outstanding
indebtedness, to purchase all of the Notes tendered by holders upon a change of
control. See "Description of Credit Facilities" and "Description of the
Notes -- Change of Control."
SUBORDINATION OF THE NOTES AND GUARANTEES -- THE NOTES AND THE GUARANTEES BY OUR
SUBSIDIARIES ARE SUBORDINATED IN RIGHT OF PAYMENT TO OUR AND THEIR SENIOR
INDEBTEDNESS, INCLUDING THE CREDIT FACILITIES.
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes is subordinated in right of payment to
the prior payment in full of all of our existing and future senior indebtedness,
including all amounts owing under the credit facilities. As of June 30, 2000,
the aggregate principal amount of our senior indebtedness was $487.0 million
(excluding unused commitments and outstanding letters of credit totaling $93.0
million under the credit facilities). Therefore, in the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding, our assets will
be available to pay obligations on the Notes only after all of our senior
indebtedness has been paid in full, and we cannot assure you that there will be
sufficient assets remaining to pay amounts due on all or any of the Notes. The
guarantees by our subsidiaries will be unsecured senior subordinated obligations
of theirs and will be subordinated in right of payment to all of their existing
and future senior indebtedness, including all amounts owing under the credit
facilities. As of June 30, 2000, there was no senior indebtedness of our
subsidiary guarantors (other than the guarantees under the credit facilities).
STRUCTURAL SUBORDINATION -- THE NOTES ARE STRUCTURALLY SUBORDINATED IN RIGHT OF
PAYMENT TO INDEBTEDNESS OF THOSE OF OUR SUBSIDIARIES THAT ARE NOT GUARANTEEING
THE NOTES AND, IF THE GUARANTEES ARE DEEMED UNENFORCEABLE, TO THOSE OF OUR
GUARANTOR SUBSIDIARIES.
Although we are an operating company, 42.1% of our pro forma EBITDA and
40.9% of our pro forma Adjusted EBITDA for the twelve months ended June 30, 2000
was generated by our subsidiaries. As a result, our ability to pay interest on
the Notes and to satisfy our other debt service obligations will depend
significantly on our receipt of dividends or other intercompany transfers of
funds from our operating subsidiaries. Claims of creditors of our subsidiaries
will generally have priority as to the assets of such subsidiaries over our
claims.
Although the guarantees provide the holders of the Notes with a direct
claim against the assets of the subsidiary guarantors, enforcement of the
guarantees against any guarantor may be subject to legal challenge in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
such guarantor, and would be subject to certain defenses available to guarantors
generally. See "-- Fraudulent Transfer Considerations." To the extent the
guarantees are not enforceable, the Notes would be effectively subordinated to
all liabilities of the guarantors, including trade payables of the guarantors,
whether or not such liabilities constitute Senior Indebtedness under the
Indenture. In any event, the Notes will be effectively subordinated to all
liabilities of our subsidiaries which are not guarantors. On a pro forma basis,
our subsidiaries that are not guarantors would have generated 15.0% of our net
sales, 18.2% of our pro forma EBITDA and 17.6% of our pro forma Adjusted EBITDA
for the twelve months ended June 30, 2000 and would have accounted for 12.5% of
our total assets as of June 30, 2000. As of June 30, 2000, on a pro forma basis
after giving effect to the Transactions, our subsidiaries that are not
guarantors would have had total liabilities (excluding liabilities owed to us)
of $60.1 million and our subsidiaries that are guarantors would have had total
liabilities (excluding liabilities owed to us and guarantees of the credit
facilities and the Notes) of $35.3 million.
19
27
Accordingly, in the event of our dissolution, bankruptcy, liquidation or
reorganization, the holders of the Notes may not receive any amounts with
respect to the Notes until after the payment in full of the claims of creditors
of our subsidiaries. In addition, the payment of dividends to us by our
subsidiaries is contingent upon the earnings of those subsidiaries and subject
to various business considerations. The Indenture will permit restrictive loan
covenants to be contained in the instruments governing certain indebtedness of
our subsidiaries, including covenants which restrict in certain circumstances
the payment of dividends and distributions and the transfer of assets to us. See
"Description of Credit Facilities" and "Description of the Notes -- Certain
Covenants -- Limitation on Restrictions on Distributions from Restricted
Subsidiaries."
ASSET ENCUMBRANCES -- IF WE DEFAULT UNDER OUR SENIOR SECURED CREDIT FACILITIES,
THE LENDERS COULD FORECLOSE ON THE ASSETS WE HAVE PLEDGED TO THEM, TO THE
EXCLUSION OF YOU AS THE HOLDERS OF THE NOTES.
In addition to being contractually subordinated to all existing and future
senior indebtedness, our obligations under the Notes are unsecured, while our
obligations under the credit facilities and each guarantor's obligations under
their guarantees are secured by a security interest in substantially all of our
assets and each of our existing and subsequently acquired or organized domestic
and, subject to certain limitations, foreign subsidiaries, including a pledge of
all of the issued and outstanding equity interests in our existing or
subsequently acquired or organized domestic subsidiaries and 65% of the equity
interests in each of our existing and subsequently acquired or organized foreign
subsidiaries. If we are declared bankrupt or insolvent, or if we default under
the credit facilities, the lenders could declare all of the funds borrowed
thereunder, together with accrued interest, immediately due and payable. If we
were unable to repay such indebtedness, the lenders could foreclose on the
pledged equity interests of our subsidiaries and on the assets in which they
have been granted a security interest, in each case to the exclusion of holders
of the Notes, even if an event of default exists under the Indenture at such
time. Furthermore, if all equity interests in any future subsidiary of ours that
becomes a guarantor are sold to persons pursuant to an enforcement of the pledge
of equity interests in such guarantor for the benefit of the senior lenders,
then that guarantor will be released from its guarantee automatically and
immediately upon such sale. See "Description of Credit Facilities."
EXPOSURE TO FLUCTUATIONS IN RESIN PRICES AND DEPENDENCE ON RESIN SUPPLIES -- IF
RESIN PRICES INCREASE SUDDENLY OR IF WE LOSE A KEY RESIN SUPPLIER, OUR FINANCIAL
RESULTS COULD BE ADVERSELY AFFECTED.
We use large quantities of polyethylene, PVC and other resins in
manufacturing our products. For the year ended December 31, 1999, resin costs
comprised approximately 65% of our total manufacturing costs. Significant
increases in the price of resins could adversely affect our operating margins.
The price of resins is a function of, among other things, manufacturing
capacity, demand, and the price of crude oil and natural gas feedstocks. Since
the resins used by us are produced from petroleum and natural gas, the
instability in the world markets for petroleum and natural gas could adversely
affect the prices of our raw materials and their general availability, and this
could have an adverse effect on our profitability if the increased costs could
not be passed on to customers. We cannot assure you that a significant increase
in resin prices would not have an adverse effect on our business, results of
operations and debt service capabilities. In addition, we rely on certain key
suppliers of resin for most of our resin supply, some of which resin has
characteristics proprietary to the supplier. Although we believe that our key
suppliers will continue to supply us with adequate amounts of resin on a timely
basis and that alternatives are available for resin with proprietary
characteristics, the loss of a key source of supply, our inability to obtain
resin with desired proprietary characteristics, or a delay in shipments could
have an adverse effect on our business. We also obtain resin on favorable terms
under certain contracts with suppliers. Should any of our resin suppliers fail
to deliver resin or should any such contract be canceled, we would be forced to
purchase resin in the open market, and no assurances can be given that we would
be able to make
20
28
such purchases at prices that would allow us to remain competitive. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Raw Materials."
COMPETITION -- WE OPERATE IN HIGHLY COMPETITIVE MARKETS AND WE CANNOT ASSURE YOU
THAT OUR CUSTOMERS WILL CONTINUE TO PURCHASE OUR PRODUCTS.
The markets in which we operate are highly competitive on the basis of
service, product quality, product innovation and price. In addition to
competition from many smaller competitors, we face strong competition from a
number of large film and flexible packaging companies, including AEP, Bemis,
Pactiv (formerly Tenneco), Pechiney and Printpack. Some of our competitors are
substantially larger, more diversified and have greater financial, personnel and
marketing resources than we have and therefore may have certain competitive
advantages. Although we have broad product lines and are continually developing
our products and graphics, we can give you no assurance that our current
customers will continue to purchase our products.
CUSTOMER RELATIONSHIPS -- WE DEPEND ON A FEW MAJOR CUSTOMERS AND THE LOSS OF ONE
OR MORE OF THESE CUSTOMERS WOULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.
We are dependent upon a limited number of large customers with substantial
purchasing power for a majority of our sales, many of which are reducing their
number of suppliers. Our top ten customers accounted for approximately 36% of
our net sales in 1999. In particular, we are currently the sole outside supplier
to Kimberly-Clark of its personal care films and other film components.
Kimberly-Clark accounted for approximately 13% of our net sales in 1999. The
loss of Kimberly-Clark or one or more other major customers, or a material
reduction in sales to Kimberly-Clark or these other customers, would have a
material adverse effect on our results of operations and on our ability to
service our indebtedness. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Products, Markets and
Customers."
RISKS ASSOCIATED WITH INTELLECTUAL PROPERTY RIGHTS -- WE MAY NOT BE ABLE TO
PROTECT OUR INTELLECTUAL PROPERTY AGAINST OUR COMPETITORS OR MAINTAIN ITS VALUE.
Patents, trademarks and licenses are significant to our business. We also
rely on unpatented proprietary know-how, continuing technological innovation and
other trade secrets to develop and maintain our competitive position. In
addition to our own patents, trade secrets and proprietary know-how, we license
from third parties the right to use some of their intellectual property.
Although we constantly seek to protect our patents, trademarks and other
intellectual property, there can be no assurance that our precautions will
provide meaningful protection against competitors or that the value of our
trademarks will not be diluted. We routinely enter into confidentiality
agreements to protect our trade secrets and proprietary know-how. We cannot
assure you, however, that such agreements will not be breached, that they will
provide meaningful protection or that adequate remedies will be available to us
if these confidentiality agreements are breached.
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS -- WE MAY NOT BE ABLE TO SUCCESSFULLY
INTEGRATE FUTURE ACQUISITIONS.
We have completed a number of recent acquisitions, and as part of our
strategy, we expect to continue to make acquisitions as opportunities arise.
There can be no assurance that our efforts to integrate any businesses acquired
in the future will result in increased sales or profits. Difficulties
encountered in any transition and integration process for newly acquired
companies could have a material adverse effect on our financial condition,
results of operations or cash flows.
21
29
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS -- OUR OPERATIONS OUTSIDE OF THE
UNITED STATES ARE SUBJECT TO ADDITIONAL CURRENCY EXCHANGE, POLITICAL, INVESTMENT
AND OTHER RISKS THAT MAY ADVERSELY AFFECT OUR BUSINESS.
We operate facilities and sell products in several countries outside the
U.S. Operations outside the U.S. include plants and sales offices in Mexico,
Canada, Germany and Australia. As a result, we are subject to risks associated
with selling and operating in foreign countries. These risks include
devaluations and fluctuations in currency exchange rates, unstable political
conditions, imposition of limitations on conversion of foreign currencies into
U.S. dollars and remittance of dividends and other payments by foreign
subsidiaries. The imposition or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries, hyperinflation in
certain foreign countries, and imposition or increase of investment and other
restrictions by foreign governments could also have a negative effect on our
business.
CONCENTRATION OF OWNERSHIP AND CONTROL -- WE ARE CONTROLLED BY CHASE DOMESTIC
INVESTMENTS, LLC AND ITS INTERESTS MAY NOT BE ALIGNED WITH YOURS.
At August 25, 2000, Chase Domestic Investments, L.L.C. owned approximately
55.3% of our total outstanding common stock. Subject to certain limitations
contained in the stockholders' agreement among us, Chase Domestic Investments,
L.L.C., our other stockholders, and holders of our Preferred Stock Warrants,
Chase Domestic Investments, L.L.C. controls us. There can be no assurance that
the interests of Chase Domestic Investments, L.L.C. coincide with the interests
of the holders of the Notes.
RISKS ASSOCIATED WITH LABOR RELATIONS -- IF WE DO NOT MAINTAIN GOOD
RELATIONSHIPS WITH OUR EMPLOYEES, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
As of June 30, 2000, we had approximately 3,500 employees, of which
approximately 1,400 employees were subject to a total of 11 collective
bargaining agreements that expire on various dates between October 2000 and
November 2002. On March 7, 2000, approximately 130 employees at our Chippewa
Falls, Wisconsin manufacturing plant went on strike, the first strike in our
history. Our operations at the facility and our ability to serve our customers
were not materially affected during this strike, and the striking employees
returned to work on March 20, 2000. Although we consider our current relations
with our employees to be good, if we do not maintain these good relations, or if
major work disruptions were to occur, our business could be adversely affected.
FRAUDULENT TRANSFER CONSIDERATIONS -- FEDERAL AND STATE FRAUDULENT TRANSFER LAWS
PERMIT A COURT TO VOID THE NOTES AND THE GUARANTEES, AND IF THAT OCCURS, YOU MAY
NOT RECEIVE ANY PAYMENTS ON THE NOTES.
If, under relevant federal and state fraudulent transfer and conveyance
statutes, in a bankruptcy, reorganization or liquidation case or similar
proceeding or a lawsuit by or on behalf of our unpaid creditors or a guarantor,
a court were to find that, at the time we issued the Notes, (a) we issued the
Notes with the intent of hindering, delaying or defrauding current or future
creditors or (b) (i) we or such guarantor, as applicable, received less than
reasonably equivalent value or fair consideration for issuing the Notes or a
guarantee, respectively, and (ii) after applying the proceeds, we or such
guarantor (A) was or were insolvent or was or were rendered insolvent by reason
of such transactions, (B) was or were engaged, or about to engage, in a business
or transaction for which our or its assets constituted unreasonably small
capital to carry on our or its business, or (C) intended to incur, or believed
or reasonably should have believed that we or it would incur, debts beyond our
or its ability to pay such debts as they matured or became due (as all of the
foregoing terms are defined in or interpreted under the relevant fraudulent
transfer or conveyance statutes), the court could avoid the obligations under
the Notes or such guarantee or further subordinate the Notes or such guarantee
to our presently existing and future indebtedness or that of such guarantor, or
take other action detrimental to the holders of the Notes, including,
22
30
under certain circumstances, invalidating the Notes or such guarantee. In that
event, we cannot assure you that any repayment on the Notes would ever be
received by holders of the Notes. The avoidance of such Notes could result in an
event of default with respect to our other debt and that of our subsidiaries,
which could result in acceleration of such debt.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is to be applied.
Generally, however, a company would be considered insolvent if, at the time it
incurred indebtedness, either (i) the sum of its debts, including contingent
liabilities, was greater than all its assets at a fair valuation or (ii) the
present fair saleable value of its assets is less than the amount required to
pay the probable liability on its total existing debts and liabilities
(including contingent liabilities), as they become absolute and matured. There
can be no assurance as to what standards a court would use to determine whether
we or a guarantor was or were solvent at the relevant time, or whether the Notes
or the guarantees would be avoided on any of the other grounds set forth above.
The holders of the Notes will have the benefit of the full and
unconditional guarantees of the guarantors. However, the guarantees will be
limited to the maximum amount which the guarantors are permitted to guarantee
under applicable law. As a result, a guarantor's liability under its guarantee
could be reduced to zero, depending upon the amount of other obligations of the
guarantors. Notwithstanding such provision, such guarantee may be subject to
review by a court under relevant federal and state fraudulent conveyance and
transfer statutes and, if a court makes certain findings, it could take certain
actions detrimental to the holders of the Notes. The guarantees may also be
released under certain circumstances. See "Description of the Notes -- The Note
Guarantees."
FAILURE TO EXCHANGE OLD NOTES -- IF YOU DO NOT PROPERLY TENDER YOUR OLD NOTES,
YOU WILL CONTINUE TO HOLD UNREGISTERED OLD NOTES AND YOUR ABILITY TO TRANSFER
YOUR OLD NOTES WILL BE ADVERSELY AFFECTED.
We will only issue New Notes in exchange for Old Notes that are timely
received by the exchange agent together with all required documents, including a
properly completed and signed letter of transmittal. Therefore, you should allow
sufficient time to ensure timely delivery of the Old Notes and you should
carefully follow the instructions on how to tender your Old Notes. Neither we
nor the exchange agent are required to tell you of any defects or irregularities
with respect to your tender of the Old Notes. If you do not tender your Old
Notes or if we do not accept your Old Notes because you did not tender your Old
Notes properly, then, after we consummate the exchange offer, you will continue
to hold Old Notes that are subject to the existing transfer restrictions and,
except in certain limited circumstances, you will no longer have any
registration rights or be entitled to any liquidated damages with respect to the
Old Notes. In addition:
- if you tender your Old Notes for the purpose of participating in a
distribution of the New Notes, you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the New Notes, and
- if you are a broker-dealer that receives New Notes for your own account
in exchange for Old Notes that you acquired as a result of market-making
activities or any other trading activities, you will be required to
acknowledge that you will deliver a prospectus in connection with any
resale of those New Notes.
We have agreed that, for a period of 180 days after the exchange offer is
consummated, we will make this prospectus available to any broker-dealer for use
in connection with any such resale.
After the exchange offer is consummated, if you continue to hold any Old
Notes, you may have difficulty selling them because there will be less Old Notes
outstanding. In addition, if a large amount of Old Notes are not tendered or are
tendered improperly, the limited amount of New Notes that would be issued and
outstanding after we consummate the exchange offer could lower the market price
of such New Notes.
23
31
NO PRIOR MARKET FOR THE NEW NOTES -- YOU CANNOT BE SURE THAT AN ACTIVE TRADING
MARKET WILL DEVELOP FOR THE NEW NOTES.
The New Notes are a new issue of securities with no established trading
market and will not be listed on any securities exchange or automated dealer
quotation system. The liquidity of the trading market in the New Notes, and the
market price quoted for the New Notes, may be adversely affected by changes in
the overall market for high yield securities and by changes in our financial
performance or prospects or in the prospects for companies in our industry
generally. As a result, you cannot be sure that an active trading market will
develop for the New Notes.
ENVIRONMENTAL MATTERS -- WE ARE SUBJECT TO NUMEROUS FEDERAL AND STATE
ENVIRONMENTAL LAWS AND THE FAILURE TO COMPLY WITH OR ANY INCREASED COMPLIANCE
COSTS ASSOCIATED WITH THESE ENVIRONMENTAL LAWS COULD ADVERSELY AFFECT OUR
BUSINESS.
Our operations are subject to certain federal, state, local and foreign
laws and regulations relating to pollution, the protection of the environment,
the management and disposal of hazardous substances and wastes and the cleanup
of contaminated sites. We could incur substantial costs, including cleanup
costs, fines and civil or criminal sanctions, as a result of violations of or
liabilities under environmental laws or the non-compliance with environmental
permits required at our production facilities. From time to time, contaminants
from current or historical operations have been detected at some of our present
and former sites, principally in connection with the removal or closure of
underground storage tanks. While we are not currently aware that any material
outstanding claims or obligations exist with regard to such sites, the detection
of additional contaminants or the imposition of cleanup obligations at these or
other sites could result in significant liability. In addition, the ultimate
costs under environmental laws and the timing of such costs are difficult to
predict. Liability under certain environmental laws relating to contaminated
sites can be imposed retroactively and on a joint and several basis, meaning one
liable party could be held liable for all costs at a site. Potentially
significant expenditures could be required in order to comply with environmental
laws that may be adopted or imposed in the future.
24
32
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the New Notes.
In consideration for issuing the New Notes as contemplated in this prospectus,
we will receive in exchange Old Notes in like principal amount, which will be
canceled and as such will not result in any increase in our indebtedness.
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000.
JUNE 30, 2000
---------------------
(DOLLARS IN MILLIONS)
Cash and cash equivalents................................... $ 11.2
=======
Total debt:
Credit facilities
Revolving credit facility(1)........................... $ 7.0
Tranche A facility..................................... 200.0
Tranche B facility..................................... 280.0
Old Notes(2).............................................. 206.2
Insurance premium financing............................... 1.9
Obligations under capital leases.......................... 0.4
Line of credit............................................ 3.5
-------
Total debt........................................ 699.0
Preferred Stock(3).......................................... 80.0
Stockholders' deficit....................................... (152.0)
-------
Total capitalization.............................. $ 627.0
=======
- ---------------
(1) As of August 23, 2000, we had $85.7 million of borrowing capacity under the
revolving credit facility and letters of credit of $1.3 million outstanding
under the revolving credit facility.
(2) Includes proceeds of $214.1 million less the value of the Note Warrants of
$8.0 million plus amortization to the Old Notes of the original issue
discount and value of the Note Warrants of $0.1 million.
(3) Includes proceeds of $100.0 million less issuance costs of $1.5 million for
the Preferred Stock and less the value of the Preferred Stock Warrants of
$18.5 million.
25
33
THE TRANSACTIONS
THE RECAPITALIZATION
On May 31, 2000, we consummated the Recapitalization. The total
consideration paid in the Recapitalization was approximately $1.065 billion,
including transaction costs, and is subject to post-closing purchase price
adjustments. Immediately following the Recapitalization, approximately 55.5% of
our total common stock outstanding was owned by Chase Domestic Investments,
L.L.C., approximately 4.3% of our total common stock was owned by certain other
institutional investors and approximately 40.2% of total common stock was owned
collectively by the Trust and the Management Investors. The following
transactions occurred in the Recapitalization:
- Chase Domestic Investments, L.L.C. and certain other institutional
investors made an equity investment of $165.3 million, consisting of the
Investor Common Equity Contribution of approximately $63.5 million and
the acquisition from the Trust and the Management Investors of common
stock having a value of approximately $101.8 million in the Investor
Share Purchase;
- Chase Domestic Investments, L.L.C. and certain other institutional
investors purchased $100.0 million of our Preferred Stock and Preferred
Stock Warrants;
- we made the Equity Redemption for approximately $314.0 million;
- the Trust rolled-over its ownership of our common stock in an amount
equal to approximately $76.8 million; and
- the Management Investors rolled-over their ownership of our common stock
in an amount equal to approximately $22.9 million.
Under the recapitalization agreement, a purchase price adjustment in cash
will be made after closing of the Transactions to the extent that our financial
net worth at closing (consolidated assets minus consolidated liabilities) is at
least $10.0 million more or less than a targeted financial net worth. Pursuant
to the recapitalization agreement, we entered into agreements with Chase
Domestic Investments, L.L.C. and our other stockholders. See "Certain
Relationships and Related Transactions."
We are required by the recapitalization agreement to change our name and
the name of our subsidiaries to eliminate the use of "Huntsman" by December 31,
2000. In addition, after December 31, 2000, we will no longer be able to use
"Huntsman" as or in our trademarks or tradenames. See "Business -- Intellectual
Property Rights."
Following the Transactions, we adopted a stock-based compensation plan
entitling certain of our management employees to acquire, subject to certain
conditions, restricted stock or options for up to 51,010 shares of our common
stock, of which restricted stock and options for 48,185 shares of our common
stock were issued as of August 25, 2000. See "Management -- Stock Options and
Restricted Stock."
THE TENDER OFFER AND CONSENT SOLICITATION
In connection with the Recapitalization, we offered to purchase in a tender
offer all of our $125.0 million principal amount of 9 1/8% senior subordinated
notes due 2007. We also solicited and obtained the requisite consents from
tendering holders to amend the related indenture to eliminate many of the
restrictive covenants, which permitted us to effect the Recapitalization and
also the offering of the Old Notes and the incurrence of borrowings under the
credit facilities. On May 31, 2000, we purchased all of the $125.0 million of
9 1/8% senior subordinated notes tendered for approximately $134.4 million, paid
the consent fee of $2.5 million and discharged our obligations under the related
indenture.
26
34
THE NEW CREDIT FACILITIES
On May 31, 2000, we refinanced all amounts outstanding under our then
existing credit facility and replaced it with our current credit facilities. The
credit facilities consist of a $200.0 million tranche A facility, a $280.0
million tranche B facility and a $100.0 million revolving credit facility. For a
description of the terms of the credit facilities, see "Description of Credit
Facilities."
The sources and uses of funds for the Transactions are presented in the
following table:
AMOUNT
---------------------
(DOLLARS IN MILLIONS)
SOURCES:
Credit facilities(1)........................................ $ 485.9
Old Notes and Note Warrants (net of discount of $5.9)....... 214.1
Preferred Stock and Preferred Stock Warrants................ 100.0
Common equity investment(2)................................. 165.3
Trust equity rollover....................................... 76.8
Management equity rollover.................................. 22.9
--------
Total................................................ $1,065.0
========
USES:
Equity Redemption........................................... $ 314.0
Investor Share Purchase..................................... 101.8
Refinance the prior credit facility and other debt.......... 379.5
Repay the 9 1/8% senior subordinated notes.................. 125.0
Tender and consent consideration............................ 11.9
Trust equity rollover....................................... 76.8
Management equity rollover.................................. 22.9
Transaction fees and expenses(3)............................ 33.1
--------
Total................................................ $1,065.0
========
- ---------------
(1) Represents borrowings under the credit facilities, consisting of $200.0
million under the tranche A facility, $280.0 million under the tranche B
facility and $5.9 million under the revolving credit facility. As of May 31,
2000, we had $92.8 million of borrowing capacity under the revolving credit
facility and $1.3 million reserved for letters of credit outstanding under
the revolving credit facility. See "Description of Credit Facilities."
(2) Consists of the Investor Share Purchase of $101.8 million and the Investor
Common Equity Contribution of $63.5 million.
(3) Consists of debt issuance costs of approximately $21.3 million, compensation
expense related to the long-term incentive plan triggered by the
Transactions of approximately $5.0 million, issuance costs for the Preferred
Stock of $1.5 million and for the common stock of $0.9 million and other
fees and expenses directly related to the Transactions of approximately $4.4
million.
27
35
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
We and the Note Guarantors have entered into an exchange and registration
rights agreement with the initial purchasers in the private placement offering
of the Old Notes in which we and the Note Guarantors agreed, under certain
circumstances, to file a registration statement relating to an offer to exchange
the Old Notes for New Notes. The registration statement of which this prospectus
forms a part was filed in compliance with this obligation. We also agreed to use
our reasonable best efforts to cause the exchange offer to be consummated within
225 days following the original issuance of the Old Notes. The New Notes will
have terms substantially identical to the Old Notes except that the New Notes
will not contain terms with respect to transfer restrictions, registration
rights and liquidated damages for failure to observe certain obligations in the
exchange and registration rights agreement. The Old Notes were issued on May 31,
2000.
Under the circumstances set forth below, we will use our reasonable best
efforts to cause the SEC to declare effective a shelf registration statement
with respect to the resale of the Old Notes and keep the shelf registration
statement effective for up to two years after the effective date of the shelf
registration statement. These circumstances include:
- if pursuant to any changes in law, SEC rules or regulations or applicable
interpretations thereof by the staff of the SEC do not permit us to
effect the exchange offer as contemplated by the exchange and
registration rights agreement;
- if any Old Notes validly tendered in the exchange offer are not exchanged
for New Notes within 225 days after the original issue of the Old Notes;
- if the initial purchasers of the Old Notes so request (but only with
respect to any Old Notes not eligible to be exchanged for New Notes in
the exchange offer);
- if any holder of the Old Notes is not permitted to participate in the
exchange offer; or
- if any holder of New Notes received in the exchange offer notifies us
that it must deliver a prospectus in connection with any resale of the
New Notes and this prospectus is not legally available for delivery.
Each holder of Old Notes that wishes to exchange Old Notes for transferable
New Notes in the exchange offer will be required to make the following
representations:
- any New Notes will be acquired in the ordinary course of its business;
- such holder has no arrangement or understanding with any person to
participate in the distribution of the New Notes; and
- such holder is not our "affiliate," as defined in Rule 405 of the
Securities Act, or, if it is an affiliate, that it will comply with
applicable registration and prospectus delivery requirements of the
Securities Act.
RESALE OF NEW NOTES
Based on interpretations of the SEC staff set forth in no action letters
issued to unrelated third parties, we believe that New Notes issued in the
exchange offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by any New Note holder without compliance with the
registration and prospectus delivery provisions of the Securities Act, if:
- such holder is not an "affiliate" of ours within the meaning of Rule 405
under the Securities Act;
- such New Notes are acquired in the ordinary course of the holder's
business; and
- the holder does not intend to participate in the distribution of such New
Notes.
28
36
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the New Notes:
- cannot rely on the position of the staff of the SEC set forth in "Exxon
Capital Holdings Corporation" or similar interpretive letters; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
This prospectus may be used for an offer to resell, for the resale or for
other retransfer of New Notes only as specifically set forth in this prospectus.
With regard to broker-dealers, only broker-dealers that acquired the Old Notes
as a result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the New Notes. Please read the section captioned
"Plan of Distribution" for more details regarding the transfer of New Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept for exchange any Old Notes
properly tendered and not withdrawn prior to the expiration date. We will issue
$1,000 principal amount of New Notes in exchange for each $1,000 principal
amount of Old Notes surrendered under the exchange offer. Old Notes may be
tendered only in integral multiples of $1,000.
The form and terms of the New Notes will be substantially identical to the
form and terms of the Old Notes except the New Notes will be registered under
the Securities Act, will not bear legends restricting their transfer and will
not provide for any liquidated damages upon our failure to fulfill our
obligations under the exchange and registration rights agreement to file, and
cause to be effective, a registration statement. The New Notes will evidence the
same debt as the Old Notes. The New Notes will be issued under and entitled to
the benefits of the same Indenture that authorized the issuance of the Old
Notes. Consequently, both series will be treated as a single class of debt
securities under that Indenture.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
As of the date of this prospectus, $220.0 million aggregate principal
amount of the Old Notes are outstanding. This prospectus and the letter of
transmittal are being sent to all registered holders of Old Notes. There will be
no fixed record date for determining registered holders of Old Notes entitled to
participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the exchange and registration rights agreement, the applicable requirements
of the Securities Act and the Securities Exchange Act of 1934 and the rules and
regulations of the SEC. Old Notes that are not tendered for exchange in the
exchange offer will remain outstanding and continue to accrue interest and will
be entitled to the rights and benefits such holders have under the Indenture
relating to the Old Notes.
We will be deemed to have accepted for exchange properly tendered Old Notes
when we have given oral or written notice of the acceptance to the exchange
agent. The exchange agent will act as agent for the tendering holders for the
purposes of receiving the New Notes from us and delivering exchange notes to
such holders. Subject to the terms of the exchange and registration rights
agreement, we expressly reserve the right to amend or terminate the exchange
offer, and not to accept for exchange any Old Notes not previously accepted for
exchange, upon the occurrence of any of the conditions specified below under the
caption "-- Certain Conditions to the Exchange Offer."
29
37
Holders who tender Old Notes in the exchange offer will not be required to
pay brokerage commissions or fees, or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of Old Notes. We
will pay all charges and expenses, other than certain applicable taxes described
below, in connection with the exchange offer. It is important that you read the
section labeled "-- Fees and Expenses" below for more details regarding fees and
expenses incurred in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The exchange offer will expire at 5:00 p.m., New York City time on
September 29, 2000, unless we extend it in our sole discretion.
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify, in writing or by public
announcement, the registered holders of Old Notes of the extension no later than
9:00 a.m., New York City time, on the business day after the previously
scheduled expiration date.
We reserve the right, in our sole discretion:
- to delay accepting for exchange any Old Notes;
- to extend the exchange offer or to terminate the exchange offer and to
refuse to accept Old Notes not previously accepted if any of the
conditions set forth below under "-- Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral or written notice of such
delay, extension or termination to the exchange agent; or
- subject to the terms of the exchange and registration rights agreement,
to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice or public
announcement thereof to the registered holders of Old Notes. If we amend the
exchange offer in a manner that we determine to constitute a material change, we
will promptly disclose such amendment in a manner reasonably calculated to
inform the holders of Old Notes of such amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by issuing a
timely press release to a financial news service.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any New Notes for, any Old Notes, and we may
terminate the exchange offer as provided in this prospectus before accepting any
Old Notes for exchange if in our reasonable judgment:
- the New Notes to be received will not be tradable by the holder without
restriction under the Securities Act or the Exchange Act and without
material restrictions under the blue sky or securities laws of
substantially all of the states of the U.S.;
- the exchange offer, or the making of any exchange by a holder of Old
Notes, would violate applicable law or any applicable interpretation of
the staff of the SEC; or
- any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer.
30
38
In addition, we will not be obligated to accept for exchange the Old Notes
of any holder that has not made:
- the representations described under "-- Purpose and Effect of the
Exchange Offer", "-- Procedures for Tendering" and "Plan of
Distribution", and
- such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available to
us an appropriate form for registration of the New Notes under the
Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we may
delay acceptance of any Old Notes by giving oral or written notice of such
extension to the registered holders of the Old Notes. During any such
extensions, all Old Notes previously tendered will remain subject to the
exchange offer, and we may accept them for exchange unless they have been
previously withdrawn. We will return any Old Notes that we do not accept for
exchange for any reason without expense to their tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any Old Notes not previously accepted for exchange,
upon the occurrence of any of the conditions of the exchange offer specified
above. We will give oral or written notice or public announcement of any
extension, amendment, non-acceptance or termination to the registered holders of
the Old Notes as promptly as practicable. In the case of any extension, such
oral or written notice or public announcement will be issued no later than 9:00
a.m., New York City time, on the business day after the previously scheduled
expiration date.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the foregoing rights, that failure will not constitute a
waiver of such right. Each such right will be deemed an ongoing right that we
may assert at any time or at various times.
In addition, we will not accept for exchange any Old Notes tendered, and
will not issue New Notes in exchange for any such Old Notes, if at such time any
stop order is threatened or in effect with respect to the registration statement
of which this prospectus constitutes a part or the qualification of the
Indenture under the Trust Indenture Act of 1939.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the exchange offer.
To tender in the exchange offer, a holder must:
- complete, sign and date the letter of transmittal, or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal
guaranteed if the letter of transmittal so requires; and mail or deliver
such letter of transmittal or facsimile to the exchange agent prior to
the expiration date; or
- comply with DTC's Automated Tender Offer Program procedures described
below.
In addition, either:
- the exchange agent must receive Old Notes along with the letter of
transmittal; or
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of book-entry transfer of such Old Notes into the exchange
agent's account at DTC according to the procedures for book-entry
transfer described below or a properly transmitted agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
31
39
To be tendered effectively, the exchange agent must receive any physical
delivery of the letter of transmittal and other required documents at the
address set forth below under "-- Exchange Agent" prior to the expiration date.
The tender by a holder that is not withdrawn prior to the expiration date
will constitute an agreement between such holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
letter of transmittal.
The method of delivery of Old Notes, the letter of transmittal and all
other required documents to the exchange agent is at the holder's election and
risk. Rather than mail these items, we recommend that holders use an overnight
or hand delivery service. In all cases, holders should allow sufficient time to
assure delivery to the exchange agent before the expiration date. Holders should
not send the letter of transmittal or Old Notes to the Issuer. Holders may
request their respective brokers, dealers, commercial banks, trust companies or
other nominees to effect the above transactions for them.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct it to
tender on the owners' behalf. If such beneficial owner wishes to tender on its
own behalf, it must, prior to completing and executing the letter of transmittal
and delivering its Old Notes; either:
- make appropriate arrangements to register ownership of the Old Notes in
such owner's name; or
- obtain a properly completed bond power from the registered holder of Old
Notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the expiration date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the U.S.
or another "eligible institution" within the meaning of Rule 17Ad-15 under the
Exchange Act, unless the Old Note tendered pursuant thereto is tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter
of transmittal; or
- for the account of an eligible institution.
If the letter of transmittal is signed by a person other than the
registered holder of any Old Notes listed on the Old Notes, such Old Notes must
be endorsed or accompanied by a properly completed bond power. The bond power
must be signed by the registered holder as the registered holder's name appears
on the Old Notes and an eligible institution must guarantee the signature on the
bond power.
If the letter of transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing. Unless waived by us, they should also
submit evidence satisfactory to us of their authority to deliver the letter of
transmittal.
The exchange agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
program to tender. Participants in the program may, instead of physically
completing and signing the letter of transmittal and delivering it to the
exchange agent, transmit their acceptance of the exchange offer electronically.
They may do so by causing DTC to transfer the Old Notes to the exchange agent in
accordance with its procedures for transfer. DTC will then send an agent's
message to the exchange agent. The term
32
40
"agent's message" means a message transmitted by DTC, received by the exchange
agent and forming part of the book-entry confirmation, to the effect that:
- DTC has received an express acknowledgment from a participant in its
Automated Tender Offer Program that is tendering Old Notes that are the
subject of such book-entry confirmation;
- such participant has received and agrees to be bound by the terms of the
letter of transmittal (or, in the case of an agent's message relating to
guaranteed delivery, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery); and
- the agreement may be enforced against such participant.
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt), acceptance of tendered Old Notes
and withdrawal of tendered Old Notes. Our determination will be final and
binding. We reserve the absolute right to reject any Old Notes not properly
tendered or any Old Notes the acceptance of which would, in the opinion of our
counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. Our
interpretation of the terms and conditions of the exchange offer (including the
instructions in the letter of transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as we shall determine. Although we
intend to notify holders of defects or irregularities with respect to tenders of
Old Notes, neither we, the exchange agent nor any other person will incur any
liability for failure to give such notification. Tenders of Old Notes will not
be deemed made until such defects or irregularities have been cured or waived.
Any Old Notes received by the exchange agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned to the exchange agent without cost to the tendering holder, unless
otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
In all cases, we will issue New Notes for Old Notes that we have accepted
for exchange under the exchange offer only after the exchange agent timely
receives:
- Old Notes or a timely book-entry confirmation of such Old Notes into the
exchange agent's account at DTC; and
- a properly completed and duly executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
By signing the letter of transmittal or transmitting the agent's message,
each tendering holder of Old Notes will represent to us that, among other
things:
- any New Notes that the holder receives will be acquired in the ordinary
course of its business;
- the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the New Notes;
- if the holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in the distribution of the New Notes;
- if the holder is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes that were acquired as a result of
market-making activities, that it will deliver a prospectus, as required
by law, in connection with any resale of such New Notes; and
- the holder is not an "affiliate", as defined in Rule 405 of the
Securities Act, of ours or, if the holder is an affiliate, it will comply
with any applicable registration and prospectus delivery requirements of
the Securities Act.
33
41
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the Old Notes at DTC for purposes of the exchange offer promptly after the
date of this prospectus; and any financial institution participant in DTC's
system may make book-entry delivery of Old Notes by causing DTC to transfer such
Old Notes into the exchange agent's account at DTC in accordance with DTC's
procedures for transfer. Holders of Old Notes who are unable to deliver
confirmation of the book-entry tender of their Old Notes into the exchange
agent's account at DTC or all other documents of transmittal to the exchange
agent on or prior to the expiration date must tender their Old Notes according
to the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders wishing to tender their Old Notes but whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the letter of
transmittal or any other required documents to the exchange agent or comply with
the applicable procedures under DTC's Automated Tender Offer Program prior to
the expiration date may tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from such
eligible institution either a properly completed and duly executed notice
of guaranteed delivery (by facsimile transmission, mail or hand delivery)
or a properly transmitted agent's message and notice of guaranteed
delivery:
-- setting forth the name and address of the holder, the registered
number(s) of such Old Notes and the principal amount of Old Notes
tendered;
-- stating that the tender is being made thereby; and
-- guaranteeing that, within three (3) New York Stock Exchange trading
days after the expiration date, the letter of transmittal (or facsimile
thereof) together with the Old Notes or a book-entry confirmation, and
any other documents required by the letter of transmittal will be
deposited by the eligible institution with the exchange agent; and
- the exchange agent receives such properly completed and executed letter
of transmittal (or facsimile thereof), as well as all tendered Old Notes
in proper form for transfer or a book-entry confirmation, and all other
documents required by the letter of transmittal, within three (3) New
York State Exchange trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, holders of Old Notes may
withdraw their tenders at any time prior to the expiration date.
For a withdrawal to be effective:
- the exchange agent must receive a written notice (which may be by
telegram, telex, facsimile transmission or letter) of withdrawal at one
of the addresses set forth below under "-- Exchange Agent," or
- holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
34
42
Any such notice of withdrawal must:
- specify the name of the person who tendered the Old Notes to be
withdrawn;
- identify the Old Notes to be withdrawn (including the principal amount of
such Old Notes); and
- where certificates for Old Notes have been transmitted, specify the name
in which such Old Notes were registered, if different from that of the
withdrawing holder.
If certificates for Old Notes have been delivered or otherwise identified
to the exchange agent, then, prior to the release of such certificates, the
withdrawing holder must also submit:
- the serial numbers of the particular certificates to be withdrawn; and
- a signed notice of withdrawal with signatures guaranteed by an eligible
institution unless such holder is an eligible institution.
If Old Notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. We will determine all
questions as to the validity, form and eligibility (including time of receipt)
of such notices, and our determination shall be final and binding on all
parties. We will deem any Old Notes so withdrawn not to have validity tendered
for exchange for purposes of the exchange offer. Any Old Notes that have been
tendered for exchange but that are not exchanged for any reason will be returned
to their holder without cost to the holder (or, in the case of Old Notes
tendered by book-entry transfer into the exchange agent's account at DTC
according to the procedures described above, such Old Notes will be credited to
an account maintained with DTC for Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "Procedures for Tendering" above at any time on or prior to the
expiration date.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery to the exchange agent addressed
as follows:
For Overnight Delivery, Delivery by Hand
or Delivery by Registered or Certified Mail:
The Bank of New York
101 Barclay Street
Reorganization Dept. 7 East
New York, NY 10286
Attn: Carolle Montreuil
By Facsimile Transmission
(for eligible institutions only):
(212) 815-6339
Confirm facsimile by telephone only:
(212) 815-5920
35
43
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitations by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
Our expenses in connection with the exchange offer include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of Old
Notes under the exchange offer. The tendering holder, however, will be required
to pay any transfer taxes (whether imposed on the registered holder or any other
person) if:
- certificates representing Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the
name of, any person other than the registered holder of Old Notes
tendered;
- tendered Old Notes are registered in the name of any person other than
the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of Old
Notes under the exchange offer.
If satisfactory evidence of payment of such taxes is not submitted with the
letter of transmittal, the amount of such transfer taxes will be billed to that
tendering holder.
Holders who tender their Old Notes for exchange will not be required to pay
any transfer taxes. However, holders who instruct us to register New Notes in
the name of, or request that Old Notes not tendered or not accepted in the
exchange offer be returned to, a person other than the registered tendering
holder will be required to pay any applicable transfer tax.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
under the exchange offer will remain subject to the restrictions on transfer
applicable to the Old Notes:
- as set forth in the legend printed on the Old Notes as a consequence of
the issuance of the Old Notes pursuant to the exemptions from, or in
transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws; and
- otherwise as set forth in the offering memorandum distributed in
connection with the private offering of the Old Notes.
36
44
In general, you may not offer or sell the Old Notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the exchange and registration rights agreement, we do not
intend to register resales of the Old Notes under the Securities Act. Based on
interpretations of the SEC staff, New Notes issued pursuant to the exchange
offer may be offered for resale, resold or otherwise transferred by their
holders (other than any such holder that is our "affiliate" within the meaning
of Rule 405 under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that the
holders acquired the New Notes in the ordinary course of the holders' business
and the holders have no arrangement or understanding with respect to the
distribution of the New Notes to be acquired in the exchange offer. Any holder
who tenders in the exchange offer for the purpose of participating in a
distribution of the New Notes:
- could not rely on the applicable interpretations of the SEC; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
ACCOUNTING TREATMENT
We will record the New Notes in our accounting records at the same carrying
value as the Old Notes, as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes in connection with the exchange offer. We will record the expenses of
the exchange offer as incurred.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to accept. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered Old Notes in the open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any Old Notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any untendered Old Notes.
37
45
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial data
have been prepared by applying pro forma adjustments to the historical
consolidated financial statements of Huntsman Packaging included elsewhere in
this prospectus. The unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1999, the six months ended June 30,
2000, and the twelve months ended June 30, 2000, give effect to the Transactions
and the KCL Corporation acquisition as if they had occurred at the beginning of
the respective periods. The unaudited pro forma condensed consolidated
statements of operations do not reflect the expenses related to the
Transactions.
The historical financial data for the KCL Corporation acquisition were
derived from its audited and unaudited financial statements. The KCL Corporation
acquisition was accounted for using the purchase method of accounting pursuant
to which the purchase price of the acquisition was allocated to the assets
acquired and liabilities assumed based on their estimated fair values. The
goodwill recorded in connection with the acquisition of KCL Corporation is based
on preliminary allocations of estimated fair values.
The unaudited pro forma condensed consolidated financial data are presented
for informational purposes only and are not necessarily indicative of the
operating results or financial position that would have occurred had the
Transactions or the KCL Corporation acquisition been consummated on or as of the
dates indicated and such data are not necessarily indicative of future operating
results or financial position.
The unaudited pro forma condensed financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and Huntsman Packaging's consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
38
46
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN MILLIONS)
HISTORICAL PRO FORMA
HUNTSMAN HISTORICAL HUNTSMAN
PACKAGING KCL PRO FORMA PACKAGING
CORPORATION CORPORATION ADJUSTMENTS CORPORATION
----------- ----------- ------------- -----------
Net sales............................... $781.4 $26.2 $807.6
Cost of sales........................... 623.4 23.7 647.1
------ ----- ------
Gross profit.......................... 158.0 2.5 160.5
Total operating expenses................ 82.0 2.5 $ (2.6)(1) 81.9
------ ----- ------ ------
Operating income...................... 76.0 2.6 78.6
Interest expense........................ (44.0) (0.8) (34.3)(2) (79.1)
Other income, net....................... 0.4 1.1 1.5
------ ----- ------ ------
Income before income taxes.............. 32.4 0.3 (31.7) 1.0
Income tax expense...................... 14.1 0.1 (12.7)(3) 1.5
------ ----- ------ ------
Net income (loss)....................... $ 18.3 $ 0.2 $(19.0) $ (0.5)
====== ===== ====== ======
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations.
39
47
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(DOLLARS IN MILLIONS)
HISTORICAL PRO FORMA
HUNTSMAN HUNTSMAN
PACKAGING PRO FORMA PACKAGING
CORPORATION ADJUSTMENTS CORPORATION
----------- ------------- -----------
Net sales............................................ $416.5 $416.5
Cost of sales........................................ 337.2 337.2
------ ------
Gross profit....................................... 79.3 79.3
Total operating expenses............................. 59.7 $ (6.3)(1) 53.4
------ ------ ------
Operating income................................... 19.6 6.3 25.9
Interest expense..................................... (25.9) (13.4)(2) (39.3)
Other income (loss), net............................. (0.2) (0.2)
------ ------ ------
Loss before income taxes and extraordinary item...... (6.5) (7.1) (13.6)
Income tax expense (benefit)......................... 1.0 (2.8)(3) (1.8)
------ ------ ------
Loss before extraordinary item....................... $ (7.5) $ (4.3) $(11.8)
====== ====== ======
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations.
40
48
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JUNE 30, 2000
(DOLLARS IN MILLIONS)
HISTORICAL PRO FORMA
HUNTSMAN HISTORICAL HUNTSMAN
PACKAGING KCL PRO FORMA PACKAGING
CORPORATION CORPORATION ADJUSTMENTS CORPORATION
----------- ----------- ------------- -----------
Net sales.................................. $836.7 $ 6.9 $843.6
Cost of sales.............................. 676.5 6.7 683.2
------ ----- ------
Gross profit............................. 160.2 0.2 160.4
Operating expenses......................... 103.3 0.8 $ (7.7)(1) 96.4
------ ----- ------ ------
Operating income......................... 56.9 (0.6) 7.7 64.0
Interest expense........................... (48.8) (0.3) (29.8)(2) (78.9)
Other income -- net........................ 0.5 0.8 1.3
------ ----- ------ ------
Loss before income taxes and extraordinary
item..................................... 8.6 (0.1) (22.1) (13.6)
Income tax expense (benefit)............... 7.2 0.0 (8.8)(3) (1.6)
------ ----- ------ ------
Loss before extraordinary item............. $ 1.4 $(0.1) $(13.3) $(12.0)
====== ===== ====== ======
See Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations.
41
49
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
(1) Adjustments reflect the following operating expense items:
SIX MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, 1999 JUNE 30, 2000 JUNE 30, 2000
----------------- ------------- -------------
Amortization of goodwill(a)......... $ 0.2 $ 0.1
Elimination of non-recurring
affiliated company expenses(b)... (2.8) $(0.7) (2.2)
Elimination of long-term incentive
compensation(c).................. (5.6) (5.6)
----- ----- -----
Total adjustments......... $(2.6) $(6.3) $(7.7)
===== ===== =====
- ---------------
(a) Adjustment reflects amortization of goodwill of $2.6 million
related to the acquisition of KCL Corporation in October 1999,
amortized over ten years.
(b) Adjustment reflects elimination of (i) Huntsman Cancer Institute
charitable contribution and Huntsman Financial Corporation
management fee and (ii) allocated expenses under the services
agreement with Huntsman Corporation, including amounts paid for
office rental, less the replacement costs under new contractual
arrangements for the services provided.
(c) Adjustment reflects elimination of long-term incentive and stay
bonus compensation triggered by the Transactions of $5.6 million.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Results of Operations -- Six Months
Ended June 30, 2000 Compared with Six Months Ended June 30, 1999."
(2) Adjustments reflect (i) interest expense associated with borrowings
under the credit facilities and the Old Notes, (ii) amortization of the
related debt issuance costs, and (iii) the elimination of our
historical interest expense and debt issuance costs related to our
prior credit facility and the 9 1/8% senior subordinated notes.
SIX MONTHS TWELVE MONTHS
PRINCIPAL YEAR ENDED ENDED ENDED
AMOUNT DECEMBER 31, 1999 JUNE 30, 2000 JUNE 30, 2000
--------- ----------------- ------------- -------------
New Credit Facilities:
Tranche A facility(a)... $200.0 $ 18.6 $ 9.4 $ 18.7
Tranche B facility(a)... 280.0 27.5 13.8 27.5
Revolving credit
facility(a)........... 5.9 0.5 0.3 0.6
Old Notes(a)............... 220.0 29.3 14.6 29.3
Amortization of debt
issuance costs(b)....... 2.3 1.1 2.3
------ ------ ------
78.2 39.2 78.4
Elimination of historical
interest expense........ (43.9) (25.8) (48.6)
------ ------ ------
Net adjustments............ $ 34.3 $ 13.4 $ 29.8
====== ====== ======
- ---------------
(a) At a rate of 9.3125% (London Interbank Offered Rate of 6.8125% +
2.50%) for tranche A facility, 9.8125% (LIBOR + 3.00%) for tranche
B facility, 9.3125%
42
50
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(LIBOR + 2.50%) for revolving credit facility and 14.21% effective
rate for the Old Notes after giving effect to the original issue
discount and the estimated value of the Note Warrants. The effect
of a 1/8% increase or decrease in interest rates would increase
or decrease total interest expense by approximately $0.9 million,
$0.4 million and $0.9 million for the year ended December 31,
1999, the six months ended June 30, 2000 and the twelve months
ended June 30, 2000, respectively.
(b) Adjustment reflects the amortization of debt issuance costs using
the effective interest method over the term of the debt.
(3) The adjustments represent the income tax benefit at an effective tax
rate of 40.0% for the effects of adjustments (1) and (2).
43
51
SELECTED FINANCIAL DATA
The following selected financial data have been summarized from our
consolidated financial statements and are qualified in their entirety by
reference to, and should be read in conjunction with, such consolidated
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ ----------------
1995 1996 1997 1998 1999 1999 2000
------ ------ ------ ------ ------ ------ -------
(DOLLARS IN MILLIONS)
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $280.0 $295.7 $447.7 $651.9 $781.4 $361.2 $ 416.5
Cost of sales................................... 235.1 253.5 389.6 532.4 623.4 284.2 337.2
------ ------ ------ ------ ------ ------ -------
Gross profit.................................... 44.9 42.2 58.1 119.5 158.0 77.0 79.3
Total operating expenses........................ 31.8 38.1 45.0 70.1 82.0 38.4 59.7
------ ------ ------ ------ ------ ------ -------
Operating income................................ 13.1 4.1 13.1 49.4 76.0 38.6 19.6
Interest expense................................ (8.8) (11.6) (17.0) (37.5) (44.0) (21.1) (25.9)
Other income (expense), net..................... (2.5) (2.7) 0.7 (0.8) 0.4 (0.2) 0.2
------ ------ ------ ------ ------ ------ -------
Income (loss) before income taxes, discontinued
operations and extraordinary item............. 1.8 (10.2) (3.2) 11.1 32.4 17.3 (6.5)
Income tax expense (benefit).................... 0.9 (5.2) (0.5) 8.6 14.1 7.9 1.0
------ ------ ------ ------ ------ ------ -------
Income (loss) before discontinued operations and
extraordinary item............................ 0.9 (5.0) (2.7) 2.5 18.3 9.4 (7.5)
Income from discontinued operations(1).......... 1.4 1.8 3.1 0.6
Gain on sale of discontinued operations(1)...... 5.2
Extraordinary item(2)........................... (1.3) (11.2)
------ ------ ------ ------ ------ ------ -------
Net income (loss)............................... $ 2.3 $ (4.5) $ 0.4 $ 8.3 $ 18.3 $ 9.4 $ (18.7)
====== ====== ====== ====== ====== ====== =======
OTHER FINANCIAL DATA:
Depreciation and amortization................... $ 10.6 $ 14.0 $ 16.4 $ 27.1 $ 35.0 $ 16.9 $ 19.0
Capital expenditures............................ 19.5 12.8 17.9 52.1 35.7 17.1 25.2
Ratio of earnings to fixed charges(3)........... 1.2x -- -- 1.3x 1.7x 1.8x --
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 3.8 $ 8.4 $ 12.4 $ 19.2 $ 9.1 $ 13.2 $ 11.2
Working capital................................. 54.5 74.6 94.1 93.4 103.8 108.8 127.0
Total assets.................................... 213.6 317.8 400.4 734.3 769.0 750.6 798.6
Total debt...................................... 103.0 187.2 250.5 524.9 510.4 525.5 699.0
Total liabilities............................... 142.5 250.8 337.4 662.5 675.4 667.7 870.7
Redeemable preferred stock...................... 80.0
Redeemable common stock......................... 1.2 2.9 2.5
Stockholders' equity (deficit).................. 71.1 67.0 63.0 70.6 90.7 80.5 (152.0)
- ---------------
(1) In 1998, we sold our entire interest in our foam products operations, which
were operated exclusively in Europe. The financial position and results of
operations of this separate business segment are reflected as discontinued
operations for the applicable years presented. See Note 3 to consolidated
financial statements included elsewhere in this prospectus.
(2) In 1996 and 2000, we refinanced most of our long-term debt and recorded an
extraordinary loss to write-off unamortized deferred debt issuance costs. In
2000, we also recorded an extraordinary loss for our tender offer for our
9 1/8% senior subordinated notes due 2007.
(3) Earnings consist of income before income taxes plus fixed charges. Fixed
charges consist of (i) interest, whether expensed or capitalized, (ii)
amortization of debt issuance costs and (iii) an allocation of one-third of
the rental expense from operating leases, which management considers to be a
reasonable approximation of the interest factor of operating lease payments.
In 1996 and 1997 and the six months ended June 30, 2000, earnings were
insufficient to cover fixed charges by approximately $10.2 million, $3.2
million and $6.5 million, respectively.
44
52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze our consolidated
financial condition, liquidity and capital resources and results of operations.
This analysis should be read in conjunction with the consolidated financial
statements and notes which appear elsewhere in this prospectus. This section
contains certain forward-looking statements that involve risks and
uncertainties, including statements regarding our plans, objectives, goals,
strategies and financial performance. Our actual results could differ materially
from the results anticipated in these forward-looking statements as a result of
factors set forth under "Disclosure Regarding Forward-Looking Statements" and
"Risk Factors" and elsewhere in this prospectus.
GENERAL
We derive our revenues, earnings and cash flows from the sale of film and
flexible packaging products throughout the world. We manufacture these products
at facilities located in North America, Europe and Australia. Our net sales have
grown primarily as a result of strategic acquisitions made over the past several
years, increased levels of production at acquired facilities and the overall
growth in the market for film and flexible packaging products. Our most recent
acquisitions include (see Note 12 to the consolidated financial statements
included elsewhere in this prospectus):
- In October 1999, we acquired the assets of KCL Corporation, including its
closure technology and its polyethylene bag making and printing
facilities in Shelbyville, IN and Dallas, TX for approximately $11.5
million.
- In December 1998, we acquired the customer accounts and technology
associated with Allied Signal's sheet molding compound film business for
approximately $3.0 million.
- In May 1998, we acquired Blessings Corporation, a producer of personal
care, medical and printed films, with operations in Washington, GA,
McAlester, OK, Newport News, VA and Mexico City, Mexico for approximately
$287.0 million.
- In March 1998, we acquired the assets of Ellehammer Industries and
Ellehammer Packaging Inc., producers of printed films and bags, with a
facility in Langley, British Columbia for approximately $7.9 million.
- In September 1997, we acquired the assets of CT Film, a producer of
personal care, medical and converter films, with facilities in Chippewa
Falls, WI, Harrington, DE, Clearfield, UT, Dalton, GA and Scunthorpe,
England for approximately $70.0 million.
In order to further benefit from these acquisitions, we ceased operations
at certain less efficient manufacturing facilities and relocated equipment to
more efficient facilities. In addition, we sold certain assets and restructured
and consolidated our operations and administrative functions. As a result of
these activities, we increased manufacturing efficiencies and product quality,
reduced costs, and increased operating profitability. As part of this process,
in 1999 and 1998, we undertook the following significant divestitures and
closures of manufacturing facilities (see Notes 3 and 4 to the consolidated
financial statements included elsewhere in this prospectus):
- In connection with the acquisition of KCL Corporation, we announced a
plan to eliminate certain employees, move certain purchased assets and
install them at desired locations and cease certain purchased operations.
- During 1999, we announced our plan to cease operations at one of our
facilities located in Mexico City, Mexico. In addition, we announced our
plan to cease the production of one of our product lines at our Kent,
Washington facility.
- In August 1998, we sold our entire interest in the capital stock of
Huntsman Packaging UK Limited to Skymark Packaging International Limited.
Huntsman Packaging UK owned our Scunthorpe, UK facility, which
manufactured and sold polyethylene film exclusively in Europe. Net
proceeds from this sale were approximately $5.6 million.
45
53
- In June 1998, Huntsman Container Corporation International, our wholly
owned subsidiary, sold its entire interest in the capital stock of
Huntsman Container Company Limited and Huntsman Container Company France
SA to Polarcup Limited and Huhtamaki Holdings France Sarl, subsidiaries
of Huhtamaki Oyj. Together, the two subsidiaries sold comprised our foam
products business segment, which was operated exclusively in Europe. Net
proceeds from the sale were approximately $28.3 million.
- During 1998, we announced our plan to cease operations at our Clearfield,
Utah facility, which was acquired as part of the CT Film acquisition. As
of December 31, 1999, operations at the facility had ceased and all of
the facility's assets had been relocated.
RESULTS OF OPERATIONS
The following table sets forth net sales, expenses, and operating income,
and such amounts as a percentage of net sales, for the six months ended June 30,
1999 and 2000 and the years ended December 31, 1997, 1998 and 1999.
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------ -------------------------------
1997 1998 1999 1999 2000
------------ ------------ ------------ -------------- --------------
(DOLLARS IN MILLIONS)
Net sales............ $447.7 100% $651.9 100% $781.4 100% $361.2 100.0% $416.5 100.0%
Cost of sales........ 389.6 87 532.4 82 623.4 80 284.2 78.7 337.2 81.0
------ --- ------ --- ------ --- ------ ----- ------ -----
Gross profit......... 58.1 13 119.5 18 158.0 20 77.0 21.3 79.3 19.0
Total operating
expenses........... 45.0 10 70.1 11 82.0 10 38.4 10.6 59.8 14.3
------ --- ------ --- ------ --- ------ ----- ------ -----
Operating income..... $ 13.1 3% $ 49.4 7% $ 76.0 10% $ 38.6 10.7% $ 19.5 4.7%
====== === ====== === ====== === ====== ===== ====== =====
SIX MONTHS ENDED JUNE 30, 2000 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1999
Net Sales. Net sales increased by $55.3 million, or 15.3%, from $361.2
million, for the first half of 1999, to $416.5 million, for the first half of
2000. The increase was primarily due to a 1.7% increase in sales volume and a
12.3% increase in our average selling price. The sales volume increases were
most significant in our design products segment. However, inventory corrections
and product rationalization by our customers resulted in slower sales volume
growth for us during the period. The sales price increases were spread generally
across all of our business segments. In the markets we serve, the average
selling price of our products generally increases or decreases as the price of
resins, our primary raw material, increases or decreases. Average resin prices
were significantly higher during the first half of 2000 compared to the first
half of 1999, resulting in a significant increase in our average selling prices.
Gross Profit. Gross profit increased by $2.3 million, or 3.0%, from $77.0
million, for the first half of 1999, to $79.3 million, for the first half of
2000. The increase was due primarily to a strong increase in net sales, but was
offset significantly by reduced gross profit margins. The decrease in the gross
profit margin was due primarily to a dramatic increase in resin prices and our
inability to increase our selling price as rapidly as resin costs rose, and at
the same margins. As a percentage of sales, raw material costs were 370 basis
points higher in this period, as compared to the prior year. In addition, in
some of our markets, we experienced reduced profit margins due to a shift by
some of our customers toward lower profit margin products.
Total Operating Expenses. Total operating expenses increased by $21.4
million, or 55.7%, from $38.4 million, for the first half of 1999, to $59.8
million, for the first half of 2000. Most of the increase resulted from three
significant items, which accounted for $17.2 million of the $21.4 million
increase. Excluding these three significant items, operating expenses as a
percentage of net sales were 10.2% for the first half of 2000, compared with
10.6% for the first half of 1999.
46
54
Costs relating to the Transactions constituted the first significant item
affecting total operating expenses. We incurred $6.6 million of costs related to
the Transactions. These costs consisted of long-term incentive compensation
expense of $5.0 million, $0.6 million of incentive compensation under a "stay
bonus" plan and transaction fees and expenses of $1.0 million. Under the
provisions of our long-term incentive plans, certain incentive payments were due
upon a "change of control" in our ownership. Because the Transactions were
probable to occur and constituted a "change of control" under our long-term
incentive plans, we accrued a liability for the long-term compensation due
during the first quarter of 2000. These amounts were paid in the second quarter.
The second significant item affecting total operating expenses was noncash
stock-based compensation expense. We incurred noncash stock-based compensation
expense of $1.2 million related to outstanding options to purchase our Class C
common stock. As a result of the Transactions, the stock options fully vested
and became exercisable upon the consummation of the Transactions. The $1.2
million noncash stock-based compensation expense recognizes the accelerated
vesting of all performance-based stock options based on the estimated per share
purchase price implied in the Transactions. We incurred $0.3 million of noncash
stock-based compensation expense in the first half of 1999.
The third significant item affecting total operating expenses was our SCORE
initiative discussed above. We incurred fees and expenses during the first half
of 2000 totaling $9.7 million in connection with this initiative.
Operating Income. Operating income decreased by $19.1 million, or 49.5%,
from $38.6 million, for the first half of 1999, to $19.5 million, for the first
half of 2000, due to the factors discussed above. Excluding the three
significant items described above, operating income decreased $1.9 million, or
4.9%, from $38.6 million for the first half of 1999, to $36.7 million for the
first half of 2000.
Interest Expense. Interest expense increased by $4.7 million, or 22.3%,
from $21.1 million for the first half of 1999, to $25.8 million for the first
half of 2000. The increase was due to additional interest expense as a result of
increased levels of long-term debt incurred to finance the Transactions and
higher interest rates in 2000 as compared to 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net Sales. Net sales increased by $129.5 million, or 19.9%, in 1999 to
$781.4 million from $651.9 million in 1998. The increase was primarily due to
the inclusion of a full year's results from the Blessings acquisition, which
occurred in May 1998. The full year's sales from the manufacturing facilities
acquired as part of the Blessings acquisition and post-acquisition sales volume
increases of approximately 15% over the 1998 pre-acquisition sales volume
accounted for increased net sales of approximately $90.0 million in 1999.
Excluding the sales increases resulting from this acquisition, we realized
increased sales volumes of approximately 4.5% in 1999 compared to 1998. In the
markets we serve, the average selling price of our products generally increases
or decreases as resin prices increase or decrease. Although the price of resin,
our primary raw material, increased significantly during most of 1999, the
average price of resins for the entire year was only slightly higher in 1999
compared to 1998. As a result, our average selling prices were slightly higher
in 1999 as compared to 1998.
Gross Profit. Gross profit increased by $38.5 million, or 32.2%, in 1999
to $158.0 million from $119.5 million in 1998. The increase was due to increased
sales volume from the recent acquisitions and internal growth, integration and
rationalization of acquired and existing facilities and improved mix of products
sold. The recent acquisitions and capital expenditures have allowed us to
produce and sell proportionately more product in higher margin markets than in
the past. Due to our rationalization and integration of operations and
facilities, a precise measure of the additional gross profit added in 1999 from
the recent acquisitions is not practicable.
Operating Income. Operating income increased by $26.6 million, or 53.8%,
in 1999 to $76.0 million from $49.4 million in 1998 as a result of the factors
discussed above.
47
55
Total Operating Expenses. Total operating expenses (including research and
development expenses) increased by $11.9 million, or 17.0%, in 1999 to $82.0
million from $70.1 million in 1998. The increase was due primarily to additional
operating expenses resulting from the Blessings acquisition, including an
increased intangible amortization expense of $2.1 million. Operating expenses as
percentage of net sales decreased to 10% in 1999, as compared to 11% in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net Sales. Net sales increased by $204.2 million, or 45.6%, in 1998 to
$651.9 million from $447.7 million in 1997. The increase was primarily due to
the Blessings acquisition, which occurred in May 1998 and a full year's results
from the September 1997 CT Film acquisition. The CT Film acquisition and the
Blessings acquisition collectively accounted for $256.0 million of our total net
sales in 1998. Excluding the sales increases resulting from these acquisitions,
we realized increased sales volumes of approximately 5.1% in 1998 compared to
1997. These sales volume related increases were offset by a 8.4% reduction in
the average selling prices for our products, excluding the effects of the
acquisitions. The average selling price reductions were primarily due to
declines in the price of resins, our primary raw material.
Gross Profit. Gross profit increased by $61.4 million, or 105.7%, in 1998
to $119.5 million from $58.1 million in 1997. The increase was due to increased
sales volume from the recent acquisitions and internal growth, integration and
rationalization of acquired and existing facilities, realization of purchasing
and operational synergies associated with the recent acquisitions, and improved
manufacturing performance within our operations. Due to our rationalization and
integration of operations and facilities, a precise measure of the additional
gross profit added in 1998 from the recent acquisitions is not practicable.
However, the gross profit for the facilities associated with the CT Film
acquisition and the Blessings acquisition was approximately $49.2 million,
including the effects of the above activities.
Total Operating Expenses. Total operating expenses (including research and
development expenses) increased by $25.1 million, or 55.8%, in 1998 to $70.1
million from $45.0 million in 1997. The increase was due primarily to additional
operating expenses resulting from the CT Film acquisition and the Blessings
acquisition. In addition, we incurred nonrecurring operating expenses totaling
approximately $7.0 million in 1998. The nonrecurring expenses included the
following components (in millions):
Plant closing costs......................................... $4.9
Indirect plant closing costs................................ 1.6
Blessings acquisition transition costs...................... 0.5
----
$7.0
====
The plant closing costs relate to the closure of our Clearfield, Utah
facility. During 1998, we ceased operations at the Clearfield facility and most
of the production equipment was relocated to other of our facilities.
The indirect plant closing costs include one-time costs to tear down and
relocate equipment from closed plants to other of our facilities. The Blessings
acquisition transition costs consist primarily of labor costs relating to former
Blessings Corporation employees retained on a temporary basis to assist through
the early stages of our ownership of the operation.
Operating Income. Operating income increased by $36.3 million, or 277.1%,
in 1998 to $49.4 million from $13.1 million in 1997 as a result of the factors
discussed above.
OPERATING SEGMENT REVIEW
General. Operating segments are components of our company for which
separate financial information is available that is evaluated regularly by our
chief operating decision maker in deciding how to allocate resources and in
assessing performance. For more information on our operating segments, see Note
13 to the consolidated financial statements included elsewhere in this
prospectus.
48
56
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Specialty Films
Net Sales. The net sales of our specialty films segment increased by $81.5
million, or 22.0%, in 1999 to $452.7 million from $371.2 million in 1998. The
increase was due primarily to inclusion of a full year's results from the 1998
Blessings acquisition, including post-acquisition sales volume increases in the
operations acquired. The addition of these operations, including the
post-acquisition sales improvements, resulted in 1999 increased sales of
approximately $65.2 million. Excluding the acquisition related increases, our
specialty film volume increased in 1999 by approximately 12.5%. The volume
increase was due primarily to a full year's results of capacity expansion in our
barrier film operations and the relocation of certain equipment from our closed
facilities to our specialty films facilities.
Segment Profit. The specialty films segment profit increased by $21.5
million, or 59.6%, in 1999 to $57.6 million from $36.1 million in 1998. The
increase was due primarily to the recent acquisitions and the increase in sales
volume resulting from production capacity expansions. In 1999, operating
expenses associated with this segment increased due to a full year of operations
from the facilities acquired as part of the Blessings acquisition and due to
costs associated with a separate segment management team.
Segment Total Assets. The specialty films segment total assets increased
by $11.8 million, or 2.7%, in 1999 to $446.9 million from $435.1 million in
1998. The increase was primarily due to capital expenditures of approximately
$18.8 million and an increase in working capital. These increases were off-set,
in part, by 1999 depreciation and amortization. Capital expenditures related
mainly to capacity expansion and to quality improvement projects, as well as
ongoing capital improvements.
Design Products
Net Sales. The design products segment net sales increased by $39.3
million, or 28.9%, in 1999 to $175.4 million from $136.1 million in 1998. This
increase was primarily due to our recent acquisitions and to sales volume
increases resulting from production capacity expansions. The design products
segment includes our Mexican operation acquired as part of the May 1998
Blessings acquisition and, accordingly, 1999 sales include a full year of
results from this operation. Excluding the approximate effect of this
acquisition, net sales dollars increased by 13.9% and sales volume increased by
12.7%. The sales dollar and volume increases were due to additional production
capacity added over the last two years in our design products production
facilities.
Segment Profit. The design products segment profit decreased by $3.1
million, or 25.0%, in 1999 to $9.3 million from $12.4 million in 1998. The
decrease was due to a 4.5% decline in the difference between our average selling
price and our average raw material cost. A significant portion of our design
products sales prices are tied to a resin price index with our sales price often
adjusting quarterly. Due to the rapid increases in resin prices during 1999, we
were unable to increase our selling prices as quickly as resin prices increased.
Accordingly, our segment profit declined. During late 1999 and early 2000, our
margins returned to normal levels as resin prices stabilized. The decrease is
also due to higher operating expenses resulting from a full year of costs
associated with a separate segment management team.
Segment profit excludes nonrecurring plant closing costs. The 1999 plant
closing costs of $2.5 million relate entirely to the design products operating
segment. See Note 4 to the consolidated financial statements included elsewhere
in this prospectus.
Segment Total Assets. The design products segment total assets increased
by $22.5 million, or 14.7%, in 1999 to $175.9 million from $153.4 million in
1998. The increase was due to the KCL acquisition, 1999 capital expenditures of
approximately $6.9 million and an increase in working capital. These additions
were off-set, in part, by depreciation expense in 1999.
Capital expenditures were for capacity expansion at our Rochester, New York
facility and other ongoing capital improvements.
49
57
Industrial Films
Net Sales. The net sales of our industrial films segment increased by $8.6
million, or 5.9%, in 1999 to $153.3 million from $144.7 million in 1998. The
increase in sales was due entirely to an increase in our sales volume as our
average selling prices were unchanged in 1999 as compared to 1998.
Segment Profit. The industrial films segment profit increased by $5.4
million, or 49.1%, in 1999 to $16.4 million from $11.0 million in 1998. The
increase was due to increased sales volumes, lower operating expenses, and
improved manufacturing performance.
Segment Total Assets. The industrial films segment total assets increased
by $2.1 million, or 2.5%, in 1999 to $84.8 million from $82.7 million in 1998.
The increase was due to capital expenditures of approximately $6.6 million
reduced, in part, by depreciation. The capital expenditures were for ongoing
capital improvements, as well as a major upgrade to one of our stretch film
production lines.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Specialty Films
Net Sales. The net sales of our specialty films segment increased by
$192.3 million, or 107.5%, in 1998 to $371.2 million from $178.9 million in
1997. The increase was due primarily to the 1998 Blessings acquisition and the
inclusion of a full year's results from the 1997 CT Film acquisition. The
addition of these operations resulted in 1998 increased sales of approximately
$182.9 million. Excluding the acquisition related increases, our specialty film
1998 volume increased by approximately 13.2%. The volume increase was due
primarily to the completion of significant capacity expansions in our barrier
film operations and the relocation of equipment from our closed facilities to
our specialty films facilities. These increases were slightly off-set by a 5.1%
reduction in our average selling prices, excluding the effects of the recent
acquisitions. As previously discussed, the reduction in selling prices resulted
from declines in 1998 resin prices.
Segment Profit. The specialty films segment profit increased by $16.5
million, or 84.2%, in 1998 to $36.1 million from $19.6 million in 1997. The
increase was due primarily to the recent acquisitions and the increase in sales
volume resulting from production capacity expansions. In 1997, operating
expenses associated with this segment were not allocated to the operating
segment. Accordingly, the segment profit increase due to acquisitions and volume
increases was partially off-set by increased operating expenses in 1998. The
increase in operating expenses was due to the CT Film and Blessings acquisitions
and the establishment of a separate segment management team.
Segment profit excludes nonrecurring plant closing costs. The Clearfield,
Utah plant closing, discussed above, resulted in a 1998 plant closing cost
charge of $4.9 million. This charge relates entirely to the specialty films
operating segment. See Note 4 to the consolidated financial statements included
elsewhere in this prospectus.
Segment Total Assets. The specialty films segment total assets increased
by $247.0 million, or 131.3%, in 1998 to $435.1 million from $188.1 million in
1997. The increase was primarily due to the recent acquisitions and capital
expenditures. The 1998 acquisitions increased segment total assets by
approximately $244.4 million and 1998 capital expenditures were $26.2 million.
1998 capital expenditures included the purchase of a new barrier film production
line at our Bloomington, Indiana facility and ongoing capital improvements.
These increases were partially off-set by reductions in assets resulting from
the closure of the Clearfield, Utah facility, the sale of the Scunthorpe, UK,
facility, by 1998 depreciation and by reductions in working capital.
Design Products
Net Sales. The design products segment net sales increased by $42.7
million, or 45.7%, in 1998 to $136.1 million from $93.4 million in 1997. This
increase was primarily due to our recent acquisitions and to sales volume
increases resulting from production capacity expansions. The Blessings
acquisition added approximately $30.2 million to net sales in 1998. These
additional sales
50
58
relate to our Mexican operation acquired from Blessings Corporation. Excluding
the effect of this acquisition, net sales dollars increased by 13.3% and sales
volume increased by 16.1%. The sales dollar and volume increases were due to
additional production capacity added over the last two years in our Rochester,
New York and Seattle, Washington facilities. These increases were off-set, in
part, by a 2.1% reduction in 1998 average selling prices, excluding the effects
of the Blessings acquisition. As previously discussed, the decreased average
selling prices resulted from a reduction in resin prices during 1998.
Segment Profit. The design products segment profit increased by $1.1
million, or 9.7%, in 1998 to $12.4 million from $11.3 million in 1997. The
increase was primarily due to our recent acquisitions and increased sales volume
resulting from production capacity expansions. In 1997, operating expenses
associated with this segment were not allocated to the operating segment.
Accordingly, the acquisition and sales volume related segment profit increases
were partially off-set by increased operating expenses in 1998 as compared to
1997. The increase in operating expenses was due to the Blessings acquisition
and the establishment of a separate segment management team.
Segment Total Assets. The design products segment total assets increased
by $98.8 million, or 180.9%, in 1998 to $153.4 million from $54.6 million in
1997 due primarily to our recent acquisitions and capital expenditures to expand
capacity. The 1998 acquisitions added total assets of approximately $84.6
million and 1998 capital expenditures added approximately $18.4 million. These
additions were partially off-set by 1998 depreciation and reductions in working
capital.
Capital expenditures were for significant capacity expansion at our
Rochester, New York and Seattle, Washington facilities and ongoing capital
improvements. The capacity expansion expenditures included new, 8-color printing
presses that allow us to pursue higher margin printing applications.
Industrial Films
Net Sales. The net sales of our industrial films segment decreased by
$30.7 million, or 17.5%, in 1998 to $144.7 million from $175.4 million in 1997.
The decrease in sales was primarily due to a combination of the closure of our
Carrollton, Ohio facility and reductions in our average selling prices. During
1998, we completed the closure of the Carrollton facility. We relocated the more
efficient Carrollton manufacturing equipment to facilities in other of our
operating segments and the equipment that was not relocated was sold (see Note 4
to the consolidated financial statements included elsewhere in this prospectus).
These asset transfers and dispositions caused net sales to decrease by
approximately $17.0 million in 1998. Excluding the effects of the Carrollton
closure, we experienced a decline in our average selling prices of approximately
11.8% as a result of general industry selling price declines resulting from
declines in resin prices. The volume of our PVC film business was virtually
unchanged in 1998, while our stretch film volume increased approximately 5.7% in
1998, excluding the effects of the Carrollton closure.
Segment Profit. The industrial films segment profit increased by $1.5
million, or 15.8%, in 1998 to $11.0 million from $9.5 million in 1997. The
increase in segment profit was primarily due to a combination of dramatically
increased stretch film gross profits over 1997 and the closure of the Carrollton
plant. The stretch film business realized a return to profitability in 1998
after sustaining significant losses in 1997. During 1997, our stretch film
business suffered through historically low gross profits due to excess supply in
stretch film markets and lower than expected production efficiencies in our
facilities. Although excess supply continued to be a factor in 1998, we realized
significantly increased production efficiencies and lower production costs. The
closure of the Carrollton plant added approximately $1.0 million to our segment
profit, as compared to 1997. The increase in profitability was partially off-set
by increased operating expenses in 1998, due to the establishment of a separate
segment management team. In 1997, operating expenses associated with this
segment were not allocated to the operating segment. Excluding the effects of
the increase in segment operating expenses, the PVC business profitability was
slightly increased over 1997.
51
59
Segment profit excludes nonrecurring plant closing costs. The Carrollton
plant closing, discussed above, resulted in a 1997 plant closing cost charge of
$9.3 million. This charge relates entirely to the industrial film operating
segment. See Note 4 to the consolidated financial statements included elsewhere
in this prospectus.
Segment Total Assets. The industrial films segment total assets decreased
by $13.8 million, or 14.3%, in 1998 to $82.7 million from $96.5 million in 1997.
The decrease was due primarily to the closure of the Carrollton plant, 1998
depreciation and reductions in working capital. These reductions were partially
off-set by 1998 capital expenditures of approximately $5.7 million. The capital
expenditures were for ongoing capital improvements, as well as a major upgrade
to one of our stretch film production lines.
LIQUIDITY AND CAPITAL RESOURCES
Historical Liquidity and Capital Resources Prior to the Transactions
On September 30, 1997, we issued $125.0 million of the 9 1/8% senior
subordinated notes, which would have matured on October 1, 2007. Interest on the
9 1/8% senior subordinated notes was payable semi-annually on each April 1 and
October 1, commencing April 1, 1998. Additionally, on September 30, 1997, we
entered into our prior $225.0 million credit facility with a syndicate of banks,
including The Chase Manhattan Bank. On May 14, 1998, the prior credit facility
was amended and restated as a $510.0 million facility. The prior credit facility
provided for the continuation of a previous term loan in the principal amount of
$75.0 million, maturing on September 30, 2005; a tranche A term loan in the
principal amount of $140.0 million, maturing on September 30, 2005; a tranche B
term loan in the principal amount of $100.0 million, maturing on June 30, 2006;
and a term loan to ASPEN Industrial, S.A., our wholly owned Mexican subsidiary,
in the principal amount of $45.0 million, maturing on September 30, 2005. The
prior credit facility also provided for a $150.0 million revolving loan facility
maturing on September 30, 2004. The prior credit facility's term loan amortized
at an increasing rate on a quarterly basis. The tranche A term loan and the
Mexico term loan began amortizing on December 31, 1998 and the other term loan
began amortizing on December 31, 2001. The tranche B term Loan under our prior
credit facility amortized at the rate of $1.0 million per year, beginning
September 30, 1998, with an aggregate of $93.0 million due in the last four
quarterly installments. The term loans described above were required to be
prepaid with the proceeds of certain asset sales, with 50% of the proceeds of
the sale of certain Huntsman Packaging equity securities, and with the proceeds
of certain debt offerings. Loans under the prior credit facility bore interest,
at our election, at either (i) zero to 0.75%, depending on certain of our
financial ratios, plus the higher of (a) The Chase Manhattan Bank's prime rate,
(b) the federal funds rate plus 1/2% or (c) The Chase Manhattan Bank's base CD
rate plus 1%, or (ii) the London Interbank Offered Rate plus 2.00%, which may
adjust downward based upon our leverage ratio to a minimum of LIBOR plus 1%.
Our obligations under the prior credit facility were guaranteed by
substantially all of our domestic subsidiaries and secured by substantially all
of our domestic assets. The prior credit facility was also secured by a pledge
of 65% of the capital stock of each of our foreign subsidiaries. See Notes 6 and
16 to the consolidated financial statements included elsewhere in this
prospectus.
Net cash provided by operating activities was $51.4 million in 1999, an
increase of $5.9 million, or 13.0%, from $45.5 million in 1998. The increase
resulted primarily from increased net income in 1999 of $10.0 million, an
increase in accounts payable, an increase in noncash items and a decrease in
income taxes receivable. These increases in cash flows were offset by increases
in receivables and inventories. Net cash provided by operating activities
increased $16.9 million, or 59.1%, in 1998 to $45.5 million from $28.6 million
in 1997. The 1998 increase resulted primarily from increased net income in 1998
of $8.0 million and a reduction in inventories and prepaid expenses.
Net cash used in investing activities was $46.0 million, $314.8 million and
$87.2 million for 1999, 1998 and 1997, respectively. The majority of cash was
used in the KCL, Blessings, and CT Film acquisitions and capital expenditures
discussed below. During 1999, we made net cash payments of
52
60
approximately $11.5 million for KCL Corporation. During 1998, we made net cash
payments of approximately $285.7 million for the purchase of Blessings
Corporation and $10.9 million for other acquisitions. During 1997, we made net
cash payments of approximately $69.4 million for the purchase of CT Film. See
Note 12 to the consolidated financial statements included elsewhere in this
prospectus.
Total capital expenditures were $35.7 million, $52.1 million and $17.9
million for 1999, 1998 and 1997, respectively. The 1999 capital expenditures
included expenditures to add new capacity, to upgrade and relocate existing
equipment, and to upgrade existing information systems. The 1998 capital
expenditures included expenditures to upgrade and relocate existing equipment,
to add significant new capacity in our design products and specialty films
facilities, to add new information systems, and to upgrade existing information
systems. The 1997 capital expenditures included film production capacity
expansions in our facilities acquired in 1996, as well as printing capacity
expansion in our design products facilities.
Net cash provided by (used in) financing activities was $(16.7) million,
$275.9 million and $63.2 million for 1999, 1998 and 1997, respectively. Net cash
provided by financing activities consists primarily of net borrowings under our
current and prior credit arrangements in 1998 and 1997. In 1999, cash was used
to pay scheduled principal payments on the prior credit facility and to pay down
the outstanding balance on the Existing Revolver. See Note 6 to the consolidated
financial statements included elsewhere in this prospectus. Net cash provided by
financing activities was used primarily to fund our capital expenditures, as
well as the 1998 Blessings acquisition and the 1997 CT Film acquisition.
Liquidity and Capital Resources Following the Transactions
Interest payments on the Notes and on borrowings under the credit
facilities significantly increased our liquidity requirements. The credit
facilities provide for term loans under the tranche A facility and the tranche B
facility of $480.0 million, which we borrowed in connection with the
Transactions, and up to $100.0 million of revolving credit borrowings under the
revolving credit facility, which is available for working capital and general
corporate purposes, including financing of acquisitions, investments and
strategic alliances. We borrowed $5.9 million under the revolving credit
facility to consummate the Transactions and have reserved $1.3 million for
letters of credit. Borrowings under the tranche A facility, the tranche B
facility and the revolving credit facility under our credit facilities bear
interest at variable rates plus any applicable margin. See "Description of
Credit Facilities."
As of June 30, 2000, we had approximately $127.0 million of working capital
and approximately $93.0 million available under the credit facilities,
approximately $1.3 million of which was represented by outstanding letters of
credit. As of June 30, 2000, the debt under the credit facilities bore interest
at a weighted average rate of 9.69%.
The following table sets forth the principal payments on the tranche A and
B facilities, for the years 2001 through their maturity in 2008:
YEAR PRINCIPAL PAYMENT
- ---- -----------------
2001................................................ $ 8,050,000
2002................................................ 22,550,000
2003................................................ 32,800,000
2004................................................ 55,300,000
2005................................................ 62,800,000
2006................................................ 35,300,000
2007................................................ 158,760,000
2008................................................ 104,440,000
53
61
In addition, we are required to make annual mandatory prepayments of the
tranche A and B facilities under the credit facilities in an amount equal to 50%
of excess cash flow within 90 days following the end of each year, commencing
with the year ending December 31, 2000. In addition, the tranche A and B
facilities are subject to mandatory prepayments in an amount equal to (a) 100%
of the net cash proceeds of equity and debt issuances by us or any of our
subsidiaries and (b) 100% of the net cash proceeds of asset sales or other
dispositions of property by us or any of our subsidiaries, in each case subject
to certain exceptions.
The credit facilities and the Indenture impose certain restrictions on us,
including restrictions on our ability to incur indebtedness, pay dividends, make
investments, grant liens, sell our assets and engage in certain other
activities. In addition, the credit facilities require us to maintain certain
financial ratios. Indebtedness under the credit facilities is secured by
substantially all of our assets, including our real and personal property,
inventory, accounts receivable, intellectual property and other intangibles. Our
obligations under the credit facilities are guaranteed by substantially all of
our domestic subsidiaries and secured by a pledge of 100% of the capital stock
of our domestic assets and 65% of the capital stock of each of our foreign
subsidiaries. See "Description of Credit Facilities."
We incurred premium and consent fees, plus accrued and unpaid interest on
the 9 1/8% senior subordinated notes in connection with the tender offer and
consent solicitation, of $11.9 million in connection with the Transactions. In
addition, approximately $21.3 million, principally relating to financing fees
and expenses associated with the Transactions, will be capitalized and amortized
over the terms of the Notes and the credit facilities.
Net cash provided by operating activities was $16.3 million for the first
half of 2000, an increase of $7.7 million from the same period in 1999. The
increase resulted primarily from decreases in trade accounts receivable, lower
inventories in 2000 compared to 1999, and non-cash income statement items. The
increase was offset by a decrease in net income during the first half of 2000
and an increase in income tax receivable.
Net cash used in investing activities was $25.2 million for the first half
of 2000, an increase of $8.1 million from the same period in 1999. In both
periods, the expenditures were almost entirely for capital expenditures. Capital
expenditures during the first half of 2000 were primarily for major expansion
projects in our industrial films and specialty films product lines, for
upgrading and installing equipment relocated from closed manufacturing
facilities to other facilities, for upgrading our information systems, and for
several new and carryover maintenance projects throughout our company. We expect
capital expenditures to remain at approximately current levels in future
periods.
Net cash provided by financing activities was $12.3 million for the first
half of 2000, compared to $1.7 million for the same period in 1999. The activity
in 2000 was higher as a result of the financial change caused by the
Transactions.
As of June 30, 2000, we had $11.2 million in cash and cash equivalents,
including $11.0 million held by our foreign subsidiaries. The effective tax rate
of repatriating this money and future foreign earnings to the U.S. varies from
approximately 40% to 65% depending on various U.S. and foreign tax factors,
including each foreign subsidiary's country of incorporation. High effective
repatriation tax rates may limit our ability to access cash and cash equivalents
generated by our foreign operations for use in our U.S. operations, including to
pay principal, premium, if any, and interest on the Notes and the credit
facilities. For the six months ended June 30, 2000, our foreign operations
generated net income from continuing operations of $3.8 million. In 1997, 1998
and 1999, our foreign operations generated net income from continuing operations
of $1.7 million, $1.4 million and $4.7 million, respectively.
We expect that our total capital expenditures will be approximately $52.0
million in 2000 and approximately $35.0 million in 2001. Of such amounts, we
currently estimate that a minimum range of $12.0 million to $15.0 million of
ongoing maintenance capital expenditures are required each year.
54
62
We expect that cash flows from operating activities and available
borrowings under our credit arrangements will provide sufficient working capital
to operate our business, to make expected capital expenditures and to meet
foreseeable liquidity requirements, including debt service on the Notes and the
credit facilities. If we were to engage in a significant acquisition
transaction, however, it may be necessary for us to restructure our existing
credit arrangements.
OTHER MATTERS
Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards that require derivative instruments to be recorded on the balance
sheet as either an asset or liability, measured at fair market value, and that
changes in the derivative's fair value be recognized currently in earnings,
unless specific hedging accounting criteria are met. SFAS No. 133 is effective
for fiscal years beginning after June 15, 2000. We expect that the adoption of
this statement will not have a material effect on our consolidated financial
statements.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various interest rate and resin price risks that arise in
the normal course of business. We finance our operations with borrowings
comprised primarily of variable rate indebtedness. Our resin costs comprised
approximately 65% of our total manufacturing costs in 1999. Significant
increases in interest rates or the price of resins could adversely affect our
operating margins, results of operations and ability to service our
indebtedness.
We enter into interest rate collar and swap agreements to manage interest
rate market risks and commodity collar agreements to manage resin market risks.
As of June 30, 2000, we had one interest rate collar agreement. We did not have
any swap agreements or commodity collar agreements in place at June 30, 2000.
The estimated fair market value of the interest rate collar was $0.2 million.
The interest rate collar was sold in July 2000 for approximately $0.2 million.
We have performed a sensitivity analysis assuming a hypothetical 10% adverse
movement in interest rates and commodity prices applied to the agreements
described above. The analysis indicated that such market movements would not
have a material effect on our consolidated financial position, results of
operations or cash flows. Factors that could impact the effectiveness of our
hedging programs include the volatility of interest rates and commodity markets
and the availability of hedging instruments in the future.
We are required under our credit facilities to enter into interest rate
hedging agreements by December 31, 2000 with respect to approximately $130
million of borrowings outstanding under our credit facilities.
55
63
BUSINESS
GENERAL
We are one of North America's leading manufacturers of value-added films
and flexible packaging for food, personal care, medical, agricultural and
industrial applications. We offer one of the most diverse product lines in the
film industry and have achieved leading market positions in each of our major
product lines. We believe our market leadership is primarily attributable to our
strategy of building strong relationships with market-leading customers, by
offering a broad line of innovative products and by providing technological
leadership through our modern and low-cost manufacturing facilities. Our
products are frequently highly engineered and are important components of, or
provide critical attributes to, our customers' end-products. We operate 24
manufacturing and research and development facilities worldwide and we currently
have approximately one billion pounds of annual production capacity. For the
twelve months ended June 30, 2000, we generated pro forma net sales of $843.6
million, pro forma EBITDA of $107.0 million and pro forma Adjusted EBITDA of
$110.7 million.
PRODUCTS, MARKETS AND CUSTOMERS
Our products are sold into numerous markets for a wide variety of end uses
and are offered through three operating segments: Specialty Films, Design
Products and Industrial Films.
SPECIALTY FILMS
Specialty Films accounted for 40.0%, 56.9% and 57.9% of our net sales in
1997, 1998 and 1999, respectively. Our Specialty Films include personal care
films, medical films, converter films, barrier and custom films, and
agricultural films. Our Specialty Films customers include Baxter, Becton-
Dickinson, General Mills, Johnson & Johnson, Kendall Healthcare, Kimberly-Clark,
Lawson Mardon, Nabisco, Pechiney, Printpack, Ralston Foods and Sonoco.
Personal Care. We are the leading producer of personal care films used in
disposable diapers, feminine care products and adult incontinence products.
Personal care films must meet diverse and highly technical specifications. Many
of these films must "breathe," allowing water vapors to escape. In some
applications, the softness or "quietness" of the film is important, as in adult
incontinence products. A significant portion of our Specialty Films business
consists of the sale of personal care films to Kimberly-Clark Corporation and
its affiliates. Kimberly-Clark Corporation is our largest customer and accounts
for approximately 22% of our Specialty Films net sales and 13% of our 1999
consolidated net sales. We are North America's leading producer of personal care
films, with an estimated market share of approximately 45%.
Medical. We are a leading manufacturer of medical films used for sterile
packaging for medical supplies, such as disposable syringes and intravenous
fluid bags. Other of our medical films become components in disposable surgical
drapes and gowns. Our medical films are manufactured in "clean-room"
environments and must meet stringent barrier requirements. A sterile barrier is
necessary to provide and assure the integrity of the devices and to prevent
contamination and tampering. These films must also be able to withstand varied
sterilization processes. We are a leading provider of medical films in North
America, in a highly fragmented market.
Converter. Converter films are mono-layer and multi-layer, co-extruded
films that are sold to converters of flexible packaging who may laminate them to
foil, paper or other films, print them, and may ultimately fabricate them into
the final flexible packaging product. Our converter films are a key component in
a wide variety of flexible packaging products, such as fresh-cut produce
packages, toothpaste tubes and stand-up pouches. Generally, our converter films
add value by providing the final packaging product with specific performance
characteristics, such as moisture, oxygen or odor barriers, ultraviolet
protection or desired sealant properties. Because converter films are sold for
their sealant, barrier or other properties, they must meet stringent performance
specifications
56
64
established by the converter, including gauge control, clarity, sealability and
width accuracy. We are a leader in introducing new converter film products to
meet flexible packaging industry trends and specific customer needs. We are
North America's leading manufacturer of films sold to converters, with an
estimated market share of approximately 30%.
Barrier and Custom. We manufacture a variety of barrier and custom films,
primarily for smaller, but profitable, niche segments in flexible packaging and
industrial markets. For example, we are North America's second largest producer
of films for cookie, cracker and cereal box liners, with an estimated market
share of approximately 20%. We are also a leading manufacturer of barrier films
for liners in multi-wall pet food bags, films for photoresist coatings for the
electronics industry, and films for the protection and transportation of the
sheet molding compound used in the manufacture of boats and automotive parts.
Agricultural. We are a leading manufacturer of polyethylene mulch films
that are sold to fruit and vegetable growers and to nursery operators. Our mulch
films are used extensively in North America and Latin America. Commercial
growers of crops like peppers, tomatoes, cucumbers and strawberries are the
primary consumers of our mulch films. These crops are typically planted on
raised beds that are tightly covered with mulch film. The mulch film eliminates
or retards weed growth, significantly reduces the amount of water required by
plants, controls soil bed temperatures for ideal growing conditions and allows
easy application of fertilizer. We are one of North America's two largest
producers of mulch films, with an estimated market share of approximately 40%.
DESIGN PRODUCTS
Design Products accounted for 20.8%, 20.9% and 22.5% of our net sales in
1997, 1998 and 1999, respectively. Our Design Products are primarily printed
films and flexible packaging products. For financial reporting purposes, this
reporting segment also includes our Mexican subsidiary, NEPSA. NEPSA is a
leading producer of printed products for Mexico and other Latin American
countries. NEPSA also produces personal care and barrier films for these
markets. In 1999, approximately 32% of our Design Products sales were outside
the United States, primarily in Mexico and Latin America.
Our Design Products include printed rollstock, bags and sheets used to
package food and consumer goods. Printed bags or rollstock are sold to bakeries,
fresh and frozen food processors, manufacturers of personal care products,
textile manufacturers and other dry goods processors. Bread and bakery bags
represent a significant portion of our Design Products business. Our Design
Products group produces approximately three billion bread and bakery bags each
year.
We are the leading manufacturer of films for the frozen foods market in
North America, with an estimated market share of approximately 30%. In addition,
we are the second largest manufacturer of films for the bread and bakery goods
market in North America, with an estimated market share of approximately 20%.
Our customers in this segment include IGA Fleming, Interstate Bakeries,
Kimberly-Clark de Mexico, Mission Foods, Ore-Ida, Pictsweet and Schmidt Baking.
INDUSTRIAL FILMS
Our Industrial Films segment manufactures stretch and PVC films. Industrial
Films accounted for 39.2%, 22.2% and 19.6% of our net sales in 1997, 1998 and
1999, respectively. In 1999, approximately 32% of our Industrial Films sales
were outside the United States, primarily in Canada, Europe and Australia. Our
customers in this segment include national distributors such as Bunzl, Unisource
and xpedx, grocery chains, such as Albertson's, Kroger, Publix and Safeway, and
end-users, such as General Mills and Wal-Mart.
Stretch Films. Our stretch films are used to bundle, unitize and protect
palletized loads during shipping and storage. Stretch films are replacing more
traditional packaging, such as corrugated boxes and metal strapping, because of
stretch films' lower cost, higher strength, and ease of use. We are North
America's fourth largest producer of stretch films, with an estimated market
share of approximately 10%.
57
65
PVC Films. Our PVC films are used by supermarkets, delicatessens and
restaurants to wrap meat, cheese and produce. PVC films are preferred in these
applications because of their clarity, elasticity and cling. We also produce PVC
films for laundry and dry cleaning bags. Finally, we produce PVC films for
companies that repackage the films in smaller cutterbox rolls for sale in retail
markets in North America, Latin America and Asia. We are the second largest
producer of PVC films in North America, with an estimated market share of
approximately 25%. In addition, we are the leading producer of PVC films in
Australia and the third largest producer in Europe, with estimated market shares
of approximately 60% and 15%, respectively.
SALES AND MARKETING
Because of our broad range of product offerings and customers, our sales
and marketing efforts are generally product or customer specific. We market in
various ways, depending on both the customer and the product. However, most of
our salespeople are dedicated to a specific product line and sometimes to
specific customers.
The majority of our Specialty Films are sold by our own direct sales force.
These salespeople are supported by customer service and technical specialists
assigned to each salesperson, and in some cases, to specific customers. Customer
service representatives assist with order intake, scheduling and product
information. Technical support personnel assist the salesperson and the customer
with technical expertise, quality control and product development. We believe it
is critical that our sales, marketing and technical support teams work together
in order to meet our customers' product needs and provide meaningful product
development.
We sell some of our Specialty Films, such as our agricultural films,
through regional distributors. In addition, certain of our personal care and
barrier films are sold through brokers who have long-standing relationships with
customers.
Most of our Design Products are sold through brokers. National grocery
chains and some smaller customer accounts are serviced by our own direct sales
force. Generally, each Design Products salesperson is supported individually by
a customer service specialist and by a group of technical specialists.
Industrial Films are generally sold through distributors. We have an
independent contract sales force that sells our stretch films to national and
regional distributors. Our PVC films are sold by our own sales force to regional
and national distributors, directly to national grocery chains, and directly to
converters, who repackage the film into cutterbox rolls for sale at retail.
MANUFACTURING
We have a modern and efficient portfolio of manufacturing assets. During
1998 and 1999, we invested a total of $87.8 million to expand, upgrade and
maintain our asset base. With 23 plants and over 180 extrusion lines, we are
able to allocate lines to specific products. This results in fewer change-overs
and more efficient use of capacity, effectively expanding our production
capacity. Our multiple manufacturing sites and varied production capabilities
also allow us to offer multiple plant service to our national customers. In
addition, our large, efficient plants allow overhead to be allocated over higher
volumes, providing lower unit costs. Generally, our manufacturing plants operate
24 hours a day, seven days a week.
We manufacture our film products using both the blown and cast extrusion
processes. In each process, thermoplastic resin pellets are combined with other
resins, plasticizers or modifiers in a controlled, high-temperature, pressurized
process to create films with specific performance characteristics. In the cast
film process, molten resin is extruded through a horizontal die onto a chill
roll, where the film is quickly cooled. As the film comes off the end of the
chill roll, it is wound onto rolls. Blown film is produced by extruding molten
resin through a circular die and chilled air ring to form a bubble as large as
55 feet high and 25 feet in diameter. The bubble is then collapsed, cut and
wound onto rolls.
58
66
These two basic film manufacturing processes produce films with uniquely
different performance characteristics. Cast films are generally clearer, softer
and more uniform in thickness. Blown films offer enhanced physical properties,
such as increased tear and puncture resistance and better barrier protection.
We also produce a significant amount of printed films and bags. We employ
both flexographic and rotogravure printing equipment in our printing operations.
Flexographic printing uses flexible plates on a rotary letter press and is
preferred for shorter runs. Rotogravure printing uses engraved cylinders and
produces sharper images.
TECHNOLOGY AND RESEARCH AND DEVELOPMENT
We believe our technology base and research and development support are
among the best in the film industry. Our Newport News, Virginia research and
development center employs 43 engineers, technical specialists and operators who
provide the latest resin and extrusion technology to our manufacturing
facilities and test new resins and process technologies. This 54,000 square foot
technical center has a pilot plant with a 17 million pound annual capacity, with
four extrusion lines. These extrusion lines include two blown lines, including a
seven-layer line installed in 1999, and two cast lines, including a five-layer
line. These pilot lines are staffed with 24 operating and supervisory personnel.
These capabilities allow the technical center to run commercial "scale-ups" for
new products.
Our Newport News technical center has a fully-equipped analytical
laboratory for evaluating new resin technologies. The lab is staffed by 12
analytical and technical specialists, and is headed by a Ph.D. chemist. This
group works closely with the largest resin producers, not only to test and
analyze resins for use by us, but also to help develop new resin technologies.
Finally, the Newport News technical center has seven process engineering
specialists who provide technical support to our 23 manufacturing facilities.
This group also provides centralized technical review of capital expenditures
for machinery and equipment. We believe this centralized technical review helps
to conserve financial resources, by providing technical consistency across our
manufacturing divisions, and leverages our equipment purchasing power.
We are able to use our broad product offerings and technology to transfer
technological innovations from one market to another. For example, our expertise
in coextrusion technology, gained from the production of converter and barrier
films, and our expertise in applications involving metallocene and other
specialty resins, have helped us produce thinner and stronger personal care and
medical films.
Many of our customers work in partnership with our technical
representatives to develop new, more competitive products. We have enhanced our
relationships with these customers by providing the technical service needed to
support commercialization of new products and by helping customers improve
operational efficiency and quality throughout a product's life cycle. These
customers, in order to ensure product quality and consistency for their own
customers, do not change suppliers often, because supplier changes can be
expensive and time-consuming. Qualifying a new supplier can take up to a year to
complete and can, in some cases, cost over $1 million.
We spent $2.5 million, $3.7 million and $5.5 million on research and
development in 1997, 1998 and 1999, respectively.
INTELLECTUAL PROPERTY RIGHTS
Patents, trademarks and licenses are significant to our business. We have
patent protection on many of our products and processes, and we regularly apply
for new patents on significant product and process developments. We have
registered trademarks on many of our products. We also rely on unpatented
proprietary know-how, continuing technological innovation and other trade
secrets to develop and maintain our competitive position. In addition to our own
patents, trade secrets and proprietary know-how, we have licensed from third
parties the right to use some of their intellectual property. Although we
constantly seek to protect our patents, trademarks and other intellectual
59
67
property, there can be no assurance that our precautions will provide meaningful
protection against competitors or that the value of our trademarks will not be
diluted.
We routinely enter into confidentiality agreements to protect our trade
secrets and proprietary know-how. We cannot assure you, however, that such
agreements will not be breached, that they will provide meaningful protection,
or that adequate remedies will be available to us if these confidentiality
agreements are breached.
Pursuant to the Recapitalization Agreement, after December 31, 2000, we
will no longer be able to use "Huntsman" as or in our trademarks or tradenames.
We do not believe the replacement of "Huntsman" with another name or names will
have a significant impact on our business.
RAW MATERIALS
Polyethylene, PVC, and other resins and additives constitute the major raw
materials for our products. For the year ended December 31, 1999, resin costs
comprised approximately 65% of our total manufacturing costs. The price of
resins is a function of, among other things, manufacturing capacity, demand, and
the price of crude oil and natural gas feedstocks. While temporary shortages of
raw materials may occur from time to time, these items generally are considered
to be readily available from numerous suppliers. Resin shortages or significant
increases in the price of resin, however, could have a significant adverse
effect on our business.
Our major polyethylene resin suppliers are Chevron, Dow Chemical, Equistar,
Exxon/Mobil and Huntsman Polymers, a wholly owned subsidiary of Huntsman
Corporation. All resin is purchased at arm's length at prevailing market prices.
Our major suppliers of PVC resin are Borden Chemical, OxyGeon and Shintech.
COMPETITION
The markets in which we operate are highly competitive on the basis of
service, product quality, product innovation and price. Small and medium-sized
manufacturers, which compete primarily in regional markets, predominate, and
there are relatively few large national manufacturers. Statistics of the
Flexible Packaging Association and available trade and industry information
indicate that the ten largest flexible packaging companies accounted for
approximately 35% of total North American industry sales in 1999. In addition to
competition from many smaller competitors, we face strong competition from a
number of large film and flexible packaging companies, including AEP, Bemis,
Pactiv (formerly Tenneco), Pechiney and Printpack. Some of our competitors are
substantially larger, are more diversified and have greater financial, personnel
and marketing resources than we have, and, therefore, may have certain
competitive advantages. See "Risk Factors -- Competition."
EMPLOYEES
As of June 30, 2000, we had approximately 3,500 employees worldwide. Of
those, approximately 1,400 are subject to a total of 11 collective bargaining
agreements that expire from October 2000 to November 2002. We believe our
relationships with employees historically have been good. However, on March 7,
2000, approximately 130 employees at our Chippewa Falls, Wisconsin manufacturing
plant went on strike, the first strike in our history. During this strike, we
continued to service our customers and our business was not materially affected.
The strike was subsequently resolved and the striking employees returned to work
on March 20, 2000. See "Risk Factors -- Risks Associated with Labor Relations."
PROPERTIES
Our principal executive offices are located at 500 Huntsman Way, Salt Lake
City, Utah 84108. We lease these facilities from Huntsman Headquarters
Corporation, an indirect, wholly owned subsidiary of Huntsman Corporation. We
will relocate our corporate offices to another facility in Salt Lake City in the
third or fourth quarter of 2000.
60
68
We own most of the improved real property and other assets used in our
operations. We lease all or part of seven of the sites at which we have
manufacturing operations. We also lease warehouse and office space at various
locations. We consider the condition of our plants, warehouses and other
properties and the other assets owned or leased by us to be generally good.
We have an annual film production capacity of approximately one billion
pounds. In 1999, we produced approximately 800 million pounds of films and
flexible packaging products. We believe that the capacities of our plants are
adequate to meet our current needs.
Our principal manufacturing plants are listed below. Unless otherwise
indicated, we own each of these properties.
APPROXIMATE
SQUARE
LOCATION PRODUCTS PRODUCTION PROCESS FOOTAGE
-------- -------- ------------------ -----------
SPECIALTY FILMS:
Birmingham, Alabama Barrier and custom films Blown and cast lines 119,000
Bloomington, Indiana* Barrier and custom films Blown lines 58,000
Chippewa Falls, Wisconsin Converter and personal care Blown and cast lines 134,000
films
Dalton, Georgia Converter, barrier and Blown lines 211,000
custom films
Danville, Kentucky Converter and custom films Blown lines 94,000
Deerfield, Massachusetts Converter films Blown lines 168,000
Harrington, Delaware Personal care, medical and Blown and cast lines 129,000
agricultural films
McAlester, Oklahoma Personal care films Blown and cast lines 135,000
Newport News, Virginia Research facility and pilot Blown and cast lines 54,000
plant
Odon, Indiana* Barrier and custom films Blown lines 20,000
Washington, Georgia Personal care and Blown and cast lines 180,000
agricultural films
DESIGN PRODUCTS:
Dallas, Texas Printed bags and rollstock Flexographic printing and 62,000
blown lines
Kent, Washington Printed bags and rollstock Flexographic printing and 125,000
blown lines
Langley, British Printed bags and rollstock Flexographic printing and 90,000
Columbia* blown lines
Macedon, New York+ Personal care films, Flexographic printing and 238,000
printed bags and rollstock cast lines
Mexico City, Mexico Barrier films, printed bags Rotogravure printing and 99,000
(NEPSA)* and rollstock blown lines
Mexico City, Mexico Printed bags and rollstock Flexographic printing and 113,000
(NEPSA)* cast lines
Shelbyville, Indiana Closures and reclosable Zipper profile lines, 313,000
bags flexographic printing and
blown lines
INDUSTRIAL FILMS:
Calhoun, Georgia PVC films Blown and cast lines 46,000
Danville, Kentucky Stretch films Blown and cast lines 91,000
Lewisburg, Tennessee Stretch films Cast lines 82,000
Merced, California PVC films Blown lines 38,000
Phillipsburg, Germany PVC films Blown lines 33,000
Preston, Australia* PVC films Blown lines 40,000
Toronto, Canada PVC and stretch films Blown and cast lines 106,000
- ---------------
* Indicates a leased building.
+ Indicates a building of which 225,000 square feet are owned and 13,000 square
feet are leased.
61
69
ENVIRONMENTAL MATTERS
Our operations are subject to environmental laws in the United States and
abroad, including those described below. Our capital and operating budgets
include costs and expenses associated with complying with these laws, including
the acquisition, maintenance and repair of pollution control equipment, and
routine measures to prevent, contain and clean up spills of materials that occur
in the ordinary course of our business. In addition, our production facilities
require environmental permits that are subject to revocation, modification and
renewal. We believe that we are in substantial compliance with environmental
laws and our environmental permit requirements, and that the costs and expenses
associated with such compliance are not material to our business. However,
additional operating costs and capital expenditures could be incurred if, among
other developments, additional or more stringent requirements relevant to our
operations are promulgated.
Among other environmental laws, our operations are subject to regulation
under the federal Clean Air Act and the Clean Water Act, as well as similar
state statutes. Some capital costs for additional air pollution controls or
monitors may be required at certain of our sites, and several of our facilities
may be required to obtain stormwater permits under the Clean Water Act and
implementing regulations. However, we do not expect such costs or expenditures
to be material.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), and similar state statutes, an
owner or operator of real property or a person who arranges for disposal of
hazardous substances may be liable for the costs of removing or remediating
hazardous substance contamination. Liability may be imposed under these statutes
regardless of whether the owner or operator owned or operated the real property
at the time of the release of the hazardous substances and regardless of whether
the release or disposal was in compliance with law at the time it occurred. We
are not aware of any current claims under CERCLA or similar state statutes
against us.
From time to time, contaminants from current or historical operations have
been detected at some of our present and former sites, principally in connection
with the removal or closure of underground storage tanks. We are not currently
aware that any of our facility locations have material outstanding claims or
obligations relating to contamination issues.
In conjunction with the sale of a predecessor subsidiary's New Jersey
polypropylene plant site in 1992, we agreed to indemnify the buyer for
environmental losses of up to $5.0 million associated with conditions, if any,
resulting from the predecessor subsidiary's operations at the plant site between
January 1, 1988 and May 18, 1992. The indemnity amount has reduced ten percent
each year since May 12, 1997, and the indemnity expires altogether on May 8,
2002. Currently, we are not aware of any environmental issues at this site for
which we will incur material liabilities under this indemnity.
LITIGATION
We are involved in litigation from time to time in the ordinary course of
our business. In our opinion, none of such litigation is material to our
financial condition or results of operations.
62
70
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information about our executive officers and directors is presented
in the table below. Pursuant to the stockholders' agreement among us and our
current stockholders and the holders Preferred Stock Warrants, our board of
directors currently consists of seven members, four of whom were designated by
Chase Domestic Investments, L.L.C., two of whom were designated by the Trust and
one of whom was designated by the Management Investors.
NAME AGE POSITION
- ---- --- --------
Richard P. Durham*............. 36 Chairman of the Board, President and Chief Executive
Officer
Jack E. Knott.................. 46 Executive Vice President and Chief Operating Officer and
Director
Scott K. Sorensen*............. 38 Executive Vice President and Chief Financial Officer,
Treasurer and Director
Ronald G. Moffitt.............. 47 Executive Vice President and General Counsel, Secretary
Donald J. Hofmann, Jr. ........ 42 Director
Timothy J. Walsh............... 37 Director
John M. B. O'Connor............ 46 Director
Richard D. Waters.............. 50 Director
- ---------------
* Richard P. Durham and Scott K. Sorensen are brothers-in-law.
RICHARD P. DURHAM became our President and Chief Executive Officer in March
1997 and became the Chairman of our board of directors on May 31, 2000. Mr.
Durham is also a director of Huntsman Corporation. Mr. Durham has been with
various Huntsman affiliates since 1987. Prior to becoming our President, Mr.
Durham served as Co-President and Chief Financial Officer of Huntsman
Corporation, where, in addition to being responsible for finance, tax, legal,
human resources, public affairs, purchasing, research and development, and
information systems, he also was responsible for our operations. Mr. Durham is a
graduate of The Wharton School of Business at the University of Pennsylvania.
Pursuant to the stockholders' agreement, Mr. Durham is one of the Trust's
designees to the board.
JACK E. KNOTT became our Executive Vice President and Chief Operating
Officer on September 1, 1997. Prior to joining us, Mr. Knott was a member of the
board of directors of Rexene Corporation and held the position of Executive Vice
President of Rexene Corporation and President of Rexene Products. Mr. Knott
served in various capacities at Rexene from 1985 to 1997, including Executive
Vice President-Sales and Market Development, Executive Vice President, and
President of CT Film, a division of Rexene Corporation. Prior to joining Rexene
Corporation, Mr. Knott worked for American National Can. Mr. Knott received a
B.S. degree in Chemical Engineering and an M.B.A. degree from the University of
Wisconsin. Mr. Knott also holds nine patents. Pursuant to the stockholders'
agreement, Mr. Knott is the Management Investors' designee to the board.
SCOTT K. SORENSEN joined us as Executive Vice President and Chief Financial
Officer on February 1, 1998. Prior to that time, Mr. Sorensen was an executive
with Westinghouse Electric Corporation, serving as Chief Financial Officer for
both the Communication and Information Systems Division and the Power Generation
Division. Prior to joining Westinghouse in 1996, Mr. Sorensen spent two years as
Director of Business Development and Planning at Phelps Dodge Industries, a
subsidiary of Phelps Dodge Corporation. He also spent over four years as a
management consultant with McKinsey & Company. Mr. Sorensen received a B.S.
degree in Accounting from the University of Utah and an M.B.A. degree from the
Harvard Business School. Pursuant to the stockholders' agreement, Mr. Sorensen
is one of the Trust's designees to the board.
63
71
RONALD G. MOFFITT joined us in 1997, after serving as Vice President and
General Counsel of Huntsman Chemical Corporation. Prior to joining Huntsman
Chemical Corporation in 1994, Mr. Moffitt was a partner and a member of the
board of directors of the Salt Lake City law firm of Van Cott, Bagley, Cornwall
& McCarthy, with which he had been associated since 1981. Mr. Moffitt holds a
B.A. degree in Accounting, a Master of Professional Accountancy degree, and a
J.D. degree from the University of Utah.
DONALD J. HOFMANN, JR. became one of our directors on May 31, 2000. Mr.
Hofmann has been a General Partner of Chase Capital Partners since 1992. Prior
to that, he was head of MH Capital Partners Inc., the equity investment arm of
Manufacturers Hanover. Mr. Hofmann is also a director of Advanced Accessory
Systems, LLC, Berry Plastics Corporation, BPC Holding Corporation, the parent
company of Berry Plastics Corporation, Mackie Automotive Holdings, Inc.,
Metalforming Industries, MetoKote Corporation, Penske Corporation, Skip Barber
Racing Schools, Top Driver, TriPoint Global Communications Inc. and Truck-Lite
Company, Inc. Mr. Hofmann received a B.A. degree from Hofstra University and an
M.B.A. degree from the Harvard Business School. Pursuant to the stockholders'
agreement, Mr. Hofmann is one of Chase Domestic Investments, L.L.C.'s designees
to the board.
TIMOTHY J. WALSH became one of our directors on May 31, 2000. Mr. Walsh has
been a General Partner of Chase Capital Partners since 1999 and has held various
positions with Chase Capital Partners in Europe and North America since 1993.
Prior to that, he was a Vice President of The Chase Manhattan Corporation. Mr.
Walsh is also a director of MetoKote Corporation and Better Minerals &
Aggregates Company. Mr. Walsh received a B.S. degree from Trinity College and an
M.B.A. from the University of Chicago. Pursuant to the stockholders' agreement,
Mr. Walsh is one of Chase Domestic Investments, L.L.C.'s designees to the board.
JOHN M. B. O'CONNOR became one of our directors on May 31, 2000. Mr.
O'Connor joined Chase Capital Partners in 1995 and is a General Partner. Prior
to that time, Mr. O'Connor was a Managing Director of Chemical Securities, Inc.
Mr. O'Connor is also a director of Affiliated Managers Group Inc., FHC Health
Systems, e-BondTrade.com, and AdvisorTech. Mr. O'Connor received his B.A. degree
from Tulane University and an M.B.A. degree from the Columbia University
Graduate School of Business. Pursuant to the stockholders' agreement, Mr.
O'Connor is one of Chase Domestic Investments, L.L.C.'s designees to the board.
RICHARD D. WATERS became one of our directors on May 31, 2000. Mr. Waters
has been a Partner of Chase Capital Partners since 1999 and has held various
positions with Chase Capital Partners since 1996. Prior to that time, Mr. Waters
was a Managing Director in the Merchant Banking Group of The Chase Manhattan
Bank, N.A. Mr. Waters is also a director of NuCo 2 Inc. Mr. Waters received a
B.A. degree from Hamilton College and an M.B.A. degree from the Columbia
University Graduate School of Business. Pursuant to the stockholders' agreement,
Mr. Waters is one of Chase Domestic Investments, L.L.C.'s designees to the
board.
64
72
EXECUTIVE COMPENSATION
The following summary compensation table sets forth information about
compensation earned in the fiscal years ended December 31, 1999, 1998 and 1997
by the chief executive officer and the three other executive officers of
Huntsman Packaging (as of the end of the last fiscal year) (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1) LONG TERM COMPENSATION AWARDS
-------------------------------- ------------------------------
SECURITIES
UNDERLYING ALL OTHER
SALARY BONUS OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- --------------------------- ---- -------- -------- ------------ ------------
Richard P. Durham........................... 1999 $450,000 $327,325 -- $ 29,800(3)
President and Chief 1998 400,000 73,721 15,734 29,800
Executive Officer(2) 1997 415,618 420,000 -- 117,033
Jack E. Knott............................... 1999 $285,421 $140,622 -- $ 4,800(5)
Executive Vice President 1998 263,333 31,331 10,489 4,800
and Chief Operating Officer(4) 1997 85,000 70,000 -- 2,400
Scott K. Sorensen........................... 1999 $232,504 $112,534 -- $ 4,800(7)
Executive Vice President 1998 206,068 28,574 7,867 82,035
and Chief Financial Officer, Treasurer(6) 1997 -- -- -- --
Ronald G. Moffitt........................... 1999 $183,336 $ 63,053 -- $ 4,800(8)
Executive Vice President 1998 170,527 18,761 2,622 4,800
and General Counsel, Secretary(2) 1997 116,939 50,000 -- 17,973
- ---------------
(1) Perquisites and other personnel benefits, securities or property, in the
aggregate, are less than either $50,000 or 10% of the total annual salary
and bonus reported for the applicable Named Executive Officer.
(2) Prior to September 30, 1997, the compensation of Richard P. Durham and
Ronald G. Moffitt, other than Mr. Durham's director's fees for 1997 (which
are described in "-- Compensation of Directors," and listed in the "All
Other Compensation" column), was paid entirely by Huntsman Corporation. We
reimbursed Huntsman Corporation for such compensation for the period
beginning October 1, 1997 and ending December 31, 1997. Salary figures for
1997 for Mr. Durham and Mr. Moffitt represent a prorated portion of Huntsman
Corporation compensation attributable to the percentage of executive
services that were dedicated to us.
(3) Consists of a $25,000 director's fee, which is also described in
"-- Compensation of Directors," and our employer's 401(k) contributions of
$4,800.
(4) Mr. Knott joined us on September 1, 1997. His 1997 compensation is reported
only for the period we employed him.
(5) Consists of employer's 401(k) contributions of $4,800.
(6) Mr. Sorensen joined us on February 1, 1998. His 1998 compensation is
reported only for the period we employed him.
(7) Consists of employer's 401(k) contributions of $4,800.
(8) Consists of employer's 401(k) contributions of $4,800.
STOCK OPTIONS AND RESTRICTED STOCK
During 1998, our board of directors adopted the 1998 Huntsman Packaging
Corporation Stock Option Plan. The 1998 plan authorized grants of nonqualified
stock options covering up to 41,956 shares of our nonvoting Class C common
stock. During 1998, we granted options covering a total of 41,956 shares under
the 1998 plan. Options covering 5,244 shares were subsequently canceled. In
addition, as described below, outstanding options covering 26,223 shares under
the 1998 plan were canceled on February 22, 1999 in connection with the sale of
26,223 shares of Class C common stock to certain members of our senior
management. Options covering a total of 8,902 shares remain outstanding under
the 1998 plan, as amended.
65
73
The following table provides information as to the value of options held by
each of the Named Executive Officers at the end of 1999, measured in terms of
the fair market value of our nonvoting Class C common stock on December 31, 1999
($247 per share, as determined by us pursuant to a formula set forth in the
stockholders agreement in effect prior to May 31, 2000). None of the Named
Executive Officers exercised any options under the 1998 plan during the last
fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ACQUIRED OPTIONS/SARS AT MONEY OPTIONS/SARS
ON VALUE FY-END (#) AT FY-END ($)
NAME EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ -------- ------------------------- ----------------------------
Jack E. Knott........... -- -- 4,196/6,293 $616,812/$925,071
Outstanding options under the 1998 plan were subject to time and
performance vesting requirements. One-half of the outstanding options were time
vested options, which became exercisable in equal increments over a five-year
period commencing January 1, 1998, and the remaining one-half of the outstanding
options were performance vested options, which vested in equal increments over a
five-year period commencing January 1, 1998, provided we had achieved a specific
market value of equity applicable to such increment. For purposes of the
performance vested options, our adjusted market value of equity was determined
pursuant to a formula based upon our adjusted earnings. The terms of the option
agreement provided for partial vesting of the performance vested shares if more
than 80% of the applicable market value of equity was achieved. The option
agreement also provided for accelerated vesting in the event of a change of
control. The Transactions accelerated the vesting of these options, and the
shares underlying these options were part of the Management Equity Rollover or
the Investor Share Purchase.
On February 22, 1999, 26,223 outstanding options under the 1998 plan were
canceled in connection with the sale of 26,223 shares of Class C common stock to
certain members of our senior management. The 26,223 shares were purchased by
certain Named Executive Officers for $100 per share, the estimated fair market
value of the shares on the date of purchase, pursuant to the terms of an option
cancellation and restricted stock purchase agreement between us and certain
Named Executive Officers. Mr. Durham purchased 15,734 shares, Mr. Sorensen
purchased 7,867 shares and Mr. Moffitt purchased 2,622 shares. We loaned the
funds necessary to purchase the stock to each of the Named Executive Officers.
See "Certain Relationships and Related Transactions -- Transactions with
Management." All of such shares were subject to vesting requirements similar to
the canceled options. Accordingly, one-half of the shares purchased by each
Named Executive Officer were time vested shares, which vested in equal
increments over a five-year period commencing January 1, 1998, and the remaining
one-half of the shares purchased by each Named Executive Officer were
performance vested shares, which vested in equal increments over a five-year
period commencing January 1, 1998, provided we had achieved a specified market
value of equity applicable to such increment. For purposes of the performance
vested shares, our market value of equity was determined pursuant to a formula
based upon our adjusted earnings. The terms of the restricted stock purchase
agreements provided for partial vesting of the performance vested shares if more
than 80% of the applicable market value of equity was achieved. The restricted
stock purchase agreements also provided for accelerated vesting in the event of
a change of control. The Transactions accelerated the vesting of the restricted
stock, and these shares of restricted stock were part of the Management Equity
Rollover or the Investor Share Purchase.
Pursuant to the recapitalization agreement, we adopted a 2000 stock-based
incentive compensation plan. The 2000 plan became effective as of the
consummation of the Transactions and authorizes grants to our management
employees as designated by the compensation committee of our board of directors
of nonqualified stock options or restricted stock covering 51,010 shares of
66
74
our common stock. As of August 25, 2000, we had granted restricted stock
covering 32,750 shares of common stock and options to acquire 15,435 shares of
common stock. The options or restricted common stock will vest as follows: (1)
one-sixth are "time-vested" options or shares, which means they will vest on
January 1, 2001, so long as the recipient is still our employee on such date,
and (2) the remainder are "performance vested" options or shares, which will
vest in equal increments over a five-year period commencing on December 31, 2000
as follows: (a) vesting in full, if 100% or more of the applicable target market
value of equity is achieved as of the end of the applicable calendar year and
(b) partial vesting if more than 90% of the applicable target market value of
equity is achieved as of the end of the applicable calendar year. Moreover, all
performance vested options or shares not previously vested in accordance with
the preceding sentence will vest automatically in full on December 31, 2009 so
long as the recipient is still our employee on such date.
PENSION PLANS
The following table shows the estimated annual benefits payable under our
tax-qualified defined benefit pension plan in specified final average earnings
and years of service classifications.
HUNTSMAN PACKAGING PENSION PLAN TABLE
YEARS OF BENEFIT SERVICE AT RETIREMENT
--------------------------------------------------------------------
FINAL AVERAGE COMPENSATION 10 15 20 25 30 35 40
- -------------------------- ------- ------- ------- ------- ------- ------- --------
$100,000 $16,000 $24,000 $32,000 $40,000 $48,000 $56,000 $ 64,000
125,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000
150,000 24,000 36,000 48,000 60,000 72,000 84,000 96,000
175,000 25,600 38,400 51,200 64,000 76,800 89,600 102,400
200,000 25,600 38,400 51,200 64,000 76,800 89,600 102,400
Our current pension plan benefit is based on the following formula: 1.6% of
final average compensation multiplied by years of credited service, minus 1.5%
of estimated Social Security benefits multiplied by years of credited service
(with a maximum of 50% of Social Security benefits). Final average compensation
is based on the highest average of three consecutive years of compensation.
Covered compensation for purposes of the pension plan includes compensation
earned with our former affiliates. The Named Executive Officers were
participants in the pension plan in 1999. The final average compensation for
purposes of the pension plan in 1999 for each of the Named Executive Officers is
$160,000, which is the maximum that can be considered for the 1999 plan year
under federal regulations. Federal regulations also provide that the maximum
annual benefit paid from a qualified defined benefit plan cannot exceed $130,000
as of January 1, 1999. Benefits are calculated on a straight line annuity basis.
The benefit amounts under the pension plan are offset for Social Security as
described above.
The number of completed years of credit service as of December 31, 1999
under our pension plan for the named executive officers participating in the
plan were as follows:
NAME YEARS OF CREDITED SERVICE
- ---- --------------------------
Richard P. Durham(1).................................. 14
Jack E. Knott(1)...................................... 14
Scott K. Sorensen..................................... 2
Ronald G. Moffitt(1).................................. 5
- ---------------
(1) The years of credited service under the pension plan include 12 years of
service credited with affiliates of Huntsman Packaging for Mr. Durham, 12
years of service credited with affiliates of Huntsman Packaging for Mr.
Knott, and three years of service credited with affiliates of Huntsman
Packaging for Mr. Moffitt. The benefit calculation upon retirement under our
pension plan is calculated by multiplying years of credited service by a
fraction representing that part of total credited service for which services
were provided to us.
67
75
EMPLOYMENT AGREEMENTS
On May 31, 2000, we entered into five-year employment agreements with each
of Richard P. Durham, Jack E. Knott, Scott K. Sorensen and Ronald G. Moffitt.
The employment agreements provide for the payment of a base salary, plus a
bonus, at least four weeks paid vacation per year, participation in our leased
car program and participation in our other employee benefit programs, including
our management incentive program, and include non-disclosure of confidential
information provisions and a non-compete provision for one year following the
executive officer's termination of employment with us (unless termination is due
to the term expiring). Each executive officer has agreed in his respective
employment agreement that any inventions, improvements, technical or software
developments, trademarks, patents and similar information relating to us or our
business, products or services conceived, developed or made by such executive
officer while employed by us belong to us. In addition, if the executive
officer's employment with us terminates for any reason, we will have the right
under the employment agreements to repurchase the shares of our common stock
owned by such executive officer at a purchase price equal to their fair market
value. The base salary for each of Messrs. Durham, Knott, Sorensen and Moffitt
as of the date of this prospectus are $500,000, $300,000, $250,000 and $190,000,
respectively.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to May 31, 2000, our board of directors had designated an executive
committee, which was comprised of Jon M. Huntsman and Richard P. Durham, to
perform the duties of a compensation committee for us. Richard P. Durham is our
President and Chief Executive Officer and Jon M. Huntsman was our Chairman of
the Board. As of May 31, 2000, Richard P. Durham and Timothy J. Walsh comprise
the Compensation Committee and perform such duties.
Richard P. Durham serves as a director of Huntsman Corporation, but is not
one of the people who performs the duties of a member of the compensation
committee of Huntsman Corporation.
COMPENSATION OF DIRECTORS
Prior to May 31, 2000, each director received an annual fee of $25,000. As
of May 31, 2000, each director who is not an employee of either Huntsman
Packaging or Chase Capital Partners will receive an annual fee of $25,000.
Currently, all of our directors are employees of either us or Chase Capital
Partners.
68
76
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the ownership of
our common stock as of August 25, 2000 by
- each person known to own beneficially more than 5% of the common stock,
- each of our directors,
- each of our executive officers, and
- all of our executive officers and directors as a group.
The amounts set forth in the table and footnotes below do not include
shares of restricted common stock issued under the 2000 plan as outstanding
because they are subject to vesting requirements that have not yet been met.
Notwithstanding the beneficial ownership of common stock presented below,
the stockholders' agreement governs the stockholders' exercise of their voting
rights with respect to election of directors and certain other material events.
The parties to the stockholders' agreement have agreed to vote their shares to
elect the board of directors as set forth therein. See "Certain Relationships
and Related Transactions."
The amounts and percentages of shares beneficially owned are reported on
the basis of SEC regulations governing the determination of beneficial ownership
of securities. Under SEC rules, a person is deemed to be a "beneficial owner" of
a security if that person has or shares voting power or investment power, which
includes the power to dispose of or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which that
person has a right to acquire beneficial ownership within 60 days. Securities
that can be so acquired are deemed to be outstanding for purposes of computing
such person's ownership percentage, but not for purposes of computing any other
person's percentage. Under these rules, more than one person may be deemed to be
a beneficial owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which such person has no economic interest.
Except as otherwise indicated in these footnotes, each of the beneficial
owners listed has, to our knowledge, sole voting and investment power with
respect to the indicated shares of common stock.
NUMBER OF
SHARES OF
COMMON STOCK
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED CLASS
- ------------------------ ------------ ----------
Chase Domestic Investments, L.L.C.(1)....................... 339,792 60.5%
The Christena Karen H. Durham Trust(2)...................... 158,917 29.5
Richard P. Durham(3)........................................ 28,289 5.2
Jack E. Knott(4)............................................ 8,902 1.6
Scott K. Sorensen(5)........................................ 7,423 1.4
Ronald G. Moffitt(6)........................................ 2,832 *
Donald J. Hofmann, Jr.(7)................................... *
Timothy J. Walsh(7)......................................... *
John M. B. O'Connor(7)...................................... *
Richard D. Waters(7)........................................ *
All directors and executive officers as a group (8
persons).................................................. 47,446 8.7
- ---------------
* Less than 1%.
(1) Chase Domestic Investments, L.L.C. is an affiliate of Chase Capital
Partners and its address is c/o Chase Capital Partners, 1221 Avenue of the
Americas, New York, New York 10020. Includes 22,486 shares of common stock
which are issuable upon exercise of the Preferred Stock Warrants.
69
77
(2) The address of The Christena Karen H. Durham Trust is c/o First Security
Trust Company of Nevada, 530 Las Vegas Boulevard South, 4th Floor, Las
Vegas, Nevada 89101, Attention: Mark Dreschler. The Trust was established
for the benefit of Christena H. Durham and her children. Christena H.
Durham is the wife of Richard P. Durham. Richard P. Durham disclaims
beneficial ownership of the shares of common stock owned by the Trust.
(3) Does not include 14,500 shares of restricted common stock issued under the
2000 plan that do not vest until the time and performance conditions
discussed under "Management -- Stock Options and Restricted Stock" are met.
(4) Represents shares of common stock issuable upon exercise of options that
are immediately exercisable. Does not include 7,750 shares of restricted
common stock issued under the 2000 plan that do not vest until the time and
performance conditions discussed under "Management -- Stock Options and
Restricted Stock" are met.
(5) Does not include 6,750 shares of restricted common stock issued under the
2000 plan that do not vest until the time and performance conditions
discussed under "Management -- Stock Options and Restricted Stock" are met.
(6) Does not include 3,750 shares of restricted common stock issued under the
2000 plan that do not vest until the time and performance conditions
discussed under "Management -- Stock Options and Restricted Stock" are met.
(7) Each of Messrs. Hofmann, Walsh, O'Connor and Waters may be deemed the
beneficial owner of the shares of common stock and New Preferred Stock
Warrants owned by Chase Domestic Investments, L.L.C. due to their status as
either a General Partner or Partner of Chase Capital Partners, which
controls Chase Domestic Investments, L.L.C.
70
78
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH HUNTSMAN CORPORATION
Prior to the Transactions, we had entered into a services agreement with
Huntsman Corporation pursuant to which Huntsman Corporation provided us with
most of our insurance coverage, administered our employee benefit plans, rented
to us corporate headquarters space and provided other services to us. Under that
services agreement, we paid Huntsman Corporation $2.2 million, $2.3 million and
$2.6 million in 1999, 1998 and 1997, respectively. In addition to amounts paid
for services provided under the services agreement, we also reimbursed Huntsman
Corporation for insurance premiums and certain other expenses incurred on our
behalf. Prior to the Transactions, the most significant services provided under
the services agreement were as follows:
- Our principal executive offices were leased from Huntsman Headquarters
Corporation, an indirect wholly owned subsidiary of Huntsman
Corporation.
- We obtained most of our insurance coverage under policies of Huntsman
Corporation. We reimbursed Huntsman Corporation for insurance premiums
they pay on our behalf. The reimbursement payments were based on premium
allocations which are determined in cooperation with Huntsman
Corporation's independent insurance broker.
- We contracted with Huntsman Corporation for administration of our
employee benefit plans.
In connection with the Transactions, most of the services provided under
the services agreement were discontinued. Currently, the only services purchased
from Huntsman Corporation under the services agreement are the lease of our
headquarters and administration of our employee benefit plans. These services
will end by approximately September 30, 2000. We have entered into a lease for
new office space with an unaffiliated third party and expect to relocate our
corporate offices in the third quarter of 2000. We intend to provide for our own
employee benefit administration, either internally or through unaffiliated third
party providers.
We purchase some of our polyethylene resins from Huntsman Polymers
Corporation, a wholly owned subsidiary of Huntsman Corporation. All resin is
purchased at arm's length at prevailing market prices.
During 1999 and 1998, we paid a management fee in the amount of $150,000
and $133,333, respectively, to Huntsman Financial Corporation, an affiliate of
Huntsman Corporation, for consulting services provided to us by Jon M. Huntsman.
At May 31, 2000, this consulting agreement was terminated.
TRANSACTIONS WITH MANAGEMENT
On May 31, 2000, we issued restricted stock under the terms of our 2000
plan to each of our executive officers in the following amounts:
(a) Richard P. Durham -- 2,417 time-vested shares and 12,083
performance-vested shares in exchange for a promissory note of $7,005,389;
(b) Jack E. Knott -- 1,292 time-vested shares and 6,458 performance-vested
shares in exchange for a promissory note of $3,744,260;
(c) Scott K. Sorensen -- 1,125 time-vested shares and 5,625
performance-vested shares in exchange for a promissory note of $3,261,129; and
(d) Ronald G. Moffitt -- 625 time-vested shares and 3,125
performance-vested shares in exchange for a promissory note of $1,811,739.
Each promissory note bears interest at 7% per annum and principal on such
promissory note is payable in three equal annual installments beginning on May
31, 2006. Interest payable on each promissory note from May 31, 2000 to May 31,
2006 is payable in three equal installments beginning on May 31, 2006. Interest
accruing from May 31, 2006 to May 31, 2007 is payable on May 31, 2007 in cash
and interest accruing from May 31, 2007 to May 31, 2008 must be paid in cash at
maturity on
71
79
May 31, 2008. Each promissory note is fully recourse to the executive officer
and is secured by the shares of restricted stock owned by such executive
officer.
In connection with our split-off from Huntsman Corporation, we issued 7,000
shares of our Class C common stock to Richard P. Durham, our President and Chief
Executive Officer and a director, in exchange for a $700,000 promissory note.
This promissory note bears interest at 7% per annum and is payable over
approximately 51 months. As of December 31, 1999, the outstanding balance on
this note was $299,000.
On February 22, 1999, we sold 26,223 shares of Class C common stock to
certain members of our senior management. 15,734 of these shares were issued to
Richard P. Durham, our President and Chief Executive Officer in exchange for a
$1,573,400 promissory note; 7,867 of these shares were sold to Scott K.
Sorensen, our Executive Vice President, Chief Financial Officer and Treasurer,
in exchange for a $786,700 promissory note; and 2,622 shares were sold to Ronald
G. Moffitt, our Executive Vice President and General Counsel, Secretary, in
exchange for a $262,200 promissory note. All of such notes bear interest at 7%
per annum and were originally payable in three annual installments beginning in
February 2002. Pursuant to the recapitalization agreement, each of these
promissory notes receivable was amended on May 31, 2000 to provide that they are
payable in three annual installments beginning on May 31, 2006.
On August 7, 1998, we made an offer to the board of directors of Applied
Extrusion Technologies, Inc., a publicly traded company, to purchase all of the
outstanding shares of common stock of AET at $10.50 per share in a merger
transaction. AET's board rejected the offer. On September 10, 1998, we made
another offer to the board of directors of AET to purchase all of the
outstanding shares of common stock of AET at $12.50 per share in a merger
transaction. On September 14, 1998, HPC Investment, Inc., our wholly owned
subsidiary, purchased shares of the common stock of AET from Richard P. Durham,
our President and Chief Executive Officer, for an aggregate purchase price of
$3.30 million, in an arms-length transaction approved by the Board of Directors
of HPC Investment, Inc. Mr. Durham's original cost of acquiring those AET shares
was approximately $3.33 million. AET's Board of Directors subsequently rejected
our second offer, and we liquidated our entire investment in AET stock.
In connection with our exploring options to monetize Jon M. Huntsman's
approximate 61% interest, we adopted a Retention Bonus Plan for our eligible
employees effective as of March 1, 2000. The purpose of the retention plan was
to encourage our senior management and other key employees to continue their
employment with us during this period of exploring strategic alternatives.
Pursuant to the retention plan, we are required to pay bonuses to those who
remain our employees for six months following the completion of the
Transactions. Under the retention plan we will pay Messrs. Durham, Knott,
Sorensen and Moffitt $125,000, $75,000, $62,500 and $47,500, respectively, if
they meet the six-month continued employment requirement following the
consummation of the Transactions.
During 1999 and 1998, we made charitable contributions of $1,000,000 and
$500,000, respectively, to the Huntsman Cancer Institute, a public charity. Jon
M. Huntsman, our former Chairman of the Board of Directors, and Richard P.
Durham, our President and Chief Executive Officer, serve on the Board of
Trustees of the Huntsman Cancer Institute. These charitable contributions ceased
as of May 31, 2000.
TRANSACTIONS BETWEEN HUNTSMAN PACKAGING AND NEW STOCKHOLDERS
Common Stock Registration Rights Agreement
Pursuant to the registration rights agreement entered into on May 31, 2000,
we granted to Chase Domestic Investments, L.L.C., the Trust, the Management
Investors, the holders of our Preferred Stock Warrants and the holders of the
Note Warrants certain "demand" and "piggyback" registration rights for the
registration under the Securities Act of the shares of common stock owned by
them. Under the registration rights agreement, upon request of holders holding
in excess of 50% of the shares of common stock held by Chase Domestic
Investments, L.L.C. and its transferees and
72
80
affiliates (the "Requisite Investor Stockholders"), we are required to use our
best efforts to register the shares. The Requisite Investor Stockholders will be
entitled to request two demand registrations. Also, if we are not a public
company or sold to a third party prior to May 31, 2005, the Trust and its
transferees and affiliates will be entitled to request one demand registration.
Further, at any time 60 days after our initial public offering, holders holding
in excess of 60% of the shares of common stock underlying the Preferred Stock
Warrants and holders holding in excess of 60% of the shares of common stock
underlying the Note Warrants will each be entitled to exercise one demand
registration. At any time after we have qualified for use of Form S-3, all
parties to the registration rights agreement will have the right to request that
we effect a registration under the Securities Act of their shares of common
stock, subject to customary "blackout" and "cutback" provisions. The
stockholders and holders of the Preferred Stock Warrants and Note Warrants party
to the registration rights agreement also may request that we use our best
efforts to register shares of common stock held by them in other registrations
initiated by us on our own behalf or on behalf of any other stockholder. We must
pay all reasonable out-of-pocket costs and expenses, other than underwriting
discounts and commissions, of any registration under the registration rights
agreement. The registration rights agreement also contains customary provisions
with respect to registration procedures, underwritten offerings and
indemnification and contribution rights in connection with the registration of
common stock on behalf of the stockholders, holders of the Preferred Stock
Warrants and holders of the Note Warrants party to the registration rights
agreement.
The above summary of certain provisions of the registration rights
agreement does not purport to be complete and is qualified in its entirety by
reference to all of the provisions of the registration rights agreement, a copy
of which has been filed as an exhibit to the registration statement of which
this prospectus forms a part.
The Stockholders' Agreement
The stockholders' agreement entered into on May 31, 2000 governs the
exercise of voting rights by our stockholders', including holders of our
Preferred Stock Warrants who exercise their warrants for common stock, with
respect to the election of directors and certain other material events. The
parties to the stockholders' agreement agreed initially to vote their shares of
common stock to elect (i) four directors designated by Chase Domestic
Investments, L.L.C., (ii) two directors designated by the Trust and (iii) one
director designated by the Management Investors. At the request of the Requisite
Investor Stockholders, the size of our board of directors may be increased from
seven to nine. If so increased, one of the two additional directors will be
designated by Chase Domestic Investments, L.L.C. and the other will be
designated by the Management Investors.
The provisions of the stockholders' agreement also govern:
- restrictions on the transfer of shares of common stock and the Preferred
Stock Warrants;
- preemptive rights for holders of our common stock and Preferred Stock
Warrants to purchase certain equity securities to be issued by us in the
amounts required to maintain their percentage ownership;
- stockholder or company rights of first refusal to purchase certain
shares of our common stock to be sold by other stockholders;
- agreement by stockholders and holders of the Preferred Stock Warrants to
consent to the sale of all of, or a controlling interest in, us to a
third party, if such sale is approved by our board of directors, and to
sell their shares of common stock and Preferred Stock Warrants if so
required;
73
81
- rights of stockholders and holders of the Preferred Stock Warrants to
participate in certain sales of the shares of our common stock by other
stockholders; and
- rights of holders of our common stock and Preferred Stock Warrants to
receive certain financial and other information.
The above summary of certain provisions of the stockholders' agreement does
not purport to be complete and is qualified in its entirety by reference to all
of the provisions of the stockholders' agreement, a copy of which has been filed
as an exhibit to the registration statement of which this prospectus forms a
part.
Credit Facilities and Offering of Old Notes
The Chase Manhattan Bank is the syndication agent and its affiliate, The
Chase Manhattan Corporation, is a lender under our credit facilities. The Chase
Manhattan Bank was also a lender under our prior credit facility, and as a
result, received a portion of the proceeds from the financing for the
Transactions. Chase Securities, Inc., which was one of the initial purchasers in
the offering of the Old Notes, The Chase Manhattan Bank and The Chase Manhattan
Corporation are each affiliates of Chase Domestic Investments, L.L.C., which
owns approximately 55% of our outstanding common stock and 52% of our Preferred
Stock and has the right under the stockholders' agreement to appoint up to five
of our directors. Chase Domestic Investments, L.L.C. is an affiliate of Chase
Capital Partners. Donald J. Hofmann, Jr., Timothy J. Walsh and John M. B.
O'Connor, who serve as our directors, are General Partners of Chase Capital
Partners, and Richard D. Waters, who also serves as one of our directors, is a
Partner of Chase Capital Partners.
74
82
DESCRIPTION OF CREDIT FACILITIES
The following is a summary of the material terms of the our credit
facilities with Chase Securities Inc., as sole and exclusive advisor, lead
arranger and lead book manager, The Chase Manhattan Bank, as sole and exclusive
syndication agent, Bankers Trust Company, as administrative agent and collateral
agent, The Bank of Nova Scotia, as documentation agent, and a syndicate of
banking and financial institutions who became parties thereto. The following
summary is qualified in its entirety by reference to the definitive
documentation for the credit facilities, copies of which have been filed as
exhibits to the registration statement of which this prospectus forms a part.
The Facilities
Structure. The credit facilities provide for
- tranche A facility in an aggregate principal amount of up to $200.0
million;
-- $40.0 million of the tranche A facility is available to our principal
Mexican subsidiary;
- tranche B facility in an aggregate principal amount of up to $280.0
million; and
- revolving credit facility in an aggregate principal amount of up to
$100.0 million.
-- Up to $30.0 million (plus an additional amount up to $40.0 million to
support certain borrowings by our principal Mexican subsidiary) of
the revolving credit facility is available in the form of letters of
credit.
Availability. The full amounts of the tranche A facility and the tranche B
facility were drawn on May 31, 2000 to finance a portion of the Transactions.
Amounts borrowed under the tranche A facility and the tranche B facility that
are repaid or prepaid may not be reborrowed. Loans and letters of credit under
the revolving credit facility are available on and after May 31, 2000 and at any
time prior to the final maturity of the revolving credit facility in specified
minimum principal amounts. Amounts repaid under the revolving credit facility
may be reborrowed.
Interest
The interest rates under the revolving credit facility and the tranche A
facility are, at our option, Adjusted LIBOR plus 2.50% or ABR plus 1.50%, in
each case subject to certain adjustments. Adjusted LIBOR is the London
inter-bank offered rate adjusted for statutory reserves. ABR is the alternate
base rate, which is the higher of Bankers Trust Company's prime rate or the
federal funds effective rate plus 1/2 of 1%. The interest rates under the
tranche B facility are, at our option, Adjusted LIBOR plus 3.00% or ABR plus
2.00%. Huntsman Packaging may elect interest periods of one, two, three or six
months for Adjusted LIBOR borrowings. The calculation of interest is on the
basis of actual days elapsed in a year of 360 days (or 365 or 366 days, as the
case may be, in the case of ABR loans based on the Prime Rate) and interest is
payable at the end of each interest period and, in any event, at least every
three months.
Fees
We pay certain fees with respect to the credit facilities, including (a)
0.50% per annum on the undrawn portion of the commitments in respect of the
credit facilities, which began to accrue on May 31, 2000 and is payable
quarterly in arrears after May 31, 2000, subject to certain adjustments and (b)
a fee at a per annum rate equal to the spread over Adjusted LIBOR under the
revolving credit facility accruing on the aggregate face amount of outstanding
letters of credit under the revolving credit facility, which is payable in
arrears at the end of each quarter and upon the termination of the revolving
credit facility, in each case for the actual number of days elapsed over a
360-day year. The fees referred to in (b) are distributed to the lenders
participating in the revolving credit facility pro rata in accordance with the
amount of each such lender's revolving credit facility commitment. In addition,
we pay to the issuing bank, for its own account, (i) a per annum fronting
75
83
fee on the aggregate face amount of outstanding letters of credit, payable in
arrears at the end of each quarter and upon the termination of the revolving
credit facility, in each case for the actual number of days elapsed over a
360-day year, and (ii) customary issuance and administration fees. We also pay
the administrative agent a customary annual administration fee.
Guarantees; Security
Our obligations under the credit facilities, under the related security
documentation and under any interest protection or other hedging arrangements
entered into by us with a lender (or any affiliate thereof) are unconditionally
guaranteed by each of our existing and subsequently acquired or organized
domestic (and, to the extent no adverse tax consequences would result therefrom,
foreign) restricted subsidiaries.
These obligations are secured by substantially all of our assets (subject
to customary exceptions) and by the assets of each of our existing and
subsequently acquired or organized domestic (and, to the extent no adverse tax
consequences would result therefrom, foreign) restricted subsidiaries, including
but not limited to
- a first-priority pledge of all capital stock held by us or any other of
our domestic (and, subject to the foregoing limitation, foreign)
restricted subsidiaries and held by subsequently acquired or organized
restricted subsidiaries of ours (which pledge, in the case of any foreign
subsidiaries, is limited to 65% of the capital stock of such foreign
subsidiary to the extent the pledge of any greater percentage would
result in adverse tax consequences to us), and
- a perfected first-priority security interests in and, in some cases,
mortgages on, substantially all of our tangible and intangible assets and
on those of each of our existing or subsequently acquired or organized
domestic (and, subject to the foregoing limitation, foreign) restricted
subsidiaries (including but not limited to accounts receivable,
inventory, real property, equipment, trademarks, other intellectual
property, licensing agreements, cash and proceeds of the foregoing).
Commitment Reductions and Repayments
The tranche A facility matures on May 31, 2006 and amortizes on a quarterly
basis, commencing with the quarter ended September 30, 2001. The tranche B
facility matures on May 31, 2008, and amortizes on an annual basis in nominal
amounts for the period from June 30, 2001 to June 30, 2006 and amortizes on a
quarterly basis for the period beginning June 30, 2007 and ending on the final
maturity date. The revolving credit facility matures on May 31, 2006.
Affirmative, Negative and Financial Covenants
Affirmative Covenants. The credit facilities contain a number of
affirmative covenants including, among others:
- delivery of financial statements and other information;
- notices of material events;
- information regarding collateral;
- existence;
- conduct of business;
- payment of obligations;
- maintenance of properties;
- insurance;
76
84
- casualty and condemnation;
- maintenance of books and records;
- inspection and audit rights;
- compliance with laws;
- use of proceeds and letters of credit;
- additional subsidiaries;
- further assurances; and
- interest rate hedging.
Negative Covenants. The credit facilities contain a number of negative
covenants including, among others:
- indebtedness;
- liens;
- fundamental changes;
- investments, loans, advances, guarantees and acquisitions, subject to
exceptions for certain permitted acquisitions
- certain equity securities;
- asset sales;
- sale and lease-back transactions;
- hedging agreements;
- restricted payments;
- certain payments of indebtedness;
- transactions with affiliates;
- restrictive agreements;
- amendment of material documents; and
- designated senior debt.
Financial Covenants. The credit facilities contain a number of financial
covenants, including, among others:
- a maximum ratio of debt to EBITDA;
- a minimum interest coverage ratio; and
- maximum capital expenditures.
Events of Default
The credit facilities contain customary events of default, including
non-payment of principal, interest or fees, violation of covenants, inaccuracy
of representations or warranties, cross default to certain other indebtedness,
bankruptcy events, ERISA events, material judgments and liabilities, actual or
asserted invalidity of security interests and change of control.
77
85
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our authorized capital stock consists of 10,000,000 shares of common stock,
no par value, and 200,000 shares of preferred stock, no par value. As of August
25, 2000, 574,006 shares of our common stock (of which 32,750 shares are subject
to vesting requirements which have not yet been met) and 100,000 shares of
preferred stock were outstanding. The outstanding shares of common stock consist
of 572,356 shares issued upon consummation of the Transactions on May 31, 2000
and 1,650 shares of common stock issued on July 17, 2000 in a private placement
offering to members of our senior management who were not Management Investors.
In the private placement offering, we received cash consideration of $483.13 per
share, or approximately $800,000 in the aggregate.
In addition, at August 25, 2000, we had reserved for issuance the 43,242
shares of common stock underlying the Preferred Stock Warrants, the 18,532
shares of common stock underlying the Note Warrants, the 15,435 shares of common
stock underlying the options granted under the 2000 plan, the 2,825 shares of
common stock which remain available for issuance under the 2000 plan and the
8,902 shares of common stock underlying the options granted to Mr. Knott under
the 1998 plan, as amended.
The following are summaries of the terms of the common stock and the
preferred stock. Such summaries do not purport to be complete and are subject in
all respects to our articles of incorporation and bylaws and the preferred stock
warrant agreement, copies of which have been filed as exhibits to the
registration statement of which this prospectus forms a part. For a summary of
the terms of our Note Warrants, please see "Description of the Note Warrants."
COMMON STOCK
Subject to the rights of holders of any outstanding preferred stock, the
holders of common stock are entitled to receive dividends when and as declared
by our Board of Directors out of our assets legally available for distribution.
The holders of common stock are entitled to one vote per share on all
matters on which the holders of the common stock are entitled to vote. The
holders of common stock do not have cumulative voting rights; as a result, the
holders of a majority of the shares of common stock represented at a meeting can
elect all the directors standing for election at the meeting. See "Risk
Factors -- Concentration of Ownership and Control."
The holders of common stock do not have any exchange, redemption or
preemptive rights (however, pursuant to the Stockholders Agreement, we have
granted preemptive rights to acquire additional shares of the common stock). See
"Certain Relationships and Related Transactions." In the event of the
liquidation, dissolution or winding up of the Company, the holders of common
stock would be entitled to share ratably, subject to the liquidation preferences
of any preferred stock then outstanding, in our assets legally available for
distribution.
Fully-paid shares of common stock are not liable to further calls or
assessments by us and holders of common stock are not liable for any of our
liabilities.
PREFERRED STOCK
We are authorized to issue up to 200,000 shares of preferred stock. Of this
amount, 100,000 shares have been designated as Series A Cumulative Exchangeable
Redeemable Preferred Stock (the "Preferred Stock"). The preferences, limitations
and relative rights of the remaining 100,000 shares of preferred stock have not
been established.
A summary description of the Preferred Stock may be found under the heading
"-- Description of Preferred Stock."
Our board of directors has authority to issue, without any further action
by our shareholders, one or more additional series of preferred stock, and to
determine at the time of issuance the
78
86
number, designation, preferences, limitations and relative rights of such
additional series of preferred stock. The holders of additional series of
preferred stock, if issued, will be entitled to such voting rights as our board
of directors shall determine in its discretion, subject to the limitations set
forth in the Articles of Incorporation. As a result, our board of directors,
without shareholder approval, could authorize the issuance of preferred stock
with rights which could adversely affect the rights of the holders of common
stock. Any future issuance of preferred stock may have the effect of delaying or
preventing a change in control of us without further action by the shareholders
and may adversely affect the voting and other rights of the holders of common
stock. Other than the Preferred Stock issued as part of the Transactions, we
presently have no plans to issue any additional series of preferred stock.
DESCRIPTION OF PREFERRED STOCK
Dividends. Dividends on the Preferred Stock accrue from the issue date at
an annual rate of 14%. We have the option to pay dividends in cash or to have
the dividends accrue and compound quarterly. After May 31, 2005, however, the
annual dividend rate increases to 16% unless we pay dividends in cash. The
annual dividend rate also increases to 16% if we fail to comply with certain of
our obligations or upon certain events of bankruptcy. The credit facilities will
prohibit and the Indenture restricts our ability to pay cash dividends on the
Preferred Stock.
Voting Rights. Holders of the Preferred Stock have no voting rights,
except as otherwise required by law and except in certain circumstances,
including:
- amending certain rights of the holders of the Preferred Stock; and
- the issuance of any class of equity securities that ranks on par with or
senior to the Preferred Stock.
Ranking. The Preferred Stock is, with respect to dividend and liquidation
rights, our most senior class or series of capital stock. We may not issue any
capital stock which ranks equal or senior to the Preferred Stock in terms of
dividend and liquidation rights without the approval of holders of at least a
majority of the shares of outstanding Preferred Stock.
Exchange Rights. We may, at our option, exchange the Preferred Stock for
14% senior subordinated exchange notes so long as such exchange and the
associated debt incurrence is permitted by our existing debt instruments, but no
holder of Preferred Stock may be required to make the exchange without its
consent.
Redemption. We must redeem the Preferred Stock at a price equal to its
liquidation preference of $1,000 per share, plus accumulated dividends, on May
31, 2011. On or after May 31, 2003, we may redeem the Preferred Stock at our
option, in whole or in part, at a redemption price of:
- 107% of the sum of the liquidation preference plus accrued and unpaid
dividends if redeemed prior to May 31, 2004;
- 103% of the sum of the liquidation preference plus accrued and unpaid
dividends if redeemed on or after May 31, 2004 and prior to May 31,
2005; and
- 100% of the sum of the liquidation preference plus accrued and unpaid
dividends if redeemed at any time on or after May 31, 2005.
In addition, prior to May 31, 2003, we may redeem the Preferred Stock, at
any time, at our option, in whole or in part, at the higher of
(x) a redemption price (expressed as a percentage of the sum of the
liquidation preference plus all accrued and unpaid dividends, if
any) equal to 115%; and
(y) the present value as of the redemption date of the redemption price
that would be payable if the Preferred Stock were redeemed on May
31, 2003 (assuming dividends
79
87
were to accrue and be unpaid through May 31, 2003) determined by
discounting such redemption price at a rate equal to the then
current yield on a treasury note with a maturity date corresponding
closest to May 31, 2003 plus 100 basis points.
The credit facilities prohibit and the Indenture restricts our ability to
redeem the Preferred Stock.
Change of Control Offer. Before we consummate a change of control, we must
give holders of the Preferred Stock the opportunity to sell us their Preferred
Stock at 103% of the sum of the liquidation preference plus accrued and unpaid
dividends and either obtain the consent of the lenders under the credit
facilities and the holders of the Notes, if required, or repay such debt to
comply with this repurchase obligation.
Certain Restrictive Provisions. The articles of incorporation or the
purchase agreement for the Preferred Stock limit our ability to, among other
things:
- issue stock that ranks senior to or equally with the Preferred Stock,
including additional shares of Preferred Stock;
- pay dividends and make distributions on, or redeem, capital stock that
ranks junior to the Preferred Stock;
- enter into transactions with affiliates;
- merge, consolidate, recapitalize, dissolve or liquidate; and
- amend or modify our articles of incorporation.
These covenants are subject to a number of important exceptions.
DESCRIPTION OF PREFERRED STOCK WARRANTS
Exercise Period. The holders of Preferred Stock Warrants may exercise them
at any time prior to May 31, 2011.
Exercise Price. The Preferred Stock Warrants have a nominal exercise price
of $.01 per share, which may be paid at the holder's option in cash or surrender
of Preferred Stock Warrants with a value equal to the exercise price. The
Preferred Stock Warrants contain customary anti-dilution provisions with respect
to stock splits and combinations, stock dividends, below market issuances,
distributions of securities or other unusual distributions of cash or other
assets, mergers, consolidations and reorganizations.
Dividend Rights. We may not pay dividends on our common stock unless the
holders of the Preferred Stock Warrants receive a pro rata portion of such
dividends on a basis as if they had exercised the Preferred Stock Warrants
immediately prior to such dividend.
Board Attendance Rights. The holders of at least a majority of the common
stock issued or issuable upon exercise of the Preferred Stock Warrants are
entitled to designate one non-voting representative to attend all meetings of
our board of directors and committees thereof.
Other Rights. Holders of the Preferred Stock Warrants are party to the
registration rights agreement and the stockholders agreement entered into on May
31, 2000. See "Certain Relationships and Related Transactions -- Transactions
between Huntsman Packaging and New Stockholders."
UTAH CONTROL SHARES ACQUISITION ACT
The Utah Control Shares Acquisition Act (the "Control Shares Act") provides
that, when a person or group acquires shares (or the power to direct the voting
of shares) of a corporation that is subject to the Control Shares Act equal to
or in excess of 20%, 33 1/3% or a majority of the voting power of the
corporation, the acquiror is not permitted to vote (or to direct the voting of)
the shares unless a majority of the corporation's shares (voting in voting
groups, if applicable), excluding
80
88
shares held by the acquiror or by the officers and employee-directors of the
corporation, approve a resolution granting the acquiror the right to vote the
shares. Shareholder approval may occur at the next meeting of the shareholders
or, if the acquiror requests a special meeting and agrees to pay the associated
costs of the corporation for the requested special meeting, at the requested
special meeting of the shareholders (to be held within 50 days of the
corporation's receipt of the request by the acquiror).
If authorized by the corporation's articles of incorporation or bylaws, the
corporation may redeem the acquiror's shares at their fair market value if the
acquiror does not file an "acquiring person statement." Our articles of
incorporation and bylaws do not provide for redemption of an acquiror's shares
in the event the acquiror fails to file an "acquiring person statement." An
acquiror's shares are not subject to redemption after an "acquiring person
statement" has been filed unless the shares are not accorded full voting rights
by the shareholders. If the acquiror obtains the right to vote, and if the
acquiror obtains a majority of the voting power of the corporation, the
shareholders may be entitled to dissenters' rights.
The Control Shares Act does not apply if (a) a corporation's articles of
incorporation or bylaws provide that the Control Shares Act does not apply, (b)
the acquisition of shares of the corporation is consummated pursuant to a merger
(to which the corporation is a party), or (c) under certain other specified
circumstances. In addition, the Control Shares Act applies only to Utah
corporations that (a) have 100 or more shareholders, (b) have their (i)
principal place of business, (ii) principal office, or (iii) substantial assets
in the State of Utah, and (c) have (i) more than 10% of their shareholders who
are residents of Utah, (ii) more than 10% of their shares owned by Utah
residents, or (iii) 10,000 or more shareholders who are residents of Utah.
Our articles of Incorporation and bylaws contain no additional provision
restricting transactions with interested shareholders or other takeover
situations, nor do they contain provisions opting out of the Control Shares Act.
81
89
DESCRIPTION OF THE NOTES
Definitions of certain terms used in this Description of the Notes may be
found under the heading "-- Certain Definitions." For the purposes of this
section, the term "Company" refers only to Huntsman Packaging Corporation and
not any of its subsidiaries. Certain of the Company's Subsidiaries will
guarantee the Notes. In addition, certain of the Company's subsidiaries formed
or acquired in the future, if any, will be required to guarantee the Notes and
therefore will be subject to many of the provisions contained in this
Description of the Notes. Each company which guarantees the Notes is referred to
in this section as a "Note Guarantor." Each such guarantee is termed a "Note
Guarantee."
The Company issued the Old Notes and will issue the New Notes under the
Indenture, dated as of May 31, 2000, among the Company, the Note Guarantors and
The Bank of New York, as trustee (the "Trustee"), a copy of which has been filed
as an exhibit to the registration statement of which this prospectus is a part.
The Indenture contains provisions which define your rights under the Notes. In
addition, the Indenture governs the obligations of the Company and of each Note
Guarantor under the Notes. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the TIA.
On May 31, 2000, the Company issued 220,000 units, consisting of $220.0
million aggregate principal amount of Old Notes and Note Warrants to purchase
18,532 shares of common stock. The Notes and the Note Warrants will not be
separately transferable until the earlier of November 27, 2000 or the date of
this prospectus forms a part. The terms of the New Notes are identical in all
material respects to the Old Notes, except the New Notes will not contain
transfer restrictions and holders of New Notes will no longer have any
registration rights or be entitled to any liquidated damages. The Trustee will
authenticate and deliver New Notes for original issue only in exchange for a
like principal amount of Old Notes. Any Old Notes that remain outstanding after
the consummation of the exchange offer, together with the New Notes, will be
treated as a single class of securities under the indenture. Accordingly, all
references in this section to specified percentages in aggregate principal
amount of the outstanding New Notes shall be deemed to mean, at any time after
the exchange offer is consummated, such percentage in aggregate principal amount
of the Old Notes and New Notes then outstanding.
The following description is meant to be only a summary of certain
provisions of the Indenture. It does not restate the terms of the Indenture in
their entirety. We urge that you carefully read the Indenture as it, and not
this description, governs your rights as Holders.
OVERVIEW OF THE NOTES AND THE NOTE GUARANTEES
The Notes
The Old Notes are, and the New Notes will be:
- general unsecured obligations of the Company;
- subordinated in right of payment to all existing and future Senior
Indebtedness of the Company;
- pari passu in right of payment with all existing and future Senior
Subordinated Indebtedness of the Company;
- senior in right of payment to any future Subordinated Obligations of the
Company;
- effectively subordinated to any Secured Indebtedness of the Company and
its Subsidiaries to the extent of the value of the assets securing such
Indebtedness; and
- effectively subordinated to all liabilities (including trade payables)
and Preferred Stock of each Subsidiary of the Company which is not
guaranteeing the Notes, and any other future Subsidiaries which do not
guarantee the Notes.
82
90
The Note Guarantors
The Old Notes are, and the New Notes will be, guaranteed by each of the
following domestic Restricted Subsidiaries of the Company:
- Edison Plastics International, Inc.;
- Huntsman Bulk Packaging Corporation;
- Huntsman Container Corporation International;
- Huntsman Edison Films Corporation;
- Huntsman Film Products of Mexico, Inc.;
- Huntsman KCL Corporation;
- Huntsman Packaging Georgia, Inc.; and
- Huntsman Packaging of Canada, LLC.
The Old Notes and the New Notes will not be guaranteed by Restricted
Subsidiaries which also do not guarantee any Senior Indebtedness, currently
consisting of the following:
- Aspen Industrial S.A. de C.V.;
- Edison Exports, Inc. FSC Limited;
- Huntsman Film Products of Canada Ltd.;
- Huntsman Film Products GmbH;
- Huntsman Film Products Pty, Ltd.;
- Huntsman Film Products, UK, Limited;
- Mexicana de Tintas S.A.; and
- Nepsa de Mexico S.A. de C.V.
The Old Notes and the New Notes will not be guaranteed by HPC Investment,
Inc., which will be an Unrestricted Subsidiary. HPC Investment Inc. is currently
inactive and does not have any material assets or liabilities.
On a pro forma basis, the Restricted Subsidiaries that are not Note
Guarantors would have generated 15.0% of the Company's net sales for the twelve
months ended June 30, 2000, and would have accounted for 12.5% of the assets as
of June 30, 2000 of the Company and its Subsidiaries on a consolidated basis.
The Note Guarantees
The Note Guarantee of each Note Guarantor and all Note Guarantees, if any,
made by future Restricted Subsidiaries of the Company:
- are general unsecured obligations of the applicable Note Guarantor;
- are subordinated in right of payment to all existing and future Senior
Indebtedness of such Note Guarantor;
- rank pari passu in right of payment with all existing and future Senior
Subordinated Indebtedness of such Note Guarantor;
- are senior in right of payment to any future Subordinated Obligations of
such Note Guarantor; and
- are effectively subordinated to any Secured Indebtedness of such Note
Guarantor and its Subsidiaries to the extent of the value of the assets
securing such Indebtedness.
83
91
PRINCIPAL, MATURITY AND INTEREST
We issued the Old Notes in an aggregate principal amount of $220 million.
The Old Notes are limited to $220,000,000 in aggregate principal amount and will
mature on June 1, 2010. The Old Notes are, and the New Notes will be, in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple of $1,000. Each Note bears interest at a rate of 13% per annum from May
31, 2000, or from the most recent date to which interest has been paid or
provided for. We will pay interest semiannually on June 1 and December 1 of each
year, commencing December 1, 2000 to Holders of record at the close of business
on May 15 or November 15 immediately preceding the interest payment date. We
will pay interest on overdue principal at the rate borne by the Notes and, to
the extent lawful, overdue installments of interest at such rate.
Holders of Old Notes whose Old Notes are accepted for exchange in the
exchange offer will be deemed to have waived the right to receive any payment in
respect of interest on the Old Notes accrued from May 31, 2000 (the original
issue date of the Old Notes) to the date of issuance of the New Notes.
Consequently, Holders who exchange their Old Notes for New Notes will receive
the same interest payment on December 1, 2000 (the first interest payment date
with respect to the Old Notes and the New Notes following consummation of the
exchange offer) that they would have received had they not accepted the exchange
offer.
PAYING AGENT AND REGISTRAR
We will pay the principal of, premium, if any, interest and liquidated
damages, if any, on the Notes at any office of ours or any agency designated by
us which is located in the Borough of Manhattan, The City of New York. We have
initially designated the corporate trust office of the Trustee to act as our
agent in such matters. The location of the corporate trust office is 101 Barclay
Street, New York, New York 10286. We, however, reserve the right to pay interest
to Holders by check mailed directly to Holders at their registered addresses.
Holders may exchange or transfer their Notes at the same location given in the
preceding paragraph. No service charge will be made for any registration of
transfer or exchange of Notes.
We, however, may require Holders to pay any transfer tax or other similar
governmental charge payable in connection with any such transfer or exchange.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Company may not redeem
the Notes prior to June 1 , 2005. On or after that date, the Company may redeem
the Notes, in whole or in part, on not less than 30 nor more than 60 days' prior
notice, at the following redemption prices (expressed as percentages of
principal amount), plus accrued and unpaid interest and liquidated damages
thereon, if any, to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest and liquidated damages,
if any, due on the relevant interest payment date), if redeemed during the
12-month period commencing on June 1 of the years set forth below:
YEAR REDEMPTION PRICE
- ---- ----------------
2005.............................................. 106.500%
2006.............................................. 104.333%
2007.............................................. 102.167%
2008 and thereafter............................... 100.000%
Prior to June 1, 2003, the Company may, on one or more occasions, also
redeem up to a maximum of 35% of the original aggregate principal amount of the
Notes with the Net Cash Proceeds of one or more Equity Offerings by the Company
at a redemption price equal to 113% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages thereon, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to
84
92
receive interest due on the relevant interest payment date); provided, however,
that after giving effect to any such redemption:
(1) at least 65% of the original aggregate principal amount of the
Notes remains outstanding; and
(2) any such redemption by the Company must be made within 120 days of
such Equity Offering and must be made in accordance with certain procedures
set forth in the Indenture.
SELECTION
If we partially redeem Notes, the Trustee will select the Notes to be
redeemed on a pro rata basis, by lot or by such other method as the Trustee in
its sole discretion shall deem to be fair and appropriate, although no Note of
$1,000 in original principal amount will be redeemed in part. If we redeem any
Note in part only, the notice of redemption relating to such Note shall state
the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancelation of the original Note. On and after
the redemption date, interest will cease to accrue on Notes or portions thereof
called for redemption so long as we have deposited with the Paying Agent funds
sufficient to pay the principal of, plus accrued and unpaid interest and
liquidated damages, if any, on, the Notes to be redeemed.
RANKING
The Old Notes are, and the New Notes will be, unsecured Senior Subordinated
Indebtedness of the Company, will be subordinated in right of payment to all
existing and future Senior Indebtedness of the Company, will rank pari passu in
right of payment with all existing and future Senior Subordinated Indebtedness
of the Company and will be senior in right of payment to all future Subordinated
Obligations of the Company. The Old Notes are, and the New Notes also will be
effectively subordinated to any Secured Indebtedness of the Company and its
Subsidiaries to the extent of the value of the assets securing such
Indebtedness. However, payment from the money or the proceeds of U.S. Government
Obligations held in any defeasance trust described below under the caption
"-- Defeasance" will not be subordinated to any Senior Indebtedness or subject
to the restrictions described herein.
The Company currently conducts certain of its operations through its
Subsidiaries. To the extent any existing or future Subsidiary does not Guarantee
the Notes, creditors of such Subsidiaries, including trade creditors and
preferred stockholders (if any), generally will have priority with respect to
the assets and earnings of such Subsidiaries over the claims of the Company's
creditors, including Holders. The Notes, therefore, will be effectively
subordinated to claims of creditors, including trade creditors, and preferred
stockholders (if any) of Subsidiaries of the Company, including those formed or
acquired in the future, that do not Guarantee the Notes. As of March 31, 2000,
on a pro forma basis after giving effect to the Transactions and the use of
proceeds therefrom, the Subsidiaries of the Company, other than those
Subsidiaries that are Note Guarantors, would have had total liabilities,
including trade payables, of approximately $59.3 million (excluding liabilities
owed to the Company). Assuming that we had completed the Transactions as of
March 31, 2000 and applied the net proceeds we receive from the Transactions in
the manner described under the heading "Use of Proceeds," as of March 31, 2000,
there would have been outstanding:
(1) approximately $487.2 million of Senior Indebtedness of the
Company, all of which would have been Secured Indebtedness (exclusive of
unused commitments of $92.8 million under the Revolving Credit Facility);
(2) no Senior Subordinated Indebtedness of the Company (other than the
Notes) and no indebtedness of the Company that is subordinate or junior in
right of payment to the Notes;
85
93
(3) no Senior Indebtedness of the Note Guarantors (other than the
guarantees of Indebtedness under the Credit Agreement); and
(4) no Senior Subordinated Indebtedness of the Note Guarantors (other
than the Note Guarantees), and no Indebtedness of the Note Guarantors that
is subordinate or junior in right of payment to the Note Guarantees.
Subject to certain conditions, the Indenture permits us to incur
substantial amounts of additional Indebtedness. Such Indebtedness may be Senior
Indebtedness. See "-- Certain Covenants -- Limitation on Indebtedness" below.
"Senior Indebtedness" of the Company or any Note Guarantor, as the case may
be, means the principal of, premium (if any) and accrued and unpaid interest on
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization of the Company or any Note Guarantor, as
applicable, regardless of whether or not a claim for post-filing interest is
allowed in such proceedings), and fees and all other amounts owing in respect
of, Bank Indebtedness and all other Indebtedness of the Company or any Note
Guarantor, as applicable, whether outstanding on the Closing Date or thereafter
Incurred, unless in the instrument creating or evidencing the same or pursuant
to which the same is outstanding it is provided that such obligations are not
superior in right of payment to the Notes or such Note Guarantor's Note
Guarantee; provided, however, that Senior Indebtedness shall not include:
(1) any obligation of the Company to any Subsidiary of the Company or
of any Note Guarantor to the Company or any other Subsidiary of the
Company;
(2) any liability for Federal, state, local or other taxes owed or
owing by the Company or any Note Guarantor;
(3) any accounts payable or other liability to trade creditors arising
in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness or obligation of the Company or any Note
Guarantor (and any accrued and unpaid interest in respect thereof) that by
its terms is subordinate or junior in right of payment to any other
Indebtedness or obligation of the Company or such Note Guarantor, as
applicable, including any Senior Subordinated Indebtedness and any
Subordinated Obligations;
(5) any obligations with respect to any Capital Stock; or
(6) any Indebtedness Incurred in violation of the Indenture, unless
such Indebtedness was Incurred based on an Officers' Certificate of the
Company (delivered in good faith after reasonable investigation) to the
effect that the Incurrence of such Indebtedness did not violate the
provisions of the Indenture.
Only Indebtedness of the Company that is Senior Indebtedness will rank
senior to the Notes. The Notes will rank pari passu in all respects with all
other Senior Subordinated Indebtedness of the Company. The Company has agreed in
the Indenture that it will not Incur, directly or indirectly, any Indebtedness
which is subordinate or junior in right of payment to Senior Indebtedness unless
such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness. Unsecured
Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness
merely because it is unsecured.
86
94
The Company may not pay principal of, premium (if any) or interest on the
Notes, or make any deposit pursuant to the provisions described under
"-- Defeasance" below, and may not otherwise repurchase, redeem or otherwise
retire any Notes (collectively, "pay the Notes") if:
(1) any principal of, interest on, unpaid drawings for letters of
credit in respect of, or regularly accruing fees with respect to any,
Designated Senior Indebtedness of the Company is not paid when due, or
(2) any other default on Designated Senior Indebtedness of the Company
occurs and the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms unless, in either case,
(x) the default has been cured or waived and any such acceleration
has been rescinded, or
(y) such amounts due under Designated Senior Indebtedness have been
paid in full;
provided, however, that the Company may pay the Notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative of the Designated Senior Indebtedness with
respect to which either of the events set forth in clause (1) or (2) above has
occurred and is continuing.
During the continuance of any default (other than a default described in
clause (1) or (2) above) with respect to any Designated Senior Indebtedness of
the Company pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods, we
may not pay the Notes for a period (a "Payment Blockage Period") commencing upon
the receipt by the Trustee (with a copy to us) of written notice, specified as a
"Notice of Default" and describing with particularity the default under such
Designated Senior Indebtedness (a "Blockage Notice"), of such default from the
Representative of such Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period and ending 179 days thereafter (or earlier if
such Payment Blockage Period is terminated:
(1) by written notice to the Trustee and the Company from the Person
or Persons who gave such Blockage Notice,
(2) by repayment in full of such Designated Senior Indebtedness, or
(3) because the default giving rise to such Blockage Notice is no
longer continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the second preceding sentence and in
the immediately succeeding paragraph), unless the holders of such Designated
Senior Indebtedness or the Representative of such holders have accelerated the
maturity of such Designated Senior Indebtedness, the Company may resume payments
on the Notes after the end of such Payment Blockage Period, including any missed
payments.
Not more than one Blockage Notice may be given in any consecutive 360-day
period, irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period. However, if any Blockage Notice within such
360-day period is given by or on behalf of any holders of Designated Senior
Indebtedness other than the Bank Indebtedness, the Representative of the Bank
Indebtedness may give another Blockage Notice within such period. In no event,
however, may the total number of days during which any Payment Blockage Period
or Periods is in effect exceed 179 days in the aggregate during any 360
consecutive day period. For purposes of this paragraph, no default or event of
default that existed or was continuing on the date of the commencement of any
Payment Blockage Period with respect to the Designated Senior Indebtedness
initiating such Payment Blockage Period shall be, or be made, the basis of the
commencement of a subsequent Payment Blockage Period by the Representative of
such Designated Senior
87
95
Indebtedness, whether or not within a period of 360 consecutive days, unless
such default or event of default shall have been cured or waived for a period of
not less than 90 consecutive days.
Upon any payment or distribution of the assets of the Company to creditors
upon a total or partial liquidation or a total or partial dissolution of the
Company or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Company or its property:
(1) the holders of Senior Indebtedness of the Company will be entitled
to receive payment in full of such Senior Indebtedness before the Holders
of the Notes are entitled to receive any payment of principal of or
interest on the Notes; and
(2) until such Senior Indebtedness is paid in full, any payment or
distribution to which Holders would be entitled but for the subordination
provisions of the Indenture will be made to holders of such Senior
Indebtedness as their interests may appear, except that Holders of the
Notes may receive:
(i) Capital Stock; and
(ii) debt securities that are subordinated to such Senior
Indebtedness to at least the same extent as the Notes.
If a payment or distribution is made to Holders of the Notes that due to
the subordination provisions of the Indenture should not have been made to them,
such Holders will be required to hold it in trust for the benefit of the holders
of Senior Indebtedness of the Company and pay it over to them as their interests
may appear.
If payment of the Notes is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness of the Company (or their Representative) of the
acceleration. If any such Designated Senior Indebtedness is outstanding, the
Company may not pay the Notes until five Business Days after such holders or the
Representative of such Designated Senior Indebtedness receive notice of such
acceleration and, thereafter, may pay the Notes only if the subordination
provisions of the Indenture otherwise permit payment at that time.
By reason of the subordination provisions of the Indenture, in the event of
insolvency, creditors of the Company who are holders of Senior Indebtedness of
the Company may recover more, ratably, than the Holders of the Notes, and
creditors of the Company who are not holders of Senior Indebtedness of the
Company or Senior Subordinated Indebtedness of the Company (including the Notes)
may recover less, ratably, than holders of Senior Indebtedness and may recover
more, ratably, than the holders of the Notes.
NOTE GUARANTEES
The Note Guarantors and certain future Subsidiaries of the Company (as
described below), as primary obligors and not merely as sureties, will jointly
and severally unconditionally Guarantee on an unsecured senior subordinated
basis the performance and full and punctual payment when due, whether at Stated
Maturity, by acceleration or otherwise, of all obligations of the Company under
the Indenture (including obligations to the Trustee) and the Notes, whether for
payment of principal of or interest on or liquidated damages in respect of the
Notes, expenses, indemnification or otherwise (all such obligations guaranteed
by such Note Guarantors being herein called the "Guaranteed Obligations"). Such
Note Guarantors will agree to pay, in addition to the amount stated above, any
and all costs and expenses (including reasonable counsel fees and expenses)
incurred by the Trustee or the Holders in enforcing any rights under the Note
Guarantees. Each Note Guarantee will be limited to an amount not to exceed the
maximum amount that can be Guaranteed by the applicable Note Guarantor without
rendering the Note Guarantee, as it relates to such Note Guarantor, void or
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally. The
Company will cause each
88
96
Domestic Subsidiary and any other Restricted Subsidiary that guarantees any
Senior Indebtedness (other than a Foreign Subsidiary that guarantees Senior
Indebtedness Incurred by another Foreign indenture pursuant to which such
Restricted Subsidiary will Guarantee payment of the Notes. See "-- Certain
Covenants -- Future Note Guarantors" below.
The obligations of a Note Guarantor under its Note Guarantee are senior
subordinated obligations. As such, the rights of Holders to receive payment by a
Note Guarantor pursuant to its Note Guarantee will be subordinated in right of
payment to the rights of holders of Senior Indebtedness of such Note Guarantor.
The terms of the subordination provisions described above with respect to the
Company's obligations under the Notes apply equally to a Note Guarantor and the
obligations of such Note Guarantor under its Note Guarantee.
Each Note Guarantee is a continuing guarantee and shall (a) remain in full
force and effect until payment in full of all the Guaranteed Obligations or such
Note Guarantee is released upon the merger or the sale of all the Capital Stock
or assets of the Note Guarantor in compliance with the conditions set forth in
the Indenture under "-- Merger and Consolidation" or "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock", (b) be binding
upon each Note Guarantor and its successors and (c) inure to the benefit of, and
be enforceable by, the Trustee, the Holders and their successors, transferees
and assigns.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Company to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest and liquidated
damages, if any, to the date of repurchase (subject to the right of Holders of
record on the relevant record date to receive interest and liquidated damages,
if any, due on the relevant interest payment date); provided, however, that
notwithstanding the occurrence of a Change of Control, the Company shall not be
obligated to repurchase the Notes pursuant to this section in the event that it
has exercised its right to redeem all the Notes under the terms of the section
titled "Optional Redemption":
(1) prior to the first public offering of common stock of the Company,
the Permitted Holders cease to be the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of a
majority in the aggregate of the total voting power of the Voting Stock of
the Company, whether as a result of issuance of securities of the Company,
any merger, consolidation, liquidation or dissolution of the Company, any
direct or indirect transfer of securities by any Permitted Holder or
otherwise (for purposes of this clause (1) and clause (2) below, the
Permitted Holders shall be deemed to beneficially own any Voting Stock of
an entity (the "specified entity") held by any other entity (the "parent
entity") so long as the Permitted Holders beneficially own (as so defined),
directly or indirectly, in the aggregate a majority of the voting power of
the Voting Stock of the parent entity);
(2) (A) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule
13d-5(b)(1) under the Exchange Act), other than one or more Permitted
Holders, is or becomes the beneficial owner (as defined in clause (1)
above, except that for purposes of this clause (2) a person (including a
Permitted Holder) shall be deemed to have "beneficial ownership" of all
shares that any such person has the right to acquire, whether such right is
exercisable immediately, only after the passage of time, upon the happening
of any event or otherwise), directly or indirectly, of more than 50% of the
total voting power of the Voting Stock of the Company and (B) the Permitted
Holders "beneficially own" (as defined in clause (1) above), directly or
indirectly, in the aggregate a lesser percentage of the total voting power
of the Voting Stock of the Company than such other person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election
89
97
a majority of the Board of Directors of the Company (for the purposes of
this clause (2), such other person shall be deemed to beneficially own any
Voting Stock of a specified entity held by a parent entity, if such other
person is the beneficial owner (as defined in this clause (2)), directly or
indirectly, of more than 50% of the voting power of the Voting Stock of
such parent entity and the Permitted Holders "beneficially own" (as defined
in clause (1) above), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent entity
and do not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of Directors of
such parent entity);
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors (A) selected in accordance with the
Stockholders Agreement so long as such agreement is in effect or otherwise
nominated by the Permitted Holders or (B) whose election by the Board of
Directors of the Company or whose nomination for election by the
stockholders of the Company was approved by a vote of at least a majority
of the members of the Board of Directors of the Company, then still in
office, who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved by the Board
of Directors or in accordance with the Stockholders Agreement or otherwise
by the Permitted Holders) cease for any reason to constitute a majority of
the Board of Directors of the Company then in office;
(4) the adoption of a plan relating to the liquidation or dissolution
of the Company; or
(5) the merger or consolidation of the Company with or into another
Person or the merger of another Person with or into the Company, or the
sale of all or substantially all the assets of the Company to another
Person (other than a Person that is controlled by the Permitted Holders),
and, in the case of any such merger or consolidation, the securities of the
Company that are outstanding immediately prior to such transaction and
which represent 100% of the aggregate voting power of the Voting Stock of
the Company are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving Person or transferee that represent immediately after such
transaction, at least a majority of the aggregate voting power of the
Voting Stock of the surviving Person or transferee.
In the event that at the time of such Change of Control the terms of any
agreement governing Bank Indebtedness of the Company or its Subsidiaries
restrict or prohibit the repurchase of Notes pursuant to this covenant, then
prior to the mailing of the notice to Holders provided for in the immediately
following paragraph but in any event within 30 days following any Change of
Control, the Company shall:
(1) repay in full all such Bank Indebtedness or offer to repay in full
all such Bank Indebtedness and repay the Indebtedness of each lender who
has accepted such offer, or
(2) obtain the requisite consent of the lenders under such agreements
to permit the repurchase of the Notes as provided for below.
If the Company does not obtain such consents or repay such Bank
Indebtedness, the Company will remain prohibited from repurchasing the Notes
pursuant to this covenant. In such event the Company's failure to make an offer
to purchase Notes pursuant to this covenant would constitute an Event of Default
under the Indenture which in turn would constitute a default under the Credit
Agreement. In such circumstances, the subordination provisions of the Indenture
would likely prohibit payments to Holders of the Notes.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee (the "Change of Control Offer")
stating: (1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Notes at a purchase price
in cash equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and liquidated damages, if any, to the date of repurchase (subject to
the right of
90
98
Holders of record on the relevant record date to receive interest and liquidated
damages, if any, on the relevant interest payment date);
(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
covenant, that a Holder must follow in order to have its Notes purchased.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this covenant by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchaser. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenants described under "-- Certain Covenants -- Limitation on Indebtedness".
Such restrictions can only be waived with the consent of the Holders of a
majority in principal amount of the Notes then outstanding. Except for the
limitations contained in such covenants, however, the Indenture will not contain
any covenants or provisions that may afford Holders protection in the event of a
highly leveraged transaction.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Credit Agreement. Future Senior
Indebtedness of the Company may contain prohibitions of certain events which
would constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the Holders of
their right to require the Company to repurchase the Notes could cause a default
under such Senior Indebtedness, even if the Change of Control itself does not,
due to the financial effect of such repurchase on the Company. Finally, the
Company's ability to pay cash to the Holders upon a repurchase may be limited by
the Company's then existing financial resources. There can be no assurance that
the Company will have sufficient funds available when necessary to make any
required repurchases. The provisions under the Indenture relative to the
Company's obligation to make an offer to repurchase the Notes as a result of a
Change of Control may be waived or modified with the written consent of the
Holders of a majority in principal amount of the Notes.
91
99
CERTAIN COVENANTS
The Indenture will contain covenants including, among others, the
following:
Limitation on Indebtedness. (a) The Company will not, and will not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness;
provided, however, that the Company or any Restricted Subsidiary that is a Note
Guarantor may Incur Indebtedness if on the date of such Incurrence and after
giving effect thereto the Consolidated Coverage Ratio would be greater than
2.00:1.00 if such Indebtedness is Incurred on or prior to December 31, 2002 and
2.25:1.00 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreement in an
aggregate principal amount not to exceed $580.0 million at any one time
outstanding less the aggregate amount of all repayments of principal of
such Indebtedness pursuant to the covenant described under "-- Limitation
on Sales of Assets and Subsidiary Stock";
(2) Indebtedness of the Company owed to and held by any Restricted
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or any Restricted Subsidiary; provided, however, that (A) any
subsequent issuance or transfer of any Capital Stock or any other event
that results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of any such Indebtedness (except to
the Company or a Restricted Subsidiary) shall be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the issuer thereof, (B)
if the Company is the obligor on such Indebtedness, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
obligations with respect to the Notes, (C) if a Restricted Subsidiary is
the obligor on such Indebtedness, such Indebtedness is made pursuant to an
intercompany note and (D) if a Note Guarantor is the obligor on such
Indebtedness and the Company is not the obligee, such Indebtedness is
subordinated in right of payment to the Note Guarantee of such Note
Guarantor;
(3) Indebtedness (A) represented by the Old Notes, the Note
Guarantees, the New Notes and the New Note Guarantees, (B) outstanding on
the Closing Date (other than the Indebtedness described in clauses (1) and
(2) above), (C) consisting of Refinancing Indebtedness Incurred in respect
of any Indebtedness described in this clause (3) (including Refinancing
Indebtedness) or the foregoing paragraph (a) and (D) consisting of
Guarantees of any Indebtedness otherwise permitted by the terms of the
Indenture;
(4) (A) Indebtedness of a Restricted Subsidiary Incurred and
outstanding on or prior to the date on which such Restricted Subsidiary was
acquired by the Company (other than Indebtedness Incurred as consideration
in, or to provide all or any portion of the funds or credit support
utilized to consummate, the transaction or series of related transactions
pursuant to which such Restricted Subsidiary became a Subsidiary of or was
otherwise acquired by the Company) and (B) Refinancing Indebtedness
Incurred by a Restricted Subsidiary in respect of Indebtedness Incurred by
such Restricted Subsidiary pursuant to this clause (4);
(5) Indebtedness of the Company or a Restricted Subsidiary (A) in
respect of performance bonds, bankers' acceptances, letters of credit and
surety or appeal bonds provided by the Company and the Restricted
Subsidiaries in the ordinary course of their business, and (B) under
Commodity Agreements, Interest Rate Agreements and Currency Agreements
entered into for bona fide hedging purposes of the Company or any
Restricted Subsidiary in the ordinary course of business; provided,
however, that such Interest Rate Agreements or Currency Agreements do not
increase the principal amount of Indebtedness of the Company and its
Restricted Subsidiaries outstanding at any time other than as a result of
fluctuations in
92
100
interest rates or foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(6) Indebtedness (including Capitalized Lease Obligations and
Attributable Debt) Incurred by the Company or any of its Restricted
Subsidiaries to finance the purchase, lease or improvement of property
(real or personal), equipment or other assets (in each case whether through
the direct purchase of assets or the Capital Stock of any Person owning
such assets) in an aggregate principal amount which, when aggregated with
the principal amount of all other Indebtedness then outstanding and
Incurred pursuant to this clause (6) and all Refinancing Indebtedness
Incurred to refund, refinance or replace any Indebtedness Incurred pursuant
to this clause (6), does not exceed the greater of (x) 5.0% of Tangible
Assets and (y) $30.0 million;
(7) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course, provided that such Indebtedness
is extinguished within five Business Days of Incurrence;
(8) Indebtedness of the Company and its Restricted Subsidiaries
arising from agreements of the Company or a Restricted Subsidiary providing
for indemnification, adjustment of purchase price or similar obligations,
in each case incurred or assumed in connection with the disposition of any
business, assets or a Subsidiary of the Company in accordance with the
terms of the Indenture, other than Guarantees by the Company or any
Restricted Subsidiary of Indebtedness Incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary of the Company for
the purpose of financing such acquisition; provided, however, that the
maximum aggregate liability in respect of all such Indebtedness shall not
exceed the gross proceeds, including the fair market value as determined in
good faith by a majority of the Board of Directors of noncash proceeds (the
fair market value of such noncash proceeds being measured at the time it is
received and without giving effect to any subsequent changes in value),
actually received by the Company and its Restricted Subsidiaries in
connection with such disposition;
(9) the Incurrence by a Securitization Entity of Indebtedness in a
Qualified Securitization Transaction that is not recourse to the Company or
any Restricted Subsidiary of the Company (except for Standard
Securitization Undertakings);
(10) Indebtedness of Foreign Subsidiaries to the extent that the
aggregate outstanding amount of Indebtedness incurred by such Foreign
Subsidiaries under this clause (10) does not exceed at any one time an
amount equal to the sum of (A) 80% of the consolidated book value of the
accounts receivable of all Foreign Subsidiaries and (B) 60% of the
consolidated book value of the inventory of all Foreign Subsidiaries;
(11) Indebtedness under any Domestic Overdraft Facility; or
(12) Indebtedness of the Company and its Restricted Subsidiaries (in
addition to Indebtedness permitted to be Incurred pursuant to the foregoing
paragraph (a) or any other clause of this paragraph (b)) in an aggregate
principal amount on the date of Incurrence that, when added to all other
Indebtedness Incurred pursuant to this clause (12) and then outstanding,
will not exceed $20.0 million.
(c) Notwithstanding the foregoing, the Company may not Incur any
Indebtedness pursuant to paragraph (b) above if the proceeds thereof are
used, directly or indirectly, to repay, prepay, redeem, defease, retire,
refund or refinance any Subordinated Obligations unless such Indebtedness
will be subordinated to the Notes to at least the same extent as such
Subordinated Obligations. The Company may not Incur any Indebtedness if
such Indebtedness is subordinate or junior in right of payment to any
Senior Indebtedness unless such Indebtedness is Senior Subordinated
Indebtedness or is expressly subordinated in right of payment to Senior
Subordinated Indebtedness. In addition, the Company may not Incur any
Secured Indebtedness
93
101
which is not Senior Indebtedness unless contemporaneously therewith
effective provision is made to secure the Notes equally and ratably with
(or on a senior basis to, in the case of Indebtedness subordinated in right
of payment to the Notes) such Secured Indebtedness for so long as such
Secured Indebtedness is secured by a Lien, except for Senior Subordinated
Indebtedness and Subordinated Obligations secured by Liens on the assets of
any entity existing at the time such entity is acquired by, and becomes a
Restricted Subsidiary of, the Company, whether by merger, consolidation,
purchase of assets or otherwise, provided that such Liens (x) are not
created, incurred or assumed in connection with, or in contemplation of
such entity being acquired by the Company and (y) do not extend to any
other assets of the Company or any of its other Subsidiaries. A Note
Guarantor may not Incur any Indebtedness if such Indebtedness is by its
terms expressly subordinate or junior in right of payment to any Senior
Indebtedness of such Note Guarantor unless such Indebtedness is Senior
Subordinated Indebtedness of such Note Guarantor or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness of
such Note Guarantor. In addition, a Note Guarantor may not Incur any
Secured Indebtedness that is not Senior Indebtedness of such Note Guarantor
unless contemporaneously therewith effective provision is made to secure
the Note Guarantee of such Note Guarantor equally and ratably with (or on a
senior basis to, in the case of Indebtedness subordinated in right of
payment to such Note Guarantee) such Secured Indebtedness for as long as
such Secured Indebtedness is secured by a Lien, except for Senior
Subordinated Indebtedness and Subordinated Obligations of such Note
Guarantor secured by Liens on the assets of any entity existing at the time
such entity is acquired by such Note Guarantor, whether by merger,
consolidation, purchase of assets or otherwise, provided that such Liens
(x) are not created, incurred or assumed in connection with or in
contemplation of such assets being acquired by such Note Guarantor and (y)
do not extend to any other assets of the Company or any of its other
Subsidiaries.
(d) Notwithstanding any other provision of this covenant, the maximum
amount of Indebtedness that the Company or any Restricted Subsidiary may
Incur pursuant to this covenant shall not be deemed to be exceeded solely
as a result of fluctuations in the exchange rates of currencies. For
purposes of determining the outstanding principal amount of any particular
Indebtedness Incurred pursuant to this covenant:
(1) Indebtedness Incurred pursuant to the Credit Agreement prior to
or on the Closing Date shall be treated as Incurred pursuant to clause
(1) of paragraph (b) above,
(2) Guarantees of, or obligations in respect of letters of credit
relating to, Indebtedness which is otherwise included in the
determination of a particular amount of Indebtedness shall not be
included,
(3) If obligations in respect of letters of credit are Incurred
pursuant to the Credit Agreement and are being treated as Incurred
pursuant to clause (1) of paragraph (b) above and the letters of credit
relate to other Indebtedness, then such other Indebtedness shall not be
included,
(4) The principal amount of any Disqualified Stock of the Company
or a Restricted Subsidiary or Preferred Stock of a Restricted Subsidiary
that is not a Note Guarantor will be equal to the greater of the maximum
mandatory redemption or repurchase price (not including, in either case,
any redemption or repurchase premium) or the maximum liquidation
preference,
(5) The principal amount of Indebtedness, Disqualified Stock of the
Company or a Restricted Subsidiary or Preferred Stock of a Restricted
Subsidiary that is not a Note Guarantor issued at a price less than the
principal amount thereof, the maximum fixed redemption or repurchase
price thereof or liquidation preference thereof, as applicable, will be
equal to the amount of the liability or obligation in respect thereof
determined in accordance with GAAP,
94
102
(6) If such Indebtedness is denominated in a currency other than
U.S. dollars, the U.S. dollar equivalent principal amount thereof will
be calculated based on the relevant currency exchange rates in effect on
the date such Indebtedness was Incurred,
(7) The accrual of interest, accrual of dividends, the accretion of
accreted value, the payment of interest in the form of additional
Indebtedness and the payment of dividends or distributions in the form
of additional Capital Stock will not be deemed an Incurrence of
Indebtedness for purposes of this covenant,
(8) Indebtedness permitted by this covenant need not be permitted
solely by reference to one provision permitting such Indebtedness but
may be permitted in part by one such provision and in part by one or
more other provisions of this covenant permitting such Indebtedness, and
(9) In the event that Indebtedness meets the criteria of more than
one of the types of Indebtedness described in this covenant, the
Company, in its sole discretion, will classify (or later reclassify)
such Indebtedness and only be required to include the amount of such
Indebtedness in one of such clauses.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to:
(1) declare or pay any dividend or make any distribution of any kind
on or in respect of its Capital Stock (including any payment in connection
with any merger or consolidation involving the Company) or similar payment
to the holders (solely in their capacities as such) of its Capital Stock
except dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock) and except dividends or distributions
payable to the Company or another Restricted Subsidiary (and, if such
Restricted Subsidiary has shareholders other than the Company or other
Restricted Subsidiaries, to its other shareholders on a pro rata basis),
(2) purchase, redeem, retire or otherwise acquire for value any
Capital Stock of the Company or any Restricted Subsidiary held by Persons
other than the Company or another Restricted Subsidiary,
(3) purchase, repurchase, redeem, defease or otherwise acquire or
retire for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment any Subordinated Obligations (other than (A)
the purchase, repurchase or other acquisition of Subordinated Obligations
purchased in anticipation of satisfying a sinking fund obligation,
principal installment or final maturity, in each case due within one year
of the date of acquisition and (B) Indebtedness described in clause (2) of
paragraph (b) of the covenant described under "-- Limitation on
Indebtedness"), or
(4) make any Investment (other than a Permitted Investment) in any
Person (any such dividend, distribution, purchase, redemption, repurchase,
defeasance, other acquisition, retirement or Investment being herein
referred to as a "Restricted Payment") if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(A) a Default will have occurred and be continuing (or would result
therefrom);
(B) the Company could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; or
(C) the aggregate amount of such Restricted Payment and all other
Restricted Payments (the amount so expended, if other than in cash, to
be determined in good faith by the Board of Directors, whose
determination will be conclusive and evidenced by a
95
103
resolution of the Board of Directors) declared or made subsequent to the
Closing Date would exceed the sum, without duplication, of:
(i) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the fiscal
quarter immediately following the fiscal quarter during which the
Closing Date occurs to the end of the most recent fiscal quarter
ending prior to the date of such Restricted Payment for which
consolidated financial statements of the Company are publicly
available (or, in case such Consolidated Net Income will be a
deficit, minus 100% of such deficit);
(ii) 100% of the aggregate Net Cash Proceeds (other than in
respect of an Excluded Contribution) received by the Company (x) as
capital contributions to the Company after the Closing Date or (y)
from the issue or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Closing Date (other than a capital
contribution from or an issuance or sale to (a) a Subsidiary of the
Company or (b) an employee equity ownership or participation plan or
other trust established by the Company or any of its Subsidiaries);
(iii) 100% of the fair market value (as determined in good faith
by the Board of Directors of the Company) of shares of Qualified
Stock of the Company or any Restricted Subsidiary issued after the
Closing Date to acquire assets from a third party;
(iv) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet
upon the conversion or exchange (other than by a Subsidiary of the
Company) subsequent to the Closing Date of any Indebtedness of the
Company or its Restricted Subsidiaries issued after the Closing which
is convertible or exchangeable for Capital Stock (other than
Disqualified Stock) of the Company (less the amount of any cash or
the fair market value of other property distributed by the Company or
any Restricted Subsidiary upon such conversion or exchange);
(v) 100% of the aggregate amount received by the Company or any
Restricted Subsidiary in cash from the sale or other disposition
(other than to (x) the Company or a Subsidiary of the Company or (y)
an employee equity ownership or participation plan or other trust
established by the Company or any of its Subsidiaries) of Restricted
Investments made by the Company or any Restricted Subsidiary after
the Closing Date and from repurchases and redemptions of such
Restricted Investments from the Company or any Restricted Subsidiary
by any Person (other than (x) the Company or any of its Subsidiaries
or (y) an employee equity ownership or participation plan or other
trust established by the Company or any of its Restricted
Subsidiaries) and from repayments of loans or advances which
constituted Restricted Investments;
(vi) the amount equal to the net reduction in Investments in
Unrestricted Subsidiaries resulting from (x) payments of dividends,
repayments of the principal of loans or advances or other transfers
of assets to the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries or (y) the redesignation of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investment") not to exceed, in the
case of any Unrestricted Subsidiary, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such
Unrestricted Subsidiary, which amount was included in the calculation
of the amount of Restricted Payments; and
(vii) $5.0 million.
96
104
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any purchase, repurchase, retirement or other acquisition or
retirement for value of, or other distribution in respect of, Capital Stock
of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company or capital
contributions to the Company after the Closing Date (other than
Disqualified Stock and other than Capital Stock issued or sold to, or
capital contributions from, a Subsidiary of the Company or an employee
equity ownership or participation plan or other trust established by the
Company or any of its Subsidiaries); provided, however, that:
(A) such Restricted Payment will be excluded in the calculation of
the amount of Restricted Payments, and
(B) the Net Cash Proceeds from such sale or capital contribution
applied in the manner set forth in this clause (1) will be excluded from
the calculation of amounts under clause (4)(C)(ii) of paragraph (a)
above;
(2) any purchase, repurchase, redemption, defeasance or other
acquisition or retirement for value of Subordinated Obligations of the
Company or a Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, (x) Capital Stock of the
Company or a Restricted Subsidiary or (y) Subordinated Obligations of the
Company or a Restricted Subsidiary that are permitted to be Incurred
pursuant to the covenant described under "-- Limitation on Indebtedness";
provided, however, that such purchase, repurchase, redemption, defeasance
or other acquisition or retirement for value will be excluded in the
calculation of the amount of Restricted Payments;
(3) any purchase or redemption of Subordinated Obligations from Net
Available Cash to the extent permitted by the covenant described under
"-- Limitation on Sales of Assets and Subsidiary Stock"; provided, however,
that such purchase or redemption will be excluded in the calculation of the
amount of Restricted Payments;
(4) Investments that are made with Excluded Contributions; provided,
however, that such Investments shall be excluded in the calculation of the
amount of Restricted Payments;
(5) dividends or other distributions paid to holders of, or
redemptions from holders of, Capital Stock within 60 days after the date of
declaration thereof, or the giving of formal notice of redemption, if at
such date of declaration such dividends or other distributions or
redemptions would have complied with this covenant; provided, however, that
such dividends, distributions or redemptions will be included in the
calculation of the amount of Restricted Payments;
(6) any repurchase of Capital Stock owned by former officers,
directors, consultants or employees of the Company or its Subsidiaries or
their assigns, estates and heirs or entities controlled by them, provided,
however, that the amount of such repurchases shall not, in the aggregate,
exceed the sum of (A) $10.0 million (which amount shall be increased by the
amount of any Net Cash Proceeds to the Company from (i) sales of Capital
Stock of the Company to management, other employees or Permitted Holders
subsequent to the Closing Date to the extent such amounts are not included
under clause 4(C)(ii) of paragraph (a) above and (ii) any "key-man" life
insurance policies which are used to make such repurchases) and (B) $2.0
million per fiscal year of the Company (which amount may be used in a
subsequent fiscal year to the extent not used during a fiscal year);
provided further, however, that the cancelation of Indebtedness owing to
the Company from such former officers, directors, consultants or employees
of the Company or any of its Restricted Subsidiaries in connection with a
repurchase of Capital Stock of the Company will not be deemed to constitute
a Restricted Payment under the Indenture, provided further, however, that
such repurchase will be included in the calculation of the amount of
Restricted Payments;
97
105
(7) any of the transactions pursuant to the Recapitalization
Agreement; provided, however, that such amounts will be excluded in the
calculation of the amount of Restricted Payments;
(8) repurchases of Capital Stock deemed to occur upon the exercise of
stock options, warrants or other convertible securities if such Capital
Stock represents a portion of the exercise price thereof; provided,
however, that such repurchases will be excluded in the calculation of the
amount of Restricted Payments; or
(9) so long as no Default or Event of Default shall have occurred and
be continuing, payments not to exceed $500,000 in the aggregate to enable
the Company to make payments to holders of its Capital Stock in lieu of the
issuance of fractional shares of its Capital Stock; provided, however, that
such payments will be excluded in the calculation of the amount of
Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become effective
any consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
or pay any Indebtedness or other obligations owed to the Company (it being
understood that the priority of any preferred stock in receiving dividends
or liquidating distributions prior to dividends or liquidating
distributions being paid on common stock shall not be deemed a restriction
on the ability to make distributions on Capital Stock);
(2) make any loans or advances to the Company (it being understood
that the subordination of loans or advances made to the Company to other
Indebtedness Incurred by the Company shall not be deemed a restriction on
the ability to make loans or advances); or
(3) transfer any of its property or assets to the Company, except:
(A) any encumbrance or restriction pursuant to applicable law or
any applicable rule, regulation or order, or an agreement in effect at
or entered into on the Closing Date (including the Credit Agreement);
(B) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Capital Stock or
Indebtedness of such Restricted Subsidiary, in each case Incurred by
such Restricted Subsidiary prior to the date on which such Restricted
Subsidiary was acquired by the Company (other than Capital Stock or
Indebtedness Incurred as consideration in, in contemplation of, or to
provide all or any portion of the funds or credit support utilized to
consummate the transaction or series of related transactions pursuant to
which such Restricted Subsidiary became a Restricted Subsidiary or was
otherwise acquired by the Company) and outstanding on such date;
(C) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an
agreement referred to in clause (A) or (B) of this covenant or this
clause (C) or contained in any amendment to an agreement referred to in
clause (A) or (B) of this covenant or this clause (C); provided,
however, that the encumbrances and restrictions contained in any such
Refinancing agreement or amendment are no more restrictive, taken as a
whole, than the encumbrances and restrictions contained in such
predecessor agreements;
(D) in the case of clause (3), any encumbrance or restriction
(i) that restricts in a customary manner the assignment of any
lease, license or similar contract or the subletting, assignment or
transfer of any property or asset that is subject to a lease, license
or similar contract,
98
106
(ii) that is or was created by virtue of any transfer of,
agreement to transfer or option or right with respect to any property
or assets of the Company or any Restricted Subsidiary not otherwise
prohibited by the Indenture,
(iii) contained in security agreements securing Indebtedness of
a Restricted Subsidiary to the extent such encumbrance or restriction
restricts the transfer of the property subject to such security
agreements, or
(iv) encumbrances or restrictions relating to Indebtedness
permitted to be Incurred pursuant to clause (b)(6) of the covenant
described under "-- Limitation on Indebtedness" for property acquired
in the ordinary course of business that only imposes encumbrances or
restrictions on the property so acquired (it being agreed that any
such encumbrance or restriction may also secure other Indebtedness
permitted to be Incurred by the Company and provided by the same
financing source providing the Indebtedness Incurred pursuant to such
clause (b)(6));
(E) with respect to a Restricted Subsidiary, any restriction
imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of
such Restricted Subsidiary pending the closing of such sale or
disposition;
(F) customary provisions in joint venture agreements and other
similar agreements entered into in the ordinary course of business;
(G) Indebtedness or other contractual requirements of a
Securitization Entity in connection with a Qualified Securitization
Transaction; provided, that such restrictions apply only to such
Securitization Entity;
(H) net worth provisions in leases and other agreements entered
into by the Company or any Restricted Subsidiary in the ordinary course
of business; and
(I) any agreement or instrument governing Indebtedness (whether or
not outstanding) of Foreign Subsidiaries of the Company permitted to be
Incurred pursuant to clause (a) or (b)(10) under the caption
"-- Limitation on Indebtedness".
Limitation on Sales of Assets and Subsidiary Stock. (a) The Company will
not, and will not permit any Restricted Subsidiary to, make any Asset
Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration
(including by way of relief from, or by any other Person assuming sole
responsibility for, any liabilities, contingent or otherwise) at the time
of such Asset Disposition at least equal to the fair market value of the
Capital Stock and assets subject to such Asset Disposition,
(2) at least 75% of the consideration thereof received by the Company
or such Restricted Subsidiary is in the form of (A) cash or Temporary Cash
Investments, (B) properties and assets to be owned by the Company or any
Restricted Subsidiary and used in a Permitted Business or (C) Capital Stock
in one or more Persons engaged in a Permitted Business that are or thereby
become Restricted Subsidiaries of the Company, and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be)
(A) first, (i) to the extent the Company elects (or is required by
the terms of any Indebtedness), to prepay, repay, redeem or purchase (x)
Bank Indebtedness or (y) other Senior Indebtedness of the Company or
Indebtedness (other than any Disqualified Stock) of a Restricted
Subsidiary (in the case of clause (y), other than Indebtedness owed to
the Company or an Affiliate of the Company and other than Preferred
Stock of a Restricted Subsidiary that is not a Note Guarantor) or (ii)
to the extent the Company or such Restricted Subsidiary elects, to
reinvest in Additional Assets (including by means of an Investment in
Additional Assets by a Restricted Subsidiary with Net Available Cash
99
107
received by the Company or another Restricted Subsidiary or the
application by the Company of the Net Available Cash received by a
Restricted Subsidiary of the Company), in each case within 365 days (or,
in the case of Foreign Subsidiary Asset Dispositions, 545 days) from the
later of such Asset Disposition or the receipt of such Net Available
Cash, provided that pending the final application of any such Net
Available Cash, the Company and its Restricted Subsidiaries may
temporarily reduce Indebtedness or otherwise invest such Net Available
Cash in any manner not prohibited by the Indenture;
(B) second, within 365 days from the later of such Asset
Disposition or the receipt of such Net Available Cash (or, in the case
of Foreign Subsidiary Asset Dispositions, 545 days), to the extent of
the balance of such Net Available Cash after such application in
accordance with clause (A), to make an Offer (as defined below) to
purchase Notes pursuant to and subject to the conditions set forth in
section (b) of this covenant; provided, however, that if the Company
elects (or is required by the terms of any Senior Subordinated
Indebtedness), such Offer may be made ratably to purchase the Notes and
other Senior Subordinated Indebtedness of the Company; and
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) (other than the proviso
thereof) and (B), for any general corporate purpose not restricted by
the terms of the Indenture;
provided, however that in connection with any prepayment, repayment or purchase
of Indebtedness pursuant to clause (A) or (B) above, the Company or such
Restricted Subsidiary will retire such Indebtedness and will cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net
Available Cash from all Asset Dispositions that is not applied in accordance
with this covenant exceeds $10.0 million.
For the purposes of this covenant, the following are deemed to be cash:
- the assumption of any liabilities of the Company (other than Disqualified
Stock of the Company) or any Restricted Subsidiary and the release of the
Company or such Restricted Subsidiary from all liability on such
liabilities in connection with such Asset Disposition, and
- securities received by the Company or any Restricted Subsidiary from the
transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase of
Notes (and other Senior Subordinated Indebtedness) pursuant to clause (a)(3)(B)
of this covenant, the Company will be required to purchase Notes (and other
Senior Subordinated Indebtedness) tendered pursuant to an offer by the Company
for the Notes (and other Senior Subordinated Indebtedness) (the "Offer") at a
purchase price of 100% of their principal amount plus accrued and unpaid
interest and liquidated damages thereon, if any, to the date of purchase in
accordance with the procedures (including prorating in the event of
oversubscription), set forth in the Indenture. If the aggregate purchase price
of Notes (and other Senior Subordinated Indebtedness) tendered pursuant to the
Offer is less than the Net Available Cash allotted to the purchase of the Notes
(and other Senior Subordinated Indebtedness), the Company may apply the
remaining Net Available Cash for any general corporate purpose not restricted by
the terms of the Indenture. The Company will not be required to make an Offer
for Notes (and other Senior Subordinated Indebtedness) pursuant to this covenant
if the Net Available Cash available therefor (after application of the proceeds
as provided in clause (a)(3)(A)) is less than $10.0 million for any particular
Asset Disposition (which lesser amount will be carried forward for purposes of
determining whether an Offer is required with respect to the Net Available Cash
from any subsequent Asset Disposition). Upon completion of the Offer, the amount
of Net Available Cash shall be reduced to zero.
100
108
(c) The Company will comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof. The
provisions under the Indenture relative to the Company's obligation to make an
offer to repurchase the Notes as a result of an Asset Disposition may be waived
or modified with the written consent of the Holders of a majority in principal
amount of the Notes.
Limitation on Transactions with Affiliates. (a) The Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter into
or conduct any transaction (including the purchase, sale, lease or exchange of
any property or the rendering of any service) with any Affiliate of the Company
(an "Affiliate Transaction") unless such transaction is on terms:
(1) that are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could be obtained at the
time of such transaction in arm's-length dealings with a Person who is not
such an Affiliate,
(2) that, in the event such Affiliate Transaction involves an
aggregate amount in excess of $5.0 million,
(A) are set forth in writing, and
(B) except as provided in clause (a)(3) below, have been approved
by a majority of the members of the Board of Directors having no
personal stake in such Affiliate Transaction (if any such members
exist), and
(3) that, in the event (i) such Affiliate Transaction involves an
amount in excess of $10.0 million, or (ii) if there are no members of the
Board of Directors having no personal stake in such Affiliate Transaction
and such Affiliate Transaction involves an aggregate amount in excess of
$5.0 million, have been determined by a nationally recognized appraisal,
accounting or investment banking firm to be fair, from a financial
standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) will not prohibit:
(1) any Restricted Payment permitted to be paid pursuant to the
covenant described under "-- Limitation on Restricted Payments,"
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, options to purchase Capital Stock of the Company and equity
ownership, restricted stock plans, long-term incentive plans, stock
appreciation rights plans, participation plans or similar employee benefits
plans approved by the Board of Directors,
(3) the grant of options (and the exercise thereof) to purchase
Capital Stock of the Company or similar rights to employees and directors
of the Company pursuant to plans approved by the Board of Directors,
(4) loans or advances to officers, directors or employees in the
ordinary course of business, but in any event not to exceed $2.0 million in
the aggregate outstanding at any one time,
(5) the payment of reasonable fees to directors of the Company and its
Subsidiaries who are not employees of the Company or its Subsidiaries and
other reasonable fees, compensation, benefits and indemnities paid or
entered into by the Company or its Restricted Subsidiaries in the ordinary
course of business to or with the officers, directors or employees of the
Company and its Restricted Subsidiaries,
101
109
(6) any transaction between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries,
(7) the provision by Persons who may be deemed Affiliates or
stockholders of the Company (other than Chase Capital Partners and Persons
directly or indirectly controlled by Chase Capital Partners) of investment
banking, commercial banking, trust, lending or financing, investment,
underwriting, placement agent, financial advisory or similar services to
the Company or its Subsidiaries performed after the Closing Date,
(8) sales of Capital Stock to Permitted Holders approved by a majority
of the members of the Board of Directors who do not have a material direct
or indirect financial interest in or with respect to the transaction being
considered, or
(9) the existence or performance by the Company or any Restricted
Subsidiary under any agreement as in effect as of the Closing Date
(including the Recapitalization Agreement and the agreements to be entered
into pursuant thereto or any amendment thereto) or replacement agreement
therefor or any transaction contemplated thereby (including pursuant to any
amendment thereto or replacement agreement therefor) so long as such
amendment or replacement is not more disadvantageous to the Holders of the
Notes in any material respect than the original agreement as in effect on
the Closing Date.
SEC Reports. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the SEC (if permitted by SEC practice and applicable law and
regulations) and provide the Trustee and Holders and prospective Holders (upon
request) within 15 days after it files them with the SEC (or if not permitted,
within 15 days after it would have otherwise been required to file them with the
SEC), copies of the Company's annual report and the information, documents and
other reports that are specified in Sections 13 and 15(d) of the Exchange Act.
In addition, following the existence of a Public Market, the Company will
furnish to the Trustee and the Holders, promptly upon their becoming available,
copies of the annual report to shareholders and any other information provided
by the Company to its shareholders generally. The Company also will comply with
the other provisions of Section 314(a) of the TIA.
Future Note Guarantors. The Company will cause each Domestic Subsidiary
and any other Restricted Subsidiary that guarantees any Senior Indebtedness
(other than a Foreign Subsidiary that guarantees Senior Indebtedness Incurred by
another Foreign Subsidiary) to become a Note Guarantor, and, if applicable,
execute and deliver to the Trustee a supplemental indenture in the form set
forth in the Indenture pursuant to which such Domestic or other Restricted
Subsidiary will Guarantee payment of the Notes. Each Note Guarantee will be
limited to an amount not to exceed the maximum amount that can be Guaranteed by
that Domestic or other Restricted Subsidiary without rendering the Note
Guarantee, as it relates to such Domestic or other Restricted Subsidiary, void
or voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally.
Limitation on Lines of Business. The Company will not, and will not permit
any Restricted Subsidiary to, engage in any business, other than a Permitted
Business, except that the Company and any of its Restricted Subsidiaries may
engage in a new business so long as the Company and its Restricted Subsidiaries,
taken as a whole, remain substantially engaged in a Permitted Business.
MERGER AND CONSOLIDATION
The Company will not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor
Company") will be a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia
and the Successor Company (if not the Company) will
102
110
expressly assume, by a supplemental indenture, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the obligations of
the Company under the Notes and the Indenture;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or
any Restricted Subsidiary as a result of such transaction as having been
Incurred by the Successor Company or such Restricted Subsidiary at the time
of such transaction), no Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction, the Successor
Company would be able to Incur an additional $1.00 of Indebtedness under
paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness"; and
(4) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture.
The Successor Company will succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Indenture, but the
predecessor Company in the case of a conveyance, transfer or lease of all or
substantially all its assets will not be released from the obligation to pay the
principal of and interest on the Notes.
In addition, the Company will not permit any Note Guarantor to consolidate
with or merge with or into any Person unless either
(1) (A) the resulting, surviving or transferee Person will be a
corporation, partnership or limited liability company organized and
existing under the laws of the United States of America, any State thereof
or the District of Columbia, and such Person (if not such Note Guarantor)
will expressly assume, by a supplemental indenture, executed and delivered
to the Trustee, in form satisfactory to the Trustee, all the obligations of
such Note Guarantor under its Note Guarantee; (B) immediately after giving
effect to such transaction (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person or any
Restricted Subsidiary as a result of such transaction as having been
Incurred by such Person or such Restricted Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing; and (C) the
Company will have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the
Indenture; or
(2) such transaction results in the Company receiving cash or other
property (other than Capital Stock representing a controlling interest in
the successor entity), and the transaction is made in compliance with the
covenant described under "-- Certain Covenants -- Limitation on Sales of
Assets and Subsidiary Stock."
Notwithstanding any of the foregoing:
(A) any Restricted Subsidiary may consolidate with, merge into or
transfer or lease all or part of its properties and assets to the Company
or a Subsidiary that is a Note Guarantor, and
(B) the Company may merge with an Affiliate incorporated solely for
(i) the purpose of incorporating the Company or (ii) organizing the Company
in another jurisdiction to realize tax or other benefits.
103
111
DEFAULTS
Each of the following is an Event of Default:
(1) a default in any payment of interest or liquidated damages on any
Note when due and payable, whether or not prohibited by the provisions
described under "Ranking" above, continued for 30 days,
(2) a default in the payment of principal of any Note when due and
payable at its Stated Maturity, upon required redemption or repurchase,
upon declaration or otherwise, whether or not such payment is prohibited by
the provisions described under "Ranking" above,
(3) the failure by the Company or any Note Guarantor to comply with
its obligations under the covenant described under "Merger and
Consolidation" above,
(4) the failure by the Company or any Restricted Subsidiary to comply
for 45 days after written notice (specifying the default and demanding that
the same be remedied) with any of its obligations under the covenants
described under "-- Change of Control" or "-- Certain Covenants" above (in
each case, other than a failure to purchase Notes),
(5) the failure by the Company or any Restricted Subsidiary to comply
for 60 days after written notice (specifying the default and demanding that
the same be remedied) with its other agreements contained in the Notes or
the Indenture,
(6) the failure by the Company or any Restricted Subsidiary of the
Company to pay the principal amount of any Indebtedness within any
applicable grace period after final maturity or the acceleration of any
such Indebtedness by the holders thereof because of a default if the
aggregate principal amount of such Indebtedness unpaid or accelerated
exceeds $10.0 million or its foreign currency equivalent (the "cross
acceleration provision") and such failure continues for 30 days after
receipt of the notice specified in the Indenture,
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions"),
(8) the rendering of any judgment or decree for the payment of money
in excess of $10.0 million (net of any amounts with respect to which a
reputable and creditworthy insurance company has acknowledged liability in
writing) or its foreign currency equivalent against the Company, or a
Restricted Subsidiary of the Company if such judgment or decree becomes
final and nonappealable and remains outstanding for a period of 60 days
following such judgment and is not discharged, waived or stayed (the
"judgment default provision") or
(9) any Note Guarantee of a Material Subsidiary ceases to be in full
force and effect (except as contemplated by the terms thereof) or any Note
Guarantor or Person acting by or on behalf of such Note Guarantor denies or
disaffirms such Note Guarantor's obligations under the Indenture or any
Note Guarantee and such Default continues for 10 days after receipt of the
notice specified in the Indenture.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body.
However, a default under clauses (4), (5), (6) or (9) will not constitute
an Event of Default until the Trustee or the Holders of at least 25% in
principal amount of the outstanding Notes notify the Company of the default and
the Company or the Note Guarantor, as applicable, does not cure such default
within the time specified in clauses (4), (5), (6) or (9) hereof after receipt
of such notice.
104
112
If an Event of Default (other than an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company) occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the outstanding Notes by written notice to the Company and the Trustee
specifying the Event of Default and that it is a "notice of acceleration" may
declare the principal of and accrued but unpaid interest and liquidated damages
on all the Notes to be due and payable. Upon such a declaration, such principal
and interest and liquidated damages will be due and payable immediately. If an
Event of Default relating to certain events of bankruptcy, insolvency or
reorganization of the Company occurs, the principal of and interest and
liquidated damages on all the Notes will become immediately due and payable
without any declaration or other act on the part of the Trustee or any Holders.
Under certain circumstances, the Holders of a majority in principal amount of
the outstanding Notes may rescind any such acceleration with respect to the
Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee indemnity or security reasonably satisfactory to it
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no Holder may
pursue any remedy with respect to the Indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event
of Default is continuing,
(2) Holders of at least 25% in principal amount of the outstanding
Notes have requested the Trustee in writing to pursue the remedy,
(3) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense,
(4) the Trustee has not complied with such request within 60 days
after the receipt of the request and the offer of security or indemnity and
(5) the Holders of a majority in principal amount of the outstanding
Notes have not given the Trustee a direction inconsistent with such request
within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal
amount of the outstanding Notes will be given the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder or that would involve the Trustee in personal liability.
Prior to taking any action under the Indenture, the Trustee will be entitled to
indemnification satisfactory to it in its sole discretion against all losses and
expenses caused by taking or not taking such action.
If a Default occurs and is continuing and is known to the Trustee, the
Trustee must mail to each Holder notice of the Default within the earlier of 90
days after it occurs or 30 days after it is actually known to a Trust Officer or
written notice of it is received by the Trustee. Except in the case of a Default
in the payment of principal of, premium (if any) or interest on any Note
(including payments pursuant to the redemption provisions of such Note), the
Trustee may withhold notice if and so long as a committee of its Trust Officers
in good faith determines that withholding notice is in the interests of the
Holders. In addition, the Company will be required to deliver to the Trustee,
within 120 days after the end of each fiscal year, a certificate indicating
whether the signers thereof know of any Default that occurred during the
previous year. The Company will also be required to deliver to the Trustee,
within 30 days after the occurrence thereof, written notice of any event which
would constitute certain Events of Default, their status and what action the
Company is taking or proposes to take in respect thereof.
105
113
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture or the Notes may be amended
with the written consent of the Holders of a majority in principal amount of the
Notes then outstanding and any past default or compliance with any provisions
may be waived with the consent of the Holders of a majority in principal amount
of the Notes then outstanding. However, without the consent of each Holder of an
outstanding Note affected, no amendment may, among other things:
(1) reduce the amount of Notes whose Holders must consent to an
amendment,
(2) reduce the rate of or extend the time for payment of interest or
any liquidated damages on any Note,
(3) reduce the principal of or extend the Stated Maturity of any Note,
(4) reduce the premium payable upon the redemption of any Note or
change the time at which any Note may be redeemed as described under
"-- Optional Redemption" above,
(5) make any Note payable in money other than that stated in the Note,
(6) make any change to the subordination provisions of the Indenture
that adversely affects the rights of any Holder,
(7) impair the right of any Holder to receive payment of principal of,
and interest or any liquidated damages on, such Holder's Notes on or after
the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such Holder's Notes,
(8) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions or
(9) modify the Note Guarantees in any manner adverse to the Holders.
Without the consent of any Holder, the Company, the Note Guarantors and the
Trustee may amend the Indenture to:
- cure any ambiguity, omission, defect or inconsistency,
- provide for the assumption by a successor corporation of the obligations
of the Company under the Indenture,
- provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a
manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code),
- make any change in the subordination provisions of the Indenture that
would limit or terminate the benefits available to any holder of Senior
Indebtedness of the Company or a Note Guarantor (or any representative
thereof) under such subordination provisions,
- add additional Guarantees with respect to the Notes,
- secure the Notes,
- add to the covenants of the Company for the benefit of the Holders or to
surrender any right or power conferred upon the Company,
- make any change that does not materially and adversely affect the rights
of any Holder,
- provide for the issuance of the New Notes, or
- comply with any requirement of the SEC in connection with the
qualification of the Indenture under the TIA.
106
114
The consent of the Holders will not be necessary to approve the particular
form of any proposed amendment. It will be sufficient if such consent approves
the substance of the proposed amendment.
After an amendment becomes effective, the Company is required to mail to
Holders a notice briefly describing such amendment. However, the failure to give
such notice to all Holders, or any defect therein, will not impair or affect the
validity of the amendment.
TRANSFER AND EXCHANGE
Subject to compliance with the restrictions on transfer and exchange set
forth in the Indenture, a Holder will be able to transfer or exchange Notes.
Upon any transfer or exchange, the registrar and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a Holder to pay any taxes required by law
or permitted by the Indenture. The Company will not be required to transfer or
exchange any Note selected for redemption or to transfer or exchange any Note
for a period of 15 days prior to a selection of Notes to be redeemed. The Notes
will be issued in registered form and the Holder will be treated as the owner of
such Note for all purposes.
DEFEASANCE
The Company may at any time terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. In addition, the Company may at any time terminate:
(1) its obligations under the covenants described under "-- Change of
Control" and "-- Certain Covenants",
(2) the operation of the cross acceleration provision, the bankruptcy
provisions with respect to Significant Subsidiaries, the judgment default
provision and the Note Guarantee provision described under "-- Defaults"
above and the limitations contained in clause (3) under the first paragraph
of "-- Merger and Consolidation" above ("covenant defeasance").
In the event that the Company exercises its legal defeasance option or its
covenant defeasance option, each Note Guarantor will be released from all of its
obligations with respect to its Note Guarantee.
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (4), (5), (6), (7) (with respect to
Significant Subsidiaries only), (8) or (9) under "-- Defaults" above or because
of the failure of the Company to comply with clause (3) under the first
paragraph of "-- Merger and Consolidation" above.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal, premium (if any) and
interest on and liquidated damages (if any) in respect of the Notes to
redemption or maturity, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that Holders will not recognize income, gain or loss for Federal income
tax purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amounts and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
107
115
occurred (and, in the case of legal defeasance only, such Opinion of Counsel
must be based on a ruling of the Internal Revenue Service or other change in
applicable Federal income tax law).
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
GOVERNING LAW
The Indenture and the Notes are governed by, and the New Notes will be
governed by, and construed in accordance with, the laws of the State of New York
without giving effect to applicable principles of conflicts of law to the extent
that the application of the law of another jurisdiction would be required
thereby.
CERTAIN DEFINITIONS
"Additional Assets" means:
(1) any property or assets (other than Indebtedness and Capital Stock)
to be used by the Company or a Restricted Subsidiary in a Permitted
Business;
(2) Capital Stock of a Person that becomes a Restricted Subsidiary as
a result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that
at such time is a Restricted Subsidiary; provided, however, that:
any such Restricted Subsidiary described in clauses (2) or (3) above is
primarily engaged in a Permitted Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "-- Certain Covenants -- Limitation
on Transactions with Affiliates" and "-- Certain Covenants -- Limitation on
Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also mean any
beneficial owner of shares representing 10% or more of the total voting power of
the Voting Stock (on a fully diluted basis) of the Company or of rights or
warrants to purchase such Voting Stock (whether or not currently exercisable)
and any Person who would be an Affiliate of any such beneficial owner pursuant
to the first sentence hereof.
"Asset Disposition" means any sale, lease (other than an operating lease
entered into in the ordinary course of business), transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company
or any Restricted Subsidiary, including any disposition by means of a merger,
consolidation, or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary),
(2) all or substantially all the assets of any division or line of
business of the Company or any Restricted Subsidiary or
(3) any other assets of the Company or any Restricted Subsidiary
outside of the ordinary course of business of the Company or such
Restricted Subsidiary
other than, in the case of (1), (2) and (3) above,
108
116
(A) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary,
(B) for purposes of the provisions described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" only,
the making of a Permitted Investment or a disposition subject to the
covenant described under "-- Certain Covenants -- Limitation on
Restricted Payments",
(C) sales of accounts receivable and related assets (including
contract rights) of the type specified in the definition of "Qualified
Securitization Transaction" to a Securitization Entity for the fair
market value thereof,
(D) a disposition of obsolete or worn out property or equipment or
property or equipment that is no longer used or useful in the conduct of
business of the Company and its Restricted Subsidiaries,
(E) any other disposition of assets with a fair market value, as
conclusively determined by senior management of the Company in good
faith, of less than $1.0 million,
(F) sales or grants of licenses to use the Company's or any
Restricted Subsidiary's patents, trade secrets, know-how and technology
to the extent that such license does not prohibit the licensor from
using the patent, trade secret, know-how or technology or require the
licensor to pay any fees for such use,
(G) the disposition of all or substantially all of the assets of
the Company in compliance with the covenant described under the heading
"-- Merger and Consolidation", and
(H) the disposition of any Capital Stock or other ownership
interest in or assets or property of an Unrestricted Subsidiary.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of such Indebtedness or scheduled redemption or similar payment with
respect to such Preferred Stock multiplied by the amount of such payment by
(2) the sum of all such payments.
"Bank Indebtedness" means any and all amounts payable under or in respect
of the Credit Agreement and any Refinancing Indebtedness with respect thereto,
as amended from time to time, including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of the Board of Directors of
the Company.
"Business Day" means each day which is not a Legal Holiday.
109
117
"Capital Stock" of any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Capitalized Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Closing Date" means the date of the Indenture.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commodity Agreement" means any commodity futures contract, commodity
option or other similar agreement or arrangement entered into by the Company or
any of its Subsidiaries designed to protect the Company or any of its
Subsidiaries against fluctuations in the price of commodities actually at the
time used in the ordinary course of business of the Company or its Subsidiaries.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of:
(1) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which financial statements are
publicly available ending prior to the date of such determination to
(2) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that:
(A) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding
on such date of determination or if the transaction giving rise to the
need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day
of such period and the discharge of any other Indebtedness repaid,
repurchased, defeased or otherwise discharged with the proceeds of such
new Indebtedness as if such discharge had occurred on the first day of
such period,
(B) if the Company or any Restricted Subsidiary has repaid,
repurchased, defeased or otherwise discharged any Indebtedness since the
beginning of such period or if any Indebtedness is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than
Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on
the date of the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio, EBITDA and Consolidated Interest Expense
for such period shall be calculated on a pro forma basis as if such
discharge had occurred on the first day of such period and as if the
Company or such Restricted Subsidiary has not earned the interest income
actually earned during such period in respect of cash or Temporary Cash
Investments used to repay, repurchase, defease or otherwise discharge
such Indebtedness,
(C) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition in excess of
$10.0 million, which constitutes all or substantially all of an
operating unit of a business, the EBITDA for such period shall be
reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets that are the subject of such Asset
Disposition for such period or increased by an amount equal to the
EBITDA (if negative) directly attributable thereto for such period and
Consolidated Interest Expense for such period shall be reduced by an
amount equal to the
110
118
Consolidated Interest Expense directly attributable to any Indebtedness
of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its
continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period
directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are
no longer liable for such Indebtedness after such sale),
(D) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an
Investment in any Restricted Subsidiary (or any Person that becomes a
Restricted Subsidiary or is merged with and into the Company) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made
hereunder, which constitutes all or substantially all of an operating
unit of a business, EBITDA and Consolidated Interest Expense for such
period shall be calculated after giving pro forma effect thereto
(including the Incurrence of any Indebtedness) as if such Investment or
acquisition occurred on the first day of such period, and
(E) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into
the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Disposition or any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (C) or (D) above if made by the Company or a Restricted
Subsidiary during such period, EBITDA and Consolidated Interest Expense
for such period shall be calculated after giving pro forma effect
thereto as if such Asset Disposition, Investment or acquisition of
assets occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given
to an Investment or acquisition of assets, the amount of income or earnings
relating thereto and the amount of Consolidated Interest Expense associated with
any Indebtedness Incurred in connection therewith, the pro forma calculations
shall be determined in good faith by a responsible financial or accounting
Officer of the Company. Any such pro forma calculations may include operating
expense reductions for such period resulting from the acquisition which is being
given pro forma effect that (a) would be permitted pursuant to Article 11 of
Regulation S-X under the Securities Act or (b) have been realized or for which
the steps necessary for realization have been taken or are reasonably expected
to be taken within six months following any such acquisition, including, but not
limited to, the execution or termination of any contracts, the termination of
any personnel or the closing (or approval by the Board of Directors of any
closing) of any facility, as applicable, provided that, such adjustments are set
forth in an Officers' Certificate signed by the Company's chief financial
officer and another Officer which states (i) the amount of such adjustment or
adjustments, (ii) that such adjustment or adjustments are based on the
reasonable good faith beliefs of the officers executing such Officers'
Certificate at the time of such execution and (iii) that any related Incurrence
of Indebtedness is permitted pursuant to the Indenture. In addition, to the
extent not covered by the foregoing, if the Transactions have occurred in the
four quarter period used to determine the Consolidated Coverage Ratio, then the
Consolidated Coverage Ratio shall be determined giving pro forma effect on the
basis given in the offering memorandum dated May 25, 2000 relating to the
private offering of the Old Notes to the Transactions, with all calculations
relating thereto to be made at the date of determination by the Company's chief
financial officer, and set forth in an Officers' Certificate signed by the chief
financial officer and another Officer and meeting the requirements for the
Officers' Certificate described in the preceding sentence.
If any Indebtedness bears a floating rate of interest and is being given
pro forma effect, the interest expense on such Indebtedness shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Agreement or
Currency Agreement applicable to such Indebtedness if such Interest Rate
111
119
Agreement or Currency Agreement has a remaining term as at the date of
determination in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its Consolidated Restricted Subsidiaries plus, to the
extent Incurred by the Company and its Restricted Subsidiaries in such period
but not included in such interest expense:
(1) interest expense attributable to Capitalized Lease Obligations and
the interest expense attributable to operating leases constituting part of
a Sale/Leaseback Transaction,
(2) amortization of debt discount and debt issuance costs,
(3) capitalized interest,
(4) non-cash interest expense,
(5) commissions, discounts and other fees and charges attributable to
letters of credit and bankers' acceptance financing,
(6) interest accruing on any Indebtedness of any other Person to the
extent such Indebtedness is Guaranteed by the Company or any Restricted
Subsidiary,
(7) net costs associated with Hedging Obligations (including
amortization of fees) provided, however, that if Hedging Obligations result
in net benefits rather than costs, such benefits shall be credited in
determining Consolidated Interest Expense unless, pursuant to GAAP, such
net benefits are otherwise reflected in Consolidated Net Income,
(8) dividends and distributions declared in respect of all
Disqualified Stock of the Company and dividends and distributions declared
and paid in respect of all Preferred Stock of any of the Subsidiaries of
the Company that is not a Note Guarantor, to the extent held by Persons
other than the Company or a Wholly Owned Subsidiary,
(9) interest Incurred in connection with investments in discontinued
operations and
(10) the cash contributions to any employee stock ownership plan or
similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company) in
connection with Indebtedness Incurred by such plan or trust.
Notwithstanding anything to the contrary contained herein, commissions,
discounts, yield and other fees and charges Incurred in connection with any
transaction pursuant to which the Company or any Subsidiary of the Company may
sell, convey or otherwise transfer or grant a security interest in any accounts
receivable or related assets shall be included in Consolidated Interest Expense.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Company and its Consolidated Subsidiaries for such period; provided,
however, that there shall not be included in such Consolidated Net Income:
(1) any net income (loss) of any Person (other than the Company) if
such Person is not a Restricted Subsidiary, except that:
(A) subject to the limitations contained in clauses (4), (5) and
(6) below, the Company's equity in the net income of any such Person for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash actually distributed by such Person during such
period to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
made to a Restricted Subsidiary, to the limitations contained in clause
(3) below) and
(B) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net Income to
the extent such loss has been funded with cash from the Company or a
Restricted Subsidiary;
112
120
(2) other than for purposes of clauses (D) and (E) of the definition
of Consolidated Coverage Ratio, any net income (or loss) of any Person
acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition;
(3) any net income (or loss) of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly,
on the payment of dividends or the making of distributions or loans or
intercompany advances by such Restricted Subsidiary, directly or
indirectly, to the Company, except that:
(A) subject to the limitations contained in clauses (4), (5) and
(6) below, the Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed, loaned
or advanced by such Restricted Subsidiary during such period to the
Company or another Restricted Subsidiary as a dividend, distribution,
loan or advance (subject, in the case of a dividend, distribution, loan
or advance made to another Restricted Subsidiary, to the limitation
contained in this clause) and
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(4) any gain (loss) realized upon the sale or other disposition of any
asset of the Company or its Consolidated Subsidiaries (including pursuant
to any Sale/Leaseback Transaction) that is not sold or otherwise disposed
of in the ordinary course of business and any gain (loss) realized upon the
sale or other disposition of any Capital Stock of any Person;
(5) any extraordinary gain or loss; and
(6) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purpose of the covenant described
under "-- Certain Covenants -- Limitation on Restricted Payments" only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries to
the Company or a Restricted Subsidiary to the extent such dividends, repayments
or transfers increase the amount of Restricted Payments permitted under such
covenant pursuant to clause (a)(4)(C)(vi) thereof.
"Consolidation" means the consolidation of the amounts of each of the
Restricted Subsidiaries with those of the Company in accordance with GAAP
consistently applied; provided, however, that "Consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary, but the interest
of the Company or any Restricted Subsidiary in an Unrestricted Subsidiary will
be accounted for as an investment. The term "Consolidated" has a correlative
meaning.
"Credit Agreement" means the credit agreement dated as of the Closing Date
among the Company, the lenders named therein, Bankers Trust Company, as
administrative agent and collateral agent, The Bank of Nova Scotia, as
documentation agent, and The Chase Manhattan Bank, as syndication agent,
together with related documents thereto including any guarantee agreements and
security documents, as amended, modified, supplemented, restated, renewed,
refunded, replaced, restructured, repaid or refinanced from time to time
(including any agreement extending the maturity thereof or increasing the amount
of available borrowings thereunder or adding Restricted Subsidiaries of the
Company as additional borrowers or guarantors thereunder) whether with the
original agents and lenders or otherwise and whether provided under the original
credit agreement or other credit agreements or otherwise.
"Currency Agreement" means with respect to any Person any foreign exchange
contract, currency swap agreements or other similar agreement or arrangement to
which such Person is a party or of which it is a beneficiary.
113
121
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" of the Company means
(1) the Bank Indebtedness and
(2) any other Senior Indebtedness of the Company that, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to
lend up to at least $15.0 million and is specifically designated by the
Company in the instrument evidencing or governing such Senior Indebtedness
as "Designated Senior Indebtedness" for purposes of the Indenture.
"Designated Senior Indebtedness" of a Note Guarantor has a correlative
meaning.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
of such Person which by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable or exercisable) or upon the
happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise,
(2) is convertible or exchangeable for Indebtedness or Disqualified
Stock (excluding Capital Stock convertible or exchangeable solely at the
option of the Company or a Restricted Subsidiary, provided, that any such
conversion or exchange shall be deemed an issuance of Indebtedness or an
issuance of Disqualified Stock, as applicable) or
(3) is redeemable at the option of the holder thereof, in whole or in
part, in each case on or prior to 91 days after the Stated Maturity of the
Notes; provided, however, that only the portion of Capital Stock that so
matures or is mandatorily redeemable, is so convertible or exchangeable or
is so redeemable at the option of the holder thereof prior to such date
will be deemed Disqualified Stock; provided, further, that any Capital
Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset
sale" or "change of control" shall not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such Capital
Stock provide that such Person may not repurchase or redeem such Capital
Stock pursuant to such provisions unless such Person has first complied
with the provisions described under "-- Change of Control" and the
provisions of the covenant described under "-- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock", as
applicable; and provided, further that any class of Capital Stock of such
Person that, by its terms, authorizes such Person to satisfy in full its
obligations with respect to payment of dividends or upon maturity,
redemption (pursuant to a sinking fund or otherwise) or repurchase thereof
or other payment obligations or otherwise by delivery of Capital Stock that
is not Disqualified Stock, and that is not convertible, puttable or
exchangeable for Disqualified Stock or Indebtedness, shall not be deemed
Disqualified Stock so long as such Person satisfies its obligations with
respect thereto solely by the delivery of Capital Stock that is not
Disqualified Stock.
"Domestic Overdraft Facility" means an overdraft line of credit in a
maximum principal amount of $10.0 million at any time outstanding.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company other
than a Foreign Subsidiary.
"EBITDA" for any period means the Consolidated Net Income for such period,
excluding the following to the extent included in calculating such Consolidated
Net Income:
(1) income tax expense of the Company and its Consolidated Restricted
Subsidiaries,
(2) Consolidated Interest Expense,
114
122
(3) depreciation expense of the Company and its Consolidated
Restricted Subsidiaries,
(4) amortization expense of the Company and its Consolidated
Restricted Subsidiaries (but excluding amortization expense attributable to
a prepaid cash item that was paid in a prior period),
(5) other noncash charges of the Company and its Consolidated
Restricted Subsidiaries (excluding any such noncash charge to the extent it
represents an accrual of or reserve for cash expenditures in any future
period),
(6) income or loss from discontinued operations,
(7) plant closing costs (as defined by GAAP), and
(8) noncash stock-based compensation expense.
Notwithstanding the foregoing, the provision for taxes based on the income
or profits of, and the depreciation and amortization and noncash charges of, a
Restricted Subsidiary of the Company shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same proportion) that the net
income (loss) of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended, loaned or advanced to the Company by
such Restricted Subsidiary without prior approval of Persons other than the
Board of Directors or holders of the Company's Capital Stock (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to such Restricted Subsidiary or its stockholders.
"Equity Offering" means any public or private sale of the common stock of
the Company, other than any public offering with respect to the Company's common
stock registered on Form S-8 or other issuances upon exercise of options by
employees of the Company or any of its Restricted Subsidiaries.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange and Registration Rights Agreement" means the Exchange and
Registration Rights Agreement dated as of May 31, 2000 among the Company, Chase
Securities Inc. and Deutsche Bank Securities Inc., as Initial Purchasers, and
the Note Guarantors.
"Excluded Contribution" means net cash proceeds received by the Company
from (a) contributions to its common equity capital and (b) the sale (other than
to a Subsidiary of the Company or to any Company or Subsidiary management equity
plan or stock option plan or any other management or employee benefit plan or
agreement) of Capital Stock (other than Disqualified Stock) of the Company, in
each case designated as Excluded Contributions pursuant to an Officers'
Certificate executed on the date such capital contributions are made or the date
such Capital Stock is sold, as the case may be, which are excluded from the
calculation set forth in clause (a)(4)(C) under "-- Certain
Covenants -- Limitation on Restricted Payments."
"Existing Management Stockholders" means each of Richard P. Durham, Jack E.
Knott, Scott K. Sorensen and Ronald G. Moffitt.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company
organized and conducting its principal operations outside the United States.
"Foreign Subsidiary Asset Disposition" means any direct or indirect sale,
issuance, conveyance, transfer, lease, assignment or other transfer for value by
the Company or any of its Restricted Subsidiaries (including any Sale/Leaseback
Transaction) to any Person other than the Company or a Restricted Subsidiary of
the Company of the Capital Stock of any Foreign Subsidiary or any of the
property or assets of any Foreign Subsidiary.
115
123
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of May 31, 2000, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants,
(2) statements and pronouncements of the Financial Accounting
Standards Board,
(3) such other statements by such other entities as are approved by a
significant segment of the accounting profession, and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
All ratios and computations based on GAAP contained in the Indenture shall
be computed in conformity with GAAP.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or
(2) entered into for purposes of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Commodity Agreement, Interest Rate Agreement or Currency
Agreement.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Person at the time it becomes a Subsidiary. The term "Incurrence" when used as a
noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal of and premium (if any) in respect of indebtedness
of such Person for borrowed money;
(2) the principal of and premium (if any) in respect of obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments;
(3) all obligations of such Person in respect of letters of credit or
other similar instruments (including reimbursement obligations with respect
thereto);
(4) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables and other
accrued liabilities arising in the ordinary
116
124
course of business), which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such services;
(5) all Capitalized Lease Obligations and all Attributable Debt of
such Person;
(6) all obligations of such Person with respect to the redemption,
repayment or other repurchase of any Disqualified Stock or, with respect to
any Subsidiary of such Person that is not a Note Guarantor, any Preferred
Stock (but excluding, in each case, any accrued dividends);
(7) all Indebtedness of other Persons secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of Indebtedness of such Person shall be
the lesser of:
(A) the fair market value of such asset at such date of
determination and
(B) the amount of such Indebtedness of such other Persons;
(8) to the extent not otherwise included in this definition, the net
obligations under Hedging Obligations of such Person;
(9) to the extent not otherwise included, the amount then outstanding
(i.e., advanced, and received by, and available for use by, such Person)
under any receivables financing (as set forth in the books and records of
such Person and confirmed by the agent, trustee or other representative of
the institution or group providing such receivables financing); and
(10) all obligations of the type referred to in clauses (1) through
(9) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee.
Notwithstanding the foregoing, "Indebtedness" shall not include unsecured
indebtedness of the Company and its Restricted Subsidiaries Incurred to finance
insurance premiums in a principal amount not in excess of the insurance premiums
to be paid by the Company and its Restricted Subsidiaries for a three-year
period beginning on the date of Incurrence of any such Indebtedness.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date.
"Intangible Assets" means goodwill, patents, trademarks and other
intangibles as determined in accordance with GAAP.
"Interest Rate Agreement" means with respect to any Person any interest
rate protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar agreement
or arrangement as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of the lender) or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property
(excluding Capital Stock of the Company) to others or any payment for property
or services for the account or use of others), or any purchase or acquisition of
Capital Stock, Indebtedness or other similar instruments issued by such Person.
For purposes of the definition of "Unrestricted
117
125
Subsidiary" and the covenant described under "-- Certain Covenants -- Limitation
on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of
the net assets of any Subsidiary of the Company at the time that such
Subsidiary is designated an Unrestricted Subsidiary; provided, however,
that upon a redesignation of such Subsidiary as a Restricted Subsidiary,
the Company shall be deemed to continue to have a permanent "Investment" in
an Unrestricted Subsidiary in an amount (if positive) equal to:
(A) the Company's "Investment" in such Subsidiary at the time of
such redesignation less
(B) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation;
(2) any property transferred to or from an Unrestricted Subsidiary
shall be valued at its fair market value at the time of such transfer, in
each case as determined in good faith by (i) the senior management of the
Company if the amount thereof is less than $2.0 million and (ii) the Board
of Directors if in excess thereof; and
(3) the amount of any Investment shall be the original cost as of the
date of determination of such Investment plus the cost of all additional
Investments by the Company or any of its Restricted Subsidiaries, without
any adjustments for increases or decreases in value or write-ups,
write-downs or write-offs with respect to such Investments.
"Legal Holiday" means a Saturday, Sunday or other day on which banking
institutions in New York State are authorized or required by law to close.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Material Subsidiary" means, at any date of determination, any Subsidiary
of the Company that, together with its Subsidiaries, (i) for the most recent
fiscal year of the Company accounted for more than 10.0% of the consolidated
revenues of the Company or (ii) as of the end of such fiscal year, was the owner
of 10.0% of the consolidated assets of the Company, all as set forth on the most
recently available consolidated financial statement of the Company and its
consolidated Subsidiaries for such fiscal year prepared in conformity with GAAP.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from the
sale or other disposition of any securities received as consideration, but only
as and when received, but excluding any other consideration received in the form
of assumption by the acquiring Person of Indebtedness or other obligations
relating to the properties or assets that are the subject of such Asset
Disposition or received in any other non-cash form) therefrom, in each case net
of:
(1) all legal, accounting, investment banking, title and recording tax
expenses, commissions and other fees and expenses incurred, and all
Federal, state, provincial, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset
Disposition,
(2) all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of
any Lien upon or other security agreement of any kind with respect to such
assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law be repaid out of
the proceeds from such Asset Disposition,
118
126
(3) all distributions and other payments required to be made to
minority interest holders in Subsidiaries or joint ventures as a result of
such Asset Disposition,
(4) the decrease in proceeds from Qualified Securitization
Transactions which results from such Asset Disposition, and
(5) appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the property
or other assets disposed of in such Asset Disposition and retained by the
Company or any Restricted Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"New Note Guarantees" means the guarantees made by the Note Guarantors
pursuant to the Exchange and Registration Rights Agreement.
"New Notes" means the senior subordinated debt securities to be issued by
the Company pursuant to the Exchange and Registration Rights Agreement.
"Note Guarantee" means each Guarantee of the obligations with respect to
the Notes issued by a Person pursuant to the terms of the Indenture.
"Note Guarantor" means any Person that has issued a Note Guarantee.
"Officer" means the Chairman of the Board, the Chief Executive Officer, the
Chief Financial Officer, the President, any Vice President, the Treasurer, the
Secretary or any Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Business" means the design, manufacture and/or marketing of
films and flexible packaging products for food, personal care, medical, retail,
agricultural, industrial and other applications or any businesses that are
reasonably related, ancillary or complementary thereto.
"Permitted Holders" means each of (i) Chase Capital Partners and its
Affiliates, (ii) Chase Domestic Investments, L.L.C. and its Affiliates, (iii)
the Christena Karen H. Durham Trust, (iv) the Existing Management Stockholders
and their Related Parties and (v) any Person acting in the capacity of an
underwriter in connection with a public or private offering of the Company's
Capital Stock.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon
the making of such Investment, become a Restricted Subsidiary; provided,
however, that after giving effect to such Investment the Company is still
in compliance with the covenant under the heading "-- Limitation of Lines
of Business";
(2) another Person if as a result of such Investment such other Person
is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided, however, that after giving effect to such Investment the Company
is still in compliance with the covenant under the heading "-- Limitation
of Lines of Business";
(3) Temporary Cash Investments;
119
127
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided, however,
that such trade terms may include such concessionary trade terms as the
Company or any such Restricted Subsidiary deems reasonable under the
circumstances;
(5) payroll, travel and similar advances or loans to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course
of business;
(6) loans or advances to officers, directors, consultants or employees
made (a) in the ordinary course of business and not exceeding $3.0 million
in any year or (b) to fund purchases of stock under the Company's 2000
Stock Incentive Plan and any similar plans or employment arrangements;
(7) Capital Stock, obligations or other securities received in
settlement of debts created in the ordinary course of business and owing to
the Company or any Restricted Subsidiary or in satisfaction of judgments or
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of a debtor;
(8) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition that was
made pursuant to and in compliance with the covenant described under
"-- Certain Covenants -- Limitation on Sale of Assets and Subsidiary
Stock";
(9) any Investment by the Company or a Restricted Subsidiary in a
Securitization Entity or any Investment by a Securitization Entity in any
other Person in connection with a Qualified Securitization Transaction;
provided that any Investment in a Securitization Entity is in the form of a
purchase money note or an equity interest;
(10) Hedging Obligations entered into in the ordinary course of
business;
(11) endorsements of negotiable instruments and documents in the
ordinary course of business;
(12) assets or securities of a Person acquired by the Company or a
Restricted Subsidiary to the extent the consideration for such acquisition
consists of Capital Stock (other than Disqualified Stock) of the Company;
(13) Investments in existence on the Closing Date;
(14) Investments of a Person or any of its Subsidiaries existing at
the time such Person becomes a Restricted Subsidiary of the Company or at
the time such Person merges or consolidates with the Company or any of its
Restricted Subsidiaries, in either case in compliance with the Indenture,
provided that such Investments were not made by such Person in connection
with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary of the Company or such merger or consolidation;
(15) Investments in Unrestricted Subsidiaries or joint ventures not to
exceed $30.0 million, plus (A) the aggregate net after-tax amount returned
to the Company or any Restricted Subsidiary in cash on or with respect to
any Investments made in Unrestricted Subsidiaries and joint ventures
whether through interest payments, principal payments, dividends or other
distributions or payments (including such dividends, distributions or
payments made concurrently with such Investment), (B) the net after-tax
cash proceeds received by the Company or any Restricted Subsidiary from the
disposition of all or any portion of such Investments (other than to the
Company or a Subsidiary of the Company) and (C) upon redesignation of an
Unrestricted Subsidiary as a Restricted Subsidiary, the fair market value
of such Subsidiary; and
(16) additional Investments in an aggregate amount not to exceed $15.0
million.
120
128
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) that is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Capital
Stock of any other class of such Person.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Market" means any time after:
(1) an Equity Offering has been consummated and
(2) at least 15% of the total issued and outstanding common stock of
the Company has been distributed by means of an effective registration
statement under the Securities Act.
"Qualified Securitization Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Subsidiaries
pursuant to which the Company or any of its Subsidiaries may sell, convey or
otherwise transfer pursuant to customary terms to (a) a Securitization Entity
(in the case of a transfer by the Company or any of its Subsidiaries) and (b)
any other Person (in the case of transfer by a Securitization Entity), or may
grant a security interest in any accounts receivable (whether now existing or
arising or acquired in the future) of the Company or any of its Subsidiaries,
and any assets related thereto including, without limitation, all collateral
securing such accounts receivable, all contracts and contract rights and all
guarantees or other obligations in respect of such accounts receivable, proceeds
of such accounts receivable and other assets (including contract rights) which
are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Qualified Stock" means any Capital Stock that is not Disqualified Stock.
"Recapitalization Agreement" means the Recapitalization Agreement dated as
of March 31, 2000, between the Company, the selling stockholders listed therein
and Chase Domestic Investments, L.L.C., as amended to and in effect at the
Closing Date.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that is Incurred to Refinance
any Indebtedness of the Company or any Restricted Subsidiary existing on the
Closing Date or Incurred in compliance with the Indenture (including
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Refinancing Indebtedness); provided, however, that:
(1) the Refinancing Indebtedness (if Refinancing any Indebtedness
existing on the Closing Date) has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced,
(2) the Refinancing Indebtedness (if Refinancing any Indebtedness
existing on the Closing Date) has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being refinanced,
(3) such Refinancing Indebtedness is Incurred in an aggregate
principal amount (or if issued with original issue discount, an aggregate
issue price) (whether in U.S. dollars or a foreign currency) that is equal
to or less than the aggregate principal amount (or if issued with original
issue discount, the aggregate accreted value) (in U.S. dollars or such
foreign currency,
121
129
as applicable) then outstanding (plus, without duplication, accrued
interest, premium and defeasance costs required to be paid under the terms
of the Indebtedness being Refinanced and the fees, expenses, discounts,
commissions and other issuance costs incurred in connection with the
Refinancing Indebtedness) of the Indebtedness being Refinanced and
(4) if the Indebtedness being Refinanced is subordinated in right of
payment to the Notes or a Note Guarantee of a Note Guarantor, such
Refinancing Indebtedness is subordinated in right of payment to the Notes
or the Note Guarantee at least to the same extent as the Indebtedness being
Refinanced;
provided further, however, that Refinancing Indebtedness shall not include:
(A) Indebtedness of a Restricted Subsidiary that is not a Note
Guarantor that Refinances Indebtedness of the Company or
(B) Indebtedness of the Company or a Restricted Subsidiary that
Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Parties" means with respect to a Person (a) that is a natural
person (1) any spouse, parent or lineal descendant (including adopted children)
of such Person or (2) the estate of such Person during any period in which such
estate holds Capital Stock of the Company for the benefit of any person referred
to in clause (a)(1) and (b) any trust, corporation, partnership, limited
liability company or other entity, the beneficiaries, stockholders, partners,
owners or Persons beneficially owning an interest of more than 50% of which
consist of such Person and/or such other Persons referred to in the immediately
preceding clause (a).
"Representative" means the trustee, agent or representative (if any) for an
issue of Senior Indebtedness.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired by the Company or a Restricted Subsidiary whereby
the Company or a Restricted Subsidiary transfers such property to a Person and
the Company or such Restricted Subsidiary leases it from such Person, other than
(a) leases between the Company and a Wholly Owned Subsidiary or between Wholly
Owned Subsidiaries or (b) any arrangement whereby the transfer involves fixed or
capital assets and is consummated within 120 days after the date the Company or
a Restricted Subsidiary acquires or finishes construction of such fixed or
capital assets.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of a Note Guarantor has a correlative meaning.
"Securitization Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company transfers
accounts receivable and related assets) which engages in no activities other
than in connection with the financing of accounts receivable or equipment and
which is designated by the Board of Directors of the Company (as provided below)
as a Securitization Entity (a) no portion of the Indebtedness or any other
obligations (contingent or otherwise) of which (i) is guaranteed by the Company
or any Subsidiary of the Company (excluding guarantees of obligations (other
than the principal of, and interest on, Indebtedness) pursuant to Standard
Securitization Undertakings), (ii) is recourse to or obligates the Company or
any Subsidiary of the Company in any way other than pursuant to Standard
Securitization Undertakings or (iii) subjects any property or asset of the
Company or any Subsidiary of the Company, directly or indirectly, contingently
or otherwise, to the satisfaction thereof, other than
122
130
pursuant to Standard Securitization Undertakings, (b) with which neither the
Company nor any Subsidiary of the Company has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to the
Company or such Subsidiary than those that might be obtained at the time from
Persons that are not Affiliates of the Company, other than fees payable in the
ordinary course of business in connection with servicing receivables of such
entity and (c) to which neither the Company nor any Subsidiary of the Company
has any obligation to maintain or preserve such entity's financial condition or
cause such entity to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee, by filing with the Trustee a certified copy of the resolution of the
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"Senior Subordinated Indebtedness" of the Company means the Notes and any
other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Notes in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness. "Senior Subordinated
Indebtedness" of a Note Guarantor has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company which are reasonably customary in an accounts receivable securitization
transaction.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Stockholders Agreement" means the Stockholders Agreement among the Company
and the holders of the Company's Capital Stock party thereto, as in effect at
the Closing Date as amended from time to time, so long as the Permitted Holders
own a majority of the Capital Stock subject to such agreement.
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Closing Date or thereafter Incurred) that is subordinate or
junior in right of payment to the Notes pursuant to a written agreement.
"Subordinated Obligation" of a Note Guarantor has a correlative meaning.
"Subsidiary" of any Person means any corporation, association, partnership,
limited liability company or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, representatives, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by:
(1) such Person,
(2) such Person and one or more Subsidiaries of such Person or
(3) one or more Subsidiaries of such Person.
"Tangible Assets" means Total Assets less Intangible Assets.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of
America or any agency or instrumentality thereof or obligations Guaranteed
or insured by the United States of America or any agency or instrumentality
thereof,
123
131
(2) investments in checking accounts, savings accounts, time deposit
accounts, certificates of deposit, bankers' acceptances and money market
deposits maturing within 360 days of the date of acquisition thereof issued
by a bank or trust company that is organized under the laws of the United
States of America, any state thereof or any foreign country recognized by
the United States of America having capital, surplus and undivided profits
aggregating in excess of $250,000,000 (or the foreign currency equivalent
thereof) and whose long-term debt is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized statistical rating
organization (as defined in Rule 436 under the Securities Act),
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above,
(4) investments in commercial paper, maturing not more than 270 days
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's Investors
Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings
Service, a division of The McGraw-Hill Companies, Inc. ("S&P"),
(5) investments in securities with maturities of six months or less
from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or "A" by Moody's Investors Service, Inc., and
(6) investments in money market funds that invest substantially all of
their assets in securities of the types described in clauses (1) through
(5) above.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. sec.sec.
77aaa-77bbbb) as in effect on the Closing Date.
"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as shown on the most recent balance sheet of the
Company.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"Transactions" has the meaning specified in this prospectus.
"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Unrestricted Subsidiary" means:
(1) HPC Investment, Inc. and any Subsidiary of the Company that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary of the Company
(including any newly acquired or newly formed Subsidiary of the Company), to be
an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries
owns any Capital Stock in or Indebtedness of, or owns or holds
124
132
any Lien on any property of, the Company or any other Subsidiary of the Company
that is not a Subsidiary of the Subsidiary to be so designated; provided,
however, that either:
(A) the Subsidiary to be so designated at the time of designation has
total Consolidated assets of $1,000 or less or
(B) if such Subsidiary has Consolidated assets greater than $1,000,
then such designation would be permitted under the covenant entitled
"Limitation on Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect
to such designation:
(x) the Company could Incur $1.00 of additional Indebtedness under
paragraph (a) of the covenant described under "-- Certain
Covenants -- Limitation on Indebtedness" and
(y) no Default shall have occurred and be continuing.
Any such designation of a Subsidiary as a Restricted Subsidiary or
Unrestricted Subsidiary by the Board of Directors shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of the resolution of the
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable or redeemable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Company all
the Capital Stock of which (other than directors' qualifying Capital Stock) is
owned by the Company or another Wholly Owned Subsidiary.
125
133
DESCRIPTION OF THE NOTE WARRANTS
The Note Warrants were issued pursuant to a note warrant agreement dated
May 31, 2000, between us and The Bank of New York, as warrant agent. The
following summary of certain provisions of the note warrant agreement does not
purport to be complete and is qualified in its entirety by reference to all of
the provisions of the note warrant agreement, including the definitions therein
of certain terms, a copy of which has been filed as an exhibit to the
registration statement of which this prospectus forms a part. Capitalized terms
in this "Description of the Note Warrants" not defined in this prospectus have
the meanings assigned to them in the note warrant agreement.
GENERAL
Each Note Warrant, when exercised, entitles the holder thereof to purchase
0.08424 shares of common stock from us at an exercise price of $0.01 per share.
The exercise price and the number of shares of common stock issuable upon
exercise of a Note Warrant are both subject to adjustment in certain cases. See
"-- Adjustments" below. The Note Warrants initially entitle the holders thereof
to acquire, in the aggregate, 18,532 shares of our common stock.
Each Note Warrant may be exercised on any business day on or after the
exercisability date and on or prior to June 1, 2010. The "exercisability date"
means the first day that any of the following exercise events has occurred:
(1) upon the closing of our initial public equity offering,
(2) a class of our equity securities is listed on a national
securities exchange or authorized for quotation on the Nasdaq National
Market or is otherwise subject to registration under the Securities
Exchange Act of 1934, or
(3) the earlier of November 27, 2000 or the effective date of the
registration statement of which this prospectus forms a part.
We will as soon as practicable after the occurrence of an exercise event
send to each holder of Note Warrants and to each beneficial owner of the Note
Warrants to the extent that the Note Warrants are held of record by a depositary
or other agent, by first-class mail, at the addresses appearing on the warrant
register, a notice of the exercise event which has occurred, which notice shall
describe the type of exercise event and the date of the occurrence thereof and
the date of expiration of the right to exercise the Note Warrants prominently
set forth on the face of such notice. Unless earlier exercised, the Note
Warrants will expire on June 1, 2010. We will give notice of expiration not less
than 90 nor more than 120 days prior to June 1, 2010 to the registered holders
of the then outstanding Note Warrants. If we fail to give such notice, the Note
Warrants will nevertheless expire and become void on June 1, 2010. The Note
Warrants will not trade separately from the Notes until the earlier of November
27, 2000 or the effective date of the registration statement of which this
prospectus forms a part.
At our option, fractional shares of common stock may not be issued upon
exercise of the Note Warrants. If any fraction of a share of common stock would,
except for the foregoing provision, be issuable upon the exercise of any such
Note Warrant (or specified portion thereof), we will pay an amount in cash equal
to the Current Market Value per share of common stock, as determined on the day
immediately preceding the date the Note Warrant is presented for exercise,
multiplied by such fraction, computed to the nearest whole cent.
CERTAIN TERMS
Exercise
In order to exercise all or any of the Note Warrants, the holder thereof is
required to surrender to the Note Warrant Agent the related Note Warrant
Certificate and pay in full the exercise price for
126
134
each share of common stock or other securities issuable upon exercise of such
Note Warrants. The exercise price may be paid
-- in cash or by certified or official bank check or by wire transfer to
an account designated by us for such purpose or
-- in a cashless exercise, by reducing the number of shares of common
stock that would be obtainable upon the exercise of a Note Warrant and
payment of the exercise price in cash so as to yield a number of
shares of common stock upon the exercise of such Note Warrant equal to
the product of:
(a) the number of shares of common stock for which such Note Warrant
is exercisable as of the date of exercise (if the exercise price were being
paid in cash) and
(b) the cashless exercise ratio.
The cashless exercise ratio equals a fraction, the numerator of which is
the excess of the Current Market Value per share of common stock on the exercise
date over the exercise price per share as of the exercise date and the
denominator of which is the Current Market Value per share of the common stock
on the exercise date. Upon surrender of a Note Warrant certificate representing
more than one Note Warrant in connection with the holder's option to elect a
cashless exercise, the number of shares of common stock deliverable upon a
cashless exercise is equal to the number of shares of common stock issuable upon
the exercise of Note Warrants that the holder specifies are to be exercised
pursuant to a cashless exercise multiplied by the cashless exercise ratio. All
provisions of the Note Warrant Agreement are applicable with respect to a
surrender of a Note Warrant certificate pursuant to a cashless exercise for less
than the full number of Note Warrants represented thereby. If we have not
effected the registration under the Securities Act of the offer and sale of the
common stock by us to the holders of the Note Warrants upon the exercise
thereof, we may elect to require that holders of the Note Warrants effect the
exercise of the Note Warrants solely pursuant to the cashless exercise option
and may also amend the Note Warrants to eliminate the requirement for payment of
the exercise price with respect to such cashless exercise option.
No Rights as Shareholders
The holders of unexercised Note Warrants are not entitled, by virtue of
being such holders, to receive dividends, to vote, to consent, to exercise any
preemptive rights or to receive notice as our shareholders in respect of any
shareholders' meeting for the election of our shareholders directors or any
other purpose, or to exercise any other rights whatsoever as our shareholders.
Mergers, Consolidations, etc.
In the event that we consolidate with, merge with or into, or sell all or
substantially all of our assets to, another person, each Note Warrant holder
thereafter is entitled to receive upon exercise thereof, per share of common
stock for which such Note Warrant is exercisable, the number of shares of common
stock or other securities or property which the holder of a share of common
stock is entitled to receive upon completion of such consolidation, merger or
sale of assets.
ADJUSTMENTS
The number of shares of common stock issuable upon the exercise of the Note
Warrants and the Exercise Price are subject to adjustment in certain events,
including:
(1) the payment by us of certain dividends (or other distributions) on
our common stock payable in shares of common stock or other shares of our
capital stock,
(2) subdivisions, combinations and certain reclassifications to the
common stock,
127
135
(3) the issuance to all holders of common stock of rights, options or
warrants entitling them to subscribe for shares of common stock, or of
securities convertible into or exchangeable or exercisable for shares of
common stock, for a consideration per share which is less than the Current
Market Value per share of the common stock,
(4) the issuance of shares of common stock for a consideration per
share which is less than the Current Market Value per share of the common
stock, and
(5) the distribution to all holders of the common stock of any of our
debt securities, capital stock (excluding those referred to in (1)), rights
or warrants to purchase securities, cash or other property (excluding those
rights and warrants referred to in (3) and cash dividends and other cash
distributions from retained earnings).
No adjustment to the number of shares of common stock issuable upon the
exercise of the Note Warrants and the exercise price is required in certain
events including:
-- the issuance of shares of common stock in bona fide public offerings
that are underwritten,
-- the issuance of shares of common stock (including upon exercise of
options) to our employees, officers, directors, or consultants, or
those of any of our subsidiaries, to the extent that the aggregate
amount of all such common stock or common stock which may be acquired
upon the exercise of such options exceeds a specified amount and
-- the issuance of shares of common stock in connection with acquisitions
other than to our affiliates.
No adjustment in the exercise price will be required unless such adjustment
would require an increase or decrease of at least one percent in the exercise
price; provided, however, that any adjustment which is not made as a result of
this paragraph will be carried forward and taken into account in any subsequent
adjustment.
AMENDMENT
From time to time, we and the note warrant agent, without the consent of
the holders of the Note Warrants, may amend or supplement the note warrant
agreement for certain purposes, including curing defects or inconsistencies or
making any change that does not adversely affect the rights of any holder. Any
amendment or supplement to the note warrant agreement that has an adverse effect
on the interests of the holders of the Note Warrants shall require the written
consent of the holders of a majority of the then outstanding Note Warrants. The
consent of each holder of the Note Warrants affected shall be required for any
amendment pursuant to which the exercise price would be increased or the number
of shares of common stock issuable upon exercise of Note Warrants would be
decreased (other than pursuant to adjustments provided in the note warrant
agreement).
CERTAIN DEFINITIONS
The note warrant agreement contains, among others, the following
definitions:
"Current Market Value" means, for any security as of any date of
determination, the price per share or other applicable unit determined as
follows:
(a) if such security is Publicly Traded as of the date of
determination, the price shall be determined by computing the average, over
a period consisting of the most recent twenty-one (21) business days
occurring on or prior to the date of determination, of the applicable price
set forth below (but excluding any trades or quotations that are not bona
fide, arm's length transactions):
128
136
(1) the average of the closing prices for such security on such
business day on all domestic national securities exchanges on which such
security may be listed if such exchanges are the primary securities
markets for such security, or
(2) if there have been no sales on any such exchange on such
business day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such business day if such exchanges are
the primary securities markets for such security, or
(3) if on any business day such security is not so listed, the
closing sales price on such business day quoted on the Nasdaq National
Market or the Nasdaq Small-Cap Market, as applicable, or if there have
been no sales on the Nasdaq National Market or the Nasdaq Small-Cap
Market, as the case may be, on such business day, the average of the
highest bid and lowest asked prices quoted on the Nasdaq National Market
or the Nasdaq Small-Cap Market, as the case may be; or
(4) if on any business day such security is not quoted in the
Nasdaq National Market or Nasdaq Small-Cap Market, the average of the
highest bid and lowest asked prices on such Business Day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor organization; provided, however,
that
-- for the purposes of any determination of the "Current Market
Value" of any share of a security on any day after the "ex"
date or any similar date for any dividend or distribution paid
or to be paid with respect to such security, any price of such
security on a day prior to such "ex" date or similar date
shall be reduced by the fair market value of the per share
amount of such dividend or distribution as determined in good
faith by our board of directors and
-- for the purposes of any determination of the "Current Market
Value" of any security on any day on or after the effective
day of any subdivision (by stock split or otherwise) or
combination (by reverse stock split or otherwise) of
outstanding securities or the "ex" date or any similar date
for any dividend or distribution with respect to such
securities in shares of that security, any price of such
security on a day prior to such effective date or "ex" date or
similar date shall be appropriately adjusted to reflect such
subdivision, combination, dividend or distribution; and
(b) if such security is not Publicly Traded as of the date of
determination, the Enterprise Value Per Share and, in the case of any other
security, the fair market value of one share or other applicable unit of
such security, shall be determined in good faith by our board of directors
exercising reasonable business judgement.
"Enterprise Value" means the highest price that would be paid for the
entire common equity interest in us on a going-concern basis in a single
arm's-length transaction between a willing buyer and a willing seller (neither
acting under compulsion), using valuation techniques then prevailing in the
securities industry and assuming full disclosure of all relevant information and
a reasonable period of time for effectuating such sale. For the purposes of
determining Enterprise Value,
-- the exercise price of options to acquire common stock that are not Out
of the Money shall be deemed to have been received by us and
-- the liquidation preference or indebtedness, as the case may be,
represented by convertible securities that are not Out of the Money
shall be deemed to have been eliminated or cancelled.
"Enterprise Value Per Share" means the price per share of common stock
obtained by dividing (A) the Enterprise Value by (B) the number of shares of
common stock outstanding (on a fully diluted basis) at the time of
determination.
129
137
"Out of the Money" means, at any date of determination
-- in the case of an Option, that the aggregate Current Market Value as
of such date of the shares of common stock issuable upon the exercise
of such Option is less than the aggregate exercise price payable upon
such exercise and
-- in the case of a convertible security, that the quotient resulting
from dividing the Current Market Value as of such date of such
convertible security by the number of shares issuable as of such date
upon conversion or exchange of such convertible security is greater
than the Current Market Value of a share of common stock.
"Publicly Traded" means, with respect to any security, that such security
is
(a) listed on a domestic securities exchange,
(b) quoted on the Nasdaq National Market or the Nasdaq Small-Cap
Market or
(c) traded in the domestic over-the-counter market, which trades are
reported by the National Quotation Bureau, Incorporated.
130
138
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
We, the Initial Purchasers and the Note Guarantors entered into the
exchange and registration rights agreement on May 31, 2000. Pursuant to the
exchange and registration rights agreement, we and the Note Guarantors agreed to
- file with the SEC on or prior to 75 days after the date of issuance of
the Old Notes a registration statement on Form S-1 or Form S-4, relating
to a registered exchange offer for the Notes under the Securities Act and
- use our reasonable best efforts to cause the exchange offer registration
statement to be declared effective under the Securities Act within 180
days after the date of issuance of the Old Notes.
As soon as practicable after the effectiveness of the exchange offer
registration statement, we will offer to the holders of transfer restricted
securities (as defined below) who are not prohibited by any law or policy of the
SEC from participating in the exchange offer the opportunity to exchange their
transfer restricted securities for an issue of a second series of notes that are
identical in all material respects to the Old Notes (except that the New Notes
will not contain terms with respect to transfer restrictions) and that would be
registered under the Securities Act. We and the Note Guarantors will keep the
exchange offer open for not less than 30 days (or longer, if required by
applicable law) after the date on which notice of the exchange offer is mailed
to the holders of the Old Notes.
If,
- because of any change in law or applicable interpretations thereof by the
staff of the SEC, we determine in good faith after consultation with
counsel that we are not permitted to effect the exchange offer as
contemplated hereby,
- any Old Notes validly tendered pursuant to the exchange offer are not
exchanged for New Notes within 225 days after the date of issuance of the
Old Notes,
- the initial purchasers so request with respect to Old Notes not eligible
to be exchanged for New Notes in the exchange offer,
- any applicable law or interpretations do not permit any holder of Old
Notes to participate in the exchange offer,
- any holder of Notes that participates in the exchange offer notifies us
in writing within 30 days following the consummation of the exchange
offer that such holder may not resell the New Notes acquired by it in the
exchange offer to the public without delivering a prospectus, and this
prospectus which forms a part exchange offer registration statement is
not legally available for such resales by such holder, or
- we so elect,
then we and the Note Guarantors will file with the SEC a shelf registration
statement to cover resales of transfer restricted securities by such holders who
satisfy certain conditions relating to the provision of information in
connection with the shelf registration statement. For purposes of the foregoing,
"transfer restricted securities" means each Old Note until
(1) the date on which such Note has been exchanged for a freely
transferable New Note in the exchange offer;
(2) the date on which such Old Note has been effectively registered under
the Securities Act and disposed of in accordance with a shelf
registration statement; or
(3) the date on which such Old Note is distributed to the public pursuant
to Rule 144 under the Securities Act or is saleable pursuant to Rule
144(k) under the Securities Act.
131
139
We and the Note Guarantors will use our reasonable best efforts to have the
exchange offer registration statement of which this prospectus forms a part or,
if applicable, the shelf registration statement declared effective by the SEC as
promptly as practicable after the filing thereof. Unless the exchange offer
would not be permitted by a policy of the SEC, we will commence the exchange
offer and will use our reasonable best efforts to consummate the exchange offer
as promptly as practicable, but in any event prior to 225 days after the date of
issuance of the Old Notes. If applicable, we and the Note Guarantors will use
our reasonable best efforts to keep the shelf registration statement effective
for a period of two years after the date of issuance of the Old Notes.
If,
(1) the exchange offer registration statement or the shelf
registration statement, as the case may be, is not declared effective on or
prior to the date specified in the exchange and registration rights
agreement;
(2) the exchange offer is not consummated on or prior to 225 days
after the date of issuance of the Old Notes and we did not file a shelf
registration statement; or
(3) the shelf registration statement is filed and declared effective
on or prior to the date specified in the exchange and registration rights
agreement but shall thereafter cease to be effective (at any time that we
and the Note Guarantors are obligated to maintain the effectiveness
thereof) without being succeeded within 60 days by an additional
registration statement filed and declared effective (each such event
referred to above, a "registration default"),
we and the Note Guarantors will be obligated to pay liquidated damages to each
holder of transfer restricted securities (but not in respect of any transfer
restricted securities for any period after such securities cease to be transfer
restricted securities pursuant to clause (3) of the definition thereof set forth
above) during the period of one or more such registration defaults, in an amount
equal to $0.192 per week per $1,000 principal amount of the Old Notes
constituting transfer restricted securities held by such holder until the
applicable registration statement is filed, the exchange offer registration
statement is declared effective and the exchange offer is consummated or the
shelf registration statement is declared effective or again becomes effective,
as the case may be. All accrued liquidated damages shall be paid to holders in
the same manner as interest payments on the Old Notes on semi-annual payment
dates which correspond to interest payment dates for the Old Notes. Following
the cure of all registration defaults, the accrual of liquidated damages will
cease.
The exchange and registration rights agreement also provides that we and
the Note Guarantors
- will make available for a period of 180 days after the consummation of
the exchange offer a prospectus meeting the requirements of the
Securities Act to any broker-dealer for use in connection with any resale
of any such New Notes and
- will pay all expenses incident to the exchange offer, including the
expense of one counsel to the holders of the Notes, and will jointly and
severally indemnify certain holders of the Notes, including any
broker-dealer, against certain liabilities, including liabilities under
the Securities Act. A broker-dealer which delivers such a prospectus to
purchasers in connection with such resales will be subject to the civil
liability provisions under the Securities Act and will be bound by the
provisions of the exchange and registration rights agreement, including
certain indemnification rights and obligations.
The above description of the exchange and registration rights agreement is
a summary only, does not purport to be complete and is qualified in its entirety
by reference to all provisions of the exchange and registration rights
agreement, a copy of which is filed as an exhibit to the registration statement
of which this prospectus is a part.
132
140
BOOK-ENTRY; DELIVERY AND FORM
The New Notes will initially be represented by one or more permanent global
notes in definitive, fully registered book-entry form, without interest coupons
that will be deposited with, or on behalf of, DTC and registered in the name of
DTC or its nominee, on behalf of the acquirers of New Notes represented thereby
for credit to the respective accounts of the acquirers, or to such other
accounts as they may direct, at DTC. See "The Exchange Offer -- Book Entry
Transfer."
Except as set forth below, the global notes may be transferred, in whole
and not in part, solely to another nominee of DTC or to a successor of DTC or
its nominee. Beneficial interests in the global notes may not be exchanged for
notes in physical, certificated form except in the limited circumstances
described below.
All interests in the global notes may be subject to the procedures and
requirements of DTC.
CERTAIN BOOK-ENTRY PROCEDURES FOR THE GLOBAL NOTES
The descriptions of the operations and procedures of DTC set forth below
are provided solely as a matter of convenience. These operations and procedures
are solely within the control of DTC and are subject to change by DTC from time
to time. We will take no responsibility for these operations or procedures, and
investors are urged to contact DTC or its participants directly to discuss these
matters.
DTC has advised us that it is
(1) a limited purpose trust company organized under the laws of the State
of New York,
(2) a "banking organization" within the meaning of the New York Banking
Law,
(3) a member of the Federal Reserve System,
(4) a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended, and
(5) a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between participants through
electronic book-entry changes to the accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
participants include securities brokers and dealers, banks and trust companies,
clearing corporations and certain other organizations. Indirect access to DTC's
system is also available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Investors who are not participants
may beneficially own securities held by or on behalf of DTC only through
participants or indirect participants.
We expect that pursuant to procedures established by DTC ownership of the
New Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the interests
of participants) and the records of participants and the indirect participants
(with respect to the interests of persons other than participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the New Notes represented by a
global note to such persons may be limited. In addition, because DTC can act
only on behalf of its participants, who in turn act on behalf of persons who
hold interests through participants, the ability of a person having an interest
in New Notes represented by a global note to pledge or transfer such interest to
persons or entities that do not participate in DTC's system, or to otherwise
take actions in respect of such interest, may be affected by the lack of a
physical definitive security in respect of such interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or such nominee, as the case may be, will be considered the sole owner or holder
of the notes represented by the
133
141
global note for all purposes under the Indenture. Except as provided below,
owners of beneficial interests in a global note
- will not be entitled to have New Notes represented by such global note
registered in their names,
- will not receive or be entitled to receive physical delivery of
certificated New Notes, and
- will not be considered the owners or holders thereof under the Indenture
for any purpose, including with respect to the giving of any direction,
instruction or approval to the trustee thereunder.
Accordingly, each holder owning a beneficial interest in a global note must rely
on the procedures of DTC and, if such holder is not a participant or an indirect
participant, on the procedures of the participant through which such holder owns
its interest, to exercise any rights of a holder of Notes under the Indenture or
such global note. We understand that under existing industry practice, in the
event that we request any action of holders of Notes, or a holder that is an
owner of a beneficial interest in a global note desires to take any action that
DTC, as the holder of such global note, is entitled to take, DTC would authorize
the participants to take such action and the participants would authorize
holders owning through such participants to take such action or would otherwise
act upon the instruction of such holders. Neither we nor the trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of Notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such New Notes.
Payments with respect to the principal of, and premium, if any, and
interest on, any New Notes represented by a global note registered in the name
of DTC or its nominee on the applicable record date will be payable by the
trustee to or at the direction of DTC or its nominee in its capacity as the
registered holder of the global note representing the New Notes under the
Indenture. Under the terms of the Indenture, we and the trustee may treat the
persons in whose names the New Notes, including the global notes, are registered
as the owners thereof for the purpose of receiving payment thereon and for any
and all other purposes whatsoever. Accordingly, neither we nor the trustee has
or will have any responsibility or liability for the payment of such amounts to
owners of beneficial interests in a global note (including principal, premium,
if any, liquidated damages, if any, and interest). Payments by the participants
and the indirect participants to the owners of beneficial interests in a global
note will be governed by standing instructions and customary industry practice
and will be the responsibility of the participants or the indirect participants
and DTC.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
CERTIFICATED NOTES
If,
- we notify the trustee in writing that DTC is no longer willing or able to
act as a depositary or DTC ceases to be registered as a clearing agency
under the Exchange Act and a successor depositary is not appointed within
90 days of such notice or cessation,
- we, at our option, notify the trustee in writing that we elect to cause
the issuance of Notes in definitive form under the Indenture or
- upon the occurrence of certain other events as provided in the Indenture,
then, upon surrender by DTC of the global notes, certificated notes will be
issued to each person that DTC identifies as the beneficial owner of the notes
represented by the global notes. Upon any such issuance, the trustee is required
to register such certificated notes in the name of such person or persons (or
the nominee of any thereof) and cause the same to be delivered thereto.
Neither we nor the trustee shall be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes.
134
142
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of material U.S. Federal income tax consequences
of the exchange of Old Notes for New Notes pursuant to the exchange offer, but
does not address any other aspects of U.S. Federal income tax consequences to
holders of Old Notes or New Notes. This summary is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), existing and proposed regulations
thereunder (the "Regulations"), and published rulings and court decisions, all
as in effect and existing on the date hereof and all of which are subject to
change at any time, which change may be retroactive. This summary is not binding
on the Internal Revenue Service or on the courts, and no ruling will be
requested from the Internal Revenue Service on any issues described below. There
can be no assurance that the Internal Revenue Service will not take a different
position concerning the matters discussed below and that such positions of the
Internal Revenue Service would not be sustained.
Except as expressly stated otherwise, this summary applies only to U.S.
Holders (as defined below) that exchange Old Notes for New Notes in the exchange
offer and who hold the Old Notes as capital assets. It does not address the tax
consequences to taxpayers who are subject to special rules (such as financial
institutions, tax-exempt organizations and insurance companies). A "U.S. Holder"
means a beneficial owner of a Unit who purchased the Units pursuant to the
Offering and is, for U.S. Federal income tax purposes (i) a citizen or resident
of the United States; (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof; (iii) an estate the income of which is subject to U.S. Federal income
taxation regardless of its source; or (iv) a trust if (A) a court within the
United States is able to exercise primary supervision over the administration of
the trust and (B) one or more U.S. fiduciaries have the authority to control all
substantial decisions of the trust.
PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES FOR NEW NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES IN
LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER
THE LAWS OF ANY OTHER TAXING JURISDICTION.
EXCHANGE OF AN OLD NOTE FOR A NEW NOTE PURSUANT TO THE EXCHANGE OFFER
The exchange by any holder of an Old Note for a New Note should not
constitute a taxable exchange for U.S. federal income tax purposes.
Consequently, no gain or loss should be recognized by holders that exchange Old
Notes for New Notes pursuant to the exchange offer. For purposes of determining
gain or loss upon the subsequent sale or exchange of New Notes, a holder's tax
basis in a New Note should be the same as such holder's tax basis in the Old
Note exchanged therefor. Holders should be considered to have held the New Notes
from the time of their acquisition of the Old Notes.
135
143
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes only
where such Old Notes were acquired as a result of market-making activities or
other trading activities. We have agreed that, for a period of 180 days from the
date on which the exchange offer is consummated, it will make this prospectus,
as amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
We will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days from the date on which the exchange offer is
consummated, we will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer, including the expenses of one counsel for
holders of the Notes, other than commissions or concessions of any
broker-dealers and will indemnify the holders of the Notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the New Notes offered hereby and the
Guarantees will be passed upon for us by O'Sullivan Graev & Karabell, LLP, New
York, New York and Stoel Rives LLP, Salt Lake City, Utah.
EXPERTS
The financial statements as of December 31, 1999 and 1998 and for the years
then ended included in this prospectus and the financial statement schedule for
the years ended December 31, 1999 and 1998 included elsewhere in the
registration statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The financial statements for the year ended December 31, 1997 included in
this prospectus and the related financial statement schedule included elsewhere
in the registration statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and elsewhere
in the registration statement, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
136
144
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES:
AS OF DECEMBER 31, 1999 AND 1998 AND FOR EACH OF THE THREE
YEARS IN THE PERIOD ENDED DECEMBER 31, 1999:
Report of Management...................................... F-2
Report of Independent Public Accountants -- Arthur
Andersen LLP........................................... F-3
Independent Auditors' Report -- Deloitte & Touche LLP..... F-4
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-5
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997....................... F-6
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997........... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997....................... F-8
Notes to Consolidated Financial Statements................ F-11
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 AND FOR THE SIX
MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED):
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999.................................. F-38
Condensed Consolidated Statements of Income for the six
months ended June 30, 2000 and 1999.................... F-39
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999................ F-40
Notes to Condensed Consolidated Financial Statements...... F-41
F-1
145
REPORT OF MANAGEMENT
Huntsman Packaging Corporation's management has prepared the accompanying
consolidated financial statements and related notes in conformity with
accounting principles generally accepted in the United States. In so doing,
management makes informed judgments and estimates of the expected effects of
events and transactions. Financial data appearing elsewhere in this report are
consistent with these financial statements.
Huntsman Packaging Corporation maintains a system of internal controls to
provide reasonable, but not absolute, assurance of the reliability of the
financial records and the protection of assets. The internal control system is
supported by policies and procedures, careful selection and training of
qualified personnel, and, beginning in 1999, a formal internal audit program.
The accompanying consolidated financial statements have been audited by
Arthur Andersen LLP and Deloitte & Touche LLP, independent public accountants,
for the specified periods as indicated in their reports. Their audits were made
in accordance with auditing standards generally accepted in the United States.
They considered Huntsman Packaging Corporation's internal control structure only
to the extent necessary to determine the scope of their audit procedures for the
purpose of rendering an opinion on the financial statements.
Members of the Board of Directors meet with management, the internal
auditors and the independent public accountants to review accounting, auditing
and financial reporting matters. Subject to stockholder approval, the
independent public accountants are appointed by the Board of Directors.
Richard P. Durham
President
and Chief Executive Officer
Scott K. Sorensen
Executive Vice President
and Chief Financial Officer
F-2
146
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Huntsman Packaging Corporation:
We have audited the accompanying consolidated balance sheets of Huntsman
Packaging Corporation and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years then ended. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Huntsman
Packaging Corporation and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
January 28, 2000
F-3
147
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Huntsman Packaging Corporation:
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of Huntsman Packaging Corporation and
subsidiaries for the year ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of Huntsman Packaging Corporation and
subsidiaries' operations and their cash flows for the year ended December 31,
1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 11, 1998
F-4
148
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 9,097 $ 19,217
Receivables:
Trade accounts, net of allowances of $2,115 and $2,570,
respectively........................................... 109,768 79,825
Other................................................... 12,866 9,556
Inventories............................................... 78,199 65,892
Prepaid expenses and other................................ 2,644 3,063
Income taxes receivable................................... 2,691 7,365
Deferred income taxes..................................... 5,408 3,605
-------- --------
Total current assets............................... 220,673 188,523
-------- --------
PLANT AND EQUIPMENT:
Land and improvements..................................... 7,442 7,442
Buildings and improvements................................ 59,645 54,933
Machinery and equipment................................... 310,232 263,737
Furniture, fixtures and vehicles.......................... 4,501 4,200
Leasehold improvements.................................... 813 521
Construction in progress.................................. 9,412 21,321
-------- --------
392,045 352,154
Less accumulated depreciation and amortization............ (77,593) (51,820)
-------- --------
Plant and equipment, net........................... 314,452 300,334
-------- --------
INTANGIBLE ASSETS, net...................................... 214,956 221,290
-------- --------
OTHER ASSETS................................................ 18,942 24,125
-------- --------
Total assets....................................... $769,023 $734,272
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 17,120 $ 11,406
Trade accounts payable.................................... 60,056 43,186
Accrued liabilities:
Customer rebates........................................ 8,910 8,450
Other................................................... 26,026 25,126
Due to affiliates......................................... 4,715 7,000
-------- --------
Total current liabilities.......................... 116,827 95,168
LONG-TERM DEBT, net of current portion...................... 493,262 513,530
OTHER LIABILITIES........................................... 13,983 11,394
DEFERRED INCOME TAXES....................................... 51,363 42,423
-------- --------
Total liabilities.................................. 675,435 662,515
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 6, 7 and 11)
REDEEMABLE COMMON STOCK -- Class C nonvoting, no par value;
60,000 shares authorized, 49,511 and 11,700 shares
outstanding in 1999 and 1998, respectively, net of related
stockholder notes receivable of $2,795 in 1999............ 2,926 1,170
-------- --------
STOCKHOLDERS' EQUITY:
Common stock -- Class A voting, no par value; 1,200,000
shares authorized, 1,000,001 shares outstanding......... 63,161 63,161
Common stock -- Class B voting, no par value; 10,000
shares authorized, 6,999 shares outstanding............. 515 515
Retained earnings......................................... 32,042 13,731
Stockholder note receivable............................... (299) (434)
Cumulative foreign currency translation adjustments....... (4,757) (6,386)
-------- --------
Total stockholders' equity......................... 90,662 70,587
-------- --------
Total liabilities and stockholders' equity......... $769,023 $734,272
======== ========
See notes to consolidated financial statements.
F-5
149
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
NET SALES............................................... $781,416 $651,957 $447,743
COST OF SALES........................................... 623,438 532,410 389,628
-------- -------- --------
Gross profit.................................. 157,978 119,547 58,115
-------- -------- --------
OPERATING EXPENSES:
Administration and other.............................. 48,905 37,383 15,113
Sales and marketing................................... 25,071 24,148 18,143
Research and development.............................. 5,514 3,677 2,507
Plant closing costs................................... 2,497 4,875 9,276
-------- -------- --------
Total operating expenses...................... 81,987 70,083 45,039
-------- -------- --------
OPERATING INCOME........................................ 75,991 49,464 13,076
INTEREST EXPENSE........................................ (44,028) (37,519) (17,000)
OTHER INCOME (EXPENSE), net............................. 435 (879) 750
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND DISCONTINUED
OPERATIONS............................................ 32,398 11,066 (3,174)
-------- -------- --------
INCOME TAX EXPENSE (BENEFIT):
Current............................................... 6,829 1,567 3,679
Deferred.............................................. 7,258 6,966 (4,188)
-------- -------- --------
Total income tax expense (benefit)............ 14,087 8,533 (509)
-------- -------- --------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS............ 18,311 2,533 (2,665)
-------- -------- --------
INCOME FROM DISCONTINUED OPERATIONS (net of income tax
expense of $387 and $1,348, respectively)............. 582 3,040
GAIN ON SALE OF DISCONTINUED OPERATIONS (net of income
tax expense of $6,729)................................ 5,223
-------- -------- --------
NET INCOME.............................................. $ 18,311 $ 8,338 $ 375
======== ======== ========
See notes to consolidated financial statements.
F-6
150
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
CLASS A CLASS B
COMMON STOCK COMMON STOCK COMMON STOCK ADDITIONAL
--------------- ---------------- --------------- PAID-IN RETAINED
TOTAL SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------- ------ ------ ------ ------- ------ ------ ---------- --------
(IN THOUSANDS)
BALANCE, DECEMBER 31, 1996.... $67,012 1 $ 1 $ 62,975 $ 5,053
-------
Comprehensive loss:
Net income.................. 375 375
Other comprehensive loss --
Foreign currency
translation
adjustments............. (4,378)
-------
Comprehensive loss.... (4,003)
-------
Recapitalization (Note 1)... (1) (1) 995 $62,661 5 $315 (62,975)
Shares issued for note
receivable................ 5 500 2 200
Other....................... (35) (35)
------- --- --- ----- ------- --- ---- -------- -------
BALANCE, DECEMBER 31, 1997.... 62,974 1,000 63,161 7 515 5,393
-------
Comprehensive income:
Net income.................. 8,338 8,338
Other comprehensive loss --
Foreign currency
translation
adjustments............. (991)
-------
Comprehensive
income.............. 7,347
-------
Payments received on
stockholder note
receivable................ 266
------- --- --- ----- ------- --- ---- -------- -------
BALANCE, DECEMBER 31, 1998.... 70,587 1,000 63,161 7 515 13,731
-------
Comprehensive income:
Net income.................. 18,311 18,311
Other comprehensive
income --
Foreign currency
translation
adjustments............. 1,629
-------
Comprehensive
income.............. 19,940
-------
Payments received on
stockholder note
receivable................ 135
------- --- --- ----- ------- --- ---- -------- -------
BALANCE, DECEMBER 31, 1999.... $90,662 1,000 $63,161 7 $515 $32,042
======= === === ===== ======= === ==== ======== =======
CUMULATIVE
FOREIGN
CURRENCY
STOCKHOLDER TRANSLATION
RECEIVABLE ADJUSTMENTS
----------- -----------
(IN THOUSANDS)
BALANCE, DECEMBER 31, 1996.... $(1,017)
Comprehensive loss:
Net income..................
Other comprehensive loss --
Foreign currency
translation
adjustments............. (4,378)
Comprehensive loss....
Recapitalization (Note 1)...
Shares issued for note
receivable................ $(700)
Other.......................
----- -------
BALANCE, DECEMBER 31, 1997.... (700) (5,395)
Comprehensive income:
Net income..................
Other comprehensive loss --
Foreign currency
translation
adjustments............. (991)
Comprehensive
income..............
Payments received on
stockholder note
receivable................ 266
----- -------
BALANCE, DECEMBER 31, 1998.... (434) (6,386)
Comprehensive income:
Net income..................
Other comprehensive
income --
Foreign currency
translation
adjustments............. 1,629
Comprehensive
income..............
Payments received on
stockholder note
receivable................ 135
----- -------
BALANCE, DECEMBER 31, 1999.... $(299) $(4,757)
===== =======
See notes to consolidated financial statements.
F-7
151
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
-------- --------- ---------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 18,311 $ 8,338 $ 375
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 35,019 27,088 16,442
Deferred income taxes............................ 7,137 6,966 (4,188)
Increase (decrease) in provision for losses on
accounts receivable............................ (455) (1,714) 241
Noncash stock-based compensation expense......... 770
Gain on sale of discontinued operations.......... (5,223)
Write-down of goodwill........................... 411 3,286
Write-down of plant and equipment................ 1,370 629 4,262
Loss on disposal of assets....................... 86 305
Changes in operating assets and
liabilities -- net of effects of acquisitions:
Trade accounts receivable...................... (26,278) 15,041 (6,431)
Other receivables.............................. (3,070) (7,526) (1,666)
Inventories.................................... (7,829) 14,298 7,961
Prepaid expenses and other..................... 1,411 46 1,758
Other assets................................... 7,145 1,685 (7,621)
Trade accounts payable......................... 16,870 1,528 340
Accrued liabilities............................ (4,012) 1,998 (96)
Due to affiliates.............................. (2,285) (8,279) 8,839
Income taxes payable/receivable................ 4,674 (9,004) 3,427
Other liabilities.............................. 2,589 (1,097) 1,719
-------- --------- ---------
Net cash provided by operating activities... 51,453 45,490 28,648
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for plant and equipment........ (35,723) (52,101) (17,861)
Payment for purchase of certain net assets of KCL
Corporation, net of cash acquired................ (11,498)
Proceeds from sale of assets........................ 1,191 33,850
Payment for purchase of Blessings Corporation, net
of cash acquired................................. (285,712)
Payment for purchase of certain net assets of
Ellehammer....................................... (7,877)
Payment for purchase of certain assets of Allied
Signal........................................... (3,000)
Payment for purchase of CT Film, net of cash
acquired......................................... (69,366)
-------- --------- ---------
Net cash used in investing activities....... (46,030) (314,840) (87,227)
-------- --------- ---------
See notes to consolidated financial statements.
F-8
152
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
-------- --------- ---------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt.......................... $(12,125)
Principal payments on borrowings.................... (5,725) $ (10,544) $(249,509)
Proceeds from issuance of Class C nonvoting common
stock............................................ 986 1,170
Payments received from stockholder on note
receivable....................................... 135 266
Proceeds from issuance of long-term debt............ 285,000 312,700
-------- --------- ---------
Net cash provided by (used in) financing
activities................................ (16,729) 275,892 63,191
-------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS.................................... 1,186 264 (2,848)
-------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... (10,120) 6,806 1,764
CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR...... 19,217 12,411 10,647
-------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF THE YEAR............ $ 9,097 $ 19,217 $ 12,411
======== ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest......................................... $ 43,179 $ 33,253 $ 27,596
======== ========= =========
Income taxes..................................... $ (361) $ 5,647 $ 1,614
======== ========= =========
See notes to consolidated financial statements.
F-9
153
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
A capital lease obligation of $353 was incurred during 1999 when we entered
into a lease for new equipment.
On October 18, 1999, we acquired certain assets and assumed certain
liabilities of KCL Corporation for cash of $11,498. As part of the acquisition,
liabilities assumed were as follows:
Fair value of assets acquired (including goodwill of
$2,651)............................................... $ 15,500
Cash paid............................................... (11,498)
---------
Liabilities assumed..................................... $ 4,002
=========
On May 19, 1998, we purchased all of the outstanding capital stock of
Blessings Corporation for cash of $213,000. As part of the acquisition,
liabilities assumed were as follows:
Fair value of assets acquired (including goodwill of
$168,704)............................................. $ 328,403
Cash paid (including the repayment of Blessings
Corporation's debt)................................... (287,499)
---------
Liabilities assumed..................................... $ 40,904
=========
On March 12, 1998, we acquired certain assets and assumed certain
liabilities of Ellehammer Industries, Ltd. and Ellehammer Packaging, Inc. for
cash of $7,877. As part of the acquisition, liabilities assumed were as follows:
Fair value of assets acquired........................... $ 8,604
Cash paid............................................... (7,877)
---------
Liabilities assumed..................................... $ 727
=========
On September 30, 1997, we purchased all of the assets of CT Film (a
division of Huntsman Polymers Corporation, formerly Rexene Corporation) and
Rexene Corporation Limited (a wholly owned subsidiary of Huntsman Polymers
Corporation) for cash of $70,000. As part of the acquisition, liabilities
assumed were as follows:
Fair value of assets acquired (including goodwill of
$7,763)............................................... $ 87,923
Cash paid............................................... (70,000)
---------
Liabilities assumed..................................... $ 17,923
=========
See notes to consolidated financial statements.
F-10
154
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Huntsman Packaging Corporation and its subsidiaries (collectively "Huntsman
Packaging") produce polymer-based (plastic), value-added films for flexible
packaging, personal care, medical, agricultural and industrial applications. Our
manufacturing facilities are located in North America, Germany and Australia.
RECAPITALIZATION -- Prior to September 30, 1997, Huntsman Packaging was a
wholly owned subsidiary of Huntsman Corporation ("HC"). On September 30, 1997,
Huntsman Packaging was recapitalized by authorizing two new classes of common
stock, Class A Common and Class B Common. The 1,000 shares of previously issued
and outstanding common stock were canceled.
On September 30, 1997, Huntsman Packaging was separated from HC in a tax
free transaction under Section 355 of the Internal Revenue Code (the
"Split-Off"), when Jon M. Huntsman and The Christena Karen H. Durham Trust
exchanged shares of HC common stock for shares of Huntsman Packaging's newly
authorized common stock. Additionally, Richard P. Durham purchased shares of
Huntsman Packaging's newly authorized common stock in exchange for a note
receivable.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Huntsman Packaging and its wholly owned subsidiaries.
All significant intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS -- The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the 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.
REVENUE RECOGNITION -- Sales revenue is recognized upon shipment of product
in fulfillment of a customer order.
INVENTORIES -- Inventories consist principally of finished film products
and the raw materials necessary to produce them. Inventories are carried at the
lower of cost (on a first-in, first-out basis) or market value.
PLANT AND EQUIPMENT -- Plant and equipment are stated at cost. Depreciation
is computed using the straight-line method over the estimated economic useful
lives of the assets as follows:
Land improvements...................................... 20 years
Buildings and improvements............................. 20 years
Machinery and equipment................................ 7-15 years
Furniture, fixtures and vehicles....................... 3-7 years
Leasehold improvements................................. 10-20 years
INTANGIBLE ASSETS -- Intangible assets are stated at cost. Amortization is
computed using the straight-line method over the estimated economic useful lives
of the assets as follows:
Cost in excess of fair value of net assets acquired.... 10-40 years
Other intangible assets................................ 2-15 years
CARRYING VALUE OF LONG-LIVED ASSETS -- We evaluate the carrying value of
long-lived assets, including intangible assets, based upon current and expected
undiscounted cash flows, and recognize an impairment when the estimated cash
flows are less than the carrying value of the
F-11
155
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
asset. Measurement of the amount of impairment, if any, is based upon the
difference between the asset's carrying value and fair value.
OTHER ASSETS -- Other assets consist primarily of deferred debt issuance
costs, deposits, spare parts, and the cash surrender values of key-person life
insurance policies.
CASH AND CASH EQUIVALENTS -- For the purpose of the consolidated statements
of cash flows, we consider cash in checking accounts and in short-term, highly
liquid investments with an original maturity of three months or less to be cash
and cash equivalents. Cash and cash equivalents generated outside of the United
States are generally subject to taxation if repatriated.
INCOME TAXES -- We use the asset and liability method of accounting for
income taxes. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
and tax reporting purposes. Since the Split-Off, we have filed our own
consolidated income tax returns. Prior to the Split-Off, our operations were
included in the consolidated United States income tax returns of HC. HC's
intercompany tax allocation policy provided for each subsidiary to calculate its
own provision on a "separate return basis."
DERIVATIVE FINANCIAL INSTRUMENTS -- In the normal course of business, we
occasionally enter into interest rate collar and swap agreements to manage
interest rate risk on long-term debt. These agreements are classified as hedges
for matched transactions. The differential to be paid or received as interest
rates change is accrued and recognized as an adjustment to interest expense. The
related amount payable to or receivable from the counterparties is included in
other liabilities or assets. Gains and losses on terminations of interest-rate
swap agreements are deferred and amortized as an adjustment to interest expense
over the lesser of the remaining term of the original contract or the life of
the debt. We also occasionally enter into commodity collar agreements to manage
the market risk of our raw material prices. These agreements are classified as
hedges. The differential to be paid or received as commodity prices change is
accrued and recognized as an adjustment to inventory. The related amount payable
to or receivable from the counterparties is included in other liabilities or
assets.
RECENT ACCOUNTING PRONOUNCEMENT -- In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
that require derivative instruments to be recorded on the balance sheet as
either an asset or liability, measured at fair market value, and that changes in
the derivative's fair value be recognized currently in earnings, unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. We expect that the adoption of this statement
will not have a material effect on our consolidated financial statements.
FOREIGN CURRENCY TRANSLATION -- The accounts of our foreign subsidiaries
are translated into U.S. dollars using the exchange rate at each balance sheet
date for assets and liabilities and a weighted average exchange rate for each
period for revenues, expenses, gains and losses. Transactions are translated
using the exchange rate at each transaction date. Where the local currency is
the functional currency, translation adjustments are recorded as a separate
component of stockholders' equity. Where the U.S. dollar is the functional
currency, translation adjustments are recorded in other income within current
operations.
F-12
156
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORIES
INVENTORY BALANCES -- Inventories consist of the following at December 31,
1999 and 1998 (in thousands):
1999 1998
------- -------
Finished goods......................................... $41,408 $37,830
Raw materials.......................................... 28,910 21,318
Work-in-process........................................ 7,881 6,744
------- -------
Total.................................................. $78,199 $65,892
======= =======
COMMODITY COLLAR TERMS -- In 1999, we entered into a commodity collar
agreement to manage the market risk of one of our major raw materials. The
collar agreement entitles us to receive from the counterparty (a major risk
management company) the amounts, if any, by which the published market price, as
defined in the agreement, of polyvinyl chloride ("PVC") exceeds $0.30 per pound.
The collar agreement requires us to pay the counterparty the amounts, if any, by
which the published market price of PVC is below $0.23 per pound. The collar
ended on December 31, 1999. There was no premium paid for the collar agreement.
We realized a reduction in raw material inventory costs of $0.5 million during
1999 from this collar.
In 1998, we entered into a separate commodity collar agreement to manage
the market risk of one of our other major raw materials. The collar agreement
entitles us to receive from the counterparty (a major risk management company)
the amounts, if any, by which the published market price, as defined in the
agreement, of low density polyethylene ("LDPE") exceeds $0.35 per pound. The
collar agreement requires us to pay the counterparty the amounts, if any, by
which the published market price of LDPE is below $0.295 per pound. As of
December 31, 1999, the defined published market price for LDPE was $0.46 per
pound. There was no premium paid for the collar agreement. We realized a
reduction in raw material inventory costs of $0.8 million during 1999 from this
collar. The notional amount of this contract is 18 million pounds and the
maturity date is April 30, 2000.
We are exposed to credit losses in the event of nonperformance by the
counterparty to the agreement. We anticipate, however, that the counterparty
will be able to fully satisfy its obligations under the contract. Market risk
arises from changes in commodity prices.
3. SALE OF ASSETS
On June 1, 1998, Huntsman Container Corporation International ("HCCI"), a
wholly owned subsidiary of Huntsman Packaging, sold its entire interest in the
capital stock of Huntsman Container Company Limited ("HCCL") and Huntsman
Container Company France SA ("HCCFSA") to Polarcup Limited and Huhtamake
Holdings France Sarl, subsidiaries of Huhtamaki Oyj. Together, HCCL and HCCFSA
comprised our foam products operations, which were operated exclusively in
Europe. Net proceeds from the sale were approximately $28.3 million and a gain
of approximately $5.2 million, net of applicable income taxes, was recorded. The
financial position and results of operations of this separate business segment
are reflected as discontinued operations in the accompanying consolidated
financial statements for all years presented. Revenues from the foam products
operations for the years ended December 31, 1998 and 1997 amounted to $15.6
million and $43.4 million, respectively.
As part of our acquisition of the CT Film Division of Huntsman Polymers
(see Note 12), we acquired Huntsman Packaging UK Limited ("HPUK"). HPUK owned CT
Film's Scunthorpe, UK
F-13
157
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
facility, which manufactured and sold polyethylene film exclusively in Europe.
At the time of the CT Film acquisition, we announced our intention to close or
sell the Scunthorpe, UK facility. During 1998, we adjusted our preliminary
estimate of the fair value of the Scunthorpe, UK facility assets acquired,
resulting in an increase of $2.9 million to the associated goodwill recorded. On
August 14, 1998, we sold our interest in the capital stock of HPUK to Skymark
Packaging International Limited. Net proceeds from the sale were approximately
$5.6 million, including a note receivable from the buyer. The note receivable
balance was collected at December 31, 1999.
4. PLANT CLOSING COSTS
During 1999, we announced our plan to cease operations at one of our
facilities located in Mexico City, Mexico. Included in 1999 operating expenses
is a $2.3 million charge, comprised of a $1.3 million write-off of impaired
plant equipment, and a $1.0 million charge for reduction of work force costs
associated with the elimination of 110 full-time equivalent employees. In
addition, we announced our plan to cease the production of one of our product
lines at our Kent, Washington facility. Included in 1999 operating expenses is a
$0.2 million charge for the write-off of impaired plant equipment and for
reduction of work force costs associated with the elimination of 36 full-time
equivalent employees.
In connection with the purchase of KCL Corporation, we announced a plan to
eliminate 32 full-time equivalent employees, move certain purchased assets and
install them at desired locations, cease certain purchased operations, and
write-off related impaired plant equipment and inventory. The purchase price
allocation includes $0.7 million for reduction of workforce costs, $0.4 million
for asset removal and relocation and $0.1 million for the write-off of
inventory.
During 1998, we announced our plan to cease operations at our Clearfield,
Utah facility. Included in 1998 operating expenses is a $4.9 million charge,
comprised of a $0.4 million write-off of impaired goodwill, a $0.6 million
write-off of impaired plant equipment associated with the facility, a $0.5
million charge for reduction of work force costs associated with the elimination
of 52 full-time equivalent employees, and an accrual of $3.4 million for
estimated future net lease and other costs incurred to close the facility.
During 1997, we announced our plan to cease operations at our Carrollton,
Ohio facility and our intention to relocate certain assets from that facility to
other of our facilities. Included in 1997 operating expenses is a $9.3 million
charge, comprised of a $3.3 million write-off of impaired goodwill, a $4.2
million write-off of impaired plant equipment associated with the facility, a
$1.6 million charge for reduction in work force costs associated with the
elimination of 83 full-time equivalent employees, and an accrual of $0.2 million
for other costs related to the closure of the facility.
As of December 31, 1999, all plant closings announced prior to 1999 were
complete and no additional plant closing expenses are anticipated for these
closed facilities. As of December 31, 1999, the plant closing accrual is $4.8
million and is included in accrued liabilities.
F-14
158
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INTANGIBLE ASSETS
The cost of intangible assets and related accumulated amortization at
December 31, 1999 and 1998 is as follows (in thousands):
1999 1998
-------- --------
Goodwill............................................. $216,058 $213,406
Trademarks, patents and technology................... 15,776 15,776
Noncompete agreements................................ 7,283 7,283
Other................................................ 7,455 7,455
-------- --------
246,572 243,920
Less accumulated amortization........................ (31,616) (22,630)
-------- --------
Total................................................ $214,956 $221,290
======== ========
Amortization expense for intangible assets was approximately $9.0 million,
$6.1 million and $3.1 million for the years ended December 31, 1999, 1998 and
1997, respectively.
6. LONG-TERM DEBT
Long-term debt as of December 31, 1999 and 1998 consists of the following
(in thousands):
1999 1998
-------- --------
Credit Agreement:
Revolver, variable interest at a weighted average
rate of 8.644% as of December 31, 1999.......... $ 33,000 $ 43,000
Term loans, variable interest at a weighted average
rate of 8.272% as of December 31, 1999.......... 345,281 356,687
Senior subordinated notes, interest at 9.125%........ 125,000 125,000
Line of credit agreement, interest at 9.25%, due
September 2000..................................... 4,274
Obligations under capital leases (see Note 7)........ 497 249
Insurance financing, interest at 6.62%............... 2,330
-------- --------
Total...................................... 510,382 524,936
Less current portion................................. (17,120) (11,406)
-------- --------
Long-term portion.................................... $493,262 $513,530
======== ========
On September 30, 1997, we entered into a $225 million credit facility (the
"Credit Agreement") with various banks. On May 14, 1998, the Credit Agreement
was amended and restated as a $510 million facility (the "Amended Credit
Agreement"). The Amended Credit Agreement provides for the continuation of a
previous term loan (the "Original Term Loan") in the principal amount of $75
million, maturing on September 30, 2005; a Tranche A Term Loan (the "Tranche A
Term Loan") in the principal amount of $140 million, maturing on September 30,
2005; a Tranche B Term Loan (the "Tranche B Term Loan") in the principal amount
of $100 million, maturing on June 30, 2006; and a term loan (the "Mexico Term
Loan") to ASPEN Industrial, S.A., our wholly owned Mexican subsidiary, in the
principal amount of $45 million, maturing on September 30, 2005. The Amended
Credit Agreement also provides for a $150 million revolving loan facility (the
"Revolver") maturing on September 30, 2004. The Original Term Loan, the Tranche
A Term Loan and the Mexico Term Loan amortize at an increasing rate on a
quarterly basis. The Tranche A Term Loan and the Mexico Term Loan began
amortizing on December 31, 1998 and the Original Term Loan begins amortizing
F-15
159
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2001. As of September 30, 1998, the Tranche B Term Loan began
amortizing at the rate of $1 million per year, with an aggregate of $93 million
due in the last four quarterly installments. The term loans described above are
required to be prepaid with the proceeds of certain asset sales, with 50% of the
proceeds of the sale of certain Huntsman Packaging equity securities, and with
the proceeds of certain debt offerings, should such events occur.
Loans under the Amended Credit Agreement bear interest at our election, at
either (1) zero to 0.75%, depending on certain of our financial ratios, plus the
higher of (a) the agent bank's prime rate, (b) the federal funds rate plus 0.50%
or (c) the agent bank's base CD rate plus 1%; or (2) the London Interbank
Offered Rate plus 1% to 2%, also depending on certain of our financial ratios.
We pay a quarterly commitment fee on the unused amount of the Revolver at
an annual rate commencing at 0.50%. The interest rate margins and the commitment
fee are subject to reduction if we achieve certain ratios. As of December 31,
1999, we had outstanding letters of credit of approximately $1.3 million.
Obligations under the Amended Credit Agreement are guaranteed by the assets
of all of our domestic subsidiaries (see Note 16). The Amended Credit Agreement
does not permit cash dividends and contains covenants customary for transactions
of this type, including restrictions on indebtedness, liens, asset sales,
capital expenditures, acquisitions, investments, transactions with affiliates,
and other restricted payments. The Amended Credit Agreement also contains
financial covenants, including a ratio of maximum total debt to EBITDA, a
minimum interest coverage ratio, and minimum net worth. As of December 31, 1999,
we were in compliance with the covenants of the Amended Credit Agreement and the
Notes.
On September 30, 1997, we issued $125 million of 9.125% unsecured senior
subordinated notes which mature on October 1, 2007 (the "Notes"). Interest on
the Notes is payable semi-annually on each April 1 and October 1, commencing
April 1, 1998. The Notes are guaranteed by our domestic subsidiaries (see Note
16). The Notes are redeemable, at our option, in whole at any time or in part
from time to time, on or after October 1, 2002, at redemption prices decreasing
from 104.563% to 100% of the outstanding principal balance after October 2005.
Additionally, up to 35% of the Notes may be redeemed prior to October 1, 2000 at
a price equal to 109.125% of the principal amount with the proceeds of one or
more equity offerings. The Notes are subject to certain covenants customary to
this type of transaction, including restrictions on the incurrence of additional
indebtedness, certain restricted payments, asset sales, dividend and other
payment restrictions affecting subsidiaries, liens, mergers, and transactions
with affiliates.
During 1999, we entered into a financing agreement to finance insurance
premiums. Payments are payable monthly and run through April 2002.
The scheduled maturities of long-term debt by year as of December 31, 1999
are as follows (in thousands):
YEAR ENDING DECEMBER 31,
- ------------------------
2000................................................... $ 17,120
2001................................................... 26,009
2002................................................... 51,280
2003................................................... 50,901
2004................................................... 56,248
Thereafter............................................... 308,824
--------
Total.......................................... $510,382
========
F-16
160
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1997, we purchased an interest rate collar agreement to reduce the
impact of changes in interest rates on our floating-rate long-term debt. The
collar agreement entitles us to receive amounts from the counterparty (a major
bank) if the three-month LIBOR interest rate, as defined in the agreement,
exceeds 6.25%. The collar agreement requires us to pay amounts to the
counterparty if the three-month LIBOR interest rate is less than 5.25%. As of
December 31, 1999, the defined three-month LIBOR interest rate was 6.18%.
The net premium paid for the collar agreement purchased is included in
other assets in the consolidated balance sheets and is amortized to interest
expense over the term of the agreement. Amounts receivable or payable under the
agreement are recognized as yield adjustments over the life of the related debt.
We are exposed to credit losses in the event of nonperformance by the
counterparty to the financial instrument. We anticipate, however, that the
counterparty will be able to fully satisfy its obligations under the contract.
Market risk arises from changes in interest rates.
As of December 31, 1999, we had one outstanding interest rate collar
agreement. The terms of the agreement are as follows:
Notional amount.................................. $20 million
Maturity date.................................... November 5, 2001
Cap rate......................................... 6.25%
Floor rate....................................... 5.25%
In 1997, we also entered into a series of interest rate swap agreements to
hedge the interest rate exposure in anticipation of issuing the Notes. The
agreements were accounted for as hedges and were subsequently terminated.
Termination costs of approximately $1.2 million are being amortized to interest
expense over the life of the Notes.
7. LEASES
CAPITAL LEASES -- We have acquired certain land, building, machinery and
equipment under capital lease arrangements that expire at various dates through
2007. At December 31, 1999 and 1998, the gross amounts of plant and equipment
and related accumulated amortization recorded under capital leases were as
follows (in thousands):
1999 1998
----- ----
Land and building........................................... $ 309 $309
Machinery and equipment..................................... 353
----- ----
Total assets held under capital leases...................... 662 309
Less accumulated amortization............................... (104) (39)
----- ----
$ 558 $270
===== ====
OPERATING LEASES -- We have noncancelable operating leases, primarily for
vehicles, equipment, warehouse, and office space that expire through 2006, as
well as month-to-month leases. The total expense recorded under all operating
lease agreements in the accompanying consolidated statements of income is
approximately $6.6 million, $5.8 million and $2.9 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
F-17
161
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease payments under operating leases and the present value
of future minimum capital lease payments as of December 31, 1999 are as follows
(in thousands):
OPERATING CAPITAL
LEASES LEASES
--------- -------
Year Ending December 31,
2000................................................ $ 5,589 $ 177
2001................................................ 4,365 177
2002................................................ 3,448 81
2003................................................ 2,872 45
2004................................................ 2,073 45
Thereafter.......................................... 11,145 129
------- -----
Total minimum lease payments.......................... $29,492 654
=======
Amounts representing interest......................... (157)
-----
Present value of net minimum capital lease payments
(see Note 6)........................................ $ 497
=====
8. INCOME TAXES
The following is a summary of domestic and foreign provisions for current
and deferred income taxes and a reconciliation of the U.S. statutory income tax
rate to the effective income tax rate.
The provisions (benefits) for income taxes for the years ended December 31,
1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997
------- ------- -------
Current:
Federal........................................... $ 1,581 $(1,877)
State............................................. 770 128 $ 1,156
Foreign........................................... 4,478 3,316 2,523
------- ------- -------
Total current............................. 6,829 1,567 3,679
------- ------- -------
Deferred:
Federal........................................... 6,975 6,960 (4,110)
State............................................. 71 793 (470)
Foreign........................................... 212 (787) 392
------- ------- -------
Total deferred............................ 7,258 6,966 (4,188)
------- ------- -------
Total income tax expense (benefit) (excluding income
taxes applicable to discontinued operations)...... $14,087 $ 8,533 $ (509)
======= ======= =======
F-18
162
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective income tax rate reconciliations for the years ended December
31, 1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997
------- ------- -------
Income (loss) before income taxes, discontinued
operations and extraordinary item................. $32,398 $11,066 $(3,174)
======= ======= =======
Expected income tax provision (benefit) at U.S.
statutory rate of 35%............................. $11,339 $ 3,873 $(1,111)
Increase (decrease) resulting from:
Goodwill.......................................... 1,625 1,331 1,150
State taxes....................................... 547 353 49
Adjustment of tax attributes...................... (912) 1,361
Foreign rate difference and other, net............ 1,488 1,615 (597)
------- ------- -------
Total income tax expense (benefit) (excluding income
taxes applicable to discontinued operations)...... $14,087 $ 8,533 $ (509)
======= ======= =======
Effective income tax rate........................... 43.5% 77.1% 16.0%
======= ======= =======
Components of net deferred income tax assets and liabilities as of December
31, 1999 and 1998 are as follows (in thousands):
1999 1998
-------- --------
Deferred income tax assets:
AMT and foreign tax credit carryforwards........... $ 2,867 $ 3,512
Accrued pension costs not deducted for tax......... 5,833 2,522
Accrued employee benefits.......................... 1,372 1,562
Plant closing costs not deducted for tax........... 758 1,024
Allowance for doubtful trade accounts receivable... 340 635
Inventory related costs not deducted for tax....... 476 633
Other.............................................. 1,330 1,084
-------- --------
Total deferred income tax assets........... 12,976 10,972
-------- --------
Deferred income tax liabilities:
Tax depreciation in excess of book depreciation.... (52,611) (42,650)
Amortization of intangibles........................ (5,365) (6,188)
Other.............................................. (955) (952)
-------- --------
Total deferred income tax liabilities...... (58,931) (49,790)
-------- --------
Net deferred income tax liability.................... $(45,955) $(38,818)
======== ========
As reported on consolidated balance sheets:
Net current deferred income tax asset.............. $ 5,408 $ 3,605
Net noncurrent deferred income tax liability....... (51,363) (42,423)
-------- --------
Net deferred income tax liability.................. $(45,955) $(38,818)
======== ========
The foreign tax credit carryforwards of approximately $1,405 expire in
2004.
F-19
163
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. EMPLOYEE BENEFIT PLANS
DEFINED CONTRIBUTION PLAN -- We sponsor a salary deferral plan covering
substantially all of our non-union domestic employees. Plan participants may
elect to make voluntary contributions to this plan up to 15% of their
compensation. We contribute 1% of the participants' compensation and also match
employee contributions up to 2% of the participants' compensation. We expensed
approximately $7.2 million, $5.0 million and $3.1 million as our contribution to
this plan for the years ended December 31, 1999, 1998 and 1997, respectively.
DEFINED BENEFIT PLANS -- We sponsor five noncontributory defined benefit
pension plans (the "United States Plans") covering domestic employees with 1,000
or more hours of service. We fund the actuarially computed retirement cost.
Contributions are intended to not only provide for benefits attributed to
service to date but also for those expected to be earned in the future. We also
sponsor a defined benefit plan in Germany (the "Germany Plan"). The consolidated
accrued net pension expense for the years ended December 31, 1999, 1998 and 1997
includes the following components (in thousands):
1999 1998 1997
------- ------- -------
UNITED STATES PLANS
Service cost -- benefits earned during the period... $ 4,056 $ 3,726 $ 2,299
Interest cost on projected benefit obligation....... 3,659 3,469 1,806
Expected return on assets........................... (3,913) (3,777) (1,886)
Other............................................... 100 (3) 17
------- ------- -------
Total accrued pension expense....................... $ 3,902 $ 3,415 $ 2,236
======= ======= =======
GERMANY PLAN
Service cost -- benefits earned during the period... $ 63 $ 64 $ 58
Interest cost on projected benefit obligation....... 62 66 56
------- ------- -------
Total accrued pension expense....................... $ 125 $ 130 $ 114
======= ======= =======
The following table sets forth the funded status of the United States Plans
and the Germany Plan as of December 31, 1999, 1998 and 1997 and the amounts
recognized in the consolidated balance sheets at those dates (in thousands):
1999 1998 1997
------- ------- -------
UNITED STATES PLANS
Change in benefit obligation:
Obligation at January 1........................... $52,348 $27,025 $ 8,237
Service cost...................................... 4,056 3,726 2,299
Interest cost..................................... 3,659 3,469 1,806
Curtailments...................................... (2,137)
Settlements....................................... 50
Plan amendments................................... 2,340
Actuarial (gain) loss............................. (7,781) 1,333 2,706
Acquisition....................................... 18,264 12,497
Benefits paid..................................... (1,877) (1,722) (520)
------- ------- -------
Obligation at December 31........................... $50,405 $52,348 $27,025
======= ======= =======
F-20
164
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 1998 1997
------- ------- -------
Change in plan assets:
Fair value of assets at January 1................. $44,001 $24,235 $ 8,555
Actual return on plan assets...................... 6,603 3,941 3,688
Acquisition....................................... 16,143 12,296
Employer contributions............................ 563 1,404 216
Benefit payments.................................. (1,877) (1,722) (520)
------- ------- -------
Fair value of plan assets at December 31............ $49,290 $44,001 $24,235
======= ======= =======
Underfunded status at December 31................... $ 1,115 $ 8,347 $ 2,790
Unrecognized net actuarial gain..................... 11,103 641 1,853
Unrecognized prior service cost..................... (1,477) (1,586) (299)
Additional liability................................ 14
------- ------- -------
Accrued long-term pension liability included in
other liabilities................................. $10,741 $ 7,402 $ 4,358
======= ======= =======
For the above calculations, increases in future compensation ranging from
4.0% to 4.25% were used for the non-union plans. There was no increase in future
compensation used for the three union plans. For the calculations, discount
rates ranging from 6.75% to 7.75% and expected rates of return on plan assets of
9.0% were used for all plans.
1999 1998
------- -------
GERMANY PLAN
Change in benefit obligation:
Obligation at January 1........................... $ 1,143 $ 956
Service cost...................................... 63 64
Interest cost..................................... 62 66
Benefits paid..................................... (5) (5)
Change due to exchange rate....................... (173) 62
------- -------
Obligation at December 31........................... $ 1,090 $ 1,143
======= =======
Fair value of plan assets at December 31............ None None
======= =======
Underfunded status at December 31................... $ 1,090 $ 1,143
Unrecognized net actuarial loss..................... 75 81
------- -------
Accrued long-term pension liability included in
other liabilities................................. $ 1,165 $ 1,224
======= =======
Increases in future compensation ranging from 2.0% to 3.5% and discount
rates ranging from 6.0% to 7.0% were used in determining the actuarially
computed present value of the projected benefit obligation of the Germany Plan.
The cash surrender value of life insurance policies for Germany Plan
participants included in other assets is approximately $0.5 million and $0.7
million as of December 31, 1999 and 1998, respectively.
FOREIGN PLANS OTHER THAN GERMANY -- Employees in other foreign countries
are covered by various post employment arrangements consistent with local
practices and regulations. Such obligations are not significant and are included
in the consolidated financial statements in other liabilities.
F-21
165
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER PLANS -- As part of the acquisition of Blessings Corporation (see
Note 12), we assumed two supplemental retirement plans covering certain former
employees of Blessings Corporation. The liability for these plans included in
other liabilities at December 31, 1999 was approximately $1.7 million.
10. REDEEMABLE COMMON STOCK AND STOCK OPTION PLAN
REDEEMABLE COMMON STOCK -- In 1998, our stockholders approved stock
purchase agreements for the purchase of 12,200 shares of Class C nonvoting
common stock by certain officers. The fair market value purchase price was
determined by the Board of Directors to be $100 per share. The shareholders
agreement governing the shares contains various restrictions, including a right
of first refusal and provisions for Huntsman Packaging to purchase any owned
shares from an employee within 180 days after termination of employment. The
stockholders have the right, following three years from the purchase date, to
put any or all of such shares to Huntsman Packaging for repurchase. When there
is a public market for the shares, the redemption value is the average of the
high and low reported sale prices per share for the 20 trading days prior to the
date the put or call option is exercised. When there is no public market for the
shares, the redemption value is the market value of equity, as defined,
determined on the last day of the month preceding the date on which the put or
call option is made. During 1998, we redeemed 500 shares of Class C common stock
from one officer who terminated his employment with us for $100 per share.
During early 1999, we sold 38,411 shares of Class C common stock to certain
officers for $100 per share, the estimated fair market value of the shares on
the date of purchase. Of these 38,411 shares, 26,223 shares are subject to
repurchase rights of Huntsman Packaging (the "Restricted Shares"). The
repurchase rights for 13,117 of the Restricted Shares lapse on a straight-line
basis over a five-year period ending January 1, 2003. The repurchase rights for
13,116 of the Restricted Shares lapse over the same five years, subject to
achievement of certain Huntsman Packaging performance criteria, or if the
performance criteria are not met, on December 31, 2007. All other terms of and
restrictions on the 38,411 shares of Class C common stock sold during 1999 are
the same as the original 12,200 shares of Class C common stock. In 1999, we
redeemed a total of 600 shares of Class C common stock from an officer for $100
per share.
1998 STOCK OPTION PLAN -- In 1998, our stockholders approved the adoption
of the 1998 Huntsman Packaging Corporation Stock Option Plan, which provided for
the granting of options to purchase up to 41,956 shares of Class C nonvoting
common stock to certain officers at the fair market value of the related stock
on the date of grant. All of the options issued under this plan expire on
December 31, 2007. In 1999, we canceled options relating to 26,223 shares and
issued 26,223 Restricted Shares, as described above.
A summary of stock options outstanding at December 31, 1999 and 1998 and
changes during the year then ended is presented below:
NUMBER OF SHARES WEIGHTED AVERAGE
----------------- EXERCISE PRICE
1999 1998 PER SHARE
------- ------ ----------------
Outstanding at beginning of year........... 39,334 $100
Granted.................................. 41,956 100
Forfeited or cancelled................... (28,845) (2,622) 100
------- ------
Outstanding at end of year............... 10,489 39,334 100
======= ======
Exercisable at end of year............... 4,196 3,933 100
======= ======
F-22
166
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, 5,245 of the outstanding options are
performance-based options and 2,098 are exercisable as result of achieving the
performance criteria. The remaining 5,244 options vest in five equal
installments on December 31 of each year. At December 31, 1999, 2098 are
exercisable. All outstanding options have a weighted average remaining
contractual life of approximately 8 years.
ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS -- We apply Accounting
Principles Board Opinion No. 25 and related interpretations in accounting for
stock-based compensation plans as they relate to employees and directors. The
performance-based options require variable plan accounting and we estimate
compensation expense at each reporting period based upon the expected
achievement of the performance criteria and the estimated fair market value of
the common stock. For the year ended December 31, 1999, we recorded compensation
expense of $770,000. All other options require fixed plan accounting and
accordingly, no compensation expense was recognized because the awards were made
at the estimated fair market value of Huntsman Packaging's Class C nonvoting
common stock at the date of grant. Had compensation cost been determined in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," our
income from continuing operations for the years ended December 31, 1999 and 1998
would have changed to the pro forma amounts presented below (in thousands):
1999 1998
------- ------
Income from continuing operations as reported........... $18,311 $2,533
Pro forma income from continuing operations............. 18,978 2,147
Using the Black-Scholes option-pricing model, the weighted average fair
market value of the options was $49 for each share using the following
assumptions for the 1998 grants: dividend yield of 0%, average risk free
interest rate of 6.75% and expected life of 10 years. The estimated fair market
value of the options granted is subject to the assumptions made and if the
assumptions were to change, the estimated fair market value amounts could be
significantly different.
11. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL CONTINGENCIES -- Our operations are subject to extensive
environmental laws and regulations concerning emissions to the air, discharges
to surface and subsurface waters, and the generation, handling, storage,
transportation, treatment, and disposal of waste materials, as adopted by
various governmental authorities in the jurisdictions in which we operate. We
make every reasonable effort to remain in full compliance with existing
governmental laws and regulations concerning the environment. As part of a sale
of a plant site in 1992, we agreed to indemnify environmental losses of up to $5
million which may have been created at the plant site between January 1, 1988
and May 18, 1992. This indemnity expires on May 8, 2002 and reduces ten percent
each year beginning May 12, 1997. We believe that the ultimate liability, if
any, resulting from this indemnification will not be material to our financial
position or results of operations.
ROYALTY AGREEMENTS -- We have entered into royalty agreements (the
"Agreements") for the right to use certain patents in the production of our
Winwrap stretch film. We paid a fee of $450,000 to the patent holder for the
first 2,250,000 pounds of film produced in North America. The Agreements require
us to pay the patent holder a fee of $.10 for each pound of Winwrap produced in
excess of 2,250,000 pounds but less than 37,500,000 pounds and $.05 per pound
for each pound of Winwrap produced in excess of 37,500,000 pounds in North
America. The Agreements require us to pay certain fees to obtain the rights to
sell Winwrap outside of North America. The Agreements also require us to pay
$.075 per pound of Winwrap sold outside of North America. We have the option to
maintain these rights in subsequent years for certain agreed-upon fees. The
Agreements terminate upon the expiration of the related patents in 2009.
F-23
167
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION -- We are subject to litigation and claims arising in the
ordinary course of business. We believe, after consulting with legal counsel,
that any liabilities arising from such litigation and claims will not have a
material adverse effect on our financial position and results of operations.
12. ACQUISITIONS
CT FILM -- On September 30, 1997, we acquired all of the assets of CT Film
(a division of Huntsman Polymers Corporation, formerly Rexene Corporation) and
Rexene Corporation Limited (a wholly owned subsidiary of Huntsman Polymers
Corporation) for approximately $70 million in cash. The acquisition was
accounted for using the purchase method of accounting. Accordingly, results of
operations have been included in the accompanying consolidated financial
statements from the date of acquisition. In connection with the acquisition, we
planned to exit certain of the activities acquired with the purchase of CT Film,
including the film operations at Scunthorpe, UK. During 1998, we sold the
Scunthorpe, UK facility acquired from CT Film and adjusted the fair value
assigned to the Scunthorpe, UK facility accordingly (see Note 3). We recorded
goodwill of approximately $7.8 million in this acquisition, which is being
amortized on a straight-line basis over 40 years.
ELLEHAMMER INDUSTRIES LTD. AND ELLEHAMMER PACKAGING, INC. -- On March 12,
1998, we acquired certain assets and assumed certain liabilities of Ellehammer
Industries Ltd. and Ellehammer Packaging Inc. (collectively, "Ellehammer") for
cash of approximately $7.9 million. The acquisition was accounted for using the
purchase method of accounting. Accordingly, results of operations are included
in the accompanying consolidated financial statements from the date of
acquisition. We did not record any goodwill in this acquisition.
BLESSINGS CORPORATION -- On May 19, 1998, in accordance with an Agreement
and Plan of Merger dated April 1, 1998, we acquired Blessings Corporation
("Blessings") by merging our wholly owned subsidiary, VA Acquisition Corp., with
and into Blessings. Blessings then became our wholly owned subsidiary and
Blessings changed its name to Huntsman Edison Films Corporation. The aggregate
purchase price for Blessings was approximately $270 million (including the
assumption of approximately $57 million of Blessings' existing indebtedness). In
connection with the Blessings Acquisition, we incurred transaction costs of
approximately $17 million. The financing for the Blessings Acquisition was
provided under a $510 million Amended and Restated Credit Agreement (see Note
6). The acquisition was accounted for using the purchase method of accounting.
Accordingly, results of operations are included in the accompanying consolidated
financial statements from the date of acquisition. We recorded goodwill and
intangible assets of approximately $168.7 million in this acquisition, which are
being amortized on a straight-line basis over 10 to 30 years.
KCL CORPORATION -- On October 18, 1999, we acquired certain assets and
assumed certain liabilities of KCL Corporation and subsidiaries for cash of
approximately $11.5 million. The acquisition was accounted for using the
purchase method of accounting. Accordingly, results of operations have been
included in the accompanying consolidated financial statements from the date of
acquisition. We recorded goodwill of approximately $2.7 million, which is being
amortized on a straight-line basis over 10 years.
F-24
168
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Our pro forma results of operations for the years ended December 31, 1999,
1998 and 1997 (assuming the significant acquisitions had occurred as of January
1, 1997) are as follows (in thousands):
1999 1998 1997
-------- -------- --------
Revenues........................................ $781,416 $719,242 $745,998
Income (loss) from continuing operations........ 18,311 (1,267) (14,379)
13. OPERATING SEGMENTS
Operating segments are components of our business for which separate
financial information is available that is evaluated regularly by our chief
operating decision maker in deciding how to allocate resources and in assessing
performance. This information is reported on the basis that it is used
internally for evaluating segment performance.
We have three reportable operating segments: design products, industrial
films and specialty films. The design products segment produces printed
rollstock, bags and sheets used to package products in the food and other
industries. The industrial films segment produces stretch films, used for
industrial unitizing and containerization, and PVC films, used to wrap meat,
cheese and produce. The specialty films segment produces converter films that
are sold to other flexible packaging manufacturers for additional fabrication,
barrier films that contain and protect food and other products, and other films
used in the personal care, medical, agriculture and horticulture industries.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies. Sales and transfers
between our segments are eliminated in consolidation. We evaluate performance of
the operating segments based on profit or loss before income taxes, not
including plant closing costs and other nonrecurring gains or losses. Our
reportable segments are managed separately with separate management teams,
because each segment has differing products, customer requirements, technology
and marketing strategies.
Segment profit or loss and segment assets as of and for the years ended
December 31, 1999, 1998 and 1997 are presented in the following table (in
thousands). Certain reclassifications have been made to be consistent with the
1999 presentation.
DESIGN INDUSTRIAL SPECIALTY CORPORATE/
PRODUCTS FILMS FILMS OTHER TOTAL
-------- ---------- --------- ---------- --------
1999
Net sales to customers........ $175,442 $153,265 $452,709 $781,416
Intersegment sales............ 7,189 3,276 6,149 $(16,614)
Total net sales............... 182,631 156,541 458,858 (16,614) 781,416
Depreciation and
amortization............... 8,095 4,579 19,026 3,319 35,019
Interest expense.............. 3,397 351 13,832 26,448 44,028
Segment profit................ 9,304 16,473 57,564 (48,446) 34,895
Plant closing costs........... 2,497 2,497
Segment total assets.......... 175,924 84,755 446,852 61,492 769,023
Capital expenditures.......... 6,885 6,628 18,779 3,431 35,723
F-25
169
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DESIGN INDUSTRIAL SPECIALTY CORPORATE/
PRODUCTS FILMS FILMS OTHER TOTAL
-------- ---------- --------- ---------- --------
1998
Net sales to customers........ $136,059 $144,736 $371,162 $651,957
Intersegment sales............ 1,671 3,975 1,782 $ (7,428)
Total net sales............... 137,730 148,711 372,944 (7,428) 651,957
Depreciation and
amortization............... 5,096 4,712 13,211 4,069 27,088
Interest expense.............. 2,108 60 10,219 25,132 37,519
Segment profit................ 12,385 11,027 36,106 (43,577) 15,941
Plant closing costs........... (297) 5,172 4,875
Segment total assets.......... 153,385 82,737 435,075 63,075 734,272
Capital expenditures.......... 18,424 5,734 26,174 1,769 52,101
1997
Net sales to customers........ $ 93,386 $175,438 $178,919 $447,743
Intersegment sales............ 1,212 8,338 312 $ (9,862)
Total net sales............... 94,598 183,776 179,231 (9,862) 447,743
Depreciation and
amortization............... 2,044 5,295 3,534 5,569 16,442
Interest expense.............. 8 425 116 16,451 17,000
Segment profit................ 11,332 9,538 19,603 (34,371) 6,102
Plant closing costs........... 9,276 9,276
Segment total assets.......... 54,610 96,484 188,114 30,307 369,515
Capital expenditures.......... 5,445 2,912 5,548 3,956 17,861
A reconciliation of the totals reported for the operating segments to the
totals reported in the consolidated financial statements is as follows (in
thousands):
1999 1998 1997
-------- -------- --------
PROFIT OR LOSS
Total profit for reportable segments............ $ 83,341 $ 59,518 $ 40,473
Plant closing costs............................. (2,497) (4,875) (9,276)
Unallocated amounts:
Corporate expenses............................ (21,998) (18,445) (17,920)
Interest expense.............................. (26,448) (25,132) (16,451)
-------- -------- --------
Income (loss) before taxes and discontinued
operations................................. $ 32,398 $ 11,066 $ (3,174)
======== ======== ========
ASSETS
Total assets for reportable segments............ $707,531 $671,197 $339,208
Intangible assets not allocated to segments..... 16,166 17,080 15,565
Net effect of discontinued operations........... 30,878
Other unallocated assets........................ 45,326 45,995 14,741
-------- -------- --------
Total consolidated assets............. $769,023 $734,272 $400,392
======== ======== ========
F-26
170
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents financial information by country based on the
location of production of the product (in thousands).
1999 1998 1997
-------- -------- --------
NET SALES
United States................................... $659,582 $563,658 $390,793
Mexico.......................................... 56,422 30,201
Canada.......................................... 36,390 25,770 21,355
Other........................................... 29,022 32,328 35,595
-------- -------- --------
Total................................. $781,416 $651,957 $447,743
======== ======== ========
LONG-LIVED ASSETS
United States................................... $476,344 $475,891 $214,964
Mexico.......................................... 55,970 59,085
Canada.......................................... 10,668 5,547 6,033
Other........................................... 5,368 5,226 5,362
-------- -------- --------
Total................................. $548,350 $545,749 $226,359
======== ======== ========
Our sales to Kimberly-Clark Corporation and its affiliates represented
approximately 13% and 11% of consolidated net sales in 1999 and 1998 and less
than 10% of consolidated net sales in 1997. Substantially all of the sales to
Kimberly-Clark are from the specialty films and design products operating
segments. No other customers accounted for more than 10% of consolidated net
sales during 1999, 1998 and 1997.
14. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of a financial instrument is the amount at which
the instrument could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. In the case of cash and
cash equivalents, the carrying amount is considered a reasonable estimate of
fair value. The carrying amount of floating rate debt approximates fair value
because of the floating interest rates associated with such debt. The fair value
of fixed rate debt is estimated by discounting estimated future cash flows
through the projected maturity using market discount rates that reflect the
approximate credit risk, operating cost, and interest rate risk potentially
inherent in fixed rate debt. The estimated fair value of off-balance sheet
instruments is obtained from market quotes representing the estimated amount we
would receive or pay to terminate the contract, taking into account current
interest rates.
Fair value estimates are made at a specific point in time. Because no
market exists for a significant portion of our financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, interest rate levels, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of judgment and
therefore cannot be determined or relied on with any degree of certainty.
Changes in assumptions could significantly affect the estimates.
F-27
171
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Below is a summary of our financial instruments' carrying amounts and
estimated fair values as of December 31, 1999 and 1998 (in thousands):
1999 1998
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
Financial assets -- cash and cash
equivalents....................... $ 9,097 $ 9,097 $ 19,217 $ 19,217
======== ======== ======== ========
Financial liabilities:
Floating rate debt................ $383,054 $383,054 $399,936 $399,936
Fixed rate debt................... 127,328 126,036 125,000 125,000
-------- -------- -------- --------
Total financial liabilities......... $510,382 $509,090 $524,936 $524,936
======== ======== ======== ========
Off-balance sheet instruments:
Interest rate collar.............. $ 69 $ 183 $ 106 $ (214)
Commodity collar.................. None 325 None 80
15. RELATED-PARTY TRANSACTIONS
The accompanying consolidated financial statements include the following
balances and transactions with affiliated companies not disclosed elsewhere for
the years ended December 31, 1999, 1998 and 1997 (in thousands). All
transactions with affiliated companies have been recorded at estimated fair
market values for the related products and services.
1999 1998 1997
------- ------- -------
With Huntsman Corporation and subsidiaries
Inventory purchases............................... $21,124 $27,523 $15,692
Rent expense under operating lease................ 396 392 423
Administrative expenses........................... 2,681 5,599 4,220
Sales of film products............................ 258
With Huntsman Cancer Institute
Charitable contribution......................... 1,000 500
With Huntsman Financial Corporation
Administrative expenses......................... 150 133
ROYALTY TRANSACTION WITH HUNTSMAN GROUP INTELLECTUAL PROPERTIES HOLDING CO.
("HUNTSMAN INTELLECTUAL") -- During 1996, Huntsman Packaging and other
affiliates entered into a royalty agreement (the "Royalty Agreement") with
Huntsman Intellectual whereby we paid Huntsman Intellectual a royalty for the
use of certain trademarks, etc. Huntsman Intellectual was owned by Huntsman
Packaging and certain subsidiaries of Huntsman Corporation ("HC"). During 1997,
we paid royalties of approximately $1.9 million to Huntsman Intellectual.
Huntsman Intellectual recorded a patronage dividend to us of $1.2 million in
1997. The royalty expense is included in administration and other expense. The
dividend is included in other income. Immediately prior to the Split-Off, the
patronage dividend receivable from Huntsman Intellectual at the date of the
Split-Off was settled in full. Huntsman Packaging's ownership of Huntsman
Intellectual and its participation in the Royalty Agreement were terminated. We
no longer use the trademarks or other intellectual property covered under the
Royalty Agreement.
CT FILM EMPLOYEES -- Subsequent to the purchase of CT Film from Huntsman
Polymers Corporation (a subsidiary of HC) ("Huntsman Polymers") (see Note 12),
employees associated with the CT Film operations remained employed by Huntsman
Polymers through December 31, 1997. The total payroll and benefits costs
incurred by Huntsman Polymers from September 30, 1997
F-28
172
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to December 31, 1997 for these employees of approximately $6.2 million was
allocated to us and is included in cost of sales and operating expenses in the
1997 consolidated statement of income. The entire amount was paid to Huntsman
Polymers in 1998.
INSURANCE COVERAGE -- We obtain most of our insurance coverage under
policies of HC. Reimbursement payments to HC are based on premium allocations,
which are determined in cooperation with an independent insurance broker.
ADMINISTRATIVE EXPENSES -- Included in administrative and other expense in
the consolidated statements of income are HC administrative expenses allocated
to us. Prior to the Split-off, these costs represent the estimated portion of
costs incurred by HC to provide services to us. Subsequent to the Split-off,
these costs are for certain administrative services provided to us by HC under a
cancelable services agreement.
OFFICE SPACE -- We are obligated to pay rent calculated as a pro rata
portion (based on our percentage occupancy) of the mortgage principal and
interest payments related to the HC headquarters facility. Payments under this
obligation are included in administrative expenses.
INVESTMENT -- On August 7, 1998, Huntsman Packaging made an offer to the
Board of Directors of Applied Extrusion Technologies, Inc. ("AET"), a publicly
traded company, to purchase all of the outstanding shares of common stock of AET
at $10.50 per share in a merger transaction. AET's Board rejected the offer. On
September 10, 1998, Huntsman Packaging made another offer to the Board of
Directors of AET to purchase all of the outstanding shares of common stock of
AET at $12.50 per share in a merger transaction. On September 14, 1998, HPC
Investment, Inc., a wholly owned subsidiary of Huntsman Packaging, purchased
shares of the common stock of AET from Richard P. Durham, President and Chief
Executive Officer of Huntsman Packaging, for an aggregate purchase price of $3.3
million, in an arms-length transaction approved by the Board of Directors of HPC
Investment, Inc. AET's Board of Directors subsequently rejected Huntsman
Packaging's second offer. At December 31, 1999, we had liquidated our entire
investment in AET stock.
16. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements present, in
separate columns, financial information for (i) Huntsman Packaging Corporation
(on a parent only basis), with its investment in its subsidiaries recorded under
the equity method, (ii) guarantor subsidiaries (as specified in the Indenture
dated September 30, 1997 (the "Indenture") relating to Huntsman Packaging
Corporation's $125 million senior subordinated notes (the "Notes")) on a
combined basis, with any investments in non-guarantor subsidiaries specified in
the Indenture recorded under the equity method, (iii) direct and indirect
non-guarantor subsidiaries on a combined basis, (iv) the eliminations necessary
to arrive at the information for Huntsman Packaging Corporation and its
subsidiaries on a consolidated basis, and (v) Huntsman Packaging Corporation on
a consolidated basis, in each case as of December 31, 1999 and 1998 and for the
years ended December 31, 1999, 1998 and 1997. The Notes are fully and
unconditionally guaranteed on a joint and several basis by each guarantor
subsidiary and each guarantor subsidiary is wholly owned, directly or
indirectly, by Huntsman Packaging Corporation. There are no contractual
restrictions limiting transfers of cash from guarantor and non-guarantor
subsidiaries to Huntsman Packaging Corporation. The condensed consolidating
financial statements are presented herein, rather than separate financial
statements for each of the guarantor subsidiaries, because management believes
that separate financial statements relating to the guarantor subsidiaries are
not material to investors.
On January 1, 1999, two of our guarantor subsidiary companies, Huntsman
Deerfield Films Corporation and Huntsman United Films Corporation, were merged
with and into Huntsman Packaging. Accordingly, these former guarantor subsidiary
companies are now included as part of the "Huntsman Packaging Corporation Parent
Only" column for all periods presented.
F-29
173
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1999
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED COMBINED PACKAGING
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................... $ 1,212 $ 536 $ 7,349 $ 9,097
Receivables................................. 75,053 24,211 23,370 122,634
Inventories................................. 56,646 10,067 11,486 78,199
Prepaid expenses and other.................. 2,127 90 427 2,644
Income taxes receivable..................... 3,486 212 (1,007) 2,691
Deferred income taxes....................... 6,715 426 (1,733) 5,408
-------- -------- -------- --------
Total current assets...................... 145,239 35,542 39,892 220,673
PLANT AND EQUIPMENT, net...................... 184,444 78,649 51,359 314,452
INTANGIBLE ASSETS, net........................ 52,676 143,836 18,444 214,956
INVESTMENT IN SUBSIDIARIES.................... 61,533 $(61,533)
OTHER ASSETS.................................. 16,593 144 2,205 18,942
-------- -------- -------- -------- --------
TOTAL ASSETS.................................. $460,485 $258,171 $111,900 $(61,533) $769,023
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable...................... $ 39,293 $ 9,629 $ 11,134 $ 60,056
Accrued liabilities......................... 25,238 2,833 6,865 34,936
Current portion of long-term debt........... 13,464 3,656 17,120
Due to (from) affiliates.................... (19,737) 17,431 7,021 4,715
-------- -------- -------- --------
Total current liabilities................. 58,258 29,893 28,676 116,827
LONG-TERM DEBT, net of current portion........ 267,107 184,000 42,155 493,262
OTHER LIABILITIES............................. 10,741 1,733 1,509 13,983
DEFERRED INCOME TAXES......................... 30,791 18,465 2,107 51,363
-------- -------- -------- --------
Total liabilities......................... 366,897 234,091 74,447 675,435
-------- -------- -------- --------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK....................... 2,926 2,926
-------- --------
STOCKHOLDERS' EQUITY:
Common stock................................ 63,676 20,377 29,241 $(49,618) 63,676
Retained earnings........................... 32,042 3,696 11,437 (15,133) 32,042
Shareholder note receivable................. (299) (299)
Cumulative foreign currency translation
adjustments............................... (4,757) 7 (3,225) 3,218 (4,757)
-------- -------- -------- -------- --------
Total stockholders' equity................ 90,662 24,080 37,453 (61,533) 90,662
-------- -------- -------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY................................. $460,485 $258,171 $111,900 $(61,533) $769,023
======== ======== ======== ======== ========
F-30
174
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED COMBINED PACKAGING
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
NET SALES..................................... $524,191 $152,464 $121,375 $(16,614) $781,416
COST OF SALES................................. 436,315 110,074 93,663 (16,614) 623,438
-------- -------- -------- -------- --------
GROSS PROFIT.................................. 87,876 42,390 27,712 157,978
TOTAL OPERATING EXPENSES...................... 47,677 18,137 16,173 81,987
-------- -------- -------- --------
OPERATING INCOME.............................. 40,199 24,253 11,539 75,991
INTEREST EXPENSE.............................. (26,502) (13,805) (3,721) (44,028)
EQUITY IN EARNINGS OF SUBSIDIARIES............ 7,747 (7,747)
OTHER INCOME (EXPENSE), net................... (150) 129 456 435
-------- -------- -------- -------- --------
INCOME BEFORE INCOME TAXES.................... 21,294 10,577 8,274 (7,747) 32,398
INCOME TAX EXPENSE............................ 2,983 6,626 4,478 14,087
-------- -------- -------- -------- --------
NET INCOME.................................... $ 18,311 $ 3,951 $ 3,796 $ (7,747) $ 18,311
======== ======== ======== ======== ========
F-31
175
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED COMBINED PACKAGING
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING
ACTIVITIES:.......................... $ 33,629 $ 16,875 $ 949 $ 51,453
-------- -------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets......... 98 1,093 1,191
Payments for acquisitions............ (11,812) 314 (11,498)
Capital expenditures for plant and
equipment......................... (24,302) (6,996) (4,425) (35,723)
-------- -------- ------- --------
Net cash used in investing
activities...................... (36,016) (6,682) (3,332) (46,030)
-------- -------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock............................. 986 986
Payments received from stockholder
note receivable................... 135 135
Principal payments on borrowings..... 4,475 (10,200) (5,725)
Payments on long-term debt........... (9,594) (2,531) (12,125)
-------- -------- ------- --------
Net cash provided by (used in)
financing activities............ (3,998) (10,200) (2,531) (16,729)
-------- -------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS................. 216 18 952 1,186
-------- -------- ------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.......................... (6,169) 11 (3,962) (10,120)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR.......................... 7,381 525 11,311 19,217
-------- -------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF THE
YEAR................................. $ 1,212 $ 536 $ 7,349 $ 9,097
======== ======== ======= ========
F-32
176
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1998
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED COMBINED PACKAGING
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 7,381 $ 525 $ 11,311 $ 19,217
Receivables.......................... 59,667 13,650 16,064 89,381
Inventories.......................... 50,243 5,994 9,655 65,892
Income taxes receivable.............. 4,230 1,868 1,267 7,365
Deferred income taxes................ 4,059 803 (1,257) 3,605
Prepaid expenses and other........... 2,090 680 293 3,063
-------- -------- -------- --------
Total current assets......... 127,670 23,520 37,333 188,523
PLANT AND EQUIPMENT, net............... 173,850 73,589 52,895 300,334
INTANGIBLE ASSETS, net................. 55,142 147,140 19,008 221,290
INVESTMENT IN SUBSIDIARIES............. 42,959 $(42,959)
OTHER ASSETS........................... 17,582 143 6,400 24,125
-------- -------- -------- -------- --------
TOTAL ASSETS........................... $417,203 $244,392 $115,636 $(42,959) $734,272
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable............... $ 26,698 $ 6,760 $ 9,728 $ 43,186
Accrued liabilities.................. 25,064 2,401 6,111 33,576
Current portion of long-term debt.... 8,875 2,531 11,406
Due to (from) affiliates............. (21,224) 18,111 10,113 7,000
-------- -------- -------- --------
Total current liabilities.... 39,413 27,272 28,483 95,168
LONG-TERM DEBT, net of current
portion.............................. 273,519 194,200 45,811 513,530
OTHER LIABILITIES...................... 6,740 3,171 1,483 11,394
DEFERRED INCOME TAXES.................. 25,774 13,658 2,991 42,423
-------- -------- -------- --------
Total liabilities............ 345,446 238,301 78,768 662,515
-------- -------- -------- --------
REDEEMABLE COMMON
STOCK................................ 1,170 1,170
-------- --------
STOCKHOLDERS' EQUITY:
Common stock......................... 63,676 6,357 29,241 $(35,598) 63,676
Retained earnings.................... 13,731 (255) 12,641 (12,386) 13,731
Shareholder note receivable.......... (434) (434)
Foreign currency translation
adjustments....................... (6,386) (11) (5,014) 5,025 (6,386)
-------- -------- -------- -------- --------
Total stockholders' equity... 70,587 6,091 36,868 (42,959) 70,587
-------- -------- -------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY....... $417,203 $244,392 $115,636 $(42,959) $734,272
======== ======== ======== ======== ========
F-33
177
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED COMBINED PACKAGING
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
NET SALES.................................. $486,484 $ 82,132 $90,769 $(7,428) $651,957
COST OF SALES.............................. 403,574 64,520 71,744 (7,428) 532,410
-------- -------- ------- ------- --------
GROSS PROFIT............................... 82,910 17,612 19,025 119,547
TOTAL OPERATING EXPENSES................... 52,948 5,403 11,732 70,083
-------- -------- ------- --------
OPERATING INCOME........................... 29,962 12,209 7,293 49,464
INTEREST EXPENSE........................... (25,206) (10,193) (2,120) (37,519)
EQUITY IN EARNINGS OF SUBSIDIARIES......... 904 (904)
OTHER INCOME (EXPENSE), net................ 1,339 (72) (2,146) (879)
-------- -------- ------- ------- --------
INCOME BEFORE INCOME TAXES AND DISCONTINUED
OPERATIONS............................... 6,999 1,944 3,027 (904) 11,066
INCOME TAX EXPENSE......................... 3,884 2,120 2,529 8,533
-------- -------- ------- ------- --------
INCOME BEFORE DISCONTINUED OPERATIONS...... 3,115 (176) 498 (904) 2,533
INCOME FROM DISCONTINUED OPERATIONS, net of
income taxes............................. 582 582
GAIN ON SALE OF DISCONTINUED OPERATIONS,
net of income taxes...................... 5,223 5,223
-------- -------- ------- ------- --------
NET INCOME................................. $ 8,338 $ (176) $ 1,080 $ (904) $ 8,338
======== ======== ======= ======= ========
F-34
178
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED COMBINED PACKAGING
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:..... $ 11,433 $ 26,603 $ 7,454 $ 45,490
--------- -------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets............ 33,850 33,850
Payments for acquisitions............... (298,274) 97 1,588 (296,589)
Capital expenditures for plant and
equipment............................ (40,154) (3,383) (8,564) (52,101)
--------- -------- ------- ---------
Net cash used in investing
activities.................... (304,578) (3,286) (6,976) (314,840)
--------- -------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock................................ 1,170 1,170
Payments received from stockholder note
receivable........................... 266 266
Principal payments on borrowings........ 12,819 (22,800) (563) (10,544)
Proceeds from issuance of long-term
debt................................. 285,000 285,000
--------- -------- ------- ---------
Net cash provided by (used in)
financing activities.......... 299,255 (22,800) (563) 275,892
--------- -------- ------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS.................... 65 (11) 210 264
--------- -------- ------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS............................. 6,175 506 125 6,806
CASH AND CASH EQUIVALENTS AT BEGINNING OF
THE YEAR................................ 1,206 19 11,186 12,411
--------- -------- ------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE
YEAR.................................... $ 7,381 $ 525 $11,311 $ 19,217
========= ======== ======= =========
F-35
179
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED COMBINED PACKAGING
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
NET SALES.................................. $396,814 $2,117 $58,674 $(9,862) $447,743
COST OF SALES.............................. 349,337 2,012 48,141 (9,862) 389,628
-------- ------ ------- ------- --------
GROSS PROFIT............................... 47,477 105 10,533 58,115
TOTAL OPERATING EXPENSES................... 40,493 128 4,418 45,039
-------- ------ ------- --------
OPERATING INCOME........................... 6,984 (23) 6,115 13,076
INTEREST EXPENSE........................... (16,595) (405) (17,000)
EQUITY IN EARNINGS OF SUBSIDIARIES......... 4,715 (4,715)
OTHER INCOME (EXPENSE), net................ 1,847 (1,097) 750
-------- ------ ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND
DISCONTINUED OPERATIONS.................. (3,049) (23) 4,613 (4,715) (3,174)
INCOME TAX EXPENSE (BENEFIT)............... (3,424) 2,915 (509)
-------- ------ ------- ------- --------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS............................... 375 (23) 1,698 (4,715) (2,665)
INCOME FROM DISCONTINUED OPERATIONS, net of
income taxes............................. 3,040 3,040
-------- ------ ------- ------- --------
NET INCOME................................. $ 375 $ (23) $ 4,738 $(4,715) $ 375
======== ====== ======= ======= ========
F-36
180
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
HUNTSMAN CONSOLIDATED
PACKAGING HUNTSMAN
CORPORATION COMBINED COMBINED PACKAGING
PARENT ONLY GUARANTORS NON-GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- -------------- ------------ ------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:..... $ 21,967 $ 2 $ 6,679 $ 28,648
--------- --- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions............... (69,366) (69,366)
Capital expenditures for plant and
equipment............................ (14,657) (3,204) (17,861)
--------- ------- ---------
Net cash used in investing
activities.................... (84,023) (3,204) (87,227)
--------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings........ (249,509) (249,509)
Proceeds from issuance of long-term
debt................................. 312,700 312,700
Payment of cash dividend................ 1,900 (1,900)
--------- ------- ---------
Net cash provided by (used in)
financing activities.......... 65,091 (1,900) 63,191
--------- ------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS.................... (518) (2,330) (2,848)
--------- ------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. 2,517 2 (755) 1,764
CASH AND CASH EQUIVALENTS AT BEGINNING OF
THE YEAR................................ (1,311) 17 11,941 10,647
--------- --- ------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE
YEAR.................................... $ 1,206 $19 $11,186 $ 12,411
========= === ======= =========
F-37
181
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 AND DECEMBER 31, 1999 (DOLLARS IN THOUSANDS) (UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
--------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 11,217 $ 9,097
Receivables, net of allowances of $1,489 and $2,115,
respectively............................................ 116,869 122,634
Inventories............................................... 88,194 78,199
Prepaid expenses and other................................ 2,074 2,644
Income taxes receivable................................... 8,033 2,691
Deferred income taxes..................................... 7,866 5,408
--------- --------
Total current assets............................... 234,253 220,673
PLANT AND EQUIPMENT, net.................................... 323,654 314,452
INTANGIBLE ASSETS, net...................................... 210,513 214,956
OTHER ASSETS................................................ 30,212 18,942
--------- --------
Total assets....................................... $ 798,632 $769,023
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable.................................... $ 70,654 $ 60,056
Accrued liabilities....................................... 32,702 34,936
Current portion of long-term debt......................... 3,928 17,120
Due to affiliates......................................... 4,715
--------- --------
Total current liabilities.......................... 107,284 116,827
LONG-TERM DEBT, net of current portion...................... 695,067 493,262
OTHER LIABILITIES........................................... 18,498 13,983
DEFERRED INCOME TAXES....................................... 49,856 51,363
--------- --------
Total liabilities.................................. 870,705 675,435
--------- --------
REDEEMABLE COMMON STOCK -- Class C nonvoting, no par value;
60,000 shares authorized; 49,511 shares outstanding, net
of related stockholders' notes receivable of $2,795 in
1999...................................................... 2,926
--------- --------
REDEEMABLE PREFERRED STOCK -- 200,000 shares authorized,
100,000 shares outstanding and designated as Series A, no
par value, with a redemption and liquidation value of
$1,000 per share.......................................... 79,950
--------- --------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock -- Class A voting, no par value; 1,200,000
shares authorized, 1,000,001 shares outstanding in
1999.................................................... 63,161
Common stock -- Class B voting, no par value; 10,000
shares authorized, 6,999 shares outstanding in 1999..... 515
Common stock -- no par value; 10,000,000 shares
authorized, 572,356 shares outstanding.................. 108,141
Warrants.................................................. 26,469
Retained earnings (deficit)............................... (260,797) 32,042
Stockholder's notes receivable............................ (19,019) (299)
Cumulative foreign currency translation adjustment........ (6,817) (4,757)
--------- --------
Total stockholders' equity (deficit)............... (152,023) 90,662
--------- --------
Total liabilities and stockholders' equity
(deficit)........................................ $ 798,632 $769,023
========= ========
See notes to condensed consolidated financial statements.
F-38
182
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
-------- --------
NET SALES................................................... $416,485 $361,236
COST OF SALES............................................... 337,226 284,171
-------- --------
Gross profit.............................................. 79,259 77,065
-------- --------
OPERATING EXPENSES:
Administration and other.................................. 37,590 23,109
Sales and marketing....................................... 13,292 12,487
Research and development.................................. 2,207 2,861
Compensation and transaction costs related to
recapitalization....................................... 6,626
-------- --------
Total operating expenses............................. 59,715 38,457
-------- --------
OPERATING INCOME............................................ 19,544 38,608
INTEREST EXPENSE............................................ (25,848) (21,057)
OTHER EXPENSE -- Net........................................ (158) (191)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY LOSS.... (6,462) 17,360
INCOME TAX PROVISION........................................ 981 7,931
-------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS..................... (7,443) 9,429
EXTRAORDINARY LOSS (net of income taxes).................... (11,250)
-------- --------
NET INCOME (LOSS)........................................... $(18,693) $ 9,429
======== ========
See notes to condensed consolidated financial statements.
F-39
183
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (18,693) $ 9,429
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 19,048 16,893
Deferred income taxes................................. (1,879) 2,865
Provision for losses on accounts receivable........... (626) (928)
Noncash compensation expense.......................... 1,223 270
Loss on sale of assets................................ 474 98
Extraordinary loss.................................... 11,250
Changes in assets and liabilities:
Accounts receivable................................ 6,484 (15,890)
Inventories........................................ (9,995) (14,429)
Prepaid expenses and other......................... 570 1,321
Other assets....................................... 1,277 1,094
Trade accounts payable............................. 10,598 6,665
Accrued liabilities................................ (2,234) (1,262)
Due to affiliates.................................. (4,715) (5,579)
Income taxes payable............................... 147 6,191
Other liabilities.................................. 3,348 1,848
--------- --------
Net cash provided by operating activities.......... 16,277 8,586
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets.............................. 40
Capital expenditures for plant and equipment.............. (25,185) (17,116)
--------- --------
Net cash used in investing activities.............. (25,185) (17,076)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of capitalized loan fees.......................... (21,317)
Payment of fees from tender offer......................... (10,055)
Redemption of common stock................................ (314,034)
Net proceeds from issuance of stock and net change in
related stockholders' notes receivable.................. 161,161 1,139
Principal payments on borrowings.......................... (503,002) (4,625)
Proceeds from issuance of long-term debt.................. 699,508 5,155
--------- --------
Net cash provided by financing activities.......... 12,261 1,669
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (1,233) 768
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 2,120 (6,053)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 9,097 19,217
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 11,217 $ 13,164
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest................................................ $ 23,870 $ 20,754
========= ========
Income taxes............................................ $ (434) $ (2,899)
========= ========
See notes to condensed consolidated financial statements.
F-40
184
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared, without audit, in accordance with U.S. generally accepted accounting
principles and pursuant to the rules and regulations of the Securities and
Exchange Commission. The information reflects all normal recurring adjustments
that, in the opinion of management, are necessary for a fair presentation of the
financial position, results of operations and cash flows of Huntsman Packaging
Corporation and its subsidiaries ("Huntsman Packaging") for the periods
presented. Results of operations for interim periods are not necessarily
indicative of results of operations to be expected for a full fiscal year.
Certain information in footnote disclosures normally included in financial
statements presented in accordance with U.S. generally accepted accounting
principles has been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission.
2. RECAPITALIZATION
On March 31, 2000, we, together with our then existing stockholders,
entered into an agreement (the "Recapitalization Agreement") with Chase Domestic
Investments, L.L.C., a newly formed Delaware limited liability company
("Investor L.L.C."), and an affiliate of Chase Capital Partners ("CCP"), whereby
Investor L.L.C. agreed to acquire majority ownership in our company in a
recapitalization transaction.
Pursuant to the Recapitalization Agreement, we redeemed all of the shares
of our common stock held by Jon M. Huntsman, our founder, then majority
stockholder and then Chairman of the Board (the "Equity Redemption") for
approximately $314.0 million. Investor L.L.C. purchased approximately one-half
of the shares of our common stock held collectively by The Christena Karen H.
Durham Trust (the "Trust") and by members of our senior management (the
"Management Investors") for approximately $101.8 million. Investor L.L.C. and
certain other institutional investors also purchased (the "Investor Common
Equity Contribution") shares of common stock directly from us for approximately
$63.5 million. The Trust and the Management Investors retained approximately
one-half of the shares of our common stock collectively owned by them prior to
the recapitalization. In addition, we issued to Investor L.L.C. and certain
other institutional investors a new series of senior cumulative exchangeable
redeemable preferred stock (the "New Preferred Stock") and detachable warrants
for our common stock (the "New Preferred Stock Warrants") for net consideration
of approximately $98.5 million, of which approximately $80.0 million has been
allocated to the New Preferred Stock and $18.5 million has been allocated to the
New Preferred Stock Warrants, based on the relative fair market values of the
instruments. The foregoing transactions are collectively referred to as the
"Recapitalization." The Recapitalization was consummated on May 31, 2000. The
total consideration paid in the Recapitalization was approximately $1.1 billion,
including transaction costs, and is subject to post-closing purchase price
adjustments.
At June 30, 2000, Investor L.L.C. owned approximately 55.5% of our
outstanding common stock, certain other institutional investors owned
approximately 4.3% of our outstanding common stock, and the Trust and the
Management Investors owned approximately 40.2% of our outstanding common stock.
We incurred $6.6 million of fees and expenses in connection with the
Recapitalization in the six month period ended June 30, 2000. The accounting for
the Recapitalization did not result in changes to the historical cost
presentation of our assets and liabilities.
F-41
185
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
In connection with the Recapitalization, we purchased all of our
outstanding $125.0 million principal amount of 9 1/8% Senior Subordinated Notes
due 2007 (the "9 1/8% Notes") pursuant to a tender offer (the "Tender Offer")
and discharged our obligations under the related indenture.
Upon closing of the Recapitalization, we issued 220,000 Units (the "Units")
consisting of $220.0 million principal amount of 13% Senior Subordinated Notes
due 2010 (the "Notes") and Warrants (the "Note Warrants") to purchase 18,532
shares of common stock. The Senior Subordinated Notes were issued at a discount
of approximately $5.9 million and we allocated approximately $8.0 million to
Note Warrants and approximately $206.1 million to Notes based on the relative
fair market values of each instrument. The discount and the amount allocated to
the Note Warrants are being amortized over the life of the Notes. The Units were
issued in a transaction exempt from the registration requirements under the
Securities Act of 1933. The Notes are unsecured. The Notes are subordinated to
all of our existing and future senior debt, rank equally with any future senior
subordinated debt and rank senior to any future subordinated debt. The Notes are
guaranteed by some of our subsidiaries. The Note Warrants become exercisable on
the occurrence of certain events (which will be no later than November 27, 2000)
and mature on June 1, 2010.
Upon closing of the offering of the Units and the Recapitalization, we
refinanced all amounts outstanding under our prior credit facility (the "Prior
Credit Facility") and replaced the Prior Credit Facility with amended and
restated senior secured credit facilities (the "New Credit Facilities") with The
Chase Manhattan Bank, Bankers Trust Company, The Bank of Nova Scotia and a
syndicate of banking institutions. The New Credit Facilities consist of a $200.0
million senior secured tranche A facility, $40.0 million of which was made
available to our principal Mexican subsidiary (the "Tranche A Facility"), a
$280.0 million senior secured tranche B facility (the "Tranche B Facility") and
a $100.0 million revolving credit facility (the "Revolving Credit Facility").
Included in extraordinary loss is a $5.2 million charge (net of tax) for
the write off of capitalized loan fees associated with the 9 1/8% Notes and the
Prior Credit Facility and a $6.0 million charge (net of tax) for the Tender
Offer payment to the holders of the 9 1/8% Notes.
Long-term debt outstanding as of June 30, 2000 consists of the following
(amounts in thousands):
New Credit Facilities:
Tranche A Facility........................................ $200,000
Tranche B Facility........................................ 280,000
Revolving Credit Facility................................. 7,000
Notes (net of original issue discount and Note Warrants
being amortized of $5,920 and $7,919, respectively)....... 206,161
Line of credit.............................................. 3,537
Obligations under capital leases............................ 439
Insurance obligations....................................... 1,858
--------
Total....................................................... 698,995
Less current portion........................................ (3,928)
--------
Long-term portion........................................... $695,067
========
F-42
186
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
3. INVENTORIES
Inventories are recorded at the lower of cost (on a first-in, first-out
basis) or market value. Inventories as of June 30, 2000 and December 31, 1999
consisted of the following (in thousands):
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
Finished goods.............................................. $50,437 $41,408
Raw materials............................................... 30,165 28,910
Work-in-process............................................. 7,592 7,881
------- -------
Total....................................................... $88,194 $78,199
======= =======
4. COMPREHENSIVE INCOME
The following table reports comprehensive income (loss) for the six months
ended June 30, 2000 and 1999 (in thousands).
SIX MONTHS ENDED
JUNE 30,
------------------
2000 1999
-------- ------
Net income (loss)........................................... $(18,693) $9,429
Foreign currency translation adjustments.................... (2,060) 460
-------- ------
Comprehensive income (loss)................................. $(20,753) $9,889
======== ======
5. OTHER EXPENSE
During 1999, we held investments in marketable securities that were
designated as trading securities. For the six months ended June 30, 1999,
unrealized gains (losses) of approximately $(0.2) million on these investments
are included in other income (expense), net. We liquidated our position in the
trading securities in the fourth quarter of 1999.
6. OPERATING SEGMENTS
Operating segments are components of our company for which separate
financial information is available that is evaluated regularly by our chief
operating decision maker in deciding how to allocate resources and in assessing
performance. This information is reported on the same basis that is used
internally for evaluating segment performance.
We have three reportable operating segments: specialty films, design
products and industrial films. The specialty films segment produces converter
films that are sold to other flexible packaging manufacturers for additional
fabrication, barrier films used to package and protect food and other products,
and other films used in the personal care, medical and agriculture industries.
The design products segment produces printed rollstock, bags and sheets used to
package products in the food and other industries. The industrial films segment
produces stretch films, used for industrial unitizing and containerization, and
PVC films, used to wrap meat, cheese and produce.
Sales and transfers between our segments are eliminated in consolidation.
We evaluate performance of the operating segments based on profit or loss before
income taxes, not including nonrecurring gains or losses. Our reportable
segments are managed separately with separate management teams, because each
segment has different products, customer requirements, technology and marketing
strategies.
F-43
187
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
Segment profit or loss and segment assets as of and for the six months
ended June 30, 2000 and 1999 are presented in the following table (in
thousands):
DESIGN INDUSTRIAL SPECIALTY CORPORATE/
PRODUCTS FILMS FILMS OTHER TOTAL
-------- ---------- --------- ---------- --------
2000
Net sales to customers................... $102,319 $80,800 $233,366 $416,485
Intersegment sales....................... 2,777 2,722 4,173 $ (9,672)
-------- ------- -------- -------- --------
Total net sales.......................... 105,096 83,522 237,539 (9,672) 416,485
Depreciation and amortization............ 4,437 2,509 10,327 1,775 19,048
Interest expense......................... 1,779 174 7,877 16,018 25,848
Segment profit........................... 6,515 9,126 21,892 (37,369) 164
Compensation and transaction costs
related to recapitalization............ 6,626 6,626
Segment total assets..................... 178,783 90,055 452,966 76,828 798,632
Capital expenditures..................... 4,204 5,532 11,495 3,954 25,185
1999
Net sales to customers................... $ 78,483 $71,281 $211,472 $361,236
Intersegment sales....................... 2,475 840 2,558 $ (5,873)
-------- ------- -------- -------- --------
Total net sales.......................... 80,958 72,121 214,030 (5,873) 361,236
Depreciation and amortization............ 3,851 2,269 9,265 1,508 16,893
Interest expense......................... 1,578 174 6,779 12,526 21,057
Segment profit........................... 4,001 8,707 28,174 (23,522) 17,360
Segment total assets..................... 155,115 90,655 446,669 58,192 750,631
Capital expenditures..................... 3,985 3,394 7,891 1,846 17,116
A reconciliation of the totals reported for the operating segments to our
totals reported in the consolidated condensed financial statements is as follows
(in thousands):
2000 1999
-------- --------
PROFIT OR LOSS
Total profit for reportable segments........................ $ 37,533 $ 40,882
Unallocated amounts:
Corporate expenses........................................ (21,351) (10,996)
Interest expense.......................................... (16,018) (12,526)
Compensation and transaction costs related to
recapitalization....................................... (6,626)
-------- --------
Income (loss) before taxes and extraordinary loss......... $ (6,462) $ 17,360
======== ========
AS OF JUNE 30,
--------------------
2000 1999
ASSETS -------- --------
Total assets for reportable segments........................ $721,804 $692,439
Intangible assets not allocated to segments................. 15,511 16,822
Other unallocated assets.................................... 61,317 41,370
-------- --------
Total consolidated assets......................... $798,632 $750,631
======== ========
F-44
188
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
7. REDEEMABLE COMMON STOCK AND STOCK OPTIONS
During 1998, our board of directors adopted the 1998 Huntsman Packaging
Corporation Stock Option Plan. The 1998 plan authorized grants of nonqualified
stock options covering up to 41,956 shares of our nonvoting Class C common
stock. During 1998, we granted options covering a total of 41,956 shares under
the 1998 plan. Options covering 5,244 shares were subsequently canceled. In
addition, outstanding options covering 26,223 shares under the 1998 plan were
canceled on February 22, 1999 in connection with the sale of 26,223 shares of
Class C common stock to certain members of our senior management. Options
covering a total of 8,902 shares issued under the 1998 plan were "rolled-over"
in the Recapitalization.
Pursuant to the Recapitalization, we adopted a 2000 stock-based incentive
compensation plan. The 2000 plan became effective as of the consummation of the
Recapitalization and authorizes grants to our management employees as designated
by the compensation committee of our board of directors of nonqualified stock
options or restricted stock covering 51,010 shares of our common stock. As of
June 30, 2000, we had granted restricted stock covering 32,750 shares of common
stock and options to acquire 10,030 shares of common stock. The options or
restricted common stock will vest as follows: (1) one-sixth are "time-vested"
options or shares, which will vest on January 1, 2001, so long as the recipient
is still our employee on such date, and (2) the remainder are "performance
vested" options or shares, which will vest in equal increments over a five-year
period commencing on December 31, 2000 as follows: (a) vesting in full, if 100%
or more of the applicable target market value of equity is achieved as of the
end of the applicable calendar year and (b) partial vesting if more than 90% of
the applicable target market value of equity is achieved as of the end of the
applicable calendar year. Moreover, all performance vested options or shares not
previously vested in accordance with the preceding sentence will vest
automatically in full on December 31, 2009 so long as the recipient is still our
employee on such date.
8. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
The following condensed consolidating financial statements present, in
separate columns, financial information for (i) Huntsman Packaging (on a parent
only basis), with its investment in its subsidiaries recorded under the equity
method, (ii) guarantor subsidiaries (as specified in the Indenture, dated May
31, 2000 (the "Indenture") relating to Huntsman Packaging's $220 million senior
subordinated notes due 2010 (the "Notes")) on a combined basis, with any
investments in non-guarantor subsidiaries specified in the Indenture recorded
under the equity method, (iii) direct and indirect non-guarantor subsidiaries on
a combined basis, (iv) the eliminations necessary to arrive at the information
for Huntsman Packaging and its subsidiaries on a consolidated basis, and (v)
Huntsman Packaging on a consolidated basis, in each case as of June 30, 2000 and
December 31, 1999 and for the six months ended June 30, 2000 and 1999. The Notes
are fully and unconditionally guaranteed on a joint and several basis by each
guarantor subsidiary and each guarantor subsidiary is wholly owned, directly or
indirectly, by Huntsman Packaging. There are no contractual restrictions
limiting transfers of cash from guarantor and non-guarantor subsidiaries to
Huntsman Packaging. The consolidating condensed financial statements are
presented herein, rather than separate financial statements for each of the
guarantor subsidiaries, because management believes that separate financial
statements relating to the guarantor subsidiaries are not material to investors.
F-45
189
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JUNE 30, 2000 (IN THOUSANDS) (UNAUDITED)
HUNTSMAN COMBINED CONSOLIDATED
PACKAGING COMBINED NON- HUNTSMAN
CORPORATION GUARANTOR GUARANTOR PACKAGING
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
----------- ------------ ------------ ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 212 $ (20) $ 11,025 $ 11,217
Receivables, net................... 72,408 27,004 17,457 116,869
Inventories........................ 62,710 16,686 8,798 88,194
Prepaid expenses and other......... 1,582 113 379 2,074
Income taxes receivable............ 8,063 136 (166) 8,033
Deferred income taxes.............. 9,115 426 (1,675) 7,866
--------- -------- -------- ---------
Total current assets........ 154,090 44,345 35,818 234,253
PLANT AND EQUIPMENT, net............. 196,547 82,990 44,117 323,654
INTANGIBLE ASSETS, net............... 51,466 141,027 18,020 210,513
INVESTMENT IN SUBSIDIARIES........... 65,454 $(65,454)
OTHER ASSETS......................... 27,846 144 2,222 30,212
--------- -------- -------- -------- ---------
TOTAL ASSETS......................... $ 495,403 $268,506 $100,177 $(65,454) $ 798,632
========= ======== ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable............. $ 47,102 $ 12,487 $ 11,065 $ 70,654
Accrued liabilities................ 24,348 2,810 5,544 32,702
Current portion of long-term
debt............................. 3,928 3,928
Due to affiliates.................. (19,920) 22,448 (2,528)
--------- -------- -------- ---------
Total current liabilities... 55,458 37,745 14,081 107,284
LONG-TERM DEBT, net of current
portion............................ 467,163 184,000 43,904 695,067
OTHER LIABILITIES.................... 15,497 1,531 1,470 18,498
DEFERRED INCOME TAXES................ 29,358 18,465 2,033 49,856
--------- -------- -------- ---------
Total liabilities........... 567,476 241,741 61,488 870,705
--------- -------- -------- ---------
REDEEMABLE PREFERRED STOCK........... 79,950 79,950
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock....................... 108,141 20,377 29,241 $(49,618) 108,141
Warrants........................... 26,469 26,469
Retained earnings (deficit)........ (260,797) 6,399 14,708 (21,107) (260,797)
Stockholder note receivable........ (19,019) (19,019)
Foreign currency translation
adjustments...................... (6,817) (11) (5,260) 5,271 (6,817)
--------- -------- -------- -------- ---------
Total stockholders' equity
(deficit)................. (152,023) 26,765 38,689 (65,454) (152,023)
--------- -------- -------- -------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)................... $ 495,403 $268,506 $100,177 $(65,454) $ 798,632
========= ======== ======== ======== =========
F-46
190
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1999 (IN THOUSANDS) (UNAUDITED)
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED HUNTSMAN
CORPORATION COMBINED NON- PACKAGING
PARENT ONLY GUARANTORS GUARANTORS ELIMINATIONS CORPORATION
----------- ---------- ---------- ------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 1,212 $ 536 $ 7,349 $ 9,097
Receivables, net................... 75,053 27,238 20,343 122,634
Inventories........................ 56,646 13,560 7,993 78,199
Prepaid expenses and other......... 2,127 101 416 2,644
Income taxes receivable............ 3,486 212 (1,007) 2,691
Deferred income taxes.............. 6,715 426 (1,733) 5,408
-------- -------- -------- --------
Total current assets....... 145,239 42,073 33,361 220,673
PLANT AND EQUIPMENT, net............. 184,444 83,742 46,266 314,452
INTANGIBLE ASSETS, net............... 52,676 143,836 18,444 214,956
INVESTMENT IN SUBSIDIARIES........... 61,533 $(61,533)
OTHER ASSETS......................... 16,593... 144 2,205 18,942
-------- -------- -------- -------- --------
TOTAL ASSETS......................... 4$60,485.. $269,795 $100,276 $(61,533) $769,023
======== ======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Trade accounts payable............. $ 39,293 $ 10,780 $ 9,983 $ 60,056
Accrued liabilities................ 25,238 3,468 6,230 34,936
Current portion of long-term
debt............................ 13,464 3,656 17,120
Due to (from) affiliates........... (19,737) 27,781 (3,329) 4,715
-------- -------- -------- --------
Total current
liabilities.............. 58,258 42,029 16,540 116,827
LONG-TERM DEBT, net of current
portion............................ 267,107 184,000 42,155 493,262
OTHER LIABILITIES.................... 10,741 1,733 1,509 13,983
DEFERRED INCOME TAXES................ 30,791 18,465 2,107 51,363
-------- -------- -------- --------
Total liabilities.......... 366,897 246,227 62,311 675,435
-------- -------- -------- --------
REDEEMABLE COMMON STOCK.............. 2,926 2,926
-------- --------
STOCKHOLDERS' EQUITY:
Common stock....................... 63,676 20,377 29,241 $(49,618) 63,676
Retained earnings.................. 32,042 3,184 11,949 (15,133) 32,042
Shareholder note receivable........ (299) (299)
Cumulative foreign currency
translation adjustment.......... (4,757) 7 (3,225) 3,218 (4,757)
-------- -------- -------- -------- --------
Total stockholders'
equity................... 90,662 23,568 37,965 (61,533) 90,662
-------- -------- -------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................. $460,485 $269,795 $100,276 $(61,533) $769,023
======== ======== ======== ======== ========
F-47
191
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS) (UNAUDITED)
HUNTSMAN COMBINED CONSOLIDATED
PACKAGING COMBINED NON- HUNTSMAN
CORPORATION GUARANTOR GUARANTOR PACKAGING
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
----------- ------------ ------------ ------------ ------------
NET SALES.......................... $270,911 $101,946 $53,300 $(9,672) $416,485
COST OF SALES...................... 226,911 79,103 40,884 (9,672) 337,226
-------- -------- ------- ------- --------
Gross profit............. 44,000 22,843 12,416 79,259
OPERATING EXPENSES................. 46,714 7,279 5,722 59,715
-------- -------- ------- ------- --------
OPERATING INCOME (LOSS)............ (2,714) 15,564 6,694 19,544
INTEREST EXPENSE................... (16,029) (7,863) (1,956) (25,848)
EQUITY IN EARNINGS OF
SUBSIDIARIES..................... 6,224 (6,224)
OTHER INCOME (EXPENSE), net........ (343) (411) 596 (158)
-------- -------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS........... (12,862) 7,290 5,334 (6,224) (6,462)
INCOME TAX PROVISION (BENEFIT)..... (5,419) 4,075 2,325 981
-------- -------- ------- ------- --------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS............... (7,443) 3,215 3,009 (6,224) (7,443)
EXTRAORDINARY LOSS (NET OF TAX).... (11,250) (11,250)
-------- -------- ------- ------- --------
NET INCOME (LOSS).................. $(18,693) $ 3,215 $ 3,009 $(6,224) $(18,693)
======== ======== ======= ======= ========
F-48
192
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS) (UNAUDITED)
HUNTSMAN COMBINED CONSOLIDATED
PACKAGING COMBINED NON- HUNTSMAN
CORPORATION GUARANTOR GUARANTOR PACKAGING
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
----------- ------------ ------------ ------------ ------------
NET SALES.......................... $246,149 $72,853 $48,107 $(5,873) $361,236
COST OF SALES...................... 201,446 52,558 36,040 (5,873) 284,171
-------- ------- ------- ------- --------
Gross profit............. 44,703 20,295 12,067 77,065
OPERATING EXPENSES................. 28,340 5,369 4,748 38,457
-------- ------- ------- --------
OPERATING INCOME................... 16,363 14,926 7,319 38,608
INTEREST EXPENSE................... (12,539) (6,761) (1,757) (21,057)
EQUITY IN EARNINGS OF
SUBSIDIARIES..................... 7,632 (7,632)
OTHER INCOME (EXPENSE), net........ (430) (12) 251 (191)
-------- ------- ------- ------- --------
INCOME BEFORE INCOME TAXES......... 11,026 8,153 5,813 (7,632) 17,360
INCOME TAX PROVISION............... 1,597 4,115 2,219 7,931
-------- ------- ------- ------- --------
NET INCOME......................... $ 9,429 $ 4,038 $ 3,594 $(7,632) $ 9,429
======== ======= ======= ======= ========
F-49
193
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS) (UNAUDITED)
HUNTSMAN CONSOLIDATED
PACKAGING COMBINED COMBINED HUNTSMAN
CORPORATION GUARANTOR NON-GUARANTOR PACKAGING
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
----------- ------------ -------------- ------------ ------------
CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES......... $ 5,178 $ 3,026 $ 8,073 $ 16,277
--------- ------- ------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures for
plant and equipment....... (19,876) (3,564) (1,745) (25,185)
--------- ------- ------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payment of capitalized loan
fees...................... (21,317) (21,317)
Payment of fees from tender
offer..................... (10,055) (10,055)
Redemption of common stock... (314,034) (314,034)
Proceeds from issuance of
common stock and net
change in related
stockholders' notes
receivable................ 161,161 161,161
Proceeds from issuance
(payments) of long-term
debt...................... 198,413 (1,907) 196,506
--------- ------- ------- ---------
Net cash provided by (used
in) financing
activities.............. 14,168 (1,907) 12,261
--------- ------- ------- ---------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH
EQUIVALENTS.................. (470) (18) (745) (1,233)
--------- ------- ------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS......... (1,000) (556) 3,676 2,120
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD...... 1,212 536 7,349 9,097
--------- ------- ------- ---------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD............ $ 212 $ (20) $11,025 $ 11,217
========= ======= ======= =========
F-50
194
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS) (UNAUDITED)
HUNTSMAN COMBINED CONSOLIDATED
PACKAGING COMBINED NON- HUNTSMAN
CORPORATION GUARANTOR GUARANTOR PACKAGING
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CORPORATION
----------- ------------ -------------- ------------ ------------
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES........... $ (4,412) $11,399 $ 1,599 $ 8,586
-------- ------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of assets... 32 8 40
Capital expenditures for plant
and equipment............... (12,546) (3,085) (1,485) (17,116)
-------- ------- ------- --------
Net cash used in investing
activities................ (12,514) (3,077) (1,485) (17,076)
-------- ------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
common stock................ 1,139 1,139
Proceeds from issuance
(payments) of long-term
debt........................ 10,454 (8,800) (1,124) 530
-------- ------- ------- --------
Net cash provided by (used
in) financing
activities................ 11,593 (8,800) (1,124) 1,669
-------- ------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS... 27 741 768
-------- ------- ------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS.................... (5,306) (478) (269) (6,053)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD........ 7,381 525 11,311 19,217
-------- ------- ------- --------
CASH AND CASH EQUIVALENTS AT END
OF THE PERIOD.................. $ 2,075 $ 47 $11,042 $ 13,164
======== ======= ======= ========
F-51
195
[HUNTSMAN PACKAGING LOGO]
$220,000,000
HUNTSMAN PACKAGING CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING
13% SENIOR SUBORDINATED NOTES DUE 2010
FOR 13% SENIOR SUBORDINATED NOTES DUE 2010,
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933
196
[ALTERNATIVE FRONT COVER FOR MARKET-MAKING PROSPECTUS]
Prospectus
[HUNTSMAN PACKAGING LOGO]
HUNTSMAN PACKAGING CORPORATION
13% SENIOR SUBORDINATED NOTES DUE 2010
We issued the 13% Senior Subordinated Notes due 2010 (the "New Notes") which
have been registered under the Securities Act of 1933 in exchange for our 13%
Senior Subordinated Notes due 2010 in our exchange offer.
MATURITY
- - The Notes will mature on June 1, 2010.
INTEREST
- - Interest on the Notes will be payable on June 1 and December 1 of each year,
beginning December 1, 2000.
REDEMPTION
- - We may redeem some or all of the Notes at any time on or after June 1, 2005.
- - We may also redeem up to $77,000,000 of the Notes using the proceeds of
certain equity offerings completed before June 1, 2003.
- - The redemption prices are described on page .
CHANGE OF CONTROL
- - If we experience a change of control, we must offer to purchase the Notes.
SECURITY AND RANKING
- - The Notes are unsecured. The Notes are subordinated to all of our existing
and future senior debt, rank equally with all of our other senior
subordinated debt and rank senior to all of our future subordinated debt.
GUARANTEES
- - If we fail to make payments on the Notes, our guarantor subsidiaries must
make them instead. These guarantees are senior subordinated obligations of
our guarantor subsidiaries. Not all of our subsidiaries guarantee the Notes.
We prepared this prospectus for use by Chase Securities Inc. ("CSI") in
connection with offers and sales related to market-making transactions of the
New Notes. CSI may act as principal or agent in these transactions. These sales
will be made at prices related to prevailing market prices at the time of sale.
We will not receive any of the proceeds of these sales.
-------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE OF THIS
PROSPECTUS IN EVALUATING AN INVESTMENT IN THE NEW NOTES.
-------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------
CHASE SECURITIES INC.
-------------------------
The date of this prospectus is August 29, 2000
197
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
TRADING MARKET FOR THE NEW NOTES -- YOU CANNOT BE SURE THAT AN ACTIVE TRADING
MARKET WILL DEVELOP FOR THE NEW NOTES.
We do not intend to apply for a listing of the New Notes on a securities
exchange or any automated dealer quotation system. We have been advised by CSI
that as of the date of this prospectus CSI intends to make a market in the New
Notes. CSI is not obligated to do so, however, and any market-making activities
with respect to the New Notes may be discontinued at any time without notice. In
addition, such market-making activity will be subject to limits imposed by the
Securities Act and the Exchange Act. Because CSI is our affiliate, CSI is
required to deliver a current "market-making" prospectus and otherwise comply
with the registration requirements of the Securities Act in any secondary market
sale of the New Notes. Accordingly, the ability of CSI to make a market in the
New Notes may, in part, depend on our ability to maintain a current market-
making prospectus.
The liquidity of the trading market in the New Notes, and the market price
quoted for the New Notes, may be adversely affected by changes in the overall
market for high yield securities and by changes in our financial performance or
prospects or in the prospects for companies in our industry generally. As a
result, you cannot be sure that an active trading market will develop for the
New Notes.
198
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the New Notes
by CSI in market-making transactions. We will not receive any of the proceeds
from these transactions.
199
[ALTERNATIVE SECTION FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This prospectus has been prepared for use by CSI in connection with offers
and sales of the New Notes in market-making transactions effected from time to
time. CSI may act as a principal or agent in these transactions, including as
agent for the counterparty when acting as principal or as agent for both
parties, and may receive compensation in the form of discounts and commissions,
including from both counterparties when it acts as agent for both. These sales
will be made at prevailing market prices at the time of sale, at prices related
thereto or at negotiated prices. We will not receive any of the proceeds of
these sales. We have agreed to indemnify CSI against certain liabilities,
including liabilities under the Securities Act, and to contribute payments which
CSI might be required to make in respect thereof.
As of August 25, 2000, Chase Domestic Investments, L.L.C., an affiliate of
CSI, beneficially owned approximately 55% of our common stock. See "Security
Ownership of Certain Beneficial Owners and Management." CSI has informed us that
it does not intend to confirm sales of the New Notes to any accounts over which
it exercises discretionary authority without the prior specific written approval
of these transactions by the customer.
We have been advised by CSI that, subject to applicable laws and
regulations, CSI currently intends to make a market in the New Notes following
completion of the exchange offer. However, CSI is not obligated to do so and any
such market-making may be interrupted or discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act. There can be no assurance
that an active trading market will develop or be sustained. See "Risk Factors
- -- Trading Market for the New Notes."
200
[ALTERNATIVE BACK COVER FOR MARKET-MAKING PROSPECTUS]
[HUNTSMAN PACKAGING LOGO]
HUNTSMAN PACKAGING CORPORATION
$220,000,000 PRINCIPAL AMOUNT OF
13% SENIOR SUBORDINATED NOTES DUE 2010
CHASE SECURITIES INC.
201
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article IV of Huntsman Packaging Corporation's Third Amended and Restated
Articles of Incorporation provides that Huntsman Packaging Corporation shall
indemnify and advance expenses to its directors and officers and to any person
who is or was serving at its request as a director or officer of another
domestic or foreign corporation (and their respective estates or personal
representatives) to the fullest extent as from time to time permitted by Utah
law. In addition, pursuant to Article IV of the Third Amended and Restated
Articles of Incorporation, the personal liability of the directors and officers
of Huntsman Packaging Corporation to Huntsman Packaging Corporation or its
shareholders, or to any third person, is eliminated or limited to the fullest
extent as from time to time permitted by Utah law. Sections 16-10a-902 and
16-10a-907 of the Utah Revised Business Corporation Act provide that a
corporation may indemnify its directors and officers who are made parties to a
legal proceeding because of their positions with the corporation against
liability incurred in the proceeding if the individual's conduct was in good
faith, the individual reasonably believed that his conduct was in, or not
opposed to, the corporation's best interests, and in the case of a criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. Under
the Utah Revised Business Corporation Act, Huntsman Packaging Corporation may
not indemnify its directors or officers in connection with a proceeding by, or
in the right of, Huntsman Packaging Corporation in which the individual was
adjudged liable to it or in any proceeding in which the individual was adjudged
liable on the basis that he derived an improper personal benefit.
As authorized by Section16-10a-841(1) of the Utah Revised Business
Corporation Act, the Amended and Restated Bylaws of Huntsman Packaging
Corporation provide that Huntsman Packaging Corporation's directors shall not be
personally liable to Huntsman Packaging Corporation or its shareholders for
monetary damages for any action taken or any failure to take any action, as a
director, except liability for: (a) the amount of a financial benefit received
by a director to which he or she is not entitled; (b) an intentional infliction
of harm on Huntsman Packaging Corporation or its shareholders; (c) a violation
of Section 16-10a-842 of the Utah Revised Business Corporation Act for unlawful
distributions; or (d) an intentional violation of criminal law. The Amended and
Restated Bylaws also provide for indemnification of Huntsman Packaging
Corporation's director and officers and advancement of their expenses to the
fullest extent as from time to time permitted by applicable law, including,
without limitation, Section 16-10a-902 of the Utah Revised Business Corporation
Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
2.1 Recapitalization Agreement, dated as of March 31, 2000 (the
"Recapitalization Agreement"), among Huntsman Packaging
Corporation, Chase Domestic Investments, L.L.C., Richard P.
Durham as Representative, and the shareholders of Huntsman
Packaging Corporation signatory thereto (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K
filed by Huntsman Packaging Corporation on April 12, 2000).
2.2* Amendment No. 1, dated as of April 3, 2000, to the
Recapitalization Agreement.
2.3* Amendment No. 2, dated as of May 31, 2000, to the
Recapitalization Agreement.
3.1* Third Amended and Restated Articles of Incorporation of
Huntsman Packaging Corporation.
II-1
202
3.2 Certificate of Incorporation of Edison Plastics
International, Inc.
3.3 Articles of Incorporation of Huntsman Bulk Packaging
Corporation (incorporated by reference to Exhibit 3.17 to
Huntsman Packaging Corporation's Registration Statement on
Form S-4 (File No. 333-40067)).
3.4 Articles of Incorporation of Huntsman Container Corporation
International (incorporated by reference to Exhibit 3.14 to
Huntsman Packaging Corporation's Registration Statement on
Form S-4 (File No. 333-40067)).
3.5 Certificate of Incorporation of Huntsman Edison Films
Corporation.
3.6 Articles of Incorporation of Huntsman Film Products of
Mexico, Inc. (incorporated by reference to Exhibit 3.16 to
Huntsman Packaging Corporation's Registration Statement on
Form S-4 (File No. 333-40067)).
3.7 Articles of Incorporation of Huntsman KCL Corporation.
3.8 Articles of Incorporation of Huntsman Packaging Georgia,
Inc. (incorporated by reference to Exhibit 3.15 to Huntsman
Packaging Corporation's Registration Statement on Form S-4
(File No. 333-40067)).
3.9 Articles of Organization of Huntsman Packaging of Canada,
LLC.
3.10* Amended and Restated Bylaws of Huntsman Packaging
Corporation.
3.11 Bylaws of Edison Plastics International, Inc.
3.12 Bylaws of Huntsman Bulk Packaging Corporation (incorporated
by reference to Exhibit 3.27 to Huntsman Packaging
Corporation's Registration Statement on Form S-4 (File No.
333-40067)).
3.13 Bylaws of Huntsman Container Corporation International
(incorporated by reference to Exhibit 3.24 to Huntsman
Packaging Corporation's Registration Statement on Form S-4
(File No. 333-40067)).
3.14 Bylaws of Huntsman Edison Films Corporation.
3.15 Bylaws of Huntsman Film Products of Mexico, Inc.
(incorporated by reference to Exhibit 3.26 to Huntsman
Packaging Corporation's Registration Statement on Form S-4
(File No. 333-40067)).
3.16 Bylaws of Huntsman KCL Corporation.
3.17 Bylaws of Huntsman Packaging Georgia, Inc. (incorporated by
reference to Exhibit 3.25 to Huntsman Packaging
Corporation's Registration Statement on Form S-4 (File No.
333-40067)).
3.18 Operating Agreement of Huntsman Packaging of Canada, LLC.
4.1* Indenture, dated as of May 31, 2000, among Huntsman
Packaging Corporation, the Note Guarantors party thereto and
The Bank of New York, as trustee.
4.2* Form of New Note (included as Exhibit B to Exhibit 4.1).
4.3* Exchange and Registration Rights Agreement, dated as of May
31, 2000, among Huntsman Packaging Corporation, the Note
Guarantors party thereto, and Chase Securities Inc. and
Deutsche Bank Securities Inc., as Initial Purchasers.
5.1 Opinion of Stoel Rives LLP.
5.2 Opinion of O'Sullivan Graev & Karabell, LLP.
10.1* Note Warrant Agreement, dated as of May 31, 2000, among
Huntsman Packaging Corporation and The Bank of New York, as
Warrant Agent, relating to the 220,000 Note Warrants.
II-2
203
10.2* Stockholders' Agreement, dated as of May 31, 2000, among
Huntsman Packaging Corporation, Chase Domestic Investments,
L.L.C. and each of the stockholders and warrantholders
listed on the signature pages thereto.
10.3* Registration Rights Agreement, dated as of May 31, 2000
(the"Registration Rights Agreement"), among Huntsman
Packaging Corporation, Chase Domestic Investments, L.L.C.
and each of the stockholders and warrantholders listed on
the signature pages thereto.
10.4* Amendment No. 1, dated as of June 13, 2000, to the
Registration Rights Agreement.
10.5* Securities Purchase Agreement, dated as of May 31, 2000,
between Huntsman Packaging Corporation and each of the
purchasers of Huntsman Packaging Corporation's preferred
stock listed on the signature pages thereto.
10.6* Warrant Agreement, dated as of May 31, 2000, between
Huntsman Packaging Corporation and Chase Domestic
Investments, L.L.C.
10.7* Credit Agreement, dated as of September 30, 1997, as amended
and restated as of May 31, 2000, among Huntsman Packaging
Corporation, the subsidiary guarantors party thereto, the
various lenders from time to time party thereto (the
"Lenders"), Bankers Trust Company, as Administrative Agent
and Collateral Agent, and The Chase Manhattan Bank, as
Syndication Agent, and The Bank of Nova Scotia, as the
Documentation Agent.
10.8* Guarantee Agreement, dated as of September 30, 1997, as
amended and restated as of May 31, 2000, among the
subsidiary guarantors party thereto and Bankers Trust
Company, as Collateral Agent.
10.9* Security Agreement, dated as of September 30, 1997, as
amended and restated as of May 31, 2000, among the
subsidiary guarantors party thereto and Bankers Trust
Company, as Collateral Agent.
10.10* Pledge Agreement, dated as of September 30, 1997, as amended
and restated as of May 31, 2000, among the subsidiary
guarantors party thereto and Bankers Trust Company, as
Collateral Agent.
10.11* Indemnity, Subrogation and Contribution Agreement, dated as
of September 30, 1997, as amended and restated as of May 31,
2000, among the subsidiary guarantors party thereto and
Bankers Trust Company, as Collateral Agent.
10.12* Employment Agreement, dated as of May 31, 2000, between
Huntsman Packaging Corporation and Richard P. Durham.
10.13* Employment Agreement, dated as of May 31, 2000, between
Huntsman Packaging Corporation and Jack E. Knott.
10.14* Employment Agreement, dated as of May 31, 2000, between
Huntsman Packaging Corporation and Scott K. Sorensen.
10.15* Employment Agreement, dated as of May 31, 2000, between
Huntsman Packaging Corporation and Ronald G. Moffitt.
10.16* Restricted Stock Agreement, dated as of May 31, 2000,
between Huntsman Packaging Corporation and Richard P.
Durham.
10.17* Restricted Stock Agreement, dated as of May 31, 2000,
between Huntsman Packaging Corporation and Jack E. Knott.
10.18* Restricted Stock Agreement, dated as of May 31, 2000,
between Huntsman Packaging Corporation and Scott K.
Sorensen.
10.19* Restricted Stock Agreement, dated as of May 31, 2000,
between Huntsman Packaging Corporation and Ronald G.
Moffitt.
II-3
204
10.20* Pledge Agreement, dated as of May 31, 2000, in favor of Huntsman Packaging Corporation made by Richard P.
Durham.
10.21* Pledge Agreement, dated as of May 31, 2000, in favor of Huntsman Packaging Corporation made by Jack E.
Knott.
10.22* Pledge Agreement, dated as of May 31, 2000, in favor of Huntsman Packaging Corporation made by Scott K.
Sorensen.
10.23* Pledge Agreement, dated as of May 31, 2000, in favor of Huntsman Packaging Corporation made by Ronald G.
Moffitt.
10.24 1998 Huntsman Packaging Corporation Stock Option Plan (incorporated by reference to Exhibit 10.10 to
Huntsman Packaging Corporation's Annual Report on Form 10-K for the year ended December 31, 1998).
10.25 Huntsman Packaging Corporation Management Incentive Plan for Senior Divisional Management (1999)
(incorporated by reference to Exhibit 10.1 to Huntsman Packaging Corporation's Quarterly Report on Form
10-Q for the quarter ended March 31, 2000).
10.26* Huntsman Packaging Corporation 2000 Stock Incentive Plan.
10.27* Second Amended and Restated Stock Option Agreement, dated as of May 31, 2000 between Huntsman Packaging
Corporation and Jack E. Knott.
10.28 Huntsman Packaging Corporation Management Incentive Plan (2000) (incorporated by reference to Exhibit 10.2
to Huntsman Packaging Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000).
12.1 Statement re: computation of ratios of earning to fixed charges.
21.1* Subsidiaries of the Registrants.
23.1 Consent of Stoel Rives LLP (included in Exhibit 5.1).
23.2 Consent of O'Sullivan Graev & Karabell, LLP (included in Exhibit 5.2).
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Deloitte & Touche LLP.
24.1* Powers of Attorney (included on the signature pages).
25.1* Form T-1 Statement of Eligibility and Qualifications under the Trust Indenture Act of 1939 of The Bank of
New York, as Trustee.
27.1 Financial Data Schedule.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
99.4* Form of Letter to Clients.
- -------------------------
* Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts for the years ended
December 31, 1999, 1998 and 1997.
Schedules other than the above have been omitted because they are either
not applicable or the required information has been disclosed in the financial
statements or notes thereto.
II-4
205
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the forgoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
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 Registrants 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 Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrants hereby undertake:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
206
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, in the
State of Utah, on the 28th day of August, 2000.
HUNTSMAN PACKAGING CORPORATION
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
Chairman of the Board of
Directors,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM Chairman of the Board of Directors, August 28, 2000
- ------------------------------------------ President and Chief Executive Officer
Richard P. Durham (Principal Executive Officer)
/s/ SCOTT K. SORENSEN Executive Vice President and Chief August 28, 2000
- ------------------------------------------ Financial Officer (Principal Financial
Scott K. Sorensen and Accounting Officer), Treasurer,
Director
* Director August 28, 2000
- ------------------------------------------
Jack E. Knott
* Director August 28, 2000
- ------------------------------------------
Donald J. Hofmann, Jr.
* Director August 28, 2000
- ------------------------------------------
Timothy J. Walsh
* Director August 28, 2000
- ------------------------------------------
John M.B. O'Connor
* Director August 28, 2000
- ------------------------------------------
Richard D. Waters
*By: /s/ RONALD G. MOFFITT
------------------------------------
Ronald G. Moffitt
Attorney-in-Fact
II-6
207
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, in the
State of Utah, on the 28th day of August, 2000.
EDISON PLASTICS INTERNATIONAL, INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM President and Chief Executive Officer August 28, 2000
- ------------------------------------------ (Principal Executive Officer), Sole
Richard P. Durham Director
/s/ SCOTT K. SORENSEN Executive Vice President and Chief August 28, 2000
- ------------------------------------------ Financial Officer, Treasurer (Principal
Scott K. Sorensen Financial and Accounting Officer)
II-7
208
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, in the
State of Utah, on the 28th day of August, 2000.
HUNTSMAN BULK PACKAGING CORPORATION
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM President and Chief Executive Officer August 28, 2000
- ------------------------------------------ (Principal Executive Officer), Director
Richard P. Durham
/s/ SCOTT K. SORENSEN Executive Vice President and Chief August 28, 2000
- ------------------------------------------ Financial Officer (Principal Financial
Scott K. Sorensen and Accounting Officer), Treasurer,
Director
/s/ RONALD G. MOFFITT Director August 28, 2000
- ------------------------------------------
Ronald G. Moffitt
II-8
209
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, in the
State of Utah, on the 28th day of August, 2000.
HUNTSMAN CONTAINER CORPORATION
INTERNATIONAL
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM President and Chief Executive Officer August 28, 2000
- ------------------------------------------ (Principal Executive Officer), Director
Richard P. Durham
/s/ SCOTT K. SORENSEN Executive Vice President and Chief August 28, 2000
- ------------------------------------------ Financial Officer (Principal Financial
Scott K. Sorensen and Accounting Officer), Treasurer,
Director
/s/ RONALD G. MOFFITT Director August 28, 2000
- ------------------------------------------
Ronald G. Moffitt
II-9
210
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, in the
State of Utah, on the 28th day of August, 2000.
HUNTSMAN EDISON FILMS CORPORATION
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM President and Chief Executive Officer August 28, 2000
- ------------------------------------------ (Principal Executive Officer), Sole
Richard P. Durham Director
/s/ SCOTT K. SORENSEN Executive Vice President and Chief August 28, 2000
- ------------------------------------------ Financial Officer (Principal Financial
Scott K. Sorensen and Accounting Officer), Treasurer
II-10
211
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, in the
State of Utah, on the 28th day of August, 2000.
HUNTSMAN FILM PRODUCTS OF MEXICO, INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM President and Chief Executive Officer August 28, 2000
- ------------------------------------------ (Principal Executive Officer), Director
Richard P. Durham
/s/ SCOTT K. SORENSEN Executive Vice President and Chief August 28, 2000
- ------------------------------------------ Financial Officer (Principal Financial
Scott K. Sorensen and Accounting Officer), Treasurer,
Director
/s/ RONALD G. MOFFITT Director August 28, 2000
- ------------------------------------------
Ronald G. Moffitt
II-11
212
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, in the
State of Utah, on the 28th day of August, 2000.
HUNTSMAN KCL CORPORATION
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM President (Principal Executive August 28, 2000
- ------------------------------------------ Officer), Director
Richard P. Durham
/s/ SCOTT K. SORENSEN Executive Vice President (Principal August 28, 2000
- ------------------------------------------ Financial and Accounting Officer),
Scott K. Sorensen Treasurer, Director
/s/ RONALD G. MOFFITT Director August 28, 2000
- ------------------------------------------
Ronald G. Moffitt
II-12
213
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, in the
State of Utah, on the 28th day of August, 2000.
HUNTSMAN PACKAGING GEORGIA, INC.
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM President (Principal Executive August 28, 2000
- ------------------------------------------ Officer), Director
Richard P. Durham
/s/ SCOTT K. SORENSEN Executive Vice President and August 28, 2000
- ------------------------------------------ Chief Financial Officer
Scott K. Sorensen (Principal Financial Officer)
* Controller, Treasurer (Principal August 28, 2000
- ------------------------------------------ Accounting Officer), Director
Daren G. Cottle
/s/ RONALD G. MOFFITT Director August 28, 2000
- ------------------------------------------
Ronald G. Moffitt
*By: /s/ RONALD G. MOFFITT
------------------------------------
Ronald G. Moffitt
Attorney-in-Fact
II-13
214
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Salt Lake City, in the
State of Utah, on the 28th day of August, 2000.
HUNTSMAN PACKAGING OF CANADA, LLC
By: /s/ RICHARD P. DURHAM
------------------------------------
Richard P. Durham
President
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities indicated on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ RICHARD P. DURHAM President (Principal Executive August 28, 2000
- ------------------------------------------ Officer), Manager
Richard P. Durham
/s/ SCOTT K. SORENSEN Vice President (Principal Financial and August 28, 2000
- ------------------------------------------ Accounting Officer), Manager
Scott K. Sorensen
* Manager August 28, 2000
- ------------------------------------------
Jack E. Knott
/s/ RONALD G. MOFFITT Manager August 28, 2000
- ------------------------------------------
Ronald G. Moffitt
* Manager August 28, 2000
- ------------------------------------------
Daren G. Cottle
*By: /s/ RONALD G. MOFFITT
------------------------------------
Ronald G. Moffitt
Attorney-in-Fact
II-14
215
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Huntsman Packaging Corporation:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Huntsman Packaging
Corporation and subsidiaries as of December 31, 1999 and 1998 and for the years
then ended, included in this registration statement, and have issued our report
thereon dated January 28, 2000. Our audit was made for the purpose of forming an
opinion on the basic financial statements taken as a whole. Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. Schedule II for the years ended December 31,
1999 and 1998 has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Salt Lake City, Utah
January 28, 2000
S-1
216
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Huntsman Packaging Corporation and Subsidiaries:
We have audited the financial statements of Huntsman Packaging Corporation
and Subsidiaries for the year ended December 31, 1997, and have issued our
report thereon dated February 11, 1998 (included elsewhere in this Registration
Statement). Our audit also included the financial statement schedule listed in
Item 21(b) of this Registration Statement. This financial statement schedule is
the responsibility of the Corporation's management. Our responsibility is to
express an opinion based on our audit. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 11, 1998
S-2
217
HUNTSMAN PACKAGING CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO CASH BALANCE AT
BEGINNING COSTS AND PAYMENTS END
DESCRIPTION OF YEAR EXPENSES MADE OTHER OF YEAR
----------- ---------- ---------- -------- ------------ ----------
ACCUMULATED AMORTIZATION OF INTANGIBLE
ASSETS:
1999.............................. $22,630 $ 9,046 $ -- $ (60)(2) $31,616
1998.............................. 16,819 6,125 -- (314)(2) 22,630
1997.............................. 13,771 3,058 -- (10)(2) 16,819
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
1999.............................. $ 2,570 $ 518 $ -- $ (973)(1) $ 2,115
1998.............................. 3,257 -- -- (687)(1) 2,570
1997.............................. 2,641 241 -- 375(1) 3,257
PLANT CLOSING ACCRUAL:
1999.............................. $ 2,600 $ 2,500 $(1,500) $ 1,200(3) $ 4,800
1998.............................. 1,800 3,900 (3,100) -- 2,600
1997.............................. 2,300 1,800 (2,300) -- 1,800
- ---------------
(1) Represents the net of accounts written off against the allowance and
recoveries of previous write-offs.
(2) Relates to write-down of goodwill.
(3) Represents accruals charged to goodwill.
S-3
218
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT
- ------- -------
2.1 Recapitalization Agreement, dated as of March 31, 2000 (the
"Recapitalization Agreement"), among Huntsman Packaging
Corporation, Chase Domestic Investments, L.L.C., Richard P.
Durham as Representative, and the shareholders of Huntsman
Packaging Corporation signatory thereto (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K
filed by Huntsman Packaging Corporation on April 12, 2000).
2.2* Amendment No. 1, dated as of April 3, 2000, to the
Recapitalization Agreement.
2.3* Amendment No. 2, dated as of May 31, 2000, to the
Recapitalization Agreement.
3.1* Third Amended and Restated Articles of Incorporation of
Huntsman Packaging Corporation.
3.2 Certificate of Incorporation of Edison Plastics
International, Inc.
3.3 Articles of Incorporation of Huntsman Bulk Packaging
Corporation (incorporated by reference to Exhibit 3.17 to
Huntsman Packaging Corporation's Registration Statement on
Form S-4 (File No. 333-40067)).
3.4 Articles of Incorporation of Huntsman Container Corporation
International (incorporated by reference to Exhibit 3.14 to
Huntsman Packaging Corporation's Registration Statement on
Form S-4 (File No. 333-40067)).
3.5 Certificate of Incorporation of Huntsman Edison Films
Corporation.
3.6 Articles of Incorporation of Huntsman Film Products of
Mexico, Inc. (incorporated by reference to Exhibit 3.16 to
Huntsman Packaging Corporation's Registration Statement on
Form S-4 (File No. 333-40067)).
3.7 Articles of Incorporation of Huntsman KCL Corporation.
3.8 Articles of Incorporation of Huntsman Packaging Georgia,
Inc. (incorporated by reference to Exhibit 3.15 to Huntsman
Packaging Corporation's Registration Statement on Form S-4
(File No. 333-40067)).
3.9 Articles of Organization of Huntsman Packaging of Canada,
LLC.
3.10* Amended and Restated Bylaws of Huntsman Packaging
Corporation.
3.11 Bylaws of Edison Plastics International, Inc.
3.12 Bylaws of Huntsman Bulk Packaging Corporation (incorporated
by reference to Exhibit 3.27 to Huntsman Packaging
Corporation's Registration Statement on Form S-4 (File No.
333-40067)).
3.13 Bylaws of Huntsman Container Corporation International
(incorporated by reference to Exhibit 3.24 to Huntsman
Packaging Corporation's Registration Statement on Form S-4
(File No. 333-40067)).
3.14 Bylaws of Huntsman Edison Films Corporation.
3.15 Bylaws of Huntsman Film Products of Mexico, Inc.
(incorporated by reference to Exhibit 3.26 to Huntsman
Packaging Corporation's Registration Statement on Form S-4
(File No. 333-40067)).
3.16 Bylaws of Huntsman KCL Corporation.
3.17 Bylaws of Huntsman Packaging Georgia, Inc. (incorporated by
reference to Exhibit 3.25 to Huntsman Packaging
Corporation's Registration Statement on Form S-4 (File No.
333-40067)).
3.18 Operating Agreement of Huntsman Packaging of Canada, LLC.
4.1* Indenture, dated as of May 31, 2000, among Huntsman
Packaging Corporation, the Note Guarantors party thereto and
The Bank of New York, as trustee.
4.2* Form of New Note (included as Exhibit B to Exhibit 4.1).
219
EXHIBIT
NUMBER EXHIBIT
- ------- -------
4.3* Exchange and Registration Rights Agreement, dated as of May
31, 2000, among Huntsman Packaging Corporation, the Note
Guarantors party thereto, and Chase Securities Inc. and
Deutsche Bank Securities Inc., as Initial Purchasers.
5.1 Opinion of Stoel Rives LLP.
5.2 Opinion of O'Sullivan Graev & Karabell, LLP.
10.1* Note Warrant Agreement, dated as of May 31, 2000, among
Huntsman Packaging Corporation and The Bank of New York, as
Warrant Agent, relating to the 220,000 Note Warrants.
10.2* Stockholders' Agreement, dated as of May 31, 2000, among
Huntsman Packaging Corporation, Chase Domestic Investments,
L.L.C. and each of the stockholders and warrantholders
listed on the signature pages thereto.
10.3* Registration Rights Agreement, dated as of May 31, 2000 (the
"Registration Rights Agreement"), among Huntsman Packaging
Corporation, Chase Domestic Investments, L.L.C. and each of
the stockholders and warrantholders listed on the signature
pages thereto.
10.4* Amendment No. 1, dated as of June 13, 2000, to the
Registration Rights Agreement.
10.5* Securities Purchase Agreement, dated as of May 31, 2000,
between Huntsman Packaging Corporation and each of the
purchasers of Huntsman Packaging Corporation's preferred
stock listed on the signature pages thereto.
10.6* Warrant Agreement, dated as of May 31, 2000, between
Huntsman Packaging Corporation and Chase Domestic
Investments, L.L.C.
10.7* Credit Agreement, dated as of September 30, 1997, as amended
and restated as of May 31, 2000, among Huntsman Packaging
Corporation, the subsidiary guarantors party thereto, the
various lenders from time to time party thereto (the
"Lenders"), Bankers Trust Company, as Administrative Agent
and Collateral Agent, and The Chase Manhattan Bank, as
Syndication Agent, and The Bank of Nova Scotia, as the
Documentation Agent.
10.8* Guarantee Agreement, dated as of September 30, 1997, as
amended and restated as of May 31, 2000, among the
subsidiary guarantors party thereto and Bankers Trust
Company, as Collateral Agent.
10.9* Security Agreement, dated as of September 30, 1997, as
amended and restated as of May 31, 2000, among the
subsidiary guarantors party thereto and Bankers Trust
Company, as Collateral Agent.
10.10* Pledge Agreement, dated as of September 30, 1997, as amended
and restated as of May 31, 2000, among the subsidiary
guarantors party thereto and Bankers Trust Company, as
Collateral Agent.
10.11* Indemnity, Subrogation and Contribution Agreement, dated as
of September 30, 1997, as amended and restated as of May 31,
2000, among the subsidiary guarantors party thereto and
Bankers Trust Company, as Collateral Agent.
10.12* Employment Agreement, dated as of May 31, 2000, between
Huntsman Packaging Corporation and Richard P. Durham.
10.13* Employment Agreement, dated as of May 31, 2000, between
Huntsman Packaging Corporation and Jack E. Knott.
10.14* Employment Agreement, dated as of May 31, 2000, between
Huntsman Packaging Corporation and Scott K. Sorensen.
10.15* Employment Agreement, dated as of May 31, 2000, between
Huntsman Packaging Corporation and Ronald G. Moffitt.
10.16* Restricted Stock Agreement, dated as of May 31, 2000,
between Huntsman Packaging Corporation and Richard P.
Durham.
10.17* Restricted Stock Agreement, dated as of May 31, 2000,
between Huntsman Packaging Corporation and Jack E. Knott.
220
EXHIBIT
NUMBER EXHIBIT
- ------- -------
10.18* Restricted Stock Agreement, dated as of May 31, 2000,
between Huntsman Packaging Corporation and Scott K.
Sorensen.
10.19* Restricted Stock Agreement, dated as of May 31, 2000,
between Huntsman Packaging Corporation and Ronald G.
Moffitt.
10.20* Pledge Agreement, dated as of May 31, 2000, in favor of
Huntsman Packaging Corporation made by Richard P. Durham.
10.21* Pledge Agreement, dated as of May 31, 2000, in favor of
Huntsman Packaging Corporation made by Jack E. Knott.
10.22* Pledge Agreement, dated as of May 31, 2000, in favor of
Huntsman Packaging Corporation made by Scott K. Sorensen.
10.23* Pledge Agreement, dated as of May 31, 2000, in favor of
Huntsman Packaging Corporation made by Ronald G. Moffitt.
10.24 1998 Huntsman Packaging Corporation Stock Option Plan
(incorporated by reference to Exhibit 10.10 to Huntsman
Packaging Corporation's Annual Report on Form 10-K for the
year ended December 31, 1998).
10.25 Huntsman Packaging Corporation Management Incentive Plan for
Senior Divisional Management (1999) (incorporated by
reference to Exhibit 10.1 to Huntsman Packaging
Corporation's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000).
10.26* Huntsman Packaging Corporation 2000 Stock Incentive Plan.
10.27* Second Amended and Restated Stock Option Agreement, dated as
of May 31, 2000 between Huntsman Packaging Corporation and
Jack E. Knott.
10.28 Huntsman Packaging Corporation Management Incentive Plan
(2000) (incorporated by reference to Exhibit 10.2 to
Huntsman Packaging Corporation's Quarterly Report on Form
10-Q for the quarter ended March 31, 2000).
12.1 Statement re: computation of ratios of earning to fixed
charges.
21.1* Subsidiaries of the Registrants.
23.1 Consent of Stoel Rives LLP (included in Exhibit 5.1).
23.2 Consent of O'Sullivan Graev & Karabell, LLP (included in
Exhibit 5.2).
23.3 Consent of Arthur Andersen LLP.
23.4 Consent of Deloitte & Touche LLP.
24.1* Powers of Attorney (included on the signature pages).
25.1* Form T-1 Statement of Eligibility and Qualifications under
the Trust Indenture Act of 1939 of The Bank of New York, as
Trustee.
27.1 Financial Data Schedule.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
99.3* Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
99.4* Form of Letter to Clients.
- -------------------------
* Previously filed.